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

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

                                   FORM 10-K

     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

          FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                      OR

     [_] 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 0-24720

                             BUSINESS OBJECTS S.A.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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              THE REPUBLIC OF FRANCE                                      NONE
(JURISDICTION OF INCORPORATION OR ORGANIZATION)           (I.R.S. EMPLOYER IDENTIFICATION NO.)
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                1 SQUARE CHAPTAL, 92300 LEVALLOIS-PERRET FRANCE
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                (408) 953-6000
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

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                                                           NAME OF EACH EXCHANGE ON WHICH
                 TITLE OF EACH CLASS:                               REGISTERED:
                 --------------------                      ------------------------------
<S>                                                     <C>
               American Depositary Shares,
        each representing one Ordinary Share                  Nasdaq National Market
                    Ordinary Shares                           Nasdaq National Market*
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* Not for trading, but only in connection with the American Depositary Shares.

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

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

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
                               [X] Yes    [_] No

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

  The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the ADS on February 27, 1998
as reported on the National Market of The Nasdaq Stock Market, was
approximately $177,642,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

  The number of outstanding shares of each of the issuer's classes of capital
or common stock as of February 27, 1998 was 16,784,154 Ordinary Shares of FF1
nominal value, including 13,412,210 American Depositary Shares (as evidenced
by American Depositary Receipts), each corresponding to one Ordinary Share.

                      DOCUMENTS INCORPORATED BY REFERENCE

  The Registrant has incorporated by reference into Part III of this Form 10-K
portions of its Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held June 3, 1998.

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

  Unless otherwise stated, references herein to the "Company" or to "Business
Objects" are to Business Objects S.A. and its consolidated subsidiaries.

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

                                  TRADEMARKS

  BusinessObjects, the Business Objects logo, BusinessQuery, BusinessMiner,
BusinessAnalyzer, Microcube, PowerReport, Rapid Deployment Template,
ReportScript, Semantically Dynamic, SmartSpace, Universe Repository and
WebIntelligence are trademarks or registered trademarks of Business Objects
S.A. All other trademarks or trade names referenced to in this Annual Report
on form 10-K are the property of their respective owners.

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

                              REPORTING CURRENCY

  All financial information contained in this document is expressed in United
States dollars, unless otherwise stated.

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

                          AMERICAN DEPOSITARY SHARES

  Pursuant to a program sponsored by the Company, ordinary shares of the
Company (the "Shares") are traded in the United States in the form of American
Depositary Shares ("ADSs"), each ADS representing one Share placed on deposit
with The Bank of New York, as depositary (the "Depositary") and issued and
delivered by the Depositary through its principal office in New York City at
101 Barclay Street, New York, New York, 10286. Under the terms of the Deposit
Agreement (the "Deposit Agreement") dated September 22, 1994 and amended May
8, 1996, Shares may be deposited with the Paris office of Banque Paribas, as
custodian (the "Custodian"), or any successor or successors to such Custodian.
The Depositary provides a variety of services to investors, as more fully set
forth in the form of Deposit Agreement filed as an exhibit to the Company's
Registration Statement on Form F-6 filed with the Securities and Exchange
Commission on August 22, 1994.

  Under the original Deposit Agreement two Shares converted into one ADS.
Following the amendment of the Deposit Agreement on May 8, 1996, one Share
converts into one ADS. This had the effect of doubling the number of
outstanding ADSs, producing the same result as a 2-for-1 stock split. Except
where otherwise indicated, all ADS and per ADS information contained herein
has been adjusted to give effect to this amendment for all periods.

                                       2
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                               TABLE OF CONTENTS

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                                                                            PAGE
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 <C>      <S>                                                               <C>
                                     PART I
 Item 1.  Description of Business........................................     4
 Item 2.  Description of Property........................................    14
 Item 3.  Legal Proceedings..............................................    14
 Item 4.  Submission of Matters to a Vote of Security Holders............    14
                                    PART II
 Item 5.  Market for Registrant's Common Equity and Related Stockholder
          Matters........................................................    15
 Item 6.  Selected Financial Data........................................    16
 Item 7.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations..........................................    17
 Item 8.  Financial Statements and Supplementary Data....................    30
 Item 9.  Changes in and Disagreements With Accountants on Accounting and
          Financial Disclosure...........................................    49
                                    PART III
 Item 10. Directors and Executive Officers of the Registrant.............    49
 Item 11. Executive Compensation.........................................    49
 Item 12. Security Ownership of Certain Beneficial Owners and Management.    49
 Item 13. Certain Relationships and Related Transactions.................    49
                                    PART IV
 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
          K..............................................................    50
</TABLE>

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FORWARD LOOKING STATEMENTS

  In addition to historical information, this Annual Report contains forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act, as amended.
The forward-looking statements contained herein are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those reflected in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Business Factors." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Business Objects undertakes
no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission, including
reports on form 10-Q to be filed by the Company in 1998.

                                       3
<PAGE>

                                    PART I

ITEM 1. DESCRIPTION OF BUSINESS

INDUSTRY BACKGROUND

  Companies around the globe are looking for ways to further leverage business
information across the enterprise in order to become more competitive. Today,
this information exists in many places: application systems such as enterprise
resource planning, human resources, and finance; data warehouses and data
marts; and custom applications for specialized use.

  In order to take full advantage of corporate data and gain a competitive
advantage, organizations need to empower end users with data access for more
effective decision making. However, many organizations do not have the tools
needed to fill this business requirement.

  The decision support industry was born out of this need for companies to
deliver access to information to their employees, and enable them to make
faster, more accurate decisions. Faster access to information means companies
can be more competitive, take advantage of new markets, and push decision
making down to the front lines of the organization.

COMPANY

  Business Objects was organized in 1990 as a societe anonyme, or limited
liability company, under the laws of the Republic of France to develop, market
and support integrated enterprise decision support software tools. The
Company's principal executive office is located at 1 Square Chaptal, 92300
Levallois-Perret, France. The Company has wholly-owned subsidiaries in the
United States, United Kingdom, Germany, the Netherlands, Belgium, Spain,
Australia, Sweden, Canada, Singapore, Japan and Switzerland. In addition, the
Company also has a majority interest in a subsidiary in Italy.

  The Company's decision support tools are designed to allow non-technical end
users to access, report, and analyze information stored in corporate data
warehouses, data marts, and business applications. The Company's software
enables end users to perform powerful queries by using a "semantic layer," a
patented technology that maps complex databases to a business representation
understandable by non-technical end users. Data retrieved by these queries can
then be analyzed using various tools and sophisticated reports can be produced
to present the results of the analysis. The Company's products are distributed
worldwide through both direct and indirect sales channels to organizations in
a wide range of industries. As of December 31, 1997, Business Objects
estimates that it had licensed its software to over 5,800 customers,
representing approximately 700,000 licenses in over 60 countries.

  Business Objects introduced its first products in 1990 in response to a
growing need for software tools that enabled end users to independently
access, analyze and report on data stored in relational databases. The Company
evolved its products over the following years in response to user needs and
built a strong market leadership position. The Company's current solution and
its core product, BusinessObjects version 4.1, is based on five fundamental
principles:

    Business-Oriented Representation of Information. The Company's software
  eliminates the necessity for end users to understand the details of
  database structures and permits end users to work with their own business
  terminology to execute queries, generate reports or analyze data. This
  result is accomplished by transforming the technical details of database
  structures into business representations, or universes of business
  "objects" of information, that are meaningful to end users. The universes
  of objects are pre-defined by the Information Systems (IS) staff and made
  available to end users in a shared repository, who can then combine objects
  such as "Sales Revenue", "Products", or "Customers" dynamically to
  formulate a query. As a result, the IS department is no longer required to
  define queries for individual users, and it can, by defining even a limited
  number of objects, provide end users with substantial query potential.

                                       4
<PAGE>

    Intuitive and Reliable Query Technique. The Company's software insulates
  users from the complexities of the Structured Query Language (SQL) and
  provides a query technique based on a logic more intuitive to the end user
  than traditional query techniques, resulting, the Company believes, in both
  greater ease of use and better accuracy of results. The user need only
  specify, in a query panel, the objects he desires to retrieve, any
  applicable conditions on these objects and the sorting order of the
  results. The user does not have to understand particular technical
  concepts, such as location of data, definition of information elements, or
  the relationship between different database tables. The use by end users of
  a meaningful business vocabulary, predefined by database experts, reduces
  the potential for improperly defined queries that may result in erroneous
  results.

    Comprehensive, Integrated Suite of End User Tools. The Company's
  comprehensive, integrated suite of end user tools permits end users,
  following a single query of the database, to generate a wide variety of
  reports and graphs and to perform various forms of analysis, including
  multidimensional analysis or online analytical processing (OLAP), and data
  mining.

    Repository-Based IS Staff Set-up, Control and Security. The IS staff can
  efficiently administer the deployment of the data access solution within an
  organization through the use of a central relational repository, where
  universes of objects are centrally defined, maintained, and stored by the
  IS staff. The IS staff can also control the use of available computer
  resources by preventing or deferring the execution of queries that consume
  excessive amounts of processing time or return large amounts of data,
  thereby overloading the system. Further, by being able to assign specific
  universes of objects to particular end users, the IS department can
  maintain control over data access security throughout the enterprise.

    Enterprise-wide Interoperability. The Company's software products have
  been developed to provide enterprise-wide interoperability, for platforms
  including Microsoft Windows (Windows 95, NT, and 3.1) and Unix Motif, and
  most major databases, including Oracle, Sybase, IBM DB2 and SQL/400,
  Informix, Microsoft SQL Server, DEC Rdb, and Teradata and a number of
  legacy mainframe databases. This interoperability is effected either
  through the use of native middleware or through open interfaces, such as
  Microsoft ODBC. The product also supports multidimensional databases or
  OLAP servers, such as Oracle Express, Arbor Essbase, and Informix Metacube.

BUSINESS STRATEGY

  The Company's objective is to continue to be a leading supplier of software
products for the worldwide enterprise decision support tools market. The
Company's strategy is focused on the following elements:

    Concentrate on Decision Support Tools. The Company continues to focus on
  decision support tools designed to facilitate, on an enterprise-wide basis,
  the access, analysis, and reporting by end users of information stored in
  corporate data warehouses, data marts, and business applications. The
  Company plans to continue investing significant resources in research and
  development both to enhance its core, end user data representation and
  query technology and to develop new or enhanced analysis and reporting
  products. The Company may also license technology from third parties in
  order to broaden its scope of products.

