##### 



As filed with the Securities and Exchange
Commission on May 15, 2003



---




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                                          |  | 
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended: December 31, 2002   |  | 
|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

(Exact name of Registrant as specified in its
charter)


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 an
    Ordinary Share, nominal value euro 1 per share |  | The Nasdaq National Market                
|Common Stock, nominal value euro 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 euro 1 per share
as of December 31, 2002: 114,570,841

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 x                       No o


Indicate by check mark which financial statement
item the Registrant has elected to follow:

Item
17 o                   Item
18 x




---






---



##### 



TABLE OF CONTENTS

|             |  |                                                                                  |   |      |    | 
|------------ |  | -------------------------------------------------------------------------------- | - | ---- | -- | 
|             |  |                                                                                  |   | Page
|             |  |                                                                                  |   |     
|Introduction |  |                                                                                  | i |     
|PART I       |  |                                                                                  |   |     
|ITEM 1:      |  | Identity of Directors, Senior Management and
    Advisors                        |   |      | 1  | 
|ITEM 2:      |  | Offer Statistics and Expected Timetable                                          |   |      | 1  | 
|ITEM 3:      |  | Key Information                                                                  |   |      | 1  | 
|ITEM 4:      |  | Information on the Company                                                       |   |      | 11 | 
|ITEM 5:      |  | Operating and Financial Review and Prospects                                     |   |      | 27 | 
|ITEM 6:      |  | Directors, Senior Management and Employees                                       |   |      | 47 | 
|ITEM 7:      |  | Major Shareholders and Related Party Transactions                                |   |      | 57 | 
|ITEM 8:      |  | Financial Information                                                            |   |      | 59 | 
|ITEM 9:      |  | The Offer and Listing                                                            |   |      | 61 | 
|ITEM 10:     |  | Additional Information                                                           |   |      | 63 | 
|ITEM 11:     |  | Quantitative and Qualitative Disclosures About
    Market Risk                   |   |      | 77 | 
|ITEM 12:     |  | Description of Securities other than Equity
    Securities                       |   |      | 80 | 
|PART II      |  |                                                                                  |   |     
|ITEM 13:     |  | Defaults, Dividend Arrearages and Delinquencies                                  |   |      | 80 | 
|ITEM 14:     |  | Material Modifications to the Rights of Security
    Holders and Use of Proceeds |   |      | 80 | 
|ITEM 15:     |  | Controls and Procedures                                                          |   |      | 80 | 
|ITEM 16:     |  | [Reserved.]                                                                      |   |      | 80 | 
|PART III     |  |                                                                                  |   |     
|ITEM 17:     |  | Financial Statements                                                             |   |      | 80 | 
|ITEM 18:     |  | Financial Statements                                                             |   |      | 80 | 
|ITEM 19:     |  | Exhibits                                                                         |   |      | 81 | 



---



##### 



Introduction

The companies and brands we discuss in this
report include:

|                                                                                                                                |  |                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------
|Companies                                                                                                                       |  | Brands                                                                                                     
|                                                                                                                                |  |                                                                                                            
|Dassault Systèmes, which refers
    to Dassault Systèmes and its subsidiaries                                                 |  | CATIA                                                                                                      
|                                                                                                                               
|Delmia, which refers to Delmia Corp.
    and its subsidiaries, Delmia GmbH, and Safework,
    which refers to Safework Inc. |  | 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, which refers to Spatial
    Corp. and its subsidiaries                                                               |  | ACIS, which is Spatials main brand. We also
    refer to the Spatial product family and the SPATIAL brand.
|                                                                                                                               
|SRAC, which refers to Structural
    Research & Analysis Corporation and its subsidiaries                                     |  | 3DCOSMOS\                                                                                                  

i



---



##### 



PART I

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

Not applicable.

Item 2: Offer Statistics and Expected
Timetable.

Not applicable.

Item 3: Key Information.

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, 2002 are derived from our consolidated
financial statements prepared in accordance with
U.S. generally accepted accounting principles.

|                                                                                           |                                   |                                                      |        |      |   |      |        |      |   |      |        |      |   |   |        |      |   |   |        |      |   |   |        |      |  
|------------------------------------------------------------------------------------------ | --------------------------------- | ---------------------------------------------------- | ------ | ---- | - | ---- | ------ | ---- | - | ---- | ------ | ---- | - | - | ------ | ---- | - | - | ------ | ---- | - | - | ------ | ---- | -
|                                                                                           |                                   |                                                     
|                                                                                           |                                   | Year ended December 31,                             
|                                                                                           |                                   |                                                     
|                                                                                           |                                   | 2002(1)                                              |        | 2002 |   | 2001 |        | 2000 |   | 1999 |        | 1998
|                                                                                           |                                   |                                                      |        |      |   |      |        |      |   |      |        |     
|                                                                                           |                                   |                                                     
|                                                                                           |                                   | (in millions, except per share data and percentages)
|Consolidated Statement of Income
    Data                                                  |                                   |                                                      |        |      |   |      |        |      |   |      |        |      |   |   |        |      |   |   |        |      |   |   |        |     
|Revenue:(2)                                                                                |                                   |                                                      |        |      |   |      |        |      |   |      |        |      |   |   |        |      |   |   |        |      |   |   |        |     
|Software revenue(3)                                                                        |                                   | $                                                    | 770.3  |      |   |     | 669.9  |      |   |     | 643.0  |      |   |  | 541.7  |      |   |  | 431.5  |      |   |  | 358.5  |     
|Service and other revenue                                                                  |                                   |                                                      | 119.8  |      |   |      | 104.2  |      |   |      | 103.1  |      |   |   | 90.7   |      |   |   | 73.2   |      |   |   | 54.9   |     
|Total revenue                                                                              |                                   |                                                      | 890.1  |      |   |      | 774.1  |      |   |      | 746.1  |      |   |   | 632.4  |      |   |   | 504.7  |      |   |   | 413.4  |     
|Cost of revenue:                                                                           |                                   |                                                      |        |      |   |      |        |      |   |      |        |      |   |   |        |      |   |   |        |      |   |   |        |     
|Software                                                                                   |                                   |                                                      | (28.1  | )    |   |      | (24.4  | )    |   |      | (20.8  | )    |   |   | (14.9  | )    |   |   | (9.8   | )    |   |   | (5.0   | )   
|Service and other                                                                          |                                   |                                                      | (110.9 | )    |   |      | (96.4  | )    |   |      | (86.6  | )    |   |   | (75.8  | )    |   |   | (58.9  | )    |   |   | (44.4  | )   
|Total cost of revenue                                                                      |                                   |                                                      | (138.9 | )    |   |      | (120.8 | )    |   |      | (107.4 | )    |   |   | (90.7  | )    |   |   | (68.7  | )    |   |   | (49.5  | )   
|Gross profit                                                                               |                                   |                                                      | 751.2  |      |   |      | 653.3  |      |   |      | 638.7  |      |   |   | 541.7  |      |   |   | 436.0  |      |   |   | 363.9  |     
|Research, selling and administrative
    expenses:                                         |                                   |                                                      |        |      |   |      |        |      |   |      |        |      |   |   |        |      |   |   |        |      |   |   |        |     
|Research and development                                                                   |                                   |                                                      | (254.8 | )    |   |      | (221.6 | )    |   |      | (209.2 | )    |   |   | (169.8 | )    |   |   | (139.1 | )    |   |   | (115.6 | )   
|Marketing and sales(4)                                                                     |                                   |                                                      | (195.1 | )    |   |      | (169.7 | )    |   |      | (164.3 | )    |   |   | (117.5 | )    |   |   | (83.8  | )    |   |   | (63.6  | )   
|General and administration                                                                 |                                   |                                                      | (55.1  | )    |   |      | (47.9  | )    |   |      | (44.2  | )    |   |   | (35.4  | )    |   |   | (28.7  | )    |   |   | (23.5  | )   
|Amortization of goodwill                                                                   |                                   |                                                      | 0.0    |      |   |      | 0.0    |      |   |      | (44.2  | )    |   |   | (29.5  | )    |   |   | (13.9  | )    |   |   | (2.9   | )   
|Amortization of acquired technology and
    in-process research and development write-offs |                                   |                                                      | (12.8  | )    |   |      | (11.1  | )    |   |      | (14.2  | )    |   |   | (10.7  | )    |   |   | (12.3  | )    |   |   | (12.0  | )   
|Total research, selling and administrative
    expenses                                    |                                   |                                                      | (517.8 | )    |   |      | (450.3 | )    |   |      | (476.1 | )    |   |   | (362.9 | )    |   |   | (277.7 | )    |   |   | (217.5 | )   
|Operating income                                                                           |                                   |                                                      | 233.4  |      |   |      | 203.0  |      |   |      | 162.6  |      |   |   | 178.8  |      |   |   | 158.2  |      |   |   | 146.4  |     
|                                                                                           | As a percentage of total revenue* |                                                      |        | 26.2 | % |      |        | 26.2 | % |      |        | 21.8 | % |   |        | 28.3 | % |   |        | 31.3 | % |   |        | 35.4 | %
|Financial revenue and other, net                                                           |                                   |                                                      | 3.22   |      |   |      | 2.8    |      |   |      | 14.1   |      |   |   | 11.0   |      |   |   | 6.1    |      |   |   | 6.7    |     
|Income before income taxes                                                                 |                                   |                                                      | 236.65 |      |   |      | 205.8  |      |   |      | 176.7  |      |   |   | 189.8  |      |   |   | 164.4  |      |   |   | 153.1  |     
|Income tax expense(5)                                                                      |                                   |                                                      | (91.3  | )    |   |      | (79.4  | )    |   |      | (88.0  | )    |   |   | (86.1  | )    |   |   | (64.4  | )    |   |   | (64.0  | )   
|Net income                                                                                 |                                   | $                                                    | 145.4  |      |   |     | 126.4  |      |   |     | 88.7   |      |   |  | 103.7  |      |   |  | 100.0  |      |   |  | 89.1   |     
|                                                                                           | As a percentage of total revenue* |                                                      |        | 16.3 | % |      |        | 16.3 | % |      |        | 11.9 | % |   |        | 16.4 | % |   |        | 19.8 | % |   |        | 21.6 | %
|Basic net income per share                                                                 |                                   | $                                                    | 1.28   |      |   |     | 1.11   |      |   |     | 0.78   |      |   |  | 0.92   |      |   |  | 0.89   |      |   |  | 0.80   |     
|Diluted net income per share                                                               |                                   |                                                      | 1.25   |      |   |     | 1.09   |      |   |     | 0.76   |      |   |  | 0.87   |      |   |  | 0.87   |      |   |  | 0.78   |     
|Weighted average number of shares outstanding                                              |                                   |                                                      | 114.1  |      |   |      | 114.1  |      |   |      | 113.7  |      |   |   | 113.0  |      |   |   | 112.1  |      |   |   | 111.7  |     






|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|* | Operating income or net income, as the case may
    be, as a percentage of total revenue.

1



---



##### 



|                                                                                             |  |                                      |       |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|-------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                                                                             |  |                                     
|                                                                                             |  | Year ended December 31,             
|                                                                                             |  |                                     
|                                                                                             |  | 2002(1)                              |       | 2002 |  | 2001 |       | 2000 |  | 1999 |       | 1998
|                                                                                             |  |                                      |       |      |  |      |       |      |  |      |       |     
|                                                                                             |  |                                     
|                                                                                             |  | (in millions, except per share data)
|Supplemental Statement of Income
    Data:                                                   |  |                                      |       |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|Pro forma excluding amortization of
    intangibles incurred in business
    combinations(6) |  |                                      |       |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|Operating income                                                                             |  | $                                    | 246.2 |      |  |     | 214.1 |      |  |     | 221.0 |      |  |  | 218.9 |  |  |  | 184.4 |  |  |  | 161.3 | 
|Net income                                                                                   |  | $                                    | 156.4 |      |  |     | 136.0 |      |  |     | 144.0 |      |  |  | 139.2 |  |  |  | 117.6 |  |  |  | 100.1 | 
|Diluted net income per share                                                                 |  | $                                    | 1.35  |      |  |     | 1.17  |      |  |     | 1.23  |      |  |  | 1.17  |  |  |  | 1.03  |  |  |  | 0.88  | 

|                                                                          |  |                         |         |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                                                          |  |                        
|                                                                          |  | Year ended December 31,
|                                                                          |  |                        
|                                                                          |  | 2002(1)                 |         | 2002 |  | 2001 |       | 2000 |  | 1999 |       | 1998
|                                                                          |  |                         |         |      |  |      |       |      |  |      |       |     
|                                                                          |  |                        
|                                                                          |  | (in millions)          
|Consolidated Balance Sheet Data                                           |  |                         |         |      |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|Cash, cash equivalents and short-term Investments                         |  | $                       | 446.6   |      |  |     | 388.4 |      |  |     | 369.2 |      |  |  | 274.2 |  |  |  | 259.5 |  |  |  | 240.0 | 
|Net working capital(7)                                                    |  |                         | 543.4   |      |  |      | 472.6 |      |  |      | 411.5 |      |  |   | 319.2 |  |  |   | 270.1 |  |  |   | 232.5 | 
|Total assets                                                              |  |                         | 1,058.1 |      |  |      | 920.2 |      |  |      | 831.4 |      |  |   | 733.6 |  |  |   | 581.4 |  |  |   | 470.1 | 
|Long-term and short-term debt                                             |  |                         | 0.0     |      |  |      | 0.0   |      |  |      | 0.0   |      |  |   | 0.0   |  |  |   | 0.0   |  |  |   | 0.0   | 
|Long-term obligations and current portion of
    long-term obligations(8) |  |                         | 58.0    |      |  |      | 50.4  |      |  |      | 47.2  |      |  |   | 52.8  |  |  |   | 51.0  |  |  |   | 43.3  | 
|Capital stock                                                             |  |                         | 131.8   |      |  |      | 114.6 |      |  |      | 114.5 |      |  |   | 113.9 |  |  |   | 113.2 |  |  |   | 86.1  | 
|Shareholders equity                                                      |  |                         | 722.5   |      |  |      | 628.3 |      |  |      | 550.9 |      |  |   | 465.7 |  |  |   | 361.4 |  |  |   | 264.7 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Dollar amounts in this column have been
    translated solely for the convenience of the reader at a
    conversion rate of $1.1499 per
    1.00, the Noon
    Buying Rate on May 13, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(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) | Our marketing and sales expenses are derived from
    our marketing activities in support of IBM, the SolidWorks sales
    force, our activities as an IBM Business Partner in France,
    Belgium, Switzerland and in the United States and from direct
    sales to customers, notably those of Delmia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | Our effective tax rate, excluding permanent
    differences related to acquisitions, decreased to 38.6% of
    income before income taxes in 2002 from 42.9% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(6) | Amortization of intangibles incurred in business
    combinations totaled
    11.1 million
    in 2002
    (9.6 million
    after tax) compared with
    58.4 million
    in 2001
    (55.3 million
    after tax) and
    40.2 million
    (35.5 million
    after tax) in 2000. 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.
|(7) | Net working capital consists of total current
    assets less total current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(8) | Includes financial leases. See Note K to our
    consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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 $1.1499 per
1.00, which is
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
May 13, 2003. 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 period
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

2



---



##### 



convenience of the reader and are not necessarily
the rates used by us in the preparation of our consolidated
financial statements.


Exchange Rates

|        |                          |            |      |            |  |      |      |      |  |  |      |      |  |  |      |      | 
|------- | ------------------------ | ---------- | ---- | ---------- |  | ---- | ---- | ---- |  |  | ---- | ---- |  |  | ---- | ---- | 
|        |                          | Period end |      | Average(1) |  | High |      | Low 
|        |                          |            |      |            |  |      |      |     
|1998(2) |                          |            | 0.85 |            |  |      | 0.90 |      |  |  | 0.95 |      |  |  | 0.82 |     
|1999    |                          |            | 0.99 |            |  |      | 0.94 |      |  |  | 1.00 |      |  |  | 0.85 |     
|2000    |                          |            | 0.94 |            |  |      | 0.92 |      |  |  | 1.03 |      |  |  | 0.83 |     
|2001    |                          |            | 0.89 |            |  |      | 0.89 |      |  |  | 0.95 |      |  |  | 0.84 |     
|2002    |                          |            | 1.05 |            |  |      | 0.95 |      |  |  | 1.05 |      |  |  | 0.86 |     
|        | November                 |            |      | 0.99       |  |      |      | 1.00 |  |  |      | 1.01 |  |  |      | 0.99 | 
|        | December                 |            |      | 1.05       |  |      |      | 1.02 |  |  |      | 1.05 |  |  |      | 0.99 | 
|2003    |                          |            |      |            |  |      |      |      |  |  |      |      |  |  |      |     
|        | January                  |            |      | 1.07       |  |      |      | 1.06 |  |  |      | 1.09 |  |  |      | 1.04 | 
|        | February                 |            |      | 1.08       |  |      |      | 1.08 |  |  |      | 1.09 |  |  |      | 1.07 | 
|        | March                    |            |      | 1.09       |  |      |      | 1.08 |  |  |      | 1.11 |  |  |      | 1.05 | 
|        | April                    |            |      | 1.12       |  |      |      | 1.08 |  |  |      | 1.12 |  |  |      | 1.01 | 
|        | May (until May 13, 2003) |            |      | 1.15       |  |      |      | 1.14 |  |  |      | 1.16 |  |  |      | 1.12 | 






|    |                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The average of the Noon Buying Rates on the last
    business day of each month during the relevant period.                                                                                                                                                                                                  
|(2) | A conversion rate of U.S. dollar per euro
    has been provided for the year 1998, prior to the introduction
    of the euro on January 1, 1999, by dividing the
    corresponding French franc exchange rate by 6.55957, the
    official French franc-euro conversion rate established on
    July 1, 1999.

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, political and business
conditions may lead to the continuation of the significant
slowdown or reduction in corporate spending on information
technology infrastructure, which would cause our revenues and
earnings to grow more slowly or decline and increase quarterly
fluctuations.

Over the past two years, there has been a
continuing slowdown in general economic growth in Europe and the
United States. This has led to a continuous slowdown or
reduction in corporate spending on information technology
infrastructure, including on software applications for product
lifecycle management produced by us. Many companies have also
deferred decisions on such spending. The different industrial
sectors we serve have different degrees of exposure to this
slowdown or reduction in corporate investment, both in terms of
intensity and timing, due to their specific investment cycles
and sensitivities to short-term economic conditions. The
combination of the present international political tensions, and
the lack of visibility for improvement in the economies of both
Western Europe and the United States may further contribute to
reduced growth in our revenues and earnings or cause them to
decline in these markets. While we have maintained a strong
level of sales in the Asia Pacific region, underlying weaknesses
persist in Asian economies which could have a negative impact on
our business performance.

3



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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 royalties we receive under
our marketing and sales agreement with IBM, the amount of
revenue recorded in our statement of income upon translation of
other currencies into euro, and the amount of expenses recorded
in our statement of income, which are principally in euro but
also include significant amounts in U.S. dollars. Since
market growth rates for product lifecycle management 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 an expense 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.

Defects or major design errors in our
products could harm our reputation and expose us to potential
liability.

Sophisticated software often contains errors or
defects 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. Innovative software also
requires the use of creative and new technologies, and we may
make a major design error in a new product. Any insurance we
carry may only partially offset the cost of correcting
significant errors, defects or design errors. We may therefore
need to expend significant capital resources in order to
eliminate or work around errors, defects or design errors.
Errors, design problems and defects in our products may result
in the loss of, or a delay in, market acceptance of our
products, the diversion of development resources, damage to our
reputation and, in turn, may 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.

Our failure to adapt to rapid changes in
technology or to develop and introduce new products or
enhancements to existing products could seriously reduce the
demand for our products and have a material adverse effect on
our financial condition and results of operations. The inability
or difficulty of our customers to deploy our new products and
technologies as they become increasingly complex and pervasive
may have a similar consequence.

Product lifecycle management software
applications are characterized by rapidly changing technology
and frequent new product introductions and product enhancements.
As a result, our success is highly dependent upon our ability to
enhance our existing products and to introduce new products in a
cost-effective and timely manner to meet evolving customer
requirements. We have committed substantial resources to the
development of new products, but we face the challenge of
increasingly complex integration required between our different
functionalities to address the PLM opportunity and, as a result,
longer and more difficult industrialization work for new
releases and products. Since new product development commitments
must be made well in advance of sales, however, new product
decisions must anticipate both future demand and the technology
that will be responsive to such demand. Delays in developing new
products with anticipated technological advances or in
commencing releases of new products may have an adverse effect
on our financial condition and results of operations.

In addition, there can be no assurance that our
new products will gain market acceptance. As our products become
increasingly complex and offer more global and integrated
solutions, software users have a more difficult task adapting
their processes to our new solutions and in managing the
resulting need to migrate substantial amounts of data. As a
result, production deployments and customers investment
decisions may be delayed.

4



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During the year 2002, approximately 61% of
our revenue resulted from sales of our products by IBM pursuant
to a mutually non-exclusive marketing and sales agreement. A
decision by IBM to cease or reduce substantially its marketing
and sales of our products would have an immediate and material
adverse effect on our financial condition and results of
operations.

Since our inception in 1981, our CATIA products,
since 1998, our ENOVIA products, and since 2001, our SMARTEAM
products, have been marketed, distributed and supported
principally by IBM pursuant to a mutually non-exclusive
agreement that encompasses the marketing, distribution and
support of our products. Revenue generated through our
distribution agreement with IBM represented 61%, 60% and 65% of
our total revenue in 2002, 2001 and 2000, respectively. Under
the terms of the agreement, we granted IBM a non-exclusive right
to market and distribute CATIA, ENOVIA and SMARTEAM worldwide.
IBM markets, distributes and supports our products primarily
through IBM PLM, an organization within IBM dedicated primarily
to the marketing, distribution and support 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 agents.
Therefore, IBMs decisions and performance with respect to
these matters have a material impact on revenue generated from
sales of CATIA, ENOVIA and SMARTEAM products.

IBM is under no contractual obligation to
continue to market and distribute our products. A decision by
IBM to cease 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 methods rapidly, although our recurring
revenue stream would not be affected. In addition, establishing
such methods would require significant management and financial
resources. Furthermore, this agreement does not prohibit IBM to
compete with us, to market and distribute other competing
product lifecycle management software applications or to acquire
or form 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. Finally, should
IBM encounter market perception problems that impact its
relationship with the market, this could have a direct effect on
the sales of our products.

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 license
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 to us 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.

5



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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 in the software market 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, 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 conditions and results of operations.

Future acquisitions may adversely affect
our business or financial performance as a result of, among
other things, our inability to integrate such other businesses,
products or technologies with our existing business, products
and technologies.

We continue to seek opportunities to acquire, or
merge with, related businesses and are presently evaluating, as
we do on a regular basis, potential opportunities. If we acquire
another company or business, there can be no assurance that we
will be able to successfully integrate any such other business
into our operations or that the integration of such other
business will not materially limit the amount of time that
management may devote to the running of our day-to-day business.
It also cannot be predicted with certainty whether the financial
markets will support any such acquisition. In addition, due to
regulatory constraints in Europe and in the United States, a
planned acquisition might not be realized at all or as
anticipated. Further growth in our operations from additional
businesses may strain our management resources and financial and
management systems and controls and may require that we make
additional expenditures in such areas. In addition, future
acquisitions may require us to use significant financial
resources, to make potentially dilutive issuances of equity
securities, to incur debt and to incur amortization expenses
related to 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. Acquisition of minority
interests might also have to be written off or devalued in our
accounts.

Declining unit prices and increased
productivity of product lifecycle management software
applications could negatively impact revenue
growth.

As is common in high technology industries, our
market is characterized by selling prices which have tended to
decline for existing products over time due to competition, low
marginal costs and rapid technological change. In addition, the
increased productivity of our product lifecycle management
software applications may result in our customers requiring
fewer workstations. If we are unable to maintain a sufficiently
increasing volume of customer workstations, the potential
decline in selling prices would have a negative effect on our
operating results.

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A high proportion of our total revenue is
derived from product licenses to customers in the automotive
sector and the aerospace sector. Reduced demand for product
lifecycle management software applications from these sectors
could have a material adverse effect on our financial condition
and results of operations.

Our products are licensed to customers in a
number of industry sectors, but approximately half of our
product revenues are derived from the automotive and the
aerospace sectors, which accounted for 35% and 16%,
respectively, of our consolidated sales in 2002. As a result,
our future success will depend not only on our ability to
increase our market presence in new segments but also, in part,
on our ability to maintain and increase product licensing to the
automotive and aerospace sectors, mainly to subcontractors,
while broadening the applications base of our products. There
can be no assurance that we will achieve these objectives.

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 burdens of complying with a wide variety of
    foreign laws and regulations; and
|
| |  | political and economic conditions.                                                   

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.

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.
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.

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.

7



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Our products have a long and variable sales
cycle which makes it difficult to predict if and when a sale
will occur.

Our products have a long sales cycle, which is
typically between six and nine months in duration. The reasons
for the long sales cycle include the following:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customers frequently begin by evaluating our
    products on a limited basis;                                                                                                        
|
| |  | customer purchase decisions typically require
    lengthy budgeting, planning, approval and competitive evaluation
    processes that accompany significant capital expenditures; and
|
| |  | customers may defer orders in anticipation of
    releases of new software or enhancements by us or our
    competitors.                                                             

As a result of the long sales cycle, we may face
situations where customers postpone their decision to buy, thus
reducing our ability to forecast accurately.

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 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;
|
| |  | the timing of revenue recognition under our
    marketing and sales agreement with IBM;                                                                                                      
|
| |  | fluctuations in foreign currency exchange rates;
    and                                                                                                                                     
|
| |  | general conditions in the product lifecycle
    management software applications 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. 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 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. Our software revenue, total
revenue, operating income and net income have generally been
lower in the first quarter of a given year than in the fourth
quarter of the preceding year.

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 product lifecycle management software applications
developers. 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 sales 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.

8



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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.

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 45% of our
outstanding shares and controls approximately 42% 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.

Market anticipation of an offering by the
French State of its interest in Dassault Systèmes could
have a material negative impact on our market
price.

The French State currently holds 15.6% of our
capital stock. In the event the French State confirms its
intention to divest its interest in Dassault Systèmes, the
market price of our shares and ADSs may temporarily decline. It
is not possible to predict with certainty the extent or duration
of such a decline in market price.

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

9



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##### 



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 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 an ADS holder will receive no value for
these rights.

Because we are subject to both French and
U.S. securities regulations and disclosure requirements, we
may experience difficulties in ensuring timely compliance with
their complex, rapidly evolving and occasionally contradictory
norms, which could result in harm to our reputation or the
imposition of regulatory sanctions.

Our stock is listed on both the Nasdaq Stock
Markets National Market and Euronext Paris. As a result,
we must comply with the securities regulations, disclosure
requirements and accounting standards of two different systems.
In both France and the United States, the legal environments for
public companies are highly complex. They continue to evolve
quickly and substantially, and requirements are occasionally
contradictory or ambiguous. At times, new requirements are
established relatively shortly before they are to be given
effect, leaving little time to ensure their proper
implementation or their integration into our internal
information system. We expend substantial management and
financial resources to achieve compliance. In the event we are
found not to be in full compliance, we may experience damage to
our reputation and we may be subject to regulatory sanctions.

Special Note Regarding Forward-Looking
Statements

Some of the statements under Item 3D:
Risk Factors, Item 4B: Business Overview,
Item 5A: Operating Results, Item 5D:
Trend Information  Outlook and elsewhere in
this report constitute forward-looking statements. These
statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties,
and other factors that may cause our or our industrys
actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of
activities, performance, or achievements expressed or implied by
such forward-looking statements. Some of these factors are
listed under Item 3D: Risk Factors beginning on
page 3 and elsewhere in this report. In some cases, you can
identify forward-looking statements by terminology such as
believe, may, will,
predicts, potential, or
continue or the negative of such terms or other
comparable terminology. These statements are only expectations.
Actual events or results may differ materially.

10



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Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance
or achievements. Factors that could cause actual results to
differ materially from those estimated by the forward-looking
statements contained in this report include, but are not limited
to:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | market demand for our products and services;                
|
| |  | new product developments and technological
    changes;     
|
| |  | global economic conditions;                                 
|
| |  | competition;                                                
|
| |  | our ability to recruit and retain skilled
    personnel; and
|
| |  | currency fluctuations.                                      

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

Item 4: Information on the
Company.

A.  History and Development of the
Company.

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 the French Code de Commerce and the
regulations promulgated thereunder. The registered office is
located on 9 Quai Marcel Dassault, 92150 Suresnes, France,
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.

We are a provider of software solutions for the
Product Lifecycle Management market using three-dimensional (3D)
digital technology. Our strategic mission is to create and
deliver world-class software solutions to enable our customers
to continuously improve their competitiveness in the design,
manufacturing and maintenance of their products by leveraging
the power of 3D. Our first product line was CATIA for 3D product
design, through which we established a strong market position in
the aerospace and automotive industries.

Our growth strategy is primarily designed to
(i) broaden the software solutions we offer to our
customers in order to provide complete, end-to-end Product
Lifecycle Management software solutions for design, digital
manufacturing and collaboration, (ii) address multiple
market segments within the 3D design market, with both our
Process-centric and our Design-centric software solutions and
(iii) expand our presence in our target industrial sectors.
In part to achieve the growth strategy, we have made a number of
strategic acquisitions over the years and expect to continue to
do so in the future.

Our Product Lifecycle Management software
includes CATIA for product design, DELMIA for digital
manufacturing and ENOVIA and SMARTEAM for Product Data
Management. DELMIA was formed in 2000 and is comprised of Delmia
Corp., a company that specialized in robotic simulation that we
purchased in 1997, as well as Safework Inc., a Canadian company
that specialized in human modelling technology, and Delmia GmbH,
a German supplier of digital manufacturing processes software,
both of which we purchased in 2000. ENOVIA was created in 1998
when we acquired the Product Management Development laboratory
from IBM, and SMARTEAM was formed in 1999 following the purchase
of SmarTeam Corporation Ltd. In 1997 in connection with the
acquisition of SolidWorks, we introduced the concept of
Process-centric and Design-centric 3D design markets, with CATIA
as part of the Process-centric market and SolidWorks for the

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Design-centric market. In 2000 SPATIAL was formed
following the acquisition of the 3D software component
business division of PlanetCAD, which included the ACIS modeler
technology and business.


We market our solutions through IBM, our
strategic partner since our inception in 1981, a network of
distribution partnerships and a direct sales force for certain
products. Our partnership with IBM is for the marketing,
distribution and support of most of our products. Over the
years, our partnership with IBM has been reinforced and has kept
pace with changes in both our markets and products. We have
extended our strategic alliance with IBM to better address the
needs of customers for digital enterprise solutions and
collaboration solutions. In 2002 we entered into a new agreement
to significantly increase the marketing and sales resources
dedicated to our PLM products.

We have been listed on Euronext Paris and the
Nasdaq Stock Markets National Market since our initial
public offering in 1996.

For a detailed discussion of our 2002 Highlights,
see  Business Overview below.

B.  Business Overview.

We believe that we are the global leader of the
market for Product Lifecycle Management (PLM)
software with a market share of approximately 21% (source:
Daratech). Our software applications and services enable
corporations to define, simulate and optimize manufactured goods
as well as the manufacturing processes and means required to
produce and maintain products across their complete lifecycles
by leveraging the power of 3D.

Our software applications enable businesses to
increase innovation, reduce time to market and reduce costs, as
well as better integrate their product creation process with the
needs of their customers. 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 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.

We pursue two objectives through our products.
The first is to enable people to create innovative products and
simulate the whole product lifecycle to preserve the environment
for the future. The second is to allow the broadest array of
users to take advantage of 3D as the most intuitive means of
working and communicating on industrial products.

We organize our business and market our products
and services 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 need to support product design. Our Process-centric
products are organized under our flagship CATIA brand for
product engineering (CAD/CAM/CAE), our DELMIA brand for digital
manufacturing process management, our ENOVIA and SMARTEAM brands
for virtual product synthesis, collaboration and product
lifecycle integration and our SPATIAL brand that provides PLM
software development environments and 3D solid modelers.
Altogether, these brands form our PLM offer and are hereafter
referred to as our PLM software applications. Our
Design-centric products and services are offered under the
SolidWorks brand.

Our software applications serve enterprises of
all sizes worldwide to create, produce and service products
ranging from individual machine parts to automobile engines to
entire ships, manufacturing plants and commercial aircraft. The
primary applications for our products are in seven industrial
sectors: automotive, aerospace, fabrication and assembly,
consumer goods, electrical and electronics, plant design and
shipbuilding.

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 partnerships
and alliances for marketing, product development and enhancement
of customer relations, and we intend to continue to build on our
extended enterprise model. Our key alliance has been, and
continues to be, with IBM, our strategic partner of
22 years,

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particularly with respect to sales, marketing and
technical collaboration. In addition to IBM, we market our
solutions through a network of distribution partners and a
direct sales force for certain products. Through customer
partnerships, we establish a permanent dialogue between our
customers and our research and development teams in order to
ensure responsiveness to market needs. We operate competency
centers that collaborate with numerous industry leaders to
develop consulting methodologies and 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.


Technological strength has underpinned our market
success. Our latest generation software platform for the
Process-centric market, Version 5 (V5), enables
us to deliver integrated PLM solutions. These solutions have
been engineered to optimize industry specific business processes
end-to-end. This approach is the result of considerable
investment made in working with our customers to understand the
processes required within each of the industry sectors that we
serve and then delivering capability that enables an optimized
or next generation process. V5 solutions are engineered to
provide collaborative workspaces by sharing a common product,
process, and resource (PPR) model across CATIA, DELMIA and
ENOVIA. The PPR model also 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
companys specific needs.

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. 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. 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.

Headquartered in France, we have a strong
international presence. In Europe/ Middle East, in addition to
France, we have facilities in Belgium, Germany, Israel, Italy,
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. And in Asia, we have offices in Hong Kong,
India, Japan, Singapore and South Korea. Moreover, through our
strategy of the extended enterprise we have an even broader
reach around the world through our partnerships in sales,
marketing and technology.

Our consolidated revenue for 2002 was
774 million,
representing an increase of 4% over 2001. On a constant currency
basis, our consolidated revenue increased 7% over 2001. In 2002,
48% of our total revenues were derived from Europe, 29% from the
Americas and 23% from Asia. At December 31, 2002, we
employed 3,966 people worldwide.

2002 Highlights

Major Projects and Customer
Developments

HINTERKOPF  In January 2002,
Hinterkopf, a pioneer in employing automation to streamline
production of aluminum cans, and aluminum and plastic tubes
announced that they will use SolidWorks, COSMOSMotion and
SMARTEAM software to design the automatic production lines that
make everything from plastic toothpaste tubes to aluminum
aerosol cans used around the world. This will allow Hinterkopf
engineers and designers to easily create and refine large
assemblies so they can reduce design time and quickly bring
their production systems to retail manufacturers.

LOCKHEED MARTIN  In March 2002,
Lockheed Martin, a major defense contractor, announced that it
had selected CATIA and DELMIA solutions for the development of
the next generation advanced military aircraft, the Joint Strike
Fighter (JSF). Lockheed Martin has set aggressive goals for
reducing product cost, development time, and manufacturing and
product support span times to gain a significant

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competitive advantage in worldwide aircraft
manufacturing, modification and maintenance. The JSF team
intends to meet these goals by integrating the design and
manufacturing environments using CATIA and DELMIA solutions.


TOYOTA  In March 2002, IBM and
Dassault Systèmes announced the signing of a strategic
agreement with Toyota Motor Corporation, to build a world-class
collaboration around PLM solutions covering end-to-end vehicle
development processes. Based on the new Version 5 Product
Suite  CATIA for design, ENOVIA for collaboration,
and DELMIA for digital manufacturing  the
transformation will cover end-to-end vehicle development
processes worldwide.

EADS  In June 2002, EADS, a major
aerospace and defense group, announced that they will migrate
from CATIA V4 to CATIA V5 for virtual product design
coupled with ENOVIA collaborative product data management
solutions. EADS has selected CATIA V5 for all development,
construction and production across its divisions worldwide,
including EADS Military Aircraft, Eurocopter, Astrium, EADS
Launch Vehicles, and EADS CASA. EADS is taking this strategic
PLM-based approach to improve collaboration, product innovation,
management of product-related processes, and dissemination of
product information, not only to achieve cost reductions, but
also to promote innovation and other value driving processes.

PRATT & WHITNEY CANADA  In October
2002, Pratt & Whitney Canada announced their selection
of PLM solutions centered on CATIA V5 and ENOVIA to develop
new engines using digital technology. Through its Digital Engine
initiative, Pratt & Whitney Canadas goal is to
become the first company in the aerospace industry to develop
engines using digital technology throughout the entire design
and manufacturing process.

LOREAL  In October 2002,
LOréal announced that one of the biggest challenges
to date facing LOréal scientists was the difficulty
of creating a clear and concise three-dimensional image of the
hair follicle. With CATIA V5, they can now create mock-ups
or virtual models and visualize in 3D the relative position of
the different components of this part of the body. The benefits
are both educational and scientific.

AIRBUS  In October 2002, Airbus
announced that they have successfully completed the first phase
of a plan to streamline product development using CATIA V5.
Airbus stated that, in less than 18 months, more than 50%
of Airbus CAD activity migrated to CATIA. The second phase of
the innovation strategy calls for the installation of more than
2,000 CATIA seats and the integration of Airbus entire
design, development and manufacturing processes.

ELECTROLUX  In October 2002, IBM and
Dassault Systèmes announced that the Electrolux Group, a
leading producer of powered appliances for kitchen, cleaning and
outdoor use, has selected CATIA V5 for the design, analysis
and manufacture of its products. Electrolux also announced the
recently completed implementation of SMARTEAM at its
U.S. manufacturing facilities. Electrolux leverages the
product design technology of our PLM solutions to optimize its
products style and shape, key drivers of household
appliance sales.

EDAG  In December 2002, EDAG, with
more than 3,600 employees worldwide offering vehicle development
expertise, announced the signing of a software contract covering
company-wide design software migration. More than 500 seats
of CATIA V5 will be deployed at EDAG, further advancing the
companys corporate strategy to develop all of its products
digitally before manufacture, in order to give its customers
innovative, high quality merchandise quickly and at a
competitive price.

HOLLAND  In January 2003, the Holland
Group, a manufacturer of fifth wheel truck couplers, announced
that they will standardize on SolidWorks software. This will
allow the Holland Group to deliver new products to customers
much faster by cutting design cycles from years to months.

FORD  In February 2003, IBM and
Dassault Systèmes announced that they have been selected by
Ford Motor Company to supply and integrate their most advanced
PLM solutions, including CATIA V5 and ENOVIAVPM software,
into the automakers design and manufacturing processes
worldwide. Ford will integrate these solutions into its next
generation C3P (PLM) systems environment across the company.

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Brand and Product Developments

V5R8 Targeted for Full Enterprise
Deployment
Announced in February 2002, CATIA, DELMIA and ENOVIA V5R8
deliver process coverage and integration levels that meet and
surpass the needs of leading companies in most manufacturing
industry sectors. CATIA V5R8 incorporates major improvements to
existing products and introduces 23 new products. Our Entry
PLM solution was significantly reinforced as a cost-effective
solution for all companies ready to move from their previous
generation CAD/CAM/CAE solutions towards CATIA V5 for greater
productivity. DELMIA V5R8 brought important improvements for
process planning, 3D process detailing, 3D process simulation
and validation and factory flow optimization. ENOVIA V5R8
delivered enhanced CATIA V5 interoperability and added richer
PLM process support, extended supply chain collaboration
solutions and new open PLM middleware.

V5R9 Makes Product Morphing a
Reality
Announced in June 2002, CATIA, DELMIA, ENOVIA and SMARTEAM V5R9
deliver a set of business practices for breakthrough product
morphing, which automatically combines existing
design data and templates with new specifications to form an
original, full-featured product and production systems design.
Morphing draws on next-generation reuse of design data and
knowledge to dramatically accelerate product and production
system developments and maximize capitalization of past
experience. Interoperability with multiple computer-aided design
product data management and other business systems has been
enhanced to accelerate deployment and integration within
existing solution environments.

V5R10 Connected by
Knowledge
Announced in October 2002, CATIA, DELMIA, ENOVIA and SMARTEAM
V5R10 are characterized by the unmatched level of integration
achieved across the portfolio, as well as the resulting
knowledge exchange and high-value business interaction it
enables between customers. Small and medium-sized businesses
using CATIA with SMARTEAM can now deploy PLM best practices.
V5R10 pushes PLM integration past traditional interoperability
to include high-value Knowledge. Beyond simply sharing results
(thats what I did), customers can now share
understanding, intent, know-how, and configured product
structures across all PLM solutions (thats what I
did and heres how and why I did it). This creates
new levels of collaboration efficiency. The reuse best practice
introduced in V5R9 as morphing is now expanded from product and
production resources to manufacturing processes. Combined with
paperless shop floor capabilities, this enhancement makes
product and process development more concurrent than ever. V5R10
offers seamless integration with additional software partner
applications to further grow solution coverage as well as create
highly specialized PLM solutions for specific industries.

V5R11 Built-in
Reality
Announced in April 2003, CATIA, DELMIA, ENOVIA and SMARTEAM
V5R11 are characterized by the high value-added capabilities
V5R11 delivers to create realistic, effective PLM solutions.
Built-in Reality denotes the exceptional level of
realism attainable in product and process anticipation provided
by this new release and is achieved through five concepts:
(1) Predictive PLM  What will a product sound
like? How will it age? Through significant enhancements in CAE
analysis and new partner solutions that take into account the
physics of materials, V5R11 enables customers to better simulate
the functioning of a future product and hence reduce the risk of
potential problems. (2) Engineering of Emotion 
V5R11 offers new tools to engineer the emotional content of a
product with improvements in Class A surfacing, a novel
approach for virtual clay modeling, and a light Digital Mockup
Navigator for broader appearance testing with marketing
specialists, customers, and end-users. (3) Secure IP
Circulation  V5R11 delivers enhanced security and
authentication mechanisms for intellectual property within
collaboration and collective decision-making processes.
(4) PLM for All  V5R11 offers strengthened entry
PLM for companies or departments across all industries that are
considering upgrading from 2D design practices with the option
of directly embracing true PLM. (5) Experience into
Advantage  PLM deployment know-how leveraged into
competitive lead for core processes. V5R11 delivers the benefits
of Dassault Systèmes and IBMs extensive experience in
deploying PLM solutions to industry-leading companies.

Spatial.In
May 2002, Spatial became the primary channel for sales and
marketing of our CAA V5 to software developers. The intention is
to utilize Spatial as a distribution point for development
technologies to accelerate the development of value-added
third-party applications based on the CAA V5 platform. In May

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2002, Spatial also announced 3D ACIS Modeler
(ACIS) Version 8.0 that addresses more customer
issues than any other release of ACIS to date by delivering
significant improvements in performance, tolerant modeling,
versioning, and faceting functionality as well as support for
the Intel Itanium and Solaris 64-bit platforms.


SolidWorks.In September 2002, SolidWorks
announced its new product line, SolidWorks 2003, which features
many new enhancements that help users analyze their
designs structural integrity, easily communicate design
information to others, locate downloadable parts via online
supplier catalogs and accelerate the design process with new
modeling features. New analysis capabilities help designers and
engineers get the design right the first time, sparing them the
time and cost of fixing production errors. New import
capabilities help users embrace 3D and integrate third-party
part designs into their CAD files, so they can finish designs
quickly by working with a variety of file formats including
AutoCAD and CADKEY. In addition, SolidWorks 2003 marks the first
Design-centric 3D CAD software that lets users simulate
realistic motion so they can easily check how gears in an
assembly, for example, will function in actual operation and
address any design flaws prior to manufacturing.

Mergers and Acquisitions

KTI acquisition.On November 20, 2002, we
acquired privately-held, Knowledge Technologies International
(KTI). Through its consulting expertise and its ICAD software,
KTI has been a pioneer and leader in knowledge-based engineering
solutions for the capture and automation of proprietary customer
design and manufacturing processes, particularly in the
aerospace and automotive industries. The acquisition of KTI
complements our existing V5 Knowledgeware solutions and we
believe better positions us as a leader across the full range of
knowledge-based engineering solutions, including customer
proprietary process automation, generic applications and
industry-specific solutions. We also believe this acquisition
strengthens our knowledge-based services offerings.

Partnerships and Alliances

Sales and distribution alliances.Since June 2000, IBM has
established an organization, known as IBM PLM, for marketing PLM
products and services exclusively dedicated to our solutions.
This creates a stronger platform for marketing CATIA, ENOVIA,
DELMIA and SMARTEAM with two specific channels to manage large
accounts and small and medium-sized accounts.

In July 2002, we entered into an agreement under
which IBM agreed to significantly increase resources in sales
and marketing, with the goal of reaching a 40% increase in
direct sales resources within a three-year timeframe.

