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As filed with the Securities and Exchange Commission on June 28, 2005 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549
  
 FORM 20-F  
 (Mark One) o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE
ACT OF 1934
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2004 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from ___to ___ Commission file number 0-28578 DASSAULT SYSTEMES  France
(Jurisdiction of incorporation or organization) 9, Quai Marcel Dassault
B.P. 310, 92156 Suresnes Cedex, France
(33-1) 40-99-40-99
(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class:
    
    Name of each exchange on which registered:American Depositary shares, each
representing one common share, nominal
value 1 per share
    
    The Nasdaq National MarketCommon Stock, nominal value 1 per share
    
    The Nasdaq National Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act:None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report: Common Stock, nominal value 1 per share as of December 31, 2004: 113,786,411 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: Yes þ                    No o Indicate by check mark which financial statement item the Registrant has elected to follow: Item 17 o                    Item 18 þ




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TABLE OF CONTENTS  
 PART I
    
    
    1Item 1:
    
    Identity of Directors, Senior Management and Advisers
    
    
    1Item 2:
    
    Offer Statistics and Expected Timetable
    
    
    1Item 3:
    
    Key Information
    
    
    1Item 4:
    
    Information on the Company
    
    
    11Item 5:
    
    Operating and Financial Review and Prospects
    
    
    32Item 6:
    
    Directors, Senior Management and Employees
    
    
    59Item 7:
    
    Major Shareholders and Related Party Transactions
    
    
    71Item 8:
    
    Financial Information
    
    
    73Item 9:
    
    The Offer and Listing
    
    
    75Item 10:
    
    Additional Information
    
    
    78Item 11:
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    92Item 12:
    
    Description of Securities Other than Equity Securities
    
    
    94PART II
    
    
    95Item 13:
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    95Item 14:
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    95Item 15:
    
    Controls and Procedures
    
    
    95Item 16:
    
    [RESERVED]
    
    
    95Item 16A:
    
    Audit Committee Financial Expert
    
    
    95Item 16B:
    
    Code of Ethics
    
    
    95Item 16C:
    
    Principal Accountants Fees and Services
    
    
    95Item 16D:
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    96Item 16E:
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    97PART III
    
    
    98Item 17:
    
    Financial Statements
    
    
    98Item 18:
    
    Financial Statements
    
    
    98Item 19:
    
    Exhibits
    
    
    98EX-1.1EX-4.A.1EX-4.A.2EX-4.A.3EX-4.A.4EX-4.A.5EX-12.1EX-12.2EX-13.1EX-14.A




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##### Table of Contents



Introduction The companies and brands we discuss in this report include: Companies
    
    Main BrandsDassault Systèmes, which refers to Dassault Systèmes and its subsidiaries
    
    CATIADelmia, which refers to Delmia Corp. and its subsidiaries, Delmia GmbH,
Safework Inc., and Athys
    
    DELMIAEnovia, which refers to Enovia Corp.
    
    ENOVIASmarTeam, which refers to SmarTeam Corporation Ltd. and its subsidiaries
    
    SMARTEAMSolidWorks, which refers to SolidWorks Corporation and its subsidiaries
    
    SolidWorksSpatial Corp., which refers to Spatial Corp. and its subsidiaries
    
    ACISSRAC, which refers to Structural Research & Analysis Corporation and its
subsidiaries
    
    CosmosWorks and DesignStar




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##### Table of Contents



PART I 
 Item 1: Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2: Offer Statistics and Expected Timetable Not applicable. 
 Item 3: Key Information A. Selected Financial Data. The following selected consolidated financial data with respect to each of the years in the
five-year period ended December 31, 2004 are derived from our consolidated financial statements
prepared in accordance with U.S. generally accepted accounting principles. Year ended December 31,2004(1)
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions, except per share data and percentages)Consolidated Statement of Income DataRevenue:(2)Software revenue(3)
    
    $
    811.0
    
    
    
    670.9
    
    
    
    645.6
    
    
    
    669.9
    
    
    
    643.0
    
    
    
    541.7Service and other revenue
    
    
    151.9
    
    
    
    125.7
    
    
    
    109.2
    
    
    
    104.2
    
    
    
    103.1
    
    
    
    90.7Total revenue
    
    
    962.9
    
    
    
    796.6
    
    
    
    754.8
    
    
    
    774.1
    
    
    
    746.1
    
    
    
    632.4Cost of revenue:Software
    
    
    (26.2
    )
    
    
    (21.7
    )
    
    
    (21.7
    )
    
    
    (24.4
    )
    
    
    (20.8
    )
    
    
    (14.9
    )Service and other
    
    
    (122.0
    )
    
    
    (101.0
    )
    
    
    (89.7
    )
    
    
    (96.4
    )
    
    
    (86.6
    )
    
    
    (75.8
    )Total cost of revenue
    
    
    (148.3
    )
    
    
    (122.7
    )
    
    
    (111.4
    )
    
    
    (120.8
    )
    
    
    (107.4
    )
    
    
    (90.7
    )Gross profit
    
    
    814.6
    
    
    
    673.9
    
    
    
    643.4
    
    
    
    653.3
    
    
    
    638.7
    
    
    
    541.7Research, selling and administrative
expenses:Research and development
    
    
    (268.2
    )
    
    
    (221.9
    )
    
    
    (215.6
    )
    
    
    (221.6
    )
    
    
    (209.2
    )
    
    
    (169.8
    )Marketing and sales
    
    
    (209.9
    )
    
    
    (173.7
    )
    
    
    (162.4
    )
    
    
    (169.7
    )
    
    
    (164.3
    )
    
    
    (117.5
    )General and administration
    
    
    (56.9
    )
    
    
    (47.1
    )
    
    
    (46.8
    )
    
    
    (47.9
    )
    
    
    (44.2
    )
    
    
    (35.4
    )Amortization of goodwill
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    (44.2
    )
    
    
    (29.5
    )Amortization of acquired technology and
in-process research and development
write-offs
    
    
    (1.7
    )
    
    
    (1.4
    )
    
    
    (5.9
    )
    
    
    (11.1
    )
    
    
    (14.2
    )
    
    
    (10.7
    )Total research, selling and administrative
expenses
    
    
    (536.8
    )
    
    
    (444.1
    )
    
    
    (430.7
    )
    
    
    (450.3
    )
    
    
    (476.1
    )
    
    
    (362.9
    )Operating income
    
    
    277.7
    
    
    
    229.8
    
    
    
    212.7
    
    
    
    203.0
    
    
    
    162.6
    
    
    
    178.8As a percentage of total revenue
    
    
    28.8
    %
    
    
    28.8
    %
    
    
    28.2
    %
    
    
    26.2
    %
    
    
    21.8
    %
    
    
    28.3
    %Financial revenue and other, net
    
    
    9.1
    
    
    
    7.5
    
    
    
    (0.4
    )
    
    
    2.8
    
    
    
    14.1
    
    
    
    11.0Income before income taxes
    
    
    286.8
    
    
    
    237.3
    
    
    
    212.3
    
    
    
    205.8
    
    
    
    176.7
    
    
    
    189.8Income tax expense
    
    
    (97.7
    )
    
    
    (80.9
    )
    
    
    (76.9
    )
    
    
    (79.4
    )
    
    
    (88.0
    )
    
    
    (86.1
    )Net income
    
    $
    189.1
    
    
    
    156.4
    
    
    
    135.4
    
    
    
    126.4
    
    
    
    88.7
    
    
    
    103.7As a percentage of total revenue
    
    
    19.6
    %
    
    
    19.6
    %
    
    
    17.9
    %
    
    
    16.3
    %
    
    
    11.9
    %
    
    
    16.4
    %Basic net income per share
    
    $
    1.66
    
    
    
    1.38
    
    
    
    1.20
    
    
    
    1.11
    
    
    
    0.78
    
    
    
    0.92Diluted net income per share
    
    $
    1.63
    
    
    
    1.35
    
    
    
    1.18
    
    
    
    1.09
    
    
    
    0.76
    
    
    
    0.87Weighted average number of shares outstanding
    
    
    116.2
    
    
    
    116.2
    
    
    
    114.7
    
    
    
    114.1
    
    
    
    113.7
    
    
    
    113.0Dividends per share(7)
    
    $
    0.46
    
    
    
    0.38
    
    
    
    0.34
    
    
    
    0.33
    
    
    
    0.33
    
    
    
    0.31
 1




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##### Table of Contents



Year ended December 31,2004(1)
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions, except per share data)Supplemental Statement of
Income Data: Financial
information excluding
amortization of intangibles
incurred in business
combinations(4)Operating income
    
    $
    279.4
    
    
    
    231.2
    
    
    
    218.6
    
    
    
    214.1
    
    
    
    221.0
    
    
    
    218.9Net income
    
    
    190.5
    
    
    
    157.6
    
    
    
    140.4
    
    
    
    136.0
    
    
    
    144.0
    
    
    
    139.2Diluted net income per share
    
    
    1.64
    
    
    
    1.36
    
    
    
    1.22
    
    
    
    1.17
    
    
    
    1.23
    
    
    
    1.17
 December 31,2004(1)
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions)Consolidated Balance Sheet DataCash, cash equivalents and short-term investments
    
    $
    668.2
    
    
    
    552.8
    
    
    
    439.7
    
    
    
    388.4
    
    
    
    369.2
    
    
    
    274.2Net working capital(5)
    
    
    714.6
    
    
    
    591.2
    
    
    
    505.1
    
    
    
    472.6
    
    
    
    411.5
    
    
    
    319.2Total assets
    
    
    1,328.7
    
    
    
    1,099.2
    
    
    
    964.5
    
    
    
    920.2
    
    
    
    831.4
    
    
    
    733.6Long-term and short-term debt
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Long-term obligations and current portion of
long-term obligations(6)
    
    
    62.3
    
    
    
    51.6
    
    
    
    55.1
    
    
    
    50.4
    
    
    
    47.2
    
    
    
    52.8Capital stock
    
    
    137.6
    
    
    
    113.8
    
    
    
    113.4
    
    
    
    114.6
    
    
    
    114.5
    
    
    
    113.9Shareholders equity
    
    
    917.7
    
    
    
    759.2
    
    
    
    657.7
    
    
    
    628.3
    
    
    
    550.9
    
    
    
    465.7
 
 (1)
    
    U.S. dollar amounts in this column have been translated solely for the convenience of the
reader at a conversion rate of $1.2088 per
1.00, the
Noon Buying Rate on June 24, 2005. Please
note that the measurement of our market position in U.S. dollars in Item 5: Operating and
Financial Review and Prospects is done so at an exchange rate of $1.24 per 1.00, which is
the full-year average U.S. dollar to euro exchange rate and the actual exchange rate for our
2004 dividends will be determined by our depositary prior to payment of dividends to our ADS
holders, which we currently expect to occur on or after June 28, 2005.(2)
    
    Due to the distribution of our products through IBM, as discussed in note 3 below, our
revenue and percentage of various expenses and other line items to revenue may not be
comparable to those of our competitors. See Item 5A: Operating Results.(3)
    
    More than half of our software revenue is derived from IBMs licensing of our products
pursuant to a mutually non-exclusive agreement under which we license our products to IBM,
which then sub-licenses them to end-users. See Note P to our consolidated financial
statements.(4)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income, net income and diluted net income per share
excluding amortization of intangibles incurred in business combinations is not a U.S.
generally accepted accounting principles measurement and should not be considered as an
alternative to amounts reported under U.S. generally accepted accounting principles.
Amortization of intangibles incurred in business combinations totaled 1.4 million in 2004
(1.2 million after tax), compared with 5.9 million in 2003 (5.0 million after tax), 11.1
million in 2002 (9.6 million after tax), 58.4 million in 2001 (55.3 million after tax) and
40.2 million (35.5 million after tax) in 2000.(5)
    
    Net working capital consists of total current assets less total current liabilities.(6)
    
    Includes financial leases. See Note K to our consolidated financial statements.(7)
    
    Excluding, where applicable, avoir fiscal. See Item 8: Financial InformationDividend
Policy. Exchange Rate Information We publish our consolidated financial statements in euro. Solely for the convenience of the
reader, this report contains translations of certain euro amounts into U.S. dollars at specified
rates. Unless otherwise stated, the translations of euro into U.S. dollars have been made at the
rate of $1.2088 per 1.00, which was the noon buying rate for euro in New York City for cable
transfers as certified for customs purposes by the Federal Reserve Bank of New York (the Noon
Buying Rate) on June 24, 2005. These translations should not be construed as representations that
the euro amounts represent such U.S. dollar amounts or could be converted into U.S. dollars at the
rates indicated or at any other rate. The following table sets forth, for the periods indicated, certain information concerning the
exchange rates based on the Noon Buying Rate expressed as U.S. dollar per euro. Such rates are
provided solely for the convenience of the reader and are not necessarily the rates used by us in
the preparation of our consolidated financial statements. 2




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##### Table of Contents



Exchange Rates Period end
    
    
    Average(1)
    
    
    High
    
    
    Low2000
    
    
    0.94
    
    
    
    0.92
    
    
    
    1.03
    
    
    
    0.832001
    
    
    0.89
    
    
    
    0.89
    
    
    
    0.95
    
    
    
    0.842002
    
    
    1.05
    
    
    
    0.95
    
    
    
    1.05
    
    
    
    0.862003
    
    
    1.26
    
    
    
    1.14
    
    
    
    1.26
    
    
    
    1.042004
    
    
    1.35
    
    
    
    1.25
    
    
    
    1.36
    
    
    
    1.182005January
    
    
    1.30
    
    
    
    1.31
    
    
    
    1.35
    
    
    
    1.30February
    
    
    1.33
    
    
    
    1.30
    
    
    
    1.33
    
    
    
    1.28March
    
    
    1.30
    
    
    
    1.32
    
    
    
    1.35
    
    
    
    1.29April
    
    
    1.29
    
    
    
    1.29
    
    
    
    1.31
    
    
    
    1.28May
    
    
    1.23
    
    
    
    1.27
    
    
    
    1.29
    
    
    
    1.23June
(through June 24)
    
    
    1.21
    
    
    
    1.22
    
    
    
    1.23
    
    
    
    1.20
 
 (1)
    
    The average of the Noon Buying Rates on the last business day of each month during the
relevant period, except for June 2005, in which case the average
Noon Buying Rate on June 24,
2005, was used. B. Capitalization and Indebtedness. Not applicable. C. Reasons for the Offer and Use of Proceeds. Not applicable. D. Risk Factors. You should carefully consider the risks described below and the other information in this
report. If any of the following risks actually materialize, our business, financial condition, cash
flows or results of operations could suffer and you could lose all or part of your investment in
our shares. The risks described below are not the only ones we face. Risks Related to Our Business Current economic and business conditions may lead to the continuation of slower
decision-making or reduced corporate spending on information technology infrastructure, which would
cause our revenues and earnings to grow more slowly and increase quarterly fluctuation. A weak U.S.
dollar may adversely impact the growth rate of other major markets where we operate. Over the past several years, the weakness of the economic growth rate in Europe has led to
restrictions in corporate spending for information technology, including on our offerings for
Product Lifecycle Management. In addition, after several years of strong growth in the Asian
markets, particularly Japan, economic growth is expected to moderate in that region. The ongoing
weakness in Europe and moderation of growth in Japan and Asia may adversely affect the growth in
our revenues and earnings in some markets. The different industrial sectors we serve have different degrees of exposure to this weakness
in corporate investment, both in terms of intensity and timing, due to their specific investment
cycles and sensitivities to short-term economic conditions. In addition, the continuing weakness of the U.S. dollar may adversely affect the economic
situation in certain major industrial zones outside the U.S. dollar-zone, such as Europe or Asia.
In this case our customers may change their outlook for future growth or may decide to delay or
cancel their investments, including in our offerings. 3




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##### Table of Contents



Our failure to adapt to rapid changes in technology, either in terms of product content or in
terms of product offerings could seriously reduce or delay demand for our products and have a
material adverse effect on our financial condition and results of operations. Product Lifecycle Management (PLM) solutions are characterized by the use of rapidly changing
technologies and innovation. They are becoming increasingly complex and pervasive. These solutions
must address sophisticated engineering needs in various areas of product design and manufacturing,
and must also meet sophisticated process requirements in the areas of change management, industry
collaboration and cross enterprise work. As a result, our success is highly dependent upon our
ability to understand our customers needs, to enhance our existing solutions and to introduce new
solutions in a cost-effective and timely manner. Our success is also linked with our customers ability to understand, finance and support
deployment of our solutions through their enterprises as well as their timetable for adopting our
new offerings. This process may include reengineering of some of our customers processes and
migration of substantial amounts of data. The combination of these technological and organizational
challenges may slow down our customers acceptance of our existing or new PLM solutions offerings
and delay their investment decisions and production deployments which may in turn adversely impact
our results of operations. We have committed substantial resources to the development of new offerings, but we face the
challenge of increasingly complex integration of our different functionalities to address the PLM
opportunity and, as a result, longer and more difficult industrialization work for new releases and
offerings. During the year 2004, approximately 56% of our revenue resulted from licensing of our products
to IBM pursuant to a mutually non-exclusive marketing and distribution agreement under which we
license products to IBM who then sublicenses the products to end-users. Changes in the relationship
between IBM and us, and events impacting IBM, could have a material adverse effect on our financial
condition and results of operations. IBM markets and distributes our products worldwide, primarily CATIA, ENOVIA and SMARTEAM,
pursuant to a mutually non-exclusive agreement. Revenue generated through our agreement with IBM
represented 56%, 59%, and 61% of our total revenue in 2004, 2003 and 2002, respectively. IBM markets and distributes our products through IBM PLM, an organization within IBM dedicated
primarily to the marketing and distribution of CATIA, ENOVIA and SMARTEAM, and through IBM
distribution partners. IBM has substantial discretion and control over such marketing and
distribution, including the financial resources devoted to marketing, the selection of marketing
and distribution channels and the compensation of its sales personnel and distribution partners.
Therefore, IBMs performance has a material impact on revenue generated from sales of CATIA, ENOVIA
and SMARTEAM products. There is no contractual obligation for either IBM or us to continue to
market and distribute our products according to our present agreements. Changes in roles and
responsibilities could cause disruptions and negatively affect the sales organizations performance;
this could have an immediate and material adverse effect on the revenues generated from the IBM
distribution efforts. If IBM does not invest enough to grow our PLM revenues, we may have to
intensify our direct and other external sales efforts at the risk of creating sales channel
conflicts. Also, a decision by IBM to cease, freeze, or reduce substantially its marketing and
distribution efforts would have an immediate and material adverse effect on our financial condition
and results of operations, because we may not be able to establish effective alternative
distribution channels rapidly. In addition, establishing such channels would require significant
management and financial resources. Furthermore, IBM is not prohibited from competing with us,
marketing and distributing other competing PLM software applications, providing services around
other competing PLM software applications, or acquiring or forming a strategic alliance with one or
more of our competitors, which could have a material adverse effect on our financial condition and
results of operations. Errors or defects in our products could harm our reputation and expose us to potential
liability. Sophisticated software often contains errors, defects or other performance problems when first
introduced or when new versions or enhancements are released. If errors or defects are discovered
in our current or future products, we may not be able to correct them in a timely manner, or at
all. Any insurance we carry may only partially offset the cost of correcting significant errors or
defects. We may therefore need to expend significant 4




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##### Table of Contents



capital resources in order to eliminate or work around errors or defects. Errors, defects or
other performance problems in our products may result in the loss of, or a delay in, market
acceptance of our products or postponement of customer deployment, the diversion of development
resources, and damage to our reputation and, in turn, may result in a loss of revenue, and increase
service and warranty costs. Because errors, defects or other performance problems in our software could result in
significant financial or other damage to our customers, our customers could pursue claims against
us. A product liability claim brought against us, even if not successful, would likely be time
consuming for our management and costly to defend and could adversely affect our marketing efforts. Currency fluctuations may significantly affect our results of operations since we generate
revenue and incur expenses in currencies other than the euro. Our results of operations can be significantly affected by changes in exchange rates. Exchange
rate fluctuations can impact the amount of revenue and the amount of expenses recorded in our
statement of income upon translation of other currencies into euro. Since market growth rates for our software applications and the revenue growth rates of our
significant competitors are computed based on U.S. dollar revenue, such growth rates from period to
period may not be comparable to our euro-computed revenue growth rates for the same periods. Our net financial revenue can also be significantly affected by changes in exchange rates
between the time we recognize revenue and receive cash payments or record and pay an expense. Any
such differences are accounted for in the Exchange gain/loss portion of our financial revenue.
See Item 11: Quantitative and Qualitative Disclosures About Market RiskForeign currency exchange
risk. Claims that our products infringe the proprietary rights of others could harm our sales and
increase our costs and, as a result, have a material adverse effect on our financial condition and
results of operations. Other companies or individuals, including our competitors, may have, or obtain copyrights,
patents or other proprietary rights that could prevent, limit or interfere with our ability to
make, use, or sell our software. Furthermore, companies are increasingly bringing suits alleging
infringement of their proprietary rights by others, particularly patent rights. As a result, in
such circumstances, a court may decide that we have infringed on the proprietary rights of others.
We have received in the past, and may in the future receive, communications alleging possible
infringement by us of patents and other intellectual property rights of others. We could incur
substantial costs to defend any litigation brought against us, regardless of its merits, and our
failure to prevail in intellectual property litigation could force us to do one or more of the
following:  
    
    cease making, licensing or using products or services that incorporate the
challenged intellectual property;
    
    obtain and pay for licenses from the holder of the infringed intellectual
property right, which licenses might not be available on acceptable terms, if at all; or
    
    redesign our products, which could involve substantial costs and require us
to interrupt product licensing and product releases, or which might not be feasible at
all. If any of the above situations were to occur for a significant product, it could have a
material adverse effect on our financial condition and results of operations. 5




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The regulatory environment has become increasingly complex and is subject to change. Changes
in the applicable standards, rules or interpretations may require us to modify our accounting
policies and business practices, which could adversely affect our results of operations.
Implementation of regulatory requirements is costly and may have a negative adverse effect on our
cost of operations or our stock price. We currently report both in U.S. GAAP and French GAAP and prepare two sets of financial
statements. Commencing January 1, 2005, we will report according to International Financial
Reporting Standards (IFRS), instead of French GAAP, and will continue to report in U.S. GAAP. The
applicable U.S. GAAP and IFRS accounting standards and related interpretations are highly complex
and continue to evolve. The reporting requirements may be contradictory or ambiguous. We review our
compliance with all new and existing accounting rules and pronouncements on an ongoing basis.
Depending on the outcome of these ongoing reviews, and the potential issuance of further accounting
pronouncements, implementation guidelines and interpretations, particularly with respect to revenue
recognition, scope of consolidation, and stock-based compensation, we may be required to modify our
accounting policies and business practices, including license terms and conditions, which could
have a material adverse effect on our results of operations or financial reporting. Our current
accounting policies are described in Item 5A: Operating ResultsCritical Accounting Policies and
Note A to our consolidated financial statements. We are currently working on the implementation of our internal controls procedures in order to
be ready for the 2006 Sarbanes-Oxley certification. Despite our efforts and investments on this
matter, and because of continuing evolution of the regulatory environment, we may encounter
deficiencies that we would then report and which could have an adverse effect on our results of
operations. Our failure to adequately protect our intellectual property could harm our competitive market
position and have a material adverse effect on our financial condition and results of operations. Our success is heavily dependent upon proprietary software technology. We rely on a
combination of copyright, patent, trademark, trade secret law and contractual restrictions to
protect the proprietary aspects of our technology. These legal protections afford only limited
protection. In addition, effective copyright, patent, trademark and trade secret protection may be
unavailable or limited in certain countries where intellectual property rights are protected less
than in the United States or Western Europe. Our failure to adequately protect our technology may lead to the development of similar
technology by third parties and reduce our software revenues. Furthermore, we enter into
confidentiality and license agreements with our employees, distributors, customers and potential
customers and limit access to and distribution of our software, documentation and other proprietary
information. There can be no assurance that the steps taken by us in this regard will be adequate
to deter misappropriation or independent third party development of our technology. In addition,
like most of our competitors, we are facing an increasing level of piracy of our successful
products, both by individuals and by groups acting worldwide. Litigation may be necessary to enforce our intellectual property rights and to determine the
validity and scope of the proprietary rights of others. Any litigation could result in substantial
costs and diversion of our resources and could seriously harm our operating results. We may not
prevail in any such litigation and our intellectual property rights may be found invalid or
unenforceable. We expect that our quarterly operating results will fluctuate and this could cause our stock
price to fluctuate. Our quarterly operating results have varied significantly and are likely to vary significantly
in the future, depending on factors such as:  
    
    the number, timing and significance of product enhancements or new products
developed by us or our competitors;
    
    our ability to develop, introduce and market new and enhanced versions of
our products and customer order deferrals in anticipation of new or enhanced products
introduced by us; 6




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
    
    the timing and cyclical nature of revenues received;
    
    fluctuations in foreign currency exchange rates; and
    
    general conditions in our software markets, software applications generally
and computer industries and regional economies. We may also experience greater fluctuations in our quarterly results, since customer decisions
to invest in our products may be affected by short-term economic, political and business
conditions. A substantial portion of our orders and shipments typically occur in the last month of each
quarter and we may therefore experience significant quarterly fluctuations in our results of
operations. Additionally, as is typical in the software applications industry, we have historically
experienced our highest licensing activity for the year during the month of December. Delays in
orders and shipments can affect our revenue and income. The trading price of our shares and the ADSs may be subject to wide fluctuations in response
to quarterly variations in our operating results and the operating results of other software
applications developers in our markets. In addition, capital markets around the world experience
from time to time extreme price and volume fluctuations, which may particularly affect the market
prices for many high technology companies which have become highly volatile. Because we rely on IBM to provide us information as to the level of a significant portion of
our revenue, we generally are not in a position to know our revenue for any particular period
within the same timeframe as would otherwise be possible. As a result, we may not be able to
confirm or adjust expectations as to sales achieved for a particular period as quickly as we
otherwise could, or within the same timeframe as some other companies in our industry. As a result of our strategy of partnering with other companies for product development,
marketing and services, our products and business development could be adversely affected if we
experience difficulties with our partners. Our Product Lifecycle Management strategy requires fully integrated solutions of
CAD/CAE/CAM/PDM products, which are themselves increasingly complex. To implement our PLM strategy,
we have chosen to partner with other companies: in product development, to integrate other software
components; in marketing, to integrate in our offer complementary products made by other software
providers; and in services, to provide adequate support for customers adapting and deploying
Product Lifecycle Management solutions. We believe that our partnering strategy allows us to reduce
costs while achieving broader market coverage. Nevertheless, our broad partnering strategy creates a higher dependency on such partners.
Serious difficulties in our relationships with our partners, or an unfavorable change of control of
our partners, may adversely affect our products or business development. If we are unable to hire or retain our key personnel and executives, or if we experience
difficulties in our employee relationships generally at one of our major sites, our business
activities and operating results may be negatively affected. Our success depends to a significant extent upon, among other factors, the continued service
of our key managers and highly qualified research and development, technical, support and other
personnel, and on our ability to continue to attract, retain and motivate qualified personnel. The
competition for such employees is intense, and if we lose the ability to hire and retain key
employees and executives, it could have a material adverse effect on our business activities and
operating results. Similarly, we have various important sites located in different countries, and serious
difficulties in our employee relationships generally at any such sites could also have a negative
effect. We generally do not maintain insurance with respect to the loss of our key personnel. 7




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Continuous growth of our Group, either internally or through acquisitions, adds complexity to
our organization and may make consistent management and appropriate visibility with respect to our
operations and strategy more difficult. External growth through acquisitions, as well as changes in
the organization of the Group, may adversely affect our business or financial performance. We continue to grow internally in our markets around the world. This continuous growth in
terms of revenues, employees and operations creates increasing complexity for us as we take
measures to ensure consistency of our various offerings, control of our operations and appropriate
follow-up of return on investments. We also continue to re-organize our group structure in order to
simplify it and remain focused on our strategy. Integration of newly acquired companies or businesses, as well as divestments, is challenging
and consuming both in terms of management time and control systems. Financial markets may not
support an acquisition. Also, due to regulatory constraints in Europe and in the United States, a
planned acquisition might not be realized at all or as anticipated. Finally, future transactions 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 intangible assets other than goodwill and may generally reduce our operating
margin or net income. Goodwill generated by these transactions will be subject to annual or more
frequent impairment tests, which may also reduce our operating margin or net income. Minority
interests or other investments in unaffiliated partners may also have to be written down in our
accounts as a result of impairment. A decrease in prices, a longer sales cycle and changes in the competitive environment could
negatively impact revenue growth, financial performance and market position. Over the last several years, prices have declined in the technological market and this trend
could continue or accelerate. This price decline may result from competition, low marginal costs
and rapid technological change. In addition, we have seen a recent move towards consolidation in
our industry, which may lead to increased pressure on prices and negatively impact our revenue,
financial performance and market position. In parallel, due to economic conditions as well as to the complexity of our PLM products, the
sales cycle for PLM products has lengthened. As a consequence, predictability over our revenues and
their timing between quarters is becoming more complex. We could face a slowdown in our revenue
growth as a result. Since we have multinational operations, we are subject to certain risks, inherent in
international operations, that could adversely affect our financial condition and results of
operations. As a global participant in the Product Lifecycle Management software applications industry,
our business is subject to certain risks inherent in international operations that are beyond our
control. These risks include:  
    
    tariffs, duties, export controls and other trade barriers;
    
    unexpected changes in regulatory requirements and applicable laws;
    
    the burden of complying with a wide variety of foreign laws and regulations; and
    
    political and economic instability. Any of these factors could harm our operating results. There can be no assurance that we will
not experience material adverse effects with respect to our international operations and sales. 8




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Our research and production facilities are subject to risks of damage or temporary loss due to
both system interference or breakdown and physical harm. The short or long-term loss of the use of
these facilities could have a material negative impact on our business, results of operations and
financial condition. Our research and development facilities are computer-based and rely on the proper functioning
of complex software and integrated hardware systems. However, it is not possible to guarantee the
uninterrupted operation and security of these systems. For example, the invasion of our
computer-based systems by either computer hackers or industrial pirates could interfere with their
proper functioning and cause substantial damage, loss of data or delays in on-going research and
production activities. Computer viruses, whether deliberately or unintentionally introduced, could
also cause similar damage, loss or delays. As many of our systems include advanced or
state-of-the-art functionalities, computer bugs or design errors could cause malfunctions. In addition, because our research and production facilities are located in five principal
sites, including our headquarters outside Paris in a possible flood zone and our SmarTeam site in
Israel, substantial physical damage to any one of our sites, by natural causes or by attack or
local violence, could materially reduce our ability to continue our normal business operations.
Also, our facilities in Japan and California could be exposed to earthquake and similar natural
risks. If any of these circumstances were to arise, the resulting damage, loss or delays could have
a material negative impact on our business, results of operations and financial condition. Risks Related to an Investment in our Shares or ADSs Groupe Industriel Marcel Dassault owns approximately 45% of our outstanding shares, and can
therefore effectively determine shareholders decisions. Groupe Industriel Marcel Dassault (GIMD), which represents the interests of some of our
founding shareholders, has maintained its substantial interest in Dassault Systèmes and currently
owns approximately 45% of our outstanding shares and controls approximately 44% of the voting
rights. As a result, GIMD continues to effectively decide 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. Technology-related stock prices have generally been volatile, and this volatility may depress
our stock price. The market price of our shares and ADSs is likely to be highly volatile, as the market for
shares of technology companies have generally been more volatile than the stock market overall. A
large number of technology companies have reached a market price significantly inferior to their
historical highest market price. The price of our ADSs and the U.S. dollar value of any dividends will be affected by
fluctuations in the U.S. dollar/euro exchange rate. The ADSs are quoted in U.S. dollars. Fluctuations in the exchange rate between the euro and
the U.S. dollar are likely to affect the market price of the ADSs. For example, because our
financial statements are reported in euro, a decline in the value of the euro against the U.S.
dollar would reduce our earnings as reported in U.S. dollars. This could adversely affect the price
at which the ADSs trade on the U.S. securities markets. Any dividend we might pay in the future
would be denominated in euro. A decline in the value of the euro against the U.S. dollar would
reduce the U.S. dollar equivalent of any such dividend. Holders of ADSs may face disadvantages compared to holders of our shares when attempting to
exercise voting rights. Holders of shares wishing to exercise their voting rights must block their
shares for at least five days prior to the shareholders meeting pursuant to French law. In order to vote at shareholders meetings, ADS holders who are not registered on the books of
the depositary are required to transfer their ADSs for a certain number of days before a
shareholders meeting into a blocked account established for that purpose by the depositary. Any
ADS transferred to this blocked account will not be available for transfer during that time. ADS
holders who are registered on the books of the depositary must give instructions to the depositary
not to transfer their ADSs during this period before the shareholders meeting. ADS holders must 9




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therefore receive voting materials from the depositary sufficiently in advance in order to
make these transfers or give these instructions. There can be no guarantee that ADS holders will
receive voting materials in time to instruct the depositary to vote. Also, the depositary is not
responsible for failing to carry out voting instructions or for the manner of carrying out voting
instructions. It is possible that ADS holders, or persons who hold their ADSs through brokers,
dealers or other third parties, will not have the opportunity to exercise a right to vote at all. In order to participate in any general meeting, a holder of shares held in registered form
must have its shares registered in its name in a shareholder account maintained by us or on our
behalf by an agent appointed by us at least five days prior to the date set for the meeting. A
holder of bearer shares must obtain a certificate from the accredited intermediary with whom the
holder has deposited its shares, and the certificate must state that the shares are not
transferable from five days before the meeting until the completion of the meeting. Preemptive rights may be unavailable to holders of our ADSs. Holders of our ADSs may be unable to exercise preemptive rights granted to our shareholders,
in which case holders of our ADSs could be substantially diluted. Under French law, whenever we
issue new shares for payment in cash or in kind, we are usually required to grant preemptive rights
to our shareholders. However, holders of our ADSs may not be able to exercise these preemptive
rights to acquire our shares unless both the rights and the shares are registered under the
Securities Act of 1933 or an exemption from registration is available. If the depositary is unable to sell rights that are not exercised or not distributed or if the
sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you
will receive no value for these rights. 10




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Item 4: Information on the Company A. History and Development of the Company. We are a leading developer of world-class software solutions using three-dimensional (3D)
digital technology. We believe that we are the global leader of the market for Product Lifecycle
Management (PLM) software with an estimated market share of approximately 23% for 2004 (source:
Daratech). We were established in 1981 through the spin-off of a team of engineers from Dassault
Aviation, which was developing software to design products in 3D. We entered into a distribution
agreement with IBM the same year and started to sell our software under the CATIA brand to
automotive and aerospace customers. Through our work with large industrial customers, we learned
how important it was for them to have a software solution that would support their product
development processes. With this in mind, we enriched our solution to enable the design of digital
mock-ups (DMU) which helped our customers reduce the number of physical prototypes and realize
substantial savings in product development cycle times. The first significant project realized with
this new approach was the Boeing 777. We also broadened our targeted industry segments to
fabrication and assembly, consumer goods, electrical and electronics, shipbuilding and plant
design. In 1997, we organized our business in two segments: the Process-centric segment with the
goal of supporting the end-to-end product development process of customers by providing a PLM
solution and the Design-centric segment dedicated to customers seeking to design products in 3D.
In conjunction with this decision, we acquired SolidWorks Corporation, with the goal of targeting
the significant market of customers designing their products in two dimensions (2D) and looking to
take advantage of the power of 3D design. In order to fulfill the mission to provide a robust PLM solution for our customers, in
conjunction with our internal development, we undertook a series of targeted acquisitions and
developed a new software platform, Version 5, for the Process-centric segment. We acquired the
Product Manager software and development laboratory from IBM in 1998, which we merged with our
virtual product data management application to create the ENOVIA product line. Following our
acquisition in 1999 of SmarTeam Corporation we developed a portfolio of applications across ENOVIA
and SMARTEAM in order to manage data product configurations, product lifecycle integration and
collaboration (our PDM offering). DELMIA was launched in 2000 in order to address the digital
manufacturing domain following a series of three acquisitions, including (i) Deneb, a U.S. company
specialized in robotic simulation which we acquired in 1997, (ii) Safework, a Canadian company
specialized in human modeling technology, and (iii) Delta, a German company specialized in
manufacturing process management software. Both Safework and Delta were acquired in 2000. In 1999,
we introduced Version 5 (V5), an innovative software platform to develop integrated Product
Lifecycle Management solutions. As a result of this new platform, the different applications
developed in the companies we acquired, such as DELMIA, as well as the CATIA and ENOVIA product
lines can be integrated to form a powerful Product Lifecycle Management solutions portfolio. In
2000, we acquired Spatial Corp., a U.S. company to help third-party developers build their own
complementary applications on our V5 software platform and to develop and sell its ACIS software
components. In 2004 we announced our decision to enter the automation market. In connection with this
decision we are introducing a new line of software solutions, DELMIA Automation, based upon
internal development work as well as from the acquisition in 2003 of Athys, a French company
specialized in the development of workcell control software. We have a strong international presence. In 2004, 47% of our total revenue was derived from
Europe, 29% from the Americas and 24% from Asia. We employed 4,456 people worldwide at December 31,
2004. In Europe/Middle East, in addition to our headquarters and other offices in France, we have
offices in Belgium, Germany, Israel, Italy, The Netherlands, Spain, Sweden, Switzerland and the
United Kingdom. In the Americas, we have major subsidiaries headquartered in the United States and
Canada and we have offices in Argentina, Brazil and Mexico. In Asia, we have offices in China, Hong
Kong, India, Japan, Singapore and South Korea. Moreover, through our extended enterprise strategy
we have a broader reach around the world through our partnerships in sales, marketing and
technology. 11




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We distribute our solutions through IBM, our strategic partner since our inception in 1981, a
network of other distribution partnerships as well as a direct sales force for certain products and
markets. IBM markets, distributes and supports most of our PLM solutions in our process-centric
segment. Our partnership with IBM has evolved over the years reflecting changes in both our markets
and products. We market our design-centric solutions (Mainstream 3D solutions) through a network of
value-added resellers and distributors worldwide. Our shares have been listed in France on the Paris Stock Exchange (Euronext Paris) and in the
United States on the Nasdaq Stock Markets National Market since our initial public offering in
1996. In February 2005, Euronext Paris renamed its markets Eurolist, and we are now listed on
Eurolist  Compartment A (Eurolist). Dassault Systèmes is a société anonyme, a form of limited liability company, incorporated
under the laws of France. Our company was created on June 9, 1981 for a duration of 99 years and is
governed by French company law and related regulations. Our registered office is located in
Suresnes, France, at 9 Quai Marcel Dassault, B.P. 310, 92156, and the telephone number is: 33 (0) 1
40 99 40 99. For a list of our significant subsidiaries, please refer to Item 4C: Organizational
Structure below. Dassault Systèmes is registered in the Nanterre Commercial Register under No. 322
306 440. For a detailed discussion of our business and financials, see Business Overview and Item
5: Operating and Financial Review and Prospects below. B. Business Overview. Summary We are a leading developer of world-class software solutions using three-dimensional (3D)
digital technology. Our strategic mission is to provide software solutions and services that enable
our customers to:  
    
    create more innovative, higher quality products;
    
    develop products more quickly to satisfy market demand;
    
    collaborate in 3D for product lifecycle management and 3D design;
    
    create and manufacture products more cost effectively; and
    
    develop products that better preserve the environment both during their
production and when in service. Product Lifecycle Management (PLM) Our PLM software applications, solutions and services enable customers of all sizes to create
products and simulate the whole product lifecycle end-to-end from the conceptual stage through the
manufacturing process and the product in service. Our software applications address a wide range of
products, from every day consumer packaged goods to individual machine parts, automobiles, entire
ships, manufacturing plants and commercial aircraft. Our PLM solutions (process-centric segment of
our business) represented 82% of our total revenue in 2004. Our global customer base is composed primarily of companies within seven manufacturing
sectors, including automotive, aerospace, fabrication and assembly, consumer goods, electrical and
electronics, plant design and shipbuilding. Our solutions are mission-critical for our customers, enabling them to increase innovation by
significantly enhancing the management of a product through its entire lifecycle, thereby fostering
a true transformation in the manner in which these companies manage product and process
development. Moreover, our solutions help companies reduce time to market and reduce costs, as well
as better integrate their product creation and production processes with the needs of their
markets. Through the creation of a collaborative environment, a broad range of persons involved in
a products lifecycle can share, modify, manage and archive complete data about the product and its
production use and maintenance on an integrated information platform. Using advanced and
breakthrough 12




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modeling technologies, including highly sophisticated 3D visualization and Internet
technology, our products allow engineers, manufacturing teams, financial planners and other
participants to simulate product behavior and manufacturing operations through virtual prototypes
rather than actual physical mock-ups, thereby saving significant time and resources, while
increasing innovation and quality. Our Product Lifecycle Management solutions are organized around four of our brands: CATIA for
product design, DELMIA for digital manufacturing, ENOVIA for product lifecycle management
collaboration and decision support and SMARTEAM for product management and collaboration.
Altogether, these four brands form our PLM offer and are hereafter referred to as our PLM software
applications. As part of our PLM solutions, we have also developed PLM Best Practices and
Business Process Content (customization of PLM software for specific business processes), which, if
selected by the customers in a services engagement, help them deploy our software in their
particular industry processes. In addition, we distribute our PLM V5 infrastructure under the name
of Component Application Architecture (CAA V5) development platform. Mainstream 3D Our mainstream 3D solutions, focusing principally on product design, complement our PLM
software applications in reaching a far larger number of potential users. We primarily address the
mainstream, 3D market with our SolidWorks brand whose objective is to be the global standard in 3D
mechanical design software. Its products and solutions are designed to capitalize on the
significant migration opportunity of 2D users to 3D design. Our mainstream 3D business (Design-centric segment of our business) accounted for 18% of our
total revenues in 2004. New Business Initiatives During 2004, we announced new business initiatives in automation and 3D For All. In the
automation domain, we announced our decision to offer a software solution that will allow customers
to program, monitor and simulate automated production lines and help them bridge the manufacturing
processes defined using DELMIA PLM with their actual production lines. This market, known as the
industrial automation market, is focused on defining, controlling and monitoring automated
production equipment. The automation market is a natural extension of our PLM business, leveraging
our existing knowledge and expertise. We believe the automation market is potentially a large market with long-term opportunity for
growth. In addition, automated systems are used in a number of industries that we do not currently
address with our DELMIA PLM solutions, such as Consumer Package Goods, Food and Beverage and
Pharmaceuticals. We do not expect automation to be a meaningful contributor to revenue for several
years as we ramp-up our product offering and distribution network. We believe 3D technology can be made broadly available to many parties. A portion of our
research and development resources has been focused on developing 3D For All technologies, such
as 3D XML, and applications. At the same time we have entered into new partnerships with companies
that share our vision of 3D For All. Key Business Strengths We believe our key business strengths have enabled us to take a leadership role in the PLM and
design-centric markets and increase our overall market share in each of the last six years.  
    
    Long-term, integrated relationships with our customers.Our approach has
always been to develop long-term partnerships with customers in our targeted industries.
We work closely with our customers to involve them in all phases of product development
and to identify their evolving needs. Through these close, long-term working
relationships, we are able to gain a deep understanding of their product design
processes and requirements. We believe this level of knowledge enables us to develop
software solutions more closely attuned to the requirements of our customers, and highly
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address. We have also introduced specific industry solutions addressing the unique
aspects of product development across different industries. In addition to our software
solutions, we operate competency centers where we work with numerous industry leaders to
develop service offerings and best practices (PLM Best Practices) with the aim of
improving the introduction and deployment of our PLM solutions in response to the
increasing demand for expertise and optimization of processes.
    
    Substantial commitment to technological innovation.Technological strength
has underpinned our market success. Our latest generation software platform for the
Process-centric market, Version 5, enables us to deliver integrated PLM solutions. These
solutions have been engineered to optimize industry specific business processes
end-to-end.Further, in addition to our V5 PLM platform, we have introduced key innovations, with the
architecture of our engineering and manufacturing hubs, new 3D XML technologies and
products such as our CATIA  Imagine and Shape, as well as new, more robust
collaboration products.Through our new business line, DELMIA Automation, we are introducing innovative
technologies for the automation market. These new technologies will shift automated
design and logic controller programming from hardware to digitally defined, controlled
and monitored automated systems.Designed specifically for Windows, our technology for the Design-centric market is based
on enabling designers and engineers to make an easy transition from 2D drafting tools to
a 3D solid modeling environment. Its intuitive Windows user interface enables users to
productively employ SolidWorks software without extensive training.
    
    Brand strategy.We believe that our brand strategy is a key component to our
success. Our brand strategy enables us to focus on developing best of breed software in
each domain. In addition, our business objective is to introduce brands that become the
number one or number two brand within their respective markets. Our brands in the PLM
market are designed to address the very specific domain requirements along the product
lifecycle. As a result, we are able to develop R&D strategies as well as sales and
marketing strategies best suited to the individual domains. At the same time, based upon
our V5 platform, we are able to offer an integrated set of solutions to our customers in
the PLM market. Our multiple brand strategy also provides significant flexibility to our
customers as they are able to choose different points of entry depending on their
individual needs and requirements. Similarly, in the mainstream 3D market, our
SolidWorks brand and solutions address the specific needs of customers and companies in
its market segment.
    
    Extended enterprise model.The execution of our strategy has encompassed the
creation and growth of an extended enterprise model since our inception in 1981. We have
developed a network of partners for marketing, product development and enhancement of
customer relations, and we intend to continue to build on our extended enterprise model.
We have a key alliance with IBM, which has distributed our products and associated
services for the last 24 years. We also market certain of our solutions through a
network of distribution partners and our direct sales force. We have created a CAA V5
program to enable independent software companies to develop complementary applications
built upon our V5 platform. And through customer cooperation, we establish a permanent
dialogue between our customers and our research and development teams commencing early
in the development process in order to ensure responsiveness to market needs.
    
    Resilient financial model, with a high level of recurring licenses revenue.
Since our formation we have set for ourselves the objective of generating a high
recurring revenue stream and we have had a high level of recurring licenses revenue each
year. For 2004, recurring licenses revenue represented 51% of our total software
revenue, with total software revenue accounting for approximately 84% of our total
revenue. This high level of recurring licenses revenue contributes to the resiliency of
our business, enabling us to continue to invest in critical resources, even during
periods of economic slowdowns. 14




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
    
    Strong profitability and cashflow from operations.As a result of our
business success and market leadership, our financial model reflects a strong level of
profitability and significant cash generation from operating activities. Our strong
financial position gives us significant operating flexibility. Growth Strategy We believe there are a number of opportunities to grow our business. We have outlined below
our most significant growth opportunities.  
    
    Win new strategic customers.Our goal is to have a diversified customer
base, composed of both large companies and small and medium-size businesses. With our
latest software solutions, we believe there are additional opportunities to grow our
business with leading companies within our targeted industrial segments.
    
    Extend our CAD penetration within our customer base.Our current CATIA
Version 5 software is designed to address the needs of a wide range of users from
entry-level to high-end users. In addition, we are expanding the number of applications
within CATIA, which then broadens the potential usage of our CATIA Version 5 software.
    
    Implement complete and integrated PLM solutions with Product Data Management
and Digital Manufacturing solutions.Our Product Lifecycle Management solutions bring
the benefits of 3D across the entire lifecycle. Our solutions include key Product Data
Management (PDM) solutions (ranging from data management and collaboration solutions
with SMARTEAM to lifecycle capabilities and decision support with ENOVIA), encompassed
in a services approach. We believe the PDM market offers significant opportunities for
growth as companies look to adopt a complete PLM solution.We address the digital manufacturing market with our DELMIA PLM brand. DELMIAs PLM
software is designed to help manufacturers simulate and optimize manufacturing processes.
We are currently one of the two principal companies addressing the digital manufacturing
market.
    
    Extend our penetration of the supply chain in key industries.Our customer
base includes many of the leading original equipment manufacturers (OEMs) in the
aerospace and automotive industries. Many of these customers have started their
migration to our Version 5 platform. We believe their supply chain offers growth
opportunities as the environment continues to evolve, with OEMs, particularly in the
automotive and aerospace industries, seeking to better integrate design and
manufacturing through collaborating more closely with their suppliers. We are seeing
more interest in our solutions among supply chain companies in part as a response to the
changing requirements of their OEM partners. In addition, our V5 solutions have been
designed to address both the needs of large companies as well as small and medium-size
businesses.
    
    Expand our presence in our target industries.Our diversification strategy
has met with significant success. Historically, our two main markets were the automotive
and aerospace industries, which contributed 33% and 16% to total revenues in 2004. We
have in the last few years strengthened our presence in the fabrication and assembly
industry, which was our largest contributor to revenues in 2004 (34%), and have also
increased our presence in the consumer goods and electronics industries. In addition to
ongoing opportunities in our largest target industries, we believe our current software
solutions present a good opportunity to increase our presence in the consumer,
electrical and electronics, and shipbuilding industries.
    
    Capitalize on the 2D to 3D migration opportunity.Many designers continue to
work within a 2D environment. We believe our solutions, particularly our mainstream 3D
solutions with our SolidWorks brand, are targeted to address the needs of these
designers as they migrate to 3D solutions.
    