    Maintain Enterprise-wide Focus. The Company intends to ensure that its
  products can be used in conjunction with major desktop computer operating
  systems and corporate databases and to adapt its products to the latest
  developments of these different technologies. The Company's objective is to
  make "seamless" the access and sharing of information across heterogeneous
  enterprise-wide environments. In particular, the Company enables its
  technology for use on intranets and for use in conjunction with leading
  multidimensional databases.

    Diversify Channels of Distribution. In order to accelerate worldwide
  market penetration, the Company is broadening its sales strategy, which has
  historically focused on the direct sales approach, by furthering its
  telesales organization and the development of indirect sales channels
  consisting of VARs, system integrators, consulting partners, distributors,
  and resellers. This strategy is designed to reach organizations that could
  not otherwise have been effectively reached by the Company's direct sales
  staff.

                                       5
<PAGE>

    Maintain Global Orientation. From its earliest stages of development, the
  Company's strategy has been to develop a global organization. The Company
  has developed a strong presence both in Europe and in the United States and
  is expanding operations in the Asia/Pacific region. This approach enables
  the Company to provide the international presence and support required by
  large multinational customers and to develop product and business
  strategies that will permit it to be competitive on a worldwide basis. The
  Company considers its global orientation to be an essential component of
  its success and culture.

    Offer Quality Customer Service and Support. The Company believes that
  offering responsive and highly skilled customer service and support is a
  key competitive factor. The Company has established and intends to enhance
  and expand its worldwide customer service and customer support
  organization. In particular, the Company hired a Vice President of
  Worldwide Customer Support in early 1997 and reorganized its customer
  support organization to be centrally managed. Customer services currently
  offered include software maintenance and support, customer education and
  training, and post-sales consulting services.

TARGET MARKETS

  The Company's software is designed for medium to large business
organizations and governmental institutions. The Company's marketing strategy
is focused on the following four target markets:

    Users of Data Warehousing/Data Marts. Data warehousing, which has emerged
  recently as a popular architecture for decision support functions, is an
  information system whereby organizations install one or more servers to
  supplement existing mainframes or other systems on which mission-critical
  transactional applications run. These organizations regularly download data
  from their transactional applications to the "data warehouses" that are
  used as information servers for end users. Data marts are smaller scale
  data warehouses that are focused on a particular business unit or specific
  function. These approaches enable end users to access data without
  incurring the risk of "corrupting" production databases, or slowing down
  the running of the mission-critical transactional applications. In
  addition, transactional applications usually only contain six to twelve
  months of data, whereas data warehouses and data marts, over time, will
  contain years of information. Because decision support is the main
  objective of data warehousing, the Company considers its software to be a
  key component of the data warehousing project, as it provides the end user
  decision support at the front-end to the downloaded data.

    Users of Packaged Client/Server Business Applications
  Software. Organizations implementing complex client/server packaged
  business applications from vendors such as SAP AG, Oracle Corp.,
  PeopleSoft, Inc., and The Baan Company frequently require comprehensive end
  user data access and reporting functionality. The Company's software
  provides significant value to these organizations in its ability to handle
  the complexities of the underlying databases of these applications. In
  addition, the Company has developed a series of predefined objects, called
  Rapid Deployment Templates (RDTs), for use with certain of these
  client/server packaged business applications, thereby providing to
  organizations using such applications a set of predefined universes which
  facilitate the implementation of the Company's decision support solution.
  The Company intends to continue to develop, independently or in conjunction
  with others, RDTs for use with specific applications. The foregoing
  expectation is a forward looking statement subject to a number of risks and
  uncertainties including those set forth under the caption "Business
  Factors--Rapid Technological Change and New Products".

    Users of Custom Developed Client/Server Business Applications
  Software. These organizations have a number of end users using IS or third
  party developed applications in a relational environment and have
  accumulated a large volume of data in their databases. The Company believes
  that the exposure of end users to the benefits of relational databases has
  stimulated the demand for access to the data. By allowing end users to
  independently access data, generate reports, and perform analyses, the
  Company's software enables these organizations to take better advantage of
  their substantial investments in relational database and client/server
  technology.

                                       6
<PAGE>

    Companies Sharing Data Over the Internet. These organizations want to
  provide their customers, partners, and suppliers with access to information
  about their relationship over the internet. For example, a medical
  equipment distributor could provide their suppliers with self-service
  access to inventory and sales information. While this currently represents
  an insignificant portion of the Company's current business, this is a
  potentially large new market for the Company. There can be no assurance
  that this market will develop or that the Company will be successful in
  penetrating this market.

PRODUCTS

  The Company provides a complete suite of decision support tools including
query, reporting, online analytical processing, data mining, and decision
support software (DSS) administration for both client/server and internet
environments.

  The client/server product line is called BusinessObjects. It consists of an
end user toolset and an IS toolset, both of which are provided in different
versions for each of the operating systems supported by the Company's software
(Windows 95, Windows NT, Windows 3.1, and Unix Motif). Versions for Microsoft
Windows currently represent the substantial majority of the Company's
installed customer base.

  The Company also has a new, thin-client platform, called WebIntelligence,
that allows end users to perform ad hoc query, reporting, and analysis over
the web. WebIntelligence began production in December 1997. WebIntelligence
works with any client platform that has a Java enabled web browser. On the
server side, WebIntelligence is initially available on Windows NT.

  Both the client/server and web platforms utilize the BusinessObjects IS
toolset that allows IS professionals to set up and maintain the environment
for deploying the platforms. At the center of the Business Objects environment
is the "semantic layer"--a meaningful, business representation of data between
the users and the database. This semantic layer is made up of universes of
business "objects" which end users combine to run their queries. Through the
use of an intuitive, point-and-click interface, the IS staff defines objects
by assigning a Structured Query Language (SQL) equivalent to a particular
business term, and specifies data dimensions and hierarchies for
multidimensional analysis. The IS staff then specifies the relationships
between the different tables of the relational database. Once created, this
semantic layer is available to end users through a central repository and may
be modified by the IS staff in response to the changing needs of the end users
or to changes in the database structure. Both the client/server and web
platforms can utilize the same semantic layer.

  After selecting the appropriate universe of business objects, an end user
performing a query specifies in a query panel the objects he desires to
retrieve, any applicable conditions on these objects, and the sorting order of
the results. Once the query is formulated by the end user, a powerful engine
incorporated in the Company's software determines the SQL equivalent of the
query and sends it to the host database. The engine determines the appropriate
database fields and tables required, the relationships between the different
tables, the "group" functions and other query specifications. An important
feature of the engine is its ability to redefine dynamically the meaning of an
object, based on how it is combined with other objects within a query. For
example, the object "Sales Revenue" has one meaning when combined in a query
with the object "Customer", i.e. sales revenue by customer, and a different
meaning when combined with the object "Product", i.e. sales revenue by
product. Once a query has been executed, the results are returned to the end
user in the form of a microcube, allowing for the use of other desktop
computer tools to present or further analyze the data.

  The IS staff is able to manage corporate data access from a central point
through the use of a "universe repository". The universe repository is a set
of relational tables where the IS staff stores universe definitions, such as
objects and table relationships, and user authorizations. Once a universe is
stored or modified in the repository, it becomes automatically available to
all authorized users, which significantly reduces maintenance and simplifies
administration. The centralized design also allows database administrators to
control access to data by adding an additional layer of security on top of
security features supported by different relational database management
systems.

                                       7
<PAGE>

  BusinessObjects, the client/server platform, is made up of several End User
components, including the following:

    Reporter. Reporter includes a query engine that permits the selection of
  universes of business objects and the independent formulation of queries by
  combining objects in a query panel. Once data is returned by the system,
  users employ a report generator that enables them to create and edit
  sophisticated reports. The report generator is fully "wysiwyg" ("what you
  see is what you get"), is directly linked to the database, utilizes
  templates to accelerate report preparation, and allows the inclusion of
  bitmap images and Microsoft Object Linking and Embedding (OLE) documents.
  Reporter also includes a graph generator that enables end users to produce
  a variety of different graph types and representations in two or three
  dimensions. The U.S. suggested list price for Reporter is $595 per user,
  subject to volume discounts.

    Explorer. Explorer is an analysis tool that operates as an integrated
  add-on to Reporter. Explorer provides users with integrated
  multidimensional analysis functionality to "slice and dice" their
  information and "drill" into levels of detail, while still using the report
  as a base document. The U.S. suggested list price of Explorer is $695 per
  user, subject to volume discounts, and requires that the user has licensed
  the Reporter module.

    Reader/Driller. BusinessObjects Reader and BusinessObjects Driller are
  new product modules available for users who need to read reports but do not
  require the ability to do ad hoc query. BusinessObjects Reader provides
  read-only capabilities. BusinessObjects Driller enables end users to read
  and drill into pre-defined reports. The U.S. suggested list price is $195
  for Reader and $350 for Driller, with a minimum quantity of 200 users.

    WebIntelligence is the Company's new, thin-client platform.
  WebIntelligence allows users to perform ad-hoc query, reporting, and
  analysis over the world wide web. Through its distributed architecture and
  100% Java query applet, WebIntelligence eliminates the need for client-side
  installation and maintenance of both application software and database
  middleware, providing organizations with a cost-effective way to broadly
  deploy DSS capabilities, and extend DSS beyond the organization to reach
  suppliers, partners, and customers. WebIntelligence was first shipped in
  December 1997, and on the server side, is initially available on Windows
  NT. The U.S. suggested list price is $595 per user, subject to volume
  discounts.

  The following add-on products are available for end users of BusinessObjects
in addition to the Company's core products:

    BusinessQuery for Excel. BusinessQuery for Excel is a query tool based on
  the BusinessObjects query technology that has been specifically designed
  for Microsoft Excel users. It is fully integrated with Excel and allows end
  users to retrieve data directly within an Excel spreadsheet. As in the case
  of Reporter, the universes and objects provided to end users are designed
  by the IS staff using the IS toolset. BusinessQuery for Excel is licensed
  as an add-on to Reporter for a US suggested list price of $150 per user,
  subject to volume discounts, and as a standalone product, without a need
  for Reporter, for a US suggested list price of $350 per user, subject to
  volume discounts.