In June 2002, RAND WorldwideTM, a
leading software distributor based in North America, joined the
IBM network as a distributor of our PLM products.

SolidWorks added coverage in the U.S. and
continued to broaden its channel throughout the world with close
to 300 resellers.

Customer partnerships.We continued active development of
customer partnerships to specify, evaluate and test
process-oriented applications. We also organized user groups and
forums to allow customers to share their experience. Over 10,000
people attended such forums around the world in 2002.

Technology
partnerships.In February 2002, we
announced the signing of a global strategic alliance to leverage
IBMs Websphere middleware with ENOVIA solutions. This
technical combination fosters integration of 3D product content
and knowledge atop a robust technology infrastructure.

Our strategic development alliance with Microsoft
was further enhanced in 2002, with both CATIA V5 and
SolidWorks being certified Designed for Microsoft Windows
XP and the demonstration of CATIA V5 at the
introduction of Microsofts Windows XP Tablet PC Edition.
By using Tablet PCs, product designers and engineers can extend
the functionality and usage of CATIA V5 far beyond the
office.

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Application providers alliances.The Software Community Program
(SCP) was launched in July 2001 to provide independent software
vendors with the open next-generation V5 Component Application
Architecture (CAA V5) 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 February 2003, or 20 months after its
launch, 135 products based on CAA V5 have been
introduced on the PLM market by 37 independent software
developers through the SCP program. Companies which have joined
the SCP program in 2002 or early 2003 include: REALVIZ, INCAT,
TransCAT, Famotik, Hitachi Zosen (HZS), ICAM, SAMTECH, Vision
Numeric, 3Dconnexion, FTL, RAND Worldwide, Nihon Unisys, HKS,
Mecalog, Sigmetrix, ImpactXoft, Polysoft, Immersion and ESI.

In September 2002, we announced a strategic
alliance with ImpactXoft to deliver advanced design
collaboration solutions and functional modeling applications
within V5. This alliance includes the signing of a software
component agreement and a $10 million equity investment by
us, representing a 15% equity interest in ImpactXoft on a fully
diluted basis. The alliance will leverage ImpactXofts
awarding-winning IXSPeeD technology with Version 5 to
deliver and market innovative applications that will target
Process-centric applications for the Electrical &
Electronics, Consumer Goods, and Fabrication and Assembly
industries.

In 2002, 46 products from 31 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 Partner program that
includes over 400 companies worldwide.

Systems integrators alliances.In January 2002, we announced a
significant strengthening of our relationship with
IBM Global Services (IGS), and namely with its Business
Consulting Services division, with the aim of accelerating the
benefits of our PLM solutions for customers through the
offering by IGS and ourselves of business practices,
methodologies and implementation services in the product
lifecycle management field.

In June 2002, we announced a
Consulting & Services partnership with Volvo
Information Technology AB (Volvo IT), to jointly
supply Nordic industries with consulting services focusing on
process development, project management, systems integration,
training, operations and infrastructure for PLM solutions.
A wide range of industries is targeted, including automotive,
industrial machinery and high-tech industry.

In July 2002, we announced a partnership with
T-Systems, the professional services arm of the Deutsche Telekom
Group, to develop an international Consulting and Services
Partnership around our PLM solutions. The partnership will
leverage T-Systems strength in planning, building and
running complex solutions, based on information and
telecommunications technology.

In October 2002, we announced a partnership with
Axiom Systems who will provide our North American aerospace,
automotive, consumer goods, and shipbuilding customers with
integrated solutions for developing products and managing their
lifecycle. Axiom Systems offers a wide range of services such as
business process analysis, systems integration, software
application customization, and project management.

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 2002, our
Process-centric business represented 84% of our consolidated
revenue and our Design-centric business represented 16% of our
consolidated revenue. Our coordinated product offering in each
market provides users with advanced 3D modeling
capabilities and a unique opportunity to integrate different PLM
functions within the Process-centric market.

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Process-centric market

The Process-centric market focuses principally on
product lifecycle management applications to create and simulate
the entire product lifecycle from initial concept to product in
service. We serve it with our PLM offering which facilitates the
simultaneous collaboration of the many different functions
involved in product lifecycle management: engineering, strategy,
marketing and sales, planning and production, procurement,
finance and human resources as well as throughout the supply
chain with our Entry PLM solutions. We believe that our PLM
applications help businesses unleash creativity and innovation,
reduce development cycle time, store and share product knowledge
and ultimately improve quality and competitiveness.

PLM products.We serve the Process-centric market by principally offering the
following products:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CATIA, which defines the digital product and
    supports product design, development and simulation;                                               
|
| |  | DELMIA, which defines and simulates digital
    manufacturing processes;                                                                            
|
| |  | ENOVIA, which manages product lifecycle
    information, including digital mock-up configuration, processes
    knowledge and resources information;
|
| |  | SMARTEAM, which manages product data information;
    and                                                                                           
|
| |  | SPATIAL, which provides PLM software development
    environments and 3D solid modelers and visualization components.                               

CATIAis our main
software product line. Since 1999, we believe CATIA has been the
most popular product design and simulation system in the world
through wide adoption of the digital mock-up process by the
market. Initially focused on large enterprises, CATIA has
evolved to a scalable solution and is now, we believe, also
becoming a leader for small and medium-sized companies in the
Process-centric market. 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) breakthrough technologies
(generative design) enabling intelligent morphing of designs
across product programs; (iii) a simple and intuitive user
interface that optimizes productivity and reduces training time;
(iv) full integration of all CATIA applications based on a
common PPR model and (v) our packaging approach that makes
CATIA readily scalable from entry-level users to high-end
experts.

CATIA is a fully integrated system that allows
users to tailor their product development capability according
to their own particular needs. 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. The CATIA product line is organized in nine
domains: Mechanical Design; Shape Design and Styling; Product
Synthesis; Equipment and Systems Engineering;
NC Manufacturing; Analysis and Simulation; Plant; CATIA
Infrastructure Solutions and CAA RADE. The CATIA V5 product
line supports widely available Unix platforms and Windows
platforms. CATIA includes a range of 120 CATIA
Version 4 products and 139 CATIA Version
5 products, as of Release 10. DELMIA, ENOVIA and
SMARTEAM are fully integrated with CATIA.

DELMIAprovides
comprehensive software applications to enable customers to
virtually create, monitor and control flexible, distributed
manufacturing processes. DELMIA software allows screen-based
simulation and optimization of manufacturing processes from
single device work cells to production lines, and from factory
material flow to extended enterprise production flow. The DELMIA
software family contains process planning, standard time
measurement applications, human simulation, robot and machine
application simulation, as well as solutions for material flow
simulation. Manufacturing process coverage ranges from the
concept development phase to shop floor implementation and
production management. In its full application, DELMIA can be
used to design and simulate the operation of an entire factory
and to optimize production processes.

ENOVIAsoftware
applications facilitate innovation and collaboration across the
enterprise by enabling all participants involved in the
definition, approval, manufacturing and maintenance of a product
to access, share and manage the information required at all
stages of a products lifecycle. The applications are
delivered

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through five fully integrated foundations for
optimized innovation and total management of the product
lifecycle. The underlying enterprise architecture ensures
scalability; a rapid application development environment (RADE)
provides openness based on industry standards; the ENOVIA portal
is a gateway into the enterprise for collaboration,
visualization, analysis, and data and process federation and
Lifecycle Applications deliver full product lifecycle support
based on industry best practices.


SMARTEAMproduct
data management and collaboration products allow users to
efficiently archive, retrieve, create, edit, control, share and
annotate models, documents, tables and other types of
engineering and enterprise information. SMARTEAM offers an array
of integrated, on-line collaboration technologies and provides
an affordable, readily customizable, rapidly implemented
software application that can easily be expanded throughout an
enterprise as its needs evolve. SMARTEAM products may be used
from within the leading Windows-based computer-aided-design
applications.

SPATIALs mission is to provide 3D and PLM
software development environments. This is accomplished by
leveraging its significant expertise in packaging, selling and
supporting high value added software components to act as the
primary channel for sales and marketing of the CAA V5 PLM
development environment. Secondly, Spatial continues to offer
new and existing 3D technologies as component extensions of
the current SPATIAL product family. Its flagship product, the
ACIS 3D Geometric Modeler, is employed by a large number of
CAD application developers that combine to constitute the
largest installed base for solid modeling components.

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 principal technological
backbone for the development of new products for the PLM market
in making possible a tight integration of CATIA for product
authoring, DELMIA for production means authoring and ENOVIA for
product management and collaboration.

A major component of V5 is its unique object
model linking products, processes and resources to support
multidisciplinary collaboration. It enables dynamic,
knowledge-based product creation 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
application, thus permitting the 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.

The following five fundamentals provide the
underlying context for the development of V5:

Industry specific business process
optimization.Process centricity
involves becoming a learned and captive professional on the
processes employed by our customers in the context of the
competitive needs of their respective industries. This is
achieved by investing time, resources and energy to grasp the
basis behind the business processes that drive manufacturing
industries. 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. 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.

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 networks of partners that span
corporate and

19



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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 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
logical, functional and spatial definition 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. Critical industry specific processes are supported by
dedicated applications that incorporate best practices and
design rules. These applications have knowledge, they
incorporate the understanding, for example, behind aero-elastic
effects on a wing or behind the nuances that drive the styling
for a car.

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
capability. 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 Microsoft COM/ActiveX or
J2EE. 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 tool composed of
both our products and theirs. The component architecture also
enables our objective to generalize the markets use of our
technology, an activity that is conducted through Spatial.

Design-centric market

The Design-centric market focuses principally on
product design. It complements the Process-centric market in
reaching a far larger number of potential users.

Design-centric products.To address the specific needs of
the Design-centric market, SolidWorks develops and markets
easy-to-use solid modeling, analysis, and product data
management desktop products that can drastically improve
productivity for users who previously used 2D applications.
SolidWorks products are designed specifically for Windows.
SolidWorks has developed powerful, complete design solutions
including SolidWorks Office Professional  3D CAD,
productivity, communication and data management suite of
products; and 3D content solutions, comprised of 3D
PartStream.NET and 3D ContentCentral which allows manufacturers
to leverage components already available in the marketplace
without a need to redesign parts from scratch.

20



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Customers and Industrial Sectors

We offer our products, including 3D software
components, to the seven industrial sectors listed below, each
of which is followed by a sampling of customer names.

The table below sets forth the proportion of our
revenues represented by sales to each major industrial sector
for each of the years 2002 and 2001. These figures represent our
total sales, comprising both Process-centric and Design-centric
segments.

|                                            |  |      |     |      |  |  |     |  
|------------------------------------------- |  | ---- | --- | ---- |  |  | --- | -
|                                            |  | 2002 |     | 2001
|                                            |  |      |     |     
|Automotive                                  |  |      | 35  | %    |  |  | 34  | %
|Aerospace                                   |  |      | 16  |      |  |  | 17  |  
|Fabrication and Assembly and Others         |  |      | 33  |      |  |  | 33  |  
|Consumer Goods and Electrical & Electronics |  |      | 13  |      |  |  | 13  |  
|Plant Design and Shipbuilding               |  |      | 3   |      |  |  | 3   |  
|                                            |  |      |     |      |  |  |     |  
|                                            |  |      | 100 | %    |  |  | 100 | %
|                                            |  |      |     |      |  |  |     |  

Automotive.Original
Equipment Manufacturers using our software solutions include:

|                     |  |                    
|-------------------- |  | -------------------
|BMW                  |  | Mitsubishi         
|DaimlerChrysler      |  | Porsche            
|Ferrari              |  | PSA Peugeot-Citroen
|Ford                 |  | Renault            
|Honda                |  | Scania             
|Lamborghini          |  | Toyota             
|MAN Nutzfahrzeuge AG |  | Volkswagen         
|                     |  | Volvo              

Customers in the Automotive sector supply chain
using our software solutions include:

|                    |  |                            
|------------------- |  | ---------------------------
|Aisin Seiki Co.     |  | Hella                      
|AP Racing           |  | Johnson Controls           
|Autoliv             |  | Johnson Electric Automotive
|Behr                |  | LeciTrailer                
|Brose Fahrzeugteile |  | Magna                      
|Century Automotive  |  | Michelin                   
|Continental AG      |  | Robert Bosch               
|Delphi              |  | TALGO                      
|Denso Corp.         |  | TRW Automotive             
|Faurecia            |  | Valeo                      

Of the 11 teams participating in the 2002 Formula
1 season, 10 teams employed our solutions to develop their
engines or chassis. These include McLaren-Mercedes, BMW, Sauber,
Honda, Ferrari, Renault, Arrows and AsiaTech.

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Aerospace.Customers in the Aerospace sector
using our software include:

|                      |  |                                 
|--------------------- |  | --------------------------------
|Airbus                |  | Japan Aviation                  
|Alenia                |  | KHI                             
|AVIC                  |  | Lockheed Martin                 
|Bell Helicopters      |  | Loral                           
|BF Goodrich Aerospace |  | MHI                             
|Boeing                |  | MTU                             
|Bombardier            |  | Nasa Ames Research Center       
|British Aerospace     |  | Northrop Grumman                
|Connecteurs Deutsch   |  | Packer Aircraft Engineering     
|Dassault Aviation     |  | Raytheon                        
|EADS                  |  | Saab                            
|Embraer               |  | Singapore Technologies Aerospace
|Eurocopter            |  | Smiths Aerospace                
|Fairchild Fasteners   |  | Snecma                          
|Gulfstream            |  | Tinker Air Force Base           
|Honeywell             |  | United Technologies             

Fabrication & Assembly.Customers in the Fabrication and
Assembly sector using our software include a wide range of
companies, including heavy equipment manufacturers and
industrial machines. Some of our customers are listed below as
follows:

|                                      |  |                                     
|------------------------------------- |  | ------------------------------------
|Arburg                                |  | Krebs                               
|Babcock & Wilcox                      |  | Man                                 
|Chin Fong Machine Industrial Co. Ltd. |  | Metso                               
|Claas                                 |  | Michelin                            
|Daewoo Heavy Industries               |  | Officine Meccaniche Toschi          
|Federal Cartridge                     |  | OshKosh Group                       
|Framatome                             |  | Paper Converting Machine Corporation
|GoodYear                              |  | Prince Castle                       
|Gründfos                              |  | Priority One Packaging              
|Iscar                                 |  | Schuler                             
|IWK Verpackungstechnik                |  | Sidel                               
|Johnson Controls                      |  | Staubli                             
|Kalmar                                |  | Sumitomo                            
|Kliklok International                 |  | Toyota Industries Corporation       
|Komatsu                               |  | Yanmar                              

Customers in the train industry using our
products include: Bombardier Transport, Allusuisse Road &
Rail Ltd. and Alstom.

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Consumer Goods.Customers in the Consumer Goods
sector using our software solutions include:

|                          |  |                  
|------------------------- |  | -----------------
|AEG                       |  | Konica           
|Asahi                     |  | Leifheit         
|Austria Gaming Industries |  | Metabo           
|Binney & Smith            |  | Miele            
|Black & Decker            |  | Nilfisk Advance  
|Bombardier Recreation     |  | Plano Mold       
|Citizen Watch             |  | Samsonite        
|Coca Cola                 |  | Sidel            
|De Longhi                 |  | Smoby            
|Electrolux                |  | Solo Golf        
|ETA Swatch                |  | TREK             
|Fratelli Guzzini          |  | Triton Showers   
|Gucci                     |  | Werner Ladder Co.
|Kärcher                   |  | Yakima           

Electrical & Electronics.Customers in the Electrical and
Electronics sector using our software solutions include:

|                         |  |                        
|------------------------ |  | -----------------------
|Allgon                   |  | Matsushita             
|Alpine                   |  | MDS Sciex              
|Ares Communications Tech |  | Nikon                  
|Ascom Monetel            |  | Pioneer                
|Automatic Systems        |  | Promise Technology     
|Ceragon Networks         |  | Radio Frequency Systems
|Clarion                  |  | Scheidt and Bachmann   
|Gnatus                   |  | Sharp                  
|Grundig                  |  | Siemens                
|IBM                      |  | Sony                   
|Intel Corporation        |  | Sub-Zero               
|Hubert and Suhner        |  | Thales                 
|Legrand                  |  | Wolf Appliance         
|Mars Electronics         |  |                        

Plant Design.Customers in the Plant Design
sector using our software solutions include:

|                                             |  |                    
|-------------------------------------------- |  | -------------------
|Ansaldo                                      |  | Gehry Partners     
|Albert Kahn Associates                       |  | Haden International
|Alstom Power                                 |  | ITER               
|BEI                                          |  | METSO Corporation  
|Consol Energy                                |  | PEMEX              
|DaimlerChrysler                              |  | Shell              
|Farnham & Pfile Engineering and Construction |  | Toyota             

Shipbuilding yards and operators of
passenger and cruise ships.The
Shipbuilding sector is the most recent segment we have targeted.
Our customers include:

|                                 |  |                                
|-------------------------------- |  | -------------------------------
|General Dynamics Bath Iron Works |  | MeyerWerft                     
|General Dynamics Electric Boat   |  | MHI (Mitsubishi Heavy Industry)
|HDW AG                           |  | Northrop Grumman Newport News  
|HSD Engines                      |  | Northrop Grumman Ship Systems  
|KHI (Kawasaki Heavy Industry)    |  | Yantai Raffle Shipyards        

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In addition to the seven industrial sectors, we
also offer 3D software components across all industry sectors.
Set forth below is a list of customers for our 3D software
components:

|                                                                      |  |                                                         
|--------------------------------------------------------------------- |  | --------------------------------------------------------
|ABAQUS/CAE by Hibbit, Karlsson & Sorensen,
    Inc.                   |  | GSCAD by Intergraph Corporation                         
|Alibre Design by Alibre Inc.                                          |  | IronCAD                                                 
|Ansoft Corporation                                                    |  | Proficiency LTD (CAA V5)                                
|CADKEY by Cadkey, Inc.                                                |  | Radan LTD (ACIS)                                        
|Cimatron E by Cimatron                                                |  | Sandia National Laboratory                              
|Dynamic Designer on CAA V5 (ADAMS) by Applied
    Research Associates |  | Space-E by Hitachi Zosen Information Systems
    Vistagy

Our Extended Enterprise Partnerships

The extended enterprise concept emerged from our
partnership with IBM for the distribution of our products. For a
description of our partnership with IBM, see  Sales
and Marketing, below. We have reinforced our extended
enterprise approach through our relationships with customers,
technological partnerships, product development partnerships and
partnerships with computer hardware manufacturers.

IBM partnership.Our long-standing partnership with
IBM has provided us with deep technical expertise and commercial
strength beyond the marketing and sales agreement. 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. For example, in February 2002, we announced
with IBM that ENOVIA would include IBMs WebSphere
middleware in its application architecture in order to enable
ENOVIA software to be integrated with Web-based technologies.

Customer partnerships.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.

We also organize user groups and forums to allow
customers to share their experiences. Each year, more than
10,000 people participate in our customer events.

Technological partnerships.In order to maximize our benefits
from available technology, we have established technical
collaboration partnerships with IBM, HP, SUN, SGI, Intel and
Microsoft, as well as prestigious universities. The new
technologies included in Version 5 were developed as native
Windows and Unix environments.

We have also been working closely with the
primary suppliers of virtual reality software applications since
1998. Our objective is to integrate into CATIA Version 5
the tactile design technology of SensAble Technologies, the
immersive design technologies of Fakespace, the immersive
visualization display of Barco NV, Projection Systems, and
the advanced visualization solutions of
Panoram Technologies.

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 several years with suppliers of IBM, Sun
Microsystems, SGI, and HP workstations. We have also set up
a certification program with numerous vendors of Windows
workstations, including IBM, HP, Compaq, SGI, Dell,
Fujitsu Siemens Computers and NEC.

Product development partnerships.In order to enable software
developers to create and market their own software applications
using the Version 5 architecture, we set up the Component
Application Architecture (CAA V5) program that seeks
to offer complementary applications for CATIA, DELMIA and

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ENOVIA. Technical and marketing support is also
provided to companies participating in the CAA V5 program.


SolidWorks also operates a two-tier development
partnership program bringing together companies supplying
products that are either compatible with, or entirely integrated
into, SolidWorks.

In January 2002, we announced the creation of a
joint venture in India, 3D PLM Software Ltd., with
Geometric Software Solutions Limited (GSSL). 3D PLM
Software Ltd. is dedicated to providing software
development and industrialization work to our Group.

Sales and Marketing

IBM Channel 
Overview.We have had a
long-standing partnership with IBM for 22 years. Revenue
generated through our distribution agreement with IBM
represented approximately 61%, 60% and 65% of our total revenue
in 2002, 2001 and 2000, respectively. Since our inception in
1981, our CATIA products, since 1998 our ENOVIA products, and
since the Fall 2001 our SMARTEAM products, have been
marketed and distributed principally by IBM pursuant to a
mutually non-exclusive agreement which also includes consulting
services. See Item 3D: Risk Factors 
Risks Related to Our Business  During the year 2002,
approximately 61% of our revenue resulted from sales of our
products by IBM... and  Our products have
a long and variable sales cycle....

Under our agreement with IBM, we license CATIA,
ENOVIA and SMARTEAM products to IBM, which then sublicenses them
to end-users. IBM shares with us the license fees invoiced by
IBM to end-users under the software licenses, and we record as
software revenue only our share of such license fees. IBM pays a
share to us in the form of royalties, which approximates 50% of
total CATIA, ENOVIA and SMARTEAM license fees invoiced by IBM.
Since 1995, IBM was able to earn an incentive that increased its
share provided it reached certain revenue growth targets. In
July 2002, we entered into a new agreement whereby IBM has
agreed to significantly increase the resources of the
IBM PLM organization and we, in turn, have modified the
royalty incentive to link it to IBM making such investments.
Specifically, under our new royalty agreement with IBM, our
initial royalty rate is unchanged at 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 revenue growth
objectives. The resources investment criteria is expressed as a
level of marketing and sales expenses and can lead to an
incentive of up to 2% of end-user revenues, and the revenue
growth achievement can lead to up to the remaining 1.2%.

IBM Channel  Marketing
Structure.CATIA, ENOVIA and
SMARTEAM products are distributed principally by IBM PLM, an IBM
entity exclusively dedicated to the sale of these products to
large enterprises primarily. In addition, since 2000, we
decided, together with IBM, to put more emphasis on sales to
small and medium-sized enterprises, through a joint staffing
with IBM, pursuant to which we provide additional support to a
network of IBM business partners, in the form of distribution
arrangements or value-added resellers, and contribute funds to
an enhanced marketing budget in order to ensure more brand
awareness for CATIA, ENOVIA and SMARTEAM and enhance lead
generation for the IBM business partners.

Since 2001 we, jointly with IBM, have entered
into agreements with new IBM business partners, devoted to
market, on a non-exclusive basis, our CATIA, ENOVIA and SMARTEAM
products, as well as to develop V5-based software products on
their own. These new business partners have included, among
others, Hitachi Zosen, MSC.Software, RAND Worldwide
and Unisys.

Since January 2002, we have been a Premier PLM
Consulting Partner of IBM IGS, the IBM worldwide
organization dedicated to the sale of services. IGS provides
both the contacts with customers as well as the consulting and
implementation capabilities in order to drive adoption of our
PLM solutions. We actively participate to train IGS
consultants and develop with IGS teams service offerings
related to our PLM solutions.

Direct Sales
Channels.DELMIAs products
are marketed by a direct sales force of approximately
100 persons, which is complemented by resellers and IBM.
Specifically, for DELMIA products, IBM and we have agreed to
team together through a Cooperative Marketing Agreement to
deliver digital manufacturing

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software applications to accounts where both IBM
and we can bring value. This agreement enables IBM to co-market
DELMIA products to certain customers on a case-by-case basis,
while ensuring that the DELMIA specialized sales force maintains
the sales and support lead at the customer.


In some geographic markets SMARTEAM products are
also marketed by a direct sales force.

Indirect Sales
Channels.SolidWorks
products are marketed by a network of approximately
300 independent resellers specifically focused on the local
markets in 75 countries around the world. In addition, DELMIA
and SMARTEAM products are 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 most product areas include
EDS and PTC. We compete principally with
Tecnomatix Technologies, Ltd. in manufacturing process
management. For our Design-centric products, our main
competitors include Autodesk, Inc., PTC, and others. In the
area of collaborative commerce, we also compete with several
supply-chain management software providers, as well as other
enterprise software vendors including Agile Software,
i2 Technologies, Inc., MatrixOne, Oracle and SAP. 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.

The following table lists our principal operating
subsidiaries and certain additional information.

|                          |  |               |       |              |  |  |               | 
|------------------------- |  | ------------- | ----- | ------------ |  |  | ------------- | 
|                          |  | Proportion of |       |             
|                          |  | Ownership     |       | Country of  
|Subsidiary                |  | Interest      |       | Organization
|                          |  |               |       |             
|Delmia Corp.              |  |               | 100%  |              |  |  | United States | 
|Enovia Corp.              |  |               | 100%  |              |  |  | United States | 
|SmarTeam Corporation Ltd. |  |               | 100%  |              |  |  | Israel        | 
|SolidWorks Corporation    |  |               | 99.6% |              |  |  | United States | 
|Spatial Corp.             |  |               | 100%  |              |  |  | United States | 

For a list of our other direct and indirect
subsidiaries, see Note R to our consolidated financial
statements for the year 2002.

D.     Property,
Plant and Equipment.

We partially own and partially lease our
principal executive offices 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, 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. Delmia owns
some offices in Troy, Michigan, which are presently
unoccupied and which are in the process of being sold.

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 using various centralized global
packages. These packages provide coverage for significant risks
and activities related to our operations including damage to
property, product liability, including

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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.


Item 5: Operating and Financial Review
and Prospects.

A.     Operating
Results.

You should read the following discussion
together with our consolidated financial statements and the
related notes included in this report.

Overview

Summary Financial Results

In 2002 total revenue increased 3.8% to
774.1 million
from
746.1 million
in 2001, and on a constant currency basis total revenue
increased 7%. Software revenue increased 4.2% to
669.9 million
and services revenue increased 1.2% to
104.2 million
in 2002. Process-centric revenue, accounting for 84% of our
consolidated revenue, increased 5.1% in 2002 to
649.4 million
(including
1.7 million
of inter-segment sales) and included PDM revenue (ENOVIA and
SMARTEAM), which increased 25% to
82.7 million.
Design-centric revenue, accounting for 16% of our consolidated
revenue, amounted to
126.9 million
in 2002 (including
0.5 million
of inter-segment sales) compared to
128.2 million
in 2001. Net income increased 42.5% to
126.4 million
or diluted net income per share of
1.09 in 2002,
compared to
88.7 million
or 0.76 per
share in 2001. Excluding the amortization of intangibles
incurred in business combinations, our net income for the year
ended December 31, 2002, totaled
136.0 million
with diluted net income per share of
1.17, compared
to
144.0 million
or 1.23 per
share in 2001, representing a decrease of 4.9% on a per share
basis. See  Results of Operations 
Breakdown of Revenues and  Consolidated
Data.

Revenue

Our total revenue is comprised of software
licensing revenue and service and other revenue. Our primary
source of revenue is derived from the licensing of our software
products, which accounted for 87%, 86% and 86% of our total
revenue in 2002, 2001 and 2000, respectively. We generate
service revenue through the consulting and technical assistance
we provide to our customers. Revenue generated through our
marketing and sales agreement with IBM represented approximately
61% of our total revenue in 2002 compared with 60% in 2001 and
65% in 2000. See Item 4B: Business
Overview  Sales and Marketing and
Item 5A: Operating Results  Results of
Operations  Breakdown of Revenues.

Our software solutions are marketed principally
by IBM, as well as through a network of distribution partners
and a direct sales force for certain products.

Recurring software revenue is an important
characteristic of our financial model. Recurring software
revenue represented 48%, 45% and 43% of total software revenue
in 2002, 2001 and 2000, respectively. Recurring software revenue
is comprised of rights of use, rental licenses (mainly to large
customers) and maintenance fees.

We license CATIA, ENOVIA and DELMIA products
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
charge licenses, for which the customer pays an initial
fee (a primary fee). Customers who pay a primary
charge subsequently pay periodic fees (annual or monthly). 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. This licensing model is
also used for marketing SMARTEAM products through IBM.

Licensing revenues from products sold through IBM
are recognized when IBM records revenue from the sale of our
products.

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Software licenses offered by SolidWorks require
the payment of a one-time fee giving users the right to use the
products indefinitely. Access to upgrades and maintenance
require payment of an annual maintenance fee.

For software components sold by Spatial, we
receive license and maintenance fees as well as royalties for
the sale of software products including embedded Spatial
components.

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) as IBMs commercial
partner for the sale of CATIA, ENOVIA and SMARTEAM licenses, and
we record the commissions we receive from IBM for this activity
as service revenue. The division in charge of this activity also
resells computer hardware, but in this case we record only the
gross profit from the sales as service revenue.

Expenses

Research and development expenses represented
29%, 28% and 27% of total revenue in 2002, 2001 and 2000,
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 19% of total revenue in 2002, 2001 and 2000, respectively.
Marketing and sales expenses are derived principally from our
marketing activities in support of IBM and the SolidWorks,
DELMIA and SMARTEAM sales forces. We also incur marketing and
sales expenses from our activities as an IBM business partner in
France, Belgium and Switzerland, and from our direct sales to
customers, particularly for DELMIA and Spatial and in part for
SMARTEAM. Marketing and sales expenses primarily consist of
personnel costs, travel expenses, 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 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. 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.

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. 101, Revenue

28



---



##### 



Recognition in Financial Statements
(SAB 101) and other authoritative guidance. Although
we believe that we are currently in compliance with
SOP 97-2, SOP 98-9 and SAB 101, 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 recognized revenue. See Note A to our consolidated
financial statements.


Accounts receivable

Accounts receivable consist primarily of amounts
due to us from our normal business activities. We maintain an
allowance for doubtful amounts to reflect the expected
uncollectibility of amounts receivable. These estimates are
based on bad debt write-offs, specific identification of
probable bad debts based on collection efforts, aging of
accounts receivable and other known factors. Actual results
could differ from those estimates.

Taxes

We account for income taxes in accordance with
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. In managements
opinion, adequate provisions for income taxes have been made for
all years.

Investment in equity
securities

We hold minority interests in 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 investment impairment charge when we
believe an investment has experienced a decline in value that is
other than temporary. Future adverse changes in market
conditions or poor operating results of underlying investments
could result in losses or an inability to recover the carrying
value of the investments that may not be reflected in an
investments current carrying value, thereby possibly
requiring an impairment charge in the future.

Results of Operations

For the year ended December 31, 2002, we
recorded revenue of
774.1 million
and net income of
126.4 million,
representing diluted net income per share of
1.09. These
results included amortization of acquired technology amounting
to
11.1 million
(9.6 million
after tax). Excluding the amortization of acquired technology,
our net income for the year ended December 31, 2002,
totaled
136.0 million
with diluted net income per share of
1.17. The table
below sets forth key figures from our statements of income.

29



---



##### 



|                                                                                         |  |                         |        |      |  |      |        |  |  |  |        | 
|---------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                         |  |                        
|                                                                                         |  | Year ended December 31,
|                                                                                         |  |                        
|                                                                                         |  | 2002                    |        | 2001 |  | 2000
|                                                                                         |  |                         |        |      |  |     
|                                                                                         |  |                        
|                                                                                         |  | (in millions, except   
|                                                                                         |  | per share data)        
|Revenue                                                                                  |  |                         | 774.1 |      |  |      | 746.1 |  |  |  | 632.4 | 
|Gross profit                                                                             |  |                         | 653.3  |      |  |      | 638.7  |  |  |  | 541.7  | 
|Operating income                                                                         |  |                         | 203.0  |      |  |      | 162.6  |  |  |  | 178.8  | 
|Net income                                                                               |  |                         | 126.4  |      |  |      | 88.7   |  |  |  | 103.7  | 
|Diluted weighted average number of common shares
    outstanding                         |  |                         | 116.2  |      |  |      | 116.7  |  |  |  | 118.6  | 
|Diluted net income per share                                                             |  |                         | 1.09   |      |  |      | 0.76   |  |  |  | 0.87   | 
|Pro forma excluding amortization of intangibles
    incurred in business combinations(1) |  |                         |        |      |  |      |        |  |  |  |        | 
|Operating income                                                                         |  |                         | 214.1 |      |  |      | 221.0 |  |  |  | 218.9 | 
|Net income                                                                               |  |                         | 136.0  |      |  |      | 144.0  |  |  |  | 139.2  | 
|Diluted net income per share                                                             |  |                         | 1.17   |      |  |      | 1.23   |  |  |  | 1.17   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amortization of intangibles incurred in business
    combinations totaled
    11.1 million
    in 2002
    (9.6 million
    after tax) (and consisted entirely of the amortization of
    acquired technology) compared with
    58.4 million
    in 2001
    (55.3 million
    after tax) and
    40.2 million
    in 2000
    (35.5 million
    after tax). 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.

30



---



##### 



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 also
Notes A and Q to our consolidated financial statements).

|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |       |        | 
|---------------------------------------------------------------------------------------- | --------------- | ----------------------------------------- |  | ----- | ----- | ---- |  | ----- | ------ |  |  | ----- | ----- |  |  | ----- | ------ |  |  | ----- | ----- |  |  | ----- | ------ | 
|                                                                                         |                 |                                          
|                                                                                         |                 | Year ended December 31,                  
|                                                                                         |                 |                                          
|                                                                                         |                 |                                           |  |       |       |     
|                                                                                         |                 | 2002                                      |  | 2001  |       | 2000
|                                                                                         |                 |                                           |  |       |       |     
|                                                                                         |                 |                                           |  |       |       |      |  |       |        | 
|                                                                                         |                 |                                          
|                                                                                         |                 | (in millions of euro, except percentages)
|Revenue                                                                                  |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         | Process-centric |                                           |  | 649.4 |       |      |  | 83.9% |        |  |  | 617.9 |       |  |  | 82.8% |        |  |  | 534.8 |       |  |  | 84.6% |       
|                                                                                         | Design-centric  |                                           |  | 126.9 |       |      |  | 16.4% |        |  |  | 128.2 |       |  |  | 17.2% |        |  |  | 97.6  |       |  |  | 15.4% |       
|                                                                                         | Elimination     |                                           |  | (2.2  | )     |      |  | (0.3% | )      |  |  |       |       |  |  |       |        |  |  |       |       |  |  |       |       
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         |                 | Total                                     |  |       | 774.1 |      |  |       | 100.0% |  |  |       | 746.1 |  |  |       | 100.0% |  |  |       | 632.4 |  |  |       | 100.0% | 
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|Gross profit                                                                             |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         | Process-centric |                                           |  | 541.6 |       |      |  | 82.9% |        |  |  | 522.4 |       |  |  | 81.8% |        |  |  | 453.1 |       |  |  | 83.6% |       
|                                                                                         | Design-centric  |                                           |  | 113.3 |       |      |  | 17.3% |        |  |  | 116.3 |       |  |  | 18.2% |        |  |  | 88.6  |       |  |  | 16.4% |       
|                                                                                         | Elimination     |                                           |  | (1.7  | )     |      |  | (0.2% | )      |  |  |       |       |  |  |       |        |  |  |       |       |  |  |       |       
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         |                 | Total                                     |  |       | 653.3 |      |  |       | 100.0% |  |  |       | 638.7 |  |  |       | 100.0% |  |  |       | 541.7 |  |  |       | 100.0% | 
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|Operating income                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         | Process-centric |                                           |  | 170.9 |       |      |  | 84.2% |        |  |  | 126.6 |       |  |  | 77.8% |        |  |  | 150.9 |       |  |  | 84.4% |       
|                                                                                         | Design-centric  |                                           |  | 32.1  |       |      |  | 15.8% |        |  |  | 36.0  |       |  |  | 22.2% |        |  |  | 27.9  |       |  |  | 15.6% |       
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         |                 | Total                                     |  |       | 203.0 |      |  |       | 100.0% |  |  |       | 162.6 |  |  |       | 100.0% |  |  |       | 178.8 |  |  |       | 100.0% | 
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|Net income                                                                               |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         | Process-centric |                                           |  | 104.2 |       |      |  | 82.4% |        |  |  | 63.8  |       |  |  | 72.0% |        |  |  | 84.5  |       |  |  | 81.5% |       
|                                                                                         | Design-centric  |                                           |  | 22.2  |       |      |  | 17.6% |        |  |  | 24.9  |       |  |  | 28.0% |        |  |  | 19.2  |       |  |  | 18.5% |       
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         |                 | Total                                     |  |       | 126.4 |      |  |       | 100.0% |  |  |       | 88.7  |  |  |       | 100.0% |  |  |       | 103.7 |  |  |       | 100.0% | 
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|Pro forma excluding amortization of intangibles
    incurred in business combinations(1) |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|Operating income                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         | Process-centric |                                           |  | 181.8 |       |      |  | 84.9% |        |  |  | 184.0 |       |  |  | 83.3% |        |  |  | 190.9 |       |  |  | 87.2% |       
|                                                                                         | Design-centric  |                                           |  | 32.3  |       |      |  | 15.1% |        |  |  | 37.0  |       |  |  | 16.7% |        |  |  | 28.0  |       |  |  | 12.8% |       
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         |                 | Total                                     |  |       | 214.1 |      |  |       | 100.0% |  |  |       | 221.0 |  |  |       | 100.0% |  |  |       | 218.9 |  |  |       | 100.0% | 
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|Net income                                                                               |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         | Process-centric |                                           |  | 113.6 |       |      |  | 83.5% |        |  |  | 118.2 |       |  |  | 82.1% |        |  |  | 119.9 |       |  |  | 86.2% |       
|                                                                                         | Design-centric  |                                           |  | 22.4  |       |      |  | 16.5% |        |  |  | 25.8  |       |  |  | 17.9% |        |  |  | 19.3  |       |  |  | 13.8% |       
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      
|                                                                                         |                 | Total                                     |  |       | 136.0 |      |  |       | 100.0% |  |  |       | 144.0 |  |  |       | 100.0% |  |  |       | 139.2 |  |  |       | 100.0% | 
|                                                                                         |                 |                                           |  |       |       |      |  |       |        |  |  |       |       |  |  |       |        |  |  |       |       |  |  |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amortization of intangibles incurred in business
    combinations totaled
    11.1 million
    in 2002
    (9.6 million
    after tax) (and consisted entirely of the amortization of
    acquired technology) compared with
    58.4 million
    in 2001
    (55.3 million
    after tax) and
    40.2 million
    in 2000
    (35.5 million
    after tax). 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.

31



---



##### 



The tables below set forth the breakdown of
revenue by type of activity and geographic region for the
periods indicated.

Breakdown of Revenues

|                     |                           |                         |  |       |       |      |  |       |       |  |  |       |       | 
|-------------------- | ------------------------- | ----------------------- |  | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                     |                           |                        
|                     |                           | Year ended December 31,
|                     |                           |                        
|                     |                           | 2002                    |  | 2001  |       | 2000
|                     |                           |                         |  |       |       |     
|                     |                           |                        
|                     |                           | (in millions of euro)  
|Revenue by activity: |                           |                         |  |       |       |      |  |       |       |  |  |      
|                     | Software revenue          |                         |  | 669.9 |       |      |  | 643.0 |       |  |  | 541.7 |      
|                     | Service and other revenue |                         |  | 104.2 |       |      |  | 103.1 |       |  |  | 90.7  |      
|                     |                           |                         |  |       |       |      |  |       |       |  |  |      
|                     |                           | Total revenue           |  |       | 774.1 |      |  |       | 746.1 |  |  |       | 632.4 | 
|                     |                           |                         |  |       |       |      |  |       |       |  |  |      

|                                 |                            |                         |  |       |       |      |  |       |       |  |  |       |       | 
|-------------------------------- | -------------------------- | ----------------------- |  | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                 |                            |                        
|                                 |                            | Year ended December 31,
|                                 |                            |                        
|                                 |                            | 2002                    |  | 2001  |       | 2000
|                                 |                            |                         |  |       |       |     
|                                 |                            |                        
|                                 |                            | (in millions of euro)  
|Revenue by geographic region:(1) |                            |                         |  |       |       |      |  |       |       |  |  |      
|                                 | Europe(2)                  |                         |  | 374.5 |       |      |  | 380.4 |       |  |  | 334.8 |      
|                                 | North and South America(3) |                         |  | 224.0 |       |      |  | 219.3 |       |  |  | 188.8 |      
|                                 | Asia/Pacific(3)            |                         |  | 175.6 |       |      |  | 146.4 |       |  |  | 108.8 |      
|                                 |                            |                         |  |       |       |      |  |       |       |  |  |      
|                                 |                            | Total                   |  |       | 774.1 |      |  |       | 746.1 |  |  |       | 632.4 | 
|                                 |                            |                         |  |       |       |      |  |       |       |  |  |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                                                                                                                                                                                                                                                                                                                                                   

32



---



##### 



The tables below present certain financial data
taken from our consolidated financial statements expressed as a
percentage of our total revenue, except for data per share,
which is expressed in euro, and for numbers of shares. Our
revenue and the percentages of the various expense or other
revenue items may not be comparable with those of our
competitors due to the distribution of our products by IBM.

Consolidated Data

|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |       |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------ | ----------- | ----- | - | ---- | ----------- | ----- | - |  | ----------- | ----- | -
|                                                                                          |                                                         |                                           
|                                                                                          |                                                         | Year ended December 31,                   
|                                                                                          |                                                         |                                           
|                                                                                          |                                                         | 2002                                       |             | 2001  |   | 2000
|                                                                                          |                                                         |                                            |             |       |   |     
|                                                                                          |                                                         |                                           
|                                                                                          |                                                         | (as a % of revenue, except per share data)
|Revenue:                                                                                  |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Software revenue                                                                          |                                                         |                                            | 86.5        |       |   |      | 86.2        |       |   |  | 85.7        |      
|Service and other revenue                                                                 |                                                         |                                            | 13.5        |       |   |      | 13.8        |       |   |  | 14.3        |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|                                                                                          | Total revenue                                           |                                            |             | 100.0 |   |      |             | 100.0 |   |  |             | 100.0 |  
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Cost of revenue:                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Software                                                                                  |                                                         |                                            | (3.2        | )     |   |      | (2.8        | )     |   |  | (2.4        | )    
|Service and other                                                                         |                                                         |                                            | (12.4       | )     |   |      | (11.6       | )     |   |  | (11.9       | )    
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|                                                                                          | Total cost of revenue                                   |                                            |             | (15.6 | ) |      |             | (14.4 | ) |  |             | (14.3 | )
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Gross profit                                                                              |                                                         |                                            | 84.4        |       |   |      | 85.6        |       |   |  | 85.7        |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Research, selling and administrative
    expenses:                                        |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Research and development                                                                  |                                                         |                                            | (28.7       | )     |   |      | (28.0       | )     |   |  | (26.8       | )    
|Marketing and sales                                                                       |                                                         |                                            | (21.9       | )     |   |      | (22.0       | )     |   |  | (18.6       | )    
|General and administrative                                                                |                                                         |                                            | (6.2        | )     |   |      | (5.9        | )     |   |  | (5.6        | )    
|Amortization of goodwill                                                                  |                                                         |                                            |            |       |   |      | (5.9        | )     |   |  | (4.7        | )    
|Amortization of acquired technology                                                       |                                                         |                                            | (1.4        | )     |   |      | (1.9        | )     |   |  | (1.7        | )    
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|                                                                                          | Total research, selling and administrative
    expenses |                                            |             | (58.2 | ) |      |             | (63.8 | ) |  |             | (57.4 | )
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Operating income                                                                          |                                                         |                                            | 26.2        |       |   |      | 21.8        |       |   |  | 28.3        |      
|Equity in net income of unconsolidated
    affiliates  joint ventures                    |                                                         |                                            | 0.0         |       |   |      | 0.0         |       |   |  | 0.0         |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Financial revenue and other  net                                                         |                                                         |                                            | 0.4         |       |   |      | 1.9         |       |   |  | 1.7         |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Income before income taxes                                                                |                                                         |                                            | 26.6        |       |   |      | 23.7        |       |   |  | 30.0        |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Income tax expense                                                                        |                                                         |                                            | (10.3       | )     |   |      | (11.8       | )     |   |  | (13.6       | )    
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Net income                                                                                |                                                         |                                            | 16.3        |       |   |      | 11.9        |       |   |  | 16.4        |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Basic net income per share                                                                |                                                         |                                            | 1.11       |       |   |      | 0.78       |       |   |  | 0.92       |      
|Diluted net income per share                                                              |                                                         |                                            | 1.09       |       |   |      | 0.76       |       |   |  | 0.87       |      
|Weighted average number of common shares
    outstanding                                  |                                                         |                                            | 114,118,817 |       |   |      | 113,694,585 |       |   |  | 113,053,650 |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Diluted weighted average number of common shares
    outstanding                          |                                                         |                                            | 116,247,725 |       |   |      | 116,659,988 |       |   |  | 118,633,182 |      
|                                                                                          |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Pro forma excluding amortization of
    intangibles incurred in business combinations:(1) |                                                         |                                            |             |       |   |      |             |       |   |  |             |      
|Operating income                                                                          |                                                         |                                            | 27.7        |       |   |      | 29.6        |       |   |  | 34.6        |      
|Net income                                                                                |                                                         |                                            | 17.6        |       |   |      | 19.3        |       |   |  | 22.0        |      
|Basic net income per share                                                                |                                                         |                                            | 1.19       |       |   |      | 1.27       |       |   |  | 1.23       |      
|Diluted net income per share                                                              |                                                         |                                            | 1.17       |       |   |      | 1.23       |       |   |  | 1.17       |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amortization of intangibles incurred in business
    combinations totaled
    11.1 million
    in 2002
    (9.6 million
    after tax) (and consisted entirely of the amortization of
    acquired technology) compared with
    58.4 million
    in 2001
    (55.3 million
    after tax) and
    40.2 million
    in 2000
    (35.5 million
    after tax). 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.