    Pursue diversification strategy with new initiatives.Diversification has
been a key component of our overall growth strategy since our acquisition of SolidWorks
in 1997 and the development of our PDM and digital manufacturing solutions, all of which
will continue to be significant drivers of our 15




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diversification strategy. In addition, there is a substantial long-term opportunity in
automation and 3D For All technologies. Market Structure and Brands We currently organize our business and market our products and services principally according
to customer requirements for two types of applications: the Process-centric market in which
customers need to support product development, production and maintenance, and the Design-centric
market, in which customers are primarily focused on product design. In 2004, our Process-centric
business (our PLM solutions) represented 82% of our consolidated revenue and our Design-centric
business (our Mainstream 3D solutions) represented 18% of our consolidated revenue. PLM solutions Our Product Lifecycle Management solutions address the Process-centric market and focus on
creating and simulating the entire product lifecycle from requirements and initial concepts to
product in service and recycling. We serve it with our PLM offering, which facilitates the
simultaneous collaboration of the many different functions involved in PLM: engineering, strategy,
marketing and sales, planning and production, procurement, finance and human resources as well as
throughout the supply chain. CATIAis our largest software product line as our PLM solution for digital product definition
and simulation. It is integrated with DELMIA, our solution for defining and simulating
manufacturing processes, ENOVIA, our solution for managing product lifecycle information, including
digital mock-up configuration, processes knowledge and resources information and SMARTEAM, our easy
to implement, cost-effective solution for managing product lifecycle collaboration of companies of
all sizes. CATIA is a fully integrated system that allows users to tailor their product development
capability according to their own particular needs. In addition, we have introduced many CATIA
products that address the specific needs not just of our target markets, but specific subprocesses
within those industries. For example, in 2004 we introduced CATIA composite design products for the
aerospace industry as well as cast and forge parts for the fabrication and assembly industry. CATIA
enables users to build a seamless product development environment in order to simulate the entire
range of industrial design processes, from the initial concept to product design, analysis,
assembly and maintenance. We believe that CATIA is among the most powerful product design and simulation systems in the
world as illustrated by the markets adoption of the digital mock-up (DMU) process. We believe this
leadership position is built on the following differentiating features, including (i) the ability
of companies to capture and reuse their corporate knowledge; (ii) advanced complex surface modeling
functionalities; (iii) breakthrough technologies such as generative design and functional modeling,
enabling intelligent morphing of designs across product programs; (iv) a simple and intuitive user
interface that optimizes productivity and reduces training time; (v) full integration of all CATIA
applications based on a common product, process and resource (PPR) model and (vi) our packaging
approach that makes CATIA readily scalable from entry-level users to high-end experts. The CATIA V5
product line supports widely available Unix platforms and Windows platforms. The CATIA product line addresses key domains, including: mechanical design, shape design and
styling, product synthesis, equipment and systems engineering and machining analysis. DELMIA PLMoffers a comprehensive suite of digital 3D manufacturing solutions to deliver
end-to-end solutions that allow complete design and validation of the manufacturing processes
through digital mock-up. DELMIA solutions are built on an open product, process and resources model
which enables the continuous creation and validation of the manufacturing process in the context of
the product throughout the design phases. The solution portfolio covers the following domains: (i)
process planning; (ii) process and resource plan definition; (iii) resource modeling and
simulation; and (iv) digital manufacturing foundations. The DELMIA Process Planning solutions provide a comprehensive process and resource planning
support environment that allows our customers to review the sequences and links between processes
and resources early in 16




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the product design cycle. The DELMIA Process Detailing and Validation solutions employ the
structure and diagrams of the Process Planning solutions into the application specific disciplines
of manufacturing to verify process methodologies with actual product geometry and define processes
to a greater level of detail. The DELMIA Resource Modeling and Simulation solutions provide tools
to develop, create and implement resources, application routines and mechanical programming that
are integral with the Process Planning and Process Detailing and Validation solutions. Resources
such as robots, tooling, fixtures, machinery, automation and ergonomics are defined and infused
into complete manufacturing scenarios. ENOVIAprovides a complete set of integrated solutions to help customers implement their
digital enterprise, simulating the entire product lifecycle from initial concept to design,
synthesis, simulation, manufacturing, production and after-market support. By providing unique
collaborative workspaces for engineering, manufacturing and enterprise-wide integration, our ENOVIA
solutions enable customers to manage their digital products with configuration at each stage of the
lifecycle and simulate industry-specific business processes with associated resources (e.g.,
robots, cells, lines, plants). Benefiting from the open V5 platform, and using best-in-class
internet technologies, ENOVIA embodies the company-wide PLM backbone, providing a gateway into the
digital enterprise for collaboration, visualization, analysis and decision support. ENOVIA solutions cover the following domains: (i) product engineering; (ii) lifecycle
management and decision support; (iii) digital mock-up and review; and (iv) collaboration and
management with the supply chain. SMARTEAMsoftware solutions enable product-centric, Windows and web-based collaboration
between teams within extended enterprises of various industry sectors. SMARTEAMs application
portfolio enables organizations and their supply chains to efficiently exchange, track and manage
corporate product information all along their lifecycle. SMARTEAM solutions offer an array of
integrated, on-line collaboration technologies and provide an affordable, readily customizable,
easy to implement solution. It can therefore range from collaborative product data management to
entry access to PLM deployment. SMARTEAM solutions cover the following domains: (i) requirement management; (ii) product and
program management; (iii) document management; and (iv) product service and after-sales management. During 2004, we introduced two new PLM releases across our Process-centric brands: Version
5 Release 13 (V5R13), PLM Workspace for Collective
Innovation Announced in March
of 2004, CATIA, DELMIA, ENOVIA and SMARTEAM V5R13 product portfolios bring business value to
manufacturers by enabling them and their supply chain to deploy competitive new PLM Best Practices
that reduce development cycles significantly. A major innovation in the V5R13 release is the new
ENOVIA VPM Navigator product that enables manufacturers to take maximum advantage of relational
design, integrating ENOVIAs virtual product definition into CATIAs easy-to-use design
environment. This new ENOVIA application enables companies to view the full implications of design
changes in order to facilitate decision-making and reduce the risks associated with new product
introduction. Version
5 Release 14 (V5R14) Imagine and Work as a Global Team Announced in September
2004, CATIA, DELMIA, ENOVIA and SMARTEAM V5R14 introduced breakthrough technologies for industrial
design and improved collaborative product development while we continued to strengthen our V5 PLM
engineering desktop by further enhancing capabilities of the VPM Navigator that was introduced in
the prior release. V5R14 introduces: (i) stronger collaboration across the value chain, enabling
companies to work as one extended enterprise with their customers and partners, whether acting in
an OEM/supplier relationship or working together in a virtual co-location environment; (ii) an
innovative CATIA  Imagine and Shape product that addresses industrial designers by enabling them
to explore product ideas more rapidly, while permitting last-minute styling modifications for
greater product success; and (iii) a new web-based ENOVIA LCA navigator that enables both engineers
and non-engineers to navigate product, process and resource information they require to perform
their work, thereby improving productivity. We also offer PLM industry solutions to serve specific processes of our target industries. PLM
industry solutions are defined as a combination of dedicated products, PLM best practices and
consulting services designed for specific 17




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industries. Our industry solutions for the aerospace, automotive and electrical and
electronics markets include the following solutions:  
    
    Our PLM industry solution for aerospace manufacturers is based on proven PLM
Best Practices. The Best of Breed Structure Engineering solution integrates the
activities and processes required to design and manufacture structural aircraft parts
and assemblies (e.g., sheetmetal, machined, and composite parts), as well as the
corresponding tools required to build them. In early 2005 we introduced a new industry
solution for aerospace suppliers designed to help them better manage and control their
processes as well as optimize collaboration and compliance with customers requirements.
    
    In the automotive industry, our Generative Car solution is a comprehensive
offering that applies to all facets of automotive development processes, including body,
interior and exterior trim, chassis, powertrain, electrical, and vehicle synthesis and
assembly. The Generative Car solution consists of a set of integrated products from
CATIA, ENOVIA, and DELMIA, combined with a set of IBM Best Practices and our PLM Best
Practices developed for the automotive industry. It enables automotive manufacturers and
suppliers to leverage valuable corporate knowledge in order to meet market demands for
an ever-increasing number of vehicle models. It permits simultaneous engineering, fast
design change, and seamless processes from early styling to manufacturing definition.
    
    In the electrical and electronics (E&E) industry, we offer several specific
PLM solutions. In 2004 we introduced a new specialized PLM industry solution (including
software and PLM Best Practices) designed to help electronic manufacturers better manage
the growing complexity of electronic product development. Collaborative Systems
Engineering for Electronics (CSE-E) optimizes the early definition stages of product
development when companies establish the requirements, functions and systems
architecture of a new product, and generally commit up to 80% of its cost. CSE-E also
shortens time-to-market by facilitating design reuse from the earliest stages of the
development process, and reduces the costs and risks associated with the launch of a new
product.
    
    Our Integrated Mechanical Product Development for Electronics (IMPD)
solution is intended to speed mechanical product development while strengthening
innovation and consists of a set of integrated products from CATIA and SMARTEAM,
combined with a set of PLM Best Practices developed for the E&E industry. The solution
links the applications and disciplines involved in mechanical product development and
enables manufacturers to reuse valuable corporate intellectual property. Specifically,
IMPD streamlines mechanical product development operations by increasing the amount of
semantic data exchanged between applications and development disciplines such as style,
design, manufacturing, and analysis. It allows them to explore more design possibilities
in less time, capture and reuse existing features or assemblies made context sensitive,
keep automatic links between part and mold design, create designs in accordance with
corporate standards through automatic guidance, and take into account quickly and
seamlessly the results of digital simulation and analysis. Mainstream 3D solutions We primarily address the Mainstream 3D Design-centric market with our SolidWorks brand. Since
the introduction of the first SolidWorks mechanical design software solution in 1995, SolidWorks
software products have been shipped to more than 385,000 product designers, engineers and
engineering students worldwide. SolidWorks products include 3D mechanical design solutions, design validation analysis tools,
data management solutions, design communication and collaborative tools, CAD productivity
enhancement tools and 3D online catalog solutions. 18




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Major product solutions include:  
    
    SolidWorks Office Professional for organizations that need to manage
workgroup design data more efficiently, combining SolidWorks Office and PDMWorks,
easy-to-use product data management software.
    
    SolidWorks Office includes a complete design solution with 3D mechanical
design software and a full range of design communication and productivity tools.
    
    SolidWorks 3D mechanical design software. In June 2004, SolidWorks introduced SolidWorks 2005, its latest version. We believe SolidWorks
2005 is the most expansive product in the market currently as it encompasses 3D design, analysis,
product data management, collaboration, and injection-molded plastic part validation software in a
single offering. SolidWorks 2005 includes more than 250 customer-requested features and
enhancements developed to help machine designers, mold parts designers, consumer product designers
and others become faster, more accurate and more productive as they bring innovative products to
market. New, key improvements in SolidWorks 2005 included an extensive design library for machine
designers, the first mold design validation tool built into a solid modeling environment, enhanced
loft features for consumer product designers and application-specific user interfaces. Enhancements
for 2D users included a DWG editor that is a fully native, embedded application, allowing editing
of data rather than translation from a legacy tool. In February 2005, SolidWorks introduced its newest product solution, SolidWorks Office
Premium, a new suite of solutions including analysis and wire and harness functionalities. In addition to its portfolio of products, SolidWorks has developed SolidWorks Solution Partner
Program encompassing software and hardware vendors whose products interoperate with SolidWorks
software and provide solutions in specific areas. Automation solutions DELMIA Automation, introduced in 2004, is our newest product line and is focused on control
engineering and simulation. Historically, production engineering, which we address with our DELMIA
PLM solutions, and control engineering have largely functioned as two distinct areas within the
manufacturing process. Process engineering is focused on process planning, detailing and validation
as well as resource definition. In contrast, control engineering, which is focused on defining,
controlling and monitoring the automation systems, including programmable logic controllers, is
largely validated only during real production, when all physical resources have been put in place. Our new solutions will enable customers to (i) simulate production resources before production
begins; (ii) reduce time to design, program, test and optimize automated systems; and (iii) enable
automated systems manufacturers to sell complete solutions, including hardware, software and
associated services. Technology, Research and Development The development of breakthrough technologies has been a core component of our business
strategy since our inception. We have devoted significant resources each year to research and
development. In 2004, research and development investments totaled 221.9 million and represented
approximately 28% of total revenue. As of December 31, 2004, approximately 2,171 employees,
representing 49% of our employee base, were in research and development. During 2004, we announced 3D XML (Extensible Markup Language), a universal, lightweight
XML-based format that enables users to capture and share accurate 3D data. 3D XML compresses highly
complex data, with file sizes up to 99 percent smaller than those of existing formats. The new
format was designed to greatly enhance collaboration around 3D information. 19




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We introduced in 2004 a breakthrough modeling product, CATIA  Imagine and Shape, designed
to bring V5 PLM to industrial designers, who have long preferred to work by hand. Our new product
easily facilitates the exploration of more product ideas in a shorter period of time, essentially
enabling styling creation at the speed of the designers imagination. We first introduced functional modeling in 2003 and further enhanced it in our 2004 product
releases. We created our CATIA  Functional Molded Parts product to greatly facilitate product
design, particularly of plastic parts in the electronics and consumer goods industries. This
product enables plastic parts designers to concentrate on what they want to design, rather than on
how to design the part. Specifically, it allows them to design more freely, as the software will
automatically adjust the new feature to fit predefined functional characteristics, such as
thickness, detailed shape design or zones that must remain clear to prevent clashes or
interferences. Our Convergent System Modeler is based on a new mathematical model that allows an enhanced
(highly-typed) structuralization of data and flows. This new modeler enables system and control
design of automated systems and is the foundation of the DELMIA Automation solutions. We believe we are the industry leader in connecting product design to manufacturing process
design. We do this through a PPR model, shared by CATIA, DELMIA and ENOVIA. The PPR model
allows companies to capture, share and reuse knowledge throughout the entire product lifecycle,
while the open architecture provided by V5 allows extension and integration of our solutions
according to each customers specific needs. The PPR connects our engineering hub with our
manufacturing hub through the ENOVIA backbone. In 2004 we enhanced this capability by implementing
integrated change management across the engineering and manufacturing hubs. Version 5 technology Combining our technological capabilities with our understanding of market needs, we have
developed an innovative and open software architecture (Version 5 or V5) first released at the end
of 1999. V5 is the technological platform for the development of new products for the PLM market
and makes possible a tight integration of CATIA, DELMIA and ENOVIA solutions. A major component of V5 is its unique object model allowing joint/simultaneous definition of
products, processes and resources to support multidisciplinary collaboration. It enables dynamic,
knowledge-based product creation, engineering and manufacturing processes management and decision
support to drive optimized product definition, manufacturing preparation, production and service. V5s open architecture enables other software developers to build on and complement our
software applications, thus permitting integration of our V5 based products with third-party
applications. V5 technology provides our PLM products with scalability. Scalability allows enterprises of
different sizes, and users with diverse profiles, from occasional use to highly sophisticated
engineering, to benefit from a fully integrated PLM solution. Scalability is possible with our PLM
solutions because they have a common V5 architecture, which allows them to be packaged according to
the clients specific needs and because they promote the usage of industry best of breed standards
on which all participants can develop and build their products. The following five fundamentals provide the underlying context for the development of our V5
products:  Industry-specific business process optimization. Business process optimization
can only be achieved by investing time, resources and energy to grasp the underlying
manufacturing industries processes. True benefits for manufacturing industries will
not be achieved by only accommodating current practices, it will be achieved by
understanding the direction in which their businesses are being driven and defining
together the processes that need to be realized (Best and Next Practices). Delivering
competitive advantage through end-to-end process optimization is achieved by sharing
with our customers a common and thorough view of the next breakthrough processes and
then realizing them through V5. 20




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Pervasive 3D based communication and collaboration. When people interact in a
shared workspace, they understand each other, they communicate with each other and
they collaborate in a manner that is uniquely enhanced by the power of 3D. The most
significant contribution to collaboration in product development in the past ten years
has been digital mock-up (DMU). Pioneered by us, DMU provides an immersive 3D
environment where all the participants in the product lifecycle can interact with each
others designs, thus significantly enhancing communication through rapid exchange,
direct-use, simulation and validation. Many major new projects are now being developed
by a network of partners spanning corporate and geographic boundaries. It is crucial
to have accurate and comprehensive information circulating throughout such networks in
order to achieve virtual co-location of all the participants. V5 incorporates
breakthrough technologies and delivers capabilities that harness the Internet and
corporate information hubs to extend the pervasiveness of 3D across these partner
networks. This brings a new level of decision support and collaboration that breaks
down the barriers imposed by different partners or geography and further accelerates
the product development process.Unique product, process and resource description and integration model. The
lifecycle of a manufactured product extends beyond the product itself to also include
the means and methods required to produce and maintain it. At the core of V5 lies a
unique technology called PPR that provides an associative model that integrates the
product with its processes and resources. PPR also incorporates a virtual product
model that captures the requirement view, as well as the logical, functional and
physical definitions of the product, processes and resources. With this model, an
accurate context can now be established to ensure configuration management,
simulation, change propagation and thorough linkage across the lifecycle. True product
lifecycle optimization can only occur within this context and this capability is
unique within the V5 architecture.Capturing, sharing and re-applying corporate knowledge. Manufacturing
corporations have recognized that intellectual property is increasingly becoming their
most valuable asset as competitive pressures place a premium on innovation. Harnessing
knowledge to innovate consists of being able to capture or mine knowledge, share it
and reuse or re-apply it quickly, accurately and efficiently. The integration of
knowledge-based services throughout V5 provides the capability necessary to allow a
corporation to harness its knowledge to innovate. V5 applications make a further
breakthrough by directly embedding knowledge within the product, process and resource
model. Critical industry specific processes are supported by dedicated applications
that incorporate PLM Best Practices and design rules. These applications therefore
address corporations core know-how and aim at in-depth coverage of their unique
processes and sub-processes. For example, V5 applications provide full,
knowledge-grounded solutions that drive the nuanced conceptual design of a car door,
or the aero-elasticity study for an airplane wing design.Openness and extension through component based architecture and community. The
specific needs of each customer require that their PLM solution be tailored, extended
and integrated. These requirements necessitate openness and the ability to re-apply
components to achieve different behavior or capabilities. The component application
architecture provided within V5 has been specifically developed to meet these needs.
Built using state of the art object oriented programming languages, including Java and
C++, the V5 architecture is similar to other leading-edge software such as IBM and
Microsoft platforms. Components are building units that allow the design and
implementation of sophisticated and complex software products; they allow software
designers to focus on high level conceptual programming and enforce encapsulation of
implementation details. This approach allows larger groups of developers to contribute
to and enrich the software application system as it evolves. We have thus developed a
network of partner companies that offer niche products incorporating specific
expertise. By using V5, these partners have a single development platform that ensures
delivery of a seamless, integrated software solution composed of both our products and
theirs. 21




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Mainstream 3D technology Designed specifically for Windows, our SolidWorks technology for the Design-centric market is
based on enabling designers and engineers to make an easy transition from 2D drafting tools to a 3D
solid modeling environment. Its intuitive Windows user interface enables users to productively
employ SolidWorks software without extensive training. SolidWorks applications provide users with
a 3D design process, for which a fully detailed solid model is used to quickly produce drawings and
perform downstream design functions. SolidWorks focuses on three core capabilities: design,
analysis and product data management. Openness of our software solutions In the PLM market, CAA V5 is our robust, open and comprehensive development platform. Our CAA
partners are developing, selling and supporting innovative applications that integrate seamlessly
with our PLM solutions. Our partners may also choose to benefit from the V5 platform possibilities
to connect with other applications, such as customers applications or other software companies
applications. We have developed stable and shared interfaces (CAA Authorized APIs) to allow
connection with non-V5 applications. The V5 platform supports the use of standards such as
WebSphere, Microsoft.net, PROSTEP, ONG, W3C and XML. Standards are widely created by industry
consortia, or by leading industry players for the exchange of data, or user interfaces or formats. In the mainstream 3D market, our SolidWorks software is an open system that allows independent
software developers to create complementary products that can be integrated with SolidWorks,
thereby significantly increasing the range of functions and capabilities that can be offered to
customers. In addition to our software solutions for the PLM and Mainstream 3D markets, we also supply
software components through our Spatial subsidiary, that are based on industry standards and
increase the interoperability of software solutions to serve the broader software industry.
Software developers in more than 14 industries around the world use our 3D ACIS Modeler (ACIS), a
well-known, 3D modeling engine. ACIS features an open, object-oriented C++ architecture. We also
offer InterOp Translators that allow software developers to easily integrate advanced 3D data
interoperability capabilities with 3D software. For example, our InterOp CATIA V5 Reader and Writer
translator enables data to be translated to and from other 3D formats. Customers and Industrial Sectors Overview. Our diversification strategy into a broad number of industrial sectors has met with
significant success. Historically, our two main markets were the automotive and aerospace
industries. We have in the last few years strengthened our presence in the fabrication and assembly
industry, which was our largest contributor to revenues in 2004, and have also increased our
presence in the consumer goods and electronics industries. In addition to ongoing opportunities in
our largest target industries, we believe our current software solutions present a good opportunity
to increase our presence in the consumer goods, electrical and electronics, and shipbuilding
industries. The table below sets forth the proportion of our revenues represented by sales to our major
industrial sectors for 2004, 2003 and 2002. These figures are a percentage of our total sales,
comprising both our Process-centric and Design-centric segments. Year ended December 31,2004
    
    
    2003
    
    

2002Automotive
    
    
    33%
    
    
    
    33%
    
    
    
    35%Aerospace
    
    
    16%
    
    
    
    17%
    
    
    
    16%Fabrication and assembly and others
    
    
    34%
    
    
    
    33%
    
    
    
    33%Consumer goods and electrical & electronics
    
    
    13%
    
    
    
    13%
    
    
    
    13%Plant design and shipbuilding
    
    
    4%
    
    
    
    4%
    
    
    
    3%100%
    
    
    
    100%
    
    
    
    100%
 During 2004 we expanded our client base, adding an estimated 11,500 new design customers and
1,200 new PDM customers. We sold 62,600 design seats comprised of our CATIA and SolidWorks new
licenses and in PDM 22




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we sold 35,000 new licenses in 2004. We estimate that at the end of 2004, we had over 80,000
customers across 80 countries. While we have built long-standing relationships with our customers, we continue to have a
diversified customer base. We estimate that our largest customer represented approximately 5% of
total revenue, and our five, ten and twenty largest customers accounted, respectively, for
approximately 17%, 24% and 33% of total revenue in 2004. The automotive market has been and continues to be an important market for our company,
accounting for 33% of our total sales. We work with most of the worlds largest automotive OEMs. We
also have developed business relationships with a number of companies within the automotive supply
chain. The automotive market encompasses cars, motorcycles, trucks, buses and campers. In addition
eight of the ten teams participating in the 2004 Formula 1 season employed our solutions to develop
their engines or chassis. These include: Jordan, McLaren-Mercedes, Williams BMW, Toyota Motorsport,
Sauber, Bar Honda, Ferrari, and the Renault F1 team. The aerospace industry accounted for approximately 16% of total revenue in 2004. We are the
largest supplier of advanced design solutions to the aerospace industry. During 2004, our Version 5
PLM software was selected by The Boeing Company as its company-wide product development platform to
develop the 787 Dreamliner. We are the standard design system at both Boeing and Airbus. Fabrication and Assembly (F&A) customers accounted for 34% of total sales in 2004. Our
software solutions are purchased by a wide range of companies in the F&A industry, spanning
fabricated metal products, industrial equipment and manufacturing machinery, mobile equipment and
products, trains and other fabricated products. New customers in 2004 included Kobelco, a
construction machinery manufacturer, Meyn, a manufacturer of poultry processing factories,
Securistyle, a window hardware manufacturer, Volvo Penta, a manufacturer of engines and complete
power systems for marine and industrial applications, Corus, a metals products manufacturer and
F.L. Smidth, a supplier of cement production technology, to name a few. Consumer goods and electrical and electronics (E&E) represented 13% of total sales in 2004. In
Consumer electronics and E&E, we made good progress in 2004. New consumer goods and E&E customers
in 2004 included Siemens ICM, a GSM mobile and cordless phones manufacturer, Sennheiser, a sound
equipment manufacturer, Neopost, a supplier of mailroom equipment and logistics solutions,
Unipoint, a parts supplier for the automotive aftermarket, Sunten, an electrical network equipment
supplier and Corecess, a network equipment manufacturer. And in consumer goods, we added Arc
International, a glass and crystal manufacturer, Electrolux Home Products Europe, a producer of
powered appliances for the kitchen, cleaning and outdoor use, Gardena, a garden supply
manufacturer, Swagelok, a developer and manufacturer of fluid system component technology and
Whirlpool Corporation, a manufacturer of major home appliances. Plant design and shipbuilding customers represented 4% of total sales in 2004. We had several
key wins in these markets during 2004 including: Hydro-Quebec, an energy provider, Areva, a nuclear
energy and electricity provider, Beneteau Group, a sailing and leisure motor boats manufacturer,
Seaway, a boat development company and Berret Racoupeau, an architectural firm focused on the
design of super yachts, mono-hulls and catamarans. In military shipbuilding, Northrop Grumman
selected us as the PLM solutions provider for the U.S. Navys new destroyer program. Automotive. Original equipment manufacturers using our software solutions include: BMW
China Motor Corporation
DaimlerChrysler
Dong Feng Motor Corp.
Ferrari
Ford
Honda
Hyundai Kia Motor Company
Irisbus
Iveco
    
    Mitsubishi Fuso Truck & Bus
Mitsubishi Motors
Porsche
PSA Peugeot-Citroën
Renault
Scania
SsangYong Motor Company
Subaru
Toyota Motor
Volkswagen  Audi Group
 23




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MAN Nutzfahrzeuge AG
MG Rover
    
    Volvo AB
Yazaki
 Customers in the automotive sector supply chain using our software solutions include: Aisin Seiki Co.
Autoliv
Behr
Bertone
Bertrandt AG
BorgWarner Automotive
Bosch
Brose Fahrzeugteile
Cimos
Comau Systems
Continental AG
Denso Corp.
Draexlmaier
Edag
Faurecia
Hella
Ichikoh Industries
Italdesign
Kanto Automotive Works
    
    Karmann
Koito Manufacturing
Koyo Seiko
Lear
Magna
Marcopolo
Michelin
Paulstra
Pininfarina
Ruecker
Siemens VDO
Sumitomo Wiring Systems
Toyota Gosei
TRW Automotive
Universal Propulsion Co.
Valeo
Williams Controls
ZF
 Aerospace.Customers in the aerospace sector using our software include: Aermacchi
AgustaWestland
Airbus
Alcatel Space
Alcoa Global Fasteners
Alenia Aeronautica
Alenia Spazio
AVIC
BAE Systems
Ball Aerospace & Technologies
Bell Helicopter
Boeing
Bombardier
Cessna
Dassault Aviation
Driessen Aircraft Interior Systems
EADS
El-OP
Embraer
Eurocopter
FHI (Fuji Heavy Industries)
Flight Safety International
Goodrich
Gulfstream
Honeywell
    
    KAI (Korea Aerospace Industries)
KHI (Kawasaki Heavy Industries)
Latécoère
Liebherr
Litton Guidance & Control Systems
Lockheed Martin
Loral
Lufthansa Technik AG
MHI (Mitsubishi Heavy Industries)
MTU
NASA
Northrop Grumman
Piaggio Aero
Pratt & Whitney Canada
Raytheon
Saab
Scaled Composites
Sikorsky
Singapore Technologies Aerospace
Smiths Aerospace
Snecma
Stork Fokker
Sukhoi
Vought Aircraft Industries
 Fabrication & assembly. Customers in the fabrication and assembly sector using our software
include: Alstom Power
    
    Krebs
 24




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##### Table of Contents



Arburg
Bobst
Bridgestone
Claas
Daewoo Heavy Industries
Elopak, Inc.
F.L. Smidth
FlexLink Systems AB
Framatome
GoodYear
Grundfos
Halla Engineering & Construction
Homag
Industrias Romi S.A.
Iscar
Julius Blum GmbH
Kalmar
Kikuchi Press
Kliklok International
Kobelco Construction Machinery
    
    Makino Milling Machine
Metso
Meyn
Michelin
Multivac Sepp Haggenmueller GmbH
NTN
OshKosh Group
Paper Converting Machine Corporation
Philips Oral Healthcare Inc.
Sanyo Machine Works
Scheidt and Bachmann
Schuler
Sidel
Staubli
Sumitomo Heavy Industries
Toyota Industries Corporation
TRUMPF Werkzeugmaschinen
Volvo Construction Equipment
Volvo Penta
 Customers in the train industry using our products include: Bombardier Transport, Alusuisse
Road & Rail Ltd., Alstom Transport, Changchun Car Co. and Westinghouse Rail Systems Ltd. Consumer goods. Customers in the consumer goods sector using our software solutions include: Arc International
Asahi
Austria Gaming Industries
Black & Decker
Bombardier Recreation
Braun
Burton Snowboards
Coca Cola
Crown, Cork & Seal
De Longhi
Dorel Juvenile Group
ETA Swatch
Fratelli Guzzini
Gucci
Hamilton Beach/Proctor Silex
Herman Miller
Hewlett Packard
Isafrance
    
    Kärcher
Kodak
Konica
Leifheit
Life Fitness
Metabo
Microsoft Corp
Newell Rubbermaid
Nilfisk Advance
Patek Phillippe
Rain Bird
Rayovac
Samsonite
Smoby
Solo Golf
Trek Bicycles
Werner Ladder Co.
Yakima
 Electrical & electronics. Customers in the electrical and electronics sector using our
software solutions include: ABB PMTV
AEG
Alpine Electronics
AMC Centurion AB
Ares Communications Tech
Ascom Monetel
Automatic Systems
Braun Medical
Ceragon Networks
    
    Mars Electronics
Matsushita Electrical Industrial
MDS Sciex
Miele
NEC
Newport Corporation
Nikon
Pioneer
Promise Technology
 25




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##### Table of Contents



Clarion
Corecess
Electrolux
Gnatus
Gretag Imaging
Grundig
Hubert and Suhner
IBM
IFM Electronic GmbH
Intel Corporation
JDS Uniphase
Johnson Electric
Kinpo Electronics
Legrand
MDS Sciex
    
    Radio Frequency Systems
Ricoh
Sagem
Sanyo Electronics
S&C Electric
Sennheiser
Shunde Special Transformer Works
Siemens
Sony
Sub-Zero
Texas Instruments
Thales
Visonic Group
Wolf Appliance
 Plant design. Customers in the plant design sector using our software solutions include: Aker
Albert Kahn Associates
Alstom Power
Ansaldo
Areva
BEI
Consol Energy
DaimlerChrysler
Farnham & Pfile Engineering and Construction
F.L.Smidth
Gehry Partners
    
    Haden International
Hydro Quebec
ITER
Kvaerner
METSO Corporation
Oceanografia
PEMEX
Permasteelisa
Shell
Southern California Edison
Trinity Industrial
 Shipbuilding yards and operators of passenger and cruise ships. Customers in the shipbuilding
sector include: Bénéteau
Berret Racoupeau
General Dynamics Bath Iron Works
General Dynamics Electric Boat
HDW AG
HSD Engines
IHI-Marine United
MeyerWerft
    
    MHI (Mitsubishi Heavy Industries)
Namura Shipbuilding
Northrop Grumman Newport News
Northrop Grumman Ship Systems
Samsung Heavy Industries
Seaway
Universal Shipbuilding Corporation
Yantai Raffle Shipyards
 In addition to the seven industrial sectors discussed above, we also offer 3D software
components across all our industry sectors. Set forth below is a list of customers for our 3D
software components: ABAQUS, Inc.
Alibre Design by Alibre Inc.
Ansoft Corporation
Cimatron E by Cimatron
Dynamic Designer on CAA V5 (ADAMS) by Applied
Research Associates
GSCAD by Intergraph Corporation
    
    IronCAD
Kubotek
Proficiency LTD (CAA V5)
Radan LTD (ACIS)
Sandia National Laboratory
Space-E by Hitachi Zosen Information Systems
Vistagy
 26




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Our Extended Enterprise Partnerships We have reinforced our extended enterprise approach through our relationships with customers,
technological partners, product development partners and cooperation with computer hardware
manufacturers. We have also entered into agreements with companies for the sales and marketing of
our automation products. IBM partnership. The extended enterprise concept emerged from our partnership with IBM for the
distribution of our products. We have had a long-standing partnership with IBM that has provided us
with deep technical expertise and commercial strength beyond the distribution agreement described
more fully below under Sales and Marketing. In the hardware, middleware and consulting services
domains, IBM has been a key partner to us. Furthermore, collaboration in several areas of research
and development has been the cornerstone of our and IBMs commitment to technical leadership for
the digital enterprise. In June 2000, IBM created an organization, known as IBM PLM, for marketing PLM products and
services exclusively dedicated to our solutions. This results in a strong platform for marketing
CATIA, ENOVIA and SMARTEAM, as well as DELMIA under a specific agreement, with two specific
channels to manage large accounts and small- and medium-sized accounts. IBM also manages an
important network of dedicated business partners, providing the market with a unique structure for
PLM. Since January 2002, IBM IGS, the IBM global services organization, has been a Premier
consulting partner to us. Through our services teams, IBM IGS now provides complementary consulting
and implementation services to customers in order to drive adoption of our PLM solutions. IBM IGS
collaborates with our integrated services teams to develop services offerings related to our PLM
solutions. Customer partners. We establish a permanent dialogue between our research and development
teams and our customers, thereby ensuring product developments that are responsive to market needs.
Principally due to the openness of our software applications, we offer our customers the
opportunity to develop complementary seamless software applications for internal use. We believe
that thousands of applications have been thus developed by our customers to meet their specific
needs. In addition, we have created competency centers based on specialized industrial segments to
gather information on our customers processes and thus help develop additional applications
tailored to the needs of each industry. In 2004, we continued active development of customer partnerships to specify, evaluate and
test process-oriented applications. We also organized user groups and forums in the United States,
Europe, Asia and Australia to enable customers to share their experiences with our software
products and solutions. Over 10,000 people attended such forums around the world in each of the
last several years. Hardware and technology partners. In order to maximize our benefits from available technology,
we have established technical collaborations with Dell, Hewlett Packard, IBM, Intel, Microsoft,
Silicon Graphics Inc. (SGI) and SUN Microsystems, as well as prestigious universities. The new
technologies included in Version 5 have been developed as both native Windows and Unix
environments. In order to optimize the technology of our products with computer manufacturers power in
graphics and calculation, we work in close collaboration with the computer hardware industry. In
the Unix environment, these partnerships have been active for a number of years with suppliers of
IBM, Sun Microsystems, SGI, and Hewlett Packard workstations. We have also set up a certification
program with numerous vendors of Windows workstations, including Compaq, Dell, Fujitsu Siemens
Computers, Hewlett Packard, IBM, NEC and SGI. During the fourth quarter of 2004 we entered into a multi-year, global strategic alliance with
Microsoft Corporation to deliver our V5 PLM and 3D design solutions to companies of all sizes
taking advantage of the Microsoft® software platform. By capitalizing on the Microsoft platform,
the goal of the alliance is to deliver greater customer value through solutions that are easy to
use, deploy and maintain with reduced ownership and integration costs. This alliance has been
designed to enable a far broader set of customers to realize the benefits of 3D collaboration and
PLM. We have also agreed with Microsoft to explore opportunities to work together to encourage
broad market adoption of XML for 3D applications across the design and graphics industry. 27




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Product development partners. In order to enable software developers to create and market
their own software applications using the Version 5 architecture, we set up a CAA V5 program. This
program was launched in July 2001 to provide independent software vendors with an open
next-generation V5 platform and with comprehensive support to deliver best-in-class PLM
applications to the market that are fully integrated and complementary to CATIA, ENOVIA and DELMIA
V5. By using V5, these partners have a single development platform that ensures delivery of
seamless, integrated software solutions composed of both our products and theirs. Our CAA V5 program has been very successful with more than 270 products based on CAA V5
introduced on the PLM market with V5R14 by 100 CAA V5 partners as of January 2005. We also hold an
annual CAA V5 Developer Conference focused on expanding the network of companies using our CAA V5
PLM development platform. In 2004, over 440 participants from around the world attended our annual
conference. During 2004 we entered into a long-term strategic partnership with Lattice Technology. The
goal of this partnership is to create a significantly more open and efficient 3D XML solution
enabling a pervasive and broad usage of 3D technology all across the supply chain. Through a
single, lightweight format the exchange of 3D data among manufacturers and suppliers, partners and
customers is facilitated. In China, we entered into a strategic alliance with CAXA, the leading domestic PLM vendor, to
create and sell design packages developed in China based on our V5 PLM technology. These solutions
are expected to be developed in a joint R&D center operated by CAXA in Beijing combining CAXAs R&D
expertise and technology with our 3D PLM solutions and V5 technology components. Through the
strategic alliance, CAXA plans to develop and market in China CAXA V5, a new generation of
integrated and scalable 2D and 3D PLM solutions for the Chinese market that embed V5 technology
components from us. SolidWorks operates a two-tier development partnership program bringing together companies
supplying products that are either compatible with or entirely integrated with SolidWorks.
SolidWorks extensively tests the integration between products and over 250 compatible products are
available in many areas, including machining, analysis, simulation and rapid prototyping. In 2004, 53 products from 41 SolidWorks partners had achieved Certified Gold status. Gold
Products are software applications developed by partners, and tested and certified by SolidWorks to
ensure high quality, integration and interoperability with SolidWorks software, thereby delivering
a higher degree of productivity to our customers. These products are part of the more expansive
SolidWorks Solution Partner program that includes over 600 companies worldwide. Automation
and sales partners. In April 2004, we entered into a business partnership with
Schneider Electric, a world leader in Power and Control, to sell DELMIA solutions and develop
consulting and services for the Automation and Production Engineering (production process planning,
production assembly processes and factory simulation) markets. In connection with this partnership,
Schneider Electric formed Dextus, a new wholly-owned subsidiary, which plans to sell and provide
services to both DELMIA PLM and DELMIA Automation. In November 2004, we entered into a strategic partnership with OMRON Corp., a leading
manufacturer of control equipment for factory automation, through which OMRON plans to distribute
DELMIA Automation as its new collaborative programming desktop for control engineers. In connection
with this agreement, OMRON has become a DELMIA Business Partner and plans to integrate DELMIA
Automation into its new generation of Control and Network Solutions using our CAA V5 platform. Consulting and service partners. Our ecosystem of industry alliances also includes a community
of consulting firms and systems integrators, led by our integrated services organization, Dassault
Systèmes Services. These Consulting and Services Partners are able to complete our own Services
Offerings to customers to optimize their business processes as well as integrate global PLM
solutions in line with best-of-class implementation practices. In addition to the key role played
by IBM IGS, this network of consulting and services partners also includes AtosOrigin, CSC, Incat,
Geometric Software Solutions, PCO Technologies, Tata Technologies, T-Systems, Cenit and Volvo IT.
It is expanding as selected companies with recognized skills and expertise in delivering PLM and
integration services are added to the ecosystem. 28




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Academic relationships. We have established a number of relationships with research centers,
universities and schools throughout the world over the years. Some of these academic institutions
include: AIP-PRIMECA, California Institute of Technology, Cambridge University, Georgia Tech,
Hokkaido University, Hong Kong Polytechnic, JSS Noida, MIT, Polytechnico di Milano, Princeton,
Purdue University, the University of Seoul, Tsinghua University and the University of Tokyo. Sales and Marketing Overview.
We largely market and sell our software solutions through indirect selling channels.
With respect to most of our PLM solutions our primary partner is IBM, with whom we have had a
strategic relationship since the inception of our company. IBM sells our product through a
dedicated sales organization and a network of Business Partners. See IBM ChannelMarketing
Structure below. In the design-centric market, SolidWorks software is distributed through a network of
approximately 300 value-added resellers and distributors worldwide. We support their activities
through industry trade shows, seminars, online educational activities, advertisements and marketing
materials. IBM
Channel  Summary. Revenue generated through our agreements with IBM represented
approximately 56%, 59% and 61% of our total revenue in 2004, 2003 and 2002, respectively. Under our
marketing and distribution agreement, we license CATIA, ENOVIA and SMARTEAM products to IBM, which
then sublicenses them to end-users. Since our inception in 1981, our CATIA products, since 1998 our
ENOVIA products, and since the second half of 2001 our SMARTEAM products, have been marketed and
distributed principally by IBM pursuant to a mutually non-exclusive agreement. See Item 3D: Risk
FactorsRisks Related to Our Business. IBM pays us royalties, which approximate 50% of total CATIA, ENOVIA and SMARTEAM license fees
invoiced by IBM. IBM may earn an incentive provided it reaches certain royalty growth targets.
Specifically, under our current royalty agreement with IBM, our initial royalty rate is 50% of the
license fees invoiced by IBM and moves down a sliding scale to 46.8% of the license fees invoiced
by IBM if IBM meets its resources investment objectives as well as annual royalty growth
objectives. IBMs achievement of certain levels of staffing and Business Partners fees can lead to
an incentive of up to 2% of end-user revenues, and the royalty growth achievement can lead to up to
the remaining 1.2%. In addition, specifically for DELMIA products, IBM and we have agreed to team together through
a cooperative licensing agreement to deliver digital manufacturing software applications to
accounts where both IBM and we can bring value. This agreement enables IBM to sub-license DELMIA
products to certain customers on a case-by-case basis, while ensuring that the DELMIA specialized
sales force maintains the customer support lead. IBM ChannelMarketing Structure. Our marketing strategy with IBM is focused on addressing the
needs of large companies and small- and medium-sized businesses (SMBs). IBM PLM is an IBM
organization exclusively dedicated to the marketing and sales of our CATIA, ENOVIA and SMARTEAM
products to large enterprises primarily. SMBs are primarily addressed through a network of IBM Business Partners devoted to market, on
a non-exclusive basis, our CATIA, ENOVIA and SMARTEAM products. Since 2000, we provide additional
support to this network of IBM Business Partners and contribute funds to an enhanced marketing
budget in order to ensure more brand awareness for CATIA, ENOVIA and SMARTEAM and to enhance lead
generation for the IBM Business Partners. In early 2004, IBM increased the fees paid to its
Business Partners, which improved their business model. Commencing in 2004, we have become a Master Partner for IBM in France and Belgium, whereby we
manage and provide marketing support to the French and Belgian network of IBM Business Partners.
Our primary objectives as Master Partner are to increase the penetration of our PLM solutions among
SMB companies and create a positive dynamic that IBM Business Partners will benefit from. 29




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To further address the opportunities for marketing and sales of our PLM solutions to SMBs, we
have also become an IBM Business Partner in certain targeted geographies, to complement the work of
IBM PLM and other IBM Business Partners. First, during 2004 we created a joint venture, RAND North
America, Inc., which is currently 70% owned by us and 30% owned by RAND Worldwide. And in January
2005, we acquired RAND Worldwides subsidiaries in the United Kingdom, Sweden, Germany and
Switzerland, as well as Rand Technologies C.I.S., Inc., which serves Russia. Direct Sales Channels. DELMIA products are marketed by a direct sales force, which is
complemented primarily by resellers. To a small degree, in some geographic markets, and in addition
to the IBM sales channel, SMARTEAM engages a direct sales force to market and sell its solutions. Indirect Sales Channels. SolidWorks products are marketed by a network of independent
resellers specifically focused on the local markets in 100 countries around the world. DELMIA
solutions are also sold by a network of Business Partners. To a small degree, in some geographic
markets and in addition to the IBM sales channels, SMARTEAM products and solutions are also
marketed and sold in part by resellers. Competition Markets for our products are highly competitive and characterized by rapidly changing
technology and evolving standards. Our main competitors in the Process-centric market include UGS
and PTC. For our Design-centric products, our main competitors include Autodesk, Inc., PTC, and
others. We also compete with several supply-chain management software providers, as well as other
enterprise software vendors, including Agile Software Corporation, MatrixOne, Oracle, SAP and
Siebel Corporation. In addition, numerous specialist software developers compete with us in niche
applications. We compete in our various product lines on the basis of product features, product coverage and
optimization, price, openness, customized design, marketing, sales and technical support. Our
ability to compete successfully depends on elements both within and outside our control, including
successful and timely development of new products, product performance and quality, pricing,
customer service, and industry trends. C. Organizational Structure Dassault Systèmes SA is the parent company of the Dassault Systèmes Group with two primary
functions: first, it provides certain centralized services to all the companies within the Group
and in this role operates in a fashion similar to a holding company. Second, the parent company is
also the largest operating company of the Group, responsible for the development of our CATIA and
ENOVIA software and the CAA V5 platform. As the parent company for the Group, Dassault Systèmes SA defines the Groups strategy and
operating plans. The executive management team is located at the parent companys principal office
in Suresnes, France, which is also the headquarters for Dassault Systèmes. The parent company
directs the following activities from its principal office: finance, investor relations,
communications, legal, human resources, and information technology, as well as our global research
and development strategies and management of our strategic partnership with IBM. The costs of
providing centralized services are billed back at their actual costs to the respective subsidiaries
using these services. The total amount charged back to subsidiaries was 1.5 million in 2004, 1.5
million in 2003 and 1.5 million in 2002. With respect to the assets of the Group, the assets
largely rest with the respective subsidiaries using such assets for the development of software and
services. 30




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The following table lists our principal operating subsidiaries and certain additional
information. Proportion ofSubsidiary
    
    Ownership Interest
    
    Country of OrganizationSolidWorks Corporation
    
    
    98.5%
    
    
    United StatesEnovia Corp.
    
    
    100%
    
    
    United StatesDelmia Corp.
    
    
    100%
    
    
    United StatesSmarTeam Corporation Ltd.
    
    
    100%
    
    
    IsraelSpatial Corp.
    
    
    100%
    
    
    United StatesDassault Data Services
    
    
    95%
    
    
    FranceDassault Systèmes KK
    
    
    100%
    
    
    Japan
 While our parent company accounted for 56% of total revenue, SolidWorks Corporation
(substantially represented by our Design-centric segment) was our only subsidiary that accounted
for more than 10% of total revenue in 2004, reaching 20% of total revenue in 2004. The results and
activity of our Design-centric segment are discussed further below in Item 5: Operating and
Financial Review and ProspectsExecutive Overview, and Results of OperationsRevenue and Operating
Income by SegmentDesign-centric. For a list of our other principal direct and indirect
subsidiaries, see Note R to our consolidated financial statements. D. Property, Plant and Equipment. We partially own and partially lease our principal executive offices in Suresnes outside
Paris, France. We lease most of our other administrative, research, production and distribution
facilities, which are located principally in France, the United States, Germany, India, Israel,
Japan, Canada and the United Kingdom. We believe that our existing facilities are adequate for our
current needs and that suitable additional or alternative space should be available in the future
on commercially reasonable terms as needed. We believe that we are not exposed to substantial risks relating to the environment due to the
nature of our business. On the contrary, our products contribute to the protection of the
environment since they are designed to replace the construction of physical mock-ups and to reduce
the environmental issues that are common to all industries. We are insured under various global insurance policies, managed centrally. These policies
provide coverage for significant risks and activities related to our operations, including damage
to property, product liability, intellectual property, directors and officers liability, and
global electronic errors or omissions. We believe that the guarantees provided for by these
insurance policies amount to sums proportionate to the risks involved. 31




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Item 5: Operating and Financial Review and Prospects A. Operating Results. For the benefit of readers, we have included an executive overview at the outset of this
section to facilitate an understanding of our financial results. In addition, you should read the
detailed discussion that follows together with our consolidated financial statements and the
related notes included in this annual report on Form 20-F. Summary Financial Results for 2004 The table below sets forth key figures from our statements of income. Year ended December 31,2004
    
    
    2003
    
    
    2002(in millions of euro, except per share data)Revenue
    
    
    796.6
    
    
    
    754.8
    
    
    
    774.1Gross profit
    
    
    673.9
    
    
    
    643.4
    
    
    
    653.3Operating income
    
    
    229.8
    
    
    
    212.7
    
    
    
    203.0Net income
    
    
    156.4
    
    
    
    135.4
    
    
    
    126.4Basic weighted average
number of common shares
outstanding
    
    
    113.2
    
    
    
    113.0
    
    
    
    114.1Diluted weighted average
number of common shares
outstanding
    
    
    116.2
    
    
    
    114.7
    
    
    
    116.2Basic net income per share
    
    
    1.38
    
    
    
    1.20
    
    
    
    1.11Diluted net income per share
    
    
    1.35
    
    
    
    1.18
    
    
    
    1.09Financial information
excluding amortization of
intangibles incurred in
business
combinations(1)Operating income
    
    
    231.2
    
    
    
    218.6
    
    
    
    214.1Net income
    
    
    157.6
    
    
    
    140.4
    
    
    
    136.0Basic net income per share
    
    
    1.39
    
    
    
    1.24
    
    
    
    1.19Diluted net income per share
    
    
    1.36
    
    
    
    1.22
    
    
    
    1.17
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income, net income and diluted net income per share
excluding amortization of intangibles incurred in business combinations are not U.S. generally
accepted accounting principles measurements and should not be considered as alternatives to
amounts reported under U.S. generally accepted accounting principles. Amortization of
intangibles incurred in business combinations (acquisition costs) totaled 1.4 million in
2004 (1.2 million after tax), 5.9 million in 2003 (5.0 million after tax), and 11.1
million in 2002 (9.6 million after tax) and consisted entirely of the amortization of
acquired technology.  
    
    Total revenue increased 5.5% to 796.6 million and increased 9% in constant currencies in 2004.
    
    Software revenue increased 3.9% to 670.9 million and increased 8% in constant currencies in 2004.
    
    Service revenue increased 15.1% to 125.7 million in 2004 and increased 19%
in constant currencies.
    
    Process-centric revenue, accounting for 82% of our consolidated revenue,
increased 3.4% to 650.7 million (excluding 1.5 million of inter-segment sales) and
included PDM revenue, which increased 7.5% to 101.7 million. In constant currencies,
Process-centric revenue increased 7% and PDM revenue increased 11% in 2004.
    
    Design-centric revenue, accounting for 18% of our consolidated revenue,
increased 16.1% to 145.9 million (excluding 0.2 million of inter-segment sales) and
increased 21% in constant currencies in 2004. 32




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
    
    Operating income increased 8.0% to 229.8 million, representing an operating
margin of 28.8% in 2004, compared to 212.7 million, representing an operating margin of
28.2% in 2003.
    
    Net income increased 15.5% to 156.4 million or diluted net income per share
of 1.35 in 2004, compared to 135.4 million or 1.18 per diluted share in 2003.
    