    BusinessMiner. BusinessMiner is a data-mining tool that lets end users
  discover trends hidden in their business data and then display the trends
  for easy analysis in the form of a decision tree. The product includes
  charts and graphs to easily visualize results and wizards that guide users
  through the mining process. BusinessMiner works with data retrieved by
  Reporter or directly with other data sources. BusinessMiner is licensed as
  an add-on to Reporter for a US suggested list price of $495 per user,
  subject to volume discounts, and as a standalone product, without a need
  for Reporter, for a US suggested list price of $995 per user, subject to
  volume discounts. The object code for BusinessMiner software is in-licensed
  from a third party pursuant to a non-exclusive license agreement expiring
  May 2001. The agreement is automatically renewable for an additional two
  years, unless either party gives notice within 18 months of the expiration
  date.

                                       8
<PAGE>

  In order to set up and maintain the Business Objects environment, the
Company provides the following tools designed for IS professionals:

    Designer. Designer allows the IS staff to design and maintain universes
  of objects. It includes a Quick Design wizard that lets IS staffs create
  universes in just a few steps. Designer is a graphical tool that also
  includes powerful routines for automatic design checking, including loop
  detection and resolution. The US suggested list price for Designer is
  $1,995 per IS staff, subject to volume discounts.

    Supervisor. Supervisor is an object-based security module that allows the
  IS staff to assign and modify the rights granted to users and groups of
  users. Supervisor lets IS staff easily manage access to BusinessObjects
  resources including documents, universes, objects, and even menus, as well
  as control end users' utilization of centralized resources. The US
  suggested list price for Supervisor is $1,995 per IS staff, subject to
  volume discounts.

    Document Agent Server. Document Agent is a production reporting server
  that allows users to schedule the execution and distribution of queries and
  reports to save time and computing resources. Document Agent processes
  requests in the background and forwards reports to the user and others as
  specified, including publishing to the web. The US suggested list price of
  Document Agent is $4,995 per server, subject to volume discounts.

    Data Access Drivers. Each end user module and IS toolset includes a
  relational database management system (RDBMS) driver that enables users to
  connect and retrieve data from a particular database. The Company offers
  RDBMS drivers for the major relational databases, and customers can
  purchase additional RDBMS drivers for different databases. The US suggested
  list price for an additional RDBMS driver is $100 per user, subject to
  volume discounts.

    Rapid Deployment Templates. The Company has developed a series of RDTs
  for organizations needing to access data stored in packaged applications
  from vendors such as SAP, Oracle and PeopleSoft. An RDT is a deployment
  "starter kit" which consists of predefined "objects" that map underlying
  data structures in the application to business terms such as "Customers",
  "Orders" and "Materials" meaningful to end users. Related objects are
  grouped into "classes" and a set of classes belonging to a functional area
  such as finance or marketing can be grouped together into a "universe".

SALES AND MARKETING

  The Company markets its software and services through its direct sales
organization in the United States, France, the United Kingdom, Germany,
Belgium, Italy, Spain, Canada, Australia, Sweden, the Netherlands, Japan,
Switzerland and through non-exclusive international distributors in a number
of European, Asian, and Latin American countries, and South Africa. Currently,
the Company's products are marketed in over 60 countries, with the United
States, France, and the United Kingdom being the Company's main markets.

  Although the Company has traditionally employed a direct sales approach in
marketing its software and services, an important aspect of its current sales
and marketing strategy is to expand its use of indirect sales channels such as
VARs, system integrators, consulting partners, distributors, and resellers.
This strategy is designed to enable the Company to increase its market
coverage and reach organizations which could not otherwise have been
effectively reached by the Company's direct sales staff. The Company is
seeking to build and maintain relationships with RDBMS VARs that sell
application software based on a relational database and whose typical
customers are business users in need of a decision support tool, and with
hardware vendors, which offer hardware platforms, and, in many cases, have
comprehensive data warehouse programs in which they sell complete solutions,
including databases, middleware, and front-end decision support tools.
Hardware vendors represent an important point of entry into the data
warehousing market. See "Target Markets". The Company also uses resellers,
mainly vertical application specialists and regional resellers, to cover
markets in which the Company has only a limited presence.

  The Company's sales and marketing organization is comprised of sales teams,
each consisting of field sales, field technical support, telemarketing and
telesales personnel. Each sales team is responsible for the coordination

                                       9
<PAGE>

of both direct and indirect sales within the territory and works closely with
third party VARs, system integrators, consulting partners, distributors and
resellers. In order to reduce conflict between its direct sales force and its
third-party sales channels, the Company's compensation structure rewards sales
personnel based on the total sales generated within that territory, both
direct and indirect. The Company believes that sales teams leverage the skills
of its sales personnel, encourage cooperative sales efforts and maximize
revenue generation and customer service.

  The Company focuses its initial sales efforts on the IS department of a
particular organization while also seeking to involve end users through
demonstrations and product trials. Typically, the Company will perform one
demonstration to the IS department which will be followed by a trial period
during which the IS department, assisted by the Company, will develop a
prototype. Such prototype will then be the subject of a demonstration to end
users. The sales cycle varies from customer to customer, and generally
requires from two to six months or longer, especially in larger transactions.

  To support its sales effort, the Company conducts marketing programs,
including advertising, direct mail, public relations, seminars, demonstrations
at customer sites and at the Company's offices, appearances at trade shows,
and ongoing customer communications programs.

CUSTOMER SERVICE AND SUPPORT

  The Company believes that providing a high level of customer service and
technical support is essential to customer satisfaction and the Company's
success. To achieve this goal, the Company provides post-sales technical
support, customer education and training, and after-sales consulting services.

  Post-Sales Technical Support and Software Maintenance. The Company provides
a hotline telephone support service, which is staffed by technical personnel
and which is supported by a computerized call tracking and problem reporting
system. In addition, customers have access to a technical web site providing
technical and product information. The Company's VARs, system integrators,
consulting partners, distributors, and resellers provide additional customer
support. Initial product license fees do not cover software maintenance.
Customers are entitled to receive new software enhancements and maintenance
releases and post-sales technical support for an annual fee.

  Customer Education and Training. The Company offers a comprehensive
education and training program to customers, including IS staff and end users,
and third-party consultants. Training classes are offered through in-house
facilities at the Company's offices in San Jose, California and Chicago,
Illinois in the United States, in the United Kingdom, France, and other
locations. These facilities are complemented by a network of independent
certified training centers in the Company's principal markets throughout the
world. The Company intends to further the development of this network. The
foregoing statement is a forward looking statement subject to a number of
risks and uncertainties including those set forth under "Business Factors--
Product Distribution and Support". The Company also provides onsite training
services upon request by customers.

  After-Sales Consulting Services. The Company provides consulting services to
its customers through its own staff or through certified consulting partners
with recognized expertise in the implementation of client/server products.
These consulting services generally consist of assisting customers in
developing universes of objects and deploying the Business Objects software
throughout the customer's end user community.

PRODUCT DEVELOPMENT

  The Company believes that innovation, timeliness of product releases, and
high product quality is essential to maintain its competitive position in the
market. Consequently, the Company dedicates considerable resources to research
and development efforts to enhance its existing products and to develop new
products. To date, the Company has relied primarily on internal development of
its products, but has in the past and may in the future continue to license or
acquire technology or products from third parties.

                                      10
<PAGE>

  The Company's software is a decision support tool designed for use in both
the client/server and web computing environments. The software industry is
characterized by rapid technological advances, changes in customer
requirements, and frequent new product introductions and enhancements. In
particular, some industry analysts believe that the recent emergence of the
internet/intranets, and in particular the worldwide web, with its new mode of
user operation, could negatively impact the market for traditional
client/server tools. The Company believes that its future success will largely
depend upon its ability to enhance its current products and to develop and
introduce new products that keep pace with technological developments such as
the world wide web, respond to evolving customer requirements and achieve
market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, including
advances in RDBMS or other database technology and desktop computer operating
systems and environments, any significant delays in product development or
introduction, or any incompatibility of new products with the most up-to-date
operating systems and environments then available to the Company's customers,
could result in a loss of competitiveness and could have a material adverse
effect on the Company's financial performance.

  The Company believes that current customers and future potential customers
will require decision support products like BusinessObjects version 4.1 which
can be utilized over an intranet. The Company has recently released
WebIntelligence, which is deployable in an intranet environment, and utilizes
world wide web technology. The first release of WebIntelligence allows users
to execute queries and prepare reports directly from a Java-enabled web
browser.

COMPETITION

  The Company's products are specifically targeted at the decision support
software tools market. The principal competitive factors affecting the market
for the Company's products are ease of use, functionality, product
architecture, price, product quality, breadth of distribution, customer
support, and name recognition. The Company's products compete in four main
market sectors, the query and reporting market, the multidimensional analysis
or OLAP market, the emerging desktop data mining market, and the market for
integrated products or product suites that provide query, reporting, and
analysis.

  In the query and reporting market, the Company's main direct competitors
include Cognos Incorporated, Brio Technology Inc., Oracle Corp., and Seagate
Technology, Inc. In the multidimensional analysis or OLAP market, the Company
faces direct competition from Cognos and Andyne Computing Ltd., as well as
indirect competition from Oracle, Seagate Technology, Inc., Microstrategy,
Inc., Arbor Software Corp., and Microsoft Corp. Many of the Company's
competitors have longer operating histories and significantly greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger installed base, than the Company. In addition,
many competitors, particularly relational database management system vendors,
have well-established relationships with customers of the Company. The
Company's competitors could in the future introduce products with more
features and lower prices than the Company's products. These companies could
also bundle existing or new products with other more established products in
order to compete with the Company. The Company's focus on decision support
tools may be a disadvantage in competing with vendors who offer a broader
range of products. Furthermore, as the decision support market develops, a
number of companies with significantly greater resources than the Company
could attempt to increase their presence in this market by acquiring or
forming strategic alliances with competitors of the Company.