33



---



##### 



Process-centric

|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |       |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------- | ----- | ----- | - | ---- | ----- | ----- | - |  | ----- | ----- | -
|                                                                                          |                                                         |                        
|                                                                                          |                                                         | Year ended December 31,
|                                                                                          |                                                         |                        
|                                                                                          |                                                         | 2002                    |       | 2001  |   | 2000
|                                                                                          |                                                         |                         |       |       |   |     
|                                                                                          |                                                         |                        
|                                                                                          |                                                         | (as a % of revenue)    
|Revenue:                                                                                  |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Software revenue                                                                          |                                                         |                         | 83.7  |       |   |      | 83.3  |       |   |  | 83.0  |      
|Service and other revenue                                                                 |                                                         |                         | 16.3  |       |   |      | 16.7  |       |   |  | 17.0  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|                                                                                          | Total revenue                                           |                         |       | 100.0 |   |      |       | 100.0 |   |  |       | 100.0 |  
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Cost of revenue:                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Software                                                                                  |                                                         |                         | (1.7  | )     |   |      | (1.4  | )     |   |  | (1.1  | )    
|Service and other                                                                         |                                                         |                         | (14.8 | )     |   |      | (14.0 | )     |   |  | (14.2 | )    
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|                                                                                          | Total cost of revenue                                   |                         |       | (16.6 | ) |      |       | (15.4 | ) |  |       | (15.3 | )
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Gross profit                                                                              |                                                         |                         | 83.4  |       |   |      | 84.6  |       |   |  | 84.7  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Research, selling and administrative
    expenses:                                        |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Research and development                                                                  |                                                         |                         | (29.9 | )     |   |      | (29.5 | )     |   |  | (28.3 | )    
|Marketing and sales                                                                       |                                                         |                         | (18.8 | )     |   |      | (19.0 | )     |   |  | (14.8 | )    
|General and administrative                                                                |                                                         |                         | (6.7  | )     |   |      | (6.2  | )     |   |  | (5.9  | )    
|Amortization of goodwill                                                                  |                                                         |                         | 0.0   |       |   |      | (7.0  | )     |   |  | (5.5  | )    
|Amortization of acquired technology                                                       |                                                         |                         | (1.7  | )     |   |      | (2.3  | )     |   |  | (2.0  | )    
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|                                                                                          | Total research, selling and administrative
    expenses |                         |       | (57.1 | ) |      |       | (64.1 | ) |  |       | (56.5 | )
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Operating income                                                                          |                                                         |                         | 26.3  |       |   |      | 20.5  |       |   |  | 28.2  |      
|Equity in net income of unconsolidated
    affiliates  joint ventures                    |                                                         |                         | 0.0   |       |   |      | 0.0   |       |   |  | 0.0   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Financial revenue and other  net                                                         |                                                         |                         | 0.2   |       |   |      | 1.8   |       |   |  | 1.5   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Income before income taxes                                                                |                                                         |                         | 26.5  |       |   |      | 22.3  |       |   |  | 29.7  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Income tax expense                                                                        |                                                         |                         | (10.5 | )     |   |      | (12.0 | )     |   |  | (13.9 | )    
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Net income                                                                                |                                                         |                         | 16.0  |       |   |      | 10.3  |       |   |  | 15.8  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Pro forma excluding amortization of
    intangibles incurred in business combinations:(1) |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Operating income                                                                          |                                                         |                         | 28.0  |       |   |      | 29.8  |       |   |  | 35.7  |      
|Net income                                                                                |                                                         |                         | 17.5  |       |   |      | 19.1  |       |   |  | 22.4  |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 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.

34



---



##### 



Design-centric

|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |       |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------- | ----- | ----- | - | ---- | ----- | ----- | - |  | ----- | ----- | -
|                                                                                          |                                                         |                        
|                                                                                          |                                                         | Year ended December 31,
|                                                                                          |                                                         |                        
|                                                                                          |                                                         | 2002                    |       | 2001  |   | 2000
|                                                                                          |                                                         |                         |       |       |   |     
|                                                                                          |                                                         |                        
|                                                                                          |                                                         | (as a % of revenue)    
|Revenue:                                                                                  |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Software revenue                                                                          |                                                         |                         | 99.7  |       |   |      | 100.0 |       |   |  | 100.0 |      
|Service and other revenue                                                                 |                                                         |                         | 0.3   |       |   |      | 0.0   |       |   |  | 0.0   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|                                                                                          | Total revenue                                           |                         |       | 100.0 |   |      |       | 100.0 |   |  |       | 100.0 |  
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Cost of revenue:                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Software                                                                                  |                                                         |                         | (10.7 | )     |   |      | (9.3  | )     |   |  | (9.3  | )    
|Service and other                                                                         |                                                         |                         | 0.0   |       |   |      | 0.0   |       |   |  | 0.0   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|                                                                                          | Total cost of revenue                                   |                         |       | (10.7 | ) |      |       | (9.3  | ) |  |       | (9.3  | )
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Gross profit                                                                              |                                                         |                         | 89.3  |       |   |      | 90.7  |       |   |  | 90.7  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Research, selling and administrative
    expenses:                                        |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Research and development                                                                  |                                                         |                         | (21.5 | )     |   |      | (20.8 | )     |   |  | (18.7 | )    
|Marketing and sales                                                                       |                                                         |                         | (38.0 | )     |   |      | (36.7 | )     |   |  | (39.3 | )    
|General and administrative                                                                |                                                         |                         | (4.4  | )     |   |      | (4.4  | )     |   |  | (4.0  | )    
|Amortization of goodwill                                                                  |                                                         |                         | 0.0   |       |   |      | (0.8  | )     |   |  | (0.1  | )    
|Amortization of acquired technology                                                       |                                                         |                         | (0.1  | )     |   |      | 0.0   |       |   |  | 0.0   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|                                                                                          | Total research, selling and administrative
    expenses |                         |       | (64.0 | ) |      |       | (62.6 | ) |  |       | (62.1 | )
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Operating income                                                                          |                                                         |                         | 25.3  |       |   |      | 28.1  |       |   |  | 28.6  |      
|Equity in net income of unconsolidated
    affiliates  joint ventures                    |                                                         |                         | 0.0   |       |   |      | 0.0   |       |   |  | 0.0   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Financial revenue and other  net                                                         |                                                         |                         | 1.4   |       |   |      | 2.3   |       |   |  | 3.3   |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Income before income taxes                                                                |                                                         |                         | 26.7  |       |   |      | 30.4  |       |   |  | 31.9  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Income tax expense                                                                        |                                                         |                         | (9.2  | )     |   |      | (11.0 | )     |   |  | (12.2 | )    
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Net income                                                                                |                                                         |                         | 17.5  |       |   |      | 19.4  |       |   |  | 19.7  |      
|                                                                                          |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Pro forma excluding amortization of
    intangibles incurred in business combinations:(1) |                                                         |                         |       |       |   |      |       |       |   |  |       |      
|Operating income                                                                          |                                                         |                         | 25.5  |       |   |      | 28.8  |       |   |  | 28.7  |      
|Net income                                                                                |                                                         |                         | 17.6  |       |   |      | 20.1  |       |   |  | 19.8  |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 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.

2002 versus 2001

Consolidated Information

Revenue.Revenue
increased 3.8% to
774.1 million
in 2002 compared with
746.1 million
in 2001. On a constant currency basis, total revenue increased
7% in 2002. Specifically, our revenue was impacted by the
decrease in the value of the U.S. dollar, our principal
invoicing currency outside the euro-zone, which negatively
impacted growth in consolidated revenue by 2 percentage
points. The decrease in the value of the dollar also led to a
2 percentage point decrease in our expenditures. In
addition, the yen, which is our second most important invoicing
currency outside the euro-zone, accounted for a
1 percentage point decrease in the growth in consolidated
revenue.

We believe that we are the global leader of the
market for Product Lifecycle Management software with a market
share of approximately 21% (Source: Daratech).

35



---



##### 



Software revenue increased 4.2% to
669.9 million
in 2002 compared with
643.0 million
in 2001. This increase can be attributed principally to a 5.6%
growth in software revenue (after inter-segment eliminations) in
our Process-centric segment. Process-centric growth benefited
from the strong performance of our PDM software solutions, which
reported a 25% increase in revenue, and from the strengthening
of Version 5 including new functionalities aimed at
broadening our PLM offering.

Software revenue (after inter-segment
eliminations) in the Design-centric segment decreased by 1.4% to
126.4 million
in 2002 which reflected primarily the weak economic environment,
as well as unfavorable exchange rates. Software revenue
represented 100% of total Design-centric revenue (after
inter-segment eliminations) in both 2002 and 2001.

Recurring software revenue increased 9.7% to
320.1 million
in 2002 compared to
291.8 million
in 2001. Recurring software revenue represented 48% of software
revenue in 2002 compared with 45% in 2001. The contribution of
recurring software revenue to total software revenue is growing
largely due to the continuous increase in the installed
workstation base of the Process-centric segment and to the
growing share of recurring revenue fees in the Design-centric
segment.

Services revenue increased 1.2% to
104.2 million
in 2002, compared with
103.1 million
in 2001. This increase was lower than our growth in sales of
software in the Process-centric segment because part of the
services team was directed to develop new Version 5
methodologies as best practices for our PLM solutions.

The growth in total revenue was 2.1% in the
Americas and the decrease in total revenue was 1.5% in Europe.
Performance in these two regions was negatively impacted by the
slower economic environment. In addition, in the Americas,
growth was negatively impacted by about 5 percentage points
because of the decrease in value of the U.S. dollar against
the euro. Revenue from the Asia-Pacific region increased by
20.0% in euro in 2002, despite the strong impact of the yen
decrease (approximately 10 percentage points of growth).
This growth resulted from continued strong interest in our
products and on-going sales and marketing efforts despite the
crisis of recent years.

Gross Profit.Gross
profit increased 2.3% to
653.3 million
in 2002 compared with
638.7 million
in 2001. This increase reflects the rise in revenue, which was
partially offset by a higher cost of sales principally from
consulting service activities. Gross profit for services
represented 7.5% of services revenue in 2002 compared with 16.0%
in 2001 due to our increased investment in new Version 5
methodologies as best practices for our PLM solutions. Gross
margin decreased from 85.6% in 2001 to 84.4% in 2002. Software
cost of revenue represented 3.6% of software revenue in 2002
compared to 3.2% in 2001, reflecting an increase in investment
in third party component software.

Research and development expenses.Research and development expenses
increased by 5.9% to
221.6 million
in 2002 compared with
209.2 million
in 2001. This increase was due to the 11.2% increase in average
research and development staff devoted to the on-going
development of the V5 architecture and its related PLM software
applications. These increases were partially offset by the lower
relative value of the U.S. dollar and cost control
measures. As a percentage of total revenue, research and
development expenses increased to 28.7% in 2002, compared with
28.0% in 2001. On December 31, 2002, the total headcount
involved in research and development and production represented
48.1% of our total workforce, compared with 46.7% at the end of
2001.

Marketing and sales expenses.Marketing and sales expenses increased
by 3.2% to
169.7 million
in 2002, compared with
164.3 million
in 2001. This increase is due to a 6% increase in average sales
and marketing headcount to support sales growth, partially
offset by a lower U.S. dollar and cost cutting initiatives.
The growth in marketing and sales expenses includes our
investment in connection with our agreement with IBM to share
marketing and publicity expenses to market CATIA, ENOVIA and
SMARTEAM. See Item 4B: Business Overview 
Sales and Marketing. Marketing and sales expenses
represented 21.9% of total revenue in 2002, compared to 22.0% in
2001.

General and administrative expenses.General and administrative expenses
increased 8.4% to
47.9 million
in 2002, compared with
44.2 million
in 2001, and represented 6.2% of total revenue in 2002, compared
with 5.9% in 2001. The increase reflected an increase in
professional fees and insurance fees, the impact of

36



---



##### 



2001 and 2002 acquisitions and a 4% increase in
average headcount excluding the impact of 2001 and 2002
acquisitions.


Amortization of intangibles incurred in
business combinations.Amortization
expenses amounted to
11.1 million
in 2002, compared with
58.4 million
in 2001. The decrease was due to our adoption of SFAS 141
as of January 1, 2002, pursuant to which goodwill is no
longer amortized.

Operating income.Our operating income was
203.0 million
in 2002, compared with
162.6 million
in 2001. Operating income excluding the amortization of
intangibles incurred in business combinations amounted to
214.1 million
in 2002, or 27.7% of net revenue, compared with
221.0 million
in 2001, or 29.6% of net revenue, a decrease of 3.1%. This
decrease is due mainly to the negative impact of the decrease in
the value of the Japanese yen and the lower than anticipated
revenue resulting from the significant slowdown in the business
environment, particularly in the second half of 2002, which was
partially offset by cost control initiatives. See
Item 11: Quantitative and Qualitative Disclosures
About Market Risk.

Financial revenue, investment in equity and
other  net.Financial
revenue, investment in equity and other  net amounted
to
2.8 million
in 2002, compared with
14.1 million
in 2001. Our average cash position increased in 2002,
particularly at Dassault Systèmes, the parent company, and
at SolidWorks. At December 31, 2002, cash and cash
equivalents amounted to
388.4 million.
The decrease in financial revenue, investment in equity and
other  net primarily reflects the revaluation of
U.S. dollar and Japanese yen denominated assets, the
decrease in interest rates and a
3.1 million
charge related to our investment in PlanetCad. See Note D
to our consolidated financial statements.

Income tax expense.Income tax expense amounted to
79.4 million
in 2002, compared with
87.9 million
in 2001. Excluding the impact of permanent differences incurred
in business combinations, the effective income tax rate was
38.6% in 2002, compared with 42.9% in 2001. The decrease in
effective tax rate between 2002 and 2001 came from the
approximately 1 percentage point decrease in the French
statutory income tax rate and the improvement of the results of
our SmarTeam subsidiary. See Note E to our consolidated
financial statements.

Net income.We
realized net income of
126.4 million
in 2002, compared with
88.7 million
in 2001. Excluding the amortization of intangibles incurred in
business combinations, net income amounted to
136.0 million
in 2002, compared with
144.0 million
in 2001, a decrease of 5.6%.

Earnings per share.We realized diluted net income per
share of 1.09
for the year ended December 31, 2002, compared with
0.76 for the
year ended December 31, 2001. Excluding the amortization of
intangibles incurred in business combinations, our diluted net
income per share amounted to
1.17 in 2002,
compared with
1.23 in 2001, a
decrease of 4.9%.

Revenue and Operating Income by
Segment

Process-centric

Revenue.Revenue for
the Process-centric segment, including PDM revenue, increased
5.1% to
649.4 million
in 2002 (including
1.7 million
of inter-segment sales) compared with
617.8 million
in 2001. PDM revenue on a stand-alone basis increased 25% to
82.7 million,
up from
65.9 million
in 2001.

Software revenue for the Process-centric segment
increased 5.6% to
543.6 million
in 2002, compared with
514.8 million
in 2001. This increase in software revenue mainly reflected the
strong growth in software revenue from ENOVIA and SMARTEAM.

A total of 34,308 CATIA licenses were sold in
2002 compared with 33,962 CATIA licenses in 2001, a 1.0%
increase. Sales of CATIA V5 licenses increased substantially
during 2002, with CATIA V5 licenses accounting for 59% of CATIA
licenses sold in 2002 compared with 36% in 2001. Following the
release of CATIA V5R9 in June 2002 and V5R10 in October 2002,
CATIA V5 licenses sold during the fourth quarter 2002
represented 67% of the overall CATIA license sales. The average
CATIA license price declined 5% during 2002 to
15,394. The
decrease in the average price per seat in 2002 primarily
reflected the increased proportion of the Version 5
licenses sold in 2002 compared to 2001, since the price per
Version 5 license is

37



---



##### 



lower than Version 4 (V4), due
to a still less mature product mix. The change in the V5 to V4
proportion had an unfavorable effect on the price, which was
partly offset by a higher price per CATIA Version 5
license. V5 price per seat has increased approximately 9% since
2001 to 13,129,
reflecting the strong growth of our V5 product solutions. In
addition, the lower U.S. dollar to Euro exchange rate also
contributed to the decrease in the average price per CATIA seat,
accounting for 3 percentage points of the 5% decrease.


During 2002, we continued our investment in PLM.
We introduced three new releases during the year, including V5R8
in February 2002, V5R9 in June 2002 and V5R10 in October 2002.
Commencing with V5R9, our new releases cover our CATIA, DELMIA,
ENOVIA and now SMARTEAM brands. Spatial announced its 3D ACIS
Modeler Version 8.0 in May 2002.

Services revenue was generated entirely by the
Process-centric segment (excluding inter-segment sales) in 2002
and 2001. See  Consolidated
Information  Revenue above.

Operating income.Operating income from the
Process-centric segment totaled
170.9 million
in 2002, compared with
126.5 million
in 2001. Operating income, excluding amortization of intangibles
incurred in business combinations, amounted to
181.8 million
in 2002, compared with
184.0 million
in 2001, a 1.2% decrease. Operating income, excluding
amortization of intangibles incurred in business combinations,
represented 28.0% of revenue for this segment in 2002, compared
to 29.8% in 2001. This decrease principally reflected lower than
anticipated revenue resulting from the significant slowdown in
the business environment particularly in the second half of
2002, which was partially offset by cost control initiatives.

Design-centric

Revenue.Revenue in
the Design-centric segment was
126.9 million
in 2002 (including
0.5 million
of inter-segment sales), compared with
128.2 million
in 2001. The decrease in revenue net of inter-segment sales was
mainly due to the difficult market conditions existing in the
Design-centric market, reflecting the weak overall economic
environment. In addition, the lower U.S. dollar exchange
rate contributed to the decrease in revenue. The number of
licenses sold by SolidWorks decreased 9.8% to
23,626 licenses in 2002, compared with 26,183 licenses in
2001.

Operating income.Operating income for the
Design-centric segment amounted to
32.1 million
in 2002, compared with
36.0 million
in 2001. Operating income, excluding amortization of intangibles
incurred in business combinations, amounted to
32.3 million
in 2002, compared with
37.0 million
in 2001. Operating income, excluding amortization of intangibles
incurred in business combinations, represented 25.5% of total
segment revenue in 2002, compared with 28.8% in 2001, reflecting
higher software costs as well as a 2.2% increase in other
operating expenses (excluding amortization of intangibles
incurred in business combinations).

In 2002, SolidWorks continued to invest in
research and development and intensified its efforts in sales
and marketing. These expenses increased slightly by 2.4% and
2.6% respectively, from 2001 to 2002.

2001 versus 2000

Consolidated Information

Revenue.Revenue
increased 18.0% to
746.1 million
in 2001 compared with
632.4 million
in 2000. We strengthened our leadership in the mechanical
computer-aided-design, -manufacturing and -engineering
(CAD/CAM/CAE) market, with our reported market share increasing
from 21% in 2000 to 22% in 2001 (Source: Daratech).

Software revenue increased 18.7% to
643.0 million
in 2001 compared with
541.7 million
in 2000. This increase can be attributed to our entire product
range. In 2001, we also benefited from the rise in value of the
U.S. dollar, our principal invoicing currency outside the
euro-zone, which accounted for 1% of the growth in consolidated
revenue. The increase in the value of the dollar also led to a
1.5% increase in our expenditures. The yen is our second most
important invoicing currency outside the euro-zone. In 2001, it
accounted for a 1%

38



---



##### 



decrease in the growth in consolidated revenue.
The decrease in the value of the yen had a slight impact on
expenditures.


Our 15.5% revenue growth in the Process-centric
segment was due to the strengthening of Version 5, to new
functionalities aimed at widening our 3D PLM offering to
new market segment and to the enhancement of our virtual product
data management and collaborative offer (PDM) consisting of
ENOVIA and SMARTEAM. The revenue growth of this PDM offering
(+37.6%) contributed significantly to the growth of the
Process-centric segment. Excluding PDM, the Process-centric
segment revenue growth was 13.4% in 2001.

Revenue in the Design-centric segment increased
by 31.4%, which reflected both our leadership in this segment
through SolidWorks and the high growth rate of this segment.

Recurring revenue increased 24.7% in 2001
compared to 2000. Recurring revenue represented 45.4% of
software revenue in 2001 compared with 43.2% in 2000. The
contribution of recurring revenue to total revenue has remained
stable due to the continuous increase in the installed
workstation base of the Process-centric segment and to the
growing share of recurring revenue fee structures in the
Design-centric segment.

Services revenue increased 13.6% to
103.1 million
in 2001, compared with
90.7 million
in 2000. This increase reflected principally the growth in sales
of software applications in the Process-centric segment, because
the installation of 3D PLM software applications is
accompanied by services for methodological and technical support
to improve its usefulness for the customer.

The growth in revenue was 16.1% in the North and
South American region and 13.6% in Europe. The American region
showed satisfying growth but was seriously reduced during the
second half of the year by the economic environment and the
impact of terrorism acts of September 11, 2001. Revenue
from the Asia-Pacific region increased by 34.6% in euro in 2001
despite the impact of the yen decrease. This growth resulted
from the sales and marketing efforts that were maintained
despite the crisis of recent years.

Gross Profit.Gross
profit increased 17.9% to
638.7 million
in 2001 compared with
541.7 million
in 2000. This increase reflected principally the sharp rise in
our software revenue. Gross margin remained stable, going from
85.7% in 2000 to 85.6 % in 2001. This stability in gross margin
reflected an increase in investment in third-party component
software, compensated by a slightly different distribution
between software and service activities, 86.2% and 13.8%
respectively in 2001 compared with 85.7% and 14.3% in 2000.
Software cost of revenue increased 39.1% in 2001. The gross
profit for software increased to 96.8% in 2001 compared with
97.2% in 2000. Gross profit for services represented 16.0% in
2001 compared with 16.5% in 2000.

Research and development expenses.Research and development expenses
increased by 23.2% to
209.2 million
in 2001 compared with
169.8 million
in 2000. This increase was largely due to the 16.2% increase in
research and development staff due to the on-going development
of the V5 architecture and its related 3D PLM software
applications, as well as to the acquisition of Spatial in
November 2000. As a percentage of total revenue, research and
development expenses increased to 28.0% of revenue in 2001,
compared with 26.8% in 2000. On December 31, 2001, the
total headcount involved in research and development represented
46.7% of our total workforce, compared with 49.0% at the end of
2000.

Marketing and sales expenses.Marketing and sales expenses increased
by 39.9% to
164.3 million
in 2001, compared with
117.5 million
in 2000. Marketing and sales expenses consisted mainly of
personnel costs, travel expenses and marketing infrastructure
costs, such as computer and office rental expenses, as well as
sales commissions for our direct distribution network,
principally at SolidWorks, SmarTeam and Delmia. The increase in
marketing and sales expenses reflected the 27.7% increase in
sales headcount, particularly at Spatial (integrated for the
first time for a full year) as well as SmarTeam, Delmia and
SolidWorks. It also reflected our agreement with IBM,
established in early 2000 and renewed in 2001, to share
marketing and publicity expenses to market CATIA and ENOVIA. See
Item 4B: Business Overview  Sales and
Marketing.

39



---



##### 



General and administrative expenses.General and administrative expenses
increased 24.8% to
44.2 million
in 2001, compared with
35.4 million
in 2000. They accounted for 5.9% of total revenue in 2001,
compared with 5.6% in 2000.

Amortization of intangibles incurred in
business combinations.Amortization
expenses amounted to
58.4 million
in 2001, compared with
40.2 million
in 2000. Amortization of intangibles incurred in business
combinations includes expense for research and development
projects that have not reached the technological feasibility
stage or are considered to have no future value; amortization of
goodwill; and amortization of technology acquired in connection
with business combinations. See Note I to our consolidated
financial statements.

Operating income.Our operating income, including the
amortization of intangibles incurred in business combinations,
was
162.6 million
in 2001, compared with
178.8 million
in 2000. Operating income excluding the amortization of
intangibles incurred in business combinations amounted to
221.0 million
in 2001, compared with
218.9 million
in 2000, an increase of 0.9%.

Financial revenue and other  net.Financial revenue and
other  net amounted to
14.1 million
in 2001, compared with
11.0 million
in 2000. Our average cash position increased in 2001,
particularly at Dassault Systèmes, the parent company, and
at SolidWorks. The increase of financial revenue should be
linked to both the increase of cash and the decrease in interest
rates in Europe and in the U.S. The Euribor 3-month
interest rate averaged 4.2636% in 2001 compared with 4.3908% in
2000. The Libor 3-month interest rate averaged 3.7744% in 2001
compared with 6.5309% in 2000. In 2001, we maintained our
hedging policy to guard against a possible fall in the value of
the U.S. dollar and the yen by purchasing and selling
currency options.

Income tax expense.Income tax expense amounted to
87.9 million
in 2001, compared with
86.1 million
in 2000. Excluding the impact of permanent differences incurred
in business combinations, the effective income tax rate was
42.9% in 2001, compared with 42.1% in 2000. The increase in the
effective tax rate between 2001 and 2000 came from the special
tax treatment of the Israeli subsidiary, SmarTeam. It was
partially compensated by the decrease in the French income tax
rate. See Note E to our consolidated financial statements.

Net income.We
realized net income of
88.7 million
in 2001, compared with
103.7 million
in 2000. Excluding the amortization of intangibles incurred in
business combinations, net income amounted to
144.0 million
in 2001, compared with
139.2 million
in 2000, an increase of 3.4%.

Earnings per share.We realized diluted net income per
share of 0.76
for the year ended December 31, 2001, compared with
0.87 for the
year ended December 31, 2000. Excluding the amortization of
intangibles incurred in business combinations, our diluted net
income per share amounted to
1.23 in 2001,
compared with
1.17 in 2000, an
increase of 5.1%.

Revenue and Operating Income by
Segment

Process-centric

Revenue.Revenue for
the Process-centric segment increased 15.5% to
617.9 million
in 2001 compared with
534.8 million
in 2000. Software revenue increased 15.9% to
514.8 million
in 2001, compared with
444.1 million
in 2000. This increase in software revenue reflected principally
higher sales of CATIA licenses (+13.4%) and a strong increase in
revenue (+37.6%) from ENOVIA and SMARTEAM product data
management (PDM) licenses.

A total of 33,962 CATIA licenses were sold in
2001 compared with 31,290 CATIA licenses in 2000, an 8.5%
increase. Sales of CATIA V5 licenses increased
substantially during 2001  CATIA V5 licenses
accounted for 36.5% of CATIA licenses sold in 2001 compared with
15.1% in 2000. Following the release of CATIA V5R7 in June
2001, CATIA V5 licenses sold over the fourth quarter 2001
represented 44.5% of the overall CATIA license sales. Average
net sale prices declined during 2001 due to various elements: a
product mix effect from strengthening CATIA V5, and the
fact that on the high end segment, the price per V5 seat

40



---



##### 



remained lower than the V4 price per seat,
because all the CATIA functionalities were not yet available on
the V5 platform. See Item 4B: Business
Overview.


The increase in Process-centric revenue also
reflected a 23.6% rise in recurring revenue from the growth of
the installed base. Recurring revenue represented 47.4% of
software revenue in this segment in 2001, compared with 44.9% in
2000.

During 2001, we continued our investment in 3D
PLM. We introduced two new releases of CATIA Version 5
(V5R6 in March 2001 and V5R7 in June 2001), which added up to
97 products at the end of 2001. Sales of product data
management (PDM) applications increased as the ENOVIA and
SMARTEAM product range expanded. DELMIA launched Version 5
Release 7 (V5R7) of its digital manufacturing solutions.
This V5R7 release is the first one that provides full
integration of DELMIA application with our other 3D PLM
brands.

Services revenue was generated entirely by the
Process-centric segment in 2001 and 2000. See
 Consolidated Information 
Revenue above).

Operating income.Including amortization of intangibles
incurred in business combinations, operating income from the
Process-centric sector totaled
126.6 million
in 2001, compared with
150.9 million
in 2000. Operating income, excluding amortization of intangibles
incurred in business combinations, amounted to
184.0 million
in 2001, compared with
190.9 million
in 2000, a 3.7% decrease. Operating income, excluding
amortization of intangibles incurred in business combinations,
represented 29.8% of revenue for this segment in 2001, compared
with 35.7% in 2000. This decrease reflected principally the
increase in marketing costs, which represented 19.0% of total
revenue in 2001, compared with 14.8% in 2000, as a result of the
expansion of SmarTeam and Spatial marketing teams and investment
in marketing and communication costs undertaken with IBM.

Design-centric

Revenue.Revenue in
the Design-centric segment increased 31.4% to
128.2 million
in 2001, compared with
97.6 million
in 2000. The increase in revenue was mainly due to the increase
in the number of licenses sold by SolidWorks, which totaled
26,183 licenses in 2001, compared with 22,053 licenses in 2000,
an increase of 18.7%, as well as a 38.9% rise in recurring
revenue. Recurring revenue represented 37.3% of total revenue in
2001, compared with 35.2% in 2000. Revenue from Europe increased
30.4% in 2001 and from the Asia-Pacific region by 66.8%. These
increases were greater than in North America (+17.1%), where
SolidWorks has been present for a longer time.

Operating income.Including amortization of intangibles
incurred in business combinations, operating income for the
Design-centric segment amounted to
36.0 million
in 2001, compared with
27.9 million
in 2000. Operating income, excluding amortization of intangibles
incurred in business combinations, amounted to
37.0 million
in 2001, compared with
28.0 million
in 2000. Operating income, excluding amortization of intangibles
incurred in business combinations, represented 28.8% of total
segment revenue in 2001, compared with 28.6% in 2000, with
growth in revenue (up 31.4%) exceeding growth in operating
costs excluding amortization of intangibles incurred in business
combinations (up 31.3%).

In 2001, SolidWorks continued to invest in
research and development and intensified its efforts in sales
and marketing. These expenses increased by 45.3% and 22.7%
respectively, from 2000 to 2001.

Analysis of Quarterly Results

The tables below present certain financial
information for 2002 and 2001. 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.

41



---



##### 



Quarterly Data

|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ | ------ | -------- |  | ------- | ------ | ------- |  | ------- | ------ | -------- |  | ------- | ------ | ------- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                                                          |  |                                                              |        |         
|                                                                                          |  | 2002                                                         |        | 2001    
|                                                                                          |  |                                                              |        |         
|                                                                                          |  | Dec. 31                                                      |        | Sept. 30 |  | June 30 |        | Mar. 31 |  | Dec. 31 |        | Sept. 30 |  | June 30 |        | Mar. 31
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |        
|                                                                                          |  |                                                             
|                                                                                          |  | (in millions of euro or shares, except for amounts per share
|                                                                                          |  | which are expressed in euro)                                
|Revenue:                                                                                  |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Software revenue                                                                          |  |                                                              | 194.4  |          |  |         | 149.5  |         |  |         | 166.7  |          |  |         | 159.3  |         |  |  | 191.7  |   |  |  | 155.3  |   |  |  | 151.3  |   |  |  | 144.7  |  
|Service and other revenue                                                                 |  |                                                              | 30.0   |          |  |         | 26.4   |         |  |         | 24.6   |          |  |         | 23.2   |         |  |  | 33.6   |   |  |  | 23.5   |   |  |  | 25.6   |   |  |  | 20.4   |  
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Total revenue                                                                             |  |                                                              | 224.4  |          |  |         | 175.9  |         |  |         | 191.3  |          |  |         | 182.5  |         |  |  | 225.3  |   |  |  | 178.8  |   |  |  | 176.9  |   |  |  | 165.1  |  
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Cost of revenue:                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Software                                                                                  |  |                                                              | (6.4   | )        |  |         | (6.3   | )       |  |         | (4.8   | )        |  |         | (6.9   | )       |  |  | (5.8   | ) |  |  | (4.9   | ) |  |  | (4.8   | ) |  |  | (5.3   | )
|Service and other                                                                         |  |                                                              | (28.2  | )        |  |         | (23.9  | )       |  |         | (23.5  | )        |  |         | (20.8  | )       |  |  | (28.4  | ) |  |  | (19.8  | ) |  |  | (21.6  | ) |  |  | (16.8  | )
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Total cost of revenue                                                                     |  |                                                              | (34.6  | )        |  |         | (30.2  | )       |  |         | (28.3  | )        |  |         | (27.7  | )       |  |  | (34.2  | ) |  |  | (24.7  | ) |  |  | (26.4  | ) |  |  | (22.1  | )
|Gross profit                                                                              |  |                                                              | 189.8  |          |  |         | 145.7  |         |  |         | 163.0  |          |  |         | 154.8  |         |  |  | 191.1  |   |  |  | 154.1  |   |  |  | 150.5  |   |  |  | 143.0  |  
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Research, selling and administrative
    expenses:                                        |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Research and development                                                                  |  |                                                              | (54.6  | )        |  |         | (53.5  | )       |  |         | (56.3  | )        |  |         | (57.2  | )       |  |  | (57.2  | ) |  |  | (51.5  | ) |  |  | (51.6  | ) |  |  | (48.9  | )
|Marketing and sales                                                                       |  |                                                              | (41.0  | )        |  |         | (41.4  | )       |  |         | (44.9  | )        |  |         | (42.4  | )       |  |  | (41.2  | ) |  |  | (43.6  | ) |  |  | (40.3  | ) |  |  | (39.3  | )
|General and administrative                                                                |  |                                                              | (10.7  | )        |  |         | (12.0  | )       |  |         | (12.7  | )        |  |         | (12.5  | )       |  |  | (11.7  | ) |  |  | (10.8  | ) |  |  | (11.5  | ) |  |  | (10.2  | )
|Amortization of goodwill                                                                  |  |                                                              | 0.0    |          |  |         | 0.0    |         |  |         | 0.0    |          |  |         | 0.0    |         |  |  | (9.2   | ) |  |  | (9.5   | ) |  |  | (16.0  | ) |  |  | (9.4   | )
|Amortization of acquired technology                                                       |  |                                                              | (2.1   | )        |  |         | (2.5   | )       |  |         | (2.6   | )        |  |         | (3.9   | )       |  |  | (3.9   | ) |  |  | (4.1   | ) |  |  | (2.9   | ) |  |  | (3.3   | )
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Total research, selling and administrative
    expenses                                   |  |                                                              | (108.4 | )        |  |         | (109.4 | )       |  |         | (116.5 | )        |  |         | (116.0 | )       |  |  | (123.2 | ) |  |  | (119.5 | ) |  |  | (122.3 | ) |  |  | (111.1 | )
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Operating income                                                                          |  |                                                              | 81.4   |          |  |         | 36.3   |         |  |         | 46.5   |          |  |         | 38.8   |         |  |  | 67.9   |   |  |  | 34.6   |   |  |  | 28.2   |   |  |  | 31.9   |  
|Financial revenue and other  net                                                         |  |                                                              | (1.8   | )        |  |         | 0.7    |         |  |         | (0.7   | )        |  |         | 4.6    |         |  |  | 4.3    |   |  |  | (1.0   | ) |  |  | 5.8    |   |  |  | 5.0    |  
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Income before income taxes                                                                |  |                                                              | 79.6   |          |  |         | 37.0   |         |  |         | 45.8   |          |  |         | 43.4   |         |  |  | 72.2   |   |  |  | 33.6   |   |  |  | 34.0   |   |  |  | 36.9   |  
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Income tax expense                                                                        |  |                                                              | (28.2  | )        |  |         | (15.0  | )       |  |         | (18.1  | )        |  |         | (18.1  | )       |  |  | (30.1  | ) |  |  | (18.5  | ) |  |  | (21.4  | ) |  |  | (18.0  | )
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Net income                                                                                |  |                                                              | 51.4   |          |  |         | 22.0   |         |  |         | 27.7   |          |  |         | 25.3   |         |  |  | 42.1   |   |  |  | 15.1   |   |  |  | 12.6   |   |  |  | 18.9   |  
|                                                                                          |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Basic income per share                                                                    |  |                                                              | 0.45   |          |  |         | 0.19   |         |  |         | 0.24   |          |  |         | 0.22   |         |  |  | 0.37   |   |  |  | 0.13   |   |  |  | 0.11   |   |  |  | 0.17   |  
|Diluted net income per share                                                              |  |                                                              | 0.45   |          |  |         | 0.19   |         |  |         | 0.24   |          |  |         | 0.21   |         |  |  | 0.36   |   |  |  | 0.13   |   |  |  | 0.11   |   |  |  | 0.16   |  
|Weighted average number of common shares
    outstanding                                  |  |                                                              | 114.2  |          |  |         | 114.2  |         |  |         | 114.1  |          |  |         | 114.0  |         |  |  | 113.9  |   |  |  | 113.9  |   |  |  | 113.6  |   |  |  | 113.3  |  
|Diluted weighted average number of common shares
    outstanding                          |  |                                                              | 114.7  |          |  |         | 115.0  |         |  |         | 117.1  |          |  |         | 118.1  |         |  |  | 117.1  |   |  |  | 115.1  |   |  |  | 116.9  |   |  |  | 117.5  |  
|Pro forma excluding amortization of
    intangibles incurred in business combinations:(1) |  |                                                              |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Operating income                                                                          |  |                                                              | 83.5   |          |  |         | 38.8   |         |  |         | 49.1   |          |  |         | 42.7   |         |  |  | 81.1   |   |  |  | 48.2   |   |  |  | 47.1   |   |  |  | 44.6   |  
|Net income                                                                                |  |                                                              | 53.2   |          |  |         | 24.3   |         |  |         | 30.0   |          |  |         | 28.5   |         |  |  | 54.8   |   |  |  | 28.3   |   |  |  | 31.0   |   |  |  | 29.9   |  
|Diluted net income per share                                                              |  |                                                              | 0.46   |          |  |         | 0.21   |         |  |         | 0.26   |          |  |         | 0.24   |         |  |  | 0.47   |   |  |  | 0.25   |   |  |  | 0.27   |   |  |  | 0.25   |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 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.

42



---



##### 



Quarterly Data (as a percent of total
revenue)

|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|----------------------------------------------------------------------------------------- |  | ------- | ----- | -------- |  | ------- | ----- | ------- |  | ------- | ----- | -------- |  | ------- | ----- | ------- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                                                          |  |         |       |         
|                                                                                          |  | 2002    |       | 2001    
|                                                                                          |  |         |       |         
|                                                                                          |  | Dec. 31 |       | Sept. 30 |  | June 30 |       | Mar. 31 |  | Dec. 31 |       | Sept. 30 |  | June 30 |       | Mar. 31
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |        
|Revenue:                                                                                  |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Software revenue                                                                          |  |         | 86.6  |          |  |         | 85.0  |         |  |         | 87.1  |          |  |         | 87.3  |         |  |  | 85.1  |   |  |  | 86.9  |   |  |  | 85.5  |   |  |  | 87.6  |  
|Service and other revenue                                                                 |  |         | 13.4  |          |  |         | 15.0  |         |  |         | 12.9  |          |  |         | 12.7  |         |  |  | 14.9  |   |  |  | 13.1  |   |  |  | 14.5  |   |  |  | 12.4  |  
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Total revenue                                                                             |  |         | 100.0 |          |  |         | 100.0 |         |  |         | 100.0 |          |  |         | 100.0 |         |  |  | 100.0 |   |  |  | 100.0 |   |  |  | 100.0 |   |  |  | 100.0 |  
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Cost of revenue:                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Software                                                                                  |  |         | (2.9  | )        |  |         | (3.6  | )       |  |         | (2.5  | )        |  |         | (3.8  | )       |  |  | (2.6  | ) |  |  | (2.7  | ) |  |  | (2.7  | ) |  |  | (3.2  | )
|Service and other                                                                         |  |         | (12.6 | )        |  |         | (13.6 | )       |  |         | (12.3 | )        |  |         | (11.4 | )       |  |  | (12.6 | ) |  |  | (11.1 | ) |  |  | (12.1 | ) |  |  | (10.3 | )
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Total cost of revenue                                                                     |  |         | (15.4 | )        |  |         | (17.2 | )       |  |         | (14.8 | )        |  |         | (15.2 | )       |  |  | (15.2 | ) |  |  | (13.8 | ) |  |  | (14.9 | ) |  |  | (13.4 | )
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Gross profit                                                                              |  |         | 84.6  |          |  |         | 82.8  |         |  |         | 85.2  |          |  |         | 84.8  |         |  |  | 84.8  |   |  |  | 86.2  |   |  |  | 85.1  |   |  |  | 86.6  |  
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Research, selling and administrative
    expenses:                                        |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Research and development                                                                  |  |         | (24.3 | )        |  |         | (30.4 | )       |  |         | (29.4 | )        |  |         | (31.3 | )       |  |  | (25.4 | ) |  |  | (28.8 | ) |  |  | (29.2 | ) |  |  | (29.6 | )
|Marketing and sales                                                                       |  |         | (18.3 | )        |  |         | (23.5 | )       |  |         | (23.5 | )        |  |         | (23.2 | )       |  |  | (18.3 | ) |  |  | (24.4 | ) |  |  | (22.8 | ) |  |  | (23.8 | )
|General and administrative                                                                |  |         | (4.8  | )        |  |         | (6.8  | )       |  |         | (6.6  | )        |  |         | (6.8  | )       |  |  | (5.2  | ) |  |  | (6.0  | ) |  |  | (6.5  | ) |  |  | (6.2  | )
|Amortization of goodwill                                                                  |  |         | 0.0   |          |  |         | 0.0   |         |  |         | 0.0   |          |  |         | 0.0   |         |  |  | (4.1  | ) |  |  | (5.3  | ) |  |  | (9.1  | ) |  |  | (5.7  | )
|Amortization of acquired technology                                                       |  |         | (0.9  | )        |  |         | (1.4  | )       |  |         | (1.4  | )        |  |         | (2.1  | )       |  |  | (1.7  | ) |  |  | (2.3  | ) |  |  | (1.6  | ) |  |  | (2.0  | )
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Total research, selling and administrative
    expenses                                   |  |         | (48.3 | )        |  |         | (62.2 | )       |  |         | (60.9 | )        |  |         | (63.6 | )       |  |  | (54.7 | ) |  |  | (66.8 | ) |  |  | (69.2 | ) |  |  | (67.3 | )
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Operating income                                                                          |  |         | 36.3  |          |  |         | 20.6  |         |  |         | 24.3  |          |  |         | 21.3  |         |  |  | 30.1  |   |  |  | 19.4  |   |  |  | 15.9  |   |  |  | 19.3  |  
|Financial revenue and other  net                                                         |  |         | (0.8  | )        |  |         | 0.4   |         |  |         | (0.4  | )        |  |         | 2.5   |         |  |  | 1.9   |   |  |  | (0.5  | ) |  |  | 3.3   |   |  |  | 3.0   |  
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Income before income taxes                                                                |  |         | 35.5  |          |  |         | 21.0  |         |  |         | 23.9  |          |  |         | 23.8  |         |  |  | 32.0  |   |  |  | 18.8  |   |  |  | 19.2  |   |  |  | 22.3  |  
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Income tax expense                                                                        |  |         | (12.6 | )        |  |         | (8.5  | )       |  |         | (9.5  | )        |  |         | (9.9  | )       |  |  | (13.4 | ) |  |  | (10.3 | ) |  |  | (12.1 | ) |  |  | (10.9 | )
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Net income                                                                                |  |         | 22.9  |          |  |         | 12.5  |         |  |         | 14.5  |          |  |         | 13.9  |         |  |  | 18.7  |   |  |  | 8.5   |   |  |  | 7.1   |   |  |  | 11.5  |  
|                                                                                          |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Pro forma excluding amortization of
    intangibles incurred in business combinations:(1) |  |         |       |          |  |         |       |         |  |         |       |          |  |         |       |         |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Operating income                                                                          |  |         | 37.2  |          |  |         | 22.1  |         |  |         | 25.7  |          |  |         | 23.4  |         |  |  | 36.0  |   |  |  | 27.0  |   |  |  | 26.6  |   |  |  | 27.0  |  
|Net income                                                                                |  |         | 23.7  |          |  |         | 13.8  |         |  |         | 15.7  |          |  |         | 15.6  |         |  |  | 24.3  |   |  |  | 15.9  |   |  |  | 17.5  |   |  |  | 18.1  |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 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.