    Excluding amortization of intangibles incurred in business combinations
(acquisition costs), our net income for the year ended December 31, 2004, totaled
157.6 million with diluted net income per share of 1.36, representing an increase of
11.5% on a per share basis.We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income, net income and diluted net income per share
excluding acquisition costs, as defined above, are not U.S. generally accepted accounting
principles measurements and should not be considered as alternatives to amounts reported
under U.S. generally accepted accounting principles. See Results of OperationsBreakdown
of Revenues and Consolidated Data. See our discussion of non-GAAP financial measures in Growth on a constant currency basis and
Results of Operations. Executive Overview Market position. In U.S. dollars (used by industry consultants to measure market share), our
revenues increased 16% in 2004, leading to an estimated market share gain of one percentage point
to 23%, using an exchange rate of $1.24 to 1.00. We were ranked number one in PLM in 2003 with a
market share of 22%. Over the last three years we have increased our estimated market share by six
percentage points. (Our market share for 2003 has been restated to reflect the upward revision of
the market size by industry analyst (Daratech), with no change to our ranking.) Customer base. In addition to increasing our market share, we also expanded our customer base.
During 2004 we added approximately 11,500 new customers and our new licenses reached a record
62,600 CATIA and SolidWorks seats. Operating profitability. One of our key objectives in 2004 was to maintain a stable operating
margin. This objective was achieved with our operating margin excluding acquisition costs equaling
29.0%, stable with 2003. Growth on a constant currency basis. We experienced a good level of improvement in our
financial performance in 2004 compared to 2003, with revenue growing 6% and earnings per share
increasing 11% excluding acquisition costs. However, due to continued significant currency
movements in 2004 as in 2003, the underlying improvement in our level of activity was even greater
than that visible by looking at our reported financial results. On a reported basis, total revenue
increased 6% and on a constant currency basis, total revenue increased 9%. Moreover, software
revenue increased 4% as reported and increased 8% on a constant currency basis. Similarly, our
Design-centric business reported an increase in revenue of 16%, and on a constant currency basis,
revenue growth was 21%, while our PDM business increased 11% on a constant currency basis. From a
regional perspective, it is particularly helpful to compare growth on a constant currency basis. On
a constant currency basis, the Americas revenue growth was 18% compared to 7% on a reported basis
and for the Asian region, revenues increased year-over-year 8% on a constant currency basis
compared to 5% as reported. We use constant currency revenue growth to evaluate our financial
performance in comparison to prior periods and as a measure of expected growth in planning and in
setting objectives for future periods. We believe this measure is an important indicator of our
progress and outlook because it provides a better gauge of the level of change in business activity
as it eliminates any changes arising solely from currency fluctuations. The U.S. dollar weakened 9%
against the euro for 2004, with the U.S. dollar to euro average exchange rate of $1.24 per euro for
2004, compared to $1.13 per euro for 2003. The Japanese yen weakened by 3% versus the euro
resulting in a Japanese yen (JPY) to euro exchange rate of JPY134 per euro for 2004 compared to
JPY131 per euro for 2003. See Item 11: Quantitative and Qualitative Disclosures About Market
RiskForeign currency exchange risk. 33




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The decreases in the value of the U.S. dollar and Japanese yen in 2004 negatively impacted our
operating profit and earnings per share. The total currency impact on operating profit excluding
acquisition costs was 9.1 million or 4 percentage points of total operating profit excluding
acquisition costs, with 6.8 million attributable to the U.S. dollar and 2.3 million arising from
the Japanese yen. On a constant currency basis and excluding acquisition costs, operating profit
increased 10% in 2004. Operating
    
    
    Operating
    
    
    OperatingRevenue
    
    
    expenses
    
    
    income
    
    
    margin(in millions of euros, except %)Information on a reported basis
    
    
    796.6
    
    
    
    566.8
    
    
    
    229.8
    
    
    
    28.8
    %Growth
    
    
    6
    %
    
    
    5
    %
    
    
    8
    %
    
    0.6
    ptAmortization of intangibles incurred in business combinations
    
    
    0.0
    
    
    
    (1.4
    )
    
    
    1.4
    
    
    
    Excluding amortization of intangibles incurred in business
combinations
    
    
    796.6
    
    
    
    565.4
    
    
    
    231.2
    
    
    
    29.0
    %Growth excluding amortization of intangibles incurred in
business combinations
    
    
    6
    %
    
    
    5
    %
    
    
    6
    %
    
    0
    ptUSD impactUSD/EUR from 1.13 to 1.24
    
    
    25.3
    
    
    
    18.5
    
    
    
    6.8
    
    
    
    JPY/Won impactJPY/EUR from 131 to 134
    
    
    3.5
    
    
    
    1.2
    
    
    
    2.3
    
    
    
    Total
    
    
    28.8
    
    
    
    19.7
    
    
    
    9.1
    
    
    
    Excluding amortization of intangibles incurred in business
combinations and currency exchange impact
    
    
    825.4
    
    
    
    585.1
    
    
    
    240.3
    
    
    
    29.1
    %Growth excluding amortization of intangibles incurred in
business combinations and currency exchange impact
    
    
    9
    %
    
    
    9
    %
    
    
    10
    %
    
    0.1
    pt
 Changes in the value of foreign currencies compared to the euro also had an impact on our
short-term assets, as those held in foreign currencies are translated to euro at the end of period
exchange rate. This impact is taken into account in Financial revenue and othernet. In total,
the weakening of our major foreign currencies resulted in a 0.08 reduction in earnings per share
(EPS), excluding acquisition costs to 1.36 per diluted share. As a result, we reported a growth
rate for earnings per share, excluding acquisition costs of 11% for 2004 rather than 18%. Year ended December 31, 2004Net Profit
    
    
    EPS(in millions of euros, except %)Information on a reported basis
    
    
    156.4
    
    
    
    1.35Growth
    
    
    16
    %
    
    
    14
    %Amortization of intangibles incurred in business combinations
    
    
    1.4
    
    
    
    0.01Tax on amortization of intangibles incurred in business combinations
    
    
    (0.2
    )
    
    
    (0.00
    )Excluding amortization of intangibles incurred in business combinations
    
    
    157.6
    
    
    
    1.36Growth excluding amortization of intangibles incurred in business combinations
    
    
    12
    %
    
    
    11
    %Currency exchange impact on operating income
    
    
    9.1
    
    
    
    0.08Currency exchange impact on operating financial revenue and other
    
    
    4.8
    
    
    
    0.04Tax on currency exchange (Tax rate = 34.0%)
    
    
    (4.7
    )
    
    
    (0.04
    )Total
    
    
    9.2
    
    
    
    0.08Excluding amortization of intangibles incurred in business combinations and
currency exchange impact
    
    
    166.8
    
    
    
    1.44Growth excluding amortization of intangibles incurred in business
combinations and currency exchange impact
    
    
    19
    %
    
    
    18
    %
 We estimate changes in revenues and expenses on a constant currency basis by applying
2003 average market exchange rates to our total 2004 revenues and expenses by currency. We have
used the same methodology for the comparison of prior periods. For 2003, the average annual
exchange rate for the U.S. dollar to euro was $1.13 to 1.00 and the average annual exchange rate
for the Japanese yen to euro was JPY131 to 1.00. For 2002, the average annual exchange rate for
the U.S. dollar to euro was $0.94 to 1.00 and the average annual exchange rate for the Japanese
yen to euro was JPY118 to 1.00. Recurring Revenue. An important attribute of our financial model is our high percentage of
recurring revenue. We have had, and continue to have, a high level of recurring licenses revenue.
In 2004, recurring licenses revenue represented 51% of our total software revenue, which in turn
represented 84% of total revenue. 34




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Financial Position. We continued to have a strong financial position, with cash and short-term
investments totaling 552.8 million at December 31, 2004. During the year, we added on a net basis
113.1 million to cash and short-term investments. This figure is after cash dividends totaling
38.4 million in 2004. Economic and Other Business Indicators. A number of factors have an influence on our revenue
growth rate, including economic factors. The overall economic environment has an impact on the
level of activity of our businesses. As a software company, we also look at overall information
technology spending. In addition, our customers are largely composed of manufacturing companies. We
therefore find it useful to look at industrial investment spending trends. In Europe, which
represented approximately 47% of our revenues in 2004, industrial spending has just begun to
increase following two consecutive years of a downward trend, and this environment has clearly had
an impact on our results in the European region. For example, in France, business investment
spending increased by an estimated 2.9% in 2004 compared to 2003 where it declined by 1.7%.
Following several years of very strong revenue growth in Asia, we are experiencing a more moderate
level of growth. We believe this reflects the fact that in Japan, the largest contributor to our
revenues in Asia, business investment spending while still strong is trending somewhat lower.
Specifically, business investment spending growth in Japan moderated in 2004 to 6.7% compared to
8.7% in 2003 and is expected to moderate further in 2005. In the United States, our largest
contributor to our Americas region, business investment spending increased dramatically in 2004 to
an estimated growth rate of 10.3% from 3.3% in 2003. In 2004 industrial production increased 4.2% in the U.S., 5.6% in Japan, 2.1% in France and
2.5% in Germany. In comparison in 2003, industrial production increased 0.3% in the U.S., 3.2% in
Japan, and 0.2% in Germany, while decreasing 0.8% in France. Overall growth in the economy in 2004
as measured by GDP was 4.4% in the U.S., 2.9% in Japan, 2.1% in France and 1.7% in Germany. In
comparison, in 2003 GDP was 3.1% in the U.S. and 2.3% in Japan, while France grew only 0.1% and
Germany decreased 0.1%. Financial Overview Revenue Our total revenue is comprised of software revenue and service and other revenue. Software
revenue includes new licenses revenue as well as recurring licenses and product development
revenue. Our primary source of revenue is our software revenue, which accounted for 84%, 86% and
87% of our total revenue in 2004, 2003 and 2002, respectively. Our software solutions are marketed
and distributed principally by IBM, as well as through a network of other distribution partners and
a direct sales force for certain products. We generate service revenue through the consulting,
training and technical assistance we provide to our customers. Revenue generated through our
marketing and distribution agreement with IBM represented approximately 56% of our total revenue in
2004 compared with 59% in 2003 and 61% in 2002. See Item 4B: Business OverviewSales and
Marketing and Item 5A: Operating ResultsResults of OperationsBreakdown of Revenues. The
royalties we receive from IBM for their distribution of CATIA, ENOVIA, SMARTEAM and DELMIA products
include both up-front license fees and royalties related to periodic fees corresponding to either
rental arrangements or maintenance. We also sell our CATIA, ENOVIA, SMARTEAM and DELMIA products either directly or through other
partners. They are mainly licensed under one of two payment structures: (i) rental licenses, for
which the customer pays equal periodic fees to keep the license active, and (ii) primary fee
licenses, for which the customer pays an initial fee. Customers who pay a primary fee subsequently
pay periodic fees (generally annual). For both forms of license, periodic fees entitle the customer
to corrective maintenance and product updates without additional charge. Product updates include
improvements to existing products but do not cover new products. For a breakdown of revenue between
initial fees and periodic fees, see Note C to our consolidated financial statements. Software licenses offered by SolidWorks require the payment of a one-time fee. Access to
upgrades and maintenance require payment of an annual subscription fee. For software components sold by Spatial, we receive license and maintenance fees as well as
royalties on revenue derived from the sale of software products including embedded Spatial
components. 35




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##### Table of Contents



Recurring licenses revenue represented 51%, 51% and 48% of total software revenue in 2004,
2003 and 2002, respectively. Recurring licenses revenue is comprised of rental fees (mainly to
large customers) and maintenance fees. Our product development revenue relates to the development of additional functionalities of
standard products requested by customers. We generate service revenue mainly from consulting services in methodology and engineering
services. In addition, we generate service revenue from sales activities as an IBM partner in
France, Belgium and Switzerland, where we act (through one of our French divisions and through our
Swiss subsidiary) as IBMs Business Partner for the sale of CATIA, ENOVIA and SMARTEAM licenses and
in North America through our RAND North America, Inc. joint venture. We record the commissions we
receive from IBM for this activity as service revenue. In addition we receive fees when we act as
Master Partner for IBM. In our commercial partner activity, we also resell computer hardware, but
in this case we record only the gross margin from the sales as service revenue. Expenses Research and development expenses represented 28%, 29% and 29% of total revenue in 2004, 2003
and 2002, respectively. Research and development expenses primarily include personnel costs for
specialists in software architecture and various application fields such as mechanical design,
manufacturing, mechanical engineering and computer graphics, as well as for specialists with
significant experience and knowledge of our target industrial sectors. Research and development
expenses also include computer rental expenses, the depreciation and cost of maintenance related to
computer hardware used in research and development, development tools, networking and communication
expenses. Costs for research and development of software are expensed when incurred, if the analysis of
technical criteria does not qualify them as a capital asset. Since our founding in 1981,
implementation of this accounting policy has resulted in all such costs being expensed in the
period in which they were incurred. Marketing and sales expenses represented 22%, 22% and 22% of total revenue in 2004, 2003 and
2002, respectively. Marketing and sales expenses are derived principally from our marketing
activities in support of IBM and the SolidWorks, DELMIA, SMARTEAM and Spatial direct and indirect
sales channels. We also incur marketing and sales expenses from our activities as an IBM Business
Partner in France, Belgium, Switzerland, and in North America through our RAND North America, Inc.
subsidiary. Marketing and sales expenses primarily consist of personnel costs, travel expenses and
marketing infrastructure costs, such as computer and office rental expenses, as well as sales
commissions. Amortization of intangibles incurred in business combinations includes expenses for research
and development projects related to the acquired company that have not reached the technical
feasibility stage or are considered to have no future value. Amortization of intangibles incurred
in business combinations also includes amortization of goodwill (prior to fiscal year 2002) and
amortization of technology acquired in connection with business combinations. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make certain assumptions and judgments. Actual results may differ from
these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, affect the more
significant judgments and estimates used in the preparation of our consolidated financial
statements. 36




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Revenue recognition We recognize revenue in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 104, Revenue Recognition in
Financial Statements (SAB-104) and other authoritative guidance. Although we believe that we are
currently in compliance with SOP 97-2, SOP 98-9 and SAB-104, the accounting profession continues to
discuss various provisions of these guidelines with the objective of providing additional guidance
on their future application. These discussions and the issuance of new interpretations, once
finalized, could lead to changes in our revenue recognition policies. Our operating results and
financial position may be impacted by changes in these policies. See Note A to our consolidated
financial statements and Item 3D: Risk FactorsThe regulatory environment has become increasingly
complex and is subject to change. Changes in the applicable standards, rules or interpretations may
require us to modify our accounting policies and business practices, which could adversely affect
our results of operations. Implementation of regulatory requirements is costly and may have a
negative adverse effect on our cost of operations or our stock price. Under our arrangement with IBM, royalties from products distributed by IBM are recognized when
IBM recognizes revenue and reports such revenue to us. The reporting of IBM activity is subject to
an annual audit and adjustment process, whereby either party has the opportunity to correct
differences that may have occurred during the preceding year. Such differences generally result
from interim reporting which occasionally either overstates or understates the number of software
license transactions with a group or groups of end-user customers. We monitor the possible
differences based upon historical trends and known specific situations, and defer the recognition
of revenue by IBM based upon its estimate of adjustments that will ultimately be made. Due to the
volume of revenues generated from our marketing and distribution arrangement with IBM, significant
audit adjustments could have a material impact on our results of operations. Taxes We account for income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect of temporary differences between
the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not that some portion or
all of the deferred tax asset will not be realized. We evaluate regularly the realizability of our deferred tax assets by assessing our valuation
allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess
the likelihood of realization are our forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets. We have used tax
planning strategies to realize or renew net deferred tax assets in order to avoid the potential
loss of future tax benefits. In addition, we operate within multiple tax jurisdictions and are subject to audit in these
jurisdictions. These audits can involve complex issues, which may require an extended period of
time to resolve. The accounting for income taxes encompasses the use of judgments and estimates.
Actual results and amounts could differ from those used in accounting for income taxes. Such
differences could have a material impact on our future operating results. Investments We hold minority interests in and also grant loans to companies having operations or
technology in areas within our strategic focus, some of which are publicly traded and have highly
volatile share prices. We record an impairment charge when we believe an investment or a loan has
experienced a decline in value that is other than temporary. Future adverse changes in market
conditions or poor operating results of these companies could result in losses or an inability to
recover the carrying value of the investments or loans that may not be reflected in an investments
current carrying value, thereby possibly requiring an impairment charge in the future. 37




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Goodwill and other intangible assets We account for goodwill and other intangible assets in accordance with SFAS 142, which
requires that goodwill be tested for impairment at the reporting unit level (operating segment or
one level below an operating segment) on an annual basis and between annual tests in certain
circumstances. Application of the goodwill impairment test requires judgment, including the
identification of reporting units, assigning assets and liabilities to reporting units, assigning
goodwill to reporting units, and determining the fair value of each reporting unit. Significant
judgments required to estimate the fair value of reporting units include estimating future cash
flows, determining appropriate discount rates, and other assumptions. Changes in these estimates
and assumptions could materially affect the determination of fair value and/or goodwill impairment
for each reporting unit, and consequently our results of operations. Recently Issued Accounting Standards In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004),
Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-based Compensation
(Statement 123(R)). Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. Generally, the approach in Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. Statement 123(R) must be adopted no later than the beginning of the first fiscal year
beginning after June 15, 2005. The Company expects to adopt Statement 123(R) on January 1, 2006. The Company plans to adopt Statement 123(R) using the modified prospective method, in which
compensation cost is recognized beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the effective date and (b) based on the
requirements of Statement 123 for all awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date. As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using the intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of Statement 123(R)s fair value method will
have a significant impact on our results of operations, although it will have no impact on our
overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this
time because it will depend on levels of share-based payments granted in the future. However, had
we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated
the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per
share in Note A to our consolidated financial statements. 38




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Results of Operations The table below sets forth the contribution of the Process-centric and Design-centric segments
to our revenue, gross profit, operating income and net income (see Notes A and Q to our
consolidated financial statements). Year ended December 31,2004
    
    
    2003
    
    
    2002(in millions of euro, except percentages)RevenueProcess-centric
    
    
    652.1
    
    
    
    81.9
    %
    
    
    630.5
    
    
    
    83.5
    %
    
    
    649.4
    
    
    
    83.9
    %Design-centric
    
    
    146.2
    
    
    
    18.3
    %
    
    
    126.1
    
    
    
    16.7
    %
    
    
    126.9
    
    
    
    16.4
    %Elimination
    
    
    (1.7
    )
    
    
    (0.2
    %)
    
    
    (1.8
    )
    
    
    (0.2
    %)
    
    
    (2.2
    )
    
    
    (0.3
    %)Total
    
    
    796.6
    
    
    
    100.0
    %
    
    
    754.8
    
    
    
    100.0
    %
    
    
    774.1
    
    
    
    100.0
    %Gross profitProcess-centric
    
    
    541.9
    
    
    
    80.4
    %
    
    
    530.3
    
    
    
    82.4
    %
    
    
    541.6
    
    
    
    82.9
    %Design-centric
    
    
    133.4
    
    
    
    19.8
    %
    
    
    114.4
    
    
    
    17.8
    %
    
    
    113.3
    
    
    
    17.3
    %Elimination
    
    
    (1.4
    )
    
    
    (0.2
    %)
    
    
    (1.3
    )
    
    
    (0.2
    %)
    
    
    (1.7
    )
    
    
    (0.2
    %)Total
    
    
    673.9
    
    
    
    100.0
    %
    
    
    643.4
    
    
    
    100.0
    %
    
    
    653.3
    
    
    
    100.0
    %Operating incomeProcess-centric
    
    
    182.7
    
    
    
    79.5
    %
    
    
    175.4
    
    
    
    82.5
    %
    
    
    170.9
    
    
    
    84.2
    %Design-centric
    
    
    47.1
    
    
    
    20.5
    %
    
    
    37.3
    
    
    
    17.5
    %
    
    
    32.1
    
    
    
    15.8
    %Total
    
    
    229.8
    
    
    
    100.0
    %
    
    
    212.7
    
    
    
    100.0
    %
    
    
    203.0
    
    
    
    100.0
    %Net incomeProcess-centric
    
    
    122.8
    
    
    
    77.7
    %
    
    
    111.2
    
    
    
    82.1
    %
    
    
    104.2
    
    
    
    82.4
    %Design-centric
    
    
    33.6
    
    
    
    22.3
    %
    
    
    24.2
    
    
    
    17.9
    %
    
    
    22.2
    
    
    
    17.6
    %Total
    
    
    156.4
    
    
    
    100.0
    %
    
    
    135.4
    
    
    
    100.0
    %
    
    
    126.4
    
    
    
    100.0
    %Financial information excluding amortization of
intangibles incurred in business
combinations(1)Operating incomeProcess-centric
    
    
    183.8
    
    
    
    79.5
    %
    
    
    181.0
    
    
    
    82.8
    %
    
    
    181.8
    
    
    
    84.9
    %Design-centric
    
    
    47.4
    
    
    
    20.5
    %
    
    
    37.6
    
    
    
    17.2
    %
    
    
    32.3
    
    
    
    15.1
    %Total
    
    
    231.2
    
    
    
    100.0
    %
    
    
    218.6
    
    
    
    100.0
    %
    
    
    214.1
    
    
    
    100.0
    %Net incomeProcess-centric
    
    
    123.8
    
    
    
    77.7
    %
    
    
    116.1
    
    
    
    82.7
    %
    
    
    113.6
    
    
    
    83.5
    %Design-centric
    
    
    33.8
    
    
    
    22.3
    %
    
    
    24.3
    
    
    
    17.3
    %
    
    
    22.4
    
    
    
    16.5
    %Total
    
    
    157.6
    
    
    
    100.0
    %
    
    
    140.4
    
    
    
    100.0
    %
    
    
    136.0
    
    
    
    100.0
    %
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income and net income excluding amortization of
intangibles incurred in business combinations are not U.S. generally accepted accounting
principles measurements and should not be considered as alternatives to amounts reported under
U.S. generally accepted accounting principles. Amortization of intangibles incurred in
business combinations (acquisition costs) totaled 1.4 million in 2004 (1.2 million after
tax), 5.9 million in 2003 (5.0 million after tax), and 11.1 million in 2002 (9.6 million
after tax) and consisted entirely of the amortization of acquired technology. 39




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##### Table of Contents



The tables below set forth the breakdown of revenue by type of activity and geographic
region for the periods indicated. Breakdown of Revenue Year ended December 31,2004
    
    
    2003
    
    
    2002(in millions of euro)Revenue by activitySoftware revenue
    
    
    670.9
    
    
    
    645.6
    
    
    
    669.9Service and other revenue
    
    
    125.7
    
    
    
    109.2
    
    
    
    104.2Total
    
    
    796.6
    
    
    
    754.8
    
    
    
    774.1
 Year ended December 31,2004
    
    
    2003
    
    
    2002(in millions of euro)Revenue by geographic region(1)Europe(2)
    
    
    371.0
    
    
    
    353.8
    
    
    
    374.5North and South America(3)
    
    
    230.9
    
    
    
    215.4
    
    
    
    224.0Asia Pacific(3)
    
    
    194.7
    
    
    
    185.6
    
    
    
    175.6Total
    
    
    796.6
    
    
    
    754.8
    
    
    
    774.1
 
 (1)
    
    In our consolidated financial statements, we classify and state software revenue by
geographic region in two ways: (i) by the geographic location of the end-user customer, and
(ii) by the geographic location of our business unit which records the transaction. See Note Q
to our consolidated financial statements. In the tables above, software revenue is classified
by the geographic location of the end-user customer, while service and other revenue is
classified by the location where the activity is performed.(2)
    
    Germany and France account for most of our sales in Europe. See Note Q to our consolidated
financial statements.(3)
    
    Most of the revenue from North and South America comes from the United States, and most of
the revenue from the Asia Pacific region comes from Japan. 40




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The tables below present certain financial data taken from our consolidated financial
statements expressed as a percentage of our total revenue. Our revenue and the percentage of the
various expense or other revenue items of total revenue may not be comparable with those of our
competitors due to the distribution of our products by IBM. Consolidated Data Year ended December 31,2004
    
    
    2003
    
    
    2002(as a % of total revenue)Total RevenueSoftware revenue
    
    
    84.2
    %
    
    
    85.5
    %
    
    
    86.5
    %Service and other revenue
    
    
    15.8
    
    
    
    14.5
    
    
    
    13.5Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenue:Software
    
    
    (2.7
    )
    
    
    (2.9
    )
    
    
    (3.2
    )Service and other
    
    
    (12.7
    )
    
    
    (11.9
    )
    
    
    (12.4
    )Total cost of revenue
    
    
    (15.4
    )
    
    
    (14.8
    )
    
    
    (15.6
    )Gross profit
    
    
    84.6
    
    
    
    85.2
    
    
    
    84.4Research, selling and administrative expenses:Research and development
    
    
    (27.9
    )
    
    
    (28.6
    )
    
    
    (28.7
    )Marketing and sales
    
    
    (21.8
    )
    
    
    (21.5
    )
    
    
    (21.9
    )General and administrative
    
    
    (5.9
    )
    
    
    (6.2
    )
    
    
    (6.2
    )Amortization of acquired technology
    
    
    (0.2
    )
    
    
    (0.8
    )
    
    
    (1.4
    )Total research, selling and administrative expenses
    
    
    (55.8
    )
    
    
    (57.1
    )
    
    
    (58.2
    )Operating income
    
    
    28.8
    
    
    
    28.2
    
    
    
    26.2Equity in net income of unconsolidated affiliates
 joint ventures
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0Financial revenue and other  net
    
    
    0.9
    
    
    
    (0.1
    )
    
    
    0.4Income before income taxes
    
    
    29.8
    
    
    
    28.1
    
    
    
    26.6Income tax expense
    
    
    (10.2
    )
    
    
    (10.2
    )
    
    
    (10.3
    )Net income
    
    
    19.6
    
    
    
    17.9
    
    
    
    16.3Financial information excluding amortization of
intangibles incurred in business
combinations:(1)Operating income
    
    
    29.0
    
    
    
    29.0
    
    
    
    27.7Net income
    
    
    19.8
    
    
    
    18.6
    
    
    
    17.6
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income and net income excluding amortization of
intangibles incurred in business combinations are not U.S. generally accepted accounting
principles measurements and should not be considered as alternatives to amounts reported under
U.S. generally accepted accounting principles. Amortization of intangibles incurred in
business combinations (acquisition costs) totaled 1.4 million in 2004 (1.2 million after
tax) compared with 5.9 million in 2003 (5.0 million after tax) and 11.1 million in 2002
(9.6 million after tax) and consisted entirely of the amortization of acquired technology. 41




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##### Table of Contents



Process-centric Consolidated Data Year ended December 31,2004
    
    
    2003
    
    
    2002(as a % of Process-centric revenue)Revenue:Software revenue
    
    
    80.5
    %
    
    
    82.5
    %
    
    
    83.7
    %Service and other revenue
    
    
    19.5
    
    
    
    17.5
    
    
    
    16.3Total Process-centric revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenue:Software
    
    
    (1.4
    )
    
    
    (1.6
    )
    
    
    (1.7
    )Service and other
    
    
    (15.5
    )
    
    
    (14.2
    )
    
    
    (14.8
    )Total cost of revenue
    
    
    (16.9
    )
    
    
    (15.9
    )
    
    
    (16.6
    )Gross profit
    
    
    83.1
    
    
    
    84.1
    
    
    
    83.4Research, selling and administrative expenses:Research and development
    
    
    (30.3
    )
    
    
    (30.6
    )
    
    
    (29.9
    )Marketing and sales
    
    
    (18.2
    )
    
    
    (18.2
    )
    
    
    (18.8
    )General and administrative
    
    
    (6.4
    )
    
    
    (6.7
    )
    
    
    (6.7
    )Amortization of acquired technology
    
    
    (0.2
    )
    
    
    (0.9
    )
    
    
    (1.7
    )Total research, selling and administrative expenses
    
    
    (55.1
    )
    
    
    (56.3
    )
    
    
    (57.1
    )Operating income
    
    
    28.0
    
    
    
    27.8
    
    
    
    26.3Equity in net income of unconsolidated affiliates  joint
ventures
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.0Financial revenue and other  net
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.2Income before income taxes
    
    
    28.2
    
    
    
    27.9
    
    
    
    26.5Income tax expense
    
    
    (9.6
    )
    
    
    (10.3
    )
    
    
    (10.5
    )Net income
    
    
    18.6
    
    
    
    17.6
    
    
    
    16.0Financial information excluding amortization of
intangibles incurred in business
combinations:(1)Operating income
    
    
    28.2
    
    
    
    28.7
    
    
    
    28.0Net income
    
    
    18.8
    
    
    
    18.4
    
    
    
    17.5
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income and net income excluding amortization of
intangibles incurred in business combinations are not U.S. generally accepted accounting
principles measurements and should not be considered as alternatives to amounts reported under
U.S. generally accepted accounting principles. 42




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##### Table of Contents



Design-centric Consolidated Data Year ended December 31,2004
    
    
    2003
    
    
    2002(as a % of Design-centric revenue)Revenue:Software revenue
    
    
    99.9
    %
    
    
    99.8
    %
    
    
    99.7
    %Service and other revenue
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3Total Design-centric revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenue:Software
    
    
    (8.8
    )
    
    
    (9.3
    )
    
    
    (10.7
    )Service and other
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Total cost of revenue
    
    
    (8.8
    )
    
    
    (9.3
    )
    
    
    (10.7
    )Gross profit
    
    
    91.2
    
    
    
    90.7
    
    
    
    89.3Research, selling and administrative expenses:Research and development
    
    
    (17.0
    )
    
    
    (18.5
    )
    
    
    (21.5
    )Marketing and sales
    
    
    (37.8
    )
    
    
    (38.2
    )
    
    
    (38.0
    )General and administrative
    
    
    (4.0
    )
    
    
    (4.2
    )
    
    
    (4.4
    )Amortization of acquired technology
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Total research, selling and administrative expenses
    
    
    (59.0
    )
    
    
    (61.1
    )
    
    
    (64.0
    )Operating income
    
    
    32.2
    
    
    
    29.6
    
    
    
    25.3Equity in
net income of unconsolidated affiliates  joint
ventures
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Financial revenue and other  net
    
    
    4.1
    
    
    
    (0.8
    )
    
    
    1.4Income before income taxes
    
    
    36.3
    
    
    
    28.7
    
    
    
    26.7Income tax expense
    
    
    (12.4
    )
    
    
    (9.6
    )
    
    
    (9.2
    )Net income
    
    
    23.9
    
    
    
    19.2
    
    
    
    17.5Financial information excluding amortization of
intangibles incurred in business
combinations:(1)Operating income
    
    
    32.4
    
    
    
    29.8
    
    
    
    25.5Net income
    
    
    24.0
    
    
    
    19.3
    
    
    
    17.6
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income and net income excluding amortization of
intangibles incurred in business combinations are not U.S. generally accepted accounting
principles measurements and should not be considered as alternatives to amounts reported under
U.S. generally accepted accounting principles. 2004 versus 2003 Consolidated Information Total revenue Total revenue increased 5.5% as reported to 796.6 million in 2004, compared to 754.8 million
in 2003 and increased 9% on a constant currency basis, primarily reflecting strong growth in our
Design-centric segment and PDM portion of our Process-centric segment which grew 21% and 11%,
respectively, in constant currencies. Total revenue was comprised of software revenue of 670.9 million, representing 84% of total
revenue, and service revenue of 125.7 million, representing 16% of total revenue. Process-centric
revenue totaled 650.7 million or 82% of total revenue and included PDM revenue of 101.7 million.
Design-centric revenue totaled 145.9 million or 18% of total revenue in 2004, compared to 125.7
million or 17% of total revenue in 2003. Total revenue by geographic region. As a percentage of 2004 total revenue, Europe represented
47%, the Americas accounted for 29% and Asia represented 24%. As a percentage of 2003 total
revenue, Europe represented 46%, the Americas accounted for 29% and Asia represented 25%. 43




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Revenue performance improved in Europe during 2004 with total revenue increasing 4.8%
year-over-year, compared to a decrease of 5.5% in 2003 in comparison to 2002. The environment in
Europe was generally stable throughout 2004. Revenue growth in Europe primarily reflected growth in
service and other revenue of 22%, with software revenue increasing 1% in 2004. The Americas reported the strongest growth of our three geographic regions in 2004. For the
full year revenue in the Americas increased 7% and 18% in constant currencies on year-over-year
growth in software and services. Both our Process-centric and Design-centric business segments
contributed to the strong performance of the Americas in 2004. In the Asia/Pacific region revenue increased 4.9% and 8% in constant currencies in 2004,
largely reflecting year-over-year growth in our Design-centric business. Software revenue. Software revenue (which includes new license, recurring license and product
development) increased 3.9% to 670.9 million in 2004, compared to 645.6 million in 2003. On a
constant currency basis, software revenue increased 8% in 2004 largely reflecting year-over-year
growth in our Design-centric segment and in our PDM portion of the Process-centric segment. Recurring licenses revenue. Recurring licenses revenue totaled 343.2 million in 2004,
compared to 332.0 million in 2003, representing an increase of 3.4%. The growth in recurring
licenses revenue reflected the increases in the installed workstation base of the Process-centric
segment and maintenance fees in the Design-centric segment. Recurring licenses revenue represented
51% of total software revenue in 2004, compared to 51% in 2003. Seat licensing and pricing. In 2004 CATIA and SolidWorks seats licensed increased 9% to
62,577. CATIA seats licensed in 2004 increased 2% to 32,695 compared to 32,163 CATIA seats licensed
in 2003. SolidWorks seats licensed in 2004 increased 18% to 29,882, compared to 25,361 in 2003. CATIA Version 5 seats represented 86% of total CATIA seats licensed in 2004, compared to 74%
in 2003. The average CATIA Version 5 end-user price per seat decreased 3%, but increased 1% in
constant currencies in 2004. The average SolidWorks end-user price per seat in U.S. dollars increased 10% in 2004. This
increase reflected the favorable impact of both geographic and product mix changes. SolidWorks
Office and Office Professional represented approximately 50% of total seats licensed in 2004. Service revenue. Service revenue increased 15.1% to 125.7 million in 2004, compared to 109.2
million in 2003 and increased 19% in constant currencies. We experienced an increase in PLM
consulting projects. In addition, we received fees acting as an IBM Business Partner through our
North American subsidiary and as an IBM Master Partner in France and Belgium. Gross Profit. Gross profit increased 4.7% to 673.9 million in 2004, compared to 643.4
million in 2003. The gross profit margin for software in 2004 was similar to 2003, at 96.8% in
2004, compared to 96.6% in 2003. The gross profit margin for services increased 1.8 percentage
points to 19.6% in 2004, compared to 17.8% in 2003, reflecting a more favorable mix of consulting
projects. Operating expenses Summary. Operating expenses increased 4.2% in 2004, reflecting higher investments to grow our
small and medium-size business market (SMB) channel in both our Process-centric and Design-centric
business segments and continued investments in research and development. In 2004, operating
expenses were comprised of (i) research and development costs of 221.9 million, (ii) marketing and
sales costs of 173.7 million and (iii) general and administrative expenses of 47.1 million.
Operating expenses totaled 442.7 million in 2004, compared to 424.8 million in 2003. Total
expenses, including cost of revenue of 122.7 million and operating expenses of 442.7 million,
amounted to 565.4 million in 2004. In constant currencies, total expenses increased 9.1%, with 44




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average headcount growth of 5.9% for 2004. The composition of operating expenses by currency
in 2004 was approximately as follows: 71% in euro, 23% in U.S. dollars and 6% in Japanese yen. Research and development expenses. Research and development expenses increased 2.9% to 221.9
million in 2004, compared to 215.6 million in 2003. Average headcount increased 6.7% in R&D during
2004 compared to 2003. As of December 31, 2004, the total headcount in research and development was
2,171 employees, representing 48.7% of total employees, compared to 49.5% at December 31, 2003.
Research and development expenses represented 27.9% of total revenue in 2004, compared to 28.6% in
2003. See the discussion under Item 5C: Research and Development, Patents and LicensesResearch
and Development below. Marketing and sales expenses. Marketing and sales expenses increased 7.0% to 173.7 million in
2004, compared to 162.4 million in 2003. Marketing and sales average headcount growth was 5.3% in
2004, up from 1.8% in 2003, as we focused on increasing our resources addressing the SMB market, in
particular in the Americas with our new RAND North America, Inc. joint venture. At December 31,
2004, the total headcount in marketing and sales was 1,954 employees, representing 43.9% of total
employees, compared to 43.1% at December 31, 2003. Marketing and sales expenses represented 21.8%
of total revenue in 2004, compared to 21.5% in 2003. General and administrative expenses. General and administrative expenses increased less than
1% in 2004 to 47.1 million, compared to 46.8 million in 2003. In 2004, our average headcount
increased 4.3%, with most of the increase occurring in the second half of the year. General and
administrative expenses represented 5.9% of total revenue in 2004, compared to 6.2% in 2003. Amortization of intangibles incurred in business combinations (acquisition costs).
Acquisition costs decreased 76.3% to 1.4 million in 2004, compared to 5.9 million in 2003 and
reflected the completion of the amortization of acquisition costs related to several acquisitions. Operating income and operating margin Operating income was 229.8 million in 2004, compared to 212.7 million in 2003. Operating
income excluding acquisition costs increased 5.8% to 231.2 million in 2004 or 29.0% of total
revenue, compared to 218.6 million or 29.0% in 2003. The increase in the operating income
excluding acquisition costs reflected growth in total revenue. See Item 11: Quantitative and
Qualitative Disclosures About Market Risk. Financial revenue and other, net Financial revenue and other, including equity in net income of unconsolidated affiliates,
totaled 7.5 million in 2004, compared to (0.4) million in 2003. The significant growth in
financial revenue and other in 2004 primarily reflected higher financial income and lower exchange
losses on accounts receivables in comparison to 2003. Specifically, financial revenue and other in
2004 was comprised of net financial revenue of 11.3 million, exchange losses on accounts
receivables of (4.8) million and other income of 1.0 million. Our average balance of cash and
short-term investments increased in 2004. At December 31, 2004, cash and short-term investments
totaled 552.8 million, compared to 439.7 million at December 31, 2003. See Note D to our
consolidated financial statements. Income tax expense Income tax expense totaled 80.9 million in 2004, compared to 76.9 million in 2003. The
effective tax rate was 34.1% in 2004, compared to 36.2% in 2003. The decrease in the effective tax
rate between 2004 and 2003 primarily reflected the benefits of certain tax credits in France. See
Note E to our consolidated financial statements. Net income Net income was 156.4 million in 2004, compared to 135.4 million in 2003. Excluding
acquisition costs, net income increased 12.3% to 157.6 million in 2004, compared to 140.4 million
in 2003, reflecting growth in operating income and financial revenue and other, net, as well as a
decrease in the effective tax rate. 45




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Earnings per share Diluted net income per share increased 14.4% to 1.35 in 2004, compared to 1.18 per share in
2003. Excluding acquisition costs, diluted net income per share increased 11.5% to 1.36 in 2004,
compared to 1.22 per share in 2003. Revenue and Operating Income by Segment Process-centric Summary. Overall, financial results for the Process-centric segment improved in 2004 compared
to 2003, reflecting growth in revenue, operating income and net income. In 2004, Process-centric
revenue increased 3.4% and 7% on a constant currency basis. Operating income increased 4.1% and net
income increased 10.3% in 2004 compared to 2003. CATIA licenses increased 2% to 32,695. CATIA V5
pricing decreased 3%, but increased 1% on a constant currency basis in 2004. Revenue. Revenue for the Process-centric segment, including PDM revenue, totaled 652.1
million in 2004 (including 1.5 million of inter-segment sales) compared with 630.5 million in
2003 (including 1.5 million of inter-segment sales). Process-centric revenue increased 3.4% and 7%
on a constant currency basis. PDM revenue on a stand-alone basis increased 7.5% to 101.7 million
in 2004, compared to 94.6 million in 2003 and on a constant currency basis, PDM revenue increased
11%. Nearly all our service revenue was generated by the Process-centric segment (excluding
inter-segment sales) in 2004 and 2003. See 2004 versus 2003Consolidated InformationService
Revenue above. Operating income. Operating income from the Process-centric segment increased 4.2% to 182.7
million in 2004, compared with 175.4 million in 2003. Operating income, excluding acquisition
costs, increased 1.5% to 183.8 million in 2004, compared with 181.0 million in 2003. Operating
income, excluding acquisition costs, represented 28.2% of revenue for this segment in 2004,
compared to 28.7% in 2003. The decrease in the operating margin primarily reflected higher
investments in sales and marketing to grow our SMB channel. Design-centric Summary. Our Design-centric segment showed strong year-over-year growth in revenue, operating
income and net income. In U.S. dollars, the functional reporting currency for our Design-centric
business, revenue grew 28% in 2004, compared to 2003. In addition, new licenses increased 18% to a
record 29,882 seats and the average price per seat in U.S. dollars increased approximately 10%. All
geographic regions contributed to the strong financial performance of our Design-centric segment in
2004. Revenue. Revenue in the Design-centric segment increased 15.9% to 146.2 million in 2004
(including 0.2 million of inter-segment sales), compared with 126.1 million in 2003 (including
0.4 million of inter-segment sales). On a constant currency basis, revenue increased 21% in 2004.
Software revenue represented 100% of total Design-centric revenue (after inter-segment
eliminations) in 2004 and 2003. Operating income. Both operating income and operating margin increased significantly in 2004,
reflecting the strong growth in revenue and operating leverage achieved by our Design-centric
segment. Operating income for the Design-centric segment increased 26.3% to 47.1 million in 2004,
up from 37.3 million in 2003. Operating income, excluding acquisition costs, increased 26.1% to
47.4 million in 2004, compared with 37.6 million in 2003. Operating income, excluding acquisition
costs, represented 32.4% of total segment revenue in 2004, compared with 29.8% in 2003. 46




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2003 versus 2002 Consolidated Information Total revenue Total revenue was 754.8 million in 2003, compared to 774.1 million in 2002. Total revenue
was comprised of software revenue of 645.6 million, representing 86% of total revenue, and service
revenue of 109.2 million, representing 14% of total revenue. Process-centric revenue totaled
629.1 million or 83% of total revenue and included PDM revenue of 94.6 million. Design-centric
revenue totaled 125.7 million or 17% of total revenue in 2003. As reported, total revenue decreased 2.5% but on a constant currency basis, total revenue
increased 5% in 2003 compared to 2002, reflecting strong growth in our PDM and Design-centric
businesses which grew 21% and 17%, respectively, in constant currencies. Total revenue by geographic region. As a percentage of 2003 total revenue, Europe represented
46%, the Americas accounted for 29% and Asia represented 25%. As a percentage of 2002 total
revenue, Europe represented 48%, the Americas accounted for 29% and Asia represented 23%. Revenue declined 5.5% in Europe in 2003 as we faced weak market conditions throughout the
year. In comparison, revenues decreased 1.5% in 2002 in Europe as the economy began to weaken in
the middle of the year, lagging the downturn in the U.S. economy. In Europe, software revenue
declined 8% in 2003, largely reflecting weaker performance in our Process-centric segment while
service revenue was up 7% reflecting an increase in PLM consulting projects. For the full year revenue declined 3.8% in the Americas. In constant currencies, the Americas
increased 15% in 2003. Contributing to the growth in constant currencies were stronger performances
both from our Process-centric and Design-centric businesses. The United States is our largest
market in the Americas region. Revenue increased 5.7% in Asia in 2003 and 14% in constant currencies, reflecting good
performances by both our Process-centric and Design-centric businesses. Software revenue. Software revenue totaled 645.6 million in 2003, compared to 669.9 million
in 2002, representing a decrease of 3.6%. On a constant currency basis, software revenue increased
4% in 2003 primarily reflecting year-over-year growth in our Design-centric segment and in our PDM
portion of the Process-centric segment. Recurring software revenue. Recurring software revenue totaled 332.0 million in 2003,
compared to 320.1 million in 2002, representing an increase of 3.7%. While total software revenue
decreased in 2003, compared to 2002, recurring software revenue increased reflecting the increase
in the installed workstation base of the Process-centric segment and to the growing share of
maintenance fees in the Design-centric segment. Recurring software revenue represented 51% of total
software revenue in 2003, compared to 48% in 2002. Seat licensing and pricing. In 2003 a total of 57,524 CATIA and SolidWorks seats were
licensed. CATIA seats licensed totaled 32,163 in 2003, representing a decrease of 6.3% compared to
34,308 CATIA seats licensed in 2002. SolidWorks seats licensed in 2003 increased 7.3% to 25,361,
compared to 23,626 in 2002. CATIA Version 5 seats represented 74% of total CATIA seats licensed in 2003, compared to 59%
in 2002. The average CATIA Version 5 end-user price per seat decreased 1%, but in constant
currencies increased 7% as we added more functions with the release of CATIA Version 5 Release 11
and Release 12 during 2003. The average CATIA end-user price per seat in 2003 decreased 10%, with 7
percentage points of the decrease attributable to unfavorable exchange rates. In constant
currencies, the average CATIA end-user price per seat decreased 3%. This decrease was entirely due
to the increased proportion of the Version 5 licenses sold in 2003, compared to 2002. 47




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The average SolidWorks end-user price per seat in U.S. dollars increased 7% in 2003. This
increase reflected the favorable impact of both geographic and product mix changes. SolidWorks
Office and Office Professional represented approximately 48% of total seats licensed in 2003. Service revenue. Service revenue totaled 109.2 million in 2003, compared to 104.2 million in
2002, representing an increase of 4.8%. In constant currencies, service revenue increased 13%. We
experienced an increase in PLM consulting projects. Gross Profit. Gross profit totaled 643.4 million in 2003, compared to 653.3 million in 2002,
representing a decrease of 1.5%. The gross profit margin for software in 2003 was similar to 2002,
at 96.6% in 2003, compared to 96.4% in 2002. The gross profit margin for services increased
significantly in 2003 to 17.8%, compared to 7.5% in 2002. The improvement in the gross profit
margin for services is primarily attributable to a higher percentage of consulting assignments in
2003 as a proportion of total service and other revenue. Operating expenses Summary. The Companys objective in 2003 was to limit operating expense growth in light of the
general weak business climate, while continuing to invest in critical research and development
staffing. In 2003, operating expenses were comprised of (i) research and development costs of
215.6 million, (ii) marketing and sales costs of 162.4 million and (iii) general and
administrative expenses of 46.8 million. Operating expenses totaled 424.8 million in 2003,
compared to 439.1 million in 2002, representing a decrease of 3.3%. Total expenses, including cost
of revenue of 111.4 million and operating expenses of 424.8 million, totaled 536.2 million in
2003. In constant currencies, total expenses increased 3.4%, tracking closely average headcount
growth of 3.5% for 2003. The composition of operating expenses by currency was approximately as
follows: 56% euro, 36% U.S. dollars and 8% Japanese yen. Research and development expenses. Research and development expenses totaled 215.6 million in
2003, compared to 221.6 million in 2002, representing a 2.7% decrease. The additional costs
resulting from the 5.4% increase in average headcount were more than offset by the decrease in
research and development expenses as a result of the weakening of the U.S. dollar in 2003. On
December 31, 2003, the total headcount in research and development was 2,025 employees,
representing 49.5% of total employees, compared to 48.1% at December 31, 2002. Research and
development expenses represented 28.6% of total revenue in 2003, similar to 2002. See the
discussion under Item 5C: Research and Development, Patents and LicensesResearch and Development
below. Marketing and sales expenses. Marketing and sales expenses totaled 162.4 million in 2003,
compared to 169.7 million in 2002, representing a decrease of 4.3%. Marketing and sales average
headcount growth was 1.8% in 2003, reflecting selective hiring. These higher staffing expenses were
more than offset by the impact of a stronger euro on our non-euro denominated marketing and sales
expenses. On December 31, 2003, the total headcount in marketing and sales was 1,763 employees,
representing 43.1% of total employees, compared to 44.2% at December 31, 2002. Marketing and sales
expenses represented 21.5% of total revenue in 2003, compared to 21.9% in 2002. General and administrative expenses. General and administrative expenses totaled 46.8 million
in 2003, compared to 47.9 million in 2002, representing a decrease of 2.6%. In 2003, our average
headcount increased 1.7% and we also incurred higher legal fees. These higher expenses were more
than offset by the impact of a stronger euro on our non-euro denominated general and administrative
expenses. General and administrative expenses represented 6.2% of total revenue in 2003, unchanged
from 2002. Amortization of intangibles incurred in business combinations (acquisition costs).
Acquisition costs totaled 5.9 million in 2003, compared to 11.1 million in 2002, representing a
decrease of 46.6%. This decrease reflects the completion of the amortization of acquisition costs
related to several acquisitions. 48