  During 1997, the Company generated approximately 31% of its revenues from
its operations in North America. This market is highly competitive. The
Company believes that its continued success is partly dependent on its ability
to operate successfully in this geographic region. Marketing activities and
purchasing decisions made by companies in this region influence purchasing
decisions made by companies on a worldwide basis. The inability of the Company
to compete successfully in this region, or the ineffectiveness of its
marketing activities, could have a material adverse affect on the Company's
results of operations and financial condition.

  Although the Company has recently been increasing its sales through indirect
channels, revenues from such sales channels currently represent a smaller
portion of the Company's total revenues than direct sales and there

                                      11
<PAGE>

can be no assurance that the Company will be able to continue to attract
indirect channels that will be able to market and support the Company's
software effectively. For the year ended December 31, 1997, the Company
realized 58% of its licensing revenues directly and 42% through indirect sales
channels, compared to 66% and 34%, respectively, for the year ended December
31, 1996.

MANUFACTURING

  Substantially all of the Company's CD duplication, printing of user manuals,
packaging and manufacture of related materials are performed to the Company's
specifications by outside sources. To date, the Company has not experienced
any material difficulties or delays in manufacture by third party suppliers.
However, an interruption in production by a supplier or suppliers could result
in a delay in shipments of the Company's products and adversely affect the
Company's results of operations.

PATENTS AND INTELLECTUAL PROPERTY PROTECTION

  The Company currently has one patent issued in the United States, number
5,555,403 relating to a "Relational Database Access System Using Semantically
Dynamic Objects". The Company is currently engaged in litigation asserting
that one of its competitors infringes this patent. See Item 3, Legal
Proceedings. There can be no assurance that any current or future patents will
provide the Company with competitive advantages or will not be challenged by
third parties, or that the patents of others will not have an adverse effect
on the Company's ability to do business. Furthermore, there can be no
assurance that others will not independently develop similar or competing
technology or design around any patents that may be issued to the Company. The
Company believes that it owns or has licensed all proprietary rights relating
to its software. The Company relies on a combination of the protections
provided by applicable copyright, trademark and trade secret laws, as well as
on confidentiality procedures and licensing arrangements, to establish and
protect its rights in its software. Despite the Company's efforts, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or reverse engineer or obtain and use information that the
Company regards as proprietary. In addition, although the Company's name
together with its logo is registered as a trademark in France, the United
States, and a number of other countries, it may be difficult for the Company
to assert ownership rights in the name "Business Objects". Policing
unauthorized use of the Company's products by customers or preventing the name
of the Company's software from becoming part of the public domain is
difficult. The laws of certain countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States or
France. Under French law, the rights of the Company in its software are not
patentable but are protected under copyright law and infringements by third
parties can be enjoined. While the Company's competitive position may be
affected by its ability to protect its proprietary information, the Company
believes that factors such as the technical expertise and innovation skills of
its personnel, its name recognition and ongoing product support and
enhancement may be more significant in maintaining the Company's competitive
position.

  The Company licenses its software products to customers on a non-exclusive,
non-transferable basis. License agreements typically provide that the licensed
product may be used solely for the customer's internal operations and for a
specified number of named or concurrent users. With respect to US customers,
the Company may rely on "shrink-wrap" license agreements for the protection of
its products. A "shrink-wrap" license agreement is a printed license agreement
included within the packaged software that sets forth the terms and conditions
under which the purchaser can use the products. Such licenses take effect upon
the opening of the product package.

  The Company also licenses a portion of its technology to third parties.
Specifically SPSS Inc. and Alsoft have licensed the Business Objects query
technology and incorporated it into their products, BusinessQuery for SPSS
from SPSS Inc., and BusinessQuery for GeoConcept from Alsoft.

  The Company licenses certain software from third parties for sub-licensing
by the Company to its customers, and also licenses certain software programs
from third parties and incorporates them in the

                                      12
<PAGE>

Company's software products. Generally, such agreements grant the Company non-
exclusive, worldwide licenses with respect to such software. The utilization
of such third party software involves risks additional to software developed
in-house. Third party providers may cease or alter their operations, terminate
the relationship, or be generally unable to fulfill their obligations. Such
events may require the Company to seek alternative technology which may or may
not be available on commercially reasonable terms.

  In the future, it may be necessary or desirable to obtain licenses relating
to software programs from third parties, and there can be no assurance that
the Company will be able to obtain the necessary technology or similar
technology on commercially reasonable terms. Also, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future with respect to current or future products or that any such
assertions may not require the Company to enter into royalty arrangements or
result in costly litigation.

  The Company has entered into source code escrow agreements with a limited
number of its distributors and end users requiring release of source code.
Such agreements provide that such parties will have a limited, non-exclusive
right to use such code in the event that there is a bankruptcy proceeding by
or against the Company, if the Company ceases to do business or if the Company
fails to meet its contractual obligations. The provision of source code escrow
agreements may increase the likelihood of misappropriation by third parties.

  The Company is not aware of any infringement or claims of infringement by
its products on the proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim such infringement by the
Company with respect to current or future products. The Company expects that
software products will increasingly be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products overlap. Any such claim, with or without merit, can
be time consuming and could result in costly litigation and require the
Company to enter into royalty and licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable by
the Company or at all.

EMPLOYEES

  As of December 31, 1997, the Company had 757 full-time employees, including
116 in research and development, 401 in sales and marketing, 137 in customer
service and support and 103 in finance and administration. The Company's
employees are not represented by any collective bargaining organization, and
the Company has never experienced a work stoppage.

  The Company's success depends to a significant extent upon a number of key
management and technical personnel, including Bernard Liautaud, its Chief
Executive Officer and Co-Founder, the loss of whom could adversely affect the
Company's business. The Company maintains a key person life insurance policy
with proceeds payable to the Company on the life of Mr. Liautaud. The loss of
the services of key personnel could have a material adverse effect on the
Company. In addition, the Company believes that its future success will also
depend in a large part on its ability to attract and retain highly skilled
technical, management, sales and marketing personnel. Competition for such
personnel in the computer software industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel.

  Under French law, management is required to hold monthly meetings with a
delegation of elected employee representatives to discuss, in particular,
employment matters and the economic condition of the Company and to provide
appropriate information and documents relating thereto. As required under
French law, one employee representative is entitled to be present at meetings
of the Board of Directors of the Company, but does not have any voting rights.

FOREIGN AND DOMESTIC OPERATIONS

  See Note 13 of Notes to Consolidated Financial Statements.

                                      13
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

  The Company's corporate headquarters are located in Levallois-Perret,
France, a suburb of Paris, in a leased facility consisting of approximately
37,000 square feet. The lease term expires in 2005; however, the Company has
the option to cancel the lease without penalty in 2002. In addition, the
Company leases approximately 58,000 square feet in San Jose, California for
its U.S. headquarters under a lease expiring in 2001. The Company leases
additional facilities and offices in Puteaux, France; Maidenhead, England;
Koln, Germany; Utrecht, the Netherlands; Sydney, Australia; Tokyo, Japan;
Madrid, Spain; Stockholm, Sweden; Zaventem, Belgium; Rome and Milan, Italy;
Geneva and Zurich, Switzerland; Ontario, Canada and in the United States in
California, Texas, Illinois, Massachusetts, New Jersey, Georgia, Maryland,
Michigan, Minnesota, Colorado, New York, Pennsylvania and Connecticut.

ITEM 3. LEGAL PROCEEDINGS

  During January 1997, the Company filed a lawsuit in United States District
Court for the Northern District of California against Brio Technology, Inc.
for alleged patent infringement. The lawsuit alleges that Brio Technology,
Inc. infringes the Company's United States Patent No. 5,555,403 by making,
using and selling its product known as BrioQuery Enterprise. The Company's
complaint requests that the defendant be enjoined from further infringing the
patent. See "Business Factors--Legal Proceedings".

  In addition, the Company is involved in various legal proceedings arising in
the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None.

                                      14
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  The ADSs are quoted on the Nasdaq National Market under the symbol "BOBJY".
Neither the ADSs nor the Shares are listed or quoted on any other quotation
system or securities exchange. The following table sets forth the range of
quarterly high and low closing bid prices of the ADSs (each ADS representing
one Share) on the Nasdaq National Market for each full quarterly period within
the two most recent fiscal years.

<TABLE>
<CAPTION>
                                                                    HIGH   LOW
                                                                   ------ ------
   <S>                                                             <C>    <C>
   1997:
     Fourth Quarter............................................... $14.00 $ 9.75
     Third Quarter................................................ $10.88 $ 6.75
     Second Quarter............................................... $11.75 $ 7.38
     First Quarter................................................ $16.00 $ 9.38
   1996:
     Fourth Quarter............................................... $20.25 $ 8.75
     Third Quarter................................................ $41.50 $11.75
     Second Quarter............................................... $55.50 $32.25
     First Quarter................................................ $46.88 $18.75
</TABLE>

  The depositary in respect of the ADSs is The Bank of New York. Each ADS
registered on the books of the Depositary corresponds to one Share. As of
February 27, 1998, there were 48 record holders of American Depositary
Receipts evidencing 13,412,210 ADSs. As of February 27, 1998, there were
approximately 91 holders of record of the Company's 16,784,154 Shares. The
Company has not, since its formation, declared or paid any dividends on its
common stock. The Company intends to employ all available funds for the
development of its business and, accordingly, does not intend to declare or
pay any cash dividends in the foreseeable future.

                                      15
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

  The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Annual Report on Form 10-K. The selected statement of
operations data for each of the three years in the period ended December 31,
1997 and the balance sheet data at December 31, 1997 and 1996 have been
derived from the Consolidated Financial Statements of the Company, which have
been prepared in accordance with U.S. GAAP.