Revenue for the fourth, third, second and first
quarters of 2002 respectively, represented 29.0%, 22.7%, 24.7%
and 23.6% of total revenue for 2002 compared with our revenue
for the fourth, third, second and first quarters of 2001 which
represented respectively 30.2%, 24.0%, 23.7% and 22.1% of our
total revenue for that year.

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 of revenue recognition under our marketing and sales
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.

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.

43



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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, since 1997, the financing of business
acquisitions.

Cash equivalents and short-term investments
totaled
388.4 million
as of December 31, 2002, compared with
369.2 million
and
274.2 million
as of December 31, 2001, and December 31, 2000,
respectively. The 2002 increase reflects net cash provided by
operating activities. During 2002, cash provided by operating
activities amounted to
142.8 million
compared with
159.2 million
during 2001.
76 million
of this cash was used for investments, acquisitions and loans,
including the convertible loans to RAND Worldwide
(20 million
at the average rate of exchange for 2002), the purchase of the
remaining minority interests in SmarTeam
(13.8 million)
and, with regard to ImpactXoft, a loan of
5.3 million
and an equity investment of
10.6 million.
Cash from investment activities included
10.1 million
from the sale of Revit. Dividends paid in 2002 totaled
37.6 million,
compared with
35.1 million
in 2001.

In April 2002, we signed an agreement with RAND A
Technology Corporation, operating as RAND Worldwide, to
significantly expand the development of the marketing, sales and
services infrastructure required to support our
PLM solutions. Under the terms of this agreement, we
granted two 10-year convertible loans, aggregating
20 million,
to RAND Worldwide
(19 million
at the December 31, 2002 year-end exchange rate),
one-third of which may be converted at our option into common
shares of RAND Worldwide and two-thirds of which may be
converted at RAND Worldwides discretion. RAND Worldwide
has the right to increase the loans to $25 million in the
aggregate, subject to meeting certain contractual conditions; if
the loans are increased to $25 million in the aggregate,
the options to convert the loans into shares of RAND Worldwide
would be shared 50-50 by RAND Worldwide and by us. Under the
terms of this financing, Dassault Systèmes equity
position in RAND Worldwide would represent no more than 19.9% of
the shares outstanding.

In September 2002, we invested
10.6 million
in ImpactXoft, corresponding to an equity position of 15%. In
addition, we granted a
5.3 million
loan to the company. ImpactXoft is a private, venture-funded
software company, which has developed a revolutionary functional
modeling technology offered as a stand-alone product, as well as
to be integrated into our portfolio of PLM solutions.

In 2002, we instituted a buyback plan for
SolidWorks shares held by SolidWorks employees, resulting
from the exercise of employee stock options. Based on the
current price per share and assumptions about the holding
period, we estimate that the potential future cash outlay for
the multi-year buyback plan would be
27.6 million.
See Note O to our consolidated financial statements.

Under the marketing and sales 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.

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,
Israel and India. The table below sets forth information with
respect to our research and development expenses for 2002, 2001
and 2000.

44



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##### 



|                                                   |  |                         |       |      |  |      |       |  |  |   |       | 
|-------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                   |  |                        
|                                                   |  | Year ended December 31,
|                                                   |  |                        
|                                                   |  | 2002                    |       | 2001 |  | 2000
|                                                   |  |                         |       |      |  |     
|Expenses (in millions)                             |  |                        | 221.6 |      |  |     | 209.2 |  |  |  | 169.8 | 
|As a percentage of total revenue(1)                |  |                         | 28.7% |      |  |      | 28.0% |  |  |   | 26.8% | 
|Research and development personnel (at period end) |  |                         | 1,907 |      |  |      | 1,796 |  |  |   | 1,571 | 






|    |                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

In 2002, research and development expenses
amounted to
221.6 million,
an increase of 5.9% compared to 2001. Research and development
investments have been devoted principally to accelerating the
development of CATIA, DELMIA and ENOVIA product lifecycle
management applications on the V5 architecture, the ongoing
improvement of our existing product range and providing 3D
technologies and components.

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  2002 versus
2001  Consolidated Information  Research
and Development Expenses and  2001 versus
2000  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 registration (Madrid Agreement and
Madrid Protocole), Community trademarks and national
registrations. When companies are acquired, a review and an
assessment is made on the main trademarks, and when necessary,
additional applications for registrations are made in order to
have 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 and
Japan, regions where the majority of our customers and
competitors are located. Our portfolio includes 19 patents
already granted (7 were granted in 2002) and approximately
35 patent applications filed in each of the above-mentioned
areas (that is, nearly 140 applications pending).

45



---



##### 



D.     Trend
Information.

Recent Developments

Total revenue in the first quarter of 2003 was
169.4 million,
a decrease of 7% compared to
182.5 million
in the first quarter of 2002. On a constant currency basis,
total revenue increased 1% in the first quarter of 2003.
Software revenue was
145.1 million
in the first quarter of 2003 and represented 86% of total
revenue. In comparison to the year-ago quarter, software revenue
decreased 9%, or 1% on a constant currency basis. Recurring
software revenue continued to be an important component of
software revenue and represented 55% of total software revenue
in the first quarter of 2003, compared to 49% in the first
quarter of 2002. Seats licensed in the quarter totaled 12,917
with 6,874 CATIA and 6,043 SolidWorks seats. In the
year-ago quarter, 14,199 seats were licensed, comprised of 8,324
CATIA and 5,875 SolidWorks seats. Service and other revenue
increased 5% to
24.3 million
and represented 14% of total revenue.

Net income was
22.3 million
or 0.20 per
diluted share in the first quarter of 2003, compared to
25.3 million
or 0.21 per
diluted share in the first quarter of 2002, representing a per
share decrease of 5%. Excluding the amortization of acquired
technology, our net income was
24.2 million
or 0.21 per
diluted share in the first quarter of 2003, a 13% decrease on a
per share basis compared to
28.5 million
or 0.24 per
diluted share in the 2002 first quarter.

At March 31, 2003, cash and short-term
investments totaled
459.6 million.

Outlook

In 2003, we will continue to build our strategy
around our two axes: PLM and 3D for
all.

Our CATIA, DELMIA, ENOVIA and SMARTEAM brands are
our solutions for PLM. In this market, we have two releases
planned for 2003 including V5R11, which was released in April of
2003. From a technology perspective, we are looking to extend
our PLM integration, to offer new functionality based upon
knowledgeware and collaboration, as well as to introduce further
technological advances in such areas as modeling and simulation,
for example. We believe these new releases are designed to
further enhance the success of large deployments and position us
better to penetrate the automotive and aerospace supply chains.
In order to better enhance our PLM penetration, we have decided
to make further investments in the development of best practices
methodologies that are designed to strengthen our service
offerings for our target industrial sectors.

Due to the V5 platform and the partnerships
that the V5 platform make possible, we will continue to
provide product and data management solutions for end-users to
optimize the creation, manufacturing and maintenance processes
for their industrial products, as well as a development
environment and software components that meet the needs of our
technology partners and many software providers. Industries
willing to implement a PLM solution will then benefit from
a broad and fully integrated software offer, as it is developed
on the V5 platform.

In addition to the fact that
3D representation has become an important communication
tool in the PLM market, we are also focused on addressing
the Design-centric market for customers who wish to also design
their products in 3D. We address this market with our SolidWorks
brand. In the Design-centric market, SolidWorks has one new
release planned for 2003.

Based upon our results for the first quarter and
information currently available, our revenue objective for 2003
on a constant currency basis is to target similar growth to the
7% (in constant currencies) achieved in 2002. Assuming a
U.S. dollar to euro exchange rate of
$1.10 per 1.00,
our actual revenue would be expected to be similar to or
slightly higher than the
774 million
reported in 2002. Our earnings per share
(EPS) objective for 2003 is approximately
1.18, or 8%
growth compared to our 2002 EPS of
1.09. Excluding
the amortization of acquired technology, our EPS objective
for 2003 is
1.25, a 7%
increase compared to our 2002 EPS of
1.17 excluding
the amortization of acquired technology. We believe that our
operating margin in 2003 could see an improvement of up to one
percentage point compared to 2002.

46



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##### 



Management believes that we are well positioned
to gain market share in our principal markets due to the
competitive strengths of our products, technology and the growth
of our extended enterprise network. 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, political and
business conditions may lead to the continuation of the
significant slowdown or reduction in corporate spending on
information technology infrastructure... and
 Currency fluctuations may significantly affect
our results of operations....

Managements beliefs and expectations set
forth in the preceding paragraphs constitute forward-looking
statements subject to risks and uncertainties. These
forward-looking statements are based on managements
current views and assumptions 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 a continuing
general economic decline and/or a further reduction in the level
of corporate investment in information technology
infrastructure; currency fluctuations, particularly the value of
the dollar or yen with respect to the euro; unanticipated
difficulties in our relationship with IBM as the principal
distributor of our products; growth in market share by our
competitors; and other factors, all as set forth under
Item 3D: Risk Factors.

Item 6: Directors, Senior Management and
Employees.

A.     Directors and
Senior Management.

In accordance with our 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 statuts, the functions of Chairman of
the board of directors and of Chief Executive Officer have been
separated between two different persons by decision of the board
of directors.

Directors

Our board of directors determines our business
strategies and oversees their 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
shareholders meeting 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 statuts, directors are liable for
violation of French legal or regulatory requirements applicable
to sociétés anonymes, for the violation of our
statuts or for mismanagement. A director may be held
liable for such actions both individually and jointly with the
other directors.

Our statuts 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 an ordinary general
shareholders meeting to serve six-year terms and may
be re-elected 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
birth dates of our current directors, their principal occupation
or employment, the dates of their initial election as directors
and the years of expiration of their current terms.

47



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##### 



|                    |  |               |                 |                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |         |      |  |  |  |      | 
|------------------- |  | ------------- | --------------- | ---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ---- |  |  |  | ---- | 
|                    |  |               |                 |                                    |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Term   
|Name                |  | Date of Birth |                 | Principal Occupation or Employment |  | Since                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Expires
|                    |  |               |                 |                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |        
|Charles Edelstenne* |  |               | January 9, 1938 |                                    |  | Chairman of Dassault Systèmes. Chairman and
    Chief Executive Officer of Dassault Aviation. Director of the
    following companies: Groupe Industriel Marcel Dassault; Thales
    Systèmes Aéroportés; Société Anonyme
    Belge de Constructions Aéronautiques; Sogitec Industries;
    European Aerosystems Ltd; and Dassault Réassurance.
    Chairman of Dassault Falcon-Jet Corporation; and Dassault
    International, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |         | 1993 |  |  |  | 2005 | 
|Paul Brown***       |  |               | July 14, 1950   |                                    |  | Chairman of the Accounting, Taxation and Business
    Law Department of the Leonard N. Stern Business School at
    New York University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |         | 2000 |  |  |  | 2005 | 
|Bernard Charlès*    |  |               | March 30, 1957  |                                    |  | President and Chief Executive Officer of Dassault
    Systèmes. Chairman of the following companies: Dassault
    Data Services; Delmia Corp.; Enovia Corporation.; and SolidWorks
    Corporation. Director of the following companies: Dassault
    Systemes Corp.; Dassault Systemes K.K.; SmarTeam Corporation
    Ltd.; and Business Objects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |         | 1993 |  |  |  | 2005 | 
|Laurent Dassault    |  |               | July 7, 1953    |                                    |  | Chairman of the following companies: Dassault
    Belgique Aviation, Midway Aircraft Company, Dassault Falcon Jet
    do Brazil. Director of the following companies: Groupe
    Industriel Marcel Dassault; Sogitec Industries; Power
    Corporation du Canada; Pechel Industries; Generali France;
    Kudelski SA; Banque Privée Edmond de Rothschild Luxembourg;
    Compagnie Nationale à Portefeuille; Terramaris; Fingen SA;
    BSS Investment SA; Dassault Procurement Services;
    NAFCO  National Aerospace Stener Company; Chenfeng
    Machinery; Aero Precision Repair and Overhaul
    Company  A-pro. Directeur
    Général Déléguéof Immobilière
    Dassault. General Manager of the following companies: Dassault
    Investissements and Château Dassault. Member of the
    Supervisory Board of Eurazeo. Member of the Advisory Board of
    Syntek Capital SA. Member of the Advisory Committee of Power
    Private Equity Fund. President of the following companies:
    Dassault Investment Fund Inc. and Vina Totihue SA. |  |         | 1993 |  |  |  | 2005 | 

48



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|                     |  |               |                 |                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         |      |  |  |  |      | 
|-------------------- |  | ------------- | --------------- | ---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ---- |  |  |  | ---- | 
|                     |  |               |                 |                                    |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Term   
|Name                 |  | Date of Birth |                 | Principal Occupation or Employment |  | Since                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Expires
|                     |  |               |                 |                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |        
|Christian Decaix     |  |               | January 5, 1937 |                                    |  | Executive Vice President Social and Industrial
    Operations of Dassault Aviation. Director of the following
    companies: Sogitec Industries; Dassault Falcon Jet Corporation;
    Dassault Réassurance; and EuropeanAerosystems Ltd.                                                                                                                                                                                                                                                                             |  |         | 1993 |  |  |  | 2005 | 
|Bernard Dufau**      |  |               | April 24, 1941  |                                    |  | Strategic counsel and general manager of
    B. Dufau Conseil. Director of France Telecom                                                                                                                                                                                                                                                                                                                                                                                                                            |  |         | 2001 |  |  |  | 2007 | 
|André Kudelski**     |  |               | May 25, 1960    |                                    |  | President and Chief Executive Officer of the
    Kudelski group. Chairman of Nagra +. Director of the following
    companies: Nestlé; Edipresse; and Swiss Airlines Ltd.
    Member of the Swiss Advisory Board of Crédit
    Suisse.                                                                                                                                                                                                                                                                             |  |         | 2001 |  |  |  | 2007 | 
|Loïk Segalen         |  |               | March 27, 1960  |                                    |  | Vice President Economic and Financial Affairs of
    Dassault Aviation. Chairman and Chief Executive Officer of
    Dassault Assurances Courtage. Chairman of Dassault
    Réassurance. Director of the following companies: Dassault
    Belgique Aviation; Paris Le Bourget Parc des Expositions; and
    Midway Aircraft Instrument Corporation. General Manager of
    Dassault Aéro Service. Permanent Representative of Dassault
    Aviation to the board of directors of Corse Composites
    Aéronautiques. |  |         | 1993 |  |  |  | 2005 | 
|Thibault de Tersant* |  |               | July 22, 1957   |                                    |  | Executive Vice President Finance and Legal and
    Chief Financial Officer of Dassault Systèmes. Director of
    the following companies: SolidWorks Corporation, Delmia Corp.;
    Dassault Systemes Corp.; Enovia Corp.; and SmarTeam Corporation
    Ltd;                                                                                                                                                                                                                                                         |  |         | 1993 |  |  |  | 2005 | 






|    |                                  
|--- | ---------------------------------
|*   | Member of the Ad-hoc Committee.  
|**  | Member of the Audit Committee.   
|*** | Audit Committee Financial Expert.

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 or she is materially
interested; if he or she does vote, the decision will be void.
Our statuts permit any director to attend, participate in
and vote at any meeting by videoconference for certain decisions
as provided by French law.

Our directors have not entered into any service
contracts with our company or any of its subsidiaries providing
for benefits upon termination of employment. Each director must
own at least one of our shares throughout his term in office.

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.

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On March 27, 2003, the board of directors
revised the Audit Committee charter to comply with the new
requirements under the United States Sarbanes-Oxley Act of 2002.
In accordance with the new charter, 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 the external auditors of our
financial statements and recommends to the board of directors
their appointment and termination (subject to shareholder
ratification 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.

The Audit Committee also supervises our internal
audit and discusses with management, the internal auditors, and
the independent 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. At the end of each year, the committee reviews
managements assessment of the effectiveness of internal
controls and the independent auditors report on
managements assessment. The Audit Committee met twice in
2002.

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 the
creation and elements of stock option plans available to our
employees.

Director Biographies

Charles
Edelstennefounded Dassault
Systèmes in 1981 and was our Managing Director until we
were transformed into a sociéte anonyme in 1993.
From 1993 to 2002, Mr. Edelstenne was our Chairman and
Chief Executive Officer. He is still 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 and Legal and 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 as well as the Chair of the department
since 1997. He has also worked at the Yale School of Management,
the 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 1992 and serves as executive or
director in its French and foreign subsidiaries.
Mr. Dassault is the Chairman and Chief Executive Officer
and Managing Director (Directeur Général
Délégué) of Immobilière Dassault.
Prior to holding these positions, Mr. Dassault participated
in the purchase by Paribas, in 1990, of Banque Parisienne
Internationale and worked at Banque Vernes and at Banque
Industrielle et Commerciale du Marais between 1977 and 1992.

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

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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. He was Managing
Director of the Distribution Division of IBM Europe in 1994,
Chief Operating Officer of IBM France from 1992 to 1994,
Sales Director of IBM France from 1989 to 1992. In the past
years, he has also served as Marketing Director of
IBM France, Director of Support and Services Strategy of
IBM Europe, Director of Development and Information Technology
of IBM France, and Marketing Manager of the Public sector
and Insurance of IBM France. Mr. Dufau first joined
IBM France in 1966 and served as Head of Division and
Director of the Northern region of IBM France.

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 a research and
development 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.

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
statuts, and are subject to prior authorization of the
board of directors or the general shareholders meeting for
the decisions specified by French law.

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 statuts, the Chief
Executive Officer (Directeur Général) 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     |  | Position                                                                  
|                    |  |                   |  |                                                                           
|Charles Edelstenne  |  | January 9, 1938   |  | Chairman of the Board                                                     
|Bernard Charlès     |  | March 30, 1957    |  | President & Chief Executive Officer                                       
|Thibault de Tersant |  | July 22, 1957     |  | Executive Vice President Finance and Legal and
    Chief Financial Officer
|Etienne Droit       |  | September 3, 1959 |  | Executive Vice President Sales and Services                               
|Bruno Latchague     |  | January 28, 1957  |  | Executive Vice President Development and Support                          
|Dominique Florack   |  | June 26, 1959     |  | Executive Vice President Strategy and Research                            
|Philippe Forestier  |  | May 16, 1950      |  | Executive Vice President Alliances, Marketing and
    Communication       
|John Mc Eleney      |  | April 29, 1962    |  | Chief Executive Officer of SolidWorks                                     
|Joel Lemke          |  | January 12, 1956  |  | Chief Executive Officer of Enovia and General
    Manager PLM Americas    

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Executive Officer Biographies

Etienne Droithas been our Executive Vice President Sales and Services since
2003. Mr. Droit served as our Executive Vice President
Sales and Marketing for the Digital Enterprise from 2000 to 2002
and our Executive Vice President Sales and Marketing from 1995
to 1999. He also served as our 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 Development and Support since 2000.
Mr. Latchague served as our 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.

Dominique
Florackhas been our Executive
Vice President Strategy and Research since 2000.
Mr. Florack served as 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.

Philippe
Forestierhas been our Executive
Vice President Alliances, Marketing and Communication from 2003.
Mr. Forestier served as our Executive Vice President Sales
and Marketing for the Small and Medium Enterprises (SME) 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.

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 five
years ago, Mr. Mc Eleney held several senior management
positions at Computervision.

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
19 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.

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 (Directeur
Général), permanent representatives of companies
on the board of directors, spouses or heirs of such persons and
other intermediaries.

The French Commercial Code and our statuts
require any director, the Chief Executive Officer (Directeur
Général) and any shareholder who holds more than
5% 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

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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, 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.


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
shareholders meeting, 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. A director may not vote for his or her own
remuneration as a director. If he or she does vote, the decision
will be void. 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 jetons de présence
for their services to our company as provided for in our
statuts. This additional remuneration is determined by
the board of directors and in this instance, the Chairman and/or
Chief Executive Officer is permitted to vote on a resolution
concerning his or her remuneration.

The aggregate amount of compensation paid by us
and our subsidiaries to our executive officers as a group
(9 persons) for services in all capacities in 2002 was
3,131,666. As of
December 31, 2002, our executive officers and directors as
a group owned stock options to acquire 9,082,883 shares.
The options under the 2002-01, 2002-02, 2002-03 and 2002-04
Stock Option Plans are not yet exercisable. See
 Options to Purchase Securities from Registrant
or Subsidiaries, below.

Our directors are eligible to receive attendance
fees for meetings of the board of directors. We paid
80,000 in
attendance fees to directors in 2002.

The table below shows the total amount of
compensation (including from bonus and profit-sharing plans) and
other benefits granted in euro to each director by us and our
subsidiaries during the 2002 fiscal year:

|                    |  |        |         |                |  |                 |       |  |  |  |        | 
|------------------- |  | ------ | ------- | -------------- |  | --------------- | ----- |  |  |  | ------ | 
|Directors           |  | Salary |         | Other benefits |  | Directors fees
|                    |  |        |         |                |  |                
|Charles Edelstenne  |  |        | 536,325 |                |  |                 |      |  |  |  | 16,000 | 
|Bernard Charlès     |  |        | 813,317 |                |  |                 | 4,666 |  |  |  | 8,000  | 
|Thibault de Tersant |  |        | 250,058 |                |  |                 | 2,702 |  |  |  | 8,000  | 
|Paul Brown          |  |        |        |                |  |                 |      |  |  |  | 8,000  | 
|Laurent Dassault    |  |        |        |                |  |                 |      |  |  |  | 8,000  | 
|Christian Decaix    |  |        |        |                |  |                 |      |  |  |  | 8,000  | 
|Bernard Dufau       |  |        |        |                |  |                 |      |  |  |  | 8,000  | 
|André Kudelski      |  |        |        |                |  |                 |      |  |  |  | 8,000  | 
|Loïk Segalen        |  |        |        |                |  |                 |      |  |  |  | 8,000  | 

Options to Purchase Securities from Registrant
or Subsidiaries

Pursuant to four successive authorizations
granted by our shareholders at shareholders meetings held
on April 15, 1996, on June 6, 1997, on
January 26, 1998 and on May 28, 2002, the board of
directors implemented fourteen stock option plans for the
benefit of certain of our executive officers and employees. The
exercise price of stock options granted pursuant to the fourteen
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 always been equal to the highest
of the following three values: (1) the average share price,
without a reduction, 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.

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The following table provides certain information
on our stock options plans as of March 31, 2003 (taking
into account the stock split of October 14, 1997).

|                                                          |                                       |      |                |         |  |        |               |         |  |        |                |         |  |        |               |           |  |  |               |         |  |  |                |           |  |                 |                  |         | 
|--------------------------------------------------------- | ------------------------------------- | ---- | -------------- | ------- |  | ------ | ------------- | ------- |  | ------ | -------------- | ------- |  | ------ | ------------- | --------- |  |  | ------------- | ------- |  |  | -------------- | --------- |  | --------------- | ---------------- | ------- | 
|Stock option                                              |                                       |      |                |         |  |        |               |         |  |        |                |         |  |       
|plan                                                      |                                       | 1996 |                | 1997    |  | 1998-1 |               | 1998-2  |  | 1998-3 |                | 1998-4  |  | 1998-5
|                                                          |                                       |      |                |         |  |        |               |         |  |        |                |         |  |       
|Meeting date of Board                                     |                                       |      | June 28, 1996  |         |  |        | Dec. 15, 1997 |         |  |        | Jan. 28, 1998  |         |  |        | Nov. 9, 1998  |           |  |  | Nov. 9, 1998  |         |  |  | Sept. 15, 1999 |           |  | Sept.  15, 1999
|Shareholders Meeting Dates                                |                                       |      | April 15, 1996 |         |  |        | June 6, 1997  |         |  |        | Jan. 26, 1998  |         |  |        | Jan. 26, 1998 |           |  |  | Jan. 26, 1998 |         |  |  | Jan. 26, 1998  |           |  |                 | Jan. 26, 1998    |        
|Number of options granted                                 |                                       |      | 1,027,780(1    | )       |  |        | 1,031,840     |         |  |        | 750,000        |         |  |        | 2,468,730     |           |  |  | 354,750       |         |  |  | 3,297,000      |           |  |                 | 320,000          |        
|                                                          |  to directors                        |      |                | 167,000 |  |        |               | 175,400 |  |        |                | 0       |  |        |               | 1,042,850 |  |  |               | 0       |  |  |                | 1,845,750 |  |                 |                  | 0       | 
|                                                          |  to the top 10 beneficiary employees |      |                | 230,000 |  |        |               | 411,600 |  |        |                | 706,000 |  |        |               | 838,000   |  |  |               | 126,000 |  |  |                | 844,000   |  |                 |                  | 103,500 | 
|Maximum number of shares                                  |                                       |      | 1,027,780      |         |  |        | 1,031,840     |         |  |        | 750,000        |         |  |        | 2,468,730     |           |  |  | 354,750       |         |  |  | 3,297,000      |           |  |                 | 320,000          |        
|Number of beneficiaries                                   |                                       |      | 916            |         |  |        | 362           |         |  |        | 26             |         |  |        | 1,018         |           |  |  | 296           |         |  |  | 556            |           |  |                 | 290              |        
|Exercise price per option in euro                         |                                       |      | 9              |         |  |        | 25.92         |         |  |        | 26.37          |         |  |        | 29.58         |           |  |  | 29.58         |         |  |  | 37             |           |  |                 | 37               |        
|Exercise first date                                       |                                       |      | June 28, 1996  |         |  |        | Dec. 15, 1999 |         |  |        | Jan. 28, 1998  |         |  |        | Nov. 9, 2000  |           |  |  | Nov. 9, 1998  |         |  |  | Sept. 15, 2001 |           |  | Sept.  15, 1999
|Exercise last date                                        |                                       |      | June 27, 2006  |         |  |        | Dec. 14, 2007 |         |  |        | Jan. 27,2008(a | )       |  |        | Nov. 8, 2008  |           |  |  | Nov. 8,2008(b | )       |  |  | Sept. 14, 2009 |           |  |                 | Sept.  14,2009(c | )      
|Number of options exercised 1996-2001                     |                                       |      | 780,656(2      | )       |  |        | 43,622        |         |  |        | 599,700        |         |  |        | 20,184        |           |  |  | 112,457       |         |  |  | 1,600          |           |  |                 | 59,075           |        
|Number of options exercised in 2002                       |                                       |      | 25,410(3       | )       |  |        | 32,622        |         |  |        | 25,000         |         |  |        | 13,910        |           |  |  | 8,025         |         |  |  | 11,900         |           |  |                 | 7,052            |        
|Number of options cancelled 1996-2001                     |                                       |      | 29,960         |         |  |        | 17,004        |         |  |        | 0              |         |  |        | 44,552        |           |  |  | 0             |         |  |  | 33,940         |           |  |                 | 0                |        
|Number of options cancelled in 2002                       |                                       |      | 0              |         |  |        | 7,942         |         |  |        | 0              |         |  |        | 8,238         |           |  |  | 0             |         |  |  | 10,700         |           |  |                 | 0                |        
|Number of options outstanding as of
    December 31, 2002 |                                       |      | 191,754        |         |  |        | 930,650       |         |  |        | 125,300        |         |  |        | 2,381,846     |           |  |  | 234,268       |         |  |  | 3,238,860      |           |  |                 | 253,873          |        
|Number of options exercised during 2003 Q1                |                                       |      | 130            |         |  |        | 0             |         |  |        | 0              |         |  |        | 0             |           |  |  | 0             |         |  |  | 0              |           |  |                 | 0                |        
|Number of options cancelled during 2003 Q1                |                                       |      | 0              |         |  |        | 0             |         |  |        | 0              |         |  |        | 300           |           |  |  | 0             |         |  |  | 0              |           |  |                 | 0                |        
|Number of outstanding options as of
    March 31, 2003    |                                       |      | 191,624        |         |  |        | 930,650       |         |  |        | 125,300        |         |  |        | 2,381,546     |           |  |  | 234,268       |         |  |  | 3,238,860      |           |  |                 | 253,873          |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                          |                                       |                 |           |                 |                  |                |         |                |                 |         |               |         |               |                |           |         |                |   |         |         |              |  |           |         |              |  |         |         |  |  |              |           | 
|--------------------------------------------------------- | ------------------------------------- | --------------- | --------- | --------------- | ---------------- | -------------- | ------- | -------------- | --------------- | ------- | ------------- | ------- | ------------- | -------------- | --------- | ------- | -------------- | - | ------- | ------- | ------------ |  | --------- | ------- | ------------ |  | ------- | ------- |  |  | ------------ | --------- | 
|Stock option                                              |                                       |                 |           |                 |                  |                |         |                |                 |         |               |         |               |                |           |        
|plan                                                      |                                       | 1998-8          |           | 1998-9          |                  | 1998-10        |         | 1998-11        |                 | 1998-12 |               | 2002-01 |               | 2002-02        |           | Total  
|                                                          |                                       |                 |           |                 |                  |                |         |                |                 |         |               |         |               |                |           |        
|Meeting date of Board                                     |                                       | March  29, 2001 |           | March  29, 2001 |                  | June  29, 2001 |         |                | Oct. 5, 2001    |         |               |         | Oct. 5, 2001  |                |           |         | May 28, 2002   |   |         |         | May 28, 2002 |  |           |         |              | 
|Shareholders Meeting Dates                                |                                       | Jan. 26, 1998   |           |                 | Jan. 26, 1998    |                |         | Jan.  26, 1998 |                 |         | Jan. 26, 1998 |         |               | Jan.  26, 1998 |           |         | May 28, 2002   |   |         |         | May 28, 2002 |  |           |         |              | 
|Number of options granted                                 |                                       |                 | 2,909,600 |                 |                  |                | 553,300 |                |                 |         | 138,000       |         |               |                | 1,387,400 |         |                |   | 328,650 |         |              |  | 1,363,563 |         |              |  | 355,300 |         |  |  | 16,285,913(h | )        
|                                                          |  to directors                        |                 |           | 1,676,150       |                  |                |         | 0              |                 |         |               | 0       |               |                |           | 655,000 |                |   |         | 0       |              |  |           | 651,403 |              |  |         | 0       |  |  |              | 6,213,553 | 
|                                                          |  to the top 10 beneficiary employees |                 |           | 736,000         |                  |                |         | 176,600        |                 |         |               | 116,403 |               |                |           | 424,100 |                |   |         | 101,000 |              |  |           | 454,000 |              |  |         | 139,000 |  |  |              | 5,406,203 | 
|Maximum number of shares                                  |                                       |                 | 2,909,600 |                 |                  |                | 553,300 |                |                 |         | 138,000       |         |               |                | 1,387,400 |         |                |   | 328,650 |         |              |  | 1,363,563 |         |              |  | 355,300 |         |  |  | 2,293,913(h  | )        
|Number of beneficiaries                                   |                                       |                 | 531       |                 |                  |                | 513     |                |                 |         | 44            |         |               |                | 400       |         |                |   | 434     |         |              |  | 378       |         |              |  | 401     |         |  |  |              |          
|Exercise price per option in euro                         |                                       |                 | 52        |                 |                  |                | 52      |                |                 |         | 49            |         |               |                | 35        |         |                |   | 35      |         |              |  | 45.50     |         |              |  | 45.50   |         |  |  |              |          
|Exercise first date                                       |                                       | March  29, 2003 |           | March  29, 2001 |                  | June  29, 2001 |         |                | Oct. 5, 2002    |         |               |         | Oct. 5, 2002  |                |           |         | May 28, 2003   |   |         |         | May 28, 2003 |  |           |         |              | 
|Exercise last date                                        |                                       | March  28, 2011 |           |                 | March  28,2011(d | )              |         |                | June  28,2011(e | )       |               |         | Oct. 4,2011(f | )              |           |         | Oct.  4,2011(g | ) |         |         | May 27, 2012 |  |           |         | May 27, 2012 |  |         |         |  | 
|Number of options exercised 1996-2001                     |                                       |                 |          |                 |                  |                | 0       |                |                 |         | 0             |         |               |                |          |         |                |   |        |         |              |  |          |         |              |  |        |         |  |  | 1,617,294    |          
|Number of options exercised in 2002                       |                                       |                 |          |                 |                  |                | 650     |                |                 |         | 101           |         |               |                | 0         |         |                |   | 0       |         |              |  |          |         |              |  |        |         |  |  | 124,670      |          
|Number of options cancelled 1996-2001                     |                                       |                 | 4,400     |                 |                  |                | 0       |                |                 |         | 0             |         |               |                | 200       |         |                |   | 0       |         |              |  |          |         |              |  |        |         |  |  | 130,056      |          
|Number of options cancelled in 2002                       |                                       |                 | 13,960    |                 |                  |                | 0       |                |                 |         | 0             |         |               |                | 4,600     |         |                |   | 0       |         |              |  | 3,569     |         |              |  | 0       |         |  |  | 49,009       |          
|Number of options outstanding as of
    December 31, 2002 |                                       |                 | 2,891,240 |                 |                  |                | 552,650 |                |                 |         | 137,899       |         |               |                | 1,382,600 |         |                |   | 328,650 |         |              |  | 1,359,994 |         |              |  | 355,300 |         |  |  | 14,364,884   |          
|Number of options exercised during 2003 Q1                |                                       |                 | 0         |                 |                  |                | 0       |                |                 |         | 0             |         |               |                | 0         |         |                |   | 0       |         |              |  | 0         |         |              |  | 0       |         |  |  | 130          |          
|Number of options cancelled during 2003 Q1                |                                       |                 | 0         |                 |                  |                | 0       |                |                 |         | 0             |         |               |                | 0         |         |                |   | 0       |         |              |  | 0         |         |              |  | 0       |         |  |  | 300          |          
|Number of outstanding options as of
    March 31, 2003    |                                       |                 | 2,891,240 |                 |                  |                | 552,650 |                |                 |         | 137,899       |         |               |                | 1,382,600 |         |                |   | 328,650 |         |              |  | 1,359,994 |         |              |  | 355,300 |         |  |  | 14,364,454   |          

54



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##### 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | including 946,680 to employees of Dassault
    Systèmes and Dassault Systemes K.K. (DSKK)
    and 81,100 to employees of Dassault Systemes of
    America Corp. (DSA).                                                                                                                                                                                                                                                                                                                           
|(2) | including 707,856 by employees of Dassault
    Systèmes and DSKK and 72,800 by employees of DSA.                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | including 24,910 by employees of Dassault
    Systèmes and DSKK and 500 by employees of DSA.                                                                                                                                                                                                                                                                                                                                                                                                         
|(a) | of which 475,002 have been exercisable since
    January 28, 1998, an additional 100,000 exercisable
    since January 28, 1999, an additional 99,998 exercisable
    since January 28, 2000, an additional 50,000 exercisable
    since January 28, 2001 and the balance since
    January 28, 2002.                                                                                                                                                                                                
|(b) | of which 88,687 have been exercisable since
    November 9, 1998, an additional 88,688 exercisable since
    November 9, 1999, an additional 88,687 exercisable
    since November 9, 2000 and the balance since
    November 9, 2001.                                                                                                                                                                                                                                                               
|(c) | of which 80,000 have been exercisable since
    September 15, 1999, an additional 80,000 exercisable
    since September 15, 2000, an additional 80,000 since
    September 15, 2001 and the balance since September 15,
    2002.                                                                                                                                                                                                                                                                   
|(d) | of which 138,325 have been exercisable since
    March 29, 2001, an additional 138,325 exercisable
    since March 29, 2002, and an additional
    138,325 exercisable since March 29, 2003.                                                                                                                                                                                                                                                                                                         
|(e) | of which 34,500 have been exercisable since
    June 29, 2001, and an additional 34,500 exercisable
    since June 29, 2002.                                                                                                                                                                                                                                                                                                                                                                         
|(f) | of which 346,850 have been exercisable since
    October 5, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(g) | of which 82,162 have been exercisable since
    October 5, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(h) | not including stock options granted by the
    meeting of the board of directors of January 20, 2003, of
    (i) 3,325,000 stock options, redeemable for a maximum
    of 3,325,000 shares, for an exercise price of
    23.00, to be
    exercised between January 20, 2004, and January 20,
    2013 and (ii) 675,000 stock options, redeemable for a
    maximum of 675,000 shares, for an exercise price of
    23.00, to be
    exercised between December 31, 2004, and January 20,
    2013.

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 warrant 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 2002, 111,007 shares were issued to the
SolidWorks holders of stock options and no stock options were
cancelled. As of December 31, 2002, SW Securities L.L.C.
held 391,410 of our shares. The aggregate exercise price of the
outstanding stock options at December 31, 2002 was
approximately
731,000. On
March 31, 2003, SW Securities L.L.C. held 379,336 of our
shares.

Finally, following the acquisition of SolidWorks
in 1997, 2,800,000 stock options giving the right to subscribe
to shares of SolidWorks were granted to our current executive
officers. At December 31, 2002, our executive officers had
exercised 2,000 of the stock options.

We granted 12,597,683 stock options for our
shares to our executive officers between June 28, 1996 and
March 31, 2003 as follows: 266,000 stock options
granted on June 28, 1996; 321,200 stock options granted on
December 15, 1997; 1,842,050 stock options granted on
November 9, 1998; 2,619,750 stock options granted on
September 15, 1999; 2,932,250 stock options granted on
March 29, 2001; 1,055,000 stock options granted on
October 5, 2001; 1,071,433 stock options granted on
May 28, 2002 and 2,490,000 stock options granted on
January 20, 2003. At December 31, 2002, our executive
officers (nine persons) had exercised 204,800 stock options
pursuant to the June 2, 1996 Plan, 20,000 stock
options pursuant to the December 15, 1997 Plan and held a
total of 12,372,883 stock options.

55



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##### 



The table below shows the stock options granted
by us to each director during the 2002 fiscal year as well as
the shares subscribed by each director pursuant to the exercise
of stock options during the 2002 fiscal year:

|                    |  |          |         |          |  |            |        |            |  |            |        |             |  |  |       |  |  |  |              |  |  |  |         | 
|------------------- |  | -------- | ------- | -------- |  | ---------- | ------ | ---------- |  | ---------- | ------ | ----------- |  |  | ----- |  |  |  | ------------ |  |  |  | ------- | 
|                    |  | Number   |         |          |  |            |        |            |  |            |        |            
|                    |  | of stock |         |          |  | Number of  |        | Price of   |  |            |        | Stock      
|                    |  | options  |         | Exercise |  | shares     |        | the shares |  | Expiration |        | option plan
|                    |  | granted  |         | price    |  | subscribed |        | subscribed |  | Date       |        | (number)   
|                    |  |          |         |          |  |            |        |            |  |            |        |            
|Bernard Charlès     |  |          | 526,433 |          |  |            | 45.50 |            |  |            |       |             |  |  |      |  |  |  | May 27, 2012 |  |  |  | 2002-01 | 
|                    |  |          |        |          |  |            |       |            |  |            | 20,000 |             |  |  | 9.00 |  |  |  |             |  |  |  | 1996    | 
|Thibault de Tersant |  |          | 125,000 |          |  |            | 45.50 |            |  |            |        |             |  |  |       |  |  |  | May 27, 2012 |  |  |  | 2002-01 | 

The following table shows, on a global basis,
(i) the total number and weighted average price of the
stock options granted by us to the ten employees who have
received the most significant number of stock options during the
2002 fiscal year, and who are not members of the board, and
(ii) the total number and weighted average price of the
shares subscribed by the ten employees who have exercised the
most significant number of stock options during the 2002 fiscal
year and who are not members of the board:

|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  |         | 
|----------------------- |  | --------------- | ------- | --------------- |  | ------------ | ------ | --------- |  |  | ------ |  |  |  | ------- | 
|                        |  |                 |         | Weighted        |  | Weighted     |        |          
|                        |  |                 |         | average         |  | average      |        |          
|                        |  |                 |         | price of the    |  | price of the |        |          
|                        |  | Total number of |         | stock           |  | shares       |        | Number of
|                        |  | stock options   |         | options granted |  | subscribed   |        | the plans
|                        |  |                 |         |                 |  |              |        |          
|Stock options granted   |  |                 | 593,000 |                 |  |              | 45.50 |           |  |  |       |  |  |  | 2002-01 | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 2002-02 | 
|Stock options exercised |  |                 | 89,575  |                 |  |              |       |           |  |  | 28.73 |  |  |  | 1996    | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1997    | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1998-1  | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1998-2  | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1998-3  | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1998-4  | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1998-5  | 
|                        |  |                 |         |                 |  |              |        |           |  |  |        |  |  |  | 1998-9  | 

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, and
January 20, 2003, we have no other outstanding securities
convertible or exchangeable into, or representing the right to
acquire, our shares.

C.  Board Practices.

See Item 6A: Directors and Senior
Management.

D. Employees.

At the end of 2002, we had 3,966 employees, up
3.1% over 2001. Of these employees, 1,907 were employed in
research and development and product production, 1,755 in
marketing, sales and services and 304 in administrative and
other functions. Of our total employee base, 1,940 were based in
France and 2,026 were based in the United States and other
locations.

56



---



##### 



The following table shows our employees both by
function and geographically for the past three years:

|                                                |  |                         |       |      |  |      |       |  |  |  |       | 
|----------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                |  |                        
|                                                |  | Year ended December 31,
|                                                |  |                        
|                                                |  | 2002                    |       | 2001 |  | 2000
|                                                |  |                         |       |      |  |     
|Research and Development and Product Production |  |                         | 1,907 |      |  |      | 1,796 |  |  |  | 1,571 | 
|Marketing, Sales and Services                   |  |                         | 1,755 |      |  |      | 1,755 |  |  |  | 1,413 | 
|Administrative and Other Functions              |  |                         | 304   |      |  |      | 297   |  |  |  | 221   | 
|                                                |  |                         |       |      |  |      |       |  |  |  |       | 
|Total                                           |  |                         | 3,966 |      |  |      | 3,848 |  |  |  | 3,205 | 

|                                  |  |                         |       |      |  |      |       |  |  |  |       | 
|--------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                  |  |                        
|                                  |  | Year ended December 31,
|                                  |  |                        
|                                  |  | 2002                    |       | 2001 |  | 2000
|                                  |  |                         |       |      |  |     
|France                            |  |                         | 1,940 |      |  |      | 1,913 |  |  |  | 1,721 | 
|United States and other locations |  |                         | 2,026 |      |  |      | 1,935 |  |  |  | 1,484 | 
|                                  |  |                         |       |      |  |      |       |  |  |  |       | 
|Total                             |  |                         | 3,966 |      |  |      | 3,848 |  |  |  | 3,205 | 

E.  Share Ownership.

See Item 7A: Major Shareholders
and Item 6B: Compensation.

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, BP 310, 92156 Suresnes Cedex, France.