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Operating income and operating margin Operating income was 212.7 million in 2003, compared to 203.0 million in 2002. Operating
income excluding acquisition costs increased to 218.6 million in 2003 or 29.0% of total revenue,
compared to 214.1 million or 27.7% in 2002. See Item 11: Quantitative and Qualitative Disclosures
About Market Risk. Financial revenue and other, net Financial revenue and other totaled (0.9) million in 2003, compared to 2.5 million in 2002.
The decrease in financial revenue and other primarily reflected the revaluation of assets
denominated in U.S. dollars. Specifically, financial revenue and other in 2003 was comprised of net
financial revenue of 10.1 million, exchange losses on accounts receivables of (8.1) million and
other losses of (2.8) million, including an impairment charge of 1.7 million. Our average balance
of cash and short-term investments increased in 2003. At December 31, 2003, cash and short-term
investments totaled 439.7 million, compared to 388.4 million at December 31, 2002. See Note D to
our consolidated financial statements. Income tax expense Income tax expense totaled 76.9 million in 2003, compared to 79.4 million in 2002. The
effective tax rate in 2003 was 36.2%, compared to 38.6% in 2002. The decrease in the effective tax
rate between 2003 and 2002 was largely attributable to reduced losses of our SmarTeam subsidiary,
which benefits from certain tax exemptions. See Note E to our consolidated financial statements. Net income Net income was 135.4 million in 2003, compared to 126.4 million in 2002. Excluding
acquisition costs, net income increased 3.3% to 140.4 million in 2003, compared to 136.0 million
in 2002. Earnings per share Diluted net income per share was 1.18 in 2003, compared to 1.09 per share in 2002. Excluding
acquisition costs, diluted net income per share increased 4.3% to 1.22 in 2003, compared to 1.17
per share in 2002 and reflected 0.13 per diluted share negative impact from currency fluctuations. Revenue and Operating Income by Segment Process-centric Summary. Overall, revenue results for the Process-centric segment reflected in large measure
the slowdown persisting in Europe throughout 2003. Our PDM business performed well, with revenue
increasing 14.4%, and 21% on a constant currency basis for 2003. While total CATIA licenses
declined in 2003, we saw positive year-over-year growth trends in both the third and fourth quarter
of the year. In addition, CATIA Version 5 sales increased and pricing was generally stable on a
constant currency basis. Revenue. Revenue for the Process-centric segment, including PDM revenue, totaled 630.5
million in 2003 (including 1.4 million of inter-segment sales) compared with 649.4 million in
2002 (including 1.7 million of inter-segment sales). Revenue decreased 2.9%, but on a constant
currency basis, revenue increased 2%, primarily reflecting growth in our PDM business. PDM revenue
on a stand-alone basis increased 14.4% to 94.6 million, up from 82.7 million in 2002 and
increased 21% on a constant currency basis. Nearly all service revenue was generated by the Process-centric segment (excluding
inter-segment sales) in 2003 and 2002. See 2003 versus 2002Consolidated InformationService
Revenue above. Operating income. Operating income from the Process-centric segment totaled 175.4 million in
2003, compared with 170.9 million in 2002. Operating income, excluding acquisition costs, amounted
to 181.0 million 49




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##### Table of Contents



in 2003, compared with 181.8 million in 2002. Operating income, excluding acquisition costs,
represented 28.7% of revenue for this segment in 2003, compared to 28.0% in 2002. The increase
primarily reflected our focus on increasing the efficiency of our consulting services for PLM as
well as cost control initiatives. Design-centric Summary. Excluding the impact of currency fluctuations, we believe our Design-centric segment
showed strong year-over-year improvement in both revenue and operating income. In U.S. dollars, the
functional reporting currency for our Design-centric business, revenue grew 19% in 2003, compared
to 2002. This improvement reflected revenue growth in all three geographic regions. In addition,
both unit growth and pricing trends were positive in 2003, with the number of units sold increasing
7% and the average end-user price per seat rising 7% in U.S. dollars. Notwithstanding this strong
performance, the decline in the value of the U.S. dollar in 2003 compared to 2002 more than offset
the underlying revenue growth. At the operating income level, the operating margin showed good growth, as revenue growth
outpaced operating expense growth, resulting in a 4.3 percentage point improvement in the operating
margin. At the operating income level, the negative impact of a weaker U.S. dollar at the revenue
level is offset by the favorable impact of translating U.S. dollar-denominated expenses into euro. Revenue. Revenue in the Design-centric segment was 126.1 million in 2003 (including 0.4
million of inter-segment sales), compared with 126.9 million in 2002 (including 0.5 million of
inter-segment sales). The decrease in revenue net of inter-segment sales was due to the lower U.S.
dollar to euro exchange rate. On a constant currency basis, revenue increased 17% in 2003. Software
revenue represented 100% of total Design-centric revenue (after inter-segment eliminations) in 2003
and 2002. Operating income. Operating income for the Design-centric segment amounted to 37.3 million in
2003, compared with 32.1 million in 2002. Operating income, excluding acquisition costs, amounted
to 37.6 million in 2003, compared with 32.3 million in 2002. Operating income, excluding
acquisition costs, represented 29.8% of total segment revenue in 2003, compared with 25.5% in 2002. Analysis of Quarterly Results The tables below present certain financial information for 2004 and 2003. This information
comes from our unaudited quarterly consolidated financial statements, which are prepared according
to generally accepted accounting principles in the United States and on a comparable basis with our
annual audited consolidated financial statements. In the opinion of management, the quarterly
financial information includes only the normal adjustments recurring and necessary for a fair
presentation of the information. Operating income for any given quarter is not necessarily
representative of results for any future period and should not be used as an indication of future
results. 50




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##### Table of Contents



Unaudited Quarterly Data 2004
    
    
    2003Dec. 31
    
    
    Sept. 30
    
    
    June 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sept. 30
    
    
    June 30
    
    
    Mar. 31(in millions of euro or shares, except for amountsper share which are expressed in euro)Revenue:Software revenue
    
    
    206.4
    
    
    
    156.7
    
    
    
    158.9
    
    
    
    148.9
    
    
    
    196.5
    
    
    
    152.2
    
    
    
    151.8
    
    
    
    145.1Service and other revenue
    
    
    33.5
    
    
    
    31.3
    
    
    
    33.6
    
    
    
    27.3
    
    
    
    31.3
    
    
    
    24.1
    
    
    
    29.5
    
    
    
    24.3Total revenue
    
    
    239.9
    
    
    
    188.0
    
    
    
    192.5
    
    
    
    176.2
    
    
    
    227.8
    
    
    
    176.3
    
    
    
    181.3
    
    
    
    169.4Cost of revenue:Software
    
    
    (6.7
    )
    
    
    (5.2
    )
    
    
    (5.0
    )
    
    
    (4.8
    )
    
    
    (5.2
    )
    
    
    (5.1
    )
    
    
    (5.6
    )
    
    
    (5.8
    )Service and other
    
    
    (25.1
    )
    
    
    (25.3
    )
    
    
    (25.9
    )
    
    
    (24.7
    )
    
    
    (23.8
    )
    
    
    (19.4
    )
    
    
    (24.6
    )
    
    
    (21.9
    )Total cost of revenue
    
    
    (31.8
    )
    
    
    (30.5
    )
    
    
    (30.9
    )
    
    
    (29.5
    )
    
    
    (29.0
    )
    
    
    (24.5
    )
    
    
    (30.2
    )
    
    
    (27.7
    )Gross profit
    
    
    208.1
    
    
    
    157.5
    
    
    
    161.6
    
    
    
    146.7
    
    
    
    198.8
    
    
    
    151.8
    
    
    
    151.1
    
    
    
    141.7Research, selling and
administrative expenses:Research and development
    
    
    (59.3
    )
    
    
    (55.1
    )
    
    
    (53.4
    )
    
    
    (54.1
    )
    
    
    (55.8
    )
    
    
    (53.6
    )
    
    
    (52.6
    )
    
    
    (53.6
    )Marketing and sales
    
    
    (47.9
    )
    
    
    (44.8
    )
    
    
    (43.2
    )
    
    
    (37.8
    )
    
    
    (41.3
    )
    
    
    (41.4
    )
    
    
    (40.1
    )
    
    
    (39.6
    )General and administrative
    
    
    (12.5
    )
    
    
    (11.3
    )
    
    
    (12.0
    )
    
    
    (11.3
    )
    
    
    (10.9
    )
    
    
    (12.8
    )
    
    
    (11.4
    )
    
    
    (11.7
    )Amortization of acquired
technology
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.5
    )
    
    
    (0.6
    )
    
    
    (1.0
    )
    
    
    (1.4
    )
    
    
    (1.4
    )
    
    
    (2.1
    )Total research, selling and
administrative expenses
    
    
    (119.8
    )
    
    
    (111.4
    )
    
    
    (109.1
    )
    
    
    (103.8
    )
    
    
    (109.0
    )
    
    
    (109.2
    )
    
    
    (105.5
    )
    
    
    (107.0
    )Operating income
    
    
    88.3
    
    
    
    46.1
    
    
    
    52.5
    
    
    
    42.9
    
    
    
    89.8
    
    
    
    42.6
    
    
    
    45.6
    
    
    
    34.7Financial
revenue and other  net
    
    
    0.6
    
    
    
    2.7
    
    
    
    2.8
    
    
    
    1.4
    
    
    
    (3.0
    )
    
    
    1.0
    
    
    
    (0.4
    )
    
    
    2.0Income before income taxes
    
    
    88.9
    
    
    
    48.8
    
    
    
    55.3
    
    
    
    44.3
    
    
    
    86.8
    
    
    
    43.6
    
    
    
    45.2
    
    
    
    36.7Income tax expense
    
    
    (28.8
    )
    
    
    (16.5
    )
    
    
    (19.5
    )
    
    
    (16.1
    )
    
    
    (29.0
    )
    
    
    (16.5
    )
    
    
    (17.0
    )
    
    
    (14.4
    )Net income
    
    
    60.1
    
    
    
    32.3
    
    
    
    35.8
    
    
    
    28.2
    
    
    
    57.8
    
    
    
    27.1
    
    
    
    28.2
    
    
    
    22.3Basic income per share
    
    
    0.53
    
    
    
    0.29
    
    
    
    0.32
    
    
    
    0.25
    
    
    
    0.51
    
    
    
    0.24
    
    
    
    0.25
    
    
    
    0.20Diluted net income per share
    
    
    0.51
    
    
    
    0.28
    
    
    
    0.31
    
    
    
    0.24
    
    
    
    0.50
    
    
    
    0.24
    
    
    
    0.25
    
    
    
    0.20Weighted average number of
shares outstanding
    
    
    113.4
    
    
    
    113.2
    
    
    
    113.2
    
    
    
    113.1
    
    
    
    113.0
    
    
    
    112.9
    
    
    
    112.8
    
    
    
    113.5Diluted weighted average number
of shares outstanding
    
    
    116.8
    
    
    
    116.2
    
    
    
    116.1
    
    
    
    115.8
    
    
    
    116.0
    
    
    
    114.8
    
    
    
    114.1
    
    
    
    114.0Financial information excluding amortization of intangibles
incurred in business combinations:(1)Operating income
    
    
    88.4
    
    
    
    46.3
    
    
    
    53.0
    
    
    
    43.5
    
    
    
    90.8
    
    
    
    44.0
    
    
    
    47.0
    
    
    
    36.8Net income
    
    
    60.2
    
    
    
    32.3
    
    
    
    36.5
    
    
    
    28.6
    
    
    
    58.7
    
    
    
    28.2
    
    
    
    29.3
    
    
    
    24.2Diluted net income per share
    
    
    0.52
    
    
    
    0.28
    
    
    
    0.31
    
    
    
    0.25
    
    
    
    0.51
    
    
    
    0.25
    
    
    
    0.26
    
    
    
    0.21
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income, net income and diluted net income per share
excluding amortization of intangibles incurred in business combinations are not U.S. generally
accepted accounting principles measurements and should not be considered as alternatives to
amounts reported under U.S. generally accepted accounting principles. 51




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Unaudited Quarterly Data 2004
    
    
    2003Dec. 31
    
    
    Sept. 30
    
    
    June 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sept. 30
    
    
    June 30
    
    
    Mar. 31(as a percentage of total revenue)Revenue:Software revenue
    
    
    86.0
    
    
    
    83.4
    
    
    
    82.5
    
    
    
    84.5
    
    
    
    86.3
    
    
    
    86.3
    
    
    
    83.7
    
    
    
    85.7Service and other revenue
    
    
    14.0
    
    
    
    16.6
    
    
    
    17.5
    
    
    
    15.5
    
    
    
    13.7
    
    
    
    13.7
    
    
    
    16.3
    
    
    
    14.3Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenue:Software
    
    
    (2.8
    )
    
    
    (2.8
    )
    
    
    (2.6
    )
    
    
    (2.7
    )
    
    
    (2.3
    )
    
    
    (2.9
    )
    
    
    (3.1
    )
    
    
    (3.5
    )Service and other
    
    
    (10.5
    )
    
    
    (13.5
    )
    
    
    (13.5
    )
    
    
    (14.0
    )
    
    
    (10.4
    )
    
    
    (11.0
    )
    
    
    (13.5
    )
    
    
    (12.9
    )Total cost of revenue
    
    
    (13.3
    )
    
    
    (16.2
    )
    
    
    (16.1
    )
    
    
    (16.7
    )
    
    
    (12.7
    )
    
    
    (13.9
    )
    
    
    (16.6
    )
    
    
    (16.4
    )Gross profit
    
    
    86.7
    
    
    
    83.8
    
    
    
    83.9
    
    
    
    83.3
    
    
    
    87.3
    
    
    
    86.1
    
    
    
    83.4
    
    
    
    83.6Research, selling and
administrative expenses:Research and development
    
    
    (24.7
    )
    
    
    (29.3
    )
    
    
    (27.7
    )
    
    
    (30.7
    )
    
    
    (24.5
    )
    
    
    (30.4
    )
    
    
    (29.0
    )
    
    
    (31.7
    )Marketing and sales
    
    
    (20.0
    )
    
    
    (23.8
    )
    
    
    (22.4
    )
    
    
    (21.5
    )
    
    
    (18.1
    )
    
    
    (23.5
    )
    
    
    (22.1
    )
    
    
    (23.4
    )General and administrative
    
    
    (5.2
    )
    
    
    (6.0
    )
    
    
    (6.2
    )
    
    
    (6.4
    )
    
    
    (4.7
    )
    
    
    (7.3
    )
    
    
    (6.4
    )
    
    
    (6.8
    )Amortization of acquired technology
    
    
    (0.0
    )
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    (0.7
    )
    
    
    (0.8
    )
    
    
    (1.2
    )Total research, selling and
administrative expenses
    
    
    (49.9
    )
    
    
    (59.3
    )
    
    
    (56.7
    )
    
    
    (58.9
    )
    
    
    (47.8
    )
    
    
    (61.9
    )
    
    
    (58.3
    )
    
    
    (63.1
    )Operating income
    
    
    36.8
    
    
    
    24.5
    
    
    
    27.3
    
    
    
    24.3
    
    
    
    39.5
    
    
    
    24.2
    
    
    
    25.1
    
    
    
    20.5Financial
revenue and other  net
    
    
    0.3
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    0.1
    
    
    
    (1.3
    )
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    1.2Income before income taxes
    
    
    37.1
    
    
    
    26.0
    
    
    
    28.7
    
    
    
    25.1
    
    
    
    38.2
    
    
    
    24.7
    
    
    
    24.9
    
    
    
    21.7Income tax expense
    
    
    (12.0
    )
    
    
    (8.8
    )
    
    
    (10.1
    )
    
    
    (9.1
    )
    
    
    (12.8
    )
    
    
    (9.3
    )
    
    
    (9.4
    )
    
    
    (8.5
    )Net income
    
    
    25.1
    
    
    
    17.2
    
    
    
    18.6
    
    
    
    16.0
    
    
    
    25.4
    
    
    
    15.4
    
    
    
    15.5
    
    
    
    13.2Financial information excluding amortization of intangibles
incurred in business combinations:(1)Operating income
    
    
    36.8
    
    
    
    24.6
    
    
    
    27.5
    
    
    
    24.7
    
    
    
    40.0
    
    
    
    24.9
    
    
    
    25.9
    
    
    
    21.7Net income
    
    
    25.1
    
    
    
    17.2
    
    
    
    19.0
    
    
    
    16.2
    
    
    
    25.8
    
    
    
    16.0
    
    
    
    16.2
    
    
    
    14.2
 
 (1)
    
    We believe that this supplemental information is an important indicator of operational
strength and performance of our business and is used by analysts, investors and other
interested parties. However, operating income and net income excluding amortization of
intangibles incurred in business combinations are not U.S. generally accepted accounting
principles measurements and should not be considered as alternatives to amounts reported under
U.S. generally accepted accounting principles. As is typical in the Product Lifecycle Management software market, we normally experience
our highest licensing activity for the year in December. Software revenue, total revenue, operating
income and net income have generally been highest in the fourth quarter of each year. For example, revenue for the fourth, third, second and first quarters of 2004 represented,
respectively 30.1%, 23.6%, 24.2% and 22.1% of our total revenue for 2004 compared with our revenue
for the fourth, third, second and first quarters of 2003 which represented, respectively, 30.2%,
23.4%, 24.0% and 22.4% of our total revenue for 2003. Quarterly operating results varied significantly and are likely to vary significantly in the
future, depending on factors such as foreign currency exchange rates; the number, timing and
significance of product enhancements or new products by us or our competitors; our ability to
develop, introduce, and market new and enhanced versions of our products; customer order deferrals
in anticipation of new or enhanced products; the timing and cyclical nature of royalties received
from our distribution agreement with IBM; general conditions in the Product Lifecycle Management
software market, computer industries and regional economies; and other factors and events. A
significant portion of sales typically occurs in the last month of each quarter. Therefore, the
timing of orders and shipments, including unexpected delays, or actions taken by competitors in
reducing prices or introducing new products, could result in significant quarterly fluctuations in
operating results. 52




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B. Liquidity and Capital Resources Since 1994, our principal source of liquidity has been cash from operations. Cash obtained
from operations has been used primarily for working capital, short-term investments, dividend
payments and the financing of business acquisitions. The table below presents the change in working capital as reflected in our consolidated
statements of cash flows. Year ended December 31,2004
    
    
    2003
    
    
    2002Changes in current assets and liabilities
    
    (in millions of euro)(Increase) decrease in trade accounts receivable
    
    
    (21.9
    )
    
    
    (5.1
    )
    
    
    (29.2
    )(Increase) decrease in other current assets
    
    
    (9.3
    )
    
    
    2.2
    
    
    
    10.9Increase (decrease) in accounts payable and accrued expenses
    
    
    20.5
    
    
    
    12.4
    
    
    
    (2.8
    )Increase (decrease) in income taxes payable
    
    
    4.0
    
    
    
    6.1
    
    
    
    (20.0
    )Increase (decrease) in sales incentive payable
    
    
    5.4
    
    
    
    0.6
    
    
    
    2.8Increase in unearned revenue
    
    
    34.6
    
    
    
    4.4
    
    
    
    19.9Increase (decrease) in other current liabilities
    
    
    (6.0
    )
    
    
    7.9
    
    
    
    (3.0
    )Change in working capital
    
    
    27.3
    
    
    
    28.5
    
    
    
    (21.4
    )
 Customers days of sales outstanding as of December 31, 2004 were 89 days, compared to 90 days
as of December 31, 2003. Under the marketing and distribution agreement with IBM, IBM is required to pay us a cash
settlement one month after it records its licensing activity. However, due to holidays and other
factors, such payments are not always received precisely within the one-month period. Delays that
cause a payment to be made in a subsequent accounting period can lead to noticeable variations in
the balance of accounts receivable on any given balance sheet date. See Note A to our consolidated
financial statements. Cash and short-term investments totaled 552.8 million as of December 31, 2004, compared with
439.7 million and 388.4 million as of December 31, 2003, and December 31, 2002, respectively. The
2004 increase primarily reflected net cash provided by operating activities. During 2004, net cash
provided by operating activities amounted to 208.9 million compared with 177.4 million during
2003. Cash flows used in investing activities amounted to 26 million, reflecting primarily
additions to computer equipment, leasehold improvements, and software assets. Net cash used in
financing activities totaled 45.4 million in 2004, primarily comprised of cash dividends of 38.4
million and repurchase of minority interests of SolidWorks for 14.4 million in connection with
stock option plans. Exchange rates had a negative effect of 16.0 million on our December 31, 2004
cash balance. We have no significant capital expenditure requirements, no financial indebtedness other than
financial leases relating to our offices, and no lines of credit. Management believes that
currently available sources of liquidity will provide sufficient resources for its operations for
the foreseeable future. C. Research and Development, Patents and Licenses Research and Development We believe that research and development is the most important element of our success. We
operate research laboratories in France, the United States, Canada, Germany, the United Kingdom,
Israel and India. In 2004, research and development expenses increased 2.9% to 221.9 million,
compared to 2003. Total research and development headcount increased 7.2% in 2004 to 2,171 at
December 31, 2004. 53




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Research and development investments over the past three years have been devoted principally
to the development of our various Product Lifecycle Management applications, on the V5 development
platform and infrastructure, and of the integration of our CATIA, ENOVIA, DELMIA and SMARTEAM
products. The table below sets forth information with respect to our research and development expenses
for 2004, 2003 and 2002. Year ended December 31,2004
    
    
    2003
    
    
    2002Research and development expenses (in millions)
    
    
    221.9
    
    
    
    215.6
    
    
    
    221.6As a percentage of total revenue(1).
    
    
    27.9
    %
    
    
    28.7
    %
    
    
    28.7
    %Research and development and product
production personnel (at period end)
    
    
    2,171
    
    
    
    2,025
    
    
    
    1,907
 
 (1)
    
    Due to the distribution of our products through IBM, our percentage of various expenses,
including research and development expenses and other line items to revenue may not be
comparable to such percentages for our competitors. See the discussion under Item 5A:
Operating ResultsOverview and Results of Operations. Our expenses for research and development include primarily the personnel cost for
specialists in software architecture and various application fields such as mechanical design,
manufacturing, mechanical engineering and computer graphics, as well as for specialists with
significant experience and knowledge of our target industrial sectors. Research and development
expenses also include computer rental expenses, the depreciation and cost of maintenance related to
computer hardware used in research and development, development tools, networking and communication
expenses. For a discussion of the variation in research and development expenses between the
periods indicated, see the discussion under Operating Results2004 versus 2003Consolidated
InformationResearch and Development Expenses and 2003 versus 2002Consolidated
InformationResearch and Development Expenses above. Intellectual Property We rely on a combination of contracts, copyrights, trade secret laws and patents to establish
and protect our proprietary rights in our technology. We distribute our products under software
licenses, which grant customers licenses to, rather than ownership of, our products and which
contain various provisions protecting our ownership and confidentiality of the licensed technology. The source code of our products is protected as a trade secret and as an unpublished copyright
work and in certain instances with a patent. However, no assurance can be given that others will
not copy or otherwise obtain and use our products or technology without authorization. In addition,
effective copyright, trade secret and patent protection or enforcement may be unavailable or
limited in certain countries. We believe that, due to the rapid technological advances within the industry, factors such as
the technological and creative skills of our personnel are more important to establishing and
maintaining a technology leadership position within the industry than are the various legal
protections of the technology. With regard to trademarks, our policy is to register trademarks for our main lines of products
in the countries where we do business. Such registrations are a combination of international
trademark registration (covering countries of the Madrid Agreement and/or Madrid Protocol),
community trademarks and national registrations. When companies are acquired, a review and an
assessment of their main trademarks is made, and when necessary, additional applications for
registrations are made in order to establish coverage of such trademarks equivalent to that of our
other main trademarks. See Item 3D: Risk FactorsRisks Related to Our Business. With regard to patents, we generally file patent applications in Europe, the United States,
Canada, the Republic of Korea and Japan, regions where the majority of our customers and
competitors are located. Our portfolio includes more than 50 patents already granted (13 were
granted in 2004) and approximately 150 patent applications filed in the above-mentioned geographic
areas. 54




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D. Trend Information Recent Developments In 2005, we continued to pursue our growth objectives with the proposed acquisition of ABAQUS,
Inc. (ABAQUS) in the simulation market and the unveiling of a scientific, open platform designed
to enable the integration of many types of simulation applications. We also entered into a
strategic partnership with i2 Technologies, Inc. in the sourcing segment of the supply chain
management industry. We further strengthened our PLM product offerings with the introduction of
Version 5 Release 15 in the second quarter of 2005. Version 5 Release 15 (V5R15), Open Collaboration on the Proven V5 Platformannounced in
May 2005 for CATIA, DELMIA, ENOVIA and SMARTEAM builds on the strengths of V5R14 by providing
unified working environments, or desktops, targeting the specific needs of key user communities,
such as engineering, manufacturing and enterprise users more broadly. We also further strengthened
our coverage of business processes with new technologies designed to help improve productivity and
innovation among companies across a number of industries. This new release leverages our open V5
platform, with the goal of providing companies in the supply chain with enhanced collaboration
capabilities and process coverage. Highlights of our newest release include: (i) accelerated
collaboration with suppliers by facilitating the exchange of engineering package data between OEMs
and suppliers of all sizes and (ii) enhanced communications with 3DXML including the introduction
of a new 3D XML viewer in V5R15, among other key highlights. In May 2005 we entered into an agreement to acquire ABAQUS in an all-cash transaction
approximating $413 million, subject to certain adjustments at closing. ABAQUS is well recognized as
a leader in non-linear finite element analysis software with best-in-class technology, which
companies are increasingly seeking, that is capable of scaling from simple to the most demanding
simulations. We will benefit from ABAQUS intellectual capital, embodied by its high-level
technology team including 70 PhDs. Headquartered in Rhode Island, ABAQUS employs over 400 people
worldwide and has a large customer base of approximately 2,500 companies in the automotive,
defense, power, material processing, electronics, general manufacturing, aerospace, medical, and
consumer products industries. We believe this acquisition should enable us to increase significantly our presence in the
simulation market, which offers strong potential, as the simulation industrys expected compounded
annual growth rate could reach 12 percent between 2005 and 2010, according to industry analysts. In addition, our long-term objective is to become a leading player in the simulation market,
by addressing customers needs for an open integrated platform for simulation applications, which
should enable customers to experience virtually how their products will behave in the real world. ABAQUS has stated to us that its total revenues for 2005 may approach $100 million. We
estimate that the impact of the deferred revenue write-down, as part of purchase accounting
adjustments, may result in a reduction of its revenue of approximately $20 million within the first
twelve months of the completion of the acquisition. The acquisition is expected to be immediately
accretive to earnings excluding acquisition costs and the impact of deferred revenue accounting
treatment. The assumption underlying these statements will be tested to the extent possible in the
course of an audit of ABAQUS financial statements prior to the consummation of the transaction. In
any event, those statements will remain forecasts subject to usual risks and uncertainties. The proposed transaction is subject to customary closing conditions (including the completion
of our financial due diligence) and regulatory approvals including, among others, Hart-Scott
Rodino, Exon-Florio and merger control authorities, principally in the United States and Germany.
Neither we nor ABAQUS will require a shareholder vote. We expect that the proposed acquisition
could be completed by the end of our third fiscal quarter of 2005. Also in May 2005, we and i2 Technologies, Inc. entered into a strategic partnership to jointly
develop sourcing solutions based on our V5 platform. The objective of the partnership is to
integrate sourcing throughout the product lifecycle, thereby eliminating or significantly reducing
the barriers between the engineering and sourcing 55




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communities. By aligning sourcing and engineering earlier in the product development cycle,
our goal is to help customers realize reduced product costs, improvement in time-to-market cycles
and enhancement of initial product quality. The sourcing solutions will be developed in a dedicated
competency center hosted by a new i2 subsidiary. On June 27, 2005, as part
of this long-term agreement, i2 conveyed control of the competency center to us for approximately
$10 million subject to certain adjustments. In January, 2005, we completed the acquisition of RAND Worldwides activities in the United
Kingdom, Sweden, Germany, Switzerland and Russia, and we increased our ownership of RAND North
America, Inc. to 70% from 60%. The aggregate purchase price of the transaction was 31.7 million,
which was largely offset by RAND Worldwides outstanding debts to us in the amount of 28.3
million. 2005 First Quarter Financial Results In the 2005 first quarter total revenue was 199.2 million, representing an increase of 13% as
reported and 15% in constant currencies in comparison to the first quarter of 2004 where total
revenue was 176.2 million. From a geographic perspective, all regions contributed to the growth
with the Americas increasing 18% in constant currencies, followed by Europe and Asia with revenue
growth of 15% and 14% in constant currencies, respectively. Both software and service revenue rose year-over-year, reflecting increasing demand for our V5
PLM and mainstream 3D offerings. Specifically software revenue increased 12% as reported and 15% in
constant currencies in the first quarter of 2005 and totaled 167.2 million, compared to 148.9
million in the first quarter of 2004. Recurring licenses revenue represented 53% of total software
revenue in the first quarter. Service and other revenue totaled 32.0 million in the first quarter
of 2005, compared to 27.3 million in the first quarter of 2004 with revenue growing 17% as
reported and 20% in constant currencies. New CATIA and SolidWorks seats licensed in the first
quarter of 2005 increased 14% to 16,122 seats, compared to 14,082 seats in the year-ago period. In the process-centric segment revenue increased 11% as reported and 13% in constant
currencies compared to the year-ago quarter. Process-centric revenue, including PDM revenue,
totaled 159.3 million in the first quarter of 2005, compared to 143.6 million in the first
quarter of 2004. PDM revenues increased 15% as reported and 17% in constant currencies and totaled
22.8 million in the first quarter, compared to 19.9 million in the year-ago period. CATIA
licenses increased 5% year-over-year to 7,513 in the first quarter of 2005. In the design-centric segment, revenue increased 22% (28% in U.S. dollars) to 39.9 million in
the 2005 first quarter, compared to 32.6 million in the first quarter of 2004. SolidWorks seats
licensed increased 25% year-over-year to 8,609 licenses accompanied by stable pricing. For the first quarter of 2005 operating income increased year-over-year, and as anticipated
the operating margin decreased, reflecting the timing of investments in expanding the Companys
marketing and sales activities with small and medium-sized businesses. In addition, due to the more
robust level of activity in the first quarter the Company accelerated some marketing and sales
initiatives. For the full year 2005, the Company expects to maintain a stable operating margin
excluding acquisition costs in comparison to 2004. Operating income increased 5% to 45.1 million in the first quarter of 2005, (22.6% operating
margin) compared to 42.9 million in the year-ago quarter (24.3% operating margin). Operating
income excluding acquisition costs increased 4% to 45.4 million in the first quarter of 2005,
compared to 43.5 million in the year-ago period. In the first quarter of 2005 the operating margin
excluding acquisition costs was 22.8%, in line with the Companys objective of 22-23%. In the
year-ago quarter the operating margin excluding acquisition costs was 24.7%. In the first quarter of 2005 earnings per share increased 13% to 0.27, compared to earnings
per share of 0.24 in the year-ago quarter. Earnings per share excluding acquisition costs
increased 8% to 0.27 per diluted share in the first quarter of 2005, compared to earnings per
diluted share excluding acquisition costs of 0.25 in the year-ago period. 56




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Outlook In 2005 we will look to continue developing our business by emphasizing our key business
strengths and pursuing our growth strategies. We will continue to focus on: (i) building and
strengthening long-term, integrated relationships with our customers; (ii) maintaining a
substantial commitment to technological innovation by a strong level of investment in research and
development; (iii) working closely with our current partners in our extended enterprise as well as
growing our existing relationships; (iv) continuing to base our financial model upon a high level
of recurring licenses revenue; and (v) maintaining a strong level of profitability and cash flow
from operations. During 2005 we plan to focus on developing growth opportunities by continuing to pursue the
following strategies: (i) win new strategic customers; (ii) extend our CAD penetration in our
customer base; (iii) implement the complete PLM solution with our end-to-end, integrated V5 PLM
solutions; (iv) extend our penetration of the supply chain within key industries; (v) expand our
presence in our target industries; and (vi) capitalize on the 2D to 3D migration opportunity. Our CATIA, DELMIA, ENOVIA and SMARTEAM brands are our solutions for PLM. In this market, we
have two releases planned for 2005 including Version 5 Release 15 (V5R15), which we released in May
2005, and Version 5 Release 16 (V5R16). And in the Design-centric market, we have one new release
planned for SolidWorks in 2005. Our financial objectives for 2005 assume double-digit revenue growth on a constant currency
basis, assuming that business conditions remain similar to the first quarter of 2005. Based upon
information currently available, our revenue growth objective for 2005 is about 12% to 14% in
constant currencies. Our actual revenue would be expected to be about 880-890 million for 2005
and our earnings per share objective for 2005 is approximately 1.46 to 1.48 per diluted share and
approximately 1.47 to 1.49 per diluted share excluding acquisition costs. Our operating margin
objective is to maintain an operating margin of about 29% excluding acquisition costs, stable with
what we achieved in 2004. All of our objectives discussed above are based upon the assumption of a
U.S. dollar to euro exchange rate of $1.30 per 1.00 and a Japan yen to euro exchange rate of
JPY135 per 1.00 for 2005. In addition, our objectives do not reflect the proposed acquisition of
ABAQUS. When the transaction is completed, we expect to update our financial objectives. Our financial results will remain subject to any further weakening of general economic
conditions as well as currency fluctuations. See Item 3D: Risk FactorsRisks Related to Our
BusinessCurrent economic and business conditions may lead to the continuation of slower
decision-making or reduced corporate spending on information technology infrastructure, which would
cause our revenues and earnings to grow more slowly and increase quarterly fluctuation. A weak U.S.
dollar may adversely impact the growth rate of other major markets where we operate and Currency
fluctuations may significantly affect our results of operations since we generate revenue and incur
expenses in currencies other than the euro. Managements beliefs and expectations, set forth in the preceding paragraphs under the heading
Trend Information, constitute forward-looking statements subject to risks and uncertainties.
These forward-looking statements are based on managements current views and assumptions and on
information provided by ABAQUS management and involve known and unknown risks and uncertainties
that could cause actual results to differ materially from those anticipated or expected. Factors
which could cause actual results to differ include: (i) currency fluctuations, particularly the
value of the U.S. dollar or Japanese yen with respect to the euro; (ii) reduced corporate spending
on information technology as a result of changing economic or business conditions that could
negatively affect market demand for our products and services; (iii) difficulties or adverse
changes affecting our partners or our relationships with our partners, including our longstanding,
strategic partner, IBM; (iv) new product developments and technological changes; (v) errors or
defects in our products; (vi) growth in market share by our competitors; (vii) the realization of
any risks related to the acquisition of ABAQUS, including any discrepancies that might arise
between the financial information and forecasts furnished to us by its management prior to the
signing of the acquisition agreement and the results of our financial due diligence which will be
completed prior to the consummation of this transaction; and other factors, all as set forth under
Item 3D: Risk Factors. 57




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##### Table of Contents



E. Off-balance sheet arrangements The company has no material off-balance sheet arrangements. F. Tabular disclosure of contractual obligations The following table summarizes our significant contractual obligations as of December 31,
2004(1): Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(in thousands of euro)Employee profit-sharing
    
    
    27,394
    
    
    
    8,408
    
    
    
    10,366
    
    
    
    8,620
    
    
    
    Operating lease obligations
    
    
    59,582
    
    
    
    15,220
    
    
    
    21,328
    
    
    
    10,834
    
    
    
    12,200Capital lease obligations
    
    
    4,222
    
    
    
    2,089
    
    
    
    2,133
    
    
    
    
    
    
    
    Total
    
    
    91,198
    
    
    
    25,717
    
    
    
    33,827
    
    
    
    19,454
    
    
    
    12,200
 
 (1)
    
    In addition to the obligations set forth in the table above, we also have obligations with
respect to our derivative financial instruments and our retirement and pensions arrangements.
See Notes D and M to our consolidated financial statements. 58




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Item 6: Directors, Senior Management and Employees A. Directors and Senior Management In accordance with our by-laws (statuts) and French company law, our affairs are managed by
our Board of Directors and our Chief Executive Officer (Directeur Général). As permitted under
French law and as provided for in our by-laws, the functions of Chairman of the Board of Directors
(Président) and of Chief Executive Officer have been separated between two different persons by
decision of the Board of Directors. Board of Directors Our Board of Directors determines our business strategy and oversees its implementation. Under
French law, the Board of Directors is also responsible for, among other things, the presentation of
the annual and consolidated accounts to the shareholders and for convening the general meeting of
shareholders to approve such accounts. In addition, the Board of Directors must give prior
authorization for any security, pledge or guarantee by the Company. Under French law and our
by-laws, directors are liable for violation of French legal or regulatory requirements applicable
to sociétés anonymes, for the violation of our by-laws or for mismanagement. A director may be held
liable for such actions both individually and jointly with the other directors. Our by-laws provide that, generally, the Board of Directors must consist of three to fifteen
directors at any time. Only the shareholders can increase the size of the Board of Directors.
Members of the board are elected by the shareholders at a general meeting of shareholders to serve
six-year terms and may be reelected for consecutive terms. Directors serve until the expiration of
their respective terms, or until their resignation, death or removal, with or without cause by the
shareholders. Under certain conditions, the Board of Directors may fill its vacancies until the
subsequent shareholders meeting. At no time may the number of directors exceeding the age of 70
years constitute more than one-half of the Board of Directors. The Chairman may not be more than 75
years old. The following table sets forth the names and ages of our directors, including two directors
who resigned in April 2005 and two directors who were appointed to replace them, as well as their
principal occupation at Dassault Systèmes (if any), the dates of their initial election as
directors and the years of expiration of their current terms, and their principal occupation
outside of Dassault Systèmes (if any) and their current directorships at other companies. As of
April 15, 2005, we have five independent directors (i.e., a majority of our directors) on our Board
of Directors, as determined according to the applicable standards and requirements for
independence. Current position
    
    Director
    
    TermName
    
    Age
    
    within our Company
    
    Since
    
    Expires
    
    Other Occupation and Directorships(1)Charles Edelstenne(4)
    
    
    67
    
    
    Chairman
    
    
    1993
    
    
    
    2011
    
    
    Chairman and Chief Executive Officer of Dassault Aviation.Director of: Groupe Industriel Marcel Dassault; Thales
Systèmes Aéroportés; Société Anonyme Belge de Constructions
Aéronautiques; Sogitec Industries; and Dassault
Réassurance.
Chairman of Dassault Falcon Jet Corporation.
President of Dassault International, Inc.General Manager of Arie and Nili.Paul R.
Brown(5)(6)
    
    
    54
    
    
    Director
    
    
    2000
    
    
    
    2011
    
    
    Professor in the Accounting, Taxation and Business Law
Department of the Leonard N. Stern Business School at New
York University.Academic Director, TRIUM Executive MBA program.Director and member of the audit committee of Dictaphone,
Inc.
 59




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##### Table of Contents



Current position
    
    Director
    
    TermName
    
    Age
    
    within our Company
    
    Since
    
    Expires
    
    Other Occupation and Directorships(1)Bernard Charlès(4)(8)
    
    
    48
    
    
    President and Chief
Executive Officer
(Directeur
Général)
    
    
    1993
    
    
    
    2011
    
    
    President of Dassault Systemes Canada Inc.; Chairman,
President and Chief Executive Officer of Dassault Systemes
Corp.; Chairman, President and representative director of
Dassault Systemes K.K.
Chairman of: Delmia Corp.; Enovia Corp.; and SolidWorks
Corporation.Director of: SmarTeam Corporation Ltd. and Business Objects.Laurent Dassault
    
    
    51
    
    
    Director
    
    
    1993
    
    
    
    2011
    
    
    General Manager of Dassault Investissements; Chairman and
Chief Executive Officer of Immobilière Dassault; Chairman
of Midway Aircraft Company.
President of: Dassault Investment Fund Inc.; Dassault
Belgique Aviation; Vina Totihue SA.Director of: Groupe Industriel Marcel Dassault; Sogitec
Industries; Power Corporation du Canada; Generali France;
Generali Assicurazioni SpA; Kudelski SA; Banque Privée
Edmond de Rothschild Luxembourg; Terramaris; Industrial
Procurement Services; Chenfeng Machinery; Société de
Véhicules Electriques SAS; and Aero Precision Repair and
Overhaul Company  A-pro.General Manager of Château La Fleur Mérissac; and Château
Dassault.Member of the Advisory Board of: Syntek Capital SA; 21
Central Partners; and Sagard Private Equity Partners.Member of the Comité de Suivide Pechel Industries SAS.Christian Decaix(2)
    
    
    68
    
    
    Director
    
    
    1993
    
    
    
    2005
    
    
    Executive Vice President Social and Industrial Operations
of Dassault Aviation.Director of: Sogitec Industries; Dassault Falcon Jet
Corporation; Dassault Réassurance; and European Aerosystems
Ltd.Bernard Dufau(5)(7)
    
    
    63
    
    
    Director
    
    
    2001
    
    
    
    2007
    
    

Strategic
counsel and general manager of B. Dufau Conseil.
Director and chairman of the audit committee of France
Telecom; director and member of the audit committee of Kesa
Electricals.André Kudelski(5)(7)
    
    
    44
    
    
    Director
    
    
    2001
    
    
    
    2007
    
    

President
and Chief Executive Officer of the Kudelski Group.Chairman and
Chief Executive Officer of Nagra +.Director of: Nestlé
and Edipresse.Member of the Advisory Board of: Crédit Suisse
and Swiss American Chamber of Commerce.Loïk Segalen(2)
    
    
    45
    
    
    Director
    
    
    1993
    
    
    
    2005
    
    
    Vice-President Economic and Financial Affairs of Dassault
Aviation.Chairman and Chief Executive Officer of Dassault Assurances
Courtage; Chairman of Dassault Réassurance.Director of: Dassault Belgique Aviation; Paris Le Bourget
Parc des Expositions; Midway Aircraft Instrument
Corporation; and Dassault Falcon Jet Corporation.General Manager of Dassault Aéro Service; Permanent
Representative of Dassault Aviation to the Board of
Directors of Corse Composites Aéronautiques.
 60




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##### Table of Contents



Current position
    
    Director
    
    TermName
    
    Age
    
    within our Company
    
    Since
    
    Expires
    
    Other Occupation and Directorships(1)Thibault de Tersant(4)
    
    
    47
    
    
    Executive Vice
President Finance
and Chief Financial
Officer
    
    
    1993
    
    
    
    2011
    
    
    Chairman of Dassault Systèmes SAS and Spatial Corp.
Director of: SolidWorks Corporation; Delmia Corp.; Dassault
Systemes Corp.; Enovia Corp.; and SmarTeam Corporation Ltd.Jean-Pierre Chahid-Nouraï(3)(5)
    
    
    66
    
    
    Director
    
    
    2005
    
    
    
    2011
    
    
    Managing Director of Finanval Conseil, Director of
Stanislas SA.ArnoudDe Meyer(3)(8)
    
    
    51
    
    
    Director
    
    
    2005
    
    
    
    2011
    
    
    Professor of Technology Management at INSEAD and Deputy
Dean of INSEAD, in charge of Administration and External
Relations.Director of: Option International; SR&DM; Kylian Technology
Management Pte. Ltd.; INSEAD (Singapore), INSEAD-EURO Asia
Centre Pte. Ltd.
 
 (1)
    
    Principal occupation appears first for directors whose principal employment is not at
Dassault Systèmes.(2)
    
    Resigned as of April 11, 2005.(3)
    
    Co-opted by the April 15, 2005 meeting of the Board of Directors to replace Christian Decaix
and Loïk Segalen; the appointment of these directors was ratified by our general meeting of
shareholders held on June 8, 2005.(4)
    
    Member of the Ad-hoc Committee.(5)
    
    Member of the Audit Committee.(6)
    
    Audit Committee Financial Expert.(7)
    
    Member of Compensation and Nomination Committee.(8)
    
    Member of the Scientific Committee. Our general meeting of shareholders held on June 8, 2005 renewed the terms of Charles
Edelstenne, Bernard Charlès, Laurent Dassault, Paul R. Brown, Thibault de Tersant, Jean-Pierre
Chahid-Nouraï and Arnoud De Meyer for an additional six years. Meetings of the Board of Directors are normally convened by the Chairman of the Board of
Directors and are to be held as often as required in the corporate interest. A quorum consists of
at least one half of the members of the Board of Directors. Decisions are made by majority vote of
the members present, deemed to be present or duly represented by other members of the Board of
Directors. A director may not vote on an arrangement or contract in which he is materially
interested; if he does vote, the decision will be void. Our by-laws permit any director to attend,
participate in and vote at any meeting by videoconference for certain decisions as provided by
French law. The Board of Directors met four times in 2004, with an attendance rate of 83%. Audit Committee.The Audit Committee was established in 1996 to assist our Board of Directors
in overseeing the quality and integrity of our financial statements and the financial reporting
process, our internal accounting and financial control systems, and our compliance with legal and
regulatory requirements. Since September 2002, the Audit Committee has been fully comprised of
independent directors, in compliance with French corporate governance recommendations contained in
the Bouton Report, the Sarbanes-Oxley Act of 2002, and Nasdaq corporate governance rules. The primary responsibility of the Audit Committee is to oversee our financial reporting
process on behalf of the Board of Directors and report the results of its activities to the Board.
The Audit Committee assesses the independence of our external auditors and recommends to the Board
of Directors their appointment, compensation and termination (subject to shareholder approval under
French law). The Audit Committee discusses with the external auditors the scope of the audit,
pre-approves all audit-related and non-audit related services provided by the external auditors,
and discusses with them the critical accounting policies used in connection with the preparation of
the financial statements. At the end of each fiscal year, the Audit Committee reviews the audited
annual 61




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##### Table of Contents



consolidated financial statements before giving its report to the Board of Directors. Since
January 15, 2004, the Audit Committee has been responsible for pre-approving all related-party
transactions pursuant to Nasdaq corporate governance requirements. The Audit Committee discusses with management, the internal auditors, and the external
auditors the adequacy and effectiveness of our accounting and financial controls, including our
policies and procedures to assess, monitor and manage business and financial risk. The committee
reviews managements assessment of the effectiveness of internal controls as of the end of each
year and the external auditors report on managements assessment. The Audit Committee also oversees the work of the internal audit department, and approves its
annual audit plan. The internal audit Director reports to the Audit Committee conclusions resulting
from the audit engagement. In addition, in 2004, the Audit Committee was informed of the progress of the corporate
project on internal controls and procedures launched in 2003 pursuant to the applicable French and
U.S. regulations (Loi de Sécurité Financièrein France, and the Sarbanes-Oxley Act in the U.S.). The Audit Committee met ten times in 2004, including three times in person and seven by
telephone, with an attendance rate of 93%. In 2005, it is anticipated that the Audit Committee will
meet a minimum of seven times. Ad-hoc Committee.The Ad-hoc Committee was established in 1996 to assist the Board of
Directors by preparing and submitting to the Board proposals regarding beneficiaries of stock
option plans to be granted to employees. The Ad-hoc Committee did not meet in 2004 because no stock
options were granted. Its meeting on March 29, 2005 to approve a new grant of stock options was its
last meeting. This committee was replaced on April 15, 2005 by the Compensation and Nomination
Committee. Compensation and Nomination Committee. In compliance with applicable Nasdaq corporate
governance rules and French guidelines, the Board of Directors formed a Compensation and Nomination
Committee at its April 15, 2005 meeting. The Committee is comprised of two independent directors.
The Committee shall meet at least once a year with the following principal objectives: (i) propose
to the Board the compensation of the Chairman and CEO; (ii) propose succession planning in the
event of vacancies of the Chairman and CEO positions; (iii) examine the nomination and compensation
policies for executive officers of our Group; (iv) examine our policy and make recommendations on
stock option grants and other forms of stock-based incentives; (v) review the directors fees and
the method for allocating those fees among directors; and (vi) make proposals to the Board on the
appointment of new directors or re-appointment of current directors. Scientific Committee.The Scientific Committee was established by our Board of Directors on
April 15, 2005, and is comprised of two directors and one executive officer, Dominique Florack, our
Executive Vice President for Strategy and Development, and meets at least once a year. The
Committee reviews the axes for research and development and examines the technological advances of
our Group and makes recommendations in relation thereto. Board of Directors Internal Regulation. An Internal Regulation of the Board of Directors was
adopted on March 29, 2005. This Internal Regulation sets forth the policies and obligations of the
Board related to corporate governance. In particular, it sets forth, among others: the rules for
timely notification of the Board of Directors with respect to events that may materially impact our
prospects, forecasts or implementation of our strategy as presented to the Board; the functioning
rules of the Compensation and Nomination Committee and Scientific Committee as described above;
certain limitations on the powers of our CEO; review of the independence qualifications for Board
members on an annual basis; and performance of an annual self-assessment, and, upon request of the
majority of the Board members, engagement of an external party to provide a more detailed
evaluation and recommendations. The Internal Regulation provides that the independent directors shall meet, in conjunction
with regularly scheduled Board meetings, in executive sessions at least twice a year to enhance
communication among independent directors. The first executive session pursuant to this Internal
Regulation was held on March 29, 2005. 62




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Director Biographies Charles Edelstennefounded Dassault Systèmes in 1981 and was our Managing Director until we
were transformed into a société anonymein 1993. From 1993 to 2002, Mr. Edelstenne was our Chairman
and Chief Executive Officer and since 2002, Mr. Edelstenne has served as our Chairman. Mr.
Edelstenne also serves the positions mentioned under Directors and Senior Management  Principal
Occupation or Employment. Mr. Edelstenne devotes the majority of his time to his duties at
Dassault Aviation. Bernard Charlèshas been our Chief Executive Officer since 2002, our President since 1995 and
one of our directors since 1993. Mr. Charlès also serves the positions mentioned under Directors
and Senior Management  Principal Occupation or Employment. Prior to becoming our President, Mr.
Charlès served as our President of Research and Development from 1988 to 1995 and as President of
Research and Strategy from 1985 to 1988. Thibault de Tersanthas been our Executive Vice President Finance  Chief Financial Officer
since 1988 and one of our directors since 1993. Mr. de Tersant also serves the positions mentioned
under Directors and Senior Management  Principal Occupation or Employment. Prior to joining us,
Mr. de Tersant served as a finance executive at Dassault International. Paul Brownhas been a certified public accountant in Pennsylvania since 1974. He is a
professor in the Accounting, Taxation and Business Law Department of the Leonard N. Stern Business
School at New York University. He chaired this Department from 1997 to 2002. Professor Brown is the
Academic Director of TRIUM Executive MBA program. He has also worked at the Yale School of
Management, INSEAD and the International University of Japan. Mr. Brown has also worked for Arthur
Andersen & Co. and for the Financial Accounting Standards Boards (FASB). He is also a consultant
for numerous financial enterprises. Laurent Dassaultjoined the Groupe Industriel Marcel Dassault in 1991 and serves as executive
or director in its French and foreign subsidiaries. Namely, Mr. Dassault is the General Manager of
Dassault Investissements, Château Dassault and Château La Fleur Mérissac and the Chairman and Chief
Executive Officer of Immobilière Dassault. Prior to holding these positions, Mr. Dassault worked at
Banque Parisienne Internationale, at Banque Vernes and at Banque Industrielle et Commerciale du
Marais between 1977 and 1991. Christian Decaixhas been Executive Vice President Social and Industrial Operations of
Dassault Aviation since 1998. From 1992 to 1998, Mr. Decaix was the Executive Vice President of
Industrial Operations of Dassault Aviation. Mr. Decaix first joined Dassault Aviation in 1962 and
served as an engineer (Ingénieur dÉtudes). Bernard Dufauhas been strategic counsel at B. Dufau Conseil since 2001. Mr. Dufau served as
Chairman and Chief Executive Officer of IBM France from 1996 to 2001 and Chairman of the Management
Board of IBM France from 1995 to 1996, Managing Director of the Distribution Division of IBM Europe
in 1994, Chief Operating Officer of IBM France from 1992 to 1994 and Sales Director of IBM France
from 1989 to 1992. Mr. Dufau first joined IBM France in 1966 as a commercial engineer and then
served in various management positions. André Kudelskihas been President and Chief Executive Officer of the Kudelski Group since 1991
and Chairman of Nagra +, a joint-venture of Kudelski SA and Canal +, since 1992. Mr. Kudelski was
Managing Director of Nagravision, the pay-TV division of Kudelski SA from 1989 to 1990 and Product
Manager for pay-TV products, Kudelski SA. He first joined Kudelski SA in 1984 as an R&D engineer. Loïk Segalenhas been Vice President of Economic and Financial Affairs of Dassault Aviation
since 1999. Mr. Segalen was Deputy Manager to the Vice President of Economic and Financial Affairs
of Dassault Aviation from 1998 to 1999, and Financial Advisor to the Vice President of Economic and
Financial Affairs of Dassault Aviation from 1990 to 1998. Prior to serving in these positions, Mr.
Segalen served as an executive in the Finance Division at Dassault International. Jean-Pierre Chahid-Nouraïwas a member of the Executive Group of Michelin and Chief Financial
Officer of the Michelin group from 1977 to 1990 and has also worked as an investment banker for MM.
Lazard Frères et Cie., Banque Morin-Pons, Financière Indosuez and S.G. Warburg. A former management
consultant with McKinsey & Co. Inc., Mr. Chahid-Nouraï continues to exercise this activity as Managing Director of
Finanval Conseil. Mr. Chahid-Nouraï has also taught finance at ESSEC, the Centre de Formation à
lAnalyse Financière, INSEAD and until recently at CEDEP (the Centre Européen dEducation
Permanente). 63