<TABLE>
<CAPTION>
                                       YEAR ENDED DECEMBER 31,
                          ------------------------------------------------------
                             1997       1996       1995       1994       1993
                          ----------  ---------  ---------  ---------  ---------
                          (IN THOUSANDS, EXCEPT PER SHARE AND PER ADS DATA)
<S>                       <C>         <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS
 DATA:
Revenues:
  License fees..........  $   78,478  $  64,451  $  48,782  $  24,306  $  11,563
  Services..............      35,775     20,686     11,824      5,881      2,540
                          ----------  ---------  ---------  ---------  ---------
    Total revenues......     114,253     85,137     60,606     30,187     14,103
Cost of revenues:
  License fees..........       3,773      3,235      2,107      1,466        944
  Services..............      13,107      6,780      4,044      1,619        724
                          ----------  ---------  ---------  ---------  ---------
    Total cost of
     revenues...........      16,880     10,015      6,151      3,085      1,668
                          ----------  ---------  ---------  ---------  ---------
Gross margin............      97,373     75,122     54,455     27,102     12,435
Operating expenses:
  Sales and marketing...      68,115     50,038     30,666     16,154      7,739
  Research and
   development..........      14,050     10,634      8,071      4,299      2,353
  General and
   administrative.......      11,076      7,402      5,706      3,447      1,855
                          ----------  ---------  ---------  ---------  ---------
    Total operating
     expenses...........      93,241     68,074     44,443     23,900     11,947
                          ----------  ---------  ---------  ---------  ---------
Income from operations..       4,132      7,048     10,012      3,202        488
Net interest income and
 other..................       1,673      1,849      1,999        383        120
                          ----------  ---------  ---------  ---------  ---------
Income before minority
 interest and provision
 for income taxes.......       5,805      8,897     12,011      3,585        608
Provision for income
 taxes..................      (3,184)    (3,737)    (3,963)    (1,208)      (378)
Minority interest in
 losses ................         256        --         --         --         --
                          ----------  ---------  ---------  ---------  ---------
Net income..............  $    2,877  $   5,160  $   8,048  $   2,377  $     230
                          ==========  =========  =========  =========  =========
Net income per Share and
 ADS--basic.............  $     0.17  $    0.32  $    0.51  $    0.18  $    0.02
                          ==========  =========  =========  =========  =========
Net income per Share and
 ADS--diluted...........  $     0.17  $    0.30  $    0.49  $    0.17  $    0.02
                          ==========  =========  =========  =========  =========
<CAPTION>
                                       YEAR ENDED DECEMBER 31,
                          ------------------------------------------------------
                             1997       1996       1995       1994       1993
                          ----------  ---------  ---------  ---------  ---------
<S>                       <C>         <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash
 equivalents and short-
 term investments.......  $   39,013  $  42,171  $  46,702  $  30,849  $   3,658
Total current assets....      80,020     70,057     66,669     40,915      9,509
Total assets............      94,340     80,770     71,013     45,237     11,201
Total current
 liabilities............      43,541     28,915     24,431     10,435      6,652
Long term obligations...         --          19        121         93        164
Shareholders' equity....      50,799     51,836     46,461     34,709      4,385
</TABLE>

                                      16
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

  The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain factors including those described in the line item
discussion of the Company's financial statements set forth below and in the
section titled "Additional Factors That Could Affect Operating Results". The
Company assumes no obligation to update the forward-looking information or
such factors.

OVERVIEW

  The Company develops, markets and supports decision support software tools
for the client/server and Intranet market. The Company's revenue is derived
from license fees and charges for services, including consulting, training and
maintenance. Revenue from product licensing is generally recognized on
shipment of the product, provided that no significant vendor or post support
obligations remain and that the collection of the receivable is deemed
probable by management. Consulting and training revenues are recognized upon
performance of the related services. The Company recognizes the revenue
associated with software maintenance contracts on a pro rata basis over the
life of the contract, which is typically one year.

  In October 1997, the Financial Accounting Standards Board issued Statement
of Position No. 97-2, "Software Revenue Recognition" (SOP 97-2). The Company
will be required to adopt this standard in its first quarter of fiscal year
1998. The criteria for recognizing revenue under SOP 97-2 are generally more
rigorous than the previous accounting standard and, in some cases,
significantly more rigorous. Due to uncertainties which exist with respect to
the appropriate interpretations and manner of implementation of SOP 97-2, the
effect on the Company is uncertain but could be significant.

  Sales in the Company's various markets are subject to risks inherent in
international business activities, including, in particular, general economic
conditions in each such country, overlapping of differing tax structures,
managing an organization spread over various jurisdictions, unexpected changes
in regulatory requirements, complying with a variety of foreign laws and
regulations, and the longer accounts receivables payment cycles in Europe.
Other risks associated with international operations in general include import
and export licensing requirements, trade restrictions, and changes in tariff
and freight rates. See "Business Factors--Multinational Operations and
Currency Exchange Rate Fluctuation".

  During April 1997, the Company acquired 51% of the outstanding shares of a
division of Datamat Ingegneria dei Sistemi S.p.A., its Italian Distributor, in
exchange for $1,300,000 in cash. The purchase agreement provides for a
call/put option that gives the Company the right to purchase and Datamat
Ingegneria dei Sistemi S.p.A. the right to require the Company to purchase an
additional 29% of the shares of the division in 1998 and the remaining 20% of
the shares in 1999 for an amount determined using a net asset and revenue
based formula. The Company has accounted for the acquisition using the
purchase method. Goodwill of approximately $1,539,000 was recorded as a result
of the initial purchase of shares, and is being amortized over three years.
The additional purchase price will be fully allocated to goodwill, and will be
amortized over a three-year period beginning with the month that the
incremental outstanding shares are purchased.

  During May 1997, the Company acquired all the outstanding shares of its
Swiss distributor in exchange for approximately $900,000 in cash. The Company
has accounted for the acquisition using the purchase method. Goodwill of
approximately $1,058,000 was recorded as a result of the purchase, and is
being amortized over three years.

  The Company operates on a multinational basis and a significant portion of
its business is conducted in currencies other than the U.S. dollar (mainly the
French franc, the British pound sterling, the Italian lira, the German mark
and the Japanese yen). Fluctuations in the value of currencies in relation to
the U.S. dollar have caused and will continue to cause dollar-translated
amounts to vary from one period to another. Due to the

                                      17
<PAGE>

number of currencies involved, the constantly changing currency exposures, and
the substantial volatility of currency exchange rates, the Company cannot
predict the effect of exchange rate fluctuations upon future operating
results. To date, the Company has not undertaken hedging transactions to cover
its currency transaction exposure.

  The effect of inflation on the Company's financial position has not been
significant.

  In view of the Company's significant growth in recent years, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of
future performance. In addition, the Company's revenues and operating results
can vary, sometimes substantially, from quarter to quarter as a result of
various factors. See "Business Factors."

RESULTS OF OPERATIONS

  The following table sets forth certain items from the Company's consolidated
statements of income as a percentage of total revenues for the periods
indicated.

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                     ---------------------------
                                                      1997      1996      1995
                                                     -------   -------   -------
     <S>                                             <C>       <C>       <C>
     Revenues:
       License fees.................................      69%       76%       80%
       Services.....................................      31        24        20
                                                     -------   -------   -------
         Total revenues.............................     100       100       100
     Cost of revenues:
       License fees.................................       3         4         3
       Services.....................................      11         8         7
                                                     -------   -------   -------
         Total cost of revenues.....................      14        12        10
                                                     -------   -------   -------
     Gross margin...................................      86        88        90
     Operating expenses:
       Sales and marketing..........................      60        59        51
       Research and development.....................      12        12        13
       General and administrative...................      10         9         9
                                                     -------   -------   -------
         Total operating expenses...................      82        80        73
                                                     -------   -------   -------
     Income from operations.........................       4         8        17
     Net interest income and other..................       1         2         3
                                                     -------   -------   -------
     Income before minority interest and provision
      for income taxes..............................       5        10        20
     Provision for income taxes.....................      (2)       (4)       (7)
     Minority interest in losses....................      --        --        --
                                                     -------   -------   -------
     Net income.....................................       3%        6%       13%
                                                     =======   =======   =======
     Gross margin
       License fees.................................      95%       95%       96%
       Services.....................................      63%       67%       66%
</TABLE>

REVENUES

<TABLE>
<CAPTION>
                                         1997    CHANGE  1996    CHANGE  1995
(DOLLARS IN THOUSANDS)                 --------  ------ -------  ------ -------
<S>                                    <C>       <C>    <C>      <C>    <C>
License fees.......................... $ 78,478    22%  $64,451    32%  $48,782
Percentage of total revenues..........       69%             76%             80%
Services.............................. $ 35,775    73%  $20,686    75%  $11,824
Percentage of total revenues..........       31%             24%             20%
Total revenues........................ $114,253    34%  $85,137    40%  $60,606
</TABLE>

                                      18
<PAGE>

  Total revenues increased to $114.3 in 1997 from $85.1 million in 1996 and
$60.6 million in 1995, representing increases of 34% from 1996 to 1997 and 40%
from 1995 to 1996. For all years, licenses from BusinessObjects represented
substantially all of the Company's license fees and the remaining portion of
the Company's total revenues were comprised of revenues from other products
and services related to licenses of BusinessObjects. In the future, any factor
adversely affecting licenses of BusinessObjects would have a material adverse
effect on the Company.

  During the second quarter of 1996, the Company experienced a significant
negative impact in its operating performance from the introduction of a new
release, version 4.0, of its main product BusinessObjects. The product, built
on a 32 bit architecture only ran on Windows 95 and NT and did not run on
Windows 3.1, the predominant desktop operating system at the time. Also after
introduction, the product experienced a significantly longer period than
expected to achieve stability of operation, and contained a number of "bugs"
resulting from the significant rewriting and re-architecting of the product.
Version 4.0 reached an acceptable level of stability of operation on Windows
3.1 as well as Windows 95 and NT in the fourth quarter of 1996, in which
period the Company's revenues increased significantly from the third quarter
continuing on into 1997. During September 1997, the Company began shipping
version 4.1 of its BusinessObjects product.

  LICENSE FEES. Revenues from license fees in 1997 increased approximately
$14.0 million or 22% over the prior year as compared with an increase of $15.7
million or 32% during 1996. These increases in license fees reflected
increased unit licenses of the Company's existing software products and the
expansion of the Company's product offerings, including an increase in the
number of relational databases supported by the Company's software. The
increase in license fees also resulted from growth in all major geographic
areas. European sales increased 25% from 1996 to 1997 as compared to a 35%
increase from 1995 to 1996. North American sales increased 11% during 1997 as
compared to 16% during 1996. License fees in the Asia Pacific region increased
57% during 1997 as compared to 219% during 1996.