The percent of beneficial ownership for each
shareholder is based on 120,538,073 shares outstanding as of
March 31, 2003.

|                                                                                                  |  |              |             |              |  |          |        |   |  |  |        |  
|------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | ------------ |  | -------- | ------ | - |  |  | ------ | -
|                                                                                                  |  | Shares       |             |              |  |         
|                                                                                                  |  | Beneficially |             |              |  |         
|Name                                                                                              |  | Owned(1)     |             | Capital %(1) |  | Voting %
|                                                                                                  |  |              |             |              |  |         
|Groupe Industriel Marcel Dassault
    (GIMD)                                                    |  |              | 51,184,857  |              |  |          | 44.7   | % |  |  | 42.5   | %
|French State                                                                                      |  |              | 17,821,334  |              |  |          | 15.6   | % |  |  | 14.8   | %
|Charles Edelstenne(2)                                                                             |  |              | 7,658,007   |              |  |          | 6.7    | % |  |  | 12.7   | %
|All directors and executive officers as a group,
    excluding Charles Edelstenne (14 persons)(3) |  |              | 44,829      |              |  |          | 0.0    | % |  |  | 0.0    |  
|SW Securities L.L.C.(4)                                                                           |  |              | 379,336     |              |  |          | 0.3    | % |  |  |       |  
|Dassault Systèmes                                                                                 |  |              | 1,375,201   |              |  |          | 1.2    | % |  |  |       |  
|                                                                                                  |  |              |             |              |  |          |        |   |  |  |        |  
|Public                                                                                            |  |              | 36,107,407  |              |  |          | 31.5   |   |  |  | 30.0   |  
|                                                                                                  |  |              |             |              |  |          |        |   |  |  |        |  
|Total                                                                                             |  |              | 114,570,971 |              |  |          | 100.00 | % |  |  | 100.00 | %
|                                                                                                  |  |              |             |              |  |          |        |   |  |  |        |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Such numbers and percentages do not take into
    account (i) 191,624 shares reserved for issuance under
    the 1996 Stock Option Plan as of March 31, 2003,
    (ii) 930,650 shares reserved for issuance under the
    1997 Stock Option Plan as of March 31, 2003,
    (iii) 125,300 shares reserved for issuance under the
    1998-1 Stock Option Plan as of March 31, 2003,
    (iv) 2,381,546 shares reserved

57



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | for issuance under the 1998-2 Stock Option Plan
    as of March 31, 2003, (v) 234,268 shares reserved
    for issuance under the 1998-3 Stock Option Plan as of
    March 31, 2003, (vi) 3,238,860 shares reserved
    for issuance under the 1998-4 Stock Option Plan as of
    March 31, 2003, (vii) 253,873 shares reserved for
    issuance under the 1998-5 Stock Option Plan as of March 31,
    2003, (viii) 2,891,240 shares reserved for issuance
    under the 1998-8 Stock Option Plan as of March 31, 2003,
    (ix) 552,650 shares reserved for issuance under the 1998-9
    Stock option Plan as of March 31, 2003,
    (x) 137,899 shares reserved for issuance under the
    1998-10 Stock Option Plan as of March 31, 2003,
    (xi) 1,382,600 shares reserved for issuance under the
    1998-11 Stock Option Plan as of March 31, 2003,
    (xii) 328,650 shares reserved for issuance under the
    1998-12 Stock Option Plan as of March 31, 2003,
    (xiii) 1,359,994 shares reserved for issuance under
    the 2002-01 Stock Option Plan as of March 31, 2003,
    (xiv) 355,300 shares reserved for issuance under the
    2002-02 Stock Option Plan as of March 31, 2003,
    (xv) 3,325,000 shares reserved for issuance under the
    2002-03 Stock Option Plan as of March 31, 2003,
    (xvi) 675,000 shares reserved for issuance under the
    2002-04 Stock Option Plan as of March 31, 2003 or
    (xvii) 379,336 issued but not outstanding shares held by SW
    Securities L.L.C., our wholly-owned subsidiary, as of
    March 31, 2003 solely for distribution to holders of stock
    options under the 1994 SolidWorks Stock Option Plan.
|(2) | Sole beneficial owner of 7,656,465 shares
    and has voting and dispositive powers with respect to
    1,542 shares held in trust for the benefit of his family.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(3) | Excluding Charles Edelstenne, none of our
    directors or executive officers beneficially owns more than 1%
    of our outstanding shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(4) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

To our knowledge, as of March 31, 2003,
(i) the proportion of our outstanding shares held in the
United States was approximately 0.80% 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 101.

Changes in Principal Shareholders Over the
Past Three Fiscal Years

The main changes in stock ownership have been a
significant increase in the percentage of ownership of GIMD in
2001, resulting from our merger with Dassault Participation, of
which GIMD was a 49.93% shareholder before the operation. As a
result of this combination, Dassault Participation as an entity
is no longer a shareholder and the French State became a
shareholder in our company.

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.

|                                                        |  |                      |             |                      |  |                      |       |           |  |         |       |        |  |           |             |         |  |        |       |   |  |  |       |   |  |  |             |  |  |  |       |   |  |  |       |  
|------------------------------------------------------- |  | -------------------- | ----------- | -------------------- |  | -------------------- | ----- | --------- |  | ------- | ----- | ------ |  | --------- | ----------- | ------- |  | ------ | ----- | - |  |  | ----- | - |  |  | ----------- |  |  |  | ----- | - |  |  | ----- | -
|                                                        |  |                      |             |                      |  |                     
|                                                        |  | At December 31, 2002 |             | At December 31, 2001 |  | At December 31, 2000
|                                                        |  |                      |             |                      |  |                     
|                                                        |  | Number of            |             | Capital              |  | Voting               |       | Number of |  | Capital |       | Voting |  | Number of |             | Capital |  | Voting
|                                                        |  | shares               |             | %                    |  | %                    |       | shares    |  | %       |       | %      |  | shares    |             | %       |  | %     
|                                                        |  |                      |             |                      |  |                      |       |           |  |         |       |        |  |           |             |         |  |       
|Dassault Participation                                  |  |                      |            |                      |  |                      |      |           |  |         |      |        |  |           |            |         |  |        |      |   |  |  |      |   |  |  | 38,925,368  |  |  |  | 34.2  | % |  |  | 34.4  | %
|Groupe Industriel Marcel Dassault                       |  |                      | 51,184,857  |                      |  |                      | 44.7  | %         |  |         | 42.0  | %      |  |           | 50,763,496  |         |  |        | 44.3  | % |  |  | 44.6  | % |  |  | 29,767,870  |  |  |  | 26.1  | % |  |  | 26.3  | %
|French State                                            |  |                      | 17,821,334  |                      |  |                      | 15.6  | %         |  |         | 14.6  | %      |  |           | 17,821,334  |         |  |        | 15.6  | % |  |  | 15.6  | % |  |  |            |  |  |  |      |   |  |  |      |  
|Charles Edelstenne(1)                                   |  |                      | 7,657,884   |                      |  |                      | 6.7   | %         |  |         | 12.5  | %      |  |           | 7,632,884   |         |  |        | 6.7   | % |  |  | 6.7   | % |  |  | 7,632,790   |  |  |  | 6.7   | % |  |  | 6.7   | %
|SW Securities L.L.C.(2) (3)                             |  |                      | 391,410     |                      |  |                      | 0.3   | %         |  |         |      |        |  |           | 502,417     |         |  |        | 0.4   | % |  |  | 0.0   | % |  |  | 607,767     |  |  |  | 0.5   | % |  |  | 0.0   | %
|Dassault Systèmes(3)                                    |  |                      |            |                      |  |                      |      |           |  |         |      |        |  |           | 29,033      |         |  |        | 0.0   | % |  |  | 0.0   | % |  |  |            |  |  |  |      |   |  |  |      |  
|Public                                                  |  |                      | 37,470,527  |                      |  |                      | 32.7  | %         |  |         | 30.9  | %      |  |           | 37,143,961  |         |  |        | 32.6  | % |  |  | 32.7  | % |  |  | 36,529,098  |  |  |  | 32.1  | % |  |  | 32.2  | %
|All directors and executive officers as a group
    (4) |  |                      | 44,829      |                      |  |                      | 0.0   | %         |  |         | 0.0   | %      |  |           | 482,079     |         |  |        | 0.4   | % |  |  | 0.4   | % |  |  | 464,070     |  |  |  | 0.4   | % |  |  | 0.4   | %
|                                                        |  |                      |             |                      |  |                      |       |           |  |         |       |        |  |           |             |         |  |        |       |   |  |  |       |   |  |  |             |  |  |  |       |   |  |  |       |  
|Total                                                   |  |                      | 114,570,841 |                      |  |                      | 100.0 | %         |  |         | 100.0 | %      |  |           | 114,475,204 |         |  |        | 100.0 | % |  |  | 100.0 | % |  |  | 113,926,963 |  |  |  | 100.0 | % |  |  | 100.0 | %
|                                                        |  |                      |             |                      |  |                      |       |           |  |         |       |        |  |           |             |         |  |        |       |   |  |  |       |   |  |  |             |  |  |  |       |   |  |  |       |  






|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sole beneficial owner of 7,656,342 Shares at
    December 31, 2002 and 7,631,342 Shares at December 31,
    2001 and 7,631,248 Shares at December 31, 2000, and has
    voting and dispositive powers with respect to 1,542 Shares held
    in trust for the benefit of his family.
|(2) | 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.                                                           
|(3) | Shares owned by SW Securities L.L.C in 2002, 2001
    and 2000 and shares owned by Dassault Systèmes in 2001 are
    the only shares that are not outstanding.                                                                                                                     
|(4) | Excluding Charles Edelstenne.                                                                                                                                                                                                                                                      

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
6,109,000,
3,916,000 and
3,735,000 for
the years ended December 31, 2002, 2001 and 2000,
respectively.

58



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##### 



We also provide services and support to Dassault
Aviation. This activity generated revenues of
6,169,000,
7,303,000 and
5,664,000 in the
years ended December 2002, 2001 and 2000, respectively.

Within the Dassault Systèmes Group, certain
intragroup transactions occur on a regular basis and at market
conditions. The companies which develop software products and
technologies regularly license them to other companies in the
Group either as software components for their own products, or
for further licensing to customers and distributors. On
occasion, loans from companies in the Group with a positive cash
position may be made to companies with a negative cash position.

In order to ensure that adequate operating funds
are available to the different members of the Dassault
Systèmes group, intra-group loans are regularly provided.
Most loans are made by Dassault Systèmes S.A., as well
as by Dassault Systèmes Corp. and SolidWorks Corp. for U.S.
dollar loans. Most loans do not exceed approximately
$10 million, although several loans during the past year
were in the range of $20 million to $25 million, with
one loan amounting to $35 million. Interest is typically
charged at market rates. All of these loans, and the related
interest, have been eliminated in the consolidated financial
statements of the Company.

C. Interests of Experts and Counsel.

Not applicable.

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, our results or, potentially,
the Dassault Systèmes Group.

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 shareholders meeting.
Dividends are paid in euro.

Our dividends in respect of 2000 and 2001 were
equal to approximately 26% of our net income, and our 2002
dividend, if approved by the general shareholders meeting
to be held on May 28, 2003, would be equal to 28% of net
income. 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.

59



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##### 



The table below sets forth, in respect of the
years indicated, the amount of dividends paid per share
excluding the French avoir fiscal and the amount of
dividends paid per share including the French avoir
fiscal (before deduction of applicable French withholding
tax). Dividends declared in respect of a given year are paid in
the following year.

|                    |  |                    |             |                 |  |                              |         |  |  |   |      |  |  |  |                             |  |  |  |                | 
|------------------- |  | ------------------ | ----------- | --------------- |  | ---------------------------- | ------- |  |  | - | ---- |  |  |  | --------------------------- |  |  |  | -------------- | 
|                    |  |                    |             |                 |  |                              |         | 
|                    |  |                    |             | Dividend per    |  |                              |         | 
|                    |  |                    |             | Share           |  |                             
|Year to which       |  | Shares Outstanding |             | Excluding avoir |  | Dividend per Share          
|Dividend Relates(1) |  | at Year End(2)     |             | fiscal(2)(3)    |  | Including avoir fiscal(2)(3)
|                    |  |                    |             |                 |  |                             
|                    |  |                    |             |                 |  |                              |         |  |  |  
|1997                |  |                    | 110,930,227 |                 |  |                              | FF 1.15 |  |  | $ | 0.19 |  |  |  | FF 1.725                    |  |  |  | $0.28          | 
|1998                |  |                    | 111,863,091 |                 |  |                              | FF 1.45 |  |  | $ | 0.23 |  |  |  | FF 2.175(5) or FF 2.1025(6) |  |  |  | $0.34 or $0.33 | 
|1999                |  |                    | 112,392,052 |                 |  |                              | FF 1.75 |  |  | $ | 0.25 |  |  |  | FF 2.625(5) or FF 2.45(6)   |  |  |  | $0.38 or $0.36 | 
|2000                |  |                    | 113,339,585 |                 |  |                              | 0.31   |  |  | $ | 0.27 |  |  |  | 0.465(5) or 0.3875(6)     |  |  |  | $0.40 or $0.33 | 
|2001                |  |                    | 113,943,754 |                 |  |                              | 0.33   |  |  | $ | 0.31 |  |  |  | 0.5(5) or 0.38(6)         |  |  |  | $0.46 or $0.35 | 
|2002(4)             |  |                    | 114,179,431 |                 |  |                              | 0.33   |  |  | $ | 0.38 |  |  |  | 0.5(5) or 0.36(6)         |  |  |  | $0.57 or $0.41 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 per share and shares outstanding for
    1997 have been restated to reflect a 2:1 stock split effected on
    October 14, 1997. The amount of shares outstanding for 2002
    includes shares issued and entitled to dividends as of
    December 31, 2002, and is subject to change at the actual
    date of payment of the dividend if certain shares acquired by us
    on or after January 1, 2003 are cancelled or held by us.                                                                                                                                                                                                                                                                                                                     
|(3) | Dividends for 1997 through 1999 were paid in
    French francs, and for 2000 through 2002 were declared in euro.
    U.S. dollar amounts are translated at the Noon Buying Rate
    on the date the dividend was paid or, in the case of the
    dividend for 2002, the Noon Buying Rate on May 13, 2003:
    July 7, 1998  FF 6.09 per $1.00;
    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;
    and June 18, 2002 
    1.05 per $1.00.
    The dividend for 2002 to be approved by the general
    shareholders meeting on May 28, 2003 was translated
    here solely for the convenience of the reader at a rate of
    0.8696 per
    $1.00, the Noon Buying Rate for May 13, 2003.
|(4) | The dividend in respect of 2002 reflects the
    amount to be approved by the shareholders at the general
    shareholders meeting on May 28, 2003 for distribution
    beginning on June 18, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(5) | Dividends per share for individual shareholders
    and shareholding entities benefiting from a tax credit at 50%
    for 1998, 1999, 2000, 2001 and 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(6) | Dividends per share for shareholding entities
    benefiting from a tax credit at 45% for 1998, 40% for 1999, 25%
    for 2000, 15% for 2001 and 10% for 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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.

60



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##### 



Item 9: The Offer and
Listing.

A.     Listing
Details.

Our shares have been listed in France on the
Premier Marché, Euronext Paris (formerly the Paris
Bourse), since June 28, 1996. 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
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. Our shares were included in the CAC 40 index
from December 21, 2000 until August 5, 2002.

The following table sets forth the high and low
prices of our shares on Euronext Paris and our ADSs on the
Nasdaq National Market since 1998.

Annual High and Low Prices of Shares on
Euronext Paris and ADSs on the Nasdaq National Market

|                            |  |                |        |        |  |      |       |     |  |  |        |  |  |  |       | 
|--------------------------- |  | -------------- | ------ | ------ |  | ---- | ----- | --- |  |  | ------ |  |  |  | ----- | 
|                            |  |                |        |       
|                            |  | Euronext Paris |        | Nasdaq
|                            |  |                |        |       
|                            |  | High           |        | Low    |  | High |       | Low
|                            |  |                |        |        |  |      |       |    
|                            |  |                |        |       
|                            |  |               |        | U.S.$ 
|1998                        |  |                | 50.31  |        |  |      | 22.11 |     |  |  | 55.00  |  |  |  | 25.63 | 
|1999                        |  |                | 65.30  |        |  |      | 29.80 |     |  |  | 65.00  |  |  |  | 30.06 | 
|2000                        |  |                | 126.00 |        |  |      | 55.80 |     |  |  | 121.19 |  |  |  | 57.50 | 
|2001                        |  |                | 77.45  |        |  |      | 29.50 |     |  |  | 72.88  |  |  |  | 26.90 | 
|2002                        |  |                | 59.40  |        |  |      | 15.19 |     |  |  | 52.00  |  |  |  | 15.05 | 
|2003 (through May 13, 2003) |  |                | 29.52  |        |  |      | 19.10 |     |  |  | 33.50  |  |  |  | 21.25 | 




(Source: Bloomberg)

Quarterly High and Low Prices of Shares on
Euronext Paris and ADSs on the Nasdaq Market

|                                   |  |                |       |        |  |      |       |     |  |  |       |  |  |  |       | 
|---------------------------------- |  | -------------- | ----- | ------ |  | ---- | ----- | --- |  |  | ----- |  |  |  | ----- | 
|                                   |  |                |       |       
|                                   |  | Euronext Paris |       | Nasdaq
|                                   |  |                |       |       
|                                   |  | High           |       | Low    |  | High |       | Low
|                                   |  |                |       |        |  |      |       |    
|                                   |  |                |       |       
|                                   |  |               |       | U.S.$ 
|2001 1st quarter                   |  |                | 77.45 |        |  |      | 45.73 |     |  |  | 72.88 |  |  |  | 40.50 | 
|2nd quarter                        |  |                | 58.50 |        |  |      | 43.38 |     |  |  | 51.00 |  |  |  | 37.51 | 
|3rd quarter                        |  |                | 51.00 |        |  |      | 29.50 |     |  |  | 44.50 |  |  |  | 26.90 | 
|4th quarter                        |  |                | 60.20 |        |  |      | 33.30 |     |  |  | 52.99 |  |  |  | 30.20 | 
|2002 1st quarter                   |  |                | 59.40 |        |  |      | 47.60 |     |  |  | 52.00 |  |  |  | 41.60 | 
|2nd quarter                        |  |                | 55.85 |        |  |      | 38.20 |     |  |  | 49.93 |  |  |  | 36.30 | 
|3rd quarter                        |  |                | 46.30 |        |  |      | 15.37 |     |  |  | 45.78 |  |  |  | 15.25 | 
|4th quarter                        |  |                | 28.80 |        |  |      | 15.19 |     |  |  | 28.97 |  |  |  | 15.05 | 
|2003 1st quarter                   |  |                | 25.39 |        |  |      | 19.10 |     |  |  | 26.40 |  |  |  | 21.25 | 
|2nd quarter (through May 13, 2003) |  |                | 29.52 |        |  |      | 20.39 |     |  |  | 33.50 |  |  |  | 22.10 | 




(Source: Bloomberg)

61



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##### 



Monthly High and Low Prices of Shares on
Euronext Paris and ADSs on the Nasdaq National Market

|                                |  |                |       |        |  |      |       |     |  |  |       |  |  |  |       | 
|------------------------------- |  | -------------- | ----- | ------ |  | ---- | ----- | --- |  |  | ----- |  |  |  | ----- | 
|                                |  |                |       |       
|                                |  | Euronext Paris |       | Nasdaq
|                                |  |                |       |       
|                                |  | High           |       | Low    |  | High |       | Low
|                                |  |                |       |        |  |      |       |    
|                                |  |                |       |       
|                                |  |               |       | U.S.$ 
|November 2002                   |  |                | 28.80 |        |  |      | 21.20 |     |  |  | 28.97 |  |  |  | 21.44 | 
|December 2002                   |  |                | 28.80 |        |  |      | 20.10 |     |  |  | 28.50 |  |  |  | 20.97 | 
|January 2003                    |  |                | 25.39 |        |  |      | 19.80 |     |  |  | 26.40 |  |  |  | 21.50 | 
|February 2003                   |  |                | 23.69 |        |  |      | 19.92 |     |  |  | 25.38 |  |  |  | 21.25 | 
|March 2003                      |  |                | 24.70 |        |  |      | 19.10 |     |  |  | 25.40 |  |  |  | 21.72 | 
|April 2003                      |  |                | 28.00 |        |  |      | 20.39 |     |  |  | 30.60 |  |  |  | 22.10 | 
|May 2003 (through May 13, 2003) |  |                | 29.52 |        |  |      | 25.71 |     |  |  | 33.50 |  |  |  | 28.01 | 




(Source: Bloomberg)

Euronext Paris

Securities approved for listing by Euronext Paris
are traded in one of three regulated markets: Premier
Marché, Second Marché and Nouveau
Marché. The securities of most large public companies
in France are listed on the Premier Marché.

Securities listed on the Premier
Marché 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, and a closing
auction at 5:30 p.m. 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.

Securities listed by Euronext Paris are placed in
one of the two categories, depending on their trading volume.
Our ordinary 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.

Euronext Paris may suspend trading in a security
listed on Premier Marché 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 commenced, 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 which caused the first trading suspension. During the
continuous trading session, Euronext Paris may also 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 Premier Marché
in certain other limited circumstances, including, for example,
when there is unusual trading activity in the security. In
addition, in certain exceptional cases, the Conseil des
Marchés Financiers (CMF), the
self-regulatory organization that has general regulatory
authority over the French stock exchanges and the Commission
des opérations de bourse (COB), may also
suspend trading.

Trades of securities listed on the Premier
Marché 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 différé or
SRD) for a fee. The deferred settlement service is
only available for trades in securities which either
(1) are a component of the Index SBF 120 or (2) have
both a total market capitalization of at least
1 billion
and a daily average volume of trades of 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

62



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##### 



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 the
Premier Marché 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.

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 the Form F-1 filed 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 on Form F-1 or, to the extent
inconsistent with such information, supercedes 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
statuts is included as an exhibit to this report. You may
obtain copies of our statuts in French from the Registry
of Commerce and Companies of Nanterre, France where we are
registered under number 322 306 440. Please refer to those full
documents for additional details.

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Board of directors

For a complete description of the powers of the
directors under French law and our statuts, see
Item 6: Directors, Senior Management and
Employees.

Share Capital

As of March 31, 2003, our share capital
amounts to
114,570,971
divided into 120,537,173 outstanding shares with a nominal value
of 1.0 per
share. All the outstanding shares are fully paid.

Purposes of the Company

As set forth in Article 2 of our
statuts, 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 data bases, management of manufacturing
processes, and software development tools as well as in research
and development in these areas. For a complete description of
our purposes, please refer to our statuts.

Shareholders Meetings and Voting
Rights

Appointment of Agents

In the case of a bankruptcy, any of the following
may also request the court to appoint an agent who may call a
shareholders meeting in some instances: (i) one or
several shareholders holding at least 5% of our share capital;
(ii) the auditors; (iii) the workers committee
in a case of emergency; or (iv) a majority of shareholders
in share capital or voting rights after a public tender offer or
the acquisition of a controlling block of shares.

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 or the
workers committee.

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 statuts 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 case of 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.

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

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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 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 and a summary of the results of the five previous fiscal
years in French GAAP 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, 2002, our legal reserve was
11 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 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). Following the 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.

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 shareholders meeting
following a recommendation of the board of directors. Increases
in our share capital may be effectuated by:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | issuing additional shares;                                              
|
| |  | increasing the nominal value of existing shares;
    or                 
|
| |  | issuing investment certificates or a new class of
    equity securities.

Increases in share capital by issuing additional
securities may be effectuated by issuing such securities:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | for cash;                                                                                                   
|
| |  | for assets contributed in kind;                                                                             
|
| |  | by conversion, exchange or redemption of debt
    securities previously issued;                             
|
| |  | by exercise of any other securities giving rights
    to such securities, such as warrants or stock options;
|
| |  | by capitalization of profits, reserves or share
    premiums;                                               
|
| |  | subject to various conditions, in satisfaction of
    debt incurred by our company; or                      
|
| |  | 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.

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The shareholders may delegate the right to carry
out any increase in share capital (other than for an in-kind
contribution) to the board of directors, provided that this
increase has been previously authorized by the shareholders. The
board of directors may further sub-delegate this right to our
Chairman and the 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, 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.

At a general shareholders meeting on May 28,
2002, our shareholders authorized our board of directors to
issue shares and/or any other securities granting access,
immediately or in the future, at any time or on a fixed date by
subscription, conversion, exchange, redemption, presentation of
a warrant or in any other manner, to a portion of our share
capital, provided, however, that (i) the nominal amount of
increases in the share capital to be made either now or in the
future pursuant to this delegation may not exceed
10 million,
and (ii) the nominal amount of debt securities to be issued
pursuant to such delegation shall not exceed a maximum of
600 million.
This authorization replaces the one granted by our shareholders
at a general shareholders meeting on May 31, 2001.

As of March 31, 2003, we had not engaged in
any increase of our share capital under the resolutions of
May 28, 2002.

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 possibility 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 Euronext Paris.

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.

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Form, Holding and Transfer of Shares

Form and Holding of Shares

Our statuts permit 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 the intermediary on the
shareholders behalf in a collective account or in several
individual accounts. The intermediary must declare his 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
shareholders meetings by this intermediary.

Transfer of Shares

Registered shares must be converted into bearer
form before being transferred on Euronext Paris 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 Euronext Paris, 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 transfer instrument
has been executed in France. See
 Taxation  French
Taxation  Taxation on Sale or Disposal of
Shares.

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
15 calendar 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 Conseil des
Marchés Financiers, or CMF, within five trading days of
such date of the number of equity securities it holds and the
voting rights attached thereto.

French Law and the COB impose additional
reporting requirements on persons, acting alone or in concert
with others, who acquire more than 10 percent or
20 percent of the outstanding shares or voting rights of a
listed company. These persons must file with the CMF, the COB
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,
and to seek a nomination to such companys board of
directors. Such report must be filed with the CMF, the COB and
with such listed company within 15 calendar days of the date
such threshold has been crossed. The CMF 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. These requirements also
apply to registered intermediaries who hold stock on behalf of
shareholders who are not French residents.

If the accredited intermediary holding the shares
on behalf of the shareholder who is not a French resident does
not comply with the aforementioned legal notification
requirements, the voting rights of the shares for which the
accredited intermediary is registered cannot be exercised until
the notification requirements have been met and the payment of
the corresponding dividend is postponed until such date. In
addition, if the accredited intermediary knowingly fails to
comply with such legal requirement, a court located

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in the jurisdiction of the headquarters of the
company may, at the request of the company or one or several
shareholders representing at least 5% of the share capital of
the company deprive the shares in excess of the relevant
threshold of voting rights and possibly dividends for a period
not to exceed 5 years.


In addition, our statuts provide 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 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 15 calendar days of such acquisition by registered mail.
These requirements also apply to registered intermediaries who
hold stock on behalf of shareholders who are not French
residents. 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 to, among other
things:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reduce our share capital by canceling such
    acquired shares, with approval of our shareholders at an
    extraordinary meeting;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | provide shares to our employees under a
    profit-sharing plan or stock option plan; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | acquire up to 10 percent of our share
    capital within a period of time, which may not exceed eighteen
    months, in connection with a corporate share repurchase program,
    provided that our shares are listed on a regulated market (i.e.
    on the Premier Marché, the Second Marché
    or the Nouveau Marché), subject to the filing of a
    note dinformation that has received a visa of the
    COB and the approval from the shareholders at an ordinary
    meeting. French regulation allows listed companies to file the
    Note dinformation with the COB, either prior to the
    ordinary general meeting granting the authorization or after the
    boards decision to launch the program i.e. after the
    general meeting.

In addition, 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, maximum of 10% the shares in each
class.

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 preemptive 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.

At the general shareholders meeting on
May 28, 2002, our shareholders authorized the board of
directors to implement a share repurchase program, limited to
10 percent of our share capital. This authorization expires
on the annual ordinary general shareholders meeting
convened to approve the accounts for the 2002 fiscal year. We
may not buy shares at a price exceeding
80 per share
(transaction fees excluded). We may not resell the shares
purchased at a price under
20 per share
(transaction fees excluded). This authorization replaces the one
that was granted by our shareholders at the general
shareholders meeting on May 31, 2001. 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.

We will submit to our next general
shareholders meeting on May 28, 2003 a new share
repurchase program, limited to 10 percent of our share
capital in order to replace the one dated May 28, 2002. At
such meeting, we well also submit to our shareholders a
resolution authorizing our board of directors to cancel the
repurchased shares, and reduce our share capital by up to
10 percent within any 24-month period.

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As of March 31, 2003, we have repurchased
1,375,201 of our shares under the resolution of May 28,
2002.

Trading in Our Shares

Under Règlement
no 90-04 of the COB, as amended, we may not
trade in our shares for the purpose of manipulating the market.
There are three requirements for trades by a company in its own
shares to be considered valid. Specifically:



| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | trades must be executed on behalf of the company
    by only one intermediary or, if the issuer uses its share
    repurchase program in part by way of derivatives, by two
    intermediaries provided that the issuer is able to ensure an
    appropriate coordination between the intermediaries;
|
| |  | any block trades may not be at a price above the
    current market price; and                                                                                                                                                                                                                       
|
| |  | each trade must be made at a price that falls
    between the lowest and the highest trading price of the trading
    session during which it is executed.                                                                                                                                           

If a companys shares are continuously
quoted (cotation en continu), then a trade must meet the
following further requirements to be considered valid:



| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the trade must not influence the determination of
    the quoted price before the opening of trading, at the opening
    of the trading or session, at the first trade of the shares, at
    the reopening of trading following a suspension, or, as
    applicable, in the last half-hour of any trading session or at
    the fixing of the closing price;
|
| |  | the trade must not be carried out in order to
    influence the price of a derivative instrument relating to the
    companys shares; and                                                                                                                                                                                                                  
|
| |  | the trade must not account for more than
    25 percent of the average total daily trading volume on the
    Premier Marché in the shares during the 3 trading
    days immediately preceding the trade. This last requirement
    applies only to shares that are eligible for the deferred
    settlement service (service de réglement
    différé).     

However, there are two periods during which we
are not permitted to trade in our own securities: the 15-day
period before the date on which we make our consolidated or
annual accounts public, and the period beginning on the date at
which we become aware of information that, if disclosed, would
have a significant impact on the market price of our securities
and ending on the date this information is made public. This
requirement does not apply to trades executed on behalf of the
issuer by an intermediary acting pursuant to a liquidity
agreement (contrat de liquidité) complying with a
charter of ethics approved by the COB.

After making an initial purchase of our own
shares, we must file monthly reports with the COB and the CMF
that contain specified information about subsequent
transactions. The CMF makes this information publicly available.

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 on transfers of
funds made by a French resident to a

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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.

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%
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), 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 who receive
dividends from French companies are generally entitled to a tax
credit known as the avoir fiscal.

The amount of avoir fiscal is generally
equal to:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 50% of the dividend paid for (i) individuals
    and (ii) companies which own at least 5% of the capital of
    the French distributing company and meet the conditions to
    qualify under the French parent-subsidiary regime; or
|
| |  | 15% of the dividend paid for the other
    shareholders who used the avoir fiscal in 2002, and 10%
    of the dividend paid for such other shareholders who will use
    the avoir fiscal as of January 1, 2003.                    

In addition, if the distribution of dividends by
us gives rise to the précompte, shareholders
entitled to the avoir fiscal at the rate of 15%, and then
10%, will generally be entitled to an additional amount of
avoir fiscalequal to:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | 70% of the précompte paid in cash by
    us for shareholders entitled to use the avoir fiscal at
    the rate of 15%; and
|
| |  | 80% of the précompte paid in cash by
    us for shareholders entitled to use the avoir fiscal at
    the rate of 10%.    

As indicated below, the précompte is
a tax which is paid by French companies when they distribute
dividends out of certain profits which give rise to the avoir
fiscal (see paragraph below relating to the
précompte).

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
avoir fiscal. Under most tax treaties

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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 withheld or, in the case of certain tax
treaties, be eliminated.


Furthermore, 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).

|                                                                                                                                                            |  |                                                                                                                                                       |  |                                                                                                                                                                   |  |                                                                       |  |                                                                                                                     
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Australia
    Austria
    Belgium
    Bolivia
    Brazil
    Burkina Faso
    Canada
    Estonia
    Finland
    Gabon
    Germany(1)
    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-Merand
    Other territories:
    Mayotte
    New Caledonia
    Saint-Pierre et
    Miquelon

Treaties with some of the countries and
territories listed above contain specific limitations applicable
to corporate entities entitled to benefit from the avoir
fiscal, or limit the rights to the avoir fiscal
strictly to individual residents (as opposed to corporate
entities).

Dividends paid to non-residents of France
benefiting from the avoir fiscal in accordance with a tax
treaty will generally be 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; provided, however, that they establish
their entitlement to such reduced rate before the date of
payment.

Amounts distributed as dividends by French
companies out of profits which have not been taxed at the
ordinary corporate income tax rate or which have been earned and
taxed more than five years before the distribution are subject
to a tax known as the précompte if such dividends
carry an avoir fiscal. The précompte is paid
by the distributing company to the French tax authorities and is
equal to one-half of the nominal dividend distributed. When a
tax treaty in force does not provide for a refund of the
avoir fiscal or when the non-resident investor is not
entitled to such refund but is otherwise entitled to the
benefits of a tax treaty, such investor may obtain from the
French tax authorities a refund of such précompte
actually paid in cash by us, if any (net of applicable
withholding tax).

Estate and Gift Tax.France imposes estate and gift tax on shares of 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.





---

(1) According to a common statement of the
French and German tax authorities dated July 13, 2001,
dividends paid to German resident holders other than individuals
as of January 1, 2001 no longer give right to the avoir
fiscal. As regards German resident individual holders, a
supplementary agreement to the tax treaty between France and
Germany was signed by the French Republic and the Federal
Republic of Germany on December 20, 2001, which provides
that they should also no longer be entitled to the avoir
fiscal. Such supplementary agreement has been adopted but
has not yet been published and when published, should apply
retroactively as of January 1, 2002.


71



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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 U.S. Holders who are the beneficial owners
of one or more ADSs or shares and (a) who own, directly,
indirectly or by attribution, less than 10% of our capital or
our voting stock, (b) who are (i) citizens or
individual residents of the United States for U.S. federal
income tax purposes, (ii) corporations or certain other
entities, created in or organized under the laws of the United
States or any state thereof (including the District of
Columbia), (iii) estates the income of which is subject to
U.S. federal income taxation regardless of its source, or
(iv) trusts if a court within the United States is able to
exercise primary supervision over their administration and one
or more U.S. persons have the authority to control all of
the substantial decisions of the trusts, (c) who are
entitled to the benefits of the Treaty (as defined below) under
the Limitation on Benefits article contained in the
Treaty, (d) who hold the ADSs or shares as capital assets
and (e) whose functional currency is the U.S. dollar.
Certain holders (including, but not limited to, United States
expatriates, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative
minimum tax, securities broker-dealers and persons holding the
ADSs or shares as part of a straddle or a hedging or a
conversion transaction) may be subject to special rules not
discussed below. Because this is a general summary, investors
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, including the
French tax authorities issued tax regulations (the
Regulations), 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.

Taxation of Dividends

Withholding/ Avoir Fiscal.In France, dividends are paid out of
after-tax income. French residents who receive dividends from
French companies are generally entitled to a tax credit known as
the avoir fiscal.

The amount of avoir fiscal is generally
equal to:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 50% of the dividend paid for (i) individuals
    and (ii) companies which own at least 5% of the capital of
    the French distributing company and meet the conditions to
    qualify under the French parent-subsidiary regime; or
|
| |  | 15% of the dividend paid for the other
    shareholders who used the avoir fiscal in 2002, and 10%
    of the dividend paid for such other shareholders who will use
    the avoir fiscal as of January 1, 2003.                    

In addition, if the distribution of dividends by
us gives rise to the précompte, shareholders
entitled to the avoir fiscal at the rate of 15%, and then
10%, will generally be entitled to an additional amount of
avoir fiscal equal to:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | 70% of the précompte paid in cash by
    us for shareholders entitled to use the avoir fiscal at
    the rate of 15%; and

72



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| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | 80% of the précompte paid in cash by
    us for shareholders entitled to use the avoir fiscal at
    the rate of 10%;

As indicated below, the précompte is
a tax which is paid by French companies when they distribute
dividends out of certain profits and such dividends give rise to
the avoir fiscal (see paragraph below relating to the
précompte).

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
avoir fiscal.

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 an Eligible U.S. Holder, as defined
below, will be immediately subject to the reduced rate of 15%,
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. An
Eligible U.S. Holder would also be entitled to a payment
equal to the avoir fiscal, less a 15% withholding tax. As
noted below, such payment will not be made to an Eligible
U.S. Holder until after the close of the calendar year in
which the dividend was paid and only upon receipt by the French
tax authorities of a claim made by the Eligible U.S. Holder
for such payment in accordance with the procedures set forth
below.

An Eligible U.S. Holder is a
U.S. Holder whose ownership of ADSs or shares is not
effectively connected with a permanent establishment or fixed
base in France, and who is (i) an individual or other
noncorporate holder that is a resident of the United States as
defined pursuant to the provisions of the Treaty, (ii) a
U.S. corporation, other than a regulated investment
company, (iii) a U.S. corporation which is a regulated
investment company only if less than 20% of its shares are
beneficially owned by persons who are neither citizens nor
residents of the United States or (iv) a partnership or
trust that is treated as a resident of the United States as
defined pursuant to the provisions of the Treaty, but only to
the extent that its partners, beneficiaries or grantors would
qualify under clause (i) or (ii) above.

In general, under the Treaty, an Eligible
U.S. Holder may receive a payment of the avoir
fiscal only if such Holder (or its partners, beneficiaries
or grantors, if the holder is a partnership or trust) attests
that it is subject to U.S. federal income taxes on the
payment of the avoir fiscal and the related dividend.
Certain entities are not entitled to the full avoir
fiscal. Tax-exempt U.S. Pension Funds, as
discussed below, and certain other tax-exempt entities
(including certain State-owned institutions, not-for-profit
organizations and individuals with respect to dividends
beneficially owned by such individuals and derived from an
investment retirement account) (Other Tax-Exempt
Entities) that own, directly or indirectly, less than 10%
of our capital, and that satisfy certain filing formalities
specified in the Regulations (i) are entitled to a payment,
subject to French withholding tax, equal to 30/85 of the gross
avoir fiscal (the partial avoir
fiscal) and (ii) are eligible for the reduced
withholding tax rate of 15% on dividends. A U.S Pension
Fund includes the exempt pension funds established and
managed in order to pay retirement benefits subject to the
provisions of Section 401(a) (qualified retirement plans),
Section 403(b) (tax deferred annuity contracts) or
Section 457 (deferred compensation plans) of the Code.

Dividends paid to an Eligible U.S. Holder
will be subject to the reduced withholding tax rate of 15% at
the time the dividend is paid if (i) such Holder duly
completes and provides the French tax authorities with Treasury
Form RF 1 A EU-NO. 5052 (the
Form) before the date of payment of the relevant
dividend, together with, if such Eligible U.S. Holder is
not an individual, an affidavit attesting that it is the
beneficial owner of all the rights attached to the full
ownership of the ADSs or shares, including, but not limited to,
dividend rights, or (ii) if completion of the Form is not
possible prior to the payment of dividends, such Holder duly
completes and provides the French tax authorities with a
simplified certificate (the Certificate) stating
that (a) such Holder is a U.S. resident as defined
pursuant to the provisions of the Treaty, (b) such
Holders ownership of the ADSs or shares is not effectively
connected with a permanent establishment or fixed base in
France, (c) such Holder owns all the rights attached to the
full ownership of the ADSs or shares, including but not limited
to dividend rights, (d) such Holder meets 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 claims the
reduced rate of withholding tax and payment of the avoir
fiscal. Holders of

73



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ADSs may provide the Form or the Certificate to
the Depositary provided that the Depositary is given sufficient
time to file such Form or Certificate with the French tax
authorities before the date of payment. Dividends paid to a
U.S. Holder that is not entitled to the avoir fiscal
(i.e., not an Eligible U.S. Holder) or to an Eligible
U.S. Holder that has not filed a completed Form or
Certificate before the dividend payment date will be subject to
French withholding tax at the rate of 25%. Such Holder may claim
a refund of the excess withholding tax and an Eligible
U.S. Holder may claim the avoir fiscal by completing
and providing the French tax authorities with the Form before
December 31st of the second year following the year during
which the dividend is paid. U.S. Pension Funds and Other
Tax-Exempt Entities are subject to the same general filing
requirements as Eligible U.S. Holders except that they may
have to supply additional documentation evidencing their
entitlement to these benefits.


In all cases, the avoir fiscal or partial
avoir fiscal is generally expected to be paid to Eligible
U.S. Holders, U.S. Pension Funds and Other Tax-Exempt
Entities 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. 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.

The Form or the Certificate, together with their
respective instructions, will be 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 Depositary will arrange for the filing with the
French tax authorities of all Forms or Certificates completed by
U.S. Holders of ADSs that are returned to the Depositary in
sufficient time.

For U.S. federal income tax purposes, the
gross amount of any distribution and the related avoir
fiscal paid to a U.S. Holder, including any French
withholding tax thereon, will be included in gross income as
ordinary dividend income in the year each such payment is
received (which, in the case of a U.S. Holder of ADSs, will
be the year of receipt by the Depositary) to the extent paid or
deemed paid out of our current or accumulated earnings and
profits as calculated for U.S. federal income tax purposes.
To the extent (if any) that the amount of any such distribution
exceeds our current and accumulated earnings and profits for a
taxable year, the distribution will first be treated as a
tax-free return of capital, causing a reduction in the adjusted
basis of the shares or ADSs (thereby increasing the amount of
gain, or decreasing the amount of loss, to be recognized by the
investor on a subsequent disposition of the shares or ADSs), and
the balance in excess of adjusted basis will be taxed as capital
gain recognized on a sale or exchange. No dividends received
deduction will be allowed with respect to dividends paid by us.
Such dividends will generally constitute foreign source
passive or (in the case of certain holders)
financial services income for foreign tax credit
purposes. 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
such dividend is included 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 will be
required to recognize foreign currency gain or loss, which
generally will be U.S. source ordinary income or loss, upon
a subsequent sale or other disposition of euro. Moreover, a
U.S. Holder may be required to recognize 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%.

French withholding tax imposed at the Treaty rate
of 15% on dividends paid by us and on any related payment of the
avoir fiscal 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.

Précompte.Amounts distributed as dividends by French companies out of
profits which have not been taxed at the ordinary corporate
income tax rate or which have been earned and taxed more than
five years before the distribution are subject to a tax known as
the précompte if such dividends give rise to the
avoir fiscal. The précompte is paid by the
distributing company to the French tax authorities and is equal
to one-half of the nominal dividend distributed by such company.

A U.S. Holder not entitled to the full
avoir fiscal may generally obtain a refund from the
French tax authorities of any précompte paid by us
with respect to the dividends distributed. Pursuant to the
Treaty, the

74



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##### 



amount of the précompte refunded to
U.S. residents is reduced by the 15% withholding tax
applicable to dividends and by the partial avoir fiscal
paid to U.S. Pension Funds and Other Tax Exempt Entities. A
U.S. Holder is only entitled to a refund of
précompte actually paid in cash by us and is not
entitled to a refund of the précompte paid by us by
off-setting French and/or foreign tax credits.


A U.S. Holder entitled to the refund of the
précompte must apply for such refund by filing a
French Treasury form RF1BEU-NO. 5053 before the end of the
second year following the year in which the dividend was paid.
The form and its instructions are available from the United
States Internal Revenue Service or at the Centre des
Impôts des Non Résidents
(9 rue dUzès, 75094 Paris
Cedex 2).

For U.S. federal income tax purposes, the
gross amount of the précompteincluding French
withholding tax paid to a U.S. Holder will be included in
gross income as ordinary income in the year each such payment is
received. 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 précompte paid in euro,
including the amount of any French taxes withheld therefrom,
will be equal to the U.S. dollar value of the euro on the
date such précompte is included 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 generally
will be required to recognize U.S. source ordinary income or
loss upon the subsequent sale or other disposition of euro.

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 exchange 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 who are residents of
more than one country. 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.

In general, for U.S. federal income tax
purposes, a U.S. Holder will recognize capital gain or loss
on the sale or exchange of ADSs or shares in an amount equal to
the U.S. dollar value of the difference between the amount
realized for the ADSs or shares and the U.S. Holders
basis (determined in U.S. dollars) in the ADS or shares.
This capital gain or loss will be a long-term capital gain or
loss if the Holders holding period in the ADSs or shares
exceeds one year. Such gain or loss, if any, generally will be
U.S. source gain or loss. 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.

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, royalties,
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. If we were characterized as a PFIC for any 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. 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

75



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domiciled in France at the time of making 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 does not generally 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 30%. Backup withholding will not apply to a Holder who
furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required
certification, or who is otherwise exempt from backup
withholding. U.S. persons who are required to establish
their exempt status generally must provide IRS Form W-9
(Request for Taxpayer Identification Number and Certification).
Non-U.S. Holders generally will not be 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 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 Internal Revenue Service 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
semi-annual reports 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.

76



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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. You may read these reports
and other documents at JPMorgan Chase Bank.

I.     Subsidiary
Information.

Not applicable.