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Arnoud De Meyeris a Professor of Technology Management at INSEAD. He is also Deputy Dean of
INSEAD, in charge of Administration and External Relations. Mr. De Meyer is a specialist in the
Management of Innovation, a subject on which he has published numerous articles and books. He
previously taught at Waseda University and Keio Business School in Japan and created the INSEAD
Campus in Singapore. Executive Officers The Chief Executive Officer has full executive authority to manage our affairs and has broad
powers to act on our behalf within our corporate purpose and to represent us in dealings with third
parties. These powers of the Chief Executive Officer are subject only to the powers expressly
reserved to the Board of Directors or shareholders by law or by our by-laws, and are subject to
prior authorization of the Board of Directors or the general meeting of shareholders for the
decisions specified by French law. In addition, the Internal Regulation of our Board of Directors
approved on March 29, 2005 provides that our Board of Directors shall determine, on a yearly basis,
which categories of material transactions will be subject to their approval. The Board of
Directors, in its meeting of March 29, 2005, authorized the Chief Executive Officer to grant, for a
one-year period, pledges, sureties or securities in the name of the Company up to a maximum limit
of 50 million, thus renewing under the same terms the previous annual authority granted on March
26, 2004. The Chief Executive officer is elected by the Board of Directors and may be removed by the
Board of Directors at any time. According to our by-laws, the Chief Executive Officer may not be
more than 65 years old. The following table sets forth the names and birth dates of our executive officers and their
current positions with us: Name
    
    Date of Birth
    
    PositionCharles Edelstenne
    
    January 9, 1938
    
    Chairman of the BoardBernard Charlès
    
    March 30, 1957
    
    President and Chief Executive OfficerDominique Florack
    
    June 26, 1959
    
    Executive Vice President, Strategy, Research and DevelopmentThibault de Tersant
    
    July 22, 1957
    
    Executive Vice President Finance  Chief Financial OfficerEtienne Droit
    
    September 3, 1959
    
    Executive Vice President PLM Sales and DistributionPhilippe Forestier
    
    May 16, 1950
    
    Executive Vice President Alliances, Marketing and
CommunicationsBruno Latchague
    
    January 28, 1957
    
    Executive Vice President PLM R&D Solutions and SupportMuriel Pénicaud
    
    March 31, 1955
    
    Executive Vice President Organization and Human ResourcesJoel Lemke
    
    January 12, 1956
    
    Chief Executive Officer of Enovia and General Manager PLM
AmericasJohn McEleney
    
    April 29, 1962
    
    Chief Executive Officer of SolidWorks
 Executive Officer Biographies Dominique Florackhas been our Executive Vice President, Strategy, Research and Development
since 2004. Mr. Florack served as our Executive Vice President Strategy and Research from 2000 to
2003, our Executive Vice President Research and Development, Strategy and Mechanical Design from
1995 to 1999. He also served as our Director of Mechanical CAD from 1994 to 1995 and as Director of
Strategy and Research from 1990 to 1993. Etienne Droithas been our Executive Vice President PLM Sales and Distribution since 2005. He
also served as our Executive Vice President PLM Sales and Services since 1999, as Director of
Applications Development Division from 1991 to 1995, as Manager of the Strategy Department from
1987 to 1991 and as a member of our CATIA Development Team from 1986 to 1987. Bruno Latchaguehas been our Executive Vice President PLM R&D Solutions and Support since
2005. Mr. Latchague served as our Executive Vice President PLM R&D Solutions, Quality Assurance and
Support in 2004, as Executive Vice President Development and Support from 2000 to 2003, as Executive Vice
President Research and Development, Architecture and Modeling Technology from 1995 to 1999. He also
served as our Director of CATIA Products Infrastructure from 1990 to 1995, as our Senior Manager
CATIA Software Infrastructure from 1988 to 1990 and as our Manager CATIA Software Infrastructure
from 1987 to 1988. Prior to joining us, Mr. Latchague served as Manager CAD/CAM Products Support at
Régie Nationale des Usines Renault. 64




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##### Table of Contents



Philippe Forestierhas been our Executive Vice President Alliances, Marketing and
Communications since 2003. Mr. Forestier served as our Executive Vice President Sales and Marketing
for Small and Medium Businesses (SMB) from 2000 to 2002. Living in the United States from 1995 to
2001, Mr. Forestier served as Executive Vice President Americas Market Development from 1995 to
1999. He also served as General Manager of Dassault Systemes of America from 1996 to 1998, our
Director of Worldwide CATIA/CADAM Marketing and Services from 1993 to 1995 and as our Director of
Industrialization and Customer Support from 1988 to 1993. From 1984 to 1988, Mr. Forestier was in
charge of implementing marketing and technical support for our products and, from 1981 to 1984, was
responsible for development of the CATIA geometric modeler. Joel Lemkehas been the Chief Executive Officer of Enovia since its creation in 1998 and our
General Manager PLM Americas since 2003. Prior to 1998, Mr. Lemke served at IBM for nineteen years,
notably as a General Director of the Industrial Solutions Division of IBM. During the nineteen
years of his work for IBM, Mr. Lemke was responsible for strategy, product development, service,
marketing and sales of materials and software. John McEleneyhas been the Chief Executive Officer of SolidWorks since 2001. Mr. McEleney has
been with SolidWorks since 1996 and has served in several roles, including Chief Operating Officer
and Vice President, Americas Sales. Prior to joining SolidWorks, Mr. McEleney held several senior
management positions at Computervision. Muriel Pénicaudhas been our Executive Vice President Organization and Human Resources since
the end of 2002. Prior to joining us, Mrs. Pénicaud served as Director for Organization Development
and Human Resources Policies at Groupe Danone. Previously she held several management positions at
the French Department of Labor, such as Regional Director and advisor to the Labor Secretary. Financial and Contractual Relations Between Our Company and its Directors and Executive
Officers The French Commercial Code (Code de Commerce) strictly forbids loans by a company (société
anonyme) to its directors. No company may provide overdrafts for directors or guarantee any
directors obligations. This prohibition also applies to the Chief Executive Officer, permanent
representatives of companies on the Board of Directors, spouses or heirs of such persons and other
intermediaries. The French Commercial Code and our by-laws require any director, the Chief Executive Officer
and any shareholder who holds more than 10% of the voting rights of our shares, or, if a corporate
shareholder, the company controlling it, that is considering entering into an agreement with the
company, either directly or indirectly, personally or through an intermediary, to inform the
Companys Board of Directors as well as its auditors before the transaction is consummated. French
law also requires such an agreement to be authorized by the Board of Directors, and the director or
person concerned may not vote on the issue. French law further requires such an agreement to be
submitted to an ordinary shareholders meeting for approval once entered into, upon presentation of
a special report from the Companys auditors. Any agreement entered into in violation of these
requirements may be declared void by the Commercial Court at the request of the company or that of
any shareholder, if such agreement is contrary to the interests of the company. Moreover, French
law also states that agreements entered into in the ordinary course of business and with terms and
conditions that are not out of the ordinary are not subject to the prior authorization of the Board
of Directors. Nevertheless, as long as they are material to the company, such agreements must be
disclosed by the interested party to the Chairman of the Board of Directors, who has the
responsibility of communicating the list and the purpose of such agreements to the Board of
Directors and to the statutory auditors. 65




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B. Compensation In consideration for their services on the board, directors are entitled to receive directors
fees (jetons de présence). The total annual amount of directors fees is fixed by the general
meeting of shareholders, but the board determines their allocation among the directors. In
addition, remuneration may be granted to directors on a case-by-case basis for special assignments.
The board may also authorize the reimbursement of travel and accommodation expenses as well as
other expenses incurred by directors in the corporate interest. The Chairman and/or the Chief
Executive Officer are entitled to receive remuneration in addition to the directors fees as
provided for in our by-laws, this additional remuneration being determined by the Board of
Directors. Since 2003, our Chief Executive Officer, Bernard Charlès benefits from two separate
indemnities payable in the event that he is dismissed by us. First, Mr. Charlès would be entitled
to a payment equivalent to two times his gross annual compensation received for the 12 months
preceding his dismissal, pursuant to his mandate as Chief Executive Officer. This indemnity payment
would not apply in the event of dismissal due to intentional misconduct aimed at harming the
interests of Dassault Systèmes. In addition, Mr. Charlès employment contract with Dassault
Systèmes entitles him to an additional indemnity payment equivalent to two times his gross annual
salary received for the 12 months preceding his dismissal under such employment contract. This
indemnity payment would not apply in the event of dismissal for gross or willful misconduct (faute
grave ou lourde). None of our other directors have entered into any service contracts with us or
any of our subsidiaries providing for benefits upon dismissal. See Exhibit 4(c).1 to this Annual
Report on Form 20-F. Each director must own at least one of our shares throughout his term of office. The aggregate amount of compensation paid by us and our subsidiaries to our executive officers
as a group (10 persons) for services in all capacities in 2004 was 4,259,190 (including under our
profit-sharing plans and excluding capital gains on the resale of SolidWorks shares). See Options
to subscribe SolidWorks shares below. As of December 31, 2004, our executive officers and
directors as a group owned stock options to acquire 11,596,083 of Dassault Systèmes shares and
1,736,000 of SolidWorks shares. See Options to Subscribe Securities from Registrant or
Subsidiaries below. Our directors are eligible to receive attendance fees for meetings of the Board of Directors.
We paid 120,000 in attendance fees to directors in 2004. We also paid an additional 17,000 in
compensation to members of the Audit Committee. Our general meeting of shareholders held on June 8, 2005 fixed the maximum amount of
attendance fees for 2005 at 170,000. The table below shows the total amount of gross compensation (including from bonus and
profit-sharing plans) and other benefits granted in euro to each director by us and our
subsidiaries during the 2004 fiscal year: Salary and Fees (in euros)DirectorsDirectors
    
    Fixed
    
    
    Bonus
    
    
    Total
    
    
    Other benefits
    
    
    fees(4)
    
    
    Total for 2004
    
    
    Total for 2003Charles Edelstenne(1)
    
    
    650,000
    
    
    
    
    
    
    
    650,000
    
    
    
    
    
    
    
    24,000
    
    
    
    674,000
    (5)
    
    
    562,800Bernard Charlès
    
    
    513,265
    
    
    
    529,696
    (3)
    
    
    1,042,961
    
    
    
    8,796
    
    
    
    12,000
    
    
    
    1,063,757
    (5)
    
    
    916,840Thibault de Tersant
    
    
    212,649
    
    
    
    99,197
    (3)
    
    
    311,846
    
    
    
    4,025
    
    
    
    12,000
    
    
    
    327,871
    (5)
    
    
    297,812Paul Brown
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,500
    
    
    
    17,500
    
    
    
    13,000Laurent Dassault(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    12,000
    
    
    
    10,000Christian Decaix
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    12,000
    
    
    
    10,000Bernard Dufau
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,500
    
    
    
    17,500
    
    
    
    13,000André Kudelski
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    
    18,000
    
    
    
    13,000Loïk Segalen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    12,000
    
    
    
    10,000
 
 (1)
    
    In 2004, Groupe Industriel Marcel Dassault paid 16,000 to Charles Edelstenne in directors
fees.(2)
    
    In 2004, Groupe Industriel Marcel Dassault paid 500,000 to Laurent Dassault as gross annual
salary and 16,000 in directors fees.(3)
    
    Bernard Charlès and Thibault de Tersant each also received 32,056 in profit-sharing.(4)
    
    12,000 for each director (24,000 for the Chairman of the Board) and for members of the
Audit Committee: 1,000 per meeting attended in person and 500 per meeting by telephone or
video conference. 66




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(5)
    
    See also  Options to subscribe SolidWorks shares below. Options to Subscribe Securities from Registrant or Subsidiaries Options to subscribe Dassault Systèmes shares Pursuant to four successive authorizations granted by our shareholders at shareholders
meetings held on April 15, 1996, June 6, 1997, January 26, 1998 and May 28, 2002, the Board of
Directors implemented eighteen stock option plans for the benefit of certain of our executive
officers and employees. The exercise price of stock options granted pursuant to the sixteen plans
together, was fixed by reference to the market value of the Dassault Systèmes shares on the grant
date of the stock options. The exercise price has been in general equal to the highest of the
following three values: (1) the average share price, without a discount, of the 20 trading days
preceding the grant date of the stock options; (2) the closing share price the trading day before
the grant date of the stock options; and (3) the opening share price on the grant date of the stock
options. Our general meeting of shareholders held on June 8, 2005 authorized the board to grant stock
options to subscribe or to purchase our shares for a period of 38 months and with the limitation
that all outstanding stock options for our shares may not at anytime exceed 20% of our share
capital, which authorization replaced the May 28, 2002 authorization. The following table provides certain information on our stock options plans as of March 31,
2005 (taking into account the stock split of October 14, 1997). 1996
    
    
    1997
    
    
    1998-1
    
    
    1998-2
    
    
    1998-3
    
    
    1998-4
    
    
    1998-5
    
    
    1998-8
    
    
    1998-9Meeting of Board
    
    June 28, 1996
    
    Dec. 15, 1997
    
    Jan. 28, 1998
    
    Nov. 09, 1998
    
    Nov. 09, 1998
    
    Sept. 15, 1999
    
    Sept. 15, 1999
    
    Mar. 29, 2001
    
    Mar. 29, 2001Shareholders Meeting
    
    April 15, 1996
    
    June 06, 1997
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    Jan. 02, 1998Number of options
granted
    
    
    1,027,780
    
    
    
    1,031,840
    
    
    
    750,000
    
    
    
    2,468,730
    
    
    
    354,750
    
    
    
    3,297,000
    
    
    
    320,000
    
    
    
    2,909,600
    
    
    
    553,300 to directors
    
    
    167,000
    
    
    
    175,400
    
    
    
    0
    
    
    
    1,042,850
    
    
    
    0
    
    
    
    1,845,750
    
    
    
    0
    
    
    
    1,676,150
    
    
    
    0 to the top 10
beneficiary employees
    
    
    230,000
    
    
    
    411,600
    
    
    
    706,000
    
    
    
    838,000
    
    
    
    126,000
    
    
    
    844,000
    
    
    
    103,500
    
    
    
    736,000
    
    
    
    176,600Maximum number of
shares
    
    
    1,027,780
    
    
    
    1,031,840
    
    
    
    750,000
    
    
    
    2,468,730
    
    
    
    354,750
    
    
    
    3,297,000
    
    
    
    320,000
    
    
    
    2,909,600
    
    
    
    553,300Number of beneficiaries
    
    
    916
    
    
    
    362
    
    
    
    26
    
    
    
    1,018
    
    
    
    296
    
    
    
    556
    
    
    
    290
    
    
    
    531
    
    
    
    513Exercise price in euro
    
    
    9.00
    
    
    
    25.92
    
    
    
    26.37
    
    
    
    29.58
    
    
    
    29.58
    
    
    
    37.00
    
    
    
    37.00
    
    
    
    52.00
    
    
    
    52.00Exercise first date
    
    June 28, 1996
    
    Dec. 15, 1999
    
    Jan. 28, 1998
    
    Nov. 09, 2000
    
    Nov. 09, 1998
    
    Sept. 15, 2001
    
    Sept. 15, 1999
    
    Mar. 29, 2003
    
    Mar. 29, 2001Exercise last date
    
    June 27, 2006
    
    Dec. 14, 2007
    
    Jan. 27, 2008
    
    Nov. 08, 2008
    
    Nov. 08, 2008
    
    Sept. 14, 2009
    
    Sept. 14, 2009
    
    Mar. 28, 2011
    
    Mar. 28, 2011Number of options
exercised in 2004
    
    
    13,643
    
    
    
    152,141
    
    
    
    3,750
    
    
    
    60,790
    
    
    
    13,662
    
    
    
    3,400
    
    
    
    12,625
    
    
    
    0
    
    
    
    18,450Number of options
cancelled in 2004
    
    
    0
    
    
    
    15,360
    
    
    
    0
    
    
    
    1,000
    
    
    
    0
    
    
    
    2,500
    
    
    
    0
    
    
    
    3,920
    
    
    
    0Number of options
outstanding as of Dec.
31, 2004
    
    
    166,716
    
    
    
    691,589
    
    
    
    8,750
    
    
    
    2,307,396
    
    
    
    179,143
    
    
    
    3,223,620
    
    
    
    196,810
    
    
    
    2,879,100
    
    
    
    501,310Number of options
exercised between Jan.
1, 2005 and March 31,
2005
    
    
    1,355
    
    
    
    6,832
    
    
    
    0
    
    
    
    7,000
    
    
    
    1,525
    
    
    
    0
    
    
    
    1,600
    
    
    
    0
    
    
    
    1,850Number of options
cancelled between Jan.
1, 2005 and March 31,
2005
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,000
    
    
    
    4,420
    
    
    
    10,451
    
    
    
    16,300
    
    
    
    27,340Number of outstanding
options as of March
31, 2005
    
    
    165,361
    
    
    
    684,757
    
    
    
    8,750
    
    
    
    2,300,396
    
    
    
    175,618
    
    
    
    3,219,200
    
    
    
    184,759
    
    
    
    2,862,800
    
    
    
    472,120Number of options
exercised as of March
31, 2005
    
    
    856,619
    
    
    
    301,877
    
    
    
    713,450
    
    
    
    111,924
    
    
    
    137,244
    
    
    
    16,900
    
    
    
    82,102
    
    
    
    0
    
    
    
    20,950Number of options
exercisable as of
March 31, 2005
    
    
    165,361
    
    
    
    684,757
    
    
    
    8,750
    
    
    
    2,300,396
    
    
    
    175,618
    
    
    
    3,219,200
    
    
    
    184,759
    
    
    
    2,862,800
    
    
    
    472,120
 [Additional columns below] 67




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##### Table of Contents



[Continued from above table, first column(s) repeated] Stock option plan
    
    1998-10
    
    1998-11
    
    1998-12
    
    2002-01
    
    2002-02
    
    2002-03
    
    2002-04
    
    2002-05
    
    2002-06
    
    TotalMeeting of Board
    
    June 29, 2001
    
    Oct. 05, 2001
    
    Oct. 05, 2001
    
    May 28, 2002
    
    May 28, 2002
    
    Jan. 20, 2003
    
    Jan. 20, 2003
    
    Mar. 29, 2005
    
    Mar. 29, 2005Shareholders Meeting
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    Jan. 26, 1998
    
    May 28, 2002
    
    May 28, 2002
    
    May 28, 2002
    
    May 28, 2002
    
    May 28, 2002
    
    May 28, 2002Number of options
granted
    
    
    138,000
    
    
    
    1,387,400
    
    
    
    328,650
    
    
    
    1,363,563
    
    
    
    355,300
    
    
    
    3,325,000
    
    
    
    675,000
    
    
    
    967,150
    
    
    
    232,850
    
    
    
    21,485,913- to directors
    
    
    0
    
    
    
    655,000
    
    
    
    0
    
    
    
    651,403
    
    
    
    0
    
    
    
    1,500,000
    
    
    
    0
    
    
    
    80,000
    
    
    
    0
    
    
    
    7,793,553- to the top 10
beneficiary employees
    
    
    116,403
    
    
    
    424,100
    
    
    
    101,000
    
    
    
    454,000
    
    
    
    139,000
    
    
    
    1,060,000
    
    
    
    219,000
    
    
    
    405,000
    
    
    
    104,000
    
    
    
    7,194,203Maximum number of
shares
    
    
    138,000
    
    
    
    1,387,400
    
    
    
    328,650
    
    
    
    1,363,563
    
    
    
    355,300
    
    
    
    3,325,000
    
    
    
    675,000
    
    
    
    967,150
    
    
    
    232,850
    
    
    
    21,485,913Number of beneficiaries
    
    
    44
    
    
    
    400
    
    
    
    434
    
    
    
    378
    
    
    
    401
    
    
    
    803
    
    
    
    533
    
    
    
    264
    
    
    
    88Exercise price in euro
    
    
    49.00
    
    
    
    35.00
    
    
    
    35.00
    
    
    
    45.50
    
    
    
    45.50
    
    
    
    23.00
    
    
    
    23.00
    
    
    
    39.50
    
    
    
    39.50Exercise first date
    
    June 29, 2001
    
    Oct. 05, 2002
    
    Oct. 05, 2002
    
    May 28, 2003
    
    May 28, 2003
    
    Jan. 20, 2004
    
    Dec. 31, 2004
    
    Mar. 30, 2007
    
    Mar. 30, 2005Exercise last date
    
    June 28, 2011
    
    Oct. 04, 2011
    
    Oct. 04, 2011
    
    May 27, 2012
    
    May 27, 2012
    
    Jan. 19, 2013
    
    Jan. 19, 2013
    
    Mar. 28, 2012
    
    Mar. 28, 2012Number of options
exercised in 2004
    
    
    35,500
    
    
    
    0
    
    
    
    34,561
    
    
    
    0
    
    
    
    10,854
    
    
    
    23,370
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    382,746Number of options
cancelled in 2004
    
    
    0
    
    
    
    19,269
    
    
    
    0
    
    
    
    12,217
    
    
    
    0
    
    
    
    4,930
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    59,196Number of options
outstanding as of
December 31, 2004
    
    
    102,399
    
    
    
    1,359,731
    
    
    
    278,294
    
    
    
    1,344,768
    
    
    
    344,296
    
    
    
    3,293,500
    
    
    
    675,000
    
    
    
    0
    
    
    
    0
    
    
    
    17,552,422Number of options
exercised between Jan.
1, 2005 and March 31,
2005
    
    
    0
    
    
    
    0
    
    
    
    21,099
    
    
    
    0
    
    
    
    755
    
    
    
    0
    
    
    
    98,525
    
    
    
    0
    
    
    
    0
    
    
    
    140,541Number of options
cancelled between Jan.
1, 2005 and March 31,
2005
    
    
    7,903
    
    
    
    4,100
    
    
    
    18,848
    
    
    
    5,000
    
    
    
    22,495
    
    
    
    0
    
    
    
    16,700
    
    
    
    0
    
    
    
    0
    
    
    
    135,557Number of outstanding
options as of March
31, 2005
    
    
    94,496
    
    
    
    1,355,631
    
    
    
    238,347
    
    
    
    1,339,768
    
    
    
    321,046
    
    
    
    3,293,500
    
    
    
    559,775
    
    
    
    967,150
    
    
    
    232,850
    
    
    
    18,476,324Number of options
exercised as of March
31, 2005
    
    
    35,601
    
    
    
    0
    
    
    
    62,955
    
    
    
    0
    
    
    
    11,759
    
    
    
    23,370
    
    
    
    98,525
    
    
    
    0
    
    
    
    0
    
    
    
    2,473,276Number of options
exercisable as of
March 31, 2005
    
    
    94,496
    
    
    
    1,012,981
    
    
    
    160,434
    
    
    
    667,385
    
    
    
    143,396
    
    
    
    3,293,500
    
    
    
    559,775
    
    
    
    0
    
    
    
    0
    
    
    
    16,005,728
 We granted no stock options to our directors or employees during the 2004 fiscal year. The table below shows the shares subscribed by each director pursuant to the exercise of
Dassault Systèmes stock options during the 2004 fiscal year: Numberof Dassault
    
    
    
    
    
    
    NumberSystèmes stock
    
    
    
    
    
    
    of Dassault
    
    
    Price of
    
    
    
    
    
    
    Stock optionoptions
    
    
    Exercise
    
    
    Systèmes shares
    
    
    the shares
    
    
    
    
    
    
    plangranted
    
    
    price
    
    
    subscribed
    
    
    subscribed
    
    
    Expiration date
    
    
    (number)Thibault de Tersant
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    25.92
    
    
    
    
    
    
    
    1997
 The following table shows, on a global basis, the total number and weighted average price
of our shares subscribed by the ten employees who have exercised the most significant number of
Dassault Systèmes stock options during the 2004 fiscal year and who are not members of our Board: Total number of
    
    Weighted average
    
    Weighted average
    
    StockDassault Systèmes
    
    price of the stock
    
    price of the shares
    
    option planstock options
    
    options granted
    
    subscribed
    
    (number)Stock options exercised
    
    
    227,500
    
    
    
    
    31.66
    
    1996; 1997; 1998-2; 1998-3;1998-5; 1998-9; 1998-10;1998-11; 2002-2; 2002-3
 Other than the stock options granted pursuant to the stock option plans dated June 28, 1996,
December 15, 1997, January 28, 1998, November 9, 1998, September 15, 1999, March 29, 2001, June 29,
2001, October 5, 2001, May 28, 2002, January 20, 2003, and March 29, 2005, we have no other outstanding securities
convertible or exchangeable into, or representing the right to acquire, our shares. 68




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At March 31, 2005, the outstanding stock options, whether vested or not, if all were
exercised, would give rise to the right to a number of shares representing 16.22% of our share
capital. At March 31, 2005, on the basis of the closing price of our shares on this date, 36.4,
the exercise of outstanding vested stock options with an exercise price lower than this closing
price would give rise to the right to a number of shares representing 8.6% of our share capital. On July 25, 1997, as part of the SolidWorks acquisition, we issued 9,700,000 shares, 7,321,436
of which were issued to the former SolidWorks shareholders in exchange for 100% of the outstanding
capital stock and redeemable convertible preferred stock of SolidWorks, and 2,378,564 of which were
issued to SW Securities L.L.C., our wholly-owned subsidiary that holds such shares solely for the
purpose of distribution to the holders of stock options under the SolidWorks Corporation 1994
Incentive and Nonqualified Stock Option Plan. Pursuant to the SolidWorks merger, the rights to
shares of capital stock of SolidWorks under the stock options and the warrants were converted into
rights to receive our shares. The shares held by SW Securities L.L.C. are not outstanding and do
not have voting rights, nor are they eligible for dividends until
these shares are issued. See Note O to our consolidated financial statements. In 2004, 46,996 shares were issued to the SolidWorks holders of stock options and 1,736 stock
options were cancelled. As of December 31, 2004, SW Securities L.L.C. held 312,442 of our shares.
The number of stock options in circulation and attributed to the employees of SolidWorks amounted
to 50,594 options at December 31, 2004, with an aggregate exercise price of approximately 245,280.
On March 31, 2005, SW Securities L.L.C. held 309,973 of our shares. Options to subscribe SolidWorks shares Pursuant to a 1998 stock option plan, 6,787,365 stock options giving the right to subscribe to
shares of SolidWorks were granted to substantially all of SolidWorks employees, including
2,800,000 stock options granted to certain of our executive officers. Under the terms of the 2002
SolidWorks Corporation Buy-Back Plan, stock option holders have the right to sell shares resulting
from the exercise of such options to SolidWorks within prescribed periods at a price determined
periodically by an independent expert. In 2004, certain of our executive officers exercised a total
of 936,000 options at an exercise price of between $6.00 and $9.50 per option. In 2004, 936,000 of
the stock options exercised were repurchased by SolidWorks at a price of $18.00 per share, the
applicable 2004 independent valuation. As of the date of this annual report on Form 20-F, none of
the 126,000 remaining shares from the exercise in 2004 of stock options had been repurchased. In
2004 as a group, our executive officers realized a gain of $10,953,398 as a result of the exercise
of their SolidWorks stock options and subsequent resale of shares to SolidWorks. As of December 31,
2004, our executive officers had a total of 1,736,000 unexercised SolidWorks stock options. The
table below sets forth information as of December 31, 2004 with respect to each of our directors
who received SolidWorks stock options: Number
ofSolidworksoptionsgranted(1)
    
    

Number ofSolidWorkssharessubscribed
    
    

Exerciseprice
    
    
    Number ofSolidWorks sharesrepurchased underthe Buy-back plan
    
    
    RepurchasepriceCharles Edelstenne(2)
    
    
    900,000
    
    
    
    300,000
    
    
    $
    6.00
    (3)
    
    
    300,000
    
    
    $
    18.00Bernard Charlès(2)
    
    
    900,000
    
    
    
    300,000
    
    
    $
    6.00
    (3)
    
    
    300,000
    
    
    $
    18.00Thibault de Tersant(2)
    
    
    480,000
    
    
    
    160,000
    
    
    $
    6.00
    (3)
    
    
    160,000
    
    
    $
    18.00
 
 1.
    
    For all directors listed above, the date of grant was December 14, 1998.2.
    
    As a result of the exercise of a portion of their SolidWorks stock options and subsequent
resale of shares to SolidWorks, Charles Edelstenne realized a gain of $3,600,000, Bernard
Charlès realized a gain of $3,600,000 and Thibault de Tersant realized a gain of $1,920,000.3.
    
    Fair market value of the shares at the time of exercise was $13.20. 69




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C. Board Practices See Item 6A: Directors and Senior Management. D. Employees At December 31, 2004, we had 4,456 employees, including independent contractors, representing
an increase of 9.0% over 2003. Of these employees, 2,171 were employed in research and development
and product production, 1,954 in marketing, sales and services and 331 in administrative and other
functions. Of our total employee base, including independent contractors, 2,229 were based in
France and 2,227 were based in the United States and other locations. The following tables show our employees both by function and geographically for the past three
years: December 31,2004
    
    
    2003
    
    
    2002Research and Development and Product Production
    
    
    2,171
    
    
    
    2,025
    
    
    
    1,907Marketing, Sales and Services
    
    
    1,954
    
    
    
    1,763
    
    
    
    1,755Administrative and Other Functions
    
    
    331
    
    
    
    300
    
    
    
    304Total
    
    
    4,456
    
    
    
    4,088
    
    
    
    3,966
 December 31,2004
    
    
    2003
    
    
    2002France
    
    
    2,229
    
    
    
    1,970
    
    
    
    1,940United States and other locations
    
    
    2,227
    
    
    
    2,118
    
    
    
    2,026Total
    
    
    4,456
    
    
    
    4,088
    
    
    
    3,966
 E. Share Ownership See Item 7A: Major Shareholders and Item 6B: Compensation. 70




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Item 7: Major Shareholders and Related Party Transactions A. Major Shareholders The following table sets forth information with respect to the beneficial ownership of our
shares by each person who is known by us to own beneficially more than 5% of our outstanding
shares; and all of our directors and executive officers as a group. 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. Unless otherwise indicated in the footnotes to the table, the following persons have sole
voting and sole investment control with respect to the shares they beneficially own, and the
address of each beneficial owner listed below is c/o Dassault Systèmes, 9, quai Marcel Dassault,
B.P. 310, 92156 Suresnes Cedex, France. The percent of beneficial ownership for each shareholder is based on 113,887,242 shares as of
March 31, 2005. Shares beneficiallyName
    
    owned
    
    
    Capital %
    
    
    Voting %Groupe Industriel Marcel Dassault (GIMD).
    
    
    50,769,066
    
    
    
    44.58
    
    
    
    43.74Charles Edelstenne(1)
    
    
    7,658,007
    
    
    
    6.72
    
    
    
    12.21SW Securities L.L.C.(3)
    
    
    309,973
    
    
    
    0.27
    
    
    
    0.0Directors and executive officers(2)
    
    
    7,857
    
    
    
    0.01
    
    
    
    0.01Fidelity Investments(4)
    
    
    6,939,165
    
    
    
    6.09
    
    
    
    5.53Public
    
    
    48,203,174
    
    
    
    42.33
    
    
    
    38.51Total
    
    
    113,887,242
    
    
    
    100.00
    %
    
    
    100.00
    %
 
 (1)
    
    Including 1,542 shares held in trust for the benefit of his family.(2)
    
    As a group, excluding Charles Edelstenne (15 persons).(3)
    
    SW Securities L.L.C. is a subsidiary of SolidWorks Corporation. Voting rights and dividend
rights with respect to the shares held by SW Securities L.L.C. shall not be exercised until
the shares are distributed.(4)
    
    These shares are held by the following entities: FMR Corp., Fidelity International Limited
and the Johnson family which could be deemed as controlling Fidelity International Limited. To our knowledge, as of March 31, 2005, (i) the proportion of our outstanding shares,
including in the form of ADSs, held in the United States was approximately 2.43% and (ii) the
number of record holders of our ADSs in the United States, who hold either for their own account or
for the account of other beneficial owners, was 88. The number of ADSs outstanding as of March 31, 2005 is 2,775,543. As of June 8, 2005, the date of our last annual general meeting of shareholders, our share
capital was divided into 114,036,383 outstanding shares and represented 125,590,731 voting rights. Changes in Principal Shareholders Over the Past Three Fiscal Years The table below shows the significant changes of which we are aware in the percentage of
ownership of our shares by our major shareholders during the past three years. 71




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##### Table of Contents



December 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002Number of
    
    
    Capital
    
    
    Voting
    
    
    Number of
    
    
    Capital
    
    
    Voting
    
    
    Number
    
    
    Capital
    
    
    Votingshares
    
    
    %
    
    
    %
    
    
    shares
    
    
    %
    
    
    %
    
    
    of shares
    
    
    %
    
    
    %Groupe Industriel Marcel Dassault
(GIMD)
    
    
    50,769,066
    
    
    
    44.62
    
    
    
    43.68
    
    
    
    51,184,857
    
    
    
    45.1
    
    
    
    42.4
    
    
    
    51,184,857
    
    
    
    44.7
    
    
    
    42.0French State(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,821,334
    
    
    
    15.6
    
    
    
    14.6Charles Edelstenne(2)
    
    
    7,658,007
    
    
    
    6.73
    
    
    
    12.17
    
    
    
    7,658,007
    
    
    
    6.8
    
    
    
    12.7
    
    
    
    7,657,884
    
    
    
    6.7
    
    
    
    12.5SW Securities L.L.C.(3)
    
    
    312,442
    
    
    
    0.27
    
    
    
    0.00
    
    
    
    359,438
    
    
    
    0.3
    
    
    
    
    
    
    
    391,410
    
    
    
    0.3
    
    
    
    []Directors and executive
officers(5)
    
    
    7,857
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    5,647
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    44,829
    
    
    
    0.0
    
    
    
    0.0Fidelity Investments(4)
    
    
    6,854,246
    
    
    
    6.02
    
    
    
    5.46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    []Public
    
    
    48,184,793
    
    
    
    42.35
    
    
    
    38.69
    
    
    
    54,195,716
    
    
    
    47.8
    
    
    
    44.9
    
    
    
    37,470,527
    
    
    
    32.7
    
    
    
    30.9Total
    
    
    113,786,411
    
    
    
    100
    %
    
    
    100
    %
    
    
    113,403,665
    
    
    
    100
    %
    
    
    100
    %
    
    
    114,570,841
    
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    As a result of a restructuring between Dassault Systèmes and Dassault Participation the
French state became a shareholder in our Company in 2001 and subsequently sold its
shareholding in 2003.(2)
    
    Including 1,542 shares held in trust for the benefit of his family.(3)
    
    SW Securities L.L.C. is a subsidiary of SolidWorks Corporation that holds issued but not
outstanding shares solely for distribution to holders of stock options under the 1994
SolidWorks stock option plan.(4)
    
    As defined above.(5)
    
    Excluding Charles Edelstenne. To our knowledge, there are no other shareholders holding more than 2.5% of our share
capital or voting rights. B. Related Party Transactions We license our products to Dassault Aviation, one of our former direct shareholders whose
president is our Chairman, using commercial terms consistent with those used by our other customers
of similar size. We recorded licensing revenue from Dassault Aviation of 5,690,000 for the year
ended December 31, 2004. We also provide services and support to Dassault Aviation. This activity generated revenues of
8,655,000 in the year ended December 31, 2004. See Note P to our consolidated financial
statements. Most of our development organizations subcontract software development work to 3D PLM Software
Solutions Limited (3D PLM), a joint venture between Dassault Systèmes and Geometric Software
Solutions Co. Ltd., located in India. This joint venture was created in January 2002 and works
virtually exclusively for us, and we retain the resulting intellectual property. We account for 3D
PLM as an equity investment and show our share of its results under Equity in net income of
unconsolidated affiliates-joint ventures. 3D PLMs total revenue amounted to 7.6 million in
2004. We entered into a software component provider agreement in September 2004 with Galaxia Inc., a
Canadian software company. In addition, we granted a loan of 500,000 Canadian dollars to Galaxia in
November 2004, at which time it was not considered a related party. Since that time, and as a
result of the evolution of our relationship, we now consider Galaxia to be a related party. In
March 2005, we granted a new loan of 600,000 Canadian dollars to Galaxia, which loan was approved
by our Audit Committee. Since January 15, 2004, the Audit Committee has been responsible for pre-approving all related
party transactions pursuant to Nasdaq corporate governance requirements. C. Interests of Experts and Counsel Not applicable. 72




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Item 8: Financial Information A. Consolidated Statements and Other Financial Information. See Item 18: Financial Statements for a list of financial statements contained in this
report. Legal Proceedings We are involved in litigation from time to time in the ordinary course of business. We believe
that there is no outstanding or threatened litigation or arbitration which has recently had or is
likely to have a significant impact on our financial standing, our activities, or results. Dividend Policy We have paid dividends in each year since 1986. The payment and amount of dividends depend on
our earnings and financial condition and such other factors as the Board of Directors deems
relevant. Dividends are subject to recommendation by the Board of Directors and a vote by the
shareholders at the ordinary general meeting of shareholders. Dividends are paid in euro. Our general meeting of shareholders held on June 8, 2005 decided that a 2004 dividend equal to
0.38 per share will be distributed with respect to the 2004 financial year, and shall be paid
starting on June 28, 2005. Future dividends will depend on our earnings, financial condition and
other factors. Dividends paid to holders of ADSs or shares who are not residents of France generally will be
subject to French withholding tax at a rate of 25%. Holders who qualify for benefits under an
applicable tax treaty and who comply with the procedures for claiming treaty benefits may be
entitled to a reduced rate of withholding tax and, in certain circumstances, an additional payment
(net of withholding tax) representing all or part of the French avoir fiscal, or tax credit, under
conditions provided for in the relevant treaty and under French law. See Item 10E: TaxationFrench
TaxationTaxation of Dividends. Prospective purchasers of ADSs or shares should consult their own
advisers with respect to the tax consequences of an investment in ADSs or shares. The table below sets forth, in respect of the years indicated, the amount of dividends paid
per share excluding the French avoir fiscaland the amount of dividends paid per share including
the French avoir fiscal(before deduction of applicable French withholding tax), except for the
2004 dividends to be paid in 2005, for which the avoir fiscalis no longer available. Dividends
declared in respect of a given year are paid in the following year. Shares Outstanding
    
    
    Dividend per Share
    
    
    Dividend per ShareYear to which Dividend Relates(1)
    
    at Year End
    
    
    Excluding avoir fiscal(2)
    
    
    Including avoir fiscal(2)1999
    
    
    112,392,052
    
    
    FF1.75
    
    
    $
    0.25
    
    
    FF2.625
    (3)
    
    or
    

FF2.45
    (4)
    
    $0.38 or $0.362000
    
    
    113,339,585
    
    
    
    0.31
    
    
    $
    0.27
    
    
    
    0.465
    (3)
    
    or
    
    
    0.3875
    (4)
    
    $0.40 or $0.332001
    
    
    113,943,754
    
    
    
    0.33
    
    
    $
    0.31
    
    
    
    0.495
    (3)
    
    or
    
    
    0.38
    (4)
    
    $0.48 or $0.362002
    
    
    114,179,431
    
    
    
    0.33
    
    
    $
    0.39
    
    
    
    0.495
    (3)
    
    or
    
    
    0.363
    (4)
    
    $0.57 or $0.422003
    
    
    113,044,227
    
    
    
    0.34
    
    
    $
    0.43
    
    
    
    0.51
    (3)
    
    or
    
    
    0.394
    (4)
    
    $0.64 or $0.502004(5)
    
    
    113,786,411
    (2)
    
    
    0.38
    
    
    
    
    (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Pursuant to French law, payment of dividends must be made within nine months following the
end of the fiscal year to which they relate.(2)
    
    Dividends for 1999 were paid in French francs and, for 2000 through 2003, were declared in
euro. U.S. dollar amounts are translated at the Noon Buying Rate on the date the dividend was
paid July 1, 1999  FF 6.41 per $1.00; July 1, 2000  FF 6.89 per $1.00; June 25, 2001  1.16
per $1.00; June 18, 2002 
1.05 per
$1.00; June 18, 2003 
0.8540 per
$1.00; June 22, 2004 
0.8257 per $1.00.(3)
    
    Dividends per share paid to individual shareholders and shareholding entities benefiting from
a tax credit at 50% for 1999, 2000, 2001, 2002 and 2003.(4)
    
    Dividends per share paid to shareholding entities benefiting from a tax credit at 40% for
1999, 25% for 2000, 15% for 2001 and 10% for 2002 and 2003.(5)
    
    The avoir fiscalis no longer available to shareholders on dividends paid to them from 2005
on, i.e., including the dividends paid in respect of 2004.(6)
    
    To be determined on the date the dividend is paid. 73




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B. Significant Changes. There has been no significant adverse change to our financial condition since the date of the
annual financial statements included in this report. 74




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Item 9: The Offer and Listing A. Listing Details. Our shares have been listed in France on the Paris Stock Exchange (Euronext Paris) since June
28, 1996. In February 2005, Euronext Paris renamed its markets Eurolist, and we are now listed on
Eurolist  Compartment A (Eurolist). In the United States, the shares trade in the form of ADSs.
The ADSs are quoted through the Nasdaq Stock Markets National Market (the Nasdaq National Market)
under the symbol DASTY. Shares issued upon exercise of our stock options during the period from
January 1 through the date dividends are paid in a given year will not have dividend rights with
respect to such dividends and during this period will be quoted with a second CUSIP (DASXY).
American Depositary Receipts evidencing the ADSs are issuable by JPMorgan Chase Bank, as
Depositary. The following table sets forth the high and low prices of our shares on Eurolist and our ADSs
on the Nasdaq National Market since 2000. Annual High and Low Prices of shares on Eurolist and ADSs on the Nasdaq National Market Eurolist
    
    
    NasdaqHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    U.S.$2000
    
    
    126.00
    
    
    
    55.80
    
    
    
    121.19
    
    
    
    57.502001
    
    
    77.45
    
    
    
    29.50
    
    
    
    72.88
    
    
    
    26.902002
    
    
    59.40
    
    
    
    15.19
    
    
    
    52.00
    
    
    
    15.052003
    
    
    39.39
    
    
    
    19.10
    
    
    
    46.25
    
    
    
    21.252004
    
    
    38.81
    
    
    
    30.05
    
    
    
    49.41
    
    
    
    36.872005
(through June 24)
    
    
    39.98
    
    
    
    32.40
    
    
    
    50.32
    
    
    
    42.15
 
 Source: Euronext and Bloomberg Quarterly High and Low Prices of shares on Eurolist and ADSs on the Nasdaq National Market Eurolist
    
    
    NasdaqHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    U.S.$20031st quarter
    
    
    25.39
    
    
    
    19.10
    
    
    
    26.40
    
    
    
    21.252nd quarter
    
    
    35.00
    
    
    
    20.39
    
    
    
    40.05
    
    
    
    22.103rd quarter
    
    
    36.32
    
    
    
    27.25
    
    
    
    39.80
    
    
    
    31.294th quarter
    
    
    39.39
    
    
    
    29.85
    
    
    
    46.25
    
    
    
    35.5120041st quarter
    
    
    39.00
    
    
    
    29.42
    
    
    
    49.50
    
    
    
    36.622nd quarter
    
    
    38.95
    
    
    
    32.41
    
    
    
    47.50
    
    
    
    39.013rd quarter
    
    
    38.68
    
    
    
    33.19
    
    
    
    47.03
    
    
    
    40.524th quarter
    
    
    41.82
    
    
    
    36.66
    
    
    
    52.52
    
    
    
    47.7220051st quarter
    
    
    38.61
    
    
    
    34.62
    
    
    
    50.92
    
    
    
    44.102nd quarter
(through June 24)
    
    
    39.38
    
    
    
    32.40
    
    
    
    49.31
    
    
    
    42.15
 
 Source: Euronext and Bloomberg 75




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Monthly High and Low Prices of shares on Eurolist and ADSs on the Nasdaq National Market Eurolist
    
    
    NasdaqHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    U.S.$September 2004
    
    
    38.40
    
    
    
    33.76
    
    
    
    47.03
    
    
    
    41.65October 2004
    
    
    41.82
    
    
    
    37.37
    
    
    
    52.51
    
    
    
    47.72November 2004
    
    
    40.00
    
    
    
    38.27
    
    
    
    52.43
    
    
    
    49.50December 2004
    
    
    39.30
    
    
    
    36.66
    
    
    
    52.52
    
    
    
    49.02January 2005
    
    
    38.61
    
    
    
    35.50
    
    
    
    50.92
    
    
    
    46.21February 2005
    
    
    36.95
    
    
    
    34.85
    
    
    
    48.10
    
    
    
    44.10March 2005
    
    
    36.50
    
    
    
    34.62
    
    
    
    47.97
    
    
    
    45.68April 2005
    
    
    37.11
    
    
    
    32.40
    
    
    
    47.62
    
    
    
    42.15May 2005
    
    
    39.33
    
    
    
    35.78
    
    
    
    48.06
    
    
    
    45.98June 2005
(through June 24)
    
    
    39.98
    
    
    
    37.69
    
    
    
    48.75
    
    
    
    46.44
 
 Sources: Euronext and Bloomberg Euronext Paris Securities approved for listing by Euronext Paris are traded in one regulated market. Eurolist
Companies on this regulated market are classified in alphabetical order and are identified by
market capitalization: large caps (over 1 billion); medium caps (from 150 million to 1 billion)
and small caps (market capitalization under 150 million) and called, respectively, the A, B and C
compartments. Our common shares are listed on compartment A under the ISIN code FR 00001 30650. Securities listed by Euronext Paris are placed in one of the two categories, Continu or
Fixing, depending on their trading volume. Our common shares are listed in the category known as
Continu, which includes the most actively traded securities. The minimum yearly trading volume
required for a security to be placed in Continu for a company already listed on a regulated market
of Euronext Paris is 2,500 trades. Securities listed on Eurolist are officially traded through authorized financial institutions
that are members of Euronext Paris. Trading takes place 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
pre-closing session from 5:25 p.m. to 5:30 p.m. during which transactions are recorded but not
executed, a closing auction at 5:30 p.m. and a trading at last from 5:30 p.m. to 5:40 p.m. during
which transactions are recorded but not executed. Any trade of securities 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 publishes a daily official price list that includes among
other things, price information on listed securities. Euronext Paris has introduced continuous
electronic trading during trading hours for most actively listed securities. Euronext Paris may suspend trading in a security listed on Eurolist if the quoted price of the
security exceeds certain price limits defined by the regulations of Euronext Paris. In particular,
if the quoted price of a Continu security varies by more than 10% from the previous days closing
price (reference price), Euronext Paris may suspend trading in that security for up to 4 minutes.
Once trading has recommenced, further suspensions for up to 4 minutes are also possible if the
price again varies by more than 10% from a new reference price equal to the price that caused the
first trading suspension. During the continuous trading session, Euronext Paris also may suspend
trading for a 4-minute period if the price varies by more than 2% from the last traded price.
Euronext Paris also may suspend trading of a security listed on the Eurolist  Compartment A market
in certain other limited circumstances, including, for example, when there is unusual trading
activity in the security. In addition, in certain exceptional cases, the Autorité des Marchés
Financiers(AMF), the self-regulatory organization that has general regulatory authority over the
French stock exchanges, may also suspend trading. Trades of securities listed on Eurolist are settled on a cash basis on the third day following
the trade. However, market intermediaries are also permitted to offer investors a deferred
settlement service (service de réglement différéor SRD) for a fee. The deferred settlement
service is only available for trades in securities which have both a total 76