  The Company plans to continue to enhance its current software and develop
new products. As a result, the Company anticipates that license fees, which
represented approximately 69% of the Company's total revenues in 1997
(substantially all of which consisted of licenses of BusinessObjects), will
continue to represent a substantial majority of its revenues for the
foreseeable future. However, it is expected that the percentage of license
revenues to total revenues will decrease in the future as the growth in
service revenue exceeds the growth in license revenue. The Company expects
that the market penetration by, and number of the Company's competitors will
increase, and, as a result, the growth rate in the Company's license fees in
the future may not be as high as the growth rate in such license fees achieved
in the past.

  SERVICES. Revenues from services consist of consulting revenue, training
revenue and maintenance revenue. Revenues from services in 1997 increased
approximately $15.1 million or 73% over the prior year as compared with an
increase of $8.9 million or 75% during 1996. The increase in revenues from
services during both years was due primarily to increases in maintenance
revenues related to increases in the Company's installed customer base and the
renewal of support contracts, and to a lesser extent increases in training and
consulting revenues. As market penetration by, and the number of competitors
increase, the growth rate of the Company's installed base and, consequently,
maintenance revenues may not be as high as growth rates achieved in the past.
The Company anticipates increasing its efforts in selling maintenance,
training and consulting services, and expects that service revenues should
continue to represent a significant portion of its total revenues.

COST OF REVENUES

<TABLE>
<CAPTION>
                                          1997    CHANGE  1996    CHANGE  1995
(DOLLARS IN THOUSANDS)                   -------  ------ -------  ------ ------
<S>                                      <C>      <C>    <C>      <C>    <C>
Cost of license fees.................... $ 3,773    17%  $ 3,235    54%  $2,107
Percentage of license fees revenues.....       5%              5%             4%
Cost of services........................ $13,107    93%  $ 6,780    68%  $4,044
Percentage of services revenues.........      37%             33%            34%
Total cost of revenues.................. $16,880    69%  $10,015    63%  $6,151
Percentage of total revenues............      14%             12%            10%
</TABLE>

                                      19
<PAGE>

  LICENSE FEES. Cost of license fees, consisting primarily of materials,
packaging and freight, increased approximately $0.5 million or 17% in 1997
over the prior year as compared with an increase of $1.1 million or 54% during
1996. Cost of license fees as a percentage of revenue from license fees
remained relatively constant during 1997, 1996 and 1995.

  SERVICES. Cost of services, consisting of the cost of providing consulting,
training and maintenance, increased approximately $6.3 million or 93% over the
prior year as compared with an increase of $2.7 million or 68% during 1996.
The increases in costs during both years were primarily due to increases in
headcount to support the Company's consulting, training and maintenance
activities and, to a lesser extent, to the subcontracting of training
activities.

OPERATING EXPENSES

<TABLE>
<CAPTION>
                                         1997    CHANGE  1996    CHANGE  1995
(DOLLARS IN THOUSANDS)                  -------  ------ -------  ------ -------
<S>                                     <C>      <C>    <C>      <C>    <C>
Sales and marketing.................... $68,115    36%  $50,038    63%  $30,666
Percentage of total revenues...........      60%             59%             51%
Research and development............... $14,050    32%  $10,634    32%  $ 8,071
Percentage of total revenues...........      12%             12%             13%
General and administrative............. $11,076    50%  $ 7,402    30%  $ 5,706
Percentage of total revenues...........      10%              9%              9%
Total operating expenses............... $93,241    37%  $68,074    53%  $44,443
Percentage of total revenues...........      82%             80%             73%
</TABLE>

  SALES AND MARKETING. Sales and marketing expenses in 1997 increased
approximately $18.1 million or 36% over 1996 as compared with an increase of
$19.4 million or 63% during 1996. Sales and marketing expenses consist
primarily of salaries and other payroll related expenses such as commissions
and amounts paid for product promotion activities. The increase in absolute
dollars in sales and marketing expenses is attributable to the expansion of
the Company's sales and marketing organization that grew to 401 people at
December 31, 1997 from 298 people at December 31, 1996 and from 233 people at
December 31, 1995. The increase in headcount supported the opening of new
regional offices in the United States and offices in new subsidiaries, as well
as expansion of personnel in existing offices. Sales and marketing expenses
are expected to continue to increase in absolute dollars in the future but may
vary as a percent of revenue.

  RESEARCH AND DEVELOPMENT. Research and development expenses increased
approximately $3.4 million and $2.6 million during 1997 and 1996,
respectively, as compared to the prior year, representing year over year
increases in expense of 32% for both periods. Research and development
expenses consist primarily of salaries, related benefits, third party
consultant fees and other costs. The increase in absolute dollars in research
and development expenses is due to increased staffing and associated support
for software engineers required to expand and enhance the Company's product
line. From December 31, 1996 to December 31, 1997, the Company's research and
development organization grew from 104 to 116 people. As of December 31, 1997,
the Company had not capitalized any software development costs and all
research and development costs have been expensed as incurred. See Note 1 of
Notes to Consolidated Financial Statements. See "Description of Business--
Product Development." Research and development expenses are expected to
continue to increase in absolute dollars in the future but may vary as a
percent of revenue.

  GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
approximately $3.7 million in 1997 or 50% over 1996 as compared with an
increase of $1.7 million or 30% during 1996. General and administrative
expenses consist primarily of salaries, related benefits, fees for
professional services including legal and accounting services and amortization
of goodwill. The increase in absolute dollars in general and administrative
expenses is primarily due to increases in staffing to support the Company's
growth, increases in reserves for accounts receivable, increases in
expenditures for legal and accounting services and from the amortization of
goodwill related to the acquisition of the Company's distributors in 1997.
Goodwill amortization

                                      20
<PAGE>

expense is included in general and administrative expenses and totaled $0.6
million in 1997 and $0.0 in 1996 and 1995. General and administrative expenses
are expected to increase in absolute dollars in the future but may vary as a
percent of revenue.

NET INTEREST INCOME AND OTHER

<TABLE>
<CAPTION>
                                           1997  CHANGE   1996  CHANGE   1995
(DOLLARS IN THOUSANDS)                    ------ ------  ------ ------  ------
<S>                                       <C>    <C>     <C>    <C>     <C>
Net interest income...................... $1,088  (30)%  $1,556  (29)%  $2,205
Net exchange gain (loss)................. $  585  100%   $  293  --     $ (206)
</TABLE>

  Net interest income and other income totaled $1.7 million, $1.8 million and
$2.0 million in 1997, 1996 and 1995, respectively. The decrease in net
interest income in 1997 compared to 1996 was primarily due to a decrease in
the Company's cash available for short-term investing and a decline in
interest rates. The decrease in interest income in 1996 compared to 1995 was
predominantly due to lower interest rates. The increase in net exchange gains
(losses) in 1997 and 1996 was predominantly due to gains on dollar denominated
intercompany receivables caused by the general strengthening of the U.S.
dollar against the French franc.

INCOME TAXES

<TABLE>
<CAPTION>
                                           1997   CHANGE   1996   CHANGE   1995
(DOLLARS IN THOUSANDS)                    ------  ------  ------  ------  ------
<S>                                       <C>     <C>     <C>     <C>     <C>
Provision for income taxes............... $3,184   (15)%  $3,737    (6)%  $3,963
Effective tax rate.......................     55%             42%             33%
</TABLE>

  The Company had provisions for income taxes of $3.2 million, $3.7 million
and $4.0 million in 1997, 1996 and 1995, representing 55%, 42% and 33%,
respectively, of the Company's income before such provisions in the respective
periods. The lower effective tax rate in 1995 resulted from available research
credits in France and the utilization of tax loss carryforwards in the United
States. The increase in the effective tax rate in 1996 and 1997 was primarily
due to limitations on the Company's ability to offset net losses for tax
purposes in certain jurisdictions against taxable income in other
jurisdictions, as well as the unavailability of research credits. The
effective rate was also impacted in 1997 by an increase in the French
statutory tax rate from 36.7% to 41.7% effective January 1, 1997.

  As of December 31, 1997, a valuation allowance of approximately $5.6 million
has been provided against a total net deferred tax asset of approximately $6.8
million, which consists primarily of the tax benefit of net operating loss
carryforwards and differences in the timing of items for tax and financial
reporting purposes. Approximately $3.5 million of the valuation allowance is
attributed to deductions for stock options, the benefit of which will be
credited to additional paid-in capital when realized. The Company's
expectation for realizing the remaining portion of this deferred tax asset is
based upon the existence of both taxable temporary differences and sufficient
taxable income in the carryforward period of certain jurisdictions. At the end
of 1997 and 1996, the Company had net deferred tax assets of $1.2 million and
$0.9 million respectively.

  At the end of 1997, the Company had aggregate net operating loss
carryforwards of approximately $11.3 million. Approximately $7.6 million of
these net operating loss carryforwards were in the United States and will
expire in the years 1998 through 2013 if not utilized. Utilization of the U.S.
net operating losses may be subject to an annual limitation due to ownership
change limitations provided by the Internal Revenue Code and similar state tax
provisions. The net operating loss carryforwards in the United States are
primarily attributable to deductions for stock options, the benefit of which
will be credited to additional paid-in capital when realized. The Company has
German, Singaporian, Canadian and Italian net operating loss carryforwards of
approximately $2.5 million, $0.5million, $0.3million and $0.2 million,
respectively. These net operating loss carryforwards can be used only to
offset future operating income generated in the respective country. Tax losses
in Germany and Singapore can be carried forward indefinitely. Tax losses in
Canada and Italy can be carried forward for seven years and five years
respectively. Pursuant to the Singaporian Tax Code, use of the net operating
losses may be limited if certain changes in ownership occur. See Note 10 of
Notes to Consolidated Financial Statements.