Other

Matters Related to Auditors

The following table presents the aggregate fees
for professional audit services and other services rendered by
Deloitte Touche Tohmatsu and Ernst & Young Audit to the
Group in 2002 and 2001.

|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |       | 
|---------------------- | --------- | ----------------------------- | ------- | ------------------- |  | ---------- | ------- | ------------- |  | ---- | ------ | ----- |  | ---- | ------ | ----- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------ | ----- |  |  | ------ | ----- | 
|                       |           |                               |         |                    
|                       |           | Deloitte Touche Tohmatsu      |         | Ernst & Young Audit
|                       |           |                               |         |                    
|                       |           |                               |         |                     |  |            |         |              
|                       |           |                               |         | Percentage of       |  |            |         | Percentage of
|                       |           | Fee Amount                    |         | Total Fees          |  | Fee Amount |         | Total Fees   
|                       |           |                               |         |                     |  |            |         |              
|                       |           | 2002                          |         | 2001                |  | 2002       |         | 2001          |  | 2002 |        | 2001  |  | 2002 |        | 2001 
|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |      
|                       |           |                              
|                       |           | (in euro, except percentages)
|Audit Fees:            |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      
|Statutory audit(1)     |           |                               | 523,519 |                     |  |            | 496,162 |               |  |      | 65.6%  |       |  |      | 61.2%  |       |  |  | 292,396 |         |  |  | 269,061 |         |  |  | 87.7%  |       |  |  | 91.5%  |      
|Other                  |           |                               | 35,982  |                     |  |            | 23,005  |               |  |      | 4.5%   |       |  |      | 2.8%   |       |  |  | 22,820  |         |  |  | 11,112  |         |  |  | 6.9%   |       |  |  | 3.8%   |      
|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      
|                       | Sub-total |                               |         | 559,501             |  |            |         | 519,167       |  |      |        | 70.1% |  |      |        | 64.0% |  |  |         | 315,216 |  |  |         | 280,173 |  |  |        | 94.6% |  |  |        | 95.3% | 
|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      
|Non-audit Fees:        |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      
|Legal, tax, social     |           |                               | 238,687 |                     |  |            | 291,486 |               |  |      | 29.9%  |       |  |      | 36.0%  |       |  |  | 17,904  |         |  |  | 13,911  |         |  |  | 5.4%   |       |  |  | 4.7%   |      
|Information Technology |           |                               |        |                     |  |            |        |               |  |      |       |       |  |      |       |       |  |  |        |         |  |  |        |         |  |  |       |       |  |  |       |      
|Internal Audit         |           |                               |        |                     |  |            |        |               |  |      |       |       |  |      |       |       |  |  |        |         |  |  |        |         |  |  |       |       |  |  |       |      
|Other                  |           |                               |        |                     |  |            |        |               |  |      |       |       |  |      |       |       |  |  |        |         |  |  |        |         |  |  |       |       |  |  |       |      
|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      
|                       | Sub-total |                               |         | 238,687             |  |            |         | 291,486       |  |      |        | 29.9% |  |      |        | 36.0% |  |  |         | 17,904  |  |  |         | 13,911  |  |  |        | 5.4%  |  |  |        | 4.7%  | 
|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      
|Total                  |           |                               | 798,188 |                     |  |            | 810,654 |               |  |      | 100.0% |       |  |      | 100.0% |       |  |  | 333,120 |         |  |  | 294,084 |         |  |  | 100.0% |       |  |  | 100.0% |      
|                       |           |                               |         |                     |  |            |         |               |  |      |        |       |  |      |        |       |  |  |         |         |  |  |         |         |  |  |        |       |  |  |        |      




|    |                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Activities within the scope of the audit:
    certification, review of consolidated and individual financial
    statements, including providing independent expert services
    pursuant to the request of the statutory auditors in connection
    with the certification of the financial statements.

Item 11: Quantitative and
Qualitative Disclosures About Market Risk.

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
2002. Similarly, interest rates are not expected to affect
future earnings before financial income, but can affect
financial income. Therefore, Dassault Systèmes
interest rate risk is primarily a risk of reduction of financial
revenue.

Dassault Systèmes generates positive cash
flows and, although it has some financial debts (i.e. employee
profit sharing, long-term capital lease for a building), has a
positive net financial position (see table below).

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 interest
rate levels. We follow a conservative policy for investing our
cash resources, mostly relying on short-term investments. We
decided to hedge the risk of a significant fall in short-term
interest rates in 2003 by purchasing an interest rate floor
option, which was sold before the end of December 2002 and not
renewed.

77



---



##### 



The following table presents the consolidated net
financial position:

|                                                                                                        |  |                        |         |             |  |            |         |   |  |  |        |  
|------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ----------- |  | ---------- | ------- | - |  |  | ------ | -
|                                                                                                        |  |                        |         |             |  | More      
|                                                                                                        |  | Less Than              |         | From One to |  | Than      
|                                                                                                        |  | One Year               |         | Five Years  |  | Five Years
|                                                                                                        |  |                        |         |             |  |           
|                                                                                                        |  |                       
|                                                                                                        |  | (in thousands of euro)
|Bank financial assets (cash and cash equivalents,
    short-term investments and financial instruments) |  |                        | 400,260 |             |  |            | 5,438   |   |  |  |        |  
|Financial debts (capital lease, employee profit
    sharing and pension)                                |  |                        | 6,569   |             |  |            | 23,589  |   |  |  | 6,801  |  
|Net financial position                                                                                  |  |                        | 393,691 |             |  |            | (18,151 | ) |  |  | (6,801 | )
|Hedge                                                                                                   |  |                        | 0       |             |  |            | 0       |   |  |  | 0      |  

Investment practices are determined and
controlled by the parent company (treasury department).

Foreign currency exchange risk.Our revenue is primarily invoiced in
U.S. dollars, euro and 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 yen and the euro.

To a certain extent, we experience natural
hedging, with revenue denominated in U.S. dollars
marginally exceeding our U.S. dollar expenses. Our net
exposure in yen is less in absolute terms, but more significant
as a proportion of yen-denominated revenue. In 2002, revenue
denominated in U.S. dollars represented approximately 40%
of total revenue, compared with 41% in 2001 and 39% in 2000,
after taking into account the monthly conversion by IBM of
royalties coming from end-user payments in currencies other than
U.S. dollars. Our operating expenses denominated in
U.S. dollars represented 38% of total operating expenses in
2002, compared with 40% in 2001 and 38% in 2000 (including
amortization of intangibles incurred in business combinations).

As a result, our net operating exposure to
U.S. dollars was limited to
94 million
in 2002 (12% of our revenue), and this exposure was hedged
through market instruments at a level of
82 million,
as further described below.

The U.S. dollar depreciated approximately 5%
against the euro in 2002 compared to 2001 and appreciated 2.9%
against the euro in 2001 compared to 2000. As a result of our
U.S. dollar-denominated revenues and
U.S. dollar-denominated expenses being relatively
comparable in amount, the changes in value of the
U.S. dollar compared to the euro had relatively little
impact on our operating income for those years. In 2002 and
2001, the yen depreciated 8% and 9% against the euro,
respectively, compared to the respective preceding year, with
relatively little impact on operating income in 2001, given its
effect on both revenue and expenses, and a negative impact of
approximately
11 million
in operating income in 2002.

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 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 the usual and predictable activity. We do not hedge
revenues in local

78



---



##### 



currencies from our American or Japanese
subsidiaries. We use exclusively forward agreements or financial
instruments with a maximum predictable loss. All hedging
activities are carried out by the parent company. All hedging
transactions and our resulting exposure are reported to the
Chief Financial Officer on a monthly basis.


The table below sets forth, for the year ended
December 31, 2002, our revenue, operating expenses and net
position before and after hedging denominated in
U.S. dollars, Japanese yen and other currencies,
principally the euro.

|                         |  |                              |          |              |  |                 |         |   |  |  |          |  
|------------------------ |  | ---------------------------- | -------- | ------------ |  | --------------- | ------- | - |  |  | -------- | -
|                         |  |                             
|                         |  | Year ended December 31, 2002
|                         |  |                             
|                         |  | U.S. dollars                 |          | Japanese yen |  | Euro and others
|                         |  |                              |          |              |  |                
|                         |  |                             
|                         |  | (in thousands of euro)      
|Revenue                  |  |                              | 309,868  |              |  |                 | 123,095 |   |  |  | 341,152  |  
|Operating expenses       |  |                              | (216,132 | )            |  |                 | (45,584 | ) |  |  | (309,366 | )
|Net position             |  |                              | 93,736   |              |  |                 | 77,511  |   |  |  | 31,786   |  
|Hedge*                   |  |                              | 81,995   |              |  |                 | 56,793  |   |  |  |          |  
|Net position after hedge |  |                              | 11,741   |              |  |                 | 20,718  |   |  |  | 31,786   |  




|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|* | Includes operations considered as a cash flow or
    fair value hedge under FAS133, only.

The following table presents the notional amount
and market value of financial instruments at December 31,
2002 and 2001:

|                                    |  |                         |        |        |  |          |       |        |  |  |        |  |  |  |        |  
|----------------------------------- |  | ----------------------- | ------ | ------ |  | -------- | ----- | ------ |  |  | ------ |  |  |  | ------ | -
|                                    |  |                        
|                                    |  | Year ended December 31,
|                                    |  |                        
|                                    |  |                         |        |       
|                                    |  | 2002                    |        | 2001  
|                                    |  |                         |        |       
|                                    |  | Notional                |        | Market |  | Notional |       | Market
|                                    |  | amount                  |        | value  |  | amount   |       | value 
|                                    |  |                         |        |        |  |          |       |       
|                                    |  |                        
|                                    |  | (in thousands of euro) 
|Put USD/euro                        |  |                         |        |        |  |          |       |        |  |  | 11,347 |  |  |  | 196    |  
|Call USD/euro                       |  |                         |        |        |  |          |       |        |  |  | 11,347 |  |  |  | (690   | )
|Call USD/euro                       |  |                         |        |        |  |          |       |        |  |  | 15,318 |  |  |  | 198    |  
|Digital JPY/euro*                   |  |                         | 400    |        |  |          | 135   |        |  |  | 1,425  |  |  |  | 312    |  
|Collars USD/euro                    |  |                         | 47,082 |        |  |          | 7,096 |        |  |  | 66,947 |  |  |  | (2,015 | )
|Collars JPY/euro*                   |  |                         | 86,017 |        |  |          | 7,073 |        |  |  | 26,100 |  |  |  | 1,572  |  
|Forward exchange contract USD/euro  |  |                         | 20,625 |        |  |          | 4,246 |        |  |  | 26,098 |  |  |  | (804   | )
|Forward exchange contract JPY/euro* |  |                         | 15,274 |        |  |          | 2,395 |        |  |  | 27,405 |  |  |  | 2,246  |  




|  |                         
|- | ------------------------
|* | 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.

79



---



##### 



Item 12: Description of Securities
Other than Equity Securities.

Not applicable.

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 a date within
90 days of the filing of this Annual Report on
Form 20-F. Based on that evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that, as
of the evaluation date, our disclosure controls and procedures
were effective to ensure that material information relating to
us and our consolidated subsidiaries would be made known to them
by others within these entities, particularly during the period
in which this annual report was being prepared, in order to
allow timely decisions regarding required disclosure.

There have been no significant changes in our
internal controls or, to our knowledge, other factors that could
significantly affect our internal controls subsequent to the
evaluation date. Therefore, no corrective actions were taken.

Item 16: [RESERVED].

PART III



Item 17: Financial
Statements.


Not applicable.

Item 18: Financial
Statements.

The following financial statements, together with
the report of Deloitte Touche Tohmatsu and Ernst &
Young Audit thereon, are filed as part of this report.

Consolidated Financial Statements

|                                                                                                             |  |  |     | 
|------------------------------------------------------------------------------------------------------------ |  |  | --- | 
|Independent Auditors Report                                                                                 |  |  | F-1 | 
|Consolidated Balance Sheets at December 31,
    2002 and 2001                                                |  |  | F-2 | 
|Consolidated Statements of Income for the years
    ended December 31, 2002, 2001 and 2000                   |  |  | F-4 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000               |  |  | F-5 | 
|Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2002, 2001
    and 2000 |  |  | F-6 | 
|Notes to the Consolidated Financial Statements                                                               |  |  | F-7 | 

80



---



##### 



Item 19: Exhibits.

|     |  |                                                                                                                                                                                                                                                                                                                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1    |  | Dassault Systèmes by-laws amended
    through January 20, 2003.                                                                                                                                                                                                                                                                                         
|4.1 |  | Amendment 135, dated July 22, 2002, to the
    Amended and Restated License Agreement for the Use and Marketing
    of Programming Materials between International Business Machines
    Corporation and Dassault Systèmes.*                                                                                                                             
|4.2 |  | Amendment 137, dated July 22, 2002, to the
    Amended and Restated License Agreement for the Use and Marketing
    of Programming Materials between International Business Machines
    Corporation and Dassault Systèmes.*                                                                                                                             
|4.3 |  | Amendment 139, dated June 27, 2002, to the
    Amended and Restated License Agreement for the Use and Marketing
    of Programming Materials between International Business Machines
    Corporation and Dassault Systèmes.*                                                                                                                             
|4.4 |  | Loan Agreement No. 1, dated June 18,
    2002, between RAND A Technology Corporation, Dassault
    Systèmes and Dassault Systemes Corporation.                                                                                                                                                                                                           
|4.5  |  | Amendment No. 1, dated October 11,
    2002, to the Loan Agreement No. 1 between RAND A Technology
    Corporation, Dassault Systèmes and Dassault Systemes
    Corporation.                                                                                                                                                                             
|4.6 |  | Loan Agreement No. 2, dated June 18,
    2002, between RAND A Technology Corporation, Dassault
    Systèmes and Dassault Systemes Corporation.                                                                                                                                                                                                           
|4.7  |  | Amendment No. 1, dated October 11,
    2002, to the Loan Agreement No. 2 between RAND A Technology
    Corporation, Dassault Systèmes and Dassault Systemes
    Corporation.                                                                                                                                                                             
|10.1 |  | Certification of Bernard Charlès, President
    and Chief Executive Officer of Dassault Systèmes S.A. and
    Thibault de Tersant, Executive Vice President Finance and Legal
    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.
|10.2 |  | Consent of Ernst & Young Audit and
    Deloitte Touche Tohmatsu as auditors of Dassault Systèmes.                                                                                                                                                                                                                                                        

For a list of our subsidiaries, see Note R
to our consolidated financial statements for the year 2002.



---

|  |                                                                                                                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

81



---



##### 



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 SYSTEMES S.A.



Date: May 15, 2003

| |                                                                             
| | ----------------------------------------------------------------------------
| | /S/ THIBAULT DE TERSANT                                                     
| | _________________________________________ 
     Thibault de Tersant         
| | Executive Vice President Finance and Legal 
     and Chief Financial Officer

82



---



##### 



CERTIFICATION

I, Bernard Charlès, certify that:

1. I have reviewed this annual report on
Form 20-F of Dassault Systemes;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weakness in internal
    controls; and
|
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                  

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: May 15, 2003

| |                                      
| | -------------------------------------
| | /s/ BERNARD CHARLÈS                  
| |                                      
| | Bernard Charlès                      
| | President and Chief Executive Officer

83



---



##### 



CERTIFICATION

I, Thibault de Tersant, certify that:

1. I have reviewed this annual report on
Form 20-F of Dassault Systemes;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weakness in internal
    controls; and
|
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                  

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: May 15, 2003

| |                                     
| | ------------------------------------
| | /s/ THIBAULT DE TERSANT             
| |                                     
| | Thibault de Tersant                 
| | Executive Vice President Finance and
| | Legal and Chief Financial Officer   

84



---



##### 



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of

Dassault Systèmes


Suresnes, France:


We have audited the accompanying consolidated
balance sheets of Dassault Systèmes and its subsidiaries as
of December 31, 2002 and 2001, and the related consolidated
statements of income, shareholders equity, and cash flows
for the years ended December 31, 2002, 2001 and 2000. 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
auditing standards generally accepted in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Dassault
Systèmes and its subsidiaries at December 31, 2002 and
2001, and the consolidated results of its operations and its
cash flows for the years ended December 31, 2002, 2001 and
2000 in conformity with accounting principles generally accepted
in the United States.

As discussed in Note B to the consolidated
financial statements, in 2002, Dassault Systèmes changed
its method of accounting for goodwill and other intangible
assets in accordance with guidance provided in Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.

Paris and Neuilly-sur-Seine, France,
April 15, 2003

|                                                            |  |                                                              
|----------------------------------------------------------- |  | -------------------------------------------------------------
|                                                           
|Ernst & Young Audit
    Represented by Jean-Marc MONTSERRAT |  | Deloitte Touche Tohmatsu
    Represented by Philippe MOURARET

F-1



---



##### 



DASSAULT SYSTÈMES

CONSOLIDATED BALANCE SHEETS

|                                                                       |                                                                                                                                  |                        |         |         |  |   |         |         | 
|---------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                                                                       |                                                                                                                                  |                       
|                                                                       |                                                                                                                                  | December 31,          
|                                                                       |                                                                                                                                  |                       
|                                                                       |                                                                                                                                  | 2002                   |         | 2001   
|                                                                       |                                                                                                                                  |                        |         |        
|                                                                       |                                                                                                                                  |                       
|                                                                       |                                                                                                                                  | (All amounts in       
|                                                                       |                                                                                                                                  | thousands except share
|                                                                       |                                                                                                                                  | amounts)              
|Assets                                                                 |                                                                                                                                  |                        |         |         |  |   |         |        
|Current assets:                                                        |                                                                                                                                  |                        |         |         |  |   |         |        
|                                                                       | Cash and cash equivalents (Note F)                                                                                               |                        |        | 371,992 |  |   |        | 363,136 | 
|                                                                       | Short-term investments (Note G)                                                                                                  |                        |         | 16,436  |  |   |         | 6,100   | 
|                                                                       | Trade accounts receivable, net of allowance for
    doubtful accounts of
    7,881 in 2002
    and 10,335 in
    2001 (Note P) |                        |         | 229,505 |  |   |         | 217,241 | 
|                                                                       | VAT receivable                                                                                                                   |                        |         | 6,316   |  |   |         | 6,306   | 
|                                                                       | Prepaid expenses and advances                                                                                                    |                        |         | 19,172  |  |   |         | 16,647  | 
|                                                                       | Financial instruments                                                                                                            |                        |         | 17,270  |  |   |         | 2,254   | 
|                                                                       | Income tax receivable                                                                                                            |                        |         | 8,877   |  |   |         | 2,088   | 
|                                                                       | Deferred tax assets (Note E)                                                                                                     |                        |         | 27,947  |  |   |         | 16,669  | 
|                                                                       | Other current assets                                                                                                             |                        |         | 24,134  |  |   |         | 22,100  | 
|                                                                       |                                                                                                                                  |                        |         |         |  |   |         |        
|Total current assets                                                   |                                                                                                                                  |                        | 721,649 |         |  |   | 652,541 |        
|Property and equipment, at cost:                                       |                                                                                                                                  |                        |         |         |  |   |         |        
|                                                                       | Land                                                                                                                             |                        |         | 6,109   |  |   |         | 6,191   | 
|                                                                       | Buildings                                                                                                                        |                        |         | 30,335  |  |   |         | 30,932  | 
|                                                                       | Computer equipment                                                                                                               |                        |         | 56,702  |  |   |         | 68,999  | 
|                                                                       | Office furniture and equipment                                                                                                   |                        |         | 19,280  |  |   |         | 19,475  | 
|                                                                       | Leasehold improvements                                                                                                           |                        |         | 23,708  |  |   |         | 22,558  | 
|                                                                       |                                                                                                                                  |                        |         |         |  |   |         |        
|                                                                       |                                                                                                                                  |                        | 136,134 |         |  |   | 148,155 |        
|Less accumulated depreciation and amortization                         |                                                                                                                                  |                        | (76,261 | )       |  |   | (82,779 | )      
|                                                                       |                                                                                                                                  |                        |         |         |  |   |         |        
|Property and equipment, net(Note H)                                    |                                                                                                                                  |                        | 59,873  |         |  |   | 65,376  |        
|Other non-current assets(Note J)                                       |                                                                                                                                  |                        | 39,167  |         |  |   | 19,337  |        
|Investment in equity of unconsolidated
    affiliates  joint ventures |                                                                                                                                  |                        | 304     |         |  |   |         |        
|Long-term deferred tax assets(Note E)                                  |                                                                                                                                  |                        | 15,405  |         |  |   | 14,939  |        
|Intangible assets(Note I):                                             |                                                                                                                                  |                        |         |         |  |   |         |        
|                                                                       | Goodwill (less accumulated amortization of
    106,620 in 2002
    and116,777 in 2001)                                         |                        |         | 71,599  |  |   |         | 56,584  | 
|                                                                       | Other intangible assets (less accumulated
    depreciation of
    94,496 in 2002
    and
    90,344 in 2001)                   |                        |         | 12,167  |  |   |         | 22,650  | 
|                                                                       |                                                                                                                                  |                        |         |         |  |   |         |        
|Total assets                                                           |                                                                                                                                  |                       | 920,164 |         |  |  | 831,427 |        
|                                                                       |                                                                                                                                  |                        |         |         |  |   |         |        

See accompanying notes to consolidated
financial statements.

F-2



---



##### 



DASSAULT SYSTÈMES


CONSOLIDATED BALANCE SHEETS 
(Continued)

|                                               |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |         | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------- | 
|                                               |                                                                                                                                                                                                                                                                  |                       
|                                               |                                                                                                                                                                                                                                                                  | December 31,          
|                                               |                                                                                                                                                                                                                                                                  |                       
|                                               |                                                                                                                                                                                                                                                                  | 2002                   |         | 2001   
|                                               |                                                                                                                                                                                                                                                                  |                        |         |        
|                                               |                                                                                                                                                                                                                                                                  |                       
|                                               |                                                                                                                                                                                                                                                                  | (All amounts in       
|                                               |                                                                                                                                                                                                                                                                  | thousands except share
|                                               |                                                                                                                                                                                                                                                                  | amounts)              
|Liabilities and shareholders
    equity       |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|Current liabilities:                           |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|                                               | Accounts payable                                                                                                                                                                                                                                                 |                        |        | 31,638  |   |   |        | 30,477  | 
|                                               | Accrued wages and other personnel costs                                                                                                                                                                                                                          |                        |         | 56,892  |   |   |         | 55,469  | 
|                                               | Sales incentive payable (Note P)                                                                                                                                                                                                                                 |                        |         | 15,668  |   |   |         | 13,164  | 
|                                               | Unearned revenue                                                                                                                                                                                                                                                 |                        |         | 92,229  |   |   |         | 83,675  | 
|                                               | Income taxes payable                                                                                                                                                                                                                                             |                        |         | 14,535  |   |   |         | 23,089  | 
|                                               | Current portion of long-term obligations                                                                                                                                                                                                                         |                        |         | 7,475   |   |   |         | 7,689   | 
|                                               | VAT and sales tax payables                                                                                                                                                                                                                                       |                        |         | 8,182   |   |   |         | 6,698   | 
|                                               | Deferred tax liabilities                                                                                                                                                                                                                                         |                        |         | 6,135   |   |   |         | 841     | 
|                                               | Accrued expenses and other current liabilities                                                                                                                                                                                                                   |                        |         | 16,209  |   |   |         | 19,906  | 
|                                               |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|Total current liabilities                      |                                                                                                                                                                                                                                                                  |                        | 248,963 |         |   |   | 241,008 |        
|Long-term obligations:                         |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|                                               | Capital lease (Note K)                                                                                                                                                                                                                                           |                        |         | 5,916   |   |   |         | 7,719   | 
|                                               | Employee profit sharing (Note L)                                                                                                                                                                                                                                 |                        |         | 22,655  |   |   |         | 22,324  | 
|                                               | Pension and post retirements benefits
    (Note M)                                                                                                                                                                                                               |                        |         | 8,388   |   |   |         | 6,304   | 
|                                               | Deferred tax liabilities and other (Note E)                                                                                                                                                                                                                      |                        |         | 5,981   |   |   |         | 3,194   | 
|                                               |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|Total long-term obligations                    |                                                                                                                                                                                                                                                                  |                        | 42,940  |         |   |   | 39,541  |        
|Commitments and contingencies (Note N)         |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|Shareholders equity:                          |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|                                               | Share capital, par value Euro 1, 114,570,841
    shares authorized and issued and 114,179,431 shares outstanding
    at December 31, 2002, and 114,446,171 shares authorized and
    issued and 113,943,754 shares outstanding at December 31,
    2001 (Note O) |                        |         | 114,571 |   |   |         | 114,446 | 
|                                               | Additional paid-in capital                                                                                                                                                                                                                                       |                        |         | 89,278  |   |   |         | 76,555  | 
|                                               | Retained earnings  unrestricted                                                                                                                                                                                                                                 |                        |         | 416,180 |   |   |         | 327,420 | 
|                                               | Retained earnings  restricted
    (Note O)                                                                                                                                                                                                                      |                        |         | 11,446  |   |   |         | 11,392  | 
|                                               | Accumulated other comprehensive income                                                                                                                                                                                                                           |                        |         | (3,214  | ) |   |         | 21,065  | 
|                                               |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|Total shareholders equity                     |                                                                                                                                                                                                                                                                  |                        | 628,261 |         |   |   | 550,878 |        
|                                               |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        
|Total liabilities and shareholders
    equity |                                                                                                                                                                                                                                                                  |                       | 920,164 |         |   |  | 831,427 |        
|                                               |                                                                                                                                                                                                                                                                  |                        |         |         |   |   |         |        

See accompanying notes to consolidated
financial statements.

F-3



---



##### 



DASSAULT SYSTÈMES

CONSOLIDATED STATEMENTS OF INCOME

|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |          |  
|---------------------------------------------------------------------- | ----------------------------------- | -------------------------- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                                                       |                                     |                           
|                                                                       |                                     | Year ended December 31,   
|                                                                       |                                     |                           
|                                                                       |                                     | 2002                       |          | 2001     |   | 2000
|                                                                       |                                     |                            |          |          |   |     
|                                                                       |                                     |                           
|                                                                       |                                     | (All amounts in thousands,
|                                                                       |                                     | except per share data)    
|Revenue:                                                               |                                     |                            |          |          |   |      |          |          |   |   |          |         
|                                                                       | Software revenue (Note C)           |                            |         | 669,886  |   |      |         | 643,034  |   |   |         | 541,683  |  
|                                                                       | Service and other revenue           |                            |          | 104,229  |   |      |          | 103,019  |   |   |          | 90,688   |  
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|                                                                       | Total revenue                       |                            |          | 774,115  |   |      |          | 746,053  |   |   |          | 632,371  |  
|Cost of revenue:                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|                                                                       | Software                            |                            |          | (24,448  | ) |      |          | (20,791  | ) |   |          | (14,948  | )
|                                                                       | Service and other                   |                            |          | (96,413  | ) |      |          | (86,542  | ) |   |          | (75,759  | )
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|                                                                       | Total cost of revenue               |                            |          | (120,861 | ) |      |          | (107,333 | ) |   |          | (90,707  | )
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|Gross profit                                                           |                                     |                            | 653,254  |          |   |      | 638,720  |          |   |   | 541,664  |         
|Research, selling and administrative
    expenses:                     |                                     |                            |          |          |   |      |          |          |   |   |          |         
|                                                                       | Research and development            |                            |          | (221,563 | ) |      |          | (209,235 | ) |   |          | (169,840 | )
|                                                                       | Marketing and sales                 |                            |          | (169,653 | ) |      |          | (164,323 | ) |   |          | (117,496 | )
|                                                                       | General and administration          |                            |          | (47,908  | ) |      |          | (44,183  | ) |   |          | (35,397  | )
|                                                                       | Amortization of goodwill            |                            |          |         |   |      |          | (44,144  | ) |   |          | (29,513  | )
|                                                                       | Amortization of acquired technology |                            |          | (11,098  | ) |      |          | (14,240  | ) |   |          | (10,664  | )
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|                                                                       |                                     |                            | (450,222 | )        |   |      | (476,125 | )        |   |   | (362,910 | )       
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|Operating income                                                       |                                     |                            | 203,032  |          |   |      | 162,595  |          |   |   | 178,754  |         
|Equity in net income of unconsolidated
    affiliates  joint ventures |                                     |                            | 214      |          |   |      |         |          |   |   |         |         
|Financial revenue and other, net (Note D)                              |                                     |                            | 2,545    |          |   |      | 14,062   |          |   |   | 11,034   |         
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|Income before income taxes                                             |                                     |                            | 205,791  |          |   |      | 176,657  |          |   |   | 189,788  |         
|Income tax expense (Note E)                                            |                                     |                            | (79,376  | )        |   |      | (87,916  | )        |   |   | (86,088  | )       
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|Net income                                                             |                                     |                           | 126,415  |          |   |     | 88,741   |          |   |  | 103,700  |         
|                                                                       |                                     |                            |          |          |   |      |          |          |   |   |          |         
|Basic net income per share (Note O)                                    |                                     |                           | 1.11     |          |   |     | 0.78     |          |   |  | 0.92     |         
|Diluted net income per share (Note O)                                  |                                     |                           | 1.09     |          |   |     | 0.76     |          |   |  | 0.87     |         

See accompanying notes to consolidated
financial statements.

F-4



---



##### 



DASSAULT SYSTÈMES

CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                      |                                                                                   |                            |         |         |   |      |         |        |   |   |          |         |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------- | ------- | ------- | - | ---- | ------- | ------ | - | - | -------- | ------- | -
|                                                                                      |                                                                                   |                           
|                                                                                      |                                                                                   | Year ended December 31,   
|                                                                                      |                                                                                   |                           
|                                                                                      |                                                                                   | 2002                       |         | 2001    |   | 2000
|                                                                                      |                                                                                   |                            |         |         |   |     
|                                                                                      |                                                                                   |                           
|                                                                                      |                                                                                   | (All amounts in thousands)
|CASH FLOWS FROM OPERATING ACTIVITIES                                                  |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|Net income                                                                            |                                                                                   |                           | 126,415 |         |   |     | 88,741  |        |   |  | 103,700  |        
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|                                                                                      | Depreciation and amortization of property, plant
    and equipment                |                            |         | 19,051  |   |      |         | 18,174 |   |   |          | 15,530  |  
|                                                                                      | Loss on disposals of property, plant and
    equipment and short-term investments |                            |         | 197     |   |      |         | 165    |   |   |          | 276     |  
|                                                                                      | Amortization of intangible assets                                                 |                            |         | 13,999  |   |      |         | 60,809 |   |   |          | 42,297  |  
|                                                                                      | Deferred income taxes                                                             |                            |         | (8,004  | ) |      |         | (9,878 | ) |   |          | (3,710  | )
|                                                                                      | Income tax benefits                                                               |                            |         | 5,254   |   |      |         |       |   |   |          | 4,641   |  
|                                                                                      | Non-cash stock-based compensation                                                 |                            |         | 3,636   |   |      |         | 1,338  |   |   |          |         |  
|                                                                                      | Equity in earnings of affiliates                                                  |                            |         | (214    | ) |      |         |        |   |   |          |         |  
|                                                                                      | PlanetCad investment impairment                                                   |                            |         | 3,101   |   |      |         |        |   |   |          |         |  
|                                                                                      | Profit sharing and other                                                          |                            |         | 709     |   |      |         | (751   | ) |   |          | 1,061   |  
|Changes in current assets and liabilities:                                            |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|                                                                                      | Increase in trade accounts receivable                                             |                            |         | (29,221 | ) |      |         | (5,778 | ) |   |          | (65,565 | )
|                                                                                      | (Increase) decrease in other current assets                                       |                            |         | 10,929  |   |      |         | 1,810  |   |   |          | (15,755 | )
|                                                                                      | Increase (decrease) in accounts payable and
    accrued expenses                  |                            |         | (2,792  | ) |      |         | 228    |   |   |          | 18,493  |  
|                                                                                      | Increase (decrease) in income taxes payable                                       |                            |         | (19,967 | ) |      |         | (4,519 | ) |   |          | 14,134  |  
|                                                                                      | Increase (decrease) in sales incentive payable                                    |                            |         | 2,829   |   |      |         | 364    |   |   |          | (3,195  | )
|                                                                                      | Increase in unearned revenue                                                      |                            |         | 19,870  |   |      |         | 2,951  |   |   |          | 20,244  |  
|                                                                                      | Increase (decrease) in other current liabilities                                  |                            |         | (3,028  | ) |      |         | 5,533  |   |   |          | (8,769  | )
|                                                                                      |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|NET CASH PROVIDED BY OPERATING
    ACTIVITIES                                         |                                                                                   |                            | 142,764 |         |   |      | 159,187 |        |   |   | 123,382  |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                  |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|Proceeds from sales of property and equipment                                         |                                                                                   |                            | 216     |         |   |      | 141     |        |   |   | 96       |        
|Additions to property, equipment and intangibles                                      |                                                                                   |                            | (20,427 | )       |   |      | (22,956 | )      |   |   | (21,406  | )      
|Short-term investments:                                                               |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|                                                                                      | Purchases                                                                         |                            |         | (10,351 | ) |      |         | (5,002 | ) |   |          | (1,998  | )
|                                                                                      | Proceeds from sales and maturities                                                |                            |         |         |   |      |         | 7,752  |   |   |          | 3,706   |  
|Payment for acquisitions, net of cash acquired                                        |                                                                                   |                            | (29,923 | )       |   |      | (12,361 | )      |   |   | (86,678  | )      
|Proceeds from sale of Revit investment                                                |                                                                                   |                            | 10,088  |         |   |      |         |        |   |   |          |        
|Increase in long-term receivables                                                     |                                                                                   |                            | (25,601 | )       |   |      | (2,204  | )      |   |   |          |        
|                                                                                      |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|NET CASH USED IN INVESTING
    ACTIVITIES                                             |                                                                                   |                            | (75,998 | )       |   |      | (34,630 | )      |   |   | (106,280 | )      
|CASH FLOWS FROM FINANCING ACTIVITIES                                                  |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|Payments on capital lease obligations                                                 |                                                                                   |                            | (1,643  | )       |   |      | (1,643  | )      |   |   | (1,643   | )      
|Proceeds from issuance of common stock                                                |                                                                                   |                            |         |         |   |      | 20      |        |   |   |          |        
|Purchase of treasury stock                                                            |                                                                                   |                            |         |         |   |      | (1,017  | )      |   |   |          |        
|Proceeds from exercise of stock options                                               |                                                                                   |                            | 4,149   |         |   |      | 4,380   |        |   |   | 24,147   |        
|Cash dividends paid                                                                   |                                                                                   |                            | (37,601 | )       |   |      | (35,135 | )      |   |   | (29,985  | )      
|                                                                                      |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|NET CASH USED IN FINANCING
    ACTIVITIES                                             |                                                                                   |                            | (35,095 | )       |   |      | (33,395 | )      |   |   | (7,481   | )      
|Effect of exchange rate changes on cash                                               |                                                                                   |                            | (22,815 | )       |   |      | 6,036   |        |   |   | 6,334    |        
|                                                                                      |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|Increase in cash and cash equivalents                                                 |                                                                                   |                            | 8,856   |         |   |      | 97,198  |        |   |   | 15,955   |        
|CASH AND CASH EQUIVALENTS:                                                            |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|BEGINNING OF PERIOD                                                                   |                                                                                   |                            | 363,136 |         |   |      | 265,938 |        |   |   | 249,983  |        
|END OF PERIOD                                                                         |                                                                                   |                           | 371,992 |         |   |     | 363,136 |        |   |  | 265,938  |        
|                                                                                      |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|SUPPLEMENTAL DISCLOSURE                                                               |                                                                                   |                            |         |         |   |      |         |        |   |   |          |        
|Income taxes paid                                                                     |                                                                                   |                           | 97,922  |         |   |     | 76,694  |        |   |  | 72,872   |        
|Cash interest paid                                                                    |                                                                                   |                           | 1,295   |         |   |     | 1,523   |        |   |  | 1,184    |        

See accompanying notes to consolidated
financial statements.

F-5



---



##### 



DASSAULT SYSTÈMES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |         |         |  
|--------------------------------------------- | ----------------------------------- | --------------------------------------------------- | ----------- | ------------- |  | --------- | ------- | ----------------- |  | -------------- | ----------- | ------------- |  | ------ | ------ | ----- |  | - | ------- | ------- | - | - | ------ | ----- |  | -- | ------ | - | ------- | - | ------- | ------- | ------- | -
|                                              |                                     |                                                     |             | Share capital |  |           |         |                   |  |                |             |               |  |       
|                                              |                                     | Share capital issued                                |             | outstanding   |  |           |         |                   |  |                |             |               |  |       
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |              
|                                              |                                     |                                                     |             |               |  |           |         | Retained earnings |  | Other items of |             |              
|                                              |                                     | Number of                                           |             | Stated        |  | Number of |         | Paid in           |  |                |             | comprehensive |  |       
|                                              |                                     | shares                                              |             | value         |  | shares    |         | capital           |  | Unrestricted   |             | Restricted    |  | income |        | Total
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |      
|                                              |                                     |                                                    
|                                              |                                     | (All amounts in thousands, except number of shares)
|December 31, 1999                             |                                     |                                                     | 113,205,287 |               |  |          | 113,205 |                   |  |                | 112,392,052 |               |  |       | 27,740 |       |  |  | 203,867 |         |   |  | 8,612  |       |  |   | 7,995  |   |         |  | 361,419 |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Net income:                                   |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|                                              | Unrestricted                        |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         | 103,700 |   |   |        |       |  |    |        |   |         |   |         | 103,700 |        
|                                              | Restricted                          |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         | (2,708  | ) |   |        | 2,708 |  |    |        |   |         |   |         | 0       |        
|Other items of comprehensive income           |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|                                              |                                     | Available for sale securities                       |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | (2,351  | ) |         |         | (2,351  | )
|                                              |                                     | Foreign currency translation adjustment             |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | 7,457   |   |         |         | 7,457   |  
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Comprehensive income                          |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 108,806 |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Exercise of stock options (Note O)            |                                     |                                                     | 721,676     |               |  |           | 722     |                   |  |                | 927,144     |               |  |        | 20,062 |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 20,784  |        
|Income tax benefit (Note E)                   |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        | 4,641  |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 4,641   |        
|Cash dividends paid                           |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   | (29,985 | )       |   |   |        |       |  |    |        |   |         |   | (29,985 | )      
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|December 31, 2000                             |                                     |                                                     | 113,926,963 |               |  |          | 113,927 |                   |  |                | 113,319,196 |               |  |       | 52,443 |       |  |  | 274,874 |         |   |  | 11,320 |       |  |   | 13,101 |   |         |  | 465,665 |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Net income:                                   |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|                                              | Unrestricted                        |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         | 88,741  |   |   |        |       |  |    |        |   |         |   |         | 88,741  |        
|                                              | Restricted                          |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         | (72     | ) |   |        | 72    |  |    |        |   |         |   |         | 0       |        
|                                              | Other items of comprehensive income |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |         |        
|                                              |                                     | Available for sale securities                       |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | (760    | ) |         |         | (760    | )
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|                                              |                                     | Net derivative gains on cash-flow hedges            |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | 1,433   |   |         |         | 1,433   |  
|                                              |                                     | Foreign currency translation adjustment             |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | 7,291   |   |         |         | 7,291   |  
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Comprehensive income                          |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 96,705  |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Exercise of stock options (Note O)            |                                     |                                                     | 168,191     |               |  |           | 168     |                   |  |                | 273,541     |               |  |        | 4,197  |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 4,365   |        
|Other stock transaction                       |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        | 1,338  |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 1,338   |        
|Purchase of treasury stock                    |                                     |                                                     | (29,033     | )             |  |           | (29     | )                 |  |                | (29,033     | )             |  |        |        |       |  |   | (988    | )       |   |   |        |       |  |    |        |   |         |   | (1,017  | )      
|Shares issued in connection with acquisitions |                                     |                                                     | 380,050     |               |  |           | 380     |                   |  |                | 380,050     |               |  |        | 18,577 |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 18,957  |        
|Cash dividends paid                           |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   | (35,135 | )       |   |   |        |       |  |    |        |   |         |   | (35,135 | )      
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|December 31, 2001                             |                                     |                                                     | 114,446,171 |               |  |          | 114,446 |                   |  |                | 113,943,754 |               |  |       | 76,555 |       |  |  | 327,420 |         |   |  | 11,392 |       |  |   | 21,065 |   |         |  | 550,878 |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Net income:                                   |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|                                              | Unrestricted                        |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         | 126,415 |   |   |        |       |  |    |        |   |         |   |         | 126,415 |        
|                                              | Restricted                          |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         | (54     | ) |   |        | 54    |  |    |        |   |         |   |         | 0       |        
|                                              | Other items of comprehensive income |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |         |        
|                                              |                                     | Available for sale securities                       |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | 3,017   |   |         |         | 3,017   |  
|                                              |                                     | Net derivative gains on cash-flow hedges            |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | 9,718   |   |         |         | 9,718   |  
|                                              |                                     | Minimum pension liability                           |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | (384    | ) |         |         | (384    | )
|                                              |                                     | Foreign currency translation adjustment             |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   | (36,630 | ) |         |         | (36,630 | )
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Comprehensive income                          |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 102,136 |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        
|Exercise of stock options (Note O)            |                                     |                                                     | 124,670     |               |  |           | 125     |                   |  |                | 235,677     |               |  |        | 3,833  |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 3,958   |        
|Other stock transaction                       |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        | 3,636  |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 3,636   |        
|Tax benefits (Note E)                         |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        | 5,254  |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   | 5,254   |        
|Cash 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  | ) |         |  | 628,261 |        
|                                              |                                     |                                                     |             |               |  |           |         |                   |  |                |             |               |  |        |        |       |  |   |         |         |   |   |        |       |  |    |        |   |         |   |         |        

See accompanying notes to consolidated
financial statements.

F-6



---



##### 



DASSAULT SYSTÈMES

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

YEARS ENDED DECEMBER 31, 2002, 2001 AND
2000




|         |                                                                                                                         
|-------- | ------------------------------------------------------------------------------------------------------------------------
|NOTE A  | DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION
    AND CONSOLIDATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES

Description of
Business.The strategy of Dassault
Systèmes and its subsidiaries (the Company) is
to develop and sell integrated solutions created to manage its
customers industrial product lifecycles (Product
Lifecycle Management or PLM) from their
initial product concept and design to their maintenance through
manufacturing simulation and to offer the power of 3D
visualization to the largest number of users.

The Company operates in two reportable segments:
one dedicated to customers willing to simulate their industrial
processes as a whole (Process-centric) and one for
customers primarily focused on product design solutions
(Design-centric).

In the Process-centric segment, CATIA supports
digital product definition and simulation, DELMIA provides
solutions to define and simulate digital manufacturing processes
and ENOVIA and SMARTEAM deliver product data management and
collaborative solutions. The Company is also a provider of
software components notably through Spatial, one of its
subsidiaries.

CATIA and ENOVIA solutions are marketed,
distributed, and supported in nearly all the worlds
markets by International Business Machines Corporation (IBM). In
2001, IBM added SMARTEAM to its product portfolio.

In the Design-centric segment, the Company offers
SolidWorks software. SolidWorks solutions are marketed,
distributed, and supported directly by the Company or through
various independent sales representatives.

In addition to the development and sale of
software products, the Company also provides services 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 are prepared in accordance
with accounting principles generally accepted in the United
States. 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 T.

The consolidated financial statements include the
accounts of Dassault Systèmes and its subsidiaries. All
significant intercompany transactions have been eliminated.

Companies over which the Company exercises
significant influence over operating and financial policies are
accounted for under the equity method.

F-7



---



##### 



As of December 31, percentage of interest
and voting rights of the Company were as follows:

|                                                    |  |                         |        |                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|--------------------------------------------------- |  | ----------------------- | ------ | -------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                    |  |                        
|                                                    |  | Year ended December 31,
|                                                    |  |                        
|                                                    |  |                         |        |               
|                                                    |  | Voting rights           |        | Capital rights
|                                                    |  |                         |        |               
|                                                    |  | 2002                    |        | 2001           |  | 2000 |        | 2002 |  | 2001 |        | 2000
|                                                    |  |                         |        |                |  |      |        |      |  |      |        |     
|Dassault Participation                              |  |                         |       |                |  |      |       |      |  |      | 34.4%  |      |  |  |       |  |  |  |       |  |  |  | 34.2%  | 
|French State                                        |  |                         | 14.6%  |                |  |      | 15.6%  |      |  |      |       |      |  |  | 15.6%  |  |  |  | 15.6%  |  |  |  |       | 
|GIMD (Groupe Industriel Marcel
    Dassault)      |  |                         | 42.0%  |                |  |      | 44.6%  |      |  |      | 26.3%  |      |  |  | 44.7%  |  |  |  | 44.3%  |  |  |  | 26.1%  | 
|Mr. Charles Edelstenne, Chairman of the
    Company |  |                         | 12.5%  |                |  |      | 6.7%   |      |  |      | 6.7%   |      |  |  | 6.7%   |  |  |  | 6.7%   |  |  |  | 6.7%   | 
|Public                                              |  |                         | 30.9%  |                |  |      | 33.1%  |      |  |      | 32.6%  |      |  |  | 33.0%  |  |  |  | 33.4%  |  |  |  | 33.0%  | 
|                                                    |  |                         |        |                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|Total                                               |  |                         | 100.0% |                |  |      | 100.0% |      |  |      | 100.0% |      |  |  | 100.0% |  |  |  | 100.0% |  |  |  | 100.0% | 
|                                                    |  |                         |        |                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 

Summary of Significant Accounting
Policies.

Revenue Recognition.Software revenue is recognized in
accordance with the AICPA Statement of Position 97-2 as amended
(SOP 97-2) on software revenue recognition.

Software revenue is generated from the licensing
of the Companys products to its customers. The Company
always retains the ownership of the products. The Company
provides end-user customers, directly or indirectly, with a
right of use of its products. Such revenue derived from the
end-user customer is shared by agreement with other independent
companies in the sales and distribution channel, principally
IBM, when products are sold and distributed by such independent
companies. Beginning in 1995, the Company and IBM entered into a
new arrangement which increases the share of licensing revenue
to be retained by IBM if certain annual sales and growth targets
are met by IBM. Since 2002, this incentive is also linked to IBM
meeting a certain level of sales and marketing expenses for the
distribution of CATIA, ENOVIA and SMARTEAM. Such incentive is
recorded as a deduction of software revenue. Under the IBM
distribution arrangement, the Company licenses its products to
IBM, who then sub-licenses the products to end-users. Under the
terms of the agreement with IBM, the Company recognizes revenues
as IBM recognizes revenues pursuant to SOP 97-2 as amended
and reports such revenues to the Company (see further discussion
of transactions with IBM at Note P).