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market capitalization of at least 1 billion and a daily average volume of trades aggregating
at least 1 million and which are cited on the list published by Euronext Paris. Our shares are
eligible for the deferred settlement service. Investors in shares eligible for SRD can elect on the
determination date (date de liquidation), which is, at the latest, the fifth trading day before the
end of the month, either to settle the trade by the last trading day of the month or to pay an
additional fee and postpone the settlement to the determination date of the following month. Ownership of equity securities traded on a deferred settlement basis is considered to have
been transferred only after such securities have been registered in the purchasers account. Under
French securities regulations, any sale of securities traded on a deferred settlement basis during
the month of a dividend payment date 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. Prior to any transfer of securities held in registered form on the Premier Marché, the
securities must be converted into bearer form and accordingly placed in an account maintained by an
accredited intermediary with Euroclear France S.A., a registered clearing agency. Transactions in
securities are initiated by the owner giving instructions (through an agent, if appropriate) to the
relevant accredited intermediary. Trades of securities listed on Eurolist are cleared through
clearing 21, a common Euronext platform, and settled through Euroclear France S.A. using a
continuous net settlement system. A fee or a commission is payable to the broker-dealer or other
agent involved in the transaction. B. Plan of Distribution. Not applicable. C. Markets. See Item 9A: Listing Details. D. Selling Shareholders. Not applicable. E. Dilution. Not applicable. F. Expenses of the Issue. Not applicable. 77




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Item 10: Additional Information A. Share Capital. Not applicable. B. Memorandum and Articles of Association. The information required for this Item 10B is specifically incorporated by reference to the
relevant information in theForm F-1filed by us with the Securities and Exchange Commission on
June 4, 1996 (Registration Statement on Form F-1). The information provided below supplements the
information provided in the Registration Statement onForm F-1or, to the extent inconsistent with
such information, supersedes it. In this section, we summarize material information concerning our share capital, together with
material provisions of applicable French law and our statuts(by-laws). An unofficial English
translation of our by-laws is included as an exhibit to this report. You may obtain copies of our
by-laws in French from the Registry of Commerce and Companies of Nanterre, France where we are
registered under number 322 306 440. Please refer to the complete by-laws or the unofficial English
translation thereof for additional details. Board of Directors For a complete description of the powers of the directors under French law and our by-laws,
see Item 6: Directors, Senior Management and Employees. Share Capital As of February 28, 2005, the most recent reference date for the modification of our share
capital, our share capital was 113,887,242 divided into 113,887,242 shares with a nominal value of
1.0 per share, including 310,497 treasury shares which under French law have no voting rights and
no rights to dividends. All the shares are fully paid. Purposes of the Company As set forth in Article 2 of our by-laws, the purposes of our Company, in France as well as
abroad, are (1) to develop, produce, market, purchase, sell, rent and provide after-sale service of
computer hardware and/or software, (2) to supply and sell services to users specifically in the
area of training, demonstration, methodology, display and utilization, and (3) to supply and sell
computer resources, together or separate from software or service, in the areas of computer-aided
manufacturing and design, management of the lifecycle of products, collaborative work, technical
databases, management of manufacturing processes, and software development tools as well as
research and development in these areas. For a complete description of our purposes, please refer
to our by-laws. Shareholders Meetings and Voting Rights Notice of shareholders meetings. Shareholders meetings are convened by the Board of Directors. If the Board of Directors fails
to convene a shareholders meeting the statutory auditors may call the meeting the meeting. In case
of bankruptcy, the liquidator or court-appointed agent may also call a shareholders meeting in
some instances. Any of the following may request the court to appoint an agent: (i) one or several
shareholders holding at least 5% of our share capital; (ii) any interested party in case of
emergency; (iii) duly qualified associations of shareholders who have held their shares in
registered form for at least two years and who together hold at least a specified percentage of the
voting rights of our Company; or (iv) the workers committee in a case of emergency. In addition, shareholders representing a majority of the share capital or voting rights may
convene a meeting after a public tender offer or the acquisition of a controlling block of shares. 78




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Additional resolutions for shareholders meetings. Additional resolutions to be submitted to a vote of the shareholders at the meeting may be
proposed to the Board of Directors within 10 days of the publication of the preliminary notice in
the BALO by one or several shareholders holding a specified percentage of our share capital, the
workers committee, or a duly qualified association of shareholders who have held their shares in
registered form for at least two years and who together hold at least a specified percentage of the
voting rights of our Company. During the two weeks preceding a meeting of shareholders, any shareholder may submit written
questions to the Board of Directors relating to the agenda for the meeting. The Board of Directors
must respond to these questions. Attendance and voting at shareholders meetings. In general, each share confers on the shareholder the right to one vote. Nevertheless, our
by-laws provide that a double voting right will be awarded to all fully paid-up shares held in
registered form for at least two consecutive years in the name of the same holder. Under French
company law, shares of a company held by entities controlled directly or indirectly by that company
are not entitled to voting rights and do not count for quorum or voting purposes. In the case of a
capital increase by incorporation of reserves, profits or premiums, this double voting right will
be attached on the date of their issuance to registered shares newly allotted to a shareholder in
consideration for the old shares giving rise to such right. Our by-laws provide that upon decision by our Board of Directors, shareholders may participate
and vote at general meetings of shareholders by videoconference or by other means of
telecommunication permitting shareholders identification in accordance with applicable laws and
regulations. If such participation is permitted, shareholders who participate in this manner will
be counted for the calculation of a quorum and a majority at general meetings of shareholders. Proxies and votes by mail. A shareholder not domiciled in France, as defined in the French Civil Code, may be represented
at a shareholders meeting by an intermediary registered under the conditions set forth by the
legal and regulatory provisions in force. Such a shareholder will therefore be considered to be
present at the meeting for the computation of the quorum and the majority. Alternatively, the
shareholder may send us a blank proxy (dated and signed) without nominating a representative. In
this case, the chairman of the meeting will vote the blank proxies in favor of all resolutions
proposed or agreed to by the Board of Directors and against all others. Financial statements and other communications with shareholders. In connection with any shareholders meeting, we must provide a set of documents, including
our annual report, a summary of the results of the five previous fiscal years and a special report
regarding our internal control objectives, the organization of internal control participants and
internal control procedures in place to any shareholder who so requests. French company law also
requires that a special report must be provided to the ordinary shareholders meeting regarding
stock options authorized and/or granted by us. Dividends Legal reserve. At December 31, 2004, our legal reserve was 11.5 million. Distribution of dividends. French companies typically pay dividends once per year. Shares issued upon exercise of our
stock options during the period from January 1 through the dividend payment date of a given year
will not have dividend rights with respect to such dividends and during this period will be quoted
with a second CUSIP (DASLT). Following the 79




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dividend payment date, these shares will be assimilated to, and prospectively will entitle the
holder to the same rights and benefits as shares issued before January 1. In addition, our by-laws authorize our shareholders, in an ordinary general meeting, to
authorize the grant to each shareholder of an option to receive all or part of any dividends
declared either in cash or in our shares. Changes in Share Capital Increases in share capital. As provided by French company law, our share capital may be increased only with the
shareholders approval at an extraordinary general meeting of shareholders following a
recommendation of the Board of Directors. Increases in our share capital may be effectuated by (i)
issuing common shares or preferred shares; or (ii) increasing the nominal value of existing shares. Increases in share capital by issuing additional common or preferred shares may be effectuated
by issuing such securities (i) for cash; (ii) for assets contributed in kind; (iii) by conversion,
exchange or redemption of debt securities previously issued; (iv) by exercise of any other
securities giving rights to such securities, such as warrants or stock options; (v) by
capitalization of profits, reserves or share premiums; (vi) subject to various conditions, in
satisfaction of debt incurred by our Company; (vii) by conversion of common shares into preferred
shares or conversion of preferred shares into common shares or into another class of preferred
shares; or (viii) any combination of the above. Decisions to increase the share capital through the capitalization of reserves, profits and/or
share premiums require the approval of an extraordinary general meeting, acting under the quorum
and majority requirements applicable to ordinary shareholders meetings. Increases effectuated by
an increase in the nominal value of shares require unanimous approval of the shareholders, unless
effectuated by capitalization of reserves, profits or share premiums. All other capital increases
require the approval of shareholders at an extraordinary general meeting acting under applicable
quorum and majority requirements. However, since the publication of
Ordinance n° 2004-604 of June
24, 2004 relating to the issuance of securities by French commercial companies, the extraordinary
general meeting may delegate to the Boards of Directors its powers to decide, within certain
limits, upon capital increases. The shareholders may delegate the right to carry out any increase in share capital (other than
for an in-kind contribution, subject to certain exceptions) to the Board of Directors. The Board of
Directors may further sub-delegate this right to our Chief Executive Officer. Each time the
shareholders decide to carry out a capital increase or decide to delegate to the Board of Directors
the right to carry out a capital increase (except for a contribution in kind or when it results
from an earlier issue of securities giving rights to shares), they must decide on whether or not to
carry out a capital increase reserved to employees of our Company and its subsidiaries or whether
or not to delegate to the Board of Directors the right to implement such reserved capital increase. The French company law provisions with respect to increases in share capital was substantially
modified by the above mentioned Ordinance n° 2004-604 of June 24, 2004. As a result, our general
meeting of shareholders of June 8, 2005, granted new authorizations to the Board, for a period of
26 months, to increase the share capital in accordance with the new French company law provisions.
Pursuant to this delegation by our shareholders, the Board of Directors is now authorized to (i)
increase the share capital, with or without preemptive subscription rights of our shareholders, by
an issuance of shares and/or any other securities granting access to a portion of our share
capital, provided, however, that the nominal amount of increases in the share capital to be made
pursuant to this delegation may not exceed 15 million and the nominal amount of debt securities to
be issued pursuant to this delegation shall not exceed a maximum of 750 million; (ii) increase the
share capital by the capitalization of profits, reserves or share premiums; (iii) increase the
initial amount of any capital increases by 15% in the event of over-subscription, within the same
nominal aggregate limit of 15 million; and (iv) increase the share capital to issue new shares in
the event of a contribution in kind of securities by a third party, up to a limit of 10% of our
total share capital. These authorizations replace the authorizations of June 2, 2004, pursuant to
which no increases of our share capital were effectuated by our Board of Directors. 80




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Decreases in share capital. According to French company law, any decrease in our share capital requires approval by the
shareholders entitled to vote at an extraordinary general meeting. The shareholders may delegate
the right to carry out any decrease in share capital to the Board of Directors, provided that this
decrease has been previously authorized by the shareholders. In the case of a capital reduction,
other than a reduction to absorb losses or a reduction as part of a program to purchase our own
shares, all shareholders must be offered the opportunity to participate in such a reduction. The
share capital may be reduced either by decreasing the nominal value of the outstanding share
capital or by reducing the number of outstanding shares. The number of outstanding shares may be
reduced either by an exchange of shares or by the repurchase and cancellation of shares. Holders of
each class of shares must be treated equally unless each affected shareholder agrees otherwise. Preemptive Subscription Rights. According to French company law, if we issue securities for cash giving a right either
immediately or at a later date to subscribe to our new shares, current shareholders will have
preemptive subscription rights to these securities on a pro rata basis. These preemptive rights
require us to give priority treatment to those shareholders. The rights entitle the individual or
entity that holds them to subscribe to any issuance of securities that may increase the share
capital of our Company by means of a cash payment or a settling of cash debts. Preemptive
subscription rights are transferable during the subscription period relating to a particular
offering. These rights may also be listed on Eurolist or any relevant Stock Exchange. A two-thirds majority of the shares entitled to vote at an extraordinary general meeting may
vote to waive preemptive subscription rights with respect to any particular offering. French law
requires that the Board of Directors and our independent auditors present reports that specifically
address any proposal to waive preemptive subscription rights. In the event of a waiver, the
issuance of new securities must be completed within two years, the period prescribed by law. The
shareholders may also decide at an extraordinary general meeting to give the existing shareholders
a non-transferable priority right to subscribe to such new securities during a limited period of
time. Shareholders may notify us if they wish to waive their own preemptive subscription rights
with respect to any particular offering. Form, Holding and Transfer of Shares Form and holding of shares. Our by-lawspermit us to request that Euroclear France provide us at any time with the
identity, nationality and address of the holders of our shares or other securities granting
immediate or future voting rights, held in bearer form, and with the number of shares or other
securities so held. French company law states that shares held by any non-French resident may be
held by an intermediary on the shareholders behalf in a collective account or in several
individual accounts. The intermediary must declare its position as an intermediary holding shares
on behalf of the beneficial owner. Consequently, the owner of shares recorded in the collective
account or in several individual accounts by an intermediary will be represented at the general
meetings of shareholders by this intermediary. Transfer of shares. Registered shares must be converted into bearer form before being transferred on Eurolist and,
accordingly, must be registered in an account maintained by an accredited intermediary. A
shareholder may initiate a transfer by giving instructions to the relevant accredited intermediary. For dealings on Eurolist, an impôt sur les opérations de bourse, or a tax assessed on the
price at which the securities were traded, is payable at the rate of 0.3 percent on transactions up
to 153,000 and at a rate of 0.15 percent thereafter, subject to a rebate of 23 per transaction
and a maximum assessment of 610 per transaction. Non-residents of France are generally not subject
to the payment of such impôt sur les opérations de bourse. In addition, a fee or commission is
payable to the broker, accredited intermediary or other agent involved in the transaction (whether
within or outside France). No registration duty is normally payable in France, unless a 81




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transfer instrument has been executed in France. See TaxationFrench TaxationTaxation on
Sale or Disposal of Shares below. Requirements for Holdings Exceeding Certain Percentages. French company law provides that any individual or entity, including a holder of ADSs, acting
alone or in concert with others, that becomes the owner, directly or indirectly, of more than
one-twentieth, one-tenth, one-fifth, one-third, one-half or two-thirds of the outstanding share
capital or the voting rights of a listed company in France, or whose holdings fall below any such
level, must notify us within five trading days of the date it crosses the threshold of the number
of shares or ADSs it holds and their voting rights. The individual or entity must also notify the
AMF within five trading days of such date of the number of equity securities it holds and the
voting rights attached thereto. This information will be made public pursuant to the conditions set
forth in the General Regulation of the AMF. French law and the AMF impose additional reporting requirements on persons, acting alone or in
concert with others, who acquire more than 10 percent, and subsequently, as the case may be, more
than 20 percent of the outstanding shares or voting rights of a listed company. These persons must
file with the AMF and such listed company a report disclosing its intentions for the next 12 months
with respect to such company. In this report, the acquirer must disclose whether or not it intends,
within the 12-month period following the acquisition, to increase its shareholding, to acquire
control of such company, or to seek a nomination to such Companys Board of Directors. Such report
must be filed with the AMF and with such listed company within 10 trading days of the date such
threshold has been crossed. The AMF publicly releases the notice. The acquirer must also publish a
press release stating its intentions in a financial newspaper of national circulation in France.
The acquirer may amend its stated intentions, provided that it does so on the basis of significant
changes in its own situation or that of the shareholders. Upon any change of intention, it must
file a new report. In addition, our by-lawsprovide that any person who, directly or indirectly, acting alone or
in concert with others, becomes the owner of more than 2.5 percent, or any subsequent multiple of
2.5 percent up to 50 percent, of our share capital or voting rights, or whose holdings fall below
any such percentage, shall be required to notify us of such fact within five trading days of such
acquisition by registered mail. Failure to comply with such notification provisions will result in
the suspension for up to two years of the voting rights attached to the excess of the relevant
threshold if requested in the minutes of a shareholders meeting by one or more shareholders
holding equity securities representing at least 2.5 percent of our share capital or voting rights. Purchase of Our Own Shares. Under French law, we may not subscribe to our own shares. However, we may, directly or through
an intermediary acting on our behalf, purchase our own shares in accordance with French and EU law.
Our general meeting of shareholders held on June 8, 2005, authorized the Board to implement a share
repurchase program (which will permit us to repurchase our shares for the purposes detailed above)
limited to 10 percent of our share capital. We may also repurchase shares according to this
authorization in the context of a tender offer, within the same limit of 10% of our share capital.
This authorization expires on the annual ordinary general meeting of shareholders convened to
approve the accounts for the 2005 fiscal year. We may not buy shares at a price exceeding 50 per
share (transaction fees excluded) or above a maximum aggregate amount of 400 million. At such
meeting, our shareholders also authorized our Board of Directors to cancel the repurchased shares,
and reduce our share capital by up to 10 percent within any 24-month period. These authorizations
replace the ones that were granted by our shareholders at the general meeting of shareholders on
June 2, 2004. No shares were repurchased under the authorizations of June 2, 2004. The June 8, 2005 authorizations permit us to:  
    
    increase the profitability of shareholders equity and the earnings per
share by canceling such acquired shares, with approval of our shareholders at an
extraordinary meeting;
    
    deliver shares in payment or in exchange, particularly in the case of
external growth; 82




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
    
    stimulate the market of our shares by means of a liquidity contract with an
independent investment firm with a code of business ethics recognized by the AMF;
    
    provide shares to our employees under a profit-sharing plan, a stock option
plan or as a free attribution of shares; or
    
    remit shares upon exercise of rights attached to securities granting access
to our share capital. Under French law we may not, directly or through a person acting on our behalf, own more than
10 percent of our outstanding share capital or, if we have different classes of shares, more than
10 percent of the shares in each class. We may acquire up to 10 percent of our share capital
pursuant to an authorization granted by our shareholders, for a period which may not exceed 18
months, in connection with a corporate share repurchase program, provided that our shares are
listed on Eurolist, subject to the filing of a Note dinformationthat has received a visa of the
AMF and the approval from the shareholders at an ordinary meeting. We must hold any shares we repurchase in registered form. These shares also must be fully paid
up. Shares repurchased by us are deemed outstanding under French law but are not entitled to
dividends or voting rights, and we may not exercise the preemptive subscription rights attached to
them. The shareholders, at an extraordinary general meeting, may decide not to take these shares
into account in determining the preferential subscription rights attached to the other shares.
However, if the shareholders decide to take them into account, we must either sell the rights
attached to the shares we hold on the market before the end of the subscription period or
distribute them to the other shareholders on a pro rata basis. Trading in Our Own Shares. Pursuant to regulations of the European Union and the AMF, we may not trade in our own shares
for purposes of manipulating the market. In order for trades to be valid according to the
applicable regulations:  
    
    we must not, when executing trades under a buy-back program, purchase shares
at a price higher than the highest price of the last independent trade and the highest
current independent bid on the trading venues where the purchase is carried out;
    
    when purchasing our own shares through derivative financial instruments, the
exercise price of those derivative financial instruments shall not be above the higher
of the price of the last independent trade and the highest current independent bid;
    
    we may not purchase more than 25% of the average daily volume of the shares
in any one day on the regulated market on which the purchase is carried out. The average
daily volume figure must be based on the average daily volume traded in the month
preceding the month of public disclosure of that program and fixed on that basis for the
authorized period of the program. Where the program makes no reference to that volume,
the average daily volume figure must be based on the average daily volume traded in the
20 trading days preceding the date of purchase. In addition, in order to benefit from the exemption provided by applicable regulations, we may
not, during any participation in a buy-back program, engage in the following:  
    
    selling of our own shares during the life of the program, subject to certain
exceptions;
    
    trading in our own shares during a 15-day period before the date on which we
make our consolidated, annual and intermediary accounts public;
    
    trading in our own shares if we become aware of information that, if
disclosed, would have a significant impact on the market price of our securities, until
such information is made public. 83




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These requirements do not apply if:  
    
    we have a time-schedule buy-back program in place; or
    
    the buy-back program is lead-managed by an investment firm or a credit
institution which makes its trading decisions in relation to our shares independently
of, and without influence by, us with regard to the timing of the purchases. Pursuant to the General Regulation of the AMF and its instructions, we must publicly disclose,
by means of a press release posted on the AMF website, no later than the seventh trading day
following the date of execution, any transactions pursuant to an ongoing buy-back program. In addition, as the case may be, we will periodically disclose, at least monthly, specified
information regarding buy-back transactions. Ownership of Shares or ADSs by Non-French Residents Under French law, there is normally no limitation on the right of non-French residents or
non-French security holders to own, or, where applicable, to vote securities of a French company. C. Material Contracts. For a discussion of material contracts between IBM and our Company, see Item 3D: Risk
Factors, Item 4B: Business Overview and Item 5A: Operating Results. D. Exchange Controls. Under current French exchange control regulations, there are no limitations on the amount of
payments that may be remitted by a French company to non-French residents. Laws and regulations
concerning foreign exchange controls do require, however, that all payments or transfers of funds
made by a French resident to a non-French resident be handled by an accredited intermediary. In
France, all credit establishments, including all registered banks, are accredited intermediaries. E. Taxation. French Taxation The following is a general summary of the material French tax consequences of owning and
disposing of shares by a holder that is not a resident of France and does not hold the shares in
connection with a business conducted in France. The statements relating to French tax laws set out
below are based on the laws in force as of the date hereof, and are subject to any changes in
applicable French tax laws or in any applicable double taxation conventions or treaties with France
occurring after such date. This discussion is intended only as a descriptive summary and does not purport to be a
complete analysis or list of all potential tax effects of the purchase or ownership of the shares. Potential purchasers of shares are urged to consult their own tax advisers concerning the
consequences of ownership and disposal of shares. Taxation on Sale or Disposal of Shares.Subject to more favorable provisions of any relevant
double tax treaty, persons who are not French residents for the purpose of French taxation (as well
as, under certain conditions, foreign states, international organizations and certain foreign
public bodies) and who have held, alone or with relatives, not more than 25%, directly or
indirectly, of our dividend rights (bénéfices sociaux) at any time during the preceding five years
are not generally subject to any French income tax or capital gains tax on any sale or disposal of
shares. 84




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If a share transfer is evidenced by a written agreement, such share transfer agreement is, in
principle, subject to registration formalities and therefore to a 1% (1.1% from 2006 on)
registration duty assessed on the higher of the purchase price and the market value of the shares
(subject to a maximum assessment of 3,049 per transfer, or 4,000 from 2006 on), provided that,
under certain circumstances, no duty is due if such written share transfer agreement is executed
outside France. Taxation of Dividends.In France, dividends are paid out of after-tax income. French residents
were entitled to a tax credit, known as the avoir fiscal, in respect of dividends distributed by
our Company in 2003. Pursuant to the French Budget Law for 2004 (No. 2003 1311 dated December 30, 2003), French
non-individual shareholders will not be entitled, as of January 1, 2005, to use the avoir fiscal
received with respect to distributions paid in 2004. French individual shareholders will not be
entitled to the avoir fiscalwith respect, only, to distributions paid from 2005 on. However, French individual shareholders will be entitled, with respect to dividends paid as of
January 1, 2005, to a new tax credit equal to 50% of the dividend paid, capped at 230 or, as the
case may be, 115, depending on the marital status of the individual shareholder. Corporate
shareholders are not entitled to this newly implemented tax credit. Thus, dividends paid by Dassault Systèmes to French individual residents in 2004 will
generally carry an avoir fiscalequal to 50% of the distribution that may be used by such holders
in 2005. French non-individual shareholders will not be entitled to use in 2005 any avoir fiscal
attached to distributions made by us in 2004. Under French domestic law, dividends paid to non-residents are normally subject to a 25%
French withholding tax and non-residents are not eligible for the benefit of the French tax credits
(i.e., the avoir fiscaluntil 2004, and from 2005 on, the new tax credit). Under most tax treaties entered into between France and other countries, such withholding tax
may, subject to certain conditions, be reduced and give rise in such other country to a tax credit
of the amount of the tax or, in the case of certain tax treaties, be eliminated. Certain tax treaties further provide for a refund of the avoir fiscalor similar tax credit to
certain non-residents. When a treaty does not provide for the refund of the avoir fiscal, or when a shareholder,
while entitled to the benefits of a treaty is not entitled to the refund of the avoir fiscal, such
shareholder may claim a refund of the précompte(tax of 50% of dividends carrying an avoir fiscal
paid by French companies on dividends paid out of profits which have not been taxed at the ordinary
income tax rate or which have been earned and taxed more than five years before the distribution). The following countries and Territoires dOutre-Mer and other territories have entered into
treaties with France whereby tax residents of such countries and territories may, under certain
circumstances, obtain from the French tax authorities a reduction (generally reducing the
withholding tax rate to 15%) of all or part of such withholding tax and a refund of the avoir
fiscal(net of applicable withholding tax), to the extent, however, that the avoir fiscalis
available. Australia
Austria
Belgium
Bolivia
Brazil
Burkina Faso
Canada
Estonia
Finland
Gabon
    
    Ghana
Iceland
India
Israel
Italy
Ivory Coast
Japan
Latvia
Lithuania
Luxembourg
    
    Malaysia
Mali
Malta
Mauritius
Mexico
Namibia
Netherlands
New Zealand
Niger
Norway
    
    Pakistan
Senegal
Singapore
South Korea
Spain
Sweden
Switzerland
Togo
Turkey
Ukraine
    
    United Kingdom
United States
Venezuela
Territoires
dOutre-Mer
& other territories:
     Mayotte
     New Caledonia
     Saint-Pierre et
     Miquelon
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Dividends paid in 2004. If you are entitled to the benefits of a treaty that provides for the
refund of the avoir fiscal, you may have been subject, on the date of payment, to the withholding
tax at the reduced rate provided for by such treaty (subject to certain filing formalities) rather
than to the French withholding tax at the rate of 25% to be later reduced to the treaty rate, if
you established your entitlement to such reduced rate before the date of payment. Furthermore, if you are entitled to a refund of the avoir fiscalunder your relevant tax
treaty, you can claim for such a refund on distributions made by our Company in 2004, to the extent
only, that you are an individual. Finally,
any précompte paid in cash by our Company in 2004, should be refunded to you if you
are entitled to such refund under your relevant tax treaty, provided, however, that you filed your
claim for such refund before January 1, 2005. Dividends to be paid from 2005 on. As to dividends to be paid from 2005 on to non-residents
benefiting from the provisions of a tax treaty (regardless of whether the treaty provides for the
refund of the avoir fiscal), they should generally continue to be subject, on the date of payment,
to the withholding tax at the reduced rate provided for by such tax treaty (rather than to the
French withholding tax at the rate of 25% to be later reduced to the treaty rate), provided,
however, that these non-residents establish their entitlement to such reduced rate before the date
of payment by providing a certificate (the Simplified Certificate) based on the draft provided by
the French Tax Authorities in their Administrative Guidelines 4 J-1-05, dated February 25, 2005. However, the French tax authorities have not issued guidelines yet to confirm whether
non-resident individual shareholders that benefit from a tax treaty which provides for the refund
of the avoir fiscalwill be entitled to the refund of the new tax credit described above with
respect to distributions paid from 2005 on. Estate and Gift Tax.France imposes estate and gift tax on securities issued by French and
non-French companies acquired by inheritance or gift from a non-resident of France. France has
entered into estate and gift tax treaties with a number of countries pursuant to which, assuming
certain conditions are met, residents of the treaty countries may be exempted from such tax or may
obtain a tax credit. Prospective investors in shares should consult their own advisors concerning
the applicability of French estate and gift tax to their holding of our shares and the availability
of, and the conditions for claiming exemption or tax credit under, such a treaty. Wealth Tax.In the absence of a more favorable tax treaty, the French wealth tax (impôt de
solidarité sur la fortune) does not apply to the shares of a non-French resident individual
investors owning directly or indirectly less than 10% of our share capital, provided that these
shares do not enable their holder to exercise influence on our Company. Taxation of U.S. Investors The following is a general summary of the material U.S. federal income tax and French tax
consequences to a U.S. holder who is a beneficial owner of our ADSs or shares and (a) who owns,
directly, indirectly or by attribution, less than 10% of our capital or our voting stock; (b) who
is (i) a citizen or individual resident of the United States for U.S. federal income tax purposes,
(ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes)
created or organized in or under the laws of the United States or any state thereof (including the
District of Columbia), (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or (iv) a trust if a court within the United States is able to
exercise primary supervision over its administration and one or more U.S. persons have the
authority to control all of the substantial decisions of the trust; (c) who is entitled to the
benefits of the Treaty (as defined below) under the Limitation on Benefits article contained in
the Treaty; (d) who holds the ADSs or shares as capital assets and (e) whose functional currency is
the U.S. dollar (a U.S. Holder). If a partnership (including for this purpose any entity treated
as a partnership for U.S. federal income tax purposes) holds our ADSs or shares, the tax treatment
of a partner generally will depend upon the status of the partner and the activities of the
partnership. If a U.S. Holder is a partner in a partnership that holds our ADSs or shares, the
Holder should consult its tax advisor regarding the specific tax consequences of owning and
disposing of the ADSs or shares. Certain holders (including, but not limited to, United States
expatriates, insurance 86




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companies, tax-exempt entities, regulated investment companies, banks, financial institutions,
persons subject to the alternative minimum tax, securities broker-dealers, traders in securities
who elect to apply a mark-to-market method of accounting, dealers in securities or currencies,
persons holding the ADSs or shares as part of a straddle or a hedging or a conversion transaction
and persons who acquired their ADSs or shares pursuant to the exercise of employee stock options or
otherwise as compensation) may be subject to special rules not discussed below. Because this is a
general summary, U.S. Holders are advised to consult their own tax advisors with respect to the
ownership and disposition of ADSs and shares. The statements of U.S. and French tax laws set forth below assume that each obligation in the
Deposit Agreement and any related agreement will be performed in accordance with its terms and are
based on current U.S. and French tax laws, including the U.S. Internal Revenue Code of 1986, as
amended (the Code), the Treasury regulations promulgated thereunder, rulings, judicial decisions
and administrative pronouncements, and the double taxation conventions between the United States
and France in force, and on the practice of the French tax authorities, as of the date hereof, and
as a consequence are subject to any changes in such laws, conventions or practice occurring after
such date, which may have retroactive effect. In this regard, the Treaty refers to the Convention
between the United States of America and the French Republic for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of August 31,
1994, which entered into force on December 30, 1995, and any protocols thereto. Taxation of Dividends Under the Treaty, the rate of French withholding tax on dividends paid to a U.S. Holder whose
ownership of the ADSs or shares is not effectively connected with a permanent establishment or a
fixed base in France is reduced to 15%. Dividends paid to such U.S. Holder are immediately subject
to the reduced rate of 15% on the date of payment of such dividends, provided that such Holder
establishes before the date of payment that such Holder is a resident of the United States under
the Treaty in accordance with the procedures described below. Dividends paid in 2004.Subject to certain conditions and filing formalities, an individual
U.S. Holder would also be entitled to a payment equal to the avoir fiscal(net of the 15%
withholding tax with respect to dividends paid in 2004 by our Company, if he or she attests that he
or she is subject to U.S. Federal income taxes on the payment of the avoir fiscaland the related
dividend (an Eligible U.S. Holder). U.S. Holders, other than Eligible U.S. Holders, are no longer entitled to the refund of the
avoir fiscalin respect of dividends paid in 2004. In particular, certain entities (U.S. Pension
Funds and certain other tax exempt entities) that could benefit from a partial transfer of the
avoir fiscalwith respect to dividends paid until December 31, 2003, are no longer entitled to
their partial avoir fiscalwith respect to dividends that our Company paid as of January 1, 2004. Such U.S. Holders who are not Eligible U.S. Holders, should, nonetheless be entitled to the
refund of any précomptetax paid in cash by our Company with respect to dividends paid in 2004,
subject to certain formalities described below. Generally, dividends paid to an Eligible U.S. Holder in 2004 were subject to the reduced
withholding tax rate of 15% at the time the dividend was paid if (i) such Holder duly completed and
provided the French tax authorities with Treasury Form RF 1 A EU-No. 5052 (the Form) before the
date of payment of the relevant dividend, or (ii) if completion of the Form was not possible prior
to the payment of dividends, such Holder duly completed and provided the French tax authorities
with a simplified certificate (the Certificate) stating that (a) such Holder was a U.S. resident
as defined pursuant to the provisions of the Treaty, (b) such Holders ownership of the ADSs or
shares was not effectively connected with a permanent establishment of fixed base in France, (c)
such Holder owned all the rights attached to the full ownership of the ADSs or shares, including,
but not limited to, dividend rights, (d) such Holder met all the requirements of the Treaty for
obtaining the benefit of the reduced rate of withholding tax and the right to payment of the French
avoir fiscal, and (e) such Holder claimed the reduced rate of withholding tax and payment of the
avoir fiscal. Holders of ADSs may provide the Form or the Certificate to the Depositary provided
that the Depositary was given sufficient time to file such From or Certificate with the French tax
authorities before the date of payment. 87




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Dividends paid in 2004 to a U.S. Holder that was not entitled to the avoir fiscal(i.e., not
an Eligible U.S. Holder) but was entitled to the reduced rate of withholding tax, were subject to
French withholding tax at the reduced rate of 15%; provided, however, that such Holder filed French
Treasury Form RF1 B EU-No. 5053 with the French tax authorities before the date of payment of the
dividends. If a U.S. Holder had not filed a completed Form or, where applicable, the Certificates, before
the dividend payment date, our Company withheld French withholding tax at the rate of 25%. Such
Holder may claim a refund of the excess withholding tax by completing and providing the French tax
authorities with the Form before December 31 of the second year following the year during which the
dividend was paid. Please note that an Eligible U.S. Holder that had not filed a completed Form or Certificate
before the dividend payment date may claim the avoir fiscalattached to dividends paid by our
Company in 2004 only until December 31, 2005 by completing and providing the French tax authorities
with the Form. Please note further that U.S. Holders other than Eligible U.S. Holders, may obtain a
refund of the précompteattached to dividends paid by our Company in 2004 if they have filed
Treasury Form RF 1 B EU 5053 prior to January 1, 2005. In all cases, any avoir fiscalis generally paid to Eligible U.S. Holders within 12 months of
filing the Form, but not before January 15 following the end of the calendar year in which the
related dividend is paid. Similarly, any French withholding tax refund is generally expected to be
paid to U.S. Holders within 12 months of filing the Form, but not before January 15th
following the end of the calendar year in which the related dividend is paid. Dividends paid from 2005 on.Dividends paid from 2005 on to U.S. Holders benefiting from the
reduced rate of the dividend withholding tax under the Treaty may be subject immediately to the 15%
withholding tax rate upon payment of the dividends if the US Holder provides before the dividend
payment date a simplified certificate (the Simplified Certificate) based on the draft provided by
the French Tax Authorities in their Administrative Guidelines 4 J-1-05, dated February 25, 2005. If a U.S. Holder entitled to a reduced withholding tax rate does not file a completed
Simplified Certificate before the dividend payment date, our Company will withhold the French
withholding tax at the rate of 25%. Such U.S. Holder may claim a refund of the excess withholding
tax by completing and providing the French tax authorities with the Treasury Form RF1 A EU-No. 5052
(or any other form that may replace such Treasury Form) before December 31 of the second year
following the year during which the dividend is paid. The Form or, where applicable, the Certificate, or Simplified Certificate, together with their
respective instructions, are provided by the Depositary to all U.S. Holders of ADSs registered with
the Depositary and are also available from the United States Internal Revenue Service (the IRS).
The Depositary shall arrange for the filing with the French tax authorities of all Forms,
Certificates or Simplified Certificates, as the case may be, provided that they are completed by
U.S. Holders of ADSs and returned to the Depositary in sufficient time. For U.S. federal income tax purposes, the gross amount of any distribution (and any avoir
fiscalor French tax credit paid to a U.S. Holder, including any French withholding tax thereon)
will be taxable as ordinary dividend income to a U.S. Holder, based on the U.S. dollar value of the
distribution calculated by reference to the spot rate in effect on the date the distribution is
actually or constructively received by the U.S. Holder, in the case of shares, or by the
Depositary, in the case of ADSs. No dividends received deduction will be allowed to corporate U.S.
Holders with respect to dividends paid by us. For foreign tax credit limitation purposes, such
dividends generally will constitute foreign source passive or (in the case of certain holders)
financial services income. Under recently enacted legislation, for taxable years beginning
January 1, 2007, dividend income generally will constitute passive category income or in the case
of certain U.S. Holders, general category income. The amount of any dividend paid in euro,
including the amount of any French taxes withheld therefrom, will be equal to the U.S. dollar value
of the euro amount received calculated by reference to the spot rate in effect on the date the
dividend is includible in income, regardless of whether the payment is in fact converted into U.S.
dollars. If the euros are converted into U.S. dollars on the date of receipt, a U.S. Holder
generally should not recognize any foreign currency gain or loss upon conversion. If the euros are
not converted in to U.S. dollars on the date of receipt, a U.S. Holder generally will have a basis
in the euros equal to their U.S. dollar value on the date of receipt. Such U.S. Holder will be
required to recognize foreign currency gain or loss, which generally will be U.S. source ordinary
income or loss, upon a subsequent conversion or other disposition of the euros. Moreover, a U.S.
Holder may be required to recognize 88




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foreign currency gain or loss upon the receipt of a refund of amounts, if any, withheld from a
dividend in excess of the Treaty rate of 15%. If a U.S. Holder is an accrual method taxpayer, for taxable years beginning before 2005, it
must translate French taxes into U.S. dollars at a rate equal to the average exchange rate for the
taxable year in which the taxes accrue, but must translate taxable dividends into U.S. dollars at
the spot rate on the date received. The difference in exchange rates may reduce the U.S. dollar
value of the credits for French taxes relative to its U.S. federal income tax liability
attributable to a dividend. However, for the taxable years beginning after 2004, an accrual method
U.S. Holder may elect to translate French taxes into U.S. dollars using the exchange rate in effect
at the time the taxes were paid. Any such election will apply for the taxable year in which it is
made and all subsequent years, unless revoked with the consent of the IRS. French withholding tax imposed at the Treaty rate of 15% on dividends paid by us and on any
related payment of avoir fiscalor French tax credit is treated as payment of a foreign income tax
and, subject to certain conditions and limitations, may be taken as a credit against such U.S.
Holders U.S. federal income tax liability. Alternatively, a U.S. Holder may claim foreign taxes
paid in a particular year as an itemized deduction. A deduction does not reduce U.S. tax or a
dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the
limitations applicable to foreign tax credits. The United States Treasury has expressed concerns that parties to whom ADSs are released may
be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. Holders
of ADSs. Accordingly, the discussion above regarding the creditability of French withholding tax on
dividends could be affected by future actions that may be taken by the United States Treasury. For U.S. federal income tax purposes, the gross amount of the précompteincluding French
withholding tax paid to a U.S. Holder will be includible in gross income as ordinary income. Such
amounts generally will constitute foreign source passive or (in the case of certain holders)
financial services income for foreign tax credit purposes. The amount of any précomptepaid in
euros, including the amount of any French taxes withheld therefrom, will be equal to the U.S.
dollar value of the euros on the date the précompteis includible in income (which, for a U.S.
Holder of ADSs, will be the date of receipt by the Depositary), regardless of whether the payment
is in fact converted into U.S. dollars. A U.S. Holder of shares who does not convert the euros into
U.S. dollars on the date of receipt generally will be required to recognize U.S. source ordinary
income or loss upon the subsequent sale or other disposition of the euros. Certain U.S. Holders (including individuals) are eligible for reduced rates of U.S. federal
income tax at a maximum rate of 15% in respect of qualified investment income received in taxable
years beginning before January 1, 2009. For this purpose, qualified dividend income generally
includes dividends paid by a non-U.S. corporation if, among other things, the U.S. Holders meet
certain minimum holding periods and the non-U.S. corporation satisfies certain minimum
requirements, including that either (i) the shares (or ADSs) with respect to which the dividend has
been paid are readily tradable on an established securities market in the United States or (ii) the
non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income tax treaty (such
as the Treaty) which provides for the exchange of information. We currently believe that dividends
paid with respect to our ADSs and shares should constitute qualified dividend income for U.S.
federal income tax purposes. The U.S. Treasury and the IRS have announced their intention to
promulgate rules pursuant to which holders of ADSs and shares, among others, will be permitted to
rely on certifications from issuers to establish that dividends are treated as qualified dividend
income. Each individual U.S. Holder of ADSs or shares is urged to consult its own tax advisor
regarding the availability to it of the reduced dividend tax rate in light of its own particular
situation and regarding the computations of its foreign tax credit limitation with respect to any
qualified dividend income paid by us, as applicable. Taxation of Capital Gains A U.S. Holder who is a resident of the United States as defined pursuant to the provisions of
the Treaty will not be subject to French tax on any capital gain from the sale or other disposal of
ADSs or shares unless these ADSs or shares form part of a business property of a permanent
establishment or fixed base that the U.S. Holder has in France. Special rules apply to individuals
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For U.S. federal income tax purposes, a U.S. Holder generally will recognize capital gain or
loss on the sale, exchange, or other disposition of ADSs or shares in an amount equal to the
difference between the U.S. dollar value of the amount realized for the ADSs or shares and the U.S.
Holders adjusted tax basis (determined in U.S. dollars) in the ADS or shares. This capital gain or
loss will be U.S. source gain or loss, and generally will be treated as a long-term capital gain or
loss if the Holders holding period in the ADSs or shares exceeds one year. In the case of a U.S.
Holder who is an individual, any capital gain generally will be subject to U.S. federal income tax
at preferential rates if specified minimum holding periods are met. The deductibility of capital
losses is subject to significant limitations. The deposit or withdrawal of shares for ADSs by a U.S. Holder under the Deposit Agreement will
not be subject to U.S. federal income tax. Passive Foreign Investment Company Status A non-U.S. corporation will be classified as a passive foreign investment company (a PFIC)
for any taxable year if at least 75% of its gross income consists of passive income (such as
dividends, interest, rents or royalties (other than rents or royalties derived in the active
conduct of a trade or business and received from an unrelated person), or gains on the disposition
of certain minority interests), or at least 50% of the average value of its assets consist of
assets that produce, or are held for the production of, passive income. We currently believe that
we did not qualify as a PFIC for the 2004 taxable year for U.S. federal income tax purposes. If we
were characterized as a PFIC for any taxable year (which conclusion is a factual determination that
must be made as of the close of the taxable year), U.S. Holders would suffer adverse tax
consequences. These consequences may include having gains realized on the disposition of ADSs or
shares treated as ordinary income rather than capital gains and being subject to punitive interest
charges on certain dividends and on the proceeds of the sale or other disposition of the ADSs or
shares. Furthermore, dividends paid by us would not be qualified dividend income and would be
taxed at the higher rates applicable to other items of ordinary income. Application of the PFIC
rules is complex. U.S. Holders should consult their own tax advisors regarding the potential
application of the PFIC rules to their ownership of ADSs or shares. French Estate and Gift Taxes Under The Convention Between the United States of America and the French Republic for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates,
Inheritance and Gifts of November 24, 1978, a transfer of ADSs or shares by gift or by reason of
the death of a U.S. Holder will not be subject to French gift or inheritance tax unless (i) the
donor or the transferor is domiciled in France at the time of the making of the gift, or at the
time of his or her death, or (ii) the ADSs or shares were used in, or held for use in, the conduct
of a business through a permanent establishment or fixed base in France. French Wealth Tax The French wealth tax generally does not apply to the ADSs or shares owned by a U.S. Holder
who is a resident of the United States as defined pursuant to the provisions of the Treaty. United States Information Reporting and Backup Withholding Dividend payments made to a Holder and proceeds paid from the sale, exchange, or other
disposition of ADSs or shares may be subject to information reporting to the IRS and possible U.S.
federal backup withholding at a current rate of 28%. Backup withholding will not apply to a U.S.
Holder who furnishes a correct taxpayer identification number or certificate of foreign status and
makes any other required certification, or who is otherwise exempt from backup withholding. U.S.
persons who are required to establish their exempt status generally must provide such certification
on IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-U.S. Holders
generally are not subject to U.S. information reporting or backup withholding. However, these
Holders may be required to provide certification of non-U.S. status (generally on IRS Form W-8BEN)
in connection with payments received in the United States or through certain U.S.-related financial
intermediaries. Backup withholding is not an additional tax. Amounts withheld as backup withholding
may be credited against a Holders U.S. federal income tax 90




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liability. A Holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and
furnishing any required information. F. Dividends and Paying Agents. Not applicable. G. Statements by Experts. Not applicable. H. Documents on Display. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the Exchange Act) and file reports, including annual reports on Form 20-F, and other
information with the U.S. Securities and Exchange Commission (the SEC). As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content
of proxy statements and our officers, directors, and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
Under the Exchange Act, as a foreign private issuer, we are not required to publish financial
statements as frequently or as promptly as United States companies. However, we intend to file with
the SEC, as long as we are required to do so, within 180 days after the end of each fiscal year,
annual reports on Form 20-F containing financial statements audited by an independent accounting
firm. We also intend to furnish to the SEC a translation of our semi-annual reports prepared in
French GAAP pursuant to French law under cover of Form 6-K. You may review a copy of our filings with the SEC including exhibits and schedules filed with
it, at the SECs public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms and their copy charges. In addition, the SEC maintains an Internet site at
http://www.sec.gov that contains reports and other information regarding issuers that file
electronically with the SEC. These SEC filings are also available to the public from commercial
document retrieval services. In addition, material filed by us with the SEC and other information about us can be inspected
at the offices of The Nasdaq Stock Market at 1735 K Street, N.W., Washington D.C. 20006-1506. We provide JPMorgan Chase Bank with annual and semi-annual reports in English, as well as
summaries in English or an English version of all notices of stockholders meetings and other
reports and communications that we generally make available to our stockholders. Copies of these
reports and other documents are available upon request from JPMorgan Chase Bank, attention of the
ADR department. I. Subsidiary Information. Not applicable. 91




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Item 11: Quantitative and Qualitative Disclosures About Market Risk Our overall risk management policy is based upon the prudent management of our market risks,
primarily foreign currency exchange risk and interest rate risk. Our programs with respect to the
management of these risks, including the use of hedging instruments, are discussed below. Our
exposure to these risks may change over time and there can be no assurance that the benefits of our
risk management policies will exceed the related costs. Such changes could have a materially
adverse impact on our financial results. Foreign currency exchange risk. Our revenue is primarily invoiced in U.S. dollars, euro and
Japanese yen. Under the IBM marketing and sales agreement, the royalties we receive for the
products distributed by IBM are generally set in the local currency of the end purchaser, and then
remitted to us by IBM in U.S. dollars based on conversion rates adjusted monthly. In addition, we
incur expenses in several currencies, through our suppliers and employees in different countries.
Finally, we engage in mergers and acquisitions outside the euro zone and may lend money in
different currencies to our fully or partially owned subsidiaries. As a result, our results of
operations may be affected by changes in exchange rates, particularly between the U.S. dollar or
the Japanese yen and the euro. To a certain extent, we experience natural hedging, with revenue denominated in U.S. dollars
partially offset by our U.S. dollar expenses. Our net exposure in Japanese yen is more significant.
In 2004, revenue denominated in U.S. dollars represented approximately 33% of total revenue,
compared with 40% in 2003 and 40% in 2002, after taking into account the monthly conversion by IBM
of royalties coming from end purchaser payments in currencies other than U.S. dollars. Our
operating expenses denominated in U.S. dollars represented 35% of total operating expenses in 2004,
compared with 37% in 2003 and 38% in 2002. As a result, our net operating exposure to U.S. dollars was limited to 67 million in 2004 (8%
of our revenue), and this exposure was in part hedged through market instruments at a level of 5
million, as further described below. Even if our U.S. dollar-denominated revenues and U.S. dollar-denominated expenses are
relatively comparable in amount, sudden or meaningful fluctuations in the value of the U.S. dollar
compared to the euro can have a significant impact on our operating income. The U.S. dollar
depreciated approximately 9% and 20% against the euro in 2004 and 2003, respectively. In 2004 and
2003, U.S. dollar depreciation had a significant negative impact on our operating income. In 2004
and 2003, the Japanese yen depreciated 3% and 11% against the euro, respectively, compared to the
respective preceding year, with a negative impact on our operating income. Currency fluctuations may impact revenue and expenses as well as financial revenue. The main
items of financial revenue subject to fluctuations linked to exchange rates are:  
    
    The difference between the exchange rate used to record invoices and
expenses in foreign currencies and the exchange rate when we receive or make the
payment.
    
    The revaluation of payables and receivables denominated in foreign currencies.
    