                                      21
<PAGE>

  The Company received notice from the French tax authorities in 1996
asserting deficiencies in French corporate income taxes for the Company's
taxable years 1993 and 1994. The Company contested the asserted deficiencies
through the administrative appeals process and has received official notice
from the tax authorities that most reassessments are cancelled. The amounts
ultimately assessed and accepted by the Company were insignificant to the
Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
                                          1997   CHANGE   1996   CHANGE   1995
(DOLLARS IN THOUSANDS)                   ------- ------  ------- ------  -------
<S>                                      <C>     <C>     <C>     <C>     <C>
Working capital......................... $36,479  (11)%  $41,142   (3)%  $42,238
Cash, cash equivalents, and cash
 investments............................ $39,013   (7)%  $42,171  (10)%  $46,702
Net cash provided by operating
 activities............................. $ 8,919  118%   $ 4,095  (70)%  $13,699
Net cash provided by (used for)
 investing activities................... $ 6,701  316%   $ 1,611  134%   $(4,744)
Net cash provided by financing
 activities............................. $ 1,208  (40)%  $ 2,025  676%   $   261
</TABLE>

  As of December 31, 1997, the Company had cash, cash equivalents and short-
term investments of $39.0 million, a decrease of $3.2 million from December
31, 1996. The Company provided cash from operations of $8.9 million in 1997,
as compared to $4.1 million in 1996. Net cash provided in 1997 primarily
resulted from net income and non-cash charges for depreciation and
amortization expense, and increases in accounts payable and accrued payroll
and deferred revenue, offset by increases in accounts receivable.

  Accounts receivable increased to $35.1 million at December 31, 1997 from
$24.2 million at the end of 1996. The increases in accounts receivable
resulted primarily from the growth in revenues. Accounts receivable days'
sales outstanding (DSO) was 88 days at December 31, 1997 and 84 days at
December 31, 1996. In general, due to the level of European sales which tend
to have longer collection cycles, and the historical pattern of revenue
generation towards the end of each quarter, the Company anticipates that
accounts receivable and DSO will continue to be substantial in the future.

  The Company's investing activities consisted primarily of the purchase and
sale of short-term investments, the acquisition of distributors totaling $2.6
million in 1997 and $0 in 1996, and expenditures for fixed assets totaling
$6.3 million in 1997 and $8.3 million in 1996. The Company has no significant
capital commitments and currently anticipates that additions to property and
equipment for the next year will be comparable to recent past years.

  In 1997, the Company's financing activities provided $1.3 million from the
issuance of shares upon the exercise of employee stock options and the
issuance of shares under employee stock purchase plans. In 1996, the Company's
financing activities provided $2.2 million from the issuance of shares upon
the exercise of employee stock options and the sale of shares under employee
stock purchase plans. The Company used $93,000 and $170,000 for the repayment
of capital lease obligations during 1997 and 1996, respectively.

  The Company believes that cash from operations together with existing cash
and cash equivalents and short-term investments will be sufficient to meet its
cash requirements for at least the next 12 months.

BUSINESS FACTORS

  Statements contained in this Management Discussion of Financial Condition
and Results of Operations and elsewhere in this Annual Report on Form 10-K
include forward looking statements that involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are the following:

  Variability of Operating Results; Seasonality. The Company's revenues and
operating results can vary, sometimes substantially, from quarter to quarter.
License fees, which represented approximately 69% of total revenues in 1997,
are relatively difficult to forecast due to a number of reasons, including the
timing of the introduction of products or product enhancements, competition
and pricing in the computer software industry,

                                      22
<PAGE>

the size and timing of individual license transactions, variability of the
Company's sales cycle, customer order deferrals in anticipation of new
products and customers' budget changes. The Company's software products are
generally shipped as orders are received. As a result, license revenues in any
quarter are substantially dependent on orders booked and shipped in that
quarter. The Company has often recognized a substantial portion of its
revenues in the last month of a quarter, with these revenues frequently
concentrated in the last weeks of a quarter. Because the Company's operating
expenses are based on anticipated revenue levels and a high percentage of the
Company's expenses are relatively fixed, a minor delay in the recognition of
specific revenue can cause significant variations in operating results from
quarter to quarter and may result in losses. For example, the Company plans to
continue to increase its expenditures to fund greater levels of research and
development, a larger direct sales and marketing staff, development of new
distribution and resale channels, broader customer support capability and the
additional general and administrative staffing necessary to support these
functions. To the extent such expenses precede or are not subsequently
followed by increased revenues, the Company's results of operations and
financial condition could be materially and adversely affected.

  Similar to many companies in the software industry, the Company generally
experiences a lower revenue growth (and may experience a decrease in revenue)
in the first quarter of the year than the immediately preceding quarter. The
Company believes that this seasonality in revenues has been primarily due to
the concentration by some customers of their larger capital purchases in the
fourth quarter of the calendar year, and their consequent lower purchasing
activity during the following quarter. In addition, the Company's European
operations generally have lower revenues in the summer months due to the
generally reduced economic activity in Europe at such time, and this serves to
build up a demand in the fourth quarter.

  Dependence on Principal Product. The Company generated the majority of its
total revenues from licenses of BusinessObjects in 1997, and the Company
expects that revenues from such licenses will continue to represent a
substantial majority of its total revenues for the foreseeable future. The
remaining portion of the Company's total revenues is comprised of revenues
from other licensed products and services related to licenses of
BusinessObjects. As a result, any factor adversely affecting licenses of
BusinessObjects would have a material adverse effect on the Company. The
Company's future financial performance will depend in part on the Company's
successful development and introduction, and customer acceptance of new and
enhanced versions of BusinessObjects and other products. In addition,
competitive pressures or other factors may result in significant price erosion
for BusinessObjects that could have a material adverse effect on the Company's
results of operations and financial condition.

  Competition. The Company's products are specifically targeted at the
decision support software tools market. The principal competitive factors
affecting the market for the Company's products are ease of use,
functionality, product architecture, price, product quality, breadth of
distribution, customer support, and name recognition. The Company's products
compete in four main market sectors, the query and reporting market, the
multidimensional analysis or OLAP market, the emerging desktop data mining
market, and the market for integrated products or product suites that provide
query, reporting, and analysis.

  In the query and reporting market, the Company's main direct competitors
include Cognos Incorporated, Brio Technology Inc., Oracle Corp., and Seagate
Technology, Inc. In the multidimensional analysis or OLAP market, the Company
faces direct competition from Cognos and Andyne Computing Ltd., as well as
indirect competition from Oracle, Seagate Technology, Inc., Microstrategy,
Inc., Arbor Software Corp., and Microsoft Corp. Many of the Company's
competitors have longer operating histories and significantly greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger installed base, than the Company. In addition,
many competitors, particularly relational database management system vendors,
have well-established relationships with customers of the Company. The
Company's competitors could in the future introduce products with more
features and lower prices than the Company's products. These companies could
also bundle existing or new products with other more established products in
order to compete with the Company. The Company's focus on decision support
tools may be a disadvantage in competing with vendors who offer a broader
range of products. Furthermore, as the decision support market develops, a
number of

                                      23
<PAGE>

companies with significantly greater resources than the Company could attempt
to increase their presence in this market by acquiring or forming strategic
alliances with competitors of the Company.

  During 1997, the Company generated approximately 31% of its revenues from
its operations in North America. This market is highly competitive. The
Company believes that its continued success is partly dependent on its ability
to operate successfully in this geographic region. Marketing activities and
purchasing decisions made by companies in this region influence purchasing
decisions made by companies on a worldwide basis. The inability of the Company
to compete successfully in this region, or the ineffectiveness of its
marketing activities, could have a material adverse affect on the Company's
results of operations and financial condition.

  Although the Company has recently been increasing its sales through indirect
channels, revenues from such sales channels currently represent a smaller
portion of the Company's total revenues than direct sales and there can be no
assurance that the Company will be able to continue to attract indirect
channels that will be able to market and support the Company's software
effectively. For the year ended December 31, 1997, the Company realized 58% of
its licensing revenues directly and 42% through indirect sales channels,
compared to 66% and 34%, respectively, for the year ended December 31, 1996.

  Rapid Technological Change and New Products. The market for decision support
tools is characterized by frequent product introductions and rapid
technological change. In the second quarter of 1996, the Company introduced a
new release of its BusinessObjects product, version 4.0. The development of
this next generation of BusinessObjects required the implementation of
significant architectural changes and extensive rewriting of the product
source code. New products when first released by the Company, may contain
undetected errors or "bugs" that, despite testing by the Company, are
discovered only after a product has been installed and used by customers.
Products that have been extensively rewritten, such as version 4.0, may take
longer to achieve stability of operation, than products which have been less
extensively rewritten. In 1996, the Company experienced material adverse
effects on results of operations resulting from "bugs" and a significantly
longer period than expected to achieve stability of operation of its version
4.0. There can be no assurance that errors will not be discovered in the
future, causing delays in product introduction and shipments or requiring
design modifications which could adversely affect the Company's competitive
position and operating results. In addition, there can be no assurance that
new products or product enhancements developed by the Company will achieve
market acceptance.

  During September 1997, the Company began shipping version 4.1 of its
BusinessObjects product. The new version includes enhancements to the core
product, new intelligent agent functionality and features to support the broad
range of users across an enterprise. Version 4.1 of BusinessObjects is
available for Microsoft Windows 3.1, Microsoft Windows 95 and Microsoft
Windows NT. The Company plans to have version 4.1 available for Unix Motif.
The delay between the availability of the Microsoft Windows versions and that
of the Unix Motif version could result in certain customers delaying their
purchase of, or not purchasing at all, the Company's current products, and
could have a material adverse impact on the Company's financial performance
and results of operations. The Company currently does not plan to make version
4.1 available for Apple Macintosh. The prior version of BusinessObjects was
available for Apple Macintosh. While less than 2% of the Company's installed
base is on this platform, the non-availability of version 4.1 for Apple
Macintosh could cause certain customers to not purchase the Company's current
products and could have a material adverse impact on the Company's financial
performance and results of operations.

  Version 4.1 was designed primarily on and for use with Microsoft Windows 95
and Windows NT. The Company believes that Microsoft Windows 3.1, and not
Windows 95 or Windows NT is currently the predominant operating system used by
its existing and potential customers, and that the rate of adoption of Windows
95 and NT is slower than original industry forecasts. While the Company has
released version 4.1 for use with Windows 3.1, implementation is more
difficult, performance may be slower and its response times unacceptable to
users. Poor performance of version 4.1 on Windows 3.1 could have a material
adverse impact on the Company's financial performance and results of
operations. The efficient use of version 4.1 also requires a personal computer
with greater performance characteristics and Random Access Memory (RAM) than
is

                                      24
<PAGE>

required for the efficient use of version 3.1 of BusinessObjects. This could
impact the rate at which customers purchase and implement version 4.1 and
could have a material adverse impact on the Company's results of operations
and financial performance.