Under the agreement with IBM, activity is
reported monthly to the Company by IBM. This reporting of the
worldwide activity of IBM 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 by IBM based upon its estimate of adjustments that
will ultimately be made.

The Companys revenue is derived from
non-refundable, initial, software license charges, known as the
primary license charge, and periodic license or maintenance
fees. Primary license charges are recognized upon installation
(if installed by the Company) or upon notification of
installation (if installed by an independent sales
representative). After such installation, the Company has no
further obligations with respect to the primary license charge.
Revenues related to the licensing of software distributed
through an independent sales representative are recognized as
revenue by the Company when the independent sales representative
provides notice of delivery to an end-user customer. Periodic
license and maintenance fee revenues are recognized over the
license or maintenance period. An end-user customer with an
active license, or an active maintenance contract, is provided
with corrective software maintenance services and product
updates at no additional charge, the costs of which are recorded
as expense in the period incurred. Service and other revenue are
recognized as the related service is provided. Revenue derived
from hardware resale activities is recognized upon delivery.
Revenues for all types of activities are not recognized unless
collection is probable.

F-8



---



##### 



Unearned revenue.The Company records unearned revenue
related to cash payments received for certain annual software
fee arrangements.

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 which 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
deposits with banks, investments in interest-bearing accounts
and marketable debt securities with maturities of less than
90 days when acquired 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, 2002 and 2001.
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.

In August 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment
or Disposals of Long-Lived Assets (SFAS 144). SFAS
144 supersedes Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of (SFAS 121)
and certain reporting provisions of Accounting Principles Board
Opinions No. 30 for the disposal of a segment of a business
as defined in that Opinion. This statement requires an
impairment loss to be recognized only if the carrying amounts of
assets to be held and used are not recoverable from their
expected undiscounted future cash flows. The provisions of SFAS
144, which the Company adopted on January 1, 2002, did not
have a material impact on the Companys consolidated
financial statements.

Goodwill and Intangible Assets.Costs related to purchased patents and
trademarks are capitalized and amortized using the straight-line
method over their estimated useful lives (generally
18 months to 5 years).

In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible
Assets (SFAS 141 and SFAS 142,
respectively). SFAS 141 supercedes Accounting Principles
Board Opinion No. 16, Business Combinations and eliminates
the pooling-of-interests method for business combinations
initiated after June 30, 2001. SFAS 141 also changes
the criteria for recognizing intangible assets apart from
goodwill and states the following criteria should be considered
in determining the recognition of intangible assets:
(1) the intangible asset arises from contractual or other
rights, or (2) the intangible asset is separable or
divisible from the acquired entity and capable of being sold,
transferred, licensed, returned or exchanged. The Companys
adoption of SFAS 141 did not have a material impact on the
Companys financial position or results of operations.

Under SFAS 142, goodwill and indefinite lived
intangible assets will no longer be amortized but will be
reviewed annually for impairment, or more frequently if
impairment indicators arise. Separable intangible assets that
are not deemed to have an indefinite life will continue to be
amortized over their useful lives. The Company adopted
SFAS 142 on January 1, 2002.

Foreign Currency Adjustments.The functional currency of the
Companys foreign subsidiaries is the applicable local
currency in accordance with Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation, while the
Companys reporting currency is the euro. Assets and
liabilities of the Company and its subsidiaries 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

F-9



---



##### 



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.


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. 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 Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended
(SFAS 133). 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 will be 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.Deferred tax assets and liabilities
are recognized for temporary differences between financial and
tax reporting. Deferred taxes are adjusted for changes in the
applicable, enacted tax rates. Deferred tax assets are
recognized whenever the realization of such amounts is
considered to be more likely than not. Earnings of foreign
subsidiaries are reinvested in the business and no provision for
French income tax is made for the earnings of such subsidiaries
until distributed. Tax credits are utilized as they arise.

Shipping and Handling.Shipping and handling costs related to
license fees are included in cost of software, for all periods
presented. Shipping and handling costs related to maintenance
releases are included in cost of software.

Advertising Costs.The Company expenses advertising
expenses as incurred.

Pension and Post Retirement Benefits.The estimated cost of providing
benefits to employees is accrued during the years that the
employees render services.

Information about Operating Segments.The Company reports its segments and
related information in accordance with Statement of Financial
Accounting Standards 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 are
determined by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings
per share are 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 is accounting for its
stock option plans in accordance with the provisions of
Accounting Principles Board Opinions No. 25
Accounting for stock issued to employees
(APB 25) and FASB Interpretation No. 44.
Under those rules, no compensation expense is recognized for
stock options that are granted at the market price at the date
of grant.

In accordance with the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for
stock-based compensation (SFAS 123), the fair
value of the options granted in 2002 and in 2001 has been
estimated using the Black Scholes option pricing model. Had the
Company accounted for the 2002 and

F-10



---



##### 



2001 stock option plans consistent with the
methodology of SFAS 123, the Companys net income and
earnings per share would have been changed to the pro forma
amounts indicated below:


|                             |             |                                |   |         |  |      |   |        |  |  |   |         | 
|---------------------------- | ----------- | ------------------------------ | - | ------- |  | ---- | - | ------ |  |  | - | ------- | 
|                             |             | 2002                           |   | 2001    |  | 2000
|                             |             |                                |   |         |  |     
|                             |             |                               
|                             |             | (in thousands except per share
|                             |             | amounts)                      
|Net earnings                 |             |                                |   |         |  |      |   |        |  |  |   |        
|                             | As reported |                                |  | 126,415 |  |      |  | 88,741 |  |  |  | 103,700 | 
|                             | Pro forma   |                                |  | 72,115  |  |      |  | 59,708 |  |  |  | 85,970  | 
|Basic net income per share   |             |                                |   |         |  |      |   |        |  |  |   |        
|                             | As reported |                                |  | 1.11    |  |      |  | 0.78   |  |  |  | 0.92    | 
|                             | Pro forma   |                                |  | 0.63    |  |      |  | 0.53   |  |  |  | 0.76    | 
|Diluted net income per share |             |                                |   |         |  |      |   |        |  |  |   |        
|                             | As reported |                                |  | 1.09    |  |      |  | 0.76   |  |  |  | 0.87    | 
|                             | Pro forma   |                                |  | 0.62    |  |      |  | 0.51   |  |  |  | 0.72    | 

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.

Recently issued accounting standards.The FASB issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146) in June 2002. SFAS 146 is
effective for exit or disposal activities that are initiated
after December 31, 2002. The provisions of SFAS 146
are not expected to have a material impact on the Companys
consolidated financial statements.

In December 2002, the FASB issued Statement of
Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure
(SFAS 148). SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. SFAS 148 also requires that disclosures of
the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed
more prominently and in a tabular format. Additionally,
SFAS 148 requires disclosure of the pro forma effect
in interim financial statements. The transition and annual
disclosure requirements of SFAS 148 are effective for the
Companys fiscal year 2003. The Company does not expect
SFAS 148 to have a material effect on the Companys
financial position or results of operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (the Interpretation). The Interpretation
will significantly change current practice in the accounting for
and disclosure of, guarantees. The Interpretation requires
certain guarantees to be recorded at fair value, which is
different from current practice, which is generally to record a
liability only when a loss is probable and reasonably estimable,
as those terms are defined in FASB Statement No. 5,
Accounting for Contingencies. The Interpretation also requires a
guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote,
which is another change from current practice. The
Interpretations disclosure requirements are effective for
financial statements of interim or annual periods ending after
December 15, 2002. The Interpretations initial
recognition and initial measurement provisions are applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors
fiscal year-end. The guarantors previous accounting for
guarantees issued prior to the date of the Interpretations
initial application should not be revised or restated to reflect
the Interpretations provisions. The Company is
investigating what impact, if any, the adoption of the
Interpretation will have on its financial position or results of
operations.

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.

F-11



---



##### 



Reclassifications.Certain reclassifications have been
made to prior years amounts to conform with current year
presentation.

NOTE B  BUSINESS
COMBINATIONS

2001

On July 20, 2001 Dassault Systèmes
acquired the consulting and services business and related assets
of Alliance Commerciale Technologique (ACT) for
9 million
in cash. This transaction reinforces Dassault
Systèmes presence in the Americas and complements its
existing services groups within PLM solutions. The total
purchase price was allocated as follows:

|                          |  |  |             | 
|------------------------- |  |  | ----------- | 
|Trade accounts receivable |  |  | 2  million | 
|Property and equipment    |  |  | 1  million | 
|Intangible assets         |  |  | 6  million | 

On May 31, 2001, Dassault Systèmes
acquired Structural Research and Analysis Corp.
(SRAC), a private company located in California, for
23 million.
This acquisition was financed by an issuance of shares for
19 million
with the remainder paid in cash. SRAC became a wholly owned
subsidiary of Dassault Systèmes, operating under the SRAC
name. SRAC is a supplier of CAE and CAD integrated design
analysis software. The purchase price in excess of the net
assets acquired was allocated as follows:

|         |  |  |              | 
|-------- |  |  | ------------ | 
|Goodwill |  |  | 13  million | 
|Software |  |  | 9 million   | 

On May 3, 2001, the Company exchanged its
investment in AES for a 9% minority interest in MSC.Software
(MSC). This exchange did not result in any gain or
loss. MSC is a provider of simulation software, with related
services and systems.

2000

During the last quarter of 2000, the Company
acquired 100% of Delmia AB formerly known as EAI Scandinavia AB
for a cash purchase price of
3 million.
This company is a value added reseller of digital manufacturing
solutions in Scandinavia and Northern Europe. The goodwill
related to this acquisition was
2 million.

On November 14, 2000, the Company completed
the acquisition of Spatial Technology Inc.s 3D software
component business division for a cash purchase price of
27 million.
The component business is known as Spatial Corp.
(Spatial) and operates as an independent, wholly
owned subsidiary of the Company. Spatial uses the technical
knowledge of the Company to offer 3D technologies as
component extensions of the Spatial product family. The purchase
price in excess of the net assets acquired was allocated as
follows:

|         |  |  |              | 
|-------- |  |  | ------------ | 
|Goodwill |  |  | 19  million | 
|Software |  |  | 8 million   | 

On October 31, 2000, the Company acquired
100% of privately-held CIMLOGIC, located in Nashua, New
Hampshire, and now provides design solutions that incorporate
part libraries, enabling users to have access to a variety of
standard components. The cash purchase price of this acquisition
was
3 million.
The goodwill related to this acquisition was
2 million.

On January 26, 2000, the Company acquired
100% of the share capital in Safework Inc.
(Safework), formerly called Les consultants
Genicom, a private company based in Montreal (Canada)
which specializes in human modeling technology for a cash
purchase price of
10 million.
The purchase price in excess of the net assets acquired was
allocated as follows:

|         |  |  |             | 
|-------- |  |  | ----------- | 
|Goodwill |  |  | 9  million | 
|Software |  |  | 1  million | 

F-12



---



##### 



Under the share purchase agreement, a contingent
payment that will not exceed 3 million Canadian Dollars
could be paid in 2003 or 2004 to the former shareholder in case
of the attainment of certain revenue targets.

On March 24, 2000, the Company acquired
EAIs subsidiary Delmia GmbH, based in Stuttgart (Germany),
for a cash price of
32 million.
Delmia GmbH provides a family of software for customers to
virtually define and monitor general manufacturing activities
within the factory shop floor and to compute the related
production costs. The purchase price in excess of the net assets
acquired was allocated as follows:

|         |  |  |              | 
|-------- |  |  | ------------ | 
|Goodwill |  |  | 25  million | 
|Software |  |  | 7 million   | 

During the fourth quarter of 2000, the Company
acquired a 7.7% minority interest in Revit, a privately-held
company, for an amount of
8 million.
Revit develops parametric modelers for the AEC industry
(Architecture Engineering Construction).

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.

Goodwill and intangible assets

We adopted SFAS 142 on January 1, 2002 when
our new fiscal year began. During 2002 the Company performed the
first of the required annual impairment tests of goodwill, which
resulted in a finding that no impairment to goodwill existed.
This test consisted of a comparison of the fair value of the
Companys reporting units with its 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.

The following table sets forth net income per
share adjusted to exclude goodwill amortization recognized prior
to the adoption of SFAS 142 on January 1, 2002 (in
thousands, except for per share amounts):

|                                                        |  |                         |         |      |  |      |         |  |  |  |         | 
|------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                        |  |                        
|                                                        |  | Year ended December 31,
|                                                        |  |                        
|                                                        |  | 2002                    |         | 2001 |  | 2000
|                                                        |  |                         |         |      |  |     
|Reported net income                                     |  |                         | 126,415 |      |  |      | 88,741  |  |  |  | 103,700 | 
|Add back: goodwill amortization, net of tax
    benefit |  |                         |         |      |  |      | 44,144  |  |  |  | 29,513  | 
|Adjusted net income                                     |  |                         | 126,415 |      |  |      | 132,885 |  |  |  | 133,213 | 
|                                                        |  |                         |         |      |  |      |         |  |  |  |         | 
|Net income per share 
    basic:                       |  |                         |         |      |  |      |         |  |  |  |         | 
|Reported net income                                     |  |                         | 1.11    |      |  |      | 0.78    |  |  |  | 0.92    | 
|Add back: goodwill amortization, net of tax
    benefit |  |                         |         |      |  |      | 0.39    |  |  |  | 0.26    | 
|Adjusted net income                                     |  |                         | 1.11    |      |  |      | 1.17    |  |  |  | 1.18    | 
|                                                        |  |                         |         |      |  |      |         |  |  |  |         | 
|Net income per share 
    diluted:                     |  |                         |         |      |  |      |         |  |  |  |         | 
|Reported net income                                     |  |                         | 1.09    |      |  |      | 0.76    |  |  |  | 0.87    | 
|Add back: goodwill amortization, net of tax
    benefit |  |                         |         |      |  |      | 0.38    |  |  |  | 0.25    | 
|Adjusted net income                                     |  |                         | 1.09    |      |  |      | 1.14    |  |  |  | 1.12    | 
|                                                        |  |                         |         |      |  |      |         |  |  |  |         | 

NOTE C  SOFTWARE REVENUE

Software revenue was comprised of initial
software license charges (primary license charges) of
349,784,000,
351,196,000, and
309,794,000 and
periodic license and maintenance fees of
320,102,000,
291,838,000, and
231,889,000, in
the years ended December 31, 2002, 2001, and 2000,
respectively.

F-13



---



##### 



NOTE D  FINANCIAL REVENUE AND
OTHER, NET

|                                             |  |                         |        |      |  |      |        |   |  |   |        |  
|-------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                             |  |                        
|                                             |  | Year ended December 31,
|                                             |  |                        
|                                             |  | 2002                    |        | 2001 |  | 2000
|                                             |  |                         |        |      |  |     
|                                             |  |                        
|                                             |  | (In thousands)         
|Interest income                              |  |                        | 11,648 |      |  |     | 15,425 |   |  |  | 13,694 |  
|Interest expense                             |  |                         | (1,682 | )    |  |      | (2,354 | ) |  |   | (4,947 | )
|Foreign exchange gains (losses), net         |  |                         | (6,280 | )    |  |      | 345    |   |  |   | 2,318  |  
|Impairment charge on PlanetCAD investment(1) |  |                         | (3,101 | )    |  |      |        |   |  |   |        |  
|Other, net(2)                                |  |                         | 1,960  |      |  |      | 646    |   |  |   | (31    | )
|                                             |  |                         |        |      |  |      |        |   |  |   |        |  
|                                             |  |                        | 2,545  |      |  |     | 14,062 |   |  |  | 11,034 |  
|                                             |  |                         |        |      |  |      |        |   |  |   |        |  






|    |                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During 2002, the Company determined that the
    decline in the fair value of PlanetCAD Inc. was other than
    temporary. In accordance with Statement of Financial Accounting
    Standards No. 115, Accounting for certain investments
    in debt and equity securities (SFAS 115), the Company
    recorded a non-cash asset impairment charge.
|(2) | For the year ended December 31, 2002 the
    Other caption line includes, the gain on the sale of the Revit
    investment for
    1,041,000.                                                                                                                                                                                                        

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 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 2002 and 2001, 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
have been 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 year ended December 31, 2001.

In connection with the Companys cash flow
hedges, it has recorded approximately
9.7 million
(2001:
1.4 million)
of net gains in accumulated other comprehensive income as of
December 31, 2002, net of tax, of which approximately
2.9 million
is expected to be reclassified to net income within the next
year to provide an economic offset to the impact of the
underlying anticipated cash flows hedged. At December 31,
2002, the fair value of all derivative instruments has been
recorded in the balance sheet in Other current assets.

F-14



---



##### 



The following table presents the carrying amount
of financial instruments at December 31, 2002, 2001 and
2000:

|                                    |  |                         |        |        |  |          |       |        |  |          |        |        |  |  |        |   |  |  |        |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------ | ------ |  | -------- | ----- | ------ |  | -------- | ------ | ------ |  |  | ------ | - |  |  | ------ |  |  |  | ----- | -
|                                    |  |                        
|                                    |  | Year ended December 31,
|                                    |  |                        
|                                    |  |                         |        |        |  |         
|                                    |  | 2002                    |        | 2001   |  | 2000    
|                                    |  |                         |        |        |  |         
|                                    |  | Notional                |        | Market |  | Notional |       | Market |  | Notional |        | Market
|                                    |  | amount                  |        | value  |  | amount   |       | value  |  | amount   |        | value 
|                                    |  |                         |        |        |  |          |       |        |  |          |        |       
|                                    |  |                        
|                                    |  | (in thousands of euros)
|Put USD/euros                       |  |                         |        |        |  |          |       |        |  |          | 11,347 |        |  |  | 196    |   |  |  | 5,874  |  |  |  | 37    |  
|Call USD/euros                      |  |                         |        |        |  |          |       |        |  |          | 11,347 |        |  |  | (690   | ) |  |  |        |  |  |  |       |  
|Call USD/euros                      |  |                         |        |        |  |          |       |        |  |          | 15,318 |        |  |  | 198    |   |  |  | 26,897 |  |  |  | 159   |  
|Call GBP/euros                      |  |                         |        |        |  |          |       |        |  |          |        |        |  |  |        |   |  |  | 5,172  |  |  |  | 17    |  
|Call JPY/euros                      |  |                         |        |        |  |          |       |        |  |          |        |        |  |  |        |   |  |  | 3,165  |  |  |  | 4     |  
|Digital JPY/euros                   |  |                         | 400    |        |  |          | 135   |        |  |          | 1,425  |        |  |  | 312    |   |  |  |        |  |  |  |       |  
|Collars USD/euros                   |  |                         | 47,082 |        |  |          | 7,096 |        |  |          | 66,947 |        |  |  | (2,015 | ) |  |  | 78,118 |  |  |  | 176   |  
|Collars JPY/euros                   |  |                         | 86,017 |        |  |          | 7,073 |        |  |          | 26,100 |        |  |  | 1,572  |   |  |  | 9,076  |  |  |  | 182   |  
|Collars GBP/euros                   |  |                         |        |        |  |          |       |        |  |          |        |        |  |  |        |   |  |  | 4,910  |  |  |  | 101   |  
|Forward exchange contract USD/euros |  |                         | 20,625 |        |  |          | 4,246 |        |  |          | 26,098 |        |  |  | (804   | ) |  |  | 32,390 |  |  |  | (228  | )
|Forward exchange contract JPY/euros |  |                         | 15,274 |        |  |          | 2,395 |        |  |          | 27,405 |        |  |  | 2,246  |   |  |  | 29,527 |  |  |  | 3,082 |  




GBP means pounds Sterling;
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 counterparty
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.

NOTE E  INCOME TAXES

Deferred tax assets and (liabilities) are as
follows:

|                                                                               |                                |                |         |         |   |   |         |        |  
|------------------------------------------------------------------------------ | ------------------------------ | -------------- | ------- | ------- | - | - | ------- | ------ | -
|                                                                               |                                |               
|                                                                               |                                | December 31,  
|                                                                               |                                |               
|                                                                               |                                | 2002           |         | 2001   
|                                                                               |                                |                |         |        
|                                                                               |                                |               
|                                                                               |                                | (in thousands)
|Deferred tax assets:                                                           |                                |                |         |         |   |   |         |       
|Accelerated depreciation and amortization for
    financial statement purposes |                                |               | 24,529  |         |   |  | 24,484  |       
|Profit sharing and pension accruals not yet
    deductible                     |                                |                | 6,639   |         |   |   | 6,235   |       
|Provisions and other expenses not currently
    deductible                     |                                |                | 15,865  |         |   |   | 15,725  |       
|Net tax loss and tax credit carryforward assets                                |                                |                | 23,751  |         |   |   | 22,563  |       
|Valuation reserves                                                             |                                |                | (23,473 | )       |   |   | (33,301 | )     
|                                                                               |                                |                |         |         |   |   |         |       
|                                                                               | Total deferred tax assets      |                |         | 47,311  |   |   |         | 35,706 |  
|Deferred tax liabilities:                                                      |                                |                |         |         |   |   |         |       
|Accelerated depreciation and amortization for tax
    purposes                 |                                |                | (8,144  | )       |   |   | (6,115  | )     
|Other                                                                          |                                |                | (6,217  | )       |   |   | (842    | )     
|                                                                               |                                |                |         |         |   |   |         |       
|                                                                               | Total deferred tax liabilities |                |         | (14,361 | ) |   |         | (6,957 | )
|                                                                               |                                |                |         |         |   |   |         |       
|Net deferred tax asset                                                         |                                |               | 32,950  |         |   |  | 28,749  |       
|                                                                               |                                |                |         |         |   |   |         |       

F-15



---



##### 



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,  
|                                    |                                |               
|                                    |                                | 2002           |        | 2001   
|                                    |                                |                |        |        
|                                    |                                |               
|                                    |                                | (in thousands)
|Short-term deferred tax assets      |                                |               | 27,947 |         |   |  | 16,669 |       
|Long-term deferred tax assets       |                                |                | 15,406 |         |   |   | 14,939 |       
|                                    |                                |                |        |         |   |   |        |       
|                                    | Total deferred tax assets      |                |        | 43,353  |   |   |        | 31,608 |  
|                                    |                                |                |        |         |   |   |        |       
|Short-term deferred tax liabilities |                                |                | (6,135 | )       |   |   | (841   | )     
|Long-term deferred tax liabilities  |                                |                | (4,268 | )       |   |   | (2,018 | )     
|                                    |                                |                |        |         |   |   |        |       
|                                    | Total deferred tax liabilities |                |        | (10,403 | ) |   |        | (2,859 | )
|                                    |                                |                |        |         |   |   |        |       
|Net deferred tax asset (liability)  |                                |               | 32,950 |         |   |  | 28,749 |       
|                                    |                                |                |        |         |   |   |        |       

The short-term deferred tax assets relate
primarily to the profit sharing expenses and reserves not
currently deductible. Short-term deferred tax assets are
included in the balance sheet in other current assets.

The components of income (loss) before income
taxes are as follows:

|                           |  |                         |         |      |  |      |         |   |  |   |         |  
|-------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                           |  |                        
|                           |  | Year ended December 31,
|                           |  |                        
|                           |  | 2002                    |         | 2001 |  | 2000
|                           |  |                         |         |      |  |     
|                           |  |                        
|                           |  | (in thousands)         
|France                     |  |                        | 215,727 |      |  |     | 221,899 |   |  |  | 208,702 |  
|Foreign                    |  |                         | (9,936  | )    |  |      | (45,242 | ) |  |   | (18,914 | )
|                           |  |                         |         |      |  |      |         |   |  |   |         |  
|Income before income taxes |  |                        | 205,791 |      |  |     | 176,657 |   |  |  | 189,788 |  
|                           |  |                         |         |      |  |      |         |   |  |   |         |  

The significant components of income tax expense
are as follows:

|                         |  |                         |        |      |  |      |        |   |  |   |        |  
|------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                         |  |                        
|                         |  | Year ended December 31,
|                         |  |                        
|                         |  | 2002                    |        | 2001 |  | 2000
|                         |  |                         |        |      |  |     
|                         |  |                        
|                         |  | (in thousands)         
|France                   |  |                        | 74,810 |      |  |     | 80,304 |   |  |  | 77,324 |  
|Foreign                  |  |                         | 12,570 |      |  |      | 17,490 |   |  |   | 12,474 |  
|                         |  |                         |        |      |  |      |        |   |  |   |        |  
|                         |  |                         | 87,380 |      |  |      | 97,794 |   |  |   | 89,798 |  
|Change in deferred taxes |  |                         | (8,004 | )    |  |      | (9,878 | ) |  |   | (3,710 | )
|                         |  |                         |        |      |  |      |        |   |  |   |        |  
|Income tax expense       |  |                        | 79,376 |      |  |     | 87,916 |   |  |  | 86,088 |  
|                         |  |                         |        |      |  |      |        |   |  |   |        |  

F-16



---



##### 



The differences between the income tax provision
and the statutory French income tax rate are as follows:

|                                                                                                                                    |  |                         |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | Year ended December 31,
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | 2002                    |        | 2001 |  | 2000
|                                                                                                                                    |  |                         |        |      |  |     
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | (in thousands)         
|Taxes computed at the statutory rate of 35.43%
    for 2002, 36.43% for 2001 and 37.77% for 2000                                    |  |                        | 72,912 |      |  |     | 64,356 |   |  |  | 71,683 |  
|Foreign losses                                                                                                                      |  |                         | 1,788  |      |  |      | (74    | ) |  |   | 2,017  |  
|Foreign tax rate differentials (see below
    -1-)                                                                                  |  |                         | 7,170  |      |  |      | 14,722 |   |  |   | 9,969  |  
|Permanent differences related to non-deductible
    goodwill and other intangible assets                                            |  |                         |        |      |  |      | 10,342 |   |  |   | 5,580  |  
|Other                                                                                                                               |  |                         | (2,494 | )    |  |      | (1,430 | ) |  |   | (3,162 | )
|                                                                                                                                    |  |                         |        |      |  |      |        |   |  |   |        |  
|Income tax expense                                                                                                                  |  |                        | 79,376 |      |  |     | 87,916 |   |  |  | 86,087 |  
|                                                                                                                                    |  |                         |        |      |  |      |        |   |  |   |        |  
|Effective tax rate                                                                                                                  |  |                         | 38.6%  |      |  |      | 49.8%  |   |  |   | 45.4%  |  
|Effective tax rate excluding impact of permanent
    differences related to non-deductible goodwill and other
    intangible assets |  |                         | 38.6%  |      |  |      | 42.9%  |   |  |   | 42.1%  |  






|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | SmarTeam, a subsidiary with operating losses, has
    the status of an Approved Enterprise as defined by
    the Israeli Investment Center and is entitled to a tax
    exemption. Therefore the effective tax rate of SmarTeam is 0%.

At December 31, 2002, there were net tax
operating losses and tax credit carryforwards of
81,978,000 and
3,753,000
respectively. Net operating tax loss carryforwards and tax
credits are scheduled to expire in the following years:

|               |  |                |        |         |  |   |       | 
|-------------- |  | -------------- | ------ | ------- |  | - | ----- | 
|               |  |                |        | Tax    
|               |  | NOL            |        | credits
|               |  |                |        |        
|               |  |               
|               |  | (in thousands)
|2003           |  |                |       |         |  |  | 376   | 
|2004           |  |                |       |         |  |   | 89    | 
|2005           |  |                | 52     |         |  |   | 330   | 
|2006           |  |                | 485    |         |  |   | 111   | 
|2007           |  |                | 578    |         |  |   | 30    | 
|2008 and later |  |                | 80,863 |         |  |   | 2,817 | 
|               |  |                |        |         |  |   |       | 
|Total          |  |               | 81,978 |         |  |  | 3,753 | 

In connection with the exercise of stock options
and warrants, SolidWorks and Delmia Corp. realized tax benefits
totaling
5,254,000,
0 and
4,641,000 for
the years ended December 31, 2002, 2001 and 2000
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
counterparties.

|                      |  |                |         |      |  |   |         | 
|--------------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                      |  |               
|                      |  | December 31,  
|                      |  |               
|                      |  | 2002           |         | 2001
|                      |  |                |         |     
|                      |  |               
|                      |  | (in thousands)
|Bank accounts         |  |               | 118,450 |      |  |  | 119,871 | 
|Money market accounts |  |                | 253,542 |      |  |   | 243,265 | 
|                      |  |                |         |      |  |   |         | 
|                      |  |               | 371,992 |      |  |  | 363,136 | 
|                      |  |                |         |      |  |   |         | 

At December 31, 2002, 65% of such amounts
were denominated in euros (2001: 54%), 32% in US dollars (2001:
41%) and 2% in Japanese yen (2001: 4%).

F-17



---



##### 



NOTE G  SHORT-TERM
INVESTMENTS

Short-term investments are comprised of
marketable interest-bearing securities with large financial
institutions.

At December 31, 2002, such investments
amounted to
16,436,000
(2001:
6,100,000) of
which 16,353,000
(2001: 6,003,000)
were denominated in euros and
82,000 in
US dollars
(2001: 97,000).
Management considers the credit risk exposure due to
counterparty failure to be minimal. 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

|                                           |  |                |        |           |  |                  |         |              |  |       |        |   |  |   |        |   |  |   |         |  
|------------------------------------------ |  | -------------- | ------ | --------- |  | ---------------- | ------- | ------------ |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                           |  | Land and       |        | Computer  |  | Office furniture |         | Leasehold    |  |      
|                                           |  | buildings      |        | equipment |  | and equipment    |         | improvements |  | Total
|                                           |  |                |        |           |  |                  |         |              |  |      
|                                           |  |               
|                                           |  | (in thousands)
|Net value                                  |  |                |        |           |  |                  |         |              |  |       |        |   |  |   |        |   |  |   |         |  
|December 31, 2001                          |  |               | 27,555 |           |  |                 | 16,941  |              |  |      | 8,738  |   |  |  | 12,142 |   |  |  | 65,376  |  
|                                           |  |                |        |           |  |                  |         |              |  |       |        |   |  |   |        |   |  |   |         |  
|Acquisitions                               |  |                |        |           |  |                  | 11,703  |              |  |       | 3,396  |   |  |   | 2,418  |   |  |   | 17,517  |  
|Disposals                                  |  |                |        |           |  |                  |         |              |  |       | (377   | ) |  |   | (45    | ) |  |   | (422    | )
|Depreciation and amortization for the year |  |                | (1,081 | )         |  |                  | (12,174 | )            |  |       | (2,962 | ) |  |   | (2,834 | ) |  |   | (19,051 | )
|Exchange differences                       |  |                | (545   | )         |  |                  | (1,416  | )            |  |       | (950   | ) |  |   | (636   | ) |  |   | (3,547  | )
|                                           |  |                |        |           |  |                  |         |              |  |       |        |   |  |   |        |   |  |   |         |  
|December 31, 2002                          |  |               | 25,929 |           |  |                 | 15,054  |              |  |      | 7,845  |   |  |  | 11,045 |   |  |  | 59,873  |  
|                                           |  |                |        |           |  |                  |         |              |  |       |        |   |  |   |        |   |  |   |         |  

NOTE I  INTANGIBLE
ASSETS

|                                     |  |                |        |          |  |                  |         |       |  |   |        |   |  |   |         |  
|------------------------------------ |  | -------------- | ------ | -------- |  | ---------------- | ------- | ----- |  | - | ------ | - |  | - | ------- | -
|                                     |  |                |        |          |  | Patents and      |         |      
|                                     |  |                |        |          |  | trademarks and   |         |      
|                                     |  |                |        |          |  | other intangible |         |      
|                                     |  | Goodwill       |        | Software |  | assets           |         | Total
|                                     |  |                |        |          |  |                  |         |      
|                                     |  |               
|                                     |  | (in thousands)
|Net value                            |  |                |        |          |  |                  |         |       |  |   |        |   |  |   |         |  
|December 31, 2001                    |  |               | 56,584 |          |  |                 | 21,659  |       |  |  | 991    |   |  |  | 79,234  |  
|                                     |  |                |        |          |  |                  |         |       |  |   |        |   |  |   |         |  
|Acquisitions                         |  |                | 20,611 |          |  |                  | 1,467   |       |  |   | 4,217  |   |  |   | 26,295  |  
|Disposals                            |  |                |        |          |  |                  | (29     | )     |  |   |        |   |  |   | (29     | )
|Amortization for the year            |  |                |       |          |  |                  | (12,748 | )     |  |   | (1,251 | ) |  |   | (13,999 | )
|Exchange differences                 |  |                | (5,596 | )        |  |                  | (1,823  | )     |  |   | (316   | ) |  |   | (7,735  | )
|                                     |  |                |        |          |  |                  |         |       |  |   |        |   |  |   |         |  
|December 31, 2002                    |  |               | 71,599 |          |  |                 | 8,526   |       |  |  | 3,641  |   |  |  | 83,766  |  
|                                     |  |                |        |          |  |                  |         |       |  |   |        |   |  |   |         |  
|Weighted-average amortization period |  |                |        |          |  |                  | 2.8     |       |  |   | 3.0    |   |  |   |         |  

Goodwill at December 31, 2002 consists
principally of excess purchase price from the acquisitions of
Delmia GmbH
(18 million),
SmarTeam
(16 million),
Spatial
(13 million)
and SRAC
(13 million).

In 2002, the Company purchased the remaining
minority interests in SmarTeam for
14 million
in cash. The entire purchase price was allocated to Goodwill.

Total intangible amortization expense, excluding
goodwill amortization, was
13,999,000,
13,234,000 and
12,933,000 for
the years ended December 31, 2002, 2001 and 2000,
respectively.

F-18



---



##### 



The estimated amortization expense for the next
3 fiscal years is as follows (in thousands):

|                                     |  |          |        |                  |  |  |        | 
|------------------------------------ |  | -------- | ------ | ---------------- |  |  | ------ | 
|                                     |  |          |        | Patents and     
|                                     |  |          |        | trademarks and  
|                                     |  |          |        | other intangible
|                                     |  | Software |        | assets          
|                                     |  |          |        |                 
|For the year ended December 31, 2003 |  |          | 7,135 |                  |  |  | 1,943 | 
|For the year ended December 31, 2004 |  |          | 1,391  |                  |  |  | 1,140  | 
|For the year ended December 31, 2005 |  |          |        |                  |  |  | 558    | 
|                                     |  |          |        |                  |  |  |        | 
|Total                                |  |          | 8,526 |                  |  |  | 3,641 | 
|                                     |  |          |        |                  |  |  |        | 

NOTE J  OTHER NON-CURRENT
ASSETS

In April 2002, the Company signed an agreement
with RAND A Technology Corporation (RAND) to
accelerate the development of marketing, sales and services
infrastructure required to support PLM. Under the term of this
agreement, the Company granted two 10-year convertible loans
totaling
20 million
whereby  1/3 may be converted to common shares in RAND
at RANDs discretion and the other  2/3 may be
converted at Dassault Systèmes discretion. Under the terms
of this financing, Dassault Systèmes equity position
in RAND will represent no more than 19.9 percent of the
shares outstanding.

At December 31, 2002 other non current
assets are comprised of the following components:

|                  |              |                |        |       |  |  |        |       |  |  |  |  |    
|----------------- | ------------ | -------------- | ------ | ----- |  |  | ------ | ----- |  |  |  |  | ---
|                  |              |                |        |      
|                  |              | December 31,   |        |      
|                  |              |                |        |      
|                  |              | 2002           |        | 2001  |  | 
|                  |              |                |        |       |  | 
|                  |              |                |        |      
|                  |              | (in thousands) |        |      
|Investments       |              |                |        |       |  |  |        |       |  |  |  | 
|                  | Revit        |                |       | 0     |  |  |       | 9,045 |  |  |  |  |    
|                  | PlanetCAD    |                |        | 67    |  |  |        | 170   |  |  |  |  |    
|                  | MSC.Software |                |        | 6,506 |  |  |        | 7,870 |  |  |  |  |    
|                  | ImpactXoft   |                |        | 9,589 |  |  |        |       |  |  |  |  | (1)
|                  | Other        |                |        | 370   |  |  |        | 68    |  |  |  |  |    
|                  |              |                |        |       |  |  |        |       |  |  |  | 
|Total investments |              |                | 16,532 |       |  |  | 17,153 |       |  |  |  | 
|                  |              |                |        |       |  |  |        |       |  |  |  | 

|                            |            |   |        |        |  |          |        |       |  |  |  |      |    
|--------------------------- | ---------- | - | ------ | ------ |  | -------- | ------ | ----- |  |  |  | ---- | ---
|                            |            |   |        |        |  | Interest
|                            |            |   |        |        |  | rate    
|                            |            |   |        |        |  |         
|Loans receivable            |            |   |        |        |  |          |        |       |  |  |  |     
|                            | ImpactXoft |   |        | 3,814  |  |          |        |       |  |  |  | 5.0% |    
|                            | RAND       |   |        | 18,821 |  |          |        |       |  |  |  | 5.5% | (2)
|                            | IMC        |   |        |        |  |          |        | 2,184 |  |  |  | 8.0% |    
|                            |            |   |        |        |  |          |        |       |  |  |  |     
|Total loans receivable      |            |   | 22,635 |        |  |          | 2,184  |       |  |  |  |     
|                            |            |   |        |        |  |          |        |       |  |  |  |     
|Total loans and investments |            |  | 39,167 |        |  |         | 19,337 |       |  |  |  |     
|                            |            |   |        |        |  |          |        |       |  |  |  |     






|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company purchased an equity stake of 15% in
    ImpactXoft in September 2002.                                                                                                                                                          
|(2) | The loan granted to RAND may be converted into
    common shares of RAND. Pursuant to SFAS 133, this
    conversion option was recorded as an embedded derivative and an
    after-tax gain of
    124,000 was
    recognized in earnings.

F-19



---



##### 



Loans receivable at December 31, 2002 are
due as follows:

|                     |  |                |        |  
|-------------------- |  | -------------- | ------ | -
|                     |  | (in thousands)
|2003                 |  |               | 3,224  |  
|2004                 |  |                | 2,521  |  
|2005                 |  |                | 2,521  |  
|2006                 |  |                | 2,520  |  
|2007                 |  |                | 3,042  |  
|Therafter            |  |                | 12,031 |  
|                     |  |                |        |  
|Total                |  |                | 25,858 |  
|Less current portion |  |                | (3,224 | )
|Long-term loans      |  |               | 22,635 |  

NOTE K  LEASES

At December 31, 2002, future minimum annual
rental commitments under non-cancelable lease obligations were
as follows:

|                                                         |  |                |        |           |  |   |        | 
|-------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | ------ | 
|                                                         |  | Capital        |        | Operating
|                                                         |  | Leases         |        | Leases   
|                                                         |  |                |        |          
|                                                         |  |               
|                                                         |  | (in thousands)
|Year ending December 31:                                 |  |                |        |           |  |   |        | 
|2003                                                     |  |               | 2,074  |           |  |  | 12,463 | 
|2004                                                     |  |                | 1,933  |           |  |   | 8,537  | 
|2005                                                     |  |                | 1,817  |           |  |   | 5,773  | 
|2006                                                     |  |                | 1,714  |           |  |   | 4,889  | 
|2007                                                     |  |                | 420    |           |  |   | 4,497  | 
|Thereafter                                               |  |                |       |           |  |   | 2,330  | 
|                                                         |  |                |        |           |  |   |        | 
|Total minimum lease payments                             |  |                | 7,958  |           |  |  | 38,489 | 
|Less amount representing interest and other              |  |                | (243   | )         |  |   |        | 
|                                                         |  |                |        |           |  |   |        | 
|Present value of net minimum lease payments              |  |                | 7,715  |           |  |   |        | 
|Less current maturities of capital lease
    obligations |  |                | (1,799 | )         |  |   |        | 
|                                                         |  |                |        |           |  |   |        | 
|Capital lease obligations                                |  |               | 5,916  |           |  |   |        | 

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,  
|                         |  |               
|                         |  | 2002           |        | 2001
|                         |  |                |        |     
|                         |  |               
|                         |  | (in thousands)
|Land                     |  |               | 5,680  |      |  |  | 5,680  |  
|Building                 |  |                | 27,188 |      |  |   | 27,188 |  
|Accumulated depreciation |  |                | (9,742 | )    |  |   | (8,836 | )
|                         |  |                |        |      |  |   |        |  
|                         |  |               | 23,126 |      |  |  | 24,032 |  
|                         |  |                |        |      |  |   |        |  

The Company also leases computer equipment,
premises and office equipment under operating leases.

Rent expense under operating leases was
29,189,000,
26,796,000, and
19,621,000 in
the years ended December 31, 2002, 2001, and 2000,
respectively.

NOTE L  EMPLOYEE
PROFIT-SHARING

In accordance with French legal requirements, the
Company has a profit-sharing arrangement for its French
employees. Profit-sharing amounts are based on formulas which
consider return on assets and

F-20



---



##### 



employment levels. Profit-sharing expense was
11,623,000,
11,701,000, and
11,218,000, for
the years ended December 31, 2002, 2001, and 2000,
respectively. Such amounts are accrued each year, are
interest-bearing, and are paid in cash, including the accrued
interest, after five years. The interest rate applied was 5.1%
and 6% in the years ended December 31, 2002 and 2001
respectively.


|                                                                  |  |                |         |      |  |  |         |  
|----------------------------------------------------------------- |  | -------------- | ------- | ---- |  |  | ------- | -
|                                                                  |  |               
|                                                                  |  | December 31,  
|                                                                  |  |               
|                                                                  |  | 2002           |         | 2001
|                                                                  |  |                |         |     
|                                                                  |  |               
|                                                                  |  | (in thousands)
|Employee profit-sharing liability, including
    accrued interest |  |                | 28,325 |      |  |  | 28,364 |  
|Less current maturities                                           |  |                | (5,670  | )    |  |  | (6,040  | )
|                                                                  |  |                |         |      |  |  |         |  
|                                                                  |  |                | 22,655 |      |  |  | 22,324 |  
|                                                                  |  |                |         |      |  |  |         |  

Maturities of these obligations at
December 31, 2002 are as follows:

|     |  |  |             | 
|---- |  |  | ----------- | 
|2003 |  |  | 3,346,000  | 
|2004 |  |  | 2,152,000   | 
|2005 |  |  | 4,042,000   | 
|2006 |  |  | 4,193,000   | 
|2007 |  |  | 8,922,000   | 
|     |  |  |             | 
|     |  |  | 22,655,000 | 
|     |  |  |             | 

NOTE M  RETIREMENT AND PENSION
ARRANGEMENTS

The Company provides defined benefit retirement
indemnities to the employees of its French operations, and
sponsors a defined benefit pension plan for certain employees in
the United States.

In France, the retirement indemnities are based
upon an individuals years of credited service and
annualized salary at retirement. Such benefits vest, and are
funded as a lump sum paid to the employee, upon the
employees retirement. Estimated retirement indemnities are
accrued over the working life of the employees using actuarial
assumptions and calculations. The projected benefit obligation
was determined using the prospective method and the following
actuarial assumptions: retirement age 60 years; salary
increases at 1% over inflation. Weighted-average assumptions
used for the French operations were as follows:

|                               |  |                         |       |      |  |      |       |  |  |  |       | 
|------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                               |  |                        
|                               |  | Year ended December 31,
|                               |  |                        
|                               |  | 2002                    |       | 2001 |  | 2000
|                               |  |                         |       |      |  |     
|French plan and other          |  |                         |       |      |  |      |       |  |  |  |       | 
|Discount 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% | 

To date, the Company transferred the management
of part of its benefit obligations and liabilities to a
financial institution for
6.8 million.
Consequently, this financial institution will pay retirement
indemnities directly to the employees of the French operations
upon the employees retirement.

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.