    The revaluation of assets denominated in foreign currencies. We are able to hedge some of our foreign currency exchange risk, but some currency risks, such
as the impact of the consolidation of subsidiaries reporting in U.S. dollars, cannot be hedged. Our
hedging transactions typically involve purchasing currency options and foreign exchange contracts.
We only hedge our revenues and expenses coming from usual and predictable activity arising in the
normal course of operations. We use exclusively forward agreements or financial instruments with a
maximum predictable loss. All hedging activities are carried out by the parent company and all
hedging transactions and our net exposure are reported to the Chief Financial Officer on a monthly
basis. The table below sets forth, for the year ended December 31, 2004, our revenue, operating
expenses and net position before and after hedging denominated in U.S. dollars, Japanese yen
together with Korean won and other currencies, principally the euro. 92




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Year ended December 31, 2004U.S. dollars
    
    
    Japanese yen and Korean Won
    
    
    Euro and others(in thousands)Revenue
    
    
    262,862
    
    
    
    163,293
    
    
    
    370,397Operating expenses
    
    
    195,840
    
    
    
    48,452
    
    
    
    322,469Net position
    
    
    67,022
    
    
    
    114,841
    
    
    
    47,928Hedge(1)
    
    
    4,504
    
    
    
    38,821
    
    
    
    Net position after hedge
    
    
    62,518
    
    
    
    76,020
    
    
    
    47,928
 
 (1)
    
    Includes operations considered as a cash flow or fair value hedge under FAS 133 only. The following table presents the notional amount and market value of financial
instruments at December 31, 2004 and 2003: Year ended December 31,2004
    
    
    2003Notional
    
    
    Market
    
    
    Notional
    
    
    Marketamount
    
    
    value
    
    
    amount
    
    
    value(in thousands of euro)Call USD/euro
    
    
    
    
    
    
    
    
    
    
    1,979
    
    
    
    Digital JPY/euro(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collars USD/euro
    
    
    
    
    
    
    
    
    
    
    35,629
    
    
    
    3,441Collars JPY/euro(1)
    
    
    
    
    
    
    
    
    
    
    41,468
    
    
    
    7,893Forward exchange contract USD/euro
    
    
    39,644
    
    
    
    753
    
    
    
    10,821
    
    
    
    1,454Forward exchange contract JPY/euro(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    JPY means Japanese yen. Revenue and expenses denominated in currencies other than the euro are translated into
euro using rates determined by the applicable accounting regulation. For example, most non-euro
transactions originating in France are translated using the average exchange rate of the month
preceding the transaction. When consolidating subsidiaries reporting in currencies other than the
euro, however, the average exchange rate of the quarter in which the consolidation takes place is
used. In the context of business acquisitions, the currency exchange rate used is the rate on the
date of the acquisition, or on the date the foreign currency used for the acquisition was
purchased. Interest rate risk. With the exception of a change in the general economic environment, which
is difficult to assess, we believe that our revenue and earnings, before financial income, were not
materially affected by changes in interest rates in 2004. Similarly, interest rates are not
expected to affect future earnings before financial income, but may affect financial income.
Therefore, our interest rate risk is primarily a risk related to a reduction of financial revenue. We generate positive cash flows from operations and have some financial obligations (e.g.,
employee profit-sharing and a long-term capital lease for a building) but we are a net lender. We
sometimes use bank overdrafts, for non-significant amounts, for which the interest rate is a
variable market rate. We have no loan agreement outside the Group except the long-term capital lease for a building,
as described in Note K to our consolidated financial statements. Therefore, we have no risks linked
to any early repayment triggers. Financial revenue is composed in part of interest from cash and cash equivalents, as well as
revenue from short-term investments. As a result, it is sensitive to fluctuations in interest
rates. We follow a conservative policy for investing our cash resources, mostly relying on
short-term, investment grade investments. Investment rules are determined and controlled by the
treasury department of the parent company. In 2004, for cash management purposes, we did not invest in any common shares or any funds
investing primarily in common shares. Our financial results are therefore not directly linked to
stock market variations. Taking into account the low interest rates and our net financial position, we did not
subscribe to any interest rate hedging products during 2004. 93




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Item 12: Description of Securities Other than Equity Securities Not applicable. 94




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##### Table of Contents



PART II 
 Item 13: Defaults, Dividend Arrearages and Delinquencies To our knowledge, there has been no material default in the payment of principal or interest
or any other material default not cured within 30 days relating to our indebtedness or that of any
of our subsidiaries. 
 Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds To our knowledge, no one (i) has modified materially the instruments defining the rights of
holders of our shares or (ii) has modified materially or qualified the rights evidenced by our
registered securities by issuing or modifying any other class of securities. 
 Item 15: Controls and Procedures Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Exchange Act
Rule 13a-14(c)) as of December 31, 2004. Based on that evaluation, our Chief Executive Officer and
our Chief Financial Officer have concluded that, as of December 31, 2004, our disclosure controls
and procedures were effective. In 2004, we continued the process of implementing additional measures relating to our internal
controls over financial reporting (internal controls), in order to meet new requirements under
French law and in preparation for the additional requirements of the rules implemented pursuant to
the Sarbanes-Oxley Act of 2002. These measures include a project designed to promote, structure and
systematize the evaluation of our internal controls launched in the fourth quarter of 2003 and
continued throughout 2004 and into 2005. As part of this project, we are using the principles
developed by the Treadway Commission in 1992, known as COSO (Commission of Sponsoring
Organizations), to organize our internal controls framework around five major areas: a control
environment; risk assessment; control activities; communications and information processes; and
management of control activities. 
 Item 16: [RESERVED] 
 Item 16A: Audit Committee Financial Expert The Board of Directors has determined that Paul Brown, Audit Committee member and independent
member of our Board of Directors, is an audit committee financial expert as defined by the
Sarbanes-Oxley Act of 2002 and Item 16.A of Form 20-F. 
 Item 16B: Code of Ethics The Company has adopted a code of ethics that applies to its Chief Executive Officer, all
Executive Vice Presidents (including the Chief Financial Officer), the Controller and the Group
Accounting and Consolidation Manager, the internal auditor as well as the Chief Executive Officers
and Chief Financial Officers of the main Dassault Systèmes Group companies. This code of ethics is
incorporated by reference to Exhibit 11 to our 2003 annual report on Form 20-F, filed on June 30,
2004. 
 Item 16C: Principal Accountants Fees and Services Deloitte & Associés (previously called Deloitte Touche Tohmatsu) and Ernst & Young Audit have
served as the Companys independent public accountants for each of the fiscal years in the
three-year period ended December 31, 2004, for which audited financial statements appear in this
annual report on Form 20-F. The Audit Committee recommends to the Board of Directors the
appointment and termination of the auditors annually, subject to approval by shareholders at the
Annual General Meeting. 95




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The following table presents the aggregate fees for professional services and other services
rendered by Deloitte & Associés and Ernst & Young Audit to the Company in 2004 and 2003. Deloitte & Associés
    
    
    Ernst & Young AuditPercentage of
    
    
    
    
    
    
    
    
    
    
    Percentage ofFee Amount
    
    
    Total Fees
    
    
    Fee Amount
    
    
    Total Fees2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003(in euro, except percentages)Audit fees(1)
    
    
    579,205
    
    
    
    707,766
    
    
    
    60.2
    %
    
    
    76.4
    %
    
    
    487,522
    
    
    
    290,321
    
    
    
    92.3
    %
    
    
    94.5
    %Audit-related fees(2)
    
    
    206,347
    
    
    
    17,000
    
    
    
    21.4
    %
    
    
    1.8
    %
    
    
    
    
    
    
    17,000
    
    
    
    
    
    
    
    5.5
    %Tax fees(3)
    
    
    176,875
    
    
    
    201,852
    
    
    
    18.4
    %
    
    
    21.8
    %
    
    
    40,890
    
    
    
    
    
    
    
    7.7
    %
    
    
    All other fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    962,427
    
    
    
    926,618
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    528,412
    
    
    
    307,321
    
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Audit Fees consist of fees billed for the annual audit services engagement and other audit
services, which are those services that only the external auditor reasonably can provide, and
include the Group audit; statutory audits; consents; attest services; and services provided in
connection with documents filed with the SEC and the French market authorities (AMF).(2)
    
    Audit-related Fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Companys financial
statements or that are traditionally performed by the external auditor, and include
consultations concerning financial accounting and reporting standards and the application of
new accounting pronouncements.(3)
    
    Tax Fees include fees billed for tax compliance services, including the preparation of
original and amended tax returns and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals. Audit Committee Pre-Approval Policies and Procedures The Audit Committee assesses the independence of the external auditors of our financial
statements and recommends to the Board of Directors their appointment and termination (subject to
shareholder approval under French law). In connection with this process, the Audit Committee
recommends the external auditors compensation and discusses with them the scope of the audit, has
the authority to pre-approve all audit-related and non-audit related services provided by the
independent auditors, and discusses with the independent auditors all critical accounting policies
used in connection with the preparation of the financial statements. At the end of each fiscal
year, the Audit Committee reviews the audited annual consolidated financial statements before it
gives its report to the Board of Directors. During 2004, none of Audit-Related Fees, Tax Fees and all Other Fees provided to us by
Deloitte & Associés and by Ernst & Young Audit were approved by the Audit Committee pursuant to the
de minimisexception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. 
 Item 16D: Exemptions from the Listing Standards for Audit Committees Not applicable. 96




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Item 16E: Purchases of Equity Securities by the Issuer and Affiliated Purchasers We did not purchase any of our common shares in 2004. We currently hold 309,973 of our common
shares in treasury pursuant to repurchases made in prior years. We have not announced any
additional repurchase programs. 97




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##### Table of Contents



PART III 
 Item 17: Financial Statements Not applicable. 
 Item 18: Financial Statements The following financial statements, together with the report of Deloitte & Associés and Ernst
& Young Audit thereon, are filed as part of this Annual Report on Form 20-F. Consolidated Financial Statements Report of Independent Registered Public Accounting Firms
    
    
    F-1Consolidated Balance Sheets at December 31, 2004 and 2003
    
    
    F-2Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002
    
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-5Consolidated
Statements of Shareholders Equity for the years ended December 31, 2004, 2003 and 2002
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-7
 
 Item 19: Exhibits 1.1
    
    
    Dassault Systèmes by-laws amended through June 8, 2005 (Unofficial English translation).4(a).1
    
    
    Amendment 144, dated June 2, 2004, to the Amended and Restated License Agreement for the Use and
Marketing of Programming Materials between International Business Machines Corporation and
Dassault Systèmes*.4(a).2
    
    
    Amendment 145, dated July 6, 2004, to the Amended and Restated License Agreement for the Use and
Marketing of Programming Materials between International Business Machines Corporation and
Dassault Systèmes*.4(a).3
    
    
    Amendment 146, dated September 2, 2004, to the Amended and Restated License Agreement for the Use
and Marketing of Programming Materials between International Business Machines Corporation and
Dassault Systèmes*.4(a).4
    
    
    Amendment 147, dated October 18, 2004, to the Amended and Restated License Agreement for the Use
and Marketing of Programming Materials between International Business Machines Corporation and
Dassault Systèmes*.4(a).5
    
    
    Amendment 149, dated January 4, 2005, to the Amended and Restated License Agreement for the Use
and Marketing of Programming Materials between International Business Machines Corporation and
Dassault Systèmes*.**4(c).1
    
    
    Incorporated by reference.***11
    
    
    Incorporated by reference.12.1
    
    
    Certification of Bernard Charlès, President and Chief Executive Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.12.2
    
    
    Certification of Thibault de Tersant, Executive Vice President and Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    
    Certification of Bernard Charlès, President and Chief Executive Officer of Dassault Systèmes S.A.
and Thibault de Tersant, Executive Vice President and Chief Financial Officer of Dassault Systèmes
S.A. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 98




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##### Table of Contents



14(a)
    
    
    Consent of Ernst & Young Audit and Deloitte & Associés as Independent Registered Public Accounting
Firms of Dassault Systèmes.
 For a list of our subsidiaries, see Note R to our consolidated financial statements for the year 2004. 
 
    
    Confidential treatment has been requested with respect to certain portions
of this Exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.*
    
    The IBM Agreement was filed as Exhibit 10.1 to Amendment No. 1 to our Form F-1 Registration
Statement (Registration No. 333-04970), which was filed with the Securities and Exchange
Commission on June 24, 1996.**
    
    The relevant portions of the minutes from the September 23, 2003 Board of Directors meeting
and Mr. Charlèss amended employment contract were filed as Exhibits 4(c).1 and 4(c).2 to our
2003 annual report on Form 20-F, which was filed with the Securities and Exchange Commission
on June 30, 2004.***
    
    The Code of Ethics was filed as Exhibit 11 to our 2003 annual report on Form 20-F, which was
filed with the Securities and Exchange Commission on June 30, 2004. 99




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SIGNATURES Pursuant to the requirements of Section 12 of the Securities and 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. DASSAULT SYSTÈMES S.A.Date: June 28, 2005
    /s/ Thibault de TersantThibault de TersantExecutive Vice President and Chief Financial Officer 100




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Dassault SystèmesSuresnes, France: We have audited the accompanying consolidated balance sheets of Dassault Systèmes as of
December 31, 2004 and 2003, and the related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. An audit includes consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Dassault Systèmes as of December 31, 2004 and
2003, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Paris La Défense and Neuilly-sur-Seine, France, June 24, 2005 Ernst & Young Audit
    
    Deloitte & AssociésRepresented by
    
    Represented byJean-Marc MONTSERRAT
    
    Philippe MOURARET
 F-1




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##### Table of Contents



DASSAULT SYSTÈMES CONSOLIDATED BALANCE SHEETS December 31,(All amounts in thousands except share amounts)
    
    2004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents (Note F)
    
    
    541,140
    
    
    
    419,572Short-term investments (Note G)
    
    
    11,730
    
    
    
    20,102Trade accounts receivable, net of allowance for
doubtful accounts of 5,481 in 2004 and 7,477
in 2003
    
    
    237,797
    
    
    
    227,579VAT receivable
    
    
    9,468
    
    
    
    6,732Prepaid expenses and advances
    
    
    14,756
    
    
    
    9,595Financial instruments
    
    
    
    
    
    
    7,226Income tax receivable
    
    
    5,397
    
    
    
    12,664Deferred tax assets (Note E)
    
    
    19,039
    
    
    
    31,634Other current assets
    
    
    50,655
    
    
    
    32,446Total current assets
    
    
    889,982
    
    
    
    767,550Property and equipment, at cost:Land
    
    
    5,680
    
    
    
    6,037Buildings
    
    
    27,188
    
    
    
    29,801Computer equipment
    
    
    54,581
    
    
    
    57,885Office furniture and equipment
    
    
    19,251
    
    
    
    18,257Leasehold improvements
    
    
    31,439
    
    
    
    27,899138,139
    
    
    
    139,879Less accumulated depreciation and amortization
    
    
    (80,956
    )
    
    
    (83,340
    )Property and equipment, net (Note H)
    
    
    57,183
    
    
    
    56,539Other non-current assets (Note J)
    
    
    22,038
    
    
    
    39,507Investment in equity of unconsolidated affiliates
    
    
    771
    
    
    
    475Deferred tax assets (Note E)
    
    
    25,419
    
    
    
    19,292Other intangible assets (less accumulated
depreciation of 91,854 in 2004 and 92,616
in 2003), net (Note I)
    
    
    10,662
    
    
    
    7,323Goodwill (Note I)
    
    
    93,096
    
    
    
    73,804Total assets
    
    
    1,099,151
    
    
    
    964,490
 See accompanying notes to consolidated financial statements. F-2




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##### Table of Contents



DASSAULT SYSTÈMES
CONSOLIDATED BALANCE SHEETS December 31,(All amounts in thousands except share amounts)
    
    2004
    
    
    2003Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    
    47,474
    
    
    
    42,264Accrued wages and other personnel costs
    
    
    59,673
    
    
    
    54,212Sales incentive payable (Note P)
    
    
    21,051
    
    
    
    15,787Unearned revenue
    
    
    112,242
    
    
    
    85,188Income taxes payable
    
    
    16,814
    
    
    
    21,258Current portion of long-term obligations
    
    
    10,496
    
    
    
    10,713VAT and sales tax payables
    
    
    6,939
    
    
    
    6,551Deferred tax liabilities (Note E)
    
    
    7,416
    
    
    
    4,937Accrued expenses and other current liabilities
    
    
    16,674
    
    
    
    21,542Total current liabilities
    
    
    298,779
    
    
    
    262,452Long-term obligations:Capital lease (Note K)
    
    
    2,055
    
    
    
    4,205Employee profit sharing (Note L)
    
    
    18,986
    
    
    
    19,261Pension and post retirements benefits (Note M)
    
    
    13,723
    
    
    
    10,688Deferred tax liabilities and other (Note E)
    
    
    6,359
    
    
    
    10,206Total long-term obligations
    
    
    41,123
    
    
    
    44,360Commitments and contingencies (Note N)Shareholders equity:Share capital, par value Euro 1,113,786,411 shares
authorized and issued and 113,473,969 shares
outstanding at December 31, 2004, and 113,403,665
shares authorized and issued and 113,044,227
shares outstanding at December 31, 2003 (Note O)
    
    
    113,786
    
    
    
    113,404Additional paid-in capital
    
    
    77,107
    
    
    
    66,694Retained earnings  unrestricted
    
    
    632,346
    
    
    
    514,363Retained earnings  restricted (Note O)
    
    
    11,457
    
    
    
    11,457Accumulated other comprehensive loss
    
    
    (75,447
    )
    
    
    (48,240
    )Total shareholders equity
    
    
    759,249
    
    
    
    657,678Total liabilities and shareholders equity
    
    
    1,099,151
    
    
    
    964,490
 See accompanying notes to consolidated financial statements. F-3




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##### Table of Contents



DASSAULT SYSTÈMES
CONSOLIDATED STATEMENTS OF INCOME Year ended December 31,(All amounts in thousands, except per share data)
    
    2004
    
    
    2003
    
    
    2002Revenue :New licenses revenue
    
    
    312,103
    
    
    
    307,096
    
    
    
    347,084Recurring licenses and product development revenue
    
    
    358,840
    
    
    
    338,469
    
    
    
    322,802Software revenue (Note C)
    
    
    670,943
    
    
    
    645,565
    
    
    
    669,886Services and other revenue
    
    
    125,609
    
    
    
    109,258
    
    
    
    104,229Total revenue
    
    
    796,552
    
    
    
    754,823
    
    
    
    774,115Cost of revenue :Software
    
    
    (21,688
    )
    
    
    (21,664
    )
    
    
    (24,448
    )Services and other
    
    
    (100,988
    )
    
    
    (89,793
    )
    
    
    (96,413
    )Total cost of revenue
    
    
    (122,676
    )
    
    
    (111,457
    )
    
    
    (120,861
    )Gross profit
    
    
    673,876
    
    
    
    643,366
    
    
    
    653,254Research, selling and administrative expenses :Research and development
    
    
    (221,860
    )
    
    
    (215,609
    )
    
    
    (221,563
    )Marketing and sales
    
    
    (173,713
    )
    
    
    (162,414
    )
    
    
    (169,653
    )General and administration
    
    
    (47,118
    )
    
    
    (46,679
    )
    
    
    (47,908
    )Amortization of acquired technology
    
    
    (1,394
    )
    
    
    (5,925
    )
    
    
    (11,098
    )(444,085
    )
    
    
    (430,627
    )
    
    
    (450,222
    )Operating income
    
    
    229,791
    
    
    
    212,739
    
    
    
    203,032Equity in net income of unconsolidated affiliates,
net of tax
    
    
    704
    
    
    
    419
    
    
    
    214Financial revenue and other, net (Note D)
    
    
    6,763
    
    
    
    (855
    )
    
    
    2,545Income before income taxes
    
    
    237,258
    
    
    
    212,303
    
    
    
    205,791Income tax expense (Note E)
    
    
    (80,840
    )
    
    
    (76,884
    )
    
    
    (79,376
    )Net income
    
    
    156,418
    
    
    
    135,419
    
    
    
    126,415Basic net income per share (Note O)
    
    
    1.38
    
    
    
    1.20
    
    
    
    1.11Diluted net income per share (Note O)
    
    
    1.35
    
    
    
    1.18
    
    
    
    1.09
 See accompanying notes to consolidated financial statements. F-4




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##### Table of Contents



DASSAULT SYSTÈMES
CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31,(All amounts in thousands)
    
    2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    
    156,418
    
    
    
    135,419
    
    
    
    126,415Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization of property and equipment
    
    
    14,884
    
    
    
    15,302
    
    
    
    19,051Amortization of intangible assets
    
    
    3,143
    
    
    
    7,751
    
    
    
    13,999Deferred income taxes
    
    
    3,953
    
    
    
    (10,920
    )
    
    
    (8,004
    )Tax benefits from employee stock plans
    
    
    2,421
    
    
    
    814
    
    
    
    5,254Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,636Other
    
    
    810
    
    
    
    532
    
    
    
    3,793Changes in current assets and liabilities:(Increase) in trade accounts receivable
    
    
    (21,942
    )
    
    
    (5,093
    )
    
    
    (29,221
    )(Increase) decrease in other current assets
    
    
    (9,314
    )
    
    
    2,205
    
    
    
    10,929Increase (decrease) in accounts payable and accrued expenses
    
    
    20,536
    
    
    
    12,432
    
    
    
    (2,792
    )Increase (decrease) in income taxes payable
    
    
    4,010
    
    
    
    6,117
    
    
    
    (19,967
    )Increase in sales incentive payable
    
    
    5,404
    
    
    
    577
    
    
    
    2,829Increase in unearned revenue
    
    
    34,594
    
    
    
    4,376
    
    
    
    19,870Increase (decrease) in other current liabilities
    
    
    (6,035
    )
    
    
    7,862
    
    
    
    (3,028
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    208,882
    
    
    
    177,374
    
    
    
    142,764CASH FLOWS FROM INVESTING ACTIVITIESAdditions to property, equipment and intangibles
    
    
    (26,801
    )
    
    
    (19,236
    )
    
    
    (20,427
    )Purchases of short-term investments
    
    
    (198
    )
    
    
    (63,962
    )
    
    
    (10,351
    )Proceeds from sales and maturities of investments
    
    
    7,787
    
    
    
    58,029
    
    
    
    Payment for acquisitions, net of cash acquired
    
    
    (4,087
    )
    
    
    (6,085
    )
    
    
    (29,923
    )Proceeds from sale of Revit investment
    
    
    
    
    
    
    
    
    
    
    10,088Increase in long-term receivables
    
    
    (5,769
    )
    
    
    (13,670
    )
    
    
    (25,601
    )Other
    
    
    3,097
    
    
    
    (270
    )
    
    
    216NET CASH USED IN INVESTING ACTIVITIES
    
    
    (25,971
    )
    
    
    (45,194
    )
    
    
    (75,998
    )CASH FLOWS FROM FINANCING ACTIVITIESPurchase of treasury stock
    
    
    
    
    
    
    (29,450
    )
    
    
    Proceeds from exercise of stock options
    
    
    9,272
    
    
    
    4,458
    
    
    
    4,149Repurchase of SolidWorks stock options, net
    
    
    (14,362
    )
    
    
    
    
    
    
    Cash dividends paid
    
    
    (38,435
    )
    
    
    (37,225
    )
    
    
    (37,601
    )Payments on capital lease obligations
    
    
    (1,898
    )
    
    
    (211
    )
    
    
    (1,643
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    (45,423
    )
    
    
    (62,428
    )
    
    
    (35,095
    )Effect of exchange rate changes on cash
    
    
    (15,920
    )
    
    
    (22,172
    )
    
    
    (22,815
    )Increase in cash and cash equivalents
    
    
    121,568
    
    
    
    47,580
    
    
    
    8,856CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    419,572
    
    
    
    371,992
    
    
    
    363,136CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    
    541,140
    
    
    
    419,572
    
    
    
    371,992SUPPLEMENTAL DISCLOSUREIncome taxes paid
    
    
    69,684
    
    
    
    76,452
    
    
    
    97,922Cash interest paid
    
    
    1,414
    
    
    
    1,696
    
    
    
    1,295
 See accompanying notes to consolidated financial statements. F-5




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##### Table of Contents



DASSAULT SYSTÈMES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Share capitalShare capital issued
    
    
    outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other items ofNumber of
    
    
    Stated
    
    
    Number of
    
    
    Paid in
    
    
    Retained earnings
    
    
    comprehensiveShares
    
    
    value
    
    
    shares
    
    
    capital
    
    
    Unrestricted
    
    
    Restricted
    
    
    Income / (loss)
    
    
    Total(All amounts in thousands, except number of shares)January 1, 2002
    
    
    114,446,171
    
    
    
    114,446
    
    
    
    113,943,754
    
    
    
    76,555
    
    
    
    327,420
    
    
    
    11,392
    
    
    
    21,065
    
    
    
    550,878Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,361
    
    
    
    54
    
    
    
    
    
    
    
    126,415Other items
of comprehensive income
Available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,017
    
    
    
    3,017Net derivative gains on
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,718
    
    
    
    9,718Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (384
    )
    
    
    (384
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,630
    )
    
    
    (36,630
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,136Exercise of
stock options (Note O)
    
    
    124,670
    
    
    
    125
    
    
    
    235,677
    
    
    
    3,833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,958Other stock transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,636
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,636Tax benefits (Note E)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,254Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,601
    )
    
    
    
    
    
    
    
    
    
    
    (37,601
    )December 31, 2002
    
    
    114,570,841
    
    
    
    114,571
    
    
    
    114,179,431
    
    
    
    89,278
    
    
    
    416,180
    
    
    
    11,446
    
    
    
    (3,214
    )
    
    
    628,261Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,408
    
    
    
    11
    
    
    
    
    
    
    
    135,419Other items
of comprehensive income
Net derivative losses on
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,485
    )
    
    
    (6,485
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    (361
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,180
    )
    
    
    (38,180
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,393Exercise of stock options (Note O)
    
    
    208,025
    
    
    
    208
    
    
    
    239,997
    
    
    
    4,677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,885Purchase of treasury stock
    
    
    (1,375,201
    )
    
    
    (1,375
    )
    
    
    (1,375,201
    )
    
    
    (28,075
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,450
    )Tax benefits (Note E)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    814Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,225
    )
    
    
    
    
    
    
    
    
    
    
    (37,225
    )December 31, 2003
    
    
    113,403,665
    
    
    
    113,404
    
    
    
    113,044,227
    
    
    
    66,694
    
    
    
    514,363
    
    
    
    11,457
    
    
    
    (48,240
    )
    
    
    657,678Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,418
    
    
    
    
    
    
    
    
    
    
    
    156,418Other items
of comprehensive income
Available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (444
    )
    
    
    (444
    )Net derivative losses on
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,666
    )
    
    
    (4,666
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    (150
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,947
    )
    
    
    (21,947
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,211Exercise of stock options (Note O)
    
    
    382,746
    
    
    
    382
    
    
    
    429,742
    
    
    
    10,181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,563Other stock transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,189
    )Tax benefits (Note E)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,421Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,435
    )
    
    
    
    
    
    
    
    
    
    
    (38,435
    )December 31, 2004
    
    
    113,786,411
    
    
    
    113,786
    
    
    
    113,473,969
    
    
    
    77,107
    
    
    
    632,346
    
    
    
    11,457
    
    
    
    (75,447
    )
    
    
    759,249
 See accompanying notes to consolidated financial statements. F-6




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##### Table of Contents



DASSAULT SYSTÈMES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 NOTE  A. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND CONSOLIDATION, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Description of Business. Dassault Systèmes S.A. and its subsidiaries (the Company) is a leading developer of
world-class software solutions using three-dimensional (3D) digital technology. The Companys
strategic mission is to provide software solutions and services that enable its customers to create
more innovative, higher quality products, develop products more quickly to satisfy market demand,
enable 3D collaboration in product development, create and manufacture products more cost
effectively, and develop products that better preserve the environment both during their production
and when in service. The Company operates in two segments, the Process-centric segment and the Design-centric
segment. The Process-centric segment is dedicated to Product Lifecycle Management (PLM)
software solutions. PLM solutions are organized around four of the Companys brands: CATIA for
product design, DELMIA for digital manufacturing, and ENOVIA and SMARTEAM for product management
and collaboration. In addition, through its wholly-owned subsidiary Spatial, the Company
distributes its PLM infrastructure under the name of Component Application Architecture (CAA) V5
development platform. CATIA, ENOVIA and SMARTEAM solutions are marketed, distributed, and
supported worldwide by International Business Machines Corporation (IBM). The Design-centric
segment is dedicated to customers primarily focused on product design solutions. The Companys
design-centric solutions complement its PLM software applications in reaching a far larger number
of potential users. The Company primarily addresses the mainstream, design-centric market with its
SolidWorks brand. Its products and solutions are designed to capitalize on the significant
migration opportunity of 2D users to 3D design. In addition to the development and distribution of software products, the Company also
provides services related to its software products and solutions and obtains other revenue from its
support of IBM marketing and distribution efforts, direct support to customers, technological
consulting services, and hardware resale activities. Basis of Presentation and Consolidation. The accompanying consolidated financial statements were prepared in accordance with U.S.
generally accepted accounting principles. The Company also prepared separate financial statements
in conformity with the generally accepted accounting principles in France. Differences between
these two sets of financial statements are summarized in Note U. F-7




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##### Table of Contents



The consolidated financial statements include the accounts of Dassault Systèmes S.A. and its
subsidiaries. Intercompany transactions and balances have been eliminated. Companies over which the Company exercises significant influence over operating and financial
policies are accounted for under the equity method. As of December 31, percentage of capital and voting rights of the Company were as follows: Year ended December 31,Voting rights
    
    
    Capital rights2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002French State
    
    
    
    
    
    
    
    
    
    
    14.6
    %
    
    
    
    
    
    
    
    
    
    
    15.6
    %GIMD (Groupe Industriel Marcel Dassault)
    
    
    43.7
    %
    
    
    42.4
    %
    
    
    42.0
    %
    
    
    44.6
    %
    
    
    45.1
    %
    
    
    44.7
    %Mr. Charles Edelstenne, Chairman of the
Company
    
    
    12.2
    %
    
    
    12.7
    %
    
    
    12.5
    %
    
    
    6.7
    %
    
    
    6.8
    %
    
    
    6.7
    %Other
    
    
    44.1
    %
    
    
    44.9
    %
    
    
    30.9
    %
    
    
    48.7
    %
    
    
    48.1
    %
    
    
    33.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Summary of Significant Accounting Policies. Use of estimates. The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates. Revenue Recognition. The Company derives revenues from three primary sources: (1) its marketing and distribution
agreement with IBM, (2) new software licenses, maintenance and product development, which includes
software license updates, technical support and the development of additional functionalities of
standard products requested by clients, and (3) services and other, which includes consulting and
training services. Marketing and distribution agreement with IBM Under the Companys agreement with IBM, the
Company licenses its products to IBM who then sublicenses the products to end-users. The Company
provides maintenance to IBM but does not contract directly with IBM customers. In addition, the
Company provides training to IBM employees for new product releases, participates with IBM in a
worldwide marketing arrangement and is involved in other product development initiatives for both
the Company and IBM products. Royalties under this arrangement are earned as revenue is recognized by IBM from its
sublicensing of the products and services and are included in software revenue based on information
provided by IBM. In general, this results in recognition of license royalties when IBM sublicenses
software to end-users and Postcontract Customer Support (PCS) royalties over the period during
which IBM is required to provide support to end-users. Royalty payments are generally made within
30 days after the end of the month in which the royalties are F-8




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##### Table of Contents



earned. The reporting of IBM activity is subject to an annual audit and adjustment process,
whereby either party has the opportunity to correct differences which may have occurred in the
monthly reporting process during the preceding year. Such differences nearly always result from
interim reporting which occasionally either overstates or understates the number of software
license transactions to a group or groups of end-user customers. The Company monitors possible
differences based upon historical trends and known specific situations, and defers the recognition
of revenue from IBM based upon its estimate of adjustments that will ultimately be made. The Companys agreement with IBM provides for increases in the share of licensing revenue to
be retained by IBM if certain annual sales and growth targets are met by IBM. This incentive is
also linked to IBM meeting a certain level of sales and marketing expenses for the distribution of
CATIA, ENOVIA and SMARTEAM. This incentive is recorded as a reduction to the royalties payable to
the Company from IBM. New Software License, Maintenance and Product Development Revenue New software license
revenues represent all fees earned from granting customers licenses to use our software. Our new
software license revenues consist of perpetual and term license sales of software products. New
software license revenues are recognized when: persuasive evidence of an arrangement exists,
delivery and acceptance of the software has occurred, the software license fee is fixed or
determinable, and collectibility is probable. In instances when any of the four criteria are not
met, we defer recognition of software license revenues until the criteria are met. Revenue related
to the licensing of software through value-added-resellers (VAR) is recognized when notice of
delivery to an end-user customer is provided to the Company, assuming all other revenue recognition
criteria have been met. Maintenance revenues represent fees associated with the sale of periodic unspecified product
updates and technical support. License updates consist of the right to unspecified software updates
on a when-and-if-available basis and are entered into in connection with the initial software
license purchase. Maintenance support may be renewed at the conclusion of each term. Revenue from
maintenance is deferred and recognized as revenue on a straight-line basis over the term of the
maintenance agreement. Product development revenues relate to the development of additional functionalities of
standard products requested by clients and are recognized as the services are performed. Revenues under multiple-element arrangements, which typically include new software licenses
and maintenance agreements sold together, are allocated to each element in the arrangement
primarily using the residual method based upon the fair value of the undelivered elements, which is
specific to us (vendor-specific objective evidence of fair value or VSOE). Discounts, if any, are
applied to the delivered elements, usually software licenses, under the residual method. For
maintenance, VSOE is based upon either the renewal rate specified in each contract or the price
charged when sold separately. If VSOE of one or more undelivered elements cannot be established,
the entire amount of revenue from the arrangement is deferred and recognized when delivery of those
elements occurs or when VSOE can be established. F-9




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##### Table of Contents



Services and Other Professional services revenues consist of fees from consulting services
and training. Services revenues are recognized as the services are performed. Revenue derived from
hardware resale activities is recognized upon delivery. Computer Software Costs / Research and Development. Costs incurred to research and develop computer software products to be licensed or otherwise
marketed to customers are expensed in the period incurred, unless such costs qualify for
capitalization after technological feasibility is established. Application of this accounting
policy has resulted in all such costs being expensed in the period incurred. Purchased in-process
research and development that is not technologically feasible as of the acquisition date and has no
future alternative use is expensed. Cash and Cash Equivalents and Short-Term Investments. The Company considers marketable debt securities with maturities of less than 90 days when
acquired, deposits with banks, and investments in money market mutual
funds which include monetary Société dInvestissement
à Capital Variable (SICAV) and Fonds Communs
de Placement (FCP) to be cash equivalents.
Marketable debt securities with maturities of more than 90 days when acquired are considered to be
short-term investments and are accounted for at carrying value which approximates fair value based
on quoted market price at December 31, 2004 and 2003. All of the Companys short-term investments
are classified as available-for-sale. The cost of securities sold is based on the specific
identification method. Property and Equipment. Property and equipment are recorded at cost and depreciated using the straight-line method
over their estimated useful lives: Buildings, 30 years; computer equipment, 18 months to 5 years;
office furniture and equipment, 5 to 10 years; leasehold improvements are amortized over the
shorter of the life of the assets or the remaining lease term, not exceeding 10 years. Goodwill and Intangible Assets. Goodwill, which is equal to the fair value of consideration paid in excess of the fair value
of the net assets purchased, has been recorded in conjunction with several of the Companys
purchase business combinations. Beginning in fiscal year 2002 with the adoption of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill is
no longer amortized, but instead tested for impairment at least annually. Intangible assets primarily include acquired technology, patents and trademarks. Costs related
to acquired technology, patents and trademarks are capitalized and amortized using the
straight-line method over their estimated useful lives (generally 18 months to 5 years). Foreign Currency Adjustments. The functional currency of the Companys foreign subsidiaries is the applicable local
currency, while the Companys reporting currency is the euro. Assets and liabilities with
functional currencies other than the euro are translated into euro equivalents at the rate of
exchange in effect on the balance sheet date. Revenues and expenses are translated at the weighted
average monthly exchange rates for the year. Translation gains or losses are recorded as a separate
component of shareholders equity and transaction gains and losses are reflected in net income. F-10




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Fair Value of Derivatives and Other Financial Instruments. The carrying amounts of cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued expenses approximate fair value, due to the short-term
maturities of such instruments. Realized and unrealized gains or losses associated with foreign
exchange options, futures, and forward contracts, which are designated and serve as hedges, are
recorded at their fair market value. The Company accounts for its derivative instruments under the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,as amended. This statement requires
that each derivative instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value, and that changes in the derivatives fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The statement also establishes
criteria for a derivative to qualify as a hedge for accounting purposes. Changes in fair value of
derivatives designated as hedges of forecasted transactions are deferred and recorded as a
component of accumulated other comprehensive income until the hedged forecasted transaction occurs
and is recognized in earnings. The change in fair value of derivatives designated as cash-flow
hedges is reported as a component of other comprehensive income until the hedged item is recognized
in earnings. Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes.The Company assesses the likelihood that its deferred tax assets will be recovered from its
future taxable income, and to the extent the Company believes that recovery is not likely, it
establishes a valuation allowance. The Company considers historical taxable income, estimates of
future taxable income and ongoing prudent and feasible tax planning strategies in assessing the
amount of the valuation allowance. Adjustments could be required in the future if the Company
determines that the amount to be realized is greater or less than the valuation allowance it has
recorded. Shipping and Handling. Shipping and handling costs related are included in cost of sales for all periods presented. Advertising Costs. Advertising costs are expensed as incurred. Advertising expenses were 13.8 million, 12.8
million and 14.3 million for the years ended December 31, 2004, 2003 and 2002, respectively. Pension Benefits. The estimated cost of providing benefits to employees is accrued during the years that the
employees render services. The Company utilizes defined benefit plans under which the fair value of
plan assets is assessed annually and actuarial assumptions are used to determine cost and benefit
obligations. Liabilities and prepaid expenses are accrued over the estimated term of service of
employees using actuarial methods. Experience gains and losses, as well as changes in actuarial
assumptions and plan assets and provisions are amortized over the average future service period of
employees. F-11




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##### Table of Contents



Information about Operating Segments. The Company reports its segments and related information in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information(SFAS 131). Operating
segments are components of the Company for which discrete financial information is available and
whose operating results are regularly reviewed by management to assess performance and allocate
resources. Comprehensive Income. Comprehensive income includes all changes in equity during a period except those resulting
from investments by owners and distributions to owners. The Company reports comprehensive income in
the consolidated statements of shareholders equity. Earnings Per Share. Basic earnings per share is determined by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is determined by
dividing net income by the weighted average number of common shares outstanding plus the effect of
applying the treasury stock method of computing dilution for the stock options outstanding during
the period. Stock Option Plans. The Company accounts for its stock option plans in accordance with the provisions of Accounting
Principles Board Opinion No. 25 Accounting for stock issued to employees (APB 25) and related
Interpretations. In accordance with APB 25, the Company recognizes stock-based employee
compensation cost, over the vesting period, when the options granted under those plans have an
exercise price lower than the market value of the underlying stock on the date of grant. In addition, the Company applies the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation(SFAS 123), as amended by Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure. The following table
illustrates the effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of SFAS 123 to employee stock options: F-12




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##### Table of Contents



Year Ended December 31,(in thousands except per share amounts)
    
    2004
    
    
    2003
    
    
    2002Net Income:As reported
    
    
    156,418
    
    
    
    135,419
    
    
    
    126,415Add: Stock-based employee compensation
expense included in reported net
income, net of related tax effect
    
    
    
    
    
    
    
    
    
    
    3,636Less: Stock-based employee
compensation expense determined under
fair value based method, net of related
tax effect
    
    
    (9,749
    )
    
    
    (55,506
    )
    
    
    (54,300
    )Pro forma
    
    
    146,669
    
    
    
    79,913
    
    
    
    75 751Basic net income per shareAs reported
    
    
    1.38
    
    
    
    1.20
    
    
    
    1.11Pro forma
    
    
    1.30
    
    
    
    0.71
    
    
    
    0.66Diluted net income per shareAs reported
    
    
    1.35
    
    
    
    1.18
    
    
    
    1.09Pro forma
    
    
    1.26
    
    
    
    0.70
    
    
    
    0.65
 The fair value of stock options granted in 2003 and 2002 (no options were granted in 2004) is
estimated on the date of grant using the Black-Scholes option pricing model with the following
assumptions: Year Ended December 31,2003
    
    2002Weighted-average expected life (years)
    
    
    3.7
    
    
    
    3.5Expected volatility rates
    
    
    60
    %
    
    
    58
    %Expected dividend yield
    
    
    1.4
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    3.3
    %
    
    
    3.9
    %
 Marketable Securities. Marketable securities are classified as available-for-sale and initially recorded at their
acquisition cost and adjusted to current market value. Net unrealized gains and losses on
marketable securities classified as available-for-sale are credited or charged to other
comprehensive income. If it is considered that a decline in market value is other-than-temporary,
the security is considered impaired and the difference between cost and current market value is
recorded as an expense in the statement of income. Reclassifications. Certain reclassifications have been made to prior year amounts to conform with current year
presentation. F-13




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##### Table of Contents



Recently Issued Accounting Standards. In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004),
Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123.
However, Statement 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their fair values. Pro
forma disclosure is no longer an alternative. Statement 123(R) must be adopted no later than the beginning of the first fiscal year
beginning after June 15, 2005. The Company expects to adopt Statement 123(R) on January
1st, 2006. The Company plans to adopt Statement 123(R) using the modified prospective method, in which
compensation cost is recognized beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the effective date and (b) based on the
requirements of Statement 123 for all awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date. As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using the intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of Statement 123(R)s fair value method will
have a significant impact on our results of operations, although it will have no impact on our
overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this
time because it will depend on levels of share-based payments granted in the future. However, had
we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated
the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per
share in Note A to our consolidated financial statements. F-14




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##### Table of Contents



NOTE  B. BUSINESS COMBINATIONS In June 2004, the Company acquired a 60% interest in RAND North America (Rand NA) for
8.5 million, substantially most of which was offset against existing receivables from RAND. As a
result of this transaction, an amount of 6.1 million was recorded in goodwill. Rand NA, an IBM
Business Partner, is dedicated to sales of the Companys Product Lifecycle Management software in
North America. In May, 2003, the Company acquired an interest in Athys, a work cell control software company
based in Grenoble (France), for 3.3 million, paid in cash. As a result of this transaction, an
amount of 4.5 million was recorded in goodwill. All acquisitions were accounted for under the purchase method of accounting and all
acquisitions have been consolidated in the Companys financial statements as of the date the
acquisition was consummated. Pro forma results of operations reflecting these acquisitions
have not been presented because the results of operations of the acquired companies, either
individually or collectively, are not material to the Companys results of operations. NOTE  C. SOFTWARE REVENUE Software revenue was comprised of new license revenue of 312,103,000, 307,096,000, and
347,084,000, periodic license and maintenance fees of 343,193,000, 331,975,000, and
320,102,000, and product development revenue of 15,647,000, 6,494,000 and 2,700,000, in the
years ended December 31, 2004, 2003, and 2002, respectively. NOTE  D. FINANCIAL REVENUE AND OTHER, NET Year ended December 31,(In thousands)
    
    2004
    
    
    2003
    
    
    2002Interest income
    
    
    12,493
    
    
    
    11,007
    
    
    
    11,648Interest expense
    
    
    (902
    )
    
    
    (949
    )
    
    
    (1,682
    )Foreign exchange (losses) gains, net
    
    
    (4,824
    )
    
    
    (8,086
    )
    
    
    (6,280
    )Other, net
    
    
    (4
    )
    
    
    (2,827
    )
    
    
    (1,141
    )Total
    
    
    6,763
    
    
    
    (855
    )
    
    
    2,545
 F-15




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##### Table of Contents



The Company transacts in various foreign currencies, primarily U.S. dollars and Japanese yen.
To manage this currency exposure, the Company purchases and sells currency options (puts or calls)
and may purchase other foreign exchange contracts from time to time. All the derivative instruments
held by the Company are designated as accounting hedges, have high correlation with the underlying
exposure and are highly effective in offsetting underlying price movements. The fair market values of foreign forward contracts and options were determined by a financial
institution using quoted market prices and option pricing models. The effectiveness of forward contracts is measured using forward rates and the forward value
of the underlying hedged transaction. For currency options, effectiveness is measured by the change
in the option intrinsic value, which represents the change in the options strike price compared to
the spot price of the underlying hedged transaction. During 2004 and 2003, the portion of hedging
instruments gains or losses excluded from the assessment of effectiveness and the ineffective
portions of hedges had no material impact on earnings and was recorded in financial revenue in the
statement of operations. The Company recognized after-tax gains of 868,000 during the year ended December 31, 2002,
for cash flow hedges that were discontinued because the forecasted transaction did not occur. All
amounts have been included in financial revenue in the statement of operations. No cash flow hedges
were discontinued for the years ended December 31, 2004 and 2003. At December 31, 2004, the fair value of all derivative instruments has been recorded in the
balance sheet in other current assets. The following table presents the carrying amount of financial instruments at December 31, 2004
and 2003: Year ended December 31,2004
    
    
    2003(In thousands)
    
    Nominal amount
    
    
    Market Value
    
    
    Nominal amount
    
    
    Market ValueCollars USD/euros
    
    
    
    
    
    
    
    
    
    
    35,629
    
    
    
    3,441Collars JPY/euros
    
    
    
    
    
    
    
    
    
    
    41,468
    
    
    
    7,893Forward exchange contract USD/euros
    
    
    39,645
    
    
    
    753
    
    
    
    10,821
    
    
    
    1,454Call USD/euros
    
    
    
    
    
    
    
    
    
    
    1,979
    
    
    
    
 USD means United States Dollar; JPY means Japanese Yen All these financial instruments, which relate to the hedging strategy of the Company,
usually have a maturity date of less than 24 months. Management believes counter-party risk on
financial instruments is minimal since the Company deals with major banks and financial
institutions. The Company does not use derivative financial instruments for trading or speculative purposes. F-16




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##### Table of Contents



NOTE  E. INCOME TAXES Deferred tax assets and (liabilities) are as follows: December 31,(in thousands)
    
    2004
    
    
    2003Deferred tax assets:Accelerated depreciation and amortization for
financial statement purposes
    
    
    12,730
    
    
    
    16,024Profit sharing and pension accruals not yet
deductible
    
    
    7,734
    
    
    
    7,124Provisions and other expenses not currently
deductible
    
    
    31,514
    
    
    
    30,339Net tax loss and tax credit carryforward assets
    
    
    12,775
    
    
    
    15,562Valuation reserves
    
    
    (20,295
    )
    
    
    (18,086
    )Total deferred tax assets
    
    
    44,458
    
    
    
    50,963Deferred tax liabilities:Accelerated depreciation and amortization for
tax purposes
    
    
    (8,643
    )
    
    
    (8,606
    )Other
    
    
    (165
    )
    
    
    (2,598
    )Total deferred tax liabilities
    
    
    (8,808
    )
    
    
    (11,204
    )Net deferred tax asset
    
    
    35,650
    
    
    
    39,759
 The balance sheet classification of deferred tax is as follows and reflects that, in
accordance with SFAS 109, the Company has not offset deferred tax assets and liabilities
attributable to different tax jurisdictions: December 31,(in thousands)
    
    2004
    
    
    2003Short-term deferred tax assets
    
    
    19,039
    
    
    
    31,634Long-term deferred tax assets
    
    
    25,419
    
    
    
    19,292Total deferred tax assets
    
    
    44,458
    
    
    
    50,926Short-term deferred tax liabilities
    
    
    (7,416
    )
    
    
    (4,937
    )Long-term deferred tax liabilities
    
    
    (1,392
    )
    
    
    (6,230
    )Total deferred tax liabilities
    
    
    (8,808
    )
    
    
    (11,167
    )Net deferred tax asset (liability)
    
    
    35,650
    
    
    
    39,759
 Short-term deferred tax assets relate primarily to the profit sharing expenses and reserves
not currently deductible. F-17




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##### Table of Contents



The components of income (loss) before income taxes are as follows: Year ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002France
    
    
    176,436
    
    
    
    177,748
    
    
    
    215,727Foreign
    
    
    60,822
    
    
    
    34,555
    
    
    
    (9,936
    )Income before
income taxes
    
    
    237,258
    
    
    
    212,303
    
    
    
    205,791
 The significant components of income tax expense are as follows: Year ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002France
    
    
    59,299
    
    
    
    63,277
    
    
    
    74,810Foreign
    
    
    17,588
    
    
    
    24,527
    
    
    
    12,570Current taxes
    
    
    76,887
    
    
    
    87,804
    
    
    
    87,380Change in deferred taxes
    
    
    3,953
    
    
    
    (10,920
    )
    
    
    (8,004
    )Income tax expense
    
    
    80,840
    
    
    
    76,884
    
    
    
    79,376
 The differences between the income tax provision and the provision computed using the
statutory French income tax rate are as follows: Year ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002Taxes computed at the
statutory rate of 35.43% for
2004, 2003 and 2002
    
    
    84,061
    
    
    
    75,219
    
    
    
    72,912Foreign losses
    
    
    804
    
    
    
    5,858
    
    
    
    1,788Foreign tax rate differentials
    
    
    2,745
    
    
    
    1,419
    
    
    
    7,170Other
    
    
    (6,770
    )
    
    
    (5,611
    )
    
    
    (2,494
    )Income tax expense
    
    
    80,840
    
    
    
    76,884
    
    
    
    79,376Effective tax rate
    
    
    34.1
    %
    
    
    36.2
    %
    
    
    38.6
    %
 F-18




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##### Table of Contents



At December 31, 2004, there were net tax operating losses and tax credit carryforwards of
17,674,000 and 5,530,000 respectively. Net operating tax loss carryforwards and tax credits are
scheduled to expire in the following years: Netoperating
    
    
    Tax(in thousands)
    
    losses
    
    
    credits2005
    
    
    
    
    
    
    4362006
    
    
    
    
    
    
    6262007
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    2010 and later
    
    
    17,674
    
    
    
    4,468Total
    
    
    17,674
    
    
    
    5,530
 The Company has not provided any deferred income taxes on the undistributed earnings of its
foreign subsidiaries based upon its determination that such earnings will be indefinitely
reinvested. Company management has decided that the determination of the amount of any unrecognized
deferred tax liability for the cumulative undistributed earnings of the foreign subsidiaries is not
practical since it would depend on a number of factors that cannot be known until such time as a
decision to repatriate earnings might be made. In connection with the exercise of stock options, SolidWorks and Delmia Corp. realized tax
benefits totaling 2,377,000, 814,000 and 5,254,000 for the years ended December 31, 2004, 2003
and 2002 respectively, which were reflected in shareholders equity NOTE  F. CASH AND CASH EQUIVALENTS Cash and cash equivalents are maintained on deposit with large financial institutions,
principally in France. Management monitors the credit-worthiness of such counter-parties. December 31,(in thousands)
    
    2004
    
    
    2003Bank accounts
    
    
    178,961
    
    
    
    110,872Money market mutual funds
    
    
    362,179
    
    
    
    308,700
    541,140
    
    
    
    419,572
 At December 31, 2004, 62% of such amounts were denominated in euros (2003: 69%), 33% in U.S.
dollars (2003: 27%) and 3% in Japanese yen (2003: 3%). F-19




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##### Table of Contents



NOTE  G. SHORT-TERM INVESTMENTS Short-term investments are comprised of marketable interest-bearing securities with large
financial institutions. Management considers the credit risk exposure due to counter-party failure
to be minimal. At December 31, 2004, and 2003 such investments amounted to 11,730,000 and 20,102,000
(substantially all of which were denominated in US dollars), respectively. Such short-term
investments are liquid and have stated maturities of one year or less at each balance sheet date.
Gross unrealized gains and losses are not significant. NOTE  H. PROPERTY AND EQUIPMENT OfficeLand and
    
    
    Computer
    
    
    furniture
    
    
    Leasehold(in thousands)
    
    buildings
    
    
    equipment
    
    
    and equipment
    
    
    improvements
    
    
    TotalNet valueJanuary 1, 2004
    

24,531
    
    
12,666
    
    
6,144
    
    
13,198
    
    
56,539Acquisitions
    
    
    
    
    