  The Company believes that current customers and future potential customers
will require decision support products like BusinessObjects version 4.1 that
can be utilized over an intranet. The Company has recently released
WebIntelligence, which is deployable in an intranet environment, and utilizes
world wide web technology. The first release of WebIntelligence allows users
to execute queries and prepare reports directly from a Java enabled web
browser.

  WebIntelligence requires development by the Company of server-based
components, an area in which the Company has not developed products in the
past. Development also requires the use of new emerging technologies such as
the Java programming language and IIOP (Internet Inter-Orb Protocol), which
may contain "bugs" or not yet operate properly. Additionally, the Company is
relying on certain software that it licenses from third parties that is
integrated with the Company's internally developed software to develop
WebIntelligence. There can be no assurance that this third party software will
not contain "bugs" or operate properly, and that the software will continue to
be available to the Company on commercially reasonable terms. The first
release of WebIntelligence supports Microsoft NT as the operating system for
its server-based components, rather than Unix, which is the current
predominant operating system for web servers.

  Manufacturing. Substantially all of the Company's CD duplication, printing
of user manuals, packaging and manufacture of related materials are performed
to the Company's specifications by outside sources. To date, the Company has
not experienced any material difficulties or delays in manufacture by third
party suppliers. However, an interruption in production by a supplier or
suppliers could result in a delay in shipments of the Company's products and
adversely affect the Company's results of operations.

  Patents and Intellectual Property Protection. The Company currently has one
patent issued in the United States, number 5,555,403 relating to a "Relational
Database Access System Using Semantically Dynamic Objects". The Company is
currently engaged in litigation asserting that one of its competitors
infringes this patent. See Item 3, Legal Proceedings. There can be no
assurance that any current or future patents will provide the Company with
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to
do business. Furthermore, there can be no assurance that others will not
independently develop similar or competing technology or design around any
patents that may be issued to the Company. The Company believes that it owns
or has licensed all proprietary rights relating to its software. The Company
relies on a combination of the protections provided by applicable copyright,
trademark and trade secret laws, as well as on confidentiality procedures and
licensing arrangements, to establish and protect its rights in its software.
Despite the Company's efforts, it may be possible for unauthorized third
parties to copy certain portions of the Company's products or reverse engineer
or obtain and use information that the Company regards as proprietary. In
addition, although the Company's name together with its logo is registered as
a trademark in France, the United States, and a number of other countries, it
may be difficult for the Company to assert ownership rights in the name
"Business Objects". Policing unauthorized use of the Company's products by
customers or preventing the name of the Company's software from becoming part
of the public domain is difficult. The laws of certain countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States or France. Under French law, the rights of the Company in
its software are not patentable but are protected under copyright law and
infringements by third parties can be enjoined. While the Company's
competitive position may be affected by its ability to protect its proprietary
information, the Company believes that factors such as the technical expertise
and innovation skills of its personnel, its name recognition and ongoing
product support and enhancement may be more significant in maintaining the
Company's competitive position.

                                      25
<PAGE>

  The Company licenses its software products to customers on a non-exclusive,
non-transferable basis. License agreements typically provide that the licensed
product may be used solely for the customer's internal operations and for a
specified number of named or concurrent users. With respect to US customers,
the Company may rely on "shrink-wrap" license agreements for the protection of
its products. A "shrink-wrap" license agreement is a printed license agreement
included within the packaged software that sets forth the terms and conditions
under which the purchaser can use the products. Such licenses take effect upon
the opening of the product package.

  The Company also licenses a portion of its technology to third parties.
Specifically SPSS Inc. and Alsoft have licensed the Business Objects query
technology and incorporated it into their products, BusinessQuery for SPSS
from SPSS Inc., and BusinessQuery for GeoConcept from Alsoft.

  The Company licenses certain software from third parties for sub-licensing
by the Company to its customers, and also licenses certain software programs
from third parties and incorporates them in the Company's software products.
Generally, such agreements grant the Company non-exclusive, worldwide licenses
with respect to such software. The utilization of such third party software
involves risks additional to software developed in-house. Third party
providers may cease or alter their operations, terminate the relationship, or
be generally unable to fulfill their obligations. Such events may require the
Company to seek alternative technology which may or may not be available on
commercially reasonable terms.

  In the future, it may be necessary or desirable to obtain licenses relating
to software programs from third parties, and there can be no assurance that
the Company will be able to obtain the necessary technology or similar
technology on commercially reasonable terms. Also, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future with respect to current or future products or that any such
assertions may not require the Company to enter into royalty arrangements or
result in costly litigation.

  The Company has entered into source code escrow agreements with a limited
number of its distributors and end users requiring release of source code.
Such agreements provide that such parties will have a limited, non-exclusive
right to use such code in the event that there is a bankruptcy proceeding by
or against the Company, if the Company ceases to do business or if the Company
fails to meet its contractual obligations. The provision of source code escrow
agreements may increase the likelihood of misappropriation by third parties.

  The Company is not aware of any infringement or claims of infringement by
its products on the proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim such infringement by the
Company with respect to current or future products. The Company expects that
software products will increasingly be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products overlap. Any such claim, with or without merit, can
be time consuming and could result in costly litigation and require the
Company to enter into royalty and licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable by
the Company or at all.

  Multinational Operations and Currency Exchange Rate Fluctuations. A
significant portion of the Company's business is conducted in currencies other
than the U.S. dollar, the currency in which its financial statements are
stated. The Company has historically recorded a majority of its expenses in
French francs, especially research and development expenses, with the
substantial majority of its revenues denominated in U.S. dollars, French
francs and British pounds sterling. Moreover, fluctuations in the value of the
currencies in which the Company conducts its business relative to the U.S.
dollar have caused and will continue to cause dollar-translated amounts to
change in comparison with previous periods. Due to the number of currencies
involved, the constantly changing currency exposures, and the substantial
volatility of currency exchange rates, the Company cannot predict the effect
of exchange rate fluctuations upon future operating results. To date, the
Company has not undertaken hedging transactions to cover its currency
transaction exposure.


                                      26
<PAGE>

  Countries in the Asia Pacific region, including Japan, have recently
experienced weaknesses in their currency, banking and equity markets. Although
this region accounted for only 6% of the Company's consolidated revenues
during 1997, these weaknesses could adversely affect demand for the Company's
product, the U.S. dollar value of the Company's foreign currency denominated
sales and ultimately the Company's consolidated results of operations.

  In December 1996, the French parliament adopted a law that requires French
companies to pay French social contributions and certain salary-based taxes
for France-based employees on the difference between the exercise price of a
stock option and the fair market value of the underlying shares on the
exercise date if the employee disposes of the shares before the expiration of
a five-year period following the grant of the option. The total of the social
contributions and taxes may be up to 45% of the difference in value. The law
applies to all options, whatever the grant date, exercised after January 1,
1997.

  The Company has not recorded a liability for social charges which may be
assessed for options granted as of December 31, 1996 as the liability, being
dependent on future trading values of the Company's shares and the timing of
employees' decisions to exercise options and sell the related shares, cannot
be estimated. The Company also does not consider that the liability is
probable at December 31, 1997 due to the income tax disincentives to employees
of exercising options and selling the shares in less than a five year period.

  Options granted to French employees subsequent to December 31, 1996, are
subject to a minimum 5-year holding period on the underlying shares, whereby
France-based optionees will not be allowed to sell or dispose of the shares
before the expiration of a 5-year period from the grant date.

  Product Distribution and Support. Although the Company has been increasing
its sales through indirect channels, revenues from such sales represent a
smaller portion of the Company's total revenues than direct sales and there
can be no assurance that the Company will be able to attract indirect channels
that will be able to market and support the Company's software effectively.
There can be no assurance that any VAR, system integrator, consulting partner,
distributor or reseller of the Company's products will continue to represent
the Company's products, and the inability to recruit or retain a significant
number of VARs, system integrators, consulting partners, distributors or
resellers could adversely affect the Company's results of operations.
Additionally, the inability of the Company to expand its sales and marketing
organization, to implement new indirect sales channels to penetrate different
and broader markets than those addressed by its existing direct sales force
and international distributors, and to expand its support organization
commensurate with the base of its installed products could adversely affect
the Company's results of operations and financial performance.

  Impact of the Year 2000 Issue. Many installed computers systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century or earlier dates.
As a result, in less than two years, computer systems and/or software products
used by many companies may need to be upgraded to comply with such year 2000
requirements. The Company is currently expending sufficient resources to
review its products and services, as well as its internal management
information systems in order to identify and modify those products, services
and systems that are not year 2000 compliant. The Company expects such
modifications will be made on a timely basis and does not believe that the
cost of such modifications will have a material effect on the Company's
operating results. There can be no assurance, however, that the Company will
be able to modify timely and successfully such products, services and systems
to comply with year 2000 requirements, which could have a material adverse
effect on the Company's operating results. Based on the Company's assessment
to date, most newly introduced products and services of the Company are year
2000 compliant, however some of the Company's customers are running products
versions that are not year 2000 compliant. The Company has been encouraging
such customers to migrate to current product versions. In addition, the
Company faces risks to the extent that suppliers of products, services and
systems purchased by the Company and others with whom the Company transacts
business on a worldwide basis do not have business systems or products that
comply with the year 2000 requirements. In the event any such third parties
cannot timely provide the Company with products, services or systems that meet
the year 2000 requirements, the Company's operating results could

                                      27
<PAGE>

be materially adversely affected. Furthermore, there can be no assurance that
these or other factors relating to the year 2000 compliance issues, including
litigation, will not have a material adverse effect on the Company's business,
operating results or financial condition.

  Management of Growth. To date, the Company's business has grown rapidly.
Continued growth may place a significant strain on the Company's management
and operations. The Company's future operating results will depend on the
ability of its officers and key employees to continue to implement and improve
its operational and financial control systems and to expand, train, retain and
manage its employee base. The Company's inability to manage growth effectively
could have a material adverse effect on the Company's results of operations
and financial performance.

  Legal Proceedings. During January 1997, the Company filed a lawsuit in
United States District Court for the Northern District of California against
Brio