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 which is sufficient to meet or exceed the minimum
annual funding requirements of

F-21



---



##### 



the Employee Retirement Income Security Act. The
projected benefit obligation was determined using the
prospective method and the following assumptions:


|                               |  |                         |       |      |  |      |       |  |  |  |       | 
|------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                               |  |                        
|                               |  | Year ended December 31,
|                               |  |                        
|                               |  | 2002                    |       | 2001 |  | 2000
|                               |  |                         |       |      |  |     
|U.S. plan                      |  |                         |       |      |  |      |       |  |  |  |       | 
|Discount rate                  |  |                         | 6.75% |      |  |      | 7.25% |  |  |  | 7.50% | 
|Expected return on plan assets |  |                         | 8.50% |      |  |      | 8.50% |  |  |  | 8.50% | 
|Rate of compensation increase  |  |                         | 3.75% |      |  |      | 4.25% |  |  |  | 4.50% | 

The components of net periodic benefit cost were
as follows:

|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  
|----------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                      |  |                        
|                                                      |  | Year ended December 31,
|                                                      |  |                        
|                                                      |  | 2002                    |        | 2001 |  | 2000
|                                                      |  |                         |        |      |  |     
|                                                      |  |                        
|                                                      |  | (in thousands)         
|French plan and other                                 |  |                         |        |      |  |      |        |   |  |  |        |  
|Service cost                                          |  |                         | 1,346 |      |  |      | 1,208 |   |  |  | 1,100 |  
|Interest cost                                         |  |                         | 588    |      |  |      | 475    |   |  |  | 412    |  
|Expected return on plan assets                        |  |                         | (382   | )    |  |      | (277   | ) |  |  | (250   | )
|Net amortization and deferral                         |  |                         | (14    | )    |  |      | (27    | ) |  |  | (15    | )
|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  
|Net periodic benefit cost  French plan
    and other |  |                         | 1,538 |      |  |      | 1,379 |   |  |  | 1,247 |  
|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  

|                                          |  |                |      |      |  |      |      |   |  |  |      |  
|----------------------------------------- |  | -------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                          |  |               
|                                          |  | Year ended    
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2002           |      | 2001 |  | 2000
|                                          |  |                |      |      |  |     
|                                          |  |               
|                                          |  | (in thousands)
|U.S. plan                                 |  |                |      |      |  |      |      |   |  |  |      |  
|Service cost                              |  |                | 756 |      |  |      | 622 |   |  |  | 547 |  
|Interest cost                             |  |                | 902  |      |  |      | 868  |   |  |  | 782  |  
|Expected return on plan assets            |  |                | (804 | )    |  |      | (648 | ) |  |  | (665 | )
|Net amortization and deferral             |  |                | 133  |      |  |      | 103  |   |  |  | 108  |  
|                                          |  |                |      |      |  |      |      |   |  |  |      |  
|Net periodic benefit cost 
    U.S. plan |  |                | 987 |      |  |      | 945 |   |  |  | 772 |  
|                                          |  |                |      |      |  |      |      |   |  |  |      |  

F-22



---



##### 



Changes in the funded status of the benefit plans
were as follows:

|                                                |                                                  |                |        |        |   |   |        |        |  
|----------------------------------------------- | ------------------------------------------------ | -------------- | ------ | ------ | - | - | ------ | ------ | -
|                                                |                                                  |               
|                                                |                                                  | Year ended    
|                                                |                                                  | December 31,  
|                                                |                                                  |               
|                                                |                                                  | 2002           |        | 2001  
|                                                |                                                  |                |        |       
|                                                |                                                  |               
|                                                |                                                  | (in thousands)
|French plan and other                           |                                                  |                |        |        |   |   |        |       
|Change in benefit obligations                   |                                                  |                |        |        |   |   |        |       
|Benefit obligations at beginning of year        |                                                  |               | 12,175 |        |   |  | 9,582  |       
|Service cost of benefits earned during the year |                                                  |                | 1,346  |        |   |   | 1,208  |       
|Interest cost on projected benefit obligations  |                                                  |                | 588    |        |   |   | 475    |       
|Change in scope                                 |                                                  |                | 0      |        |   |   | 86     |       
|Actuarial gain                                  |                                                  |                | (155   | )      |   |   | 892    |       
|Exchange differences                            |                                                  |                | (11    | )      |   |   | (47    | )     
|Benefits paid                                   |                                                  |                | (39    | )      |   |   | (21    | )     
|                                                |                                                  |                |        |        |   |   |        |       
|                                                | Benefit obligations at end of year               |                |       | 13,904 |   |   |       | 12,175 |  
|                                                |                                                  |                |        |        |   |   |        |       
|Change in plan assets                           |                                                  |                |        |        |   |   |        |       
|Fair value of plan assets at beginning of year  |                                                  |                | 7,468  |        |   |   | 5,160  |       
|Employer contribution                           |                                                  |                | 39     |        |   |   | 44     |       
|Financial earnings                              |                                                  |                | (508   | )      |   |   | 2,285  |       
|Benefits paid                                   |                                                  |                | (39    | )      |   |   | (21    | )     
|                                                |                                                  |                |        |        |   |   |        |       
|                                                | Fair value of plan assets at end of year         |                |       | 6,960  |   |   |       | 7,468  |  
|                                                |                                                  |                |        |        |   |   |        |       
|Funded status                                   |                                                  |                | (6,944 | )      |   |   | (4,707 | )     
|Unrecognized actuarial loss                     |                                                  |                | 595    |        |   |   | (157   | )     
|                                                |                                                  |                |        |        |   |   |        |       
|                                                | Accrued benefit cost  French plan and
    other |                |       | (6,349 | ) |   |       | (4,864 | )
|                                                |                                                  |                |        |        |   |   |        |       

F-23



---



##### 



|                                                               |                                          |                |        |        |   |   |        |        |  
|-------------------------------------------------------------- | ---------------------------------------- | -------------- | ------ | ------ | - | - | ------ | ------ | -
|                                                               |                                          |               
|                                                               |                                          | Year ended    
|                                                               |                                          | December 31,  
|                                                               |                                          |               
|                                                               |                                          | 2002           |        | 2001  
|                                                               |                                          |                |        |       
|                                                               |                                          |               
|                                                               |                                          | (in thousands)
|U.S. plan                                                      |                                          |                |        |        |   |   |        |       
|Change in benefit obligations                                  |                                          |                |        |        |   |   |        |       
|Benefit obligations at beginning of year                       |                                          |               | 13,475 |        |   |  | 11,444 |       
|Service cost of benefits earned during the year                |                                          |                | 756    |        |   |   | 622    |       
|Interest cost on projected benefit obligations                 |                                          |                | 902    |        |   |   | 868    |       
|Actuarial loss                                                 |                                          |                | 768    |        |   |   | 181    |       
|Benefits paid                                                  |                                          |                | (333   | )      |   |   | (303   | )     
|Exchange differences                                           |                                          |                | (2,359 | )      |   |   | 663    |       
|                                                               |                                          |                |        |        |   |   |        |       
|                                                               | Benefit obligations at end of year       |                |       | 13,209 |   |   |       | 13,475 |  
|                                                               |                                          |                |        |        |   |   |        |       
|Change in plan assets                                          |                                          |                |        |        |   |   |        |       
|Fair value of plan assets at beginning of year                 |                                          |                | 9,543  |        |   |   | 8,492  |       
|Employer contribution                                          |                                          |                | (305   | )      |   |   | (258   | )     
|Financial earnings                                             |                                          |                | 1,300  |        |   |   | 1,129  |       
|Benefits paid                                                  |                                          |                | (333   | )      |   |   | (303   | )     
|Exchange differences                                           |                                          |                | (1,589 | )      |   |   | 483    |       
|                                                               |                                          |                |        |        |   |   |        |       
|                                                               | Fair value of plan assets at end of year |                |       | 8,616  |   |   |       | 9,543  |  
|                                                               |                                          |                |        |        |   |   |        |       
|Funded status                                                  |                                          |                | (4,593 | )      |   |   | (3,932 | )     
|Unrecognized actuarial loss                                    |                                          |                | 3,172  |        |   |   | 1,791  |       
|Unrecognized prior service cost                                |                                          |                | 494    |        |   |   | 702    |       
|                                                               |                                          |                |        |        |   |   |        |       
|                                                               | Accrued benefit cost  U.S. plan         |                |       | (927   | ) |   |       | (1,439 | )
|                                                               |                                          |                |        |        |   |   |        |       
|Amounts recognized in the Statement of
    financial position: |                                          |                |        |        |   |   |        |       
|Accrued benefit cost                                           |                                          |                | (927   | )      |   |   | (1,439 | )     
|Accrued benefit liability                                      |                                          |                | (1,112 | )      |   |   |        |       
|Intangible assets                                              |                                          |                | 493    |        |   |   |        |       
|Accumulated other comprehensive income                         |                                          |                | 619    |        |   |   |        |       
|                                                               |                                          |                |        |        |   |   |        |       
|Net amount recognized                                          |                                          |               | (927   | )      |   |  | (1,439 | )     
|                                                               |                                          |                |        |        |   |   |        |       

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

In 1994, SolidWorks adopted an incentive and
non-qualified stock option plan and issued in 1995 a single
warrant. On July 25, 1997, the Company approved the
SolidWorks merger. Pursuant to the terms of the merger, all
outstanding stock options and a warrant 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
warrants were to be exercised. At December 31, 2002 a total
of 391,410 shares remain reserved.

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

F-24



---



##### 



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 (FF 59.01 or
US$ 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. The
stock option plan is non-compensatory and therefore does not
result in compensation expense in the financial statements. At
December 31, 2002, 806,066 options have been exercised and
there were 214,614 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 FF 170. 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, 2002, 76,244
options have been exercised and there were 907,790 unexercised
stock options.

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 FF 173.00 to FF 194.00. 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, 2002,
779,276 options have been exercised and there were 2,741,414
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, 2002, 79,627 options were exercised and
there were 3,492,733 unexercised options. Options vest over
various periods subject to continued employment but expire no
more than ten years from the date of grant.

In 2000, no options were granted.

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, 2002, 751 options were exercised and
there were 5,293,039 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. Options
vest over four years subject to continued employment but
expire no more than ten years from the date of grant.

F-25



---



##### 



The activity in the stock option plans of the
Company is summarized below:

|                                 |  |           |            |                  |  |           |       |                  |  |           |            |                  |  |  |       |  |  |  |           |   |  |  |       | 
|-------------------------------- |  | --------- | ---------- | ---------------- |  | --------- | ----- | ---------------- |  | --------- | ---------- | ---------------- |  |  | ----- |  |  |  | --------- | - |  |  | ----- | 
|                                 |  |           |            |                  |  |          
|                                 |  | 2002      |            | 2001             |  | 2000     
|                                 |  |           |            |                  |  |          
|                                 |  |           |            | Weighted         |  |           |       | Weighted         |  |           |            | Weighted        
|                                 |  | Number of |            | average exercise |  | Number of |       | average exercise |  | Number of |            | average exercise
|                                 |  | Shares    |            | price (in )     |  | Shares    |       | price (in )     |  | Shares    |            | price (in )    
|                                 |  |           |            |                  |  |           |       |                  |  |           |            |                 
|Outstanding at beginning of year |  |           | 13,069,840 |                  |  |           | 37.30 |                  |  |           | 8,107,686  |                  |  |  | 30.45 |  |  |  | 9,107,127 |   |  |  | 29.24 | 
|Granted                          |  |           | 1,718,863  |                  |  |           | 45.27 |                  |  |           | 5,316,950  |                  |  |  | 46.37 |  |  |  | 0         |   |  |  | 0.00  | 
|Exercised                        |  |           | (235,677   | )                |  |           | 15.58 |                  |  |           | (271,541   | )                |  |  | 14.53 |  |  |  | (927,144  | ) |  |  | 19.71 | 
|Cancelled                        |  |           | (49,009    | )                |  |           | 38.66 |                  |  |           | (83,255    | )                |  |  | 25.81 |  |  |  | (72,297   | ) |  |  | 18.60 | 
|Outstanding at end of year       |  |           | 14,504,017 |                  |  |           | 38.01 |                  |  |           | 13,069,840 |                  |  |  | 37.30 |  |  |  | 8,107,686 |   |  |  | 30.45 | 
|                                 |  |           |            |                  |  |           |       |                  |  |           |            |                  |  |  |       |  |  |  |           |   |  |  |       | 
|Exercisable                      |  |           | 8,254,974  |                  |  |           | 32.64 |                  |  |           | 7,779,885  |                  |  |  | 31.43 |  |  |  | 4,342,121 |   |  |  | 26.36 | 

For various price ranges, information for options
outstanding and exercisable at December 31, 2002 was as
follows:

|                        |  |                     |            |                     |  |                  |      |           |  |                  |       |  |  |  |           |  |  |  |       | 
|----------------------- |  | ------------------- | ---------- | ------------------- |  | ---------------- | ---- | --------- |  | ---------------- | ----- |  |  |  | --------- |  |  |  | ----- | 
|                        |  |                     |            |                    
|                        |  | Outstanding options |            | Exercisable options
|                        |  |                     |            |                    
|                        |  |                     |            | Weighted average    |  | Weighted average |      |           |  | Weighted average
|                        |  | Number of           |            | remaining life      |  | exercise price   |      | Number of |  | exercise price  
|Range of exercise price |  | shares              |            | (years)             |  | (in )           |      | shares    |  | (in )          
|                        |  |                     |            |                     |  |                  |      |           |  |                 
|0.12
    to 25        |  |                     | 330,887    |                     |  |                  | 3.64 |           |  |                  | 7.42  |  |  |  | 321,067   |  |  |  | 7.52  | 
|25.92                   |  |                     | 930,650    |                     |  |                  | 4.96 |           |  |                  | 25.92 |  |  |  | 930,650   |  |  |  | 25.92 | 
|26.37                   |  |                     | 125,300    |                     |  |                  | 6.08 |           |  |                  | 26.37 |  |  |  | 125,300   |  |  |  | 26.37 | 
|29.58                   |  |                     | 2,616,114  |                     |  |                  | 5.86 |           |  |                  | 29.58 |  |  |  | 2,616,114 |  |  |  | 29.58 | 
|35                      |  |                     | 1,711,250  |                     |  |                  | 8.77 |           |  |                  | 34.16 |  |  |  | 424,211   |  |  |  | 34.15 | 
|37                      |  |                     | 3,492,733  |                     |  |                  | 6.71 |           |  |                  | 37.00 |  |  |  | 3,492,733 |  |  |  | 37.00 | 
|39.62                   |  |                     | 137,899    |                     |  |                  | 8.50 |           |  |                  | 39.62 |  |  |  | 68,899    |  |  |  | 39.62 | 
|45.5                    |  |                     | 1,715,294  |                     |  |                  | 9.41 |           |  |                  | 44.36 |  |  |  | 0         |  |  |  | 44.36 | 
|52                      |  |                     | 3,443,890  |                     |  |                  | 8.25 |           |  |                  | 50.78 |  |  |  | 276,000   |  |  |  | 44.39 | 
|                        |  |                     |            |                     |  |                  |      |           |  |                  |       |  |  |  |           |  |  |  |       | 
|0.12
    to 52.00     |  |                     | 14,504,017 |                     |  |                  | 7.30 |           |  |                  | 38.01 |  |  |  | 8,254,974 |  |  |  | 32.64 | 
|                        |  |                     |            |                     |  |                  |      |           |  |                  |       |  |  |  |           |  |  |  |       | 

The weighted average fair value of the options
granted during, 2002 and 2001 are estimated at
20.82 and
17.11,
respectively, on the date of grant, using the Black Scholes
pricing model. Major assumptions used to estimate the fair value
of the options under SFAS 123 were as follows: risk-free
interest rate of 3.5% in 2001 and 3.9% in 2002, stock volatility
of 44% in 2001 and 58% in 2002; dividend yield of 0% in 2001 and
2002, expected life of stock options was estimated based on the
specific features of each plan (ranges from 2 to 5 years,
average of 3.5 years).

The Black Scholes option pricing model was
developed to estimate the fair value of fully transferable
traded options, with no vesting requirements. Also the use of
the model implies the input of subjective assumptions as to the
stock volatility. The options granted by the Company to its
employees show characteristics which significantly differ from
those of traded options and the valuation of the options based
on the Black Scholes model does not necessarily provide a
reliable single measure of the fair value of the options granted
by the Company to its employees.

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, 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.

Should all the options that are currently
eligible be exercised and should all the put rights be exercised
when allowed, approximately 6 million shares may have to be
repurchased by SolidWorks in the future. Based

F-26



---



##### 



on the current price per share of SolidWorks and
assumptions about the holding period, the Company estimated the
potential future cash outlays would be
27.6 million.


Changes to Dassault Systèmes share capital
during 2002 are as follows:

|                                                                                                  |  |           |             |         |  |               |   |  |  |  |             | 
|------------------------------------------------------------------------------------------------- |  | --------- | ----------- | ------- |  | ------------- | - |  |  |  | ----------- | 
|                                                                                                  |  | Number of |             | Nominal |  |              
|                                                                                                  |  | shares    |             | value   |  | Share capital
|                                                                                                  |  |           |             |         |  |              
|                                                                                                  |  |           |             | (in )  |  | (in )       
|Share capital issued as of January 1st, 2002                                                      |  |           | 114,446,171 |         |  |               | 1 |  |  |  | 114,446,171 | 
|Number of shares issued in 2002 with reference to
    the stock option plan of June 28, 1996      |  |           | 25,410      |         |  |               | 1 |  |  |  | 25,410      | 
|Number of shares issued in 2002 with reference to
    the stock option plan of December 15, 1997  |  |           | 32,622      |         |  |               | 1 |  |  |  | 32,622      | 
|Number of shares issued in 2002 with reference to
    the stock option plan of January 28, 1998   |  |           | 25,000      |         |  |               | 1 |  |  |  | 25,000      | 
|Number of shares issued in 2002 with reference to
    the stock option plan of November 9, 1998   |  |           | 21,935      |         |  |               | 1 |  |  |  | 21,935      | 
|Number of shares issued in 2002 with reference to
    the stock option plan of September 15, 1999 |  |           | 18,952      |         |  |               | 1 |  |  |  | 18,952      | 
|Number of shares issued in 2002 in connection
    with the acquisition of SRAC                    |  |           | 101         |         |  |               | 1 |  |  |  | 101         | 
|Number of shares issued in 2002 with reference to
    the stock option plan of March 29, 2001     |  |           | 650         |         |  |               | 1 |  |  |  | 650         | 
|Total                                                                                             |  |           | 114,570,841 |         |  |               | 1 |  |  |  | 114,570,841 | 

SmarTeam has a stock option plan covering certain
employees. Options under the plan vest over a period of four
years from the date of grant. The Company recorded
3,636,000 and
1,338,000 of
compensation expense related to this plan for the years ended
December 31, 2002 and 2001, respectively. No charges were
recorded under this plan in the year ended December 31,
2000. During 2002 the Company terminated the option plan which
accelerated the vesting of certain options of the plan and
repurchased the shares.

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.

Other comprehensive income

The Company recorded a minimum pension liability
at December 31, 2002 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 US plan and amounted to
384,000 (net of
tax), which is reflected in other comprehensive income.

F-27



---



##### 



Earnings per share

The following table presents the calculation for
both basic and diluted earnings per share:

|                                                          |  |                                            |             |      |  |      |             |  |  |  |             | 
|--------------------------------------------------------- |  | ------------------------------------------ | ----------- | ---- |  | ---- | ----------- |  |  |  | ----------- | 
|                                                          |  |                                           
|                                                          |  | Year ended December 31,                   
|                                                          |  |                                           
|                                                          |  | 2002                                       |             | 2001 |  | 2000
|                                                          |  |                                            |             |      |  |     
|                                                          |  |                                           
|                                                          |  | (in units, except net income in thousands)
|Net income                                                |  |                                            |  126,415   |      |  |      |  88,741    |  |  |  |  103,700   | 
|Weighted average number of shares outstanding             |  |                                            | 114,118,817 |      |  |      | 113,694,585 |  |  |  | 113,053,650 | 
|Dilutive effect of stock options                          |  |                                            | 2,128,909   |      |  |      | 2,965,403   |  |  |  | 5,579,532   | 
|Diluted weighted average number of shares
    outstanding |  |                                            | 116,247,725 |      |  |      | 116,659,988 |  |  |  | 118,633,182 | 
|Basic income per share                                    |  |                                            | 1.11       |      |  |      | 0.78       |  |  |  | 0.92       | 
|Diluted income per share                                  |  |                                            | 1.09       |      |  |      | 0.76       |  |  |  | 0.87       | 

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 comprised 61%, 60%, and 65% of
consolidated revenues of the Company for the years ended
December 31, 2002, 2001, and 2000, 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.

For the years ended December 31, 2002, 2001,
and 2000, IBM met certain annual sales and growth targets and
the Company has charged a sales incentive to software revenue of
15,452,000,
13,053,000 and
12,674,000,
respectively. The related liability on the balance sheet will be
settled in US dollars.

The balances of trade accounts receivable with
IBM were
117,930,000,
113,200,000, and
115,257,000 at
December 31, 2002, 2001, and 2000, 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, 2002,
95% of such accounts receivable were denominated in
US dollars (2001: 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. For IBM, such activities generated revenues of
5,672,000,
4,062,000, and
2,794,000 during
the years ended December 31, 2002, 2001, and 2000,
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
6,109,000,
3,916,000, and
3,735,000 for
the years ended December 31, 2002, 2001, and 2000,
respectively.

The Company also provides service and support to
Dassault Aviation. Such activity generated service revenues of
6,169,000,
7,303,000, and
5,664,000 in the
years ended December 31, 2002, 2001, and 2000, respectively.

The balances of trade accounts receivable with
Dassault Aviation were
9,126,000 2,377,000
and 1,849,000 at
December 31, 2002, 2001, and 2000, respectively.

F-28



---



##### 



NOTE Q  SEGMENT AND GEOGRAPHIC
INFORMATION

The Company is operating in two reportable
segments: the Process-Centric segment and the
Design-centric segment. The
Process-centric market serves companies seeking to
optimize their industrial processes from the design stage
through to manufacturing and maintenance, by doing away with all
physical mock-ups. The Design-centric market serves
companies seeking to improve specific design functions.

The accounting policies of the reportable
segments are the same as those described in Note A.

Data by operating segment is as follows:

|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |         |        |   |  |          |         |  
|------------------------------------------------------------------------------------------------- | ------------------------- | --------------- | -------- | -------------- | - | ----- | ------- | ------- | - |  | ------- | ------ | - |  | -------- | ------- | -
|                                                                                                  |                           |                
|                                                                                                  |                           | 2002           
|                                                                                                  |                           |                
|                                                                                                  |                           | Process-centric |          | Design-centric |   | Elim. |         | Total  
|                                                                                                  |                           |                 |          |                |   |       |         |        
|                                                                                                  |                           |                
|                                                                                                  |                           | (in thousands) 
|Revenue:                                                                                          |                           |                 |          |                |   |       |         |         |   |  |         |        |   |  |          |        
|                                                                                                  | Software revenue          |                 |         | 543,622        |   |       |        | 126,509 |   |  |        | (245   | ) |  |         | 669,886 |  
|                                                                                                  | Service and other revenue |                 |          | 105,758        |   |       |         | 374     |   |  |         | (1,903 | ) |  |          | 104,229 |  
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |         |        |   |  |          |        
|Total revenue                                                                                     |                           |                 | 649,380  |                |   |       | 126,883 |         |   |  | (2,148  | )      |   |  | 774,115  |        
|Cost 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  | )      |   |  | 653,254  |        
|Research 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  |         |   |  | 0       |        |   |  | 203,032  |        
|Equity in net income of unconsolidated
    affiliates-joint ventures                              |                           |                 | 214      |                |   |       |         |         |   |  |         |        |   |  | 214      |        
|Financial revenue and other, net                                                                  |                           |                 | 820      |                |   |       | 1,725   |         |   |  |         |        |   |  | 2,545    |        
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |         |        |   |  |          |        
|Income before income taxes                                                                        |                           |                 | 171,926  |                |   |       | 33,865  |         |   |  | 0       |        |   |  | 205,791  |        
|Income tax expense                                                                                |                           |                 | (67,721  | )              |   |       | (11,655 | )       |   |  |         |        |   |  | (79,376  | )      
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |         |        |   |  |          |        
|Net income                                                                                        |                           |                 | 104,205  |                |   |       | 22,210  |         |   |  | 0       |        |   |  | 126,415  |        
|Depreciation and amortization of property and
    equipment and amortization of intangible assets |                           |                 | 27,502   |                |   |       | 5,548   |         |   |  |         |        |   |  | 33,050   |        
|Total assets                                                                                      |                           |                 | 782,256  |                |   |       | 164,921 |         |   |  | (27,013 | )      |   |  | 920,164  |        
|Acquisitions of property and equipment and
    intangible assets                                  |                           |                 | 14,191   |                |   |       | 6,236   |         |   |  |         |        |   |  | 20,427   |        

F-29



---



##### 



|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |         |  
|------------------------------------------------------------------------------------------------- | ------------------------- | --------------- | -------- | -------------- | - | ----- | ------- | ------- | - |  | -------- | ------- | -
|                                                                                                  |                           |                
|                                                                                                  |                           | 2001           
|                                                                                                  |                           |                
|                                                                                                  |                           | Process-centric |          | Design-centric |   | Total
|                                                                                                  |                           |                 |          |                |   |      
|                                                                                                  |                           |                
|                                                                                                  |                           | (in thousands) 
|Revenue:                                                                                          |                           |                 |          |                |   |       |         |         |   |  |          |        
|                                                                                                  | Software revenue          |                 |         | 514,816        |   |       |        | 128,218 |   |  |         | 643,034 |  
|                                                                                                  | Service and other revenue |                 |          | 103,019        |   |       |         | 0       |   |  |          | 103,019 |  
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Total revenue                                                                                     |                           |                 | 617,835  |                |   |       | 128,218 |         |   |  | 746,053  |        
|Cost of revenue:                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|                                                                                                  | Software                  |                 |          | (8,864         | ) |       |         | (11,927 | ) |  |          | (20,791 | )
|                                                                                                  | Service and other         |                 |          | (86,542        | ) |       |         | 0       |   |  |          | (86,542 | )
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Total cost of revenue                                                                             |                           |                 | (95,406  | )              |   |       | (11,927 | )       |   |  | (107,333 | )      
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Gross profit                                                                                      |                           |                 | 522,429  |                |   |       | 116,291 |         |   |  | 638,720  |        
|Research and development                                                                          |                           |                 | (182,562 | )              |   |       | (26,673 | )       |   |  | (209,235 | )      
|Marketing and sales                                                                               |                           |                 | (117,323 | )              |   |       | (47,000 | )       |   |  | (164,323 | )      
|General and administration                                                                        |                           |                 | (38,534  | )              |   |       | (5,649  | )       |   |  | (44,183  | )      
|Amortization of goodwill                                                                          |                           |                 | (43,225  | )              |   |       | (919    | )       |   |  | (44,144  | )      
|Amortization of acquired technology                                                               |                           |                 | (14,240  | )              |   |       | 0       |         |   |  | (14,240  | )      
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|                                                                                                  |                           |                 | (395,884 | )              |   |       | (80,241 | )       |   |  | (476,125 | )      
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Operating income                                                                                  |                           |                 | 126,545  |                |   |       | 36,050  |         |   |  | 162,595  |        
|Financial revenue and other, net                                                                  |                           |                 | 11,153   |                |   |       | 2,909   |         |   |  | 14,062   |        
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Income before income taxes                                                                        |                           |                 | 137,698  |                |   |       | 38,959  |         |   |  | 176,657  |        
|Income tax expense                                                                                |                           |                 | (73,844  | )              |   |       | (14,072 | )       |   |  | (87,916  | )      
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Net income                                                                                        |                           |                 | 63,854   |                |   |       | 24,887  |         |   |  | 88,741   |        
|                                                                                                  |                           |                 |          |                |   |       |         |         |   |  |          |        
|Depreciation and amortization of property and
    equipment and amortization of intangible assets |                           |                 | 73,337   |                |   |       | 5,647   |         |   |  | 78,984   |        
|Total assets                                                                                      |                           |                 | 667,882  |                |   |       | 163,545 |         |   |  | 831,427  |        
|Acquisitions of property and equipment and
    intangible assets                                  |                           |                 | 17,704   |                |   |       | 5,252   |         |   |  | 22,956   |        

F-30



---



##### 



|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |         |  
|------------------------------------------------------------------------------------------------- | ------------------------- | --------------- | -------- | -------------- | - | ----- | ------- | ------ | - |  | -------- | ------- | -
|                                                                                                  |                           |                
|                                                                                                  |                           | 2000           
|                                                                                                  |                           |                
|                                                                                                  |                           | Process-centric |          | Design-centric |   | Total
|                                                                                                  |                           |                 |          |                |   |      
|                                                                                                  |                           |                
|                                                                                                  |                           | (in thousands) 
|Revenue:                                                                                          |                           |                 |          |                |   |       |         |        |   |  |          |        
|                                                                                                  | Software revenue          |                 |         | 444,082        |   |       |        | 97,601 |   |  |         | 541,683 |  
|                                                                                                  | Service and other revenue |                 |          | 90,688         |   |       |         | 0      |   |  |          | 90,688  |  
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Total revenue                                                                                     |                           |                 | 534,770  |                |   |       | 97,601  |        |   |  | 632,371  |        
|Cost of revenue:                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|                                                                                                  | Software                  |                 |          | (5,907         | ) |       |         | (9,041 | ) |  |          | (14,948 | )
|                                                                                                  | Service and other         |                 |          | (75,759        | ) |       |         | 0      |   |  |          | (75,759 | )
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Total cost of revenue                                                                             |                           |                 | (81,666  | )              |   |       | (9,041  | )      |   |  | (90,707  | )      
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Gross profit                                                                                      |                           |                 | 453,104  |                |   |       | 88,560  |        |   |  | 541,664  |        
|Research and development                                                                          |                           |                 | (151,477 | )              |   |       | (18,363 | )      |   |  | (169,840 | )      
|Marketing and sales                                                                               |                           |                 | (79,184  | )              |   |       | (38,312 | )      |   |  | (117,496 | )      
|General and administration                                                                        |                           |                 | (31,521  | )              |   |       | (3,876  | )      |   |  | (35,397  | )      
|Amortization of goodwill                                                                          |                           |                 | (29,424  | )              |   |       | (89     | )      |   |  | (29,513  | )      
|Amortization of acquired technology                                                               |                           |                 | (10,664  | )              |   |       | 0       |        |   |  | (10,664  | )      
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|                                                                                                  |                           |                 | (302,270 | )              |   |       | (60,640 | )      |   |  | (362,910 | )      
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Operating income                                                                                  |                           |                 | 150,834  |                |   |       | 27,920  |        |   |  | 178,754  |        
|Financial revenue and other, net                                                                  |                           |                 | 7,839    |                |   |       | 3,195   |        |   |  | 11,034   |        
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Income before income taxes                                                                        |                           |                 | 158,673  |                |   |       | 31,115  |        |   |  | 189,788  |        
|Income tax expense                                                                                |                           |                 | (74,170  | )              |   |       | (11,918 | )      |   |  | (86,088  | )      
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Net income                                                                                        |                           |                 | 84,503   |                |   |       | 19,197  |        |   |  | 103,700  |        
|                                                                                                  |                           |                 |          |                |   |       |         |        |   |  |          |        
|Depreciation and amortization of property and
    equipment and amortization of intangible assets |                           |                 | 55,379   |                |   |       | 2,448   |        |   |  | 57,827   |        
|Total assets                                                                                      |                           |                 | 608,899  |                |   |       | 124,700 |        |   |  | 733,599  |        
|Acquisitions of property and equipment and
    intangible assets                                  |                           |                 | 16,908   |                |   |       | 4,498   |        |   |  | 21,406   |        

The data by geographic operations of the Company
is established according to the geographical location of the
consolidated companies.

|                        |  |                |          |               |  |       |          |   |  |  |          | 
|----------------------- |  | -------------- | -------- | ------------- |  | ----- | -------- | - |  |  | -------- | 
|                        |  |                |          | United States |  |      
|                        |  | France         |          | & Other       |  | Total
|                        |  |                |          |               |  |      
|                        |  |               
|                        |  | (in thousands)
|2002                    |  |                |          |               |  |       |          |   |  |  |          | 
|Revenues                |  |                | 473,788 |               |  |       | 300,327 |   |  |  | 774,115 | 
|Operating income (loss) |  |                | 210,669  |               |  |       | (7,637   | ) |  |  | 203,032  | 
|Identifiable assets     |  |                | 456,274  |               |  |       | 463,890  |   |  |  | 920,164  | 
|2001                    |  |                |          |               |  |       |          |   |  |  |          | 
|Revenues                |  |                | 462,154 |               |  |       | 283,899 |   |  |  | 746,053 | 
|Operating income (loss) |  |                | 211,317  |               |  |       | (48,722  | ) |  |  | 162,595  | 
|Identifiable assets     |  |                | 522,757  |               |  |       | 308,670  |   |  |  | 831,427  | 
|2000                    |  |                |          |               |  |       |          |   |  |  |          | 
|Revenues                |  |                | 431,386 |               |  |       | 200,985 |   |  |  | 632,371 | 
|Operating income (loss) |  |                | 199,234  |               |  |       | (20,480  | ) |  |  | 178,754  | 
|Identifiable assets     |  |                | 418,269  |               |  |       | 315,330  |   |  |  | 733,599  | 

Revenues generated by the parent company of the
Company were
515,653,000,
496,799,000, and
449,650,000 for
the years ended December 31, 2002, 2001, 2000 respectively.
Revenues generated by export

F-31



---



##### 



transactions from France into other geographic
areas realized by the parent company were
468,206,000,
447,757,000, and
403,271,000 for
the years ended December 31, 2002, 2001, and 2000,
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 which
identifies the location of IBMs end-user customers. Using
such information, the revenues by geographic area would be as
follows:

|                                   |  |                |         |      |  |      |         |  |  |   |         | 
|---------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                   |  | 2002           |         | 2001 |  | 2000
|                                   |  |                |         |      |  |     
|                                   |  |               
|                                   |  | (in thousands)
|France                             |  |               | 102,338 |      |  |     | 99,185  |  |  |  | 95,611  | 
|Western Europe  other than France |  |                | 272,221 |      |  |      | 281,225 |  |  |   | 239,164 | 
|Americas                           |  |                | 223,988 |      |  |      | 219,289 |  |  |   | 188,845 | 
|Asia/Pacific                       |  |                | 175,568 |      |  |      | 146,354 |  |  |   | 108,751 | 
|                                   |  |                |         |      |  |      |         |  |  |   |         | 
|                                   |  |               | 774,115 |      |  |     | 746,053 |  |  |  | 632,371 | 
|                                   |  |                |         |      |  |      |         |  |  |   |         | 

NOTE R  SCOPE OF
CONSOLIDATION

|                                                            |  |        |      |         |  |        |      |        |  |         |               |        |  |        |      |         |  |        |      |  |  |  |               |  |  |  |      |  |  |  |      |  |  |  |               | 
|----------------------------------------------------------- |  | ------ | ---- | ------- |  | ------ | ---- | ------ |  | ------- | ------------- | ------ |  | ------ | ---- | ------- |  | ------ | ---- |  |  |  | ------------- |  |  |  | ---- |  |  |  | ---- |  |  |  | ------------- | 
|                                                            |  |        |      |         |  |       
|                                                            |  | 2002   |      | 2001    |  | 2000  
|                                                            |  |        |      |         |  |       
|                                                            |  | % of   |      | % of    |  |        |      | % of   |  | % of    |               |        |  | % of   |      | % of    |  |       
|Consolidated                                                |  | voting |      | share-  |  |        |      | voting |  | share-  |               |        |  | voting |      | share-  |  |       
|Companies                                                   |  | rights |      | holding |  | Method |      | rights |  | holding |               | Method |  | rights |      | holding |  | Method
|                                                            |  |        |      |         |  |        |      |        |  |         |               |        |  |        |      |         |  |       
|Dassault Systèmes Kabushiki Kaisha                          |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Dassault Data Services                                      |  |        | 95%  |         |  |        | 95%  |        |  |         | Consolidation |        |  |        | 95%  |         |  |        | 95%  |  |  |  | Consolidation |  |  |  | 95%  |  |  |  | 90%  |  |  |  | Consolidation | 
|Dassault Systèmes of America Corp. and its
    subsidiaries |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|SolidWorks Corporation and its subsidiaries                 |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Delmia Corp. and its subsidiaries                           |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Enovia Corp.                                                |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Dassault Systèmes Corp.                                     |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Dassault Systèmes AG                                        |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 99%  |         |  |        | 99%  |  |  |  | Consolidation |  |  |  | 99%  |  |  |  | 99%  |  |  |  | Consolidation | 
|SmarTeam Corporation Ltd. and its subsidiaries              |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 84%  |         |  |        | 84%  |  |  |  | Consolidation |  |  |  | 84%  |  |  |  | 84%  |  |  |  | Consolidation | 
|Dassault Systèmes Provence                                  |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Delmia GmbH                                                 |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 97%  |  |  |  | 97%  |  |  |  | Consolidation | 
|Dassault Systemes Canada Inc.                               |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Safework Inc.                                               |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Spatial Corp. and its subsidiaries                          |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  | 100% |  |  |  | 100% |  |  |  | Consolidation | 
|Dassault Systèmes Srl                                       |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  |      |  |  |  |      |  |  |  |               | 
|Structural Research and Analysis Corp.                      |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  |      |  |  |  |      |  |  |  |               | 
|Invention Machine Corporation                               |  |        | 17%  |         |  |        | 17%  |        |  |         | Equity Method |        |  |        | 17%  |         |  |        | 17%  |  |  |  | Equity Method |  |  |  |      |  |  |  |      |  |  |  |               | 
|Dassault Systemes Inc.                                      |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        | 100% |         |  |        | 100% |  |  |  | Consolidation |  |  |  |      |  |  |  |      |  |  |  |               | 
|Knowledge Technologies International Inc.                   |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        |      |         |  |        |      |  |  |  |               |  |  |  |      |  |  |  |      |  |  |  |               | 
|Knowledge Technologies International Ltd.                   |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        |      |         |  |        |      |  |  |  |               |  |  |  |      |  |  |  |      |  |  |  |               | 
|Knowledge Technologies International France                 |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        |      |         |  |        |      |  |  |  |               |  |  |  |      |  |  |  |      |  |  |  |               | 
|Dassault Systemes Switzerland                               |  |        | 100% |         |  |        | 100% |        |  |         | Consolidation |        |  |        |      |         |  |        |      |  |  |  |               |  |  |  |      |  |  |  |      |  |  |  |               | 
|3D PLM Software Ltd.                                        |  |        | 30%  |         |  |        | 30%  |        |  |         | Equity Method |        |  |        |      |         |  |        |      |  |  |  |               |  |  |  |      |  |  |  |      |  |  |  |               | 

F-32



---



##### 



Address of main location for operating
companies:

|                                            |  |                                                                                               
|------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|Dassault Data Services                      |  | 22 quai Galliéni
    92150 Suresnes, France                                                   
|Dassault Systèmes AG                        |  | Burgdorfer Strasse 10 c
    Lehrte 31275, Germany                                             
|Dassault Systèmes of America Corp.          |  | 6320 Canoga Avenue, Trillium East Tower
    Woodland Hills, CA 91367-2526, USA                
|Dassault Systèmes Inc.                      |  | 215 St-Jacques Ouest, Bureau 500
    Montréal (Québec) H2Y 1M6, Canada                        
|Dassault Systèmes Kabushiki Kaisha          |  | Pier City Shibaura Bldg 10F
    3-18-1 Kaigan, Minato-Ku
    Tokyo 108, Japan                 
|Dassault Systèmes Provence                  |  | 53 avenue de lEurope
    13100 Aix en Provence, France                                       
|Dassault Systèmes Switzerland               |  | Victoria House  Route de la Pierre
    22
    CH-1024 Ecublens, Switzerland                  
|Delmia Corp.                                |  | 900 N. Squirrel Road, Suite 100, Auburn
    Hills,
    MI 48326, USA                          
|Delmia GmbH                                 |  | Raiffeisenplatz 4
    D-70736 Fellbach, Germany                                               
|Enovia Corp.                                |  | 10926 David Taylor Drive, Suite 300
    Charlotte, NC 28262, USA                              
|Knowledge Technologies International Inc.   |  | 1209 Orange County City,
    City of Wilmington
    County of New Castle, Delaware, 19801, USA
|Knowledge Technologies International Ltd.   |  | Gables House
    Kenilworth Road, Royal Lemington Spa
    Warwickshire, CV32 6JX, England     
|Knowledge Technologies International France |  | Les Fjords, Immeuble Narvik  19 rue de
    Norvège
    91140 Villebon-sur-Yvette, France     
|Safework Inc.                               |  | 3400 de Maisonneuve Blvd West 
    Suite 1430
    Montréal (Québec) H3Z 3B8, Canada          
|SmarTeam Corporation Ltd.                   |  | 5 Hagavish St- Ovadia House
    Kfar Saba 44422, Israel                                       
|SolidWorks Corporation                      |  | 300 Baker Avenue Ext.
    Concord, MA 01742, USA                                              
|Spatial Corp.                               |  | 10955 Westmoor Drive, Suite 425
    Westminster, CO 80021, USA                                
|Structural Research & Analysis Corp.        |  | 12121 Wilshire Boulevard, Suite 700
    Los Angeles, CA 90025-1170, USA                       
|3D PLM Software Ltd.                        |  | Plant 14, Pirojshanagar, Vikhroli (East),
    Mumbai 400 079, India                           

NOTE S  PERSONNEL
COSTS

Personnel costs were
305,766,000,
271,781,000, and
209,959,000 for
the years ended December 31, 2002, 2001, and 2000,
respectively. Directors compensation was
80,000,
61,000,
61,000 in the
years ended December 31, 2002, 2001, and 2000, respectively.

F-33



---



##### 





|         |                                                                                                     
|-------- | ----------------------------------------------------------------------------------------------------
|NOTE T  | SUMMARY OF DIFFERENCES BETWEEN FINANCIAL
    STATEMENTS 
     ESTABLISHED IN FRENCH GAAP AND US GAAP

The differences are summarized below (in
thousands of euros):

|                                               |  |            |         |            |  |  |         |  
|---------------------------------------------- |  | ---------- | ------- | ---------- |  |  | ------- | -
|                                               |  | Net equity |         | Net income
|                                               |  |            |         |           
|US GAAP                                        |  |            | 628,261 |            |  |  | 126,415 |  
|Available for sales securities(1)              |  |            |         |            |  |  | 3,016   |  
|Marketable securities(1)                       |  |            | (25     | )          |  |  | (25     | )
|Stock options(2)                               |  |            |         |            |  |  | 3,636   |  
|Goodwill amortization(3)                       |  |            | (30,524 | )          |  |  | (32,221 | )
|Derivative instruments(4)                      |  |            | (10,250 | )          |  |  | (531    | )
|Accounting for issuance of SolidWorks stock(5) |  |            | 1,136   |            |  |  | 1,136   |  
|Pension  Additional minimum
    liability(6)  |  |            | (310    | )          |  |  | (694    | )
|Stock options  Tax benefits(7)                |  |            |         |            |  |  | 5,254   |  
|                                               |  |            |         |            |  |  |         |  
|As adjusted for French GAAP                    |  |            | 588,288 |            |  |  | 105,986 |  
|                                               |  |            |         |            |  |  |         |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under French GAAP, investments in equity
    securities are stated at the lower of cost or fair market value.
    Unrealized losses are recognized in income.                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Under US GAAP, in accordance with SFAS 115,
    available for sales securities are accounted for at their fair
    market value, with the unrealized gains or losses being recorded
    in the shareholders equity, except for the net effects of
    an other than temporary decline in fair value below the cost
    basis.                                                                                                                                                                                                                                                          
|(2) | The Company accounts for its employee stock
    option plan under the intrinsic value method in accordance with
    APB 25. Under this accounting pronouncement, the Company
    records compensation charges under certain of its awards. Under
    French accounting principles, no compensation charge is
    recognized in earnings.                                                                                                                                                                                                                                                
|(3) | Under French GAAP, Goodwill is amortized over its
    useful life. Under SFAS 141 (Business Combinations)
    and SFAS 142 (Goodwill and Other Intangible Assets),
    goodwill for which the acquisition date is after June 30,
    2001 for the year ended December 31, 2001 and all
    unamortized goodwill for the period ended December 31, 2002
    is not amortized. Goodwill amortization is replaced by an annual
    impairment test implemented at the reporting unit level using
    fair value measurement.                                                           
|(4) | Under French GAAP, financial instruments
    designated as hedging instruments are not recognized but are
    disclosed as off-balance sheet instruments. The fair market
    value of a financial instrument is recognized when the hedged
    item is recognized in earnings. Under SFAS 133, all
    derivatives instruments are recorded in the balance sheet at
    fair value. Changes in the fair value are recognized in earnings
    except for the effective portion of cash-flow hedging
    instruments, which is reported as a component of other
    comprehensive income.
|(5) | 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 US GAAP, the gain is not recognized as
    reacquisition of shares is contemplated at the time of issuance.
    This dilution is accounted for as an equity transaction.                                                                                                                                                                                                                                                                                                                                                                                                          
|(6) | Under US GAAP, when the accumulated benefit
    obligation exceeds the fair value of plan assets, the Company
    shall recognize a liability in the statement of financial
    position. The adjustment is reflected in other comprehensive
    income, intangible assets and long-term liabilities, as
    appropriate. Under French GAAP, this adjustment is recognized in
    earnings.                                                                                                                                                                                             
|(7) | The company may obtain tax benefits related to
    stock issued to employees. Under APB 25 (Accounting for
    stock issued to employees), the entire tax benefit is
    added to additional paid-in capital when the plan is not
    compensatory. Under French GAAP, the tax benefits are recognized
    in earnings.                                                                                                                                                                                                                                                               

F-34