    
    9,495
    
    
    
    3,494
    
    
    
    6,659
    
    
    
    19,648Disposals
    
    
    (2,347
    )
    
    
    (35
    )
    
    
    (171
    )
    
    
    (470
    )
    
    
    (3,023
    )Depreciation and
amortization for
the year
    
    
    (907
    )
    
    
    (9,155
    )
    
    
    (1,638
    )
    
    
    (3,184
    )
    
    
    (14,884
    )Exchange differences
    
    
    36
    
    
    
    (527
    )
    
    
    (411
    )
    
    
    (195
    )
    
    
    (1,097
    )December 31, 2004
    
21,313
    
    
12,444
    
    
7,418
    
    
16,008
    
    
57,183
 NOTE  I. GOODWILL AND OTHER INTANGIBLE ASSETS Patents andtrademarks andother intangible(in thousands)
    
    Goodwill
    
    
    Software
    
    
    assets
    
    
    TotalNet balance at January 1, 2004
    
73,804
    
    
5,508
    
    
1,815
    
    
81,127Additions
    
    
    21,601
    
    
    
    6,546
    
    
    
    607
    
    
    
    28,754Disposals
    
    
    
    
    
    
    (359
    )
    
    
    (80
    )
    
    
    (439
    )Amortization for the year
    
    
    
    
    
    
    (2,233
    )
    
    
    (910
    )
    
    
    (3,143
    )Exchange differences
    
    
    (2,309
    )
    
    
    (134
    )
    
    
    (98
    )
    
    
    (2,541
    )Net balance at December 31, 2004
    
93,096
    
    
9,328
    
    
1,334
    
    
103,758
 F-20




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##### Table of Contents



Goodwill at December 31, 2004 consists principally of excess purchase price from the
acquisitions of Delmia GmbH (17.1 million), SmarTeam (16.2 million), and certain minority
interests in SolidWorks (22.7 million). Goodwill additions in 2004 resulted primarily from the
purchase of certain minority interests in SolidWorks in connection with the buy-back of Solidworks
stock options and from the acquisition of Rand North America. As of December 31, 2004 and 2003, 
22,708,000 and  8,272,000 of goodwill is allocated to the process-centric segment, respectively. Total intangible amortization expense was 3,143,000, 7,782,000 and 13,999,000 for the years
ended December 31, 2004, 2003 and 2002, respectively. Based on the carrying value of intangible
assets as of December 31, 2004, intangible amortization expense is expected to amount to 3,374,000 in 2005, 2,454,000 in 2006, and 1,616,000 in 2007. The Company adopted SFAS No. 142 on January 1, 2002. During 2002, the Company performed the
transitional impairment test required upon the adoption of SFAS 142, which resulted in a finding
that no impairment to goodwill existed. The Company also performed its annual impairment test in
the fourth quarter of 2004, 2003 and 2002; no impairment of goodwill was indicated as a result of
these tests. These tests consisted of a comparison of the fair value of the Companys reporting
units with their respective carrying amount, including the goodwill. The fair value of the
reporting units was determined based on the income approach, which estimates the fair value based
on the future discounted cash flows. Based on the analysis, the Company determined that the fair
value was in excess of the carrying amount of the reporting units. NOTE  J. OTHER NON-CURRENT ASSETS In April 2002, the Company entered into an agreement with RAND A Technology Corporation
(Rand), to accelerate the development of marketing, sales and services infrastructure required to
support PLM. Under the terms of this agreement, the Company granted Rand two 10-year convertible
loans (the Loans), each for a principal amount of 6.6 million and U.S. $6.2 million. One of the
Loans was convertible into common shares of Rand at Rands option, and the other one was
convertible into common shares of Rand at the Companys option. The conversion rights were subject
to certain limitations and their exercise could not result in the Company holding in excess of
19.9% of Rands shares. The loans were secured by certain tangible and intangible assets of Rand. Between October and December 2004, the Company made short-term advances totaling 4.1 million
to entities owned by Rand. 2.7 million of these advances bear interest at 5.5%; the remaining 1.4
million bear interest at the Euro LIBOR twelve-month rate. All of the advances are repayable in
2005. Due to their short-term maturity, these advances have been classified in other current assets
as of December 31, 2004. In January 2005, Rand satisfied its obligations under the Rand loans and advances, in
connection with the purchase of certain of its subsidiaries by the Company (see Note T. Subsequent
Events). F-21




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##### Table of Contents



At December 31, 2004 other non-current assets are comprised of the following components: December 31,(in thousands)
    
    2004
    
    
    2003InvestmentsImpactXoft
    
    
    7,999
    
    
    
    8,474MSC.Software
    
    
    5,139
    
    
    
    5,542Other
    
    
    1,674
    
    
    
    1,366Total investments
    
    
    14,812
    
    
    
    15,382
 InterestLoans receivable
    
    
    
    
    
    
    
    
    
    rateRand
    
    
    23,732
    
    
    
    23,128
    
    
    
    5.5
    %ImpactXoft
    
    
    7,342
    
    
    
    3,959
    
    
    
    5.0
    %Other
    
    
    3,459
    
    
    
    1,742Total loans receivable
    
    
    34,533
    
    
    
    28,829Less: Current portion
    
    
    (27,307
    )
    
    
    (4,704
    )Total loans and investments
    
    
    22,038
    
    
    
    39,507
 As of December 31, 2004, the Companys ownership interest in ImpactXoft and MSC.Software is 18.2%
and 5.9%, respectively. Loans receivable at December 31, 2004 are due as follows: (in thousands)2005
    
    
    27,3072006
    
    
    3,2842007
    
    
    2,3922008
    
    
    9672009
    
    
    130Thereafter
    
    
    453Total
    
    
    34,533Less current portion
    
    
    (27,307
    )Long-term loans
    
    
    7,226
 F-22




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##### Table of Contents



NOTE  K. LEASES At December 31, 2004, future minimum annual rental commitments under non-cancelable lease
obligations were as follows: Capital
    
    
    Operating(in thousands)
    
    Leases
    
    
    LeasesYear ending December 31:2005
    
    

2,047
    
    
    
    15,2202006
    
    
    1,679
    
    
    
    12,9692007
    
    
    446
    
    
    
    8,3592008
    
    
    15
    
    
    
    5,7322009
    
    
    3
    
    
    
    5,102Thereafter
    
    
    
    
    
    
    12,200Total minimum lease payments
    
    
    4,190
    
    
    
    59,582Less amount representing interest
    
    
    (46
    )Present value of net minimum
lease payments
    
    
    4,144Less current maturities of
capital lease obligations
    
    
    (2,089
    )Capital lease obligations
    
    
    2,055
 The Company leases land and buildings related to its offices under capital leases. The
following summarizes property held under capital leases: Year ended December 31,(in thousands)
    
    2004
    
    
    2003Land
    
    
    5,680
    
    
    
    5,680Buildings
    
    
    27,857
    
    
    
    27,188Accumulated depreciation
    
    
    (12,224
    )
    
    
    (10,649
    )21,313
    
    
    
    22,219
 The Company also leases computer equipment, premises and office equipment under operating
leases. Rent expense under operating leases was 32,315,000, 33,159,000 and 29,189,000, in the years
ended December 31, 2004, 2003, and 2002, respectively. F-23




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##### Table of Contents



NOTE  L. EMPLOYEE PROFIT-SHARING In accordance with French legal requirements, the Company has profit-sharing arrangements
for its French employees. Profit-sharing amounts are based on formulas, which consider return on
assets and employment levels. Profit-sharing expense was 11,598,000, 10,632,000 and 11,623,000
for the years ended December 31, 2004, 2003, and 2002, respectively. Such amounts are accrued each
year, are interest-bearing, and are paid in cash, including the accrued interest, generally after
five years. The interest rate applied was 4.5%, 4.6% and 5.1% in the years ended December 31, 2004, 2003 and 2002, respectively. December 31,(in thousands)
    
    2004
    
    
    2003Employee profit-sharing liability,
including accrued interest
    
    

27,393
    
    
    
    27,891Less current maturities
    
    
    (8,407
    )
    
    
    (8,630
    )18,986
    
    
    
    19,261
 Estimated maturities of these obligations at December 31, 2004 are as follows (in thousands): 2005
    
    
    8,4082006
    
    
    3,2192007
    
    
    3,4162008
    
    
    3,7312009
    
    
    3,3502010
    
    
    5,26927,393
 NOTE  M. PENSION BENEFITS The Company provides defined benefit retirement indemnities to the employees of its
French operations, and sponsors defined benefit pension plans for certain employees in the United
States. In addition, the Company has certain other plans in countries other than the United States,
which are not significant and are combined with the French plan for presentation purposes. The measurement date for all defined benefit plans is December 31. F-24




---



##### Table of Contents



French plans and other In France, defined employee benefits include certain gratifications paid upon anniversary of
employment and retirement indemnities that are based upon an individuals years of credited service
and annualized salary at retirement. Retirement indemnity benefits vest, and are funded as a lump
sum paid to the employee, upon the employees retirement. Assumptions
Weighted-average assumptions used to determine the benefit obligation: Year ended December 31,French plans and other
    
    2004
    
    2003
    
    2002Discount rate
    
    
    5.00%
    
    
    
    5.00%
    
    
    
    5.00%Expected return on plan assets
    
    
    5.50%
    
    
    
    5.50%
    
    
    
    5.50%Rate of compensation increase
    
    
    3.00%
    
    
    
    3.00%
    
    
    
    3.00%
 Weighted-average assumptions used to determine the net periodic benefit cost: Year ended December 31,French plans and other
    
    2004
    
    2003
    
    2002Discount rate
    
    
    4.75%
    
    
    
    5.00%
    
    
    
    5.00%Expected return on plan assets
    
    
    5.25%
    
    
    
    5.50%
    
    
    
    5.50%Rate of compensation increase
    
    
    3.00%
    
    
    
    3.00%
    
    
    
    3.00%
 To develop the expected long-term rate of return on pension plan assets assumption, the Company
considers the current and expected asset allocations, as well as historical and expected returns on
each category of plan assets. Components of net periodic costs
The components of net periodic benefit cost were as follows: (in thousands of euro)
    
    Year ended December 31,French plans and other
    
    2004
    
    2003
    
    2002Service cost
    
    
    1,794
    
    
    
    1,779
    
    


    1,346Interest cost
    
    
    741
    
    
    
    684
    
    
    
    588Expected return on plan assets
    
    
    (381
    )
    
    
    (351
    )
    
    
    (382
    )Net amortization and deferral
    
    
    1,332
    
    
    
    1
    
    
    
    (14
    )Net periodic benefit cost
    
    
    3,486
    
    
    
    2,113
    
    
    
    1,538
 F-25




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##### Table of Contents



Obligations and funded status Changes in the funded status of the benefit plans were as follows: (in thousands of euro)
    
    Year ended December 31,French plans and other
    
    2004
    
    2003Change in benefit obligationsBenefit obligations at beginning of year
    
    
    14,226
    
    
    
    13,904Service cost
    
    
    1,794
    
    
    
    1,779Interest cost
    
    
    741
    
    
    
    684Plan amendments
    
    
    414
    
    
    
    Actuarial gain
    
    
    (4,235
    )
    
    
    (1,775
    )Exchange rate differences
    
    
    (24
    )
    
    
    (140
    )Benefits paid
    
    
    (113
    )
    
    
    (226
    )Benefit obligations at end of year
    
    
    12,803
    
    
    
    14,226Change in plan assetsFair value of plan assets at beginning of year
    
    
    7,406
    
    
    
    6,960Employer contribution
    
    
    16
    
    
    
    168Return on plan assets
    
    
    402
    
    
    
    446Benefits paid
    
    
    (16
    )
    
    
    (168
    )Fair value of plan assets at end of year
    
    
    7,808
    
    
    
    7,406Funded status
    
    
    (4,995
    )
    
    
    (6,820
    )Unrecognized actuarial (gain) loss
    
    
    (7,338
    )
    
    
    (1,702
    )Unrecognized prior service cost
    
    
    414Accrued benefit cost  French plans and other
    
    
    (11,919
    )
    
    
    (8,522
    )
 The accumulated benefit obligation for the French defined benefit plans was 6.3 million and
7.9 million at December 31, 2004, and 2003, respectively. Information for plans with an accumulated benefit obligation in excess of plan assets Information for pension plans with an accumulated benefit obligation in excess of plan assets is as
follows: (in thousands of euro)
    
    Year ended December 31,French plans and other
    
    2004
    
    2003Projected benefit obligation
    
    
    2,104
    
    
    
    11,456Accumulated benefit obligation
    
    
    1,480
    
    
    
    7,430Fair Value of plan assets
    
    
    
    
    
    
    6,706
 Plan assets All plan assets for the French plans are invested in an insurance contract with Sogecap, a
life-insurance company, which is part of the Société Générale group. To date, the Company has
contributed 6.8 million to this insurance contract. F-26




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##### Table of Contents



The weighted average asset allocations, by asset category, are as follows: (in thousands of euro)
    
    Year ended December 31,French plans and other
    
    2004
    
    2003Debt securities
    
    
    56%
    
    
    
    56%Equity securities
    
    
    44%
    
    
    
    44%Total
    
    
    100%
    
    
    
    100%
 Cash flows The Company does not expect to make any additional contributions to its French pension plans
in 2005. The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid: (in thousands of euro)French plans and other2005
    
    
    8622006
    
    
    1012007
    
    
    862008
    
    
    742009
    
    
    1732010 - 2013
    
    
    1,128
 U.S. Plans In the United States, pension benefits are based upon years of credited service and the
employees average final earnings. Retirement benefits are funded by the Companys contributions to
segregated pension plan assets, in an amount that is sufficient to meet or exceed the minimum
annual funding requirements of the Employee Retirement Income Security Act. The projected benefit
obligation was determined using the prospective method. Weighted-average assumptions used for the
U.S. plans were as follows: Assumptions Weighted-average assumptions used to determine the benefit obligation: Year ended December 31,U.S. plans
    
    2004
    
    
    2003
    
    
    2002Discount rate
    
    
    6.75%
    
    
    
    6.00%
    
    
    
    6.75%Expected return on plan assets
    
    
    8.50%
    
    
    
    8.50%
    
    
    
    8.50%Rate of compensation increase
    
    
    3.75%
    
    
    
    3.00%
    
    
    
    3.75%
 Weighted-average assumptions used to determine the net periodic benefit cost: Year ended December 31,U.S. plans
    
    2004
    
    
    2003
    
    
    2002Discount rate
    
    
    6.00%
    
    
    
    6.75%
    
    
    
    7.25%Expected return on plan assets
    
    
    8.50%
    
    
    
    8.50%
    
    
    
    8.50%Rate of compensation increase
    
    
    3.00%
    
    
    
    3.75%
    
    
    
    4.25%
 F-27




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##### Table of Contents



To develop the expected long-term rate of return on pension plan assets assumption, the Company
considers the current and expected asset allocations, as well as historical and expected returns on
each category of plan assets. Components of net periodic costs The components of net periodic benefit cost were as follows: (in thousands of euro)
    
    Year ended December 31,U.S. plans
    
    2004
    
    
    2003
    
    
    2002Service cost
    
    
    825
    
    
    
    770
    
    
    
    756Interest cost
    
    
    826
    
    
    
    838
    
    
    
    902Expected return on plan assets
    
    
    (846
    )
    
    
    (722
    )
    
    
    (804
    )Net amortization and deferral
    
    
    230
    
    
    
    218
    
    
    
    133Net
periodic benefit cost  U.S. plans
    
    
    1,035
    
    
    
    1,104
    
    
    
    987
 Obligations and funded status Changes in the funded status of the benefit plan were as follows: (in thousands of euro)
    
    Year ended December 31,U.S. plans
    
    2004
    
    
    2003Change in benefit obligationsBenefit obligations at beginning of year
    
    
    13,323
    
    
    
    13,209Service cost
    
    
    825
    
    
    
    770Interest cost
    
    
    826
    
    
    
    838Actuarial loss
    
    
    378
    
    
    
    1,325Benefits paid
    
    
    (304
    )
    
    
    (303
    )Exchange rate differences
    
    
    (1,120
    )
    
    
    (2,516
    )Benefit obligations at end of year
    
    
    13,928
    
    
    
    13,323Change in plan assetsFair value of plan assets at beginning of year
    
    
    9,086
    
    
    
    8,616Employer contribution
    
    
    1,520
    
    
    
    1,186Return on plan assets
    
    
    783
    
    
    
    1,274Benefits paid
    
    
    (304
    )
    
    
    (303
    )Exchange rate differences
    
    
    (835
    )
    
    
    (1,687
    )Fair value of plan assets at end of year
    
    
    10,250
    
    
    
    9,086Funded status
    
    
    (3,678
    )
    
    
    (4,237
    )Unrecognized actuarial loss
    
    
    3,058
    
    
    
    3,108Unrecognized prior service cost
    
    
    235
    
    
    
    332Accrued
benefit cost  U.S. Plans
    
    
    (385
    )
    
    
    (797
    )Amounts recognized in the Statement of
financial position:Accrued benefit cost
    
    
    (385
    )
    
    
    (797
    )Accrued benefit liability
    
    
    (1,418
    )
    
    
    (1,369
    )Intangible assets
    
    
    235
    
    
    
    332Accumulated other comprehensive income
    
    
    1,183
    
    
    
    1,037Net
amount recognized  U.S. Plans
    
    
    (385
    )
    
    
    (797
    )
 F-28




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##### Table of Contents



The Company recorded a minimum pension liability at December 31, 2004 as required when the
accumulated benefit obligation in the plan exceeds the fair value of the underlying pension plan
assets and accrued liability. The adjustment related entirely to our U.S. plans and amounted to
150,000 (net of tax), which is reflected in other comprehensive income. Plan assets The weighted average asset allocations, by asset category, are as follows: (in thousands of euro)
    
    Year ended December 31,U.S. plans
    
    2004
    
    
    2003Equity securities
    
    
    54
    %
    
    
    49
    %Debt securities
    
    
    42
    %
    
    
    27
    %Other
    
    
    4
    %
    
    
    24
    %Total
    
    
    100
    %
    
    
    100
    %
 Cash flows The Company expects to contribute 1.5 million to its U.S. pension plans in 2005.
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid: (in thousands of euro)U.S. plans2005
    
    
    2762006
    
    
    2852007
    
    
    3002008
    
    
    3162009
    
    
    3612010-2013
    
    
    2,705
 F-29




---



##### Table of Contents



NOTE  N. CONTINGENCIES The Company is involved in litigation incidental to normal operations. It is not possible
to determine the ultimate liability, if any, in these matters. In the opinion of management, after
consultation with legal counsel, the resolution of such litigation and proceedings will not have a
material effect on the consolidated financial statements of the Company. NOTE  O. STOCK OPTION PLANS, RETAINED EARNINGS AND EARNINGS PER SHARE Stock Option Plans On April 15, 1996, the Company implemented a stock option plan under which 1,027,780 shares
were set aside for grants to officers and most employees of the Company. The options were allocated
on June 28, 1996, upon the Initial Public Offering, to broaden employee ownership of the Company.
All options were vested and exercisable immediately. The options may be exercised during 10 years
subject to continued employment. Each option entitles the holder thereof to purchase one share at a
price equal to the initial offering price (9 or U.S.$11.5). As the stock was not publicly traded
prior to the Initial Public Offering, the fair market value of the stock at the date of grant is
equal to the initial offering price. As a result, there was no compensation expense in the
financial statements. At December 31, 2004, 855,264 options have been exercised and there were
166,716 unexercised stock options. On June 6, 1997, an Extraordinary Shareholders Meeting of the Company authorized the Board of
Directors to establish a stock option plan, under which 1,031,840 shares of the Company were
authorized to be issued pursuant to grants to certain officers (including executive officers) and
employees of the Company. The options were allocated by the Board of Directors on December 15,
1997. Each option entitles the holder thereof to purchase one share at a strike price of 25.92.
The options can be exercised by the optionees from December 15, 1999 until December 14, 2007,
subject to continued employment, and the shares resulting from the exercise of the options cannot
be sold before December 15, 2002. At December 31, 2004, 295,045 options have been exercised and
there were 691,589 unexercised stock options. On July 25, 1997, the Company approved the SolidWorks merger. SolidWorks had adopted an
incentive and non-qualified stock option plan in 1994 and issued a single warrant in 1995. Pursuant
to the terms of the merger, all outstanding stock options and the warrants previously issued by
SolidWorks became exercisable for shares of the Company. The Company reserved 2,378,564 shares for
the future exercise of such options and warrant, which is the total amount of additional shares
which would be issued if all such options and warrant were to be exercised. At December 31, 2004, a
total of 312,442 shares remain reserved for that purpose. F-30




---



##### Table of Contents



In 1998, the Board of Directors granted 3,573,480 options to officers and certain employees of
the Company (including its subsidiaries Dassault Systèmes of America, Dassault Systèmes KK, Delmia
and Enovia) with a strike price ranging from 26.39 to 29.58. A total of 544,488 options were
vested and exercisable immediately. Other options vest over various periods subject to continued
employment but expire no more than ten years from the date of grant. In addition, the shares
resulting from the exercise of options granted to French employees (2,468,730 options) cannot be
sold before November 8, 2003. At December 31, 2004, 954,093 options have been exercised and there
were 2,495,289 unexercised options. In 1999, the Board of Directors granted 3,617,000 options to officers and certain employees of
the Company (including its subsidiaries Dassault Systèmes of America, Dassault Systèmes KK, Delmia
and Enovia) with a strike price of 37.00. As of December 31, 2004, 97,402 options were exercised
and there were 3,420,430 unexercised options. Options vest over various periods subject to
continued employment but expire no more than ten years from the date of grant. In 2001, the Board of Directors granted 5,316,950 options to officers and certain employees of
the Company (including its subsidiaries Dassault Systèmes Provence, Dassault Data Services,
Dassault Systèmes of America, Dassault Systèmes KK, Delmia, Delmia GmbH, Enovia, Safework, Spatial,
Dassault Systèmes AG, Dassault Systèmes Inc. and Structural Research and Analysis Corp.) with a
price ranging from 35 to 52. As of December 31, 2004, 96,557 options were exercised and there
were 5,120,834 unexercised options. Options vest over various periods subject to continued
employment but expire no more than ten years from the date of grant. On May 28, 2002, an Extraordinary Shareholders Meeting of the Company authorized the Board of
Directors to implement additional stock option plans until July 27, 2005 for officers and certain
employees of the Company, subject to a limitation under which options granted by the Board of
Directors and not exercised give right to purchase additional shares not to exceed 17% of
outstanding shares of the Company. In 2002, the Board of Directors granted 1,718,863 options to officers and certain employees of
the Company (including subsidiaries) with a strike price of 45.50. As of December 31, 2004, 11,004
options were exercised and there were 1,689,064 unexercised options. Options vest over four years
subject to continued employment but expire no more than ten years from the date of grant. On January 20, 2003, the Board of Directors granted 4,000,000 options to officers and certain
employees of the Company (including subsidiaries) with a strike price of 23. Options vest over one
year subject to continued employment for the plan dedicated to Dassault Systèmes, Dassault Systèmes
Provence and Dassault Data Services employees and almost two years for the plan dedicated to
employees of foreign subsidiaries (Dassault Systèmes of America, Dassault Systèmes KK, Delmia,
Delmia GmbH, Enovia, Dassault Systèmes Canada Inc., Spatial Corp., SmarTeam Corp, KTI and
SolidWorks Corp.). As of December 31, 2004, 23,370 options were exercised and there were 3,968,500
unexercised options. Options expire no more than ten years from the date of grant. F-31




---



##### Table of Contents



Activity in the Companys stock option plans is summarized below: 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exercise
    
    
    Number of
    
    
    exerciseshares
    
    
    price
    
    
    shares
    
    
    price
    
    
    shares
    
    
    priceOutstanding at beginning of year
    
    
    18,075,530
    
    
    
    34.32
    
    
    
    14,504,017
    
    
    
    38.01
    
    
    
    13,069,840
    
    
    
    37.30Granted
    
    
    
    
    
    
    
    
    
    
    4,000,000
    
    
    
    22.77
    
    
    
    1,718,863
    
    
    
    45.27Exercised
    
    
    (429,742
    )
    
    
    24.89
    
    
    
    (239,997
    )
    
    
    21.17
    
    
    
    (235,677
    )
    
    
    15.58Forfeited
    
    
    (36,772
    )
    
    
    51.74
    
    
    
    (188,490
    )
    
    
    33.77
    
    
    
    (49,009
    )
    
    
    38.66Outstanding at end of year
    
    
    17,609,016
    
    
    
    34.14
    
    
    
    18,075,530
    
    
    
    34.32
    
    
    
    14,504,017
    
    
    
    38.01Exercisable
    
    
    16,338,420
    
    
    
    33.75
    
    
    
    11,776,246
    
    
    
    37.46
    
    
    
    8,254,974
    
    
    
    32.64
 For various price ranges, information for options outstanding and exercisable at December 31,
2004 was as follows: Outstanding options
    
    
    
    
    
    
    Exercisable optionsWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    remaining life
    
    
    exercise
    
    
    Number of
    
    
    exerciseshares
    
    
    (years)
    
    
    price
    
    
    shares
    
    
    priceRange of exercise price0.09 to 23
    
    
    4,200,560
    
    
    
    7.70
    
    
    
    21.38
    
    
    
    4,200,560
    
    
    
    21.3823 to 26
    
    
    969,883
    
    
    
    4.05
    
    
    
    25.25
    
    
    
    891,970
    
    
    
    25.3926 to 30
    
    
    2,486,539
    
    
    
    3.86
    
    
    
    29.27
    
    
    
    2,486,539
    
    
    
    29.2730 to 34
    
    
    446,695
    
    
    
    7.20
    
    
    
    30.71
    
    
    
    269,045
    
    
    
    30.6734 to 37
    
    
    5,281,471
    
    
    
    5.38
    
    
    
    35.89
    
    
    
    4,938,821
    
    
    
    35.9537 to 46
    
    
    1,344,768
    
    
    
    7.41
    
    
    
    45.50
    
    
    
    672,385
    
    
    
    45.5046 to 52
    
    
    2,879,100
    
    
    
    6.24
    
    
    
    52.00
    
    
    
    2,879,100
    
    
    
    52.000.09 to 52
    
    
    17,609,016
    
    
    
    5.99
    
    
    
    34.14
    
    
    
    16,338,420
    
    
    
    33.75
 The weighted average fair value of the options granted during 2003 and 2002 is estimated at
9.94 and 20.82, respectively, on the date of grant, using the Black-Scholes pricing model. No
options were granted in 2004. In 2002, SolidWorks instituted a buy-back plan for the SolidWorks shares held by its employees
under which (i) an employee can put his mature shares to SolidWorks (i.e., shares that have been
owned by an employee for greater than 6 months) on specific dates at their then fair market value
as determined by an independent valuation expert, and (ii) SolidWorks can call such mature shares
in this same timeframe at the same fair market value. The adoption of this amendment did not create
any compensation charge. F-32




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##### Table of Contents



In 2004, the repurchase of Solidworks shares in connection with the buy-back plan resulted in
a cash outflow of approximately 29.3 million. Should all the options that are currently eligible
be exercised and should all the put rights be exercised when allowed, approximately 4.0 million
shares may have to be repurchased by SolidWorks in the future. Based on the current price per share
of SolidWorks and assumptions about the holding period, the Company estimated the potential future
net cash outlays would be 31.4 million. Changes to Dassault Systèmes share capital during 2004 are as follows: Number of
    
    
    Nominal
    
    
    Shareshares
    
    
    value
    
    
    capital(in )
    
    
    (in )Share capital issued as of January 1st, 2004
    
    
    113,403,665
    
    
    
    1
    
    
    
    113,403,665Number of shares issued in 2004 with
reference to the stock option plan of June
28, 1996
    
    
    13,643
    
    
    
    1
    
    
    
    13,643Number of shares issued in 2004 with
reference to the stock option plan of
December 15, 1997
    
    
    152,141
    
    
    
    1
    
    
    
    152,141Number of shares issued in 2004 with
reference to the stock option plan of January
28, 1998
    
    
    3,750
    
    
    
    1
    
    
    
    3,750Number of shares issued in 2004 with
reference to the stock option plan of
November 9, 1998
    
    
    74,452
    
    
    
    1
    
    
    
    74,452Number of shares issued in 2004 with
reference to the stock option plan of
September 15, 1999
    
    
    16,025
    
    
    
    1
    
    
    
    16,025Number of shares issued in 2004 with
reference to the stock option plan of March
29, 2001
    
    
    18,450
    
    
    
    1
    
    
    
    18,450Number of shares issued in 2004 with
reference to the stock option plan of June
29, 2001
    
    
    35,500
    
    
    
    1
    
    
    
    35,500Number of shares issued in 2004 with
reference to the stock option plan of October
5, 2001
    
    
    34,561
    
    
    
    1
    
    
    
    34,561Number of shares issued in 2004 with
reference to the stock option plan of May 28,
2002
    
    
    10,854
    
    
    
    1
    
    
    
    10,854Number of shares issued in 2004 with
reference to the stock option plan of January
1, 2003
    
    
    23,370
    
    
    
    1
    
    
    
    23,370Total
    
    
    113,786,411
    
    
    
    1
    
    
    
    113,786,411
 SmarTeam had a stock option plan covering certain employees. Options under the plan vested
over a period of four years from the date of grant. The Company recorded 3,636,000 of compensation
expense related to this plan for the year ended December 31, 2002. During 2002 the Company
terminated the option plan, which accelerated the vesting of certain options of the plan, and
repurchased the shares. F-33




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##### Table of Contents



Retained Earnings Under French law, the net profits, if any, related to the French legal entities are allocated
at a rate of 5% each year to a legal reserve (restricted retained earnings) until the amount in the
legal reserve is equal to 10% of the nominal share capital of each entity. The legal reserve is
distributable only upon liquidation of the entity. Earnings per share The following table presents the calculation for both basic and diluted earnings per share: Year ended December 31,(in units, except net income in thousands)
    
    2004
    
    
    2003
    
    
    2002Net income
    
    
    156,418
    
    
    
    135,419
    
    
    
    126,415Weighted average number of shares outstanding
    
    
    113,225,857
    
    
    
    113,048,656
    
    
    
    114,118,817Dilutive effect of stock options
    
    
    2,998,822
    
    
    
    1,665,410
    
    
    
    2,128,909Diluted weighted average number of shares
outstanding
    
    
    116,224,679
    
    
    
    114,714,066
    
    
    
    116,247,725Basic income per share
    
    
    1.38
    
    
    
    1.20
    
    
    
    1.11Diluted income per share
    
    
    1.35
    
    
    
    1.18
    
    
    
    1.09
 For the years ended December 31, 2004, 2003 and 2002, 4,725,178, 7,989,285, and 14,150,270 options,
respectively, were excluded from the earnings per share calculation as their effects would have
been anti-dilutive. NOTE  P. TRANSACTIONS WITH IBM AND RELATED PARTIES Since the Companys inception in 1981, CATIA products, and since 1998 ENOVIA products,
have been marketed, distributed and supported principally by IBM, pursuant to a mutually,
non-exclusive agreement that encompasses such activities. Since 2001, SMARTEAM products are also
marketed by IBM under this non-exclusive agreement. Revenue obtained through the commercial relationship with IBM represents 56%, 59%, and 61% of
consolidated revenues of the Company for the years ended December 31, 2004, 2003, and 2002,
respectively. IBM is under no contractual obligation to continue to actively market and distribute
the Companys products, and IBM may choose to discontinue such activities, without penalty, at its
discretion. A decision by IBM to cease or substantially reduce its marketing and distribution
efforts would likely cause a significant interruption in such activities which would adversely
affect the financial position and operating results of the Company, at least in the short-term.
However, management believes its long-term relationship with IBM is based upon mutual respect and
success, and management is not aware of circumstances related to either party which would cause the
relationship to be terminated. F-34




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##### Table of Contents



For the years ended December 31, 2004, 2003, and 2002, IBM met certain annual sales and growth
targets and the Company has charged a sales incentive to software revenue of 20,526,000,
15,462,000 and 15,452,000, respectively. The related liability on the balance sheet will be
settled in U.S. dollars. The balances of trade accounts receivable with IBM were 116,754,000, 101,986,000, and
117,930,000 at December 31, 2004, 2003, and 2002, respectively, substantially all of which relates
to software revenue. Management believes that the financial position of IBM mitigates the potential
credit risk related to the concentration of its trade accounts receivable with IBM. At December 31,
2004, 89% of such accounts receivable were denominated in U.S. dollars (2003: 95%), with the
remainder denominated in euros. The Company licenses products for internal use to both IBM and to Dassault Aviation, a former
direct shareholder of the Company whose Chief Executive Officer is the Chairman of the Company.
With IBM, such activities generated revenues of 1,786,000, 2,512,000, and 2,192,000 during the
years ended December 31, 2004, 2003, and 2002, respectively, using commercial terms consistent with
those granted to the Companys other customers of similar size. Dassault Aviation licenses the
Companys products on commercial terms consistent with those granted to the Companys other
customers of similar size. Licensing revenue amounted to 5,690,000, 5,779,000, and 6,109,000 for
the years ended December 31, 2004, 2003, and 2002, respectively. The Company also provides service and support to Dassault Aviation. Such activity generated
service revenues of 8,655,000, 9,298,000, and 6,169,000 in the years ended December 31, 2004,
2003, and 2002, respectively. The balances of trade accounts receivable with Dassault Aviation were 10,571,000, 7,502,000
and 9,126,000 at December 31, 2004, 2003, and 2002, respectively. Most of our development organizations subcontract software development work to 3D PLM Software
Solutions Limited (3D PLM), a joint venture between Dassault Systèmes and Geometric Software
Solutions Co. Ltd., located in India, which is accounted for under the equity method. 3D PLMs
revenue, substantially all of which was realized with the Company, amounted to 7,592,000 in 2004. NOTE  Q. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in two reportable segments: the Process-Centric segment and the
Design-centric segment. The Process-centric market serves customers seeking to optimize their industrial processes
from the design stage through to manufacturing and maintenance. The Design-centric market serves
companies seeking to support product design. The accounting policies of the reportable segments are the same as those described in Note A. F-35




---



##### Table of Contents



Data by operating segment is as follows: 2004Process-
    
    
    Design-(in thousands)
    
    centric
    
    
    centric
    
    
    Elim.
    
    
    TotalRevenue:Software revenue
    
    
    525,079
    
    
    
    146,063
    
    
    
    (199
    )
    
    
    670,943Service and other revenue
    
    
    127,030
    
    
    
    148
    
    
    
    (1,569
    )
    
    
    125,609Total revenue
    
    
    652,109
    
    
    
    146,211
    
    
    
    (1,768
    )
    
    
    796,552Cost of revenue:Software
    
    
    (9,275
    )
    
    
    (12,789
    )
    
    
    376
    
    
    
    (21,688
    )Service and other
    
    
    (100,978
    )
    
    
    
    
    
    
    (10
    )
    
    
    (100,988
    )Total cost of revenue
    
    
    (110,253
    )
    
    
    (12,789
    )
    
    
    366
    
    
    
    (122,676
    )Gross profit
    
    
    541,856
    
    
    
    133,422
    
    
    
    (1,402
    )
    
    
    673,876Research and development
    
    
    (197,489
    )
    
    
    (24,888
    )
    
    
    517
    
    
    
    (221,860
    )Marketing and sales
    
    
    (118,541
    )
    
    
    (55,327
    )
    
    
    155
    
    
    
    (173,713
    )General and administration
    
    
    (42,000
    )
    
    
    (5,848
    )
    
    
    730
    
    
    
    (47,118
    )Amortization of acquired technology
    
    
    (1,153
    )
    
    
    (241
    )
    
    
    
    
    
    
    (1,394
    )(359,183
    )
    
    
    (86,304
    )
    
    
    1,402
    
    
    
    (444,085
    )Operating income
    
    
    182,673
    
    
    
    47,118
    
    
    
    
    
    
    
    229,791Equity in net income of unconsolidated affiliates
    
    
    704
    
    
    
    
    
    
    
    
    
    
    
    704Financial revenue and other, net
    
    
    2,122
    
    
    
    4,641
    
    
    
    
    
    
    
    6,763Income before income taxes
    
    
    185,499
    
    
    
    51,759
    
    
    
    
    
    
    
    237,258Income tax expense
    
    
    (62,733
    )
    
    
    (18,107
    )
    
    
    
    
    
    
    (80,840
    )Net income
    
    
    122,766
    
    
    
    33,652
    
    
    
    
    
    
    
    156,418Depreciation and amortization of property and equipment and
amortization of intangible assets
    
    
    14,473
    
    
    
    3,913
    
    
    
    
    
    
    
    18,386Total assets
    
    
    875,334
    
    
    
    224,010
    
    
    
    (193
    )
    
    
    1,099,151Acquisitions of property and equipment and intangible assets
    
    
    (23,029
    )
    
    
    (3,775
    )
    
    
    
    
    
    
    (26,804
    )
 F-36




---



##### Table of Contents



2003Process-
    
    
    Design-(in thousands)
    
    centric
    
    
    centric
    
    
    Elim.
    
    
    TotalRevenue:Software revenue
    
    
    519,901
    
    
    
    125,834
    
    
    
    (170
    )
    
    
    645,565Service and other revenue
    
    
    110,608
    
    
    
    279
    
    
    
    (1,629
    )
    
    
    109,258Total revenue
    
    
    630,509
    
    
    
    126,113
    
    
    
    (1,799
    )
    
    
    754,823Cost of revenue:Software
    
    
    (10,344
    )
    
    
    (11,752
    )
    
    
    432
    
    
    
    (21,664
    )Service and other
    
    
    (89,810
    )
    
    
    
    
    
    
    18
    
    
    
    (89,793
    )Total cost of revenue
    
    
    (100,154
    )
    
    
    (11,752
    )
    
    
    450
    
    
    
    (111,457
    )Gross profit
    
    
    530,355
    
    
    
    114,361
    
    
    
    (1,349
    )
    
    
    643,366Research and development
    
    
    (192,750
    )
    
    
    (23,368
    )
    
    
    509
    
    
    
    (215,609
    )Marketing and sales
    
    
    (114,553
    )
    
    
    (48,133
    )
    
    
    272
    
    
    
    (162,414
    )General and administration
    
    
    (41,965
    )
    
    
    (5,282
    )
    
    
    568
    
    
    
    (46,679
    )Amortization of acquired technology
    
    
    (5,660
    )
    
    
    (265
    )
    
    
    
    
    
    
    (5,925
    )(354,928
    )
    
    
    (77,048
    )
    
    
    1,349
    
    
    
    (430,627
    )Operating income
    
    
    175,427
    
    
    
    37,313
    
    
    
    
    
    
    
    212,739Equity in net income of unconsolidated affiliates
    
    
    419
    
    
    
    
    
    
    
    
    
    
    
    419Financial revenue and other, net
    
    
    202
    
    
    
    (1,057
    )
    
    
    
    
    
    
    (855
    )Income before income taxes
    
    
    176,048
    
    
    
    36,256
    
    
    
    
    
    
    
    212,303Income tax expense
    
    
    (64,786
    )
    
    
    (12,098
    )
    
    
    
    
    
    
    (76,884
    )Net income
    
    
    111,262
    
    
    
    24,158
    
    
    
    
    
    
    
    135,419Depreciation and amortization of property and equipment and
amortization of intangible assets
    
    
    19,172
    
    
    
    3,881
    
    
    
    
    
    
    
    23,053Total assets
    
    
    807,740
    
    
    
    180,566
    
    
    
    (23,816
    )
    
    
    964,490Acquisitions of property and equipment and intangible assets
    
    
    15,590
    
    
    
    3,646
    
    
    
    
    
    
    
    19,236
 F-37




---



##### Table of Contents



2002Process-
    
    
    Design-(in thousands)
    
    centric
    
    
    centric
    
    
    Elim.
    
    
    TotalRevenue:Software revenue
    
    
    543,622
    
    
    
    126,509
    
    
    
    (245
    )
    
    
    669,886Service and other revenue
    
    
    105,758
    
    
    
    374
    
    
    
    (1,903
    )
    
    
    104,229Total revenue
    
    
    649,380
    
    
    
    126,883
    
    
    
    (2,148
    )
    
    
    774,115Cost of revenue:Software
    
    
    (11,335
    )
    
    
    (13,540
    )
    
    
    427
    
    
    
    (24,448
    )Service and other
    
    
    (96,413
    )
    
    
    
    
    
    
    
    
    
    
    (96,413
    )Total cost of revenue
    
    
    (107,748
    )
    
    
    (13,540
    )
    
    
    427
    
    
    
    (120,861
    )Gross profit
    
    
    541,632
    
    
    
    113,343
    
    
    
    (1,721
    )
    
    
    653,254Research and development
    
    
    (194,493
    )
    
    
    (27,314
    )
    
    
    244
    
    
    
    (221,563
    )Marketing and sales
    
    
    (121,823
    )
    
    
    (48,204
    )
    
    
    374
    
    
    
    (169,653
    )General and administration
    
    
    (43,485
    )
    
    
    (5,526
    )
    
    
    1,103
    
    
    
    (47,908
    )Amortization of acquired technology
    
    
    (10,939
    )
    
    
    (159
    )
    
    
    
    
    
    
    (11,098
    )(370,740
    )
    
    
    (81,203
    )
    
    
    1,721
    
    
    
    (450,222
    )Operating income
    
    
    170,892
    
    
    
    32,140
    
    
    
    
    
    
    
    203,032Equity in net income of unconsolidated affiliates
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    214Financial revenue and other, net
    
    
    820
    
    
    
    1,725
    
    
    
    
    
    
    
    2,545Income before income taxes
    
    
    171,926
    
    
    
    33,865
    
    
    
    
    
    
    
    205,791Income tax expense
    
    
    (67,721
    )
    
    
    (11,655
    )
    
    
    
    
    
    
    (79,376
    )Net income
    
    
    104,205
    
    
    
    22,210
    
    
    
    
    
    
    
    126,415Depreciation and amortization of property and equipment and
amortization of intangible assets
    
    
    27,502
    
    
    
    5,548
    
    
    
    
    
    
    
    33,050Total assets
    
    
    782,256
    
    
    
    164,921
    
    
    
    (27,013
    )
    
    
    920,164Acquisitions of property and equipment and intangible assets
    
    
    14,191
    
    
    
    6,236
    
    
    
    
    
    
    
    20,427
 F-38




---



##### Table of Contents



The data by geographic operations of the Company is established according to the geographical
location of the consolidated companies. UnitedStates &(in thousands)
    
    France
    
    
    Other
    
    
    Total2004Revenues
    
    
    466,961
    
    
    
    329,591
    
    
    
    796,552Operating income (loss)
    
    
    173,739
    
    
    
    56,052
    
    
    
    229,791Identifiable assets
    
    
    619,667
    
    
    
    479,484
    
    
    
    1,099,1512003Revenues
    
    
    450,501
    
    
    
    304,322
    
    
    
    754,823Operating income (loss)
    
    
    176,288
    
    
    
    36,451
    
    
    
    212,739Identifiable assets
    
    
    562,630
    
    
    
    401,860
    
    
    
    964,4902002Revenues
    
    
    473,788
    
    
    
    300,327
    
    
    
    774,115Operating income (loss)
    
    
    210,669
    
    
    
    (7,637
    )
    
    
    203,032Identifiable assets
    
    
    517,178
    
    
    
    402,986
    
    
    
    920,164
 Revenues generated by the parent company of the Company, Dassault Systèmes S.A., were
491,722,000, 491,309,000 and 515,653,000 for the years ended December 31, 2004, 2003 and 2002
respectively. Revenues generated by export transactions from France into other geographic areas
realized by the parent company were 441,313,000, 447,097,000, and 468,206,000 for the years
ended December 31, 2004, 2003, and 2002, respectively. Nearly all of such revenues relate to the
IBM relationship, which is based in the United States. The Company also receives data from IBM that identifies the location of IBMs end-user
customers. Using such information, the revenues by geographic area would be as follows: (in thousands)
    
    2004
    
    
    2003
    
    
    2002France
    
    
    107,359
    
    
    
    88,560
    
    
    
    102,338Western Europe  other than France
    
    
    263,552
    
    
    
    265,279
    
    
    
    272,221Americas
    
    
    230,906
    
    
    
    215,388
    
    
    
    223,988Asia / Pacific
    
    
    194,735
    
    
    
    185,596
    
    
    
    175,568796,552
    
    
    
    754,823
    
    
    
    774,115
 F-39




---



##### Table of Contents



NOTE  R. SCOPE OF CONSOLIDATION 2004
    
    
    2003
    
    
    2002% of
    
    % of
    
    
    
    
    
    % of
    
    % of
    
    
    
    
    
    % of
    
    % ofConsolidated
    
    voting
    
    share-
    
    
    
    
    
    voting
    
    share-
    
    
    
    
    
    voting
    
    share-Companies
    
    rights
    
    holding
    
    Method
    
    
    rights
    
    holding
    
    Method
    
    
    rights
    
    holding
    
    MethodDassault Systèmes K. K.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Data Services
    
    
    95
    %
    
    
    95
    %
    
    Consolidation
    
    
    95
    %
    
    
    95
    %
    
    Consolidation
    
    
    95
    %
    
    
    95
    %
    
    ConsolidationDassault Systèmes of America
Corp. and its subsidiaries
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationSolidWorks Corporation and its
subsidiaries
    
    
    98
    %
    
    
    98
    %
    
    Consolidation
    
    
    99
    %
    
    
    99
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDelmia Corp. and its subsidiaries
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationEnovia Corp and its subsidiary
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Systèmes Corp
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Systèmes AG
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationSmarTeam Corporation Ltd. and its
subsidiaries
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Systèmes Provence
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDelmia GmbH
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Systèmes Canada Inc.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationSafework Inc.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationSpatial Corp. and its subsidiaries
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Systèmes Srl.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationStructural Research and Analysis
Corp.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationInvention Machine Corporation
    
    
    20
    %
    
    
    20
    %
    
    Equity Method
    
    
    20
    %
    
    
    20
    %
    
    Equity Method
    
    
    17
    %
    
    
    17
    %
    
    Equity MethodDassault Systemes Inc.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationKnowledge Technologies
International Inc
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationKnowledge Technologies
International Ltd.
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationKnowledge Technologies
International France
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    100
    %
    
    
    100
    %
    
    ConsolidationDassault Systèmes (Switzerland)
Ltd.
    
    
    98
    %
    
    
    98
    %
    
    Consolidation
    
    
    98
    %
    
    
    98
    %
    
    Consolidation
    
    
    98
    %
    
    
    98
    %
    
    ConsolidationAthys
    
    
    80
    %
    
    
    80
    %
    
    Consolidation
    
    
    80
    %
    
    
    80
    %
    
    Consolidation
    
    
    
    
    
    
    
    
    
    
    Rand North America
    
    
    60
    %
    
    
    60
    %
    
    Consolidation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dassault Systèmes SAS
    
    
    100
    %
    
    
    100
    %
    
    Consolidation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3D PLM Software Solutions Ltd.
    
    
    30
    %
    
    
    30
    %
    
    Equity Method
    
    
    30
    %
    
    
    30
    %
    
    Equity Method
    
    
    30
    %
    
    
    30
    %
    
    Equity Method
 F-40




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##### Table of Contents



NOTE  S. PERSONNEL COSTS Personnel costs were 309,008,000, 297,846,000 and 305,766,000 for the years ended
December 31, 2004, 2003, and 2002, respectively. Directors compensation was 120,000, 100,000 and
80,000 in the years ended December 31, 2004, 2003, and 2002, respectively. NOTE  T. SUBSEQUENT EVENTS In January 2005, the Company acquired RAND Worldwides subsidiaries in Germany, the
United Kingdom, Sweden and Switzerland, plus the subsidiary Rand Technologies C.I.S., INC., and
increased its ownership in Rand NA from 60 to 70 percent. The total purchase price was 31.7
million consisting of 28.3 of loans, advances and interest payable (see Note J. Other non-current
assets) and 3.4 million in cash. In May 2005, the Company entered into an agreement to acquire ABAQUS Inc. in an all-cash
transaction approximating $413 million, subject to certain adjustments at closing. ABAQUS Inc.
develops, markets and supports finite element analysis software. The proposed acquisition is
subject to customary closing conditions and regulatory approvals. The Company expects that the
proposed acquisition could be completed by the end of the third fiscal quarter. F-41




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##### Table of Contents



NOTE  U. SUMMARY OF DIFFERENCES BETWEEN FINANCIAL STATEMENTS ESTABLISHED IN FRENCH GAAP AND
U.S. GAAP The differences are summarized below (in thousands of euros): As of and for the year ended December 31, 2004
    
    Net equity
    
    
    Net incomeU.S. GAAP
    
    
    759,249
    
    
    
    156,418Goodwill amortization (1)
    
    
    (68,669
    )
    
    
    (17,996
    )Accounting for issuance of SolidWorks stock (2)
    
    
    9,603
    
    
    
    3,651Stock options  tax benefits (3)
    
    
    
    
    
    
    2,421Other, net
    
    
    (140
    )
    
    
    (117
    )As adjusted for French GAAP
    
    
    700,043
    
    
    
    144,377
 
 (1)
    
    Under French GAAP, Goodwill is amortized over its useful life.Under U.S. GAAP, in accordance with SFAS N° 142 (Goodwill and Other Intangible Assets),
goodwill is not amortized. Goodwill amortization is replaced by an annual impairment test
implemented at the reporting unit level using fair value measurement.(2)
    
    Under French GAAP, the issuance of new shares by SolidWorks, which decreased the Companys
ownership, was recognized as a proceeds of stock. Accordingly, a dilution gain was recognized in
earnings.Under U.S. GAAP, the gain is not recognized as reacquisition of shares is contemplated at the
time of issuance and this dilution gain is accounted for as an equity transaction.(3)
    
    Under French GAAP, tax deductions relating to stock-compensation arrangements are recognized in
earnings.Under US GAAP, when the tax deduction exceeds the financial reporting expense, the incremental
tax benefit is reflected as an increase in paid-in capital. F-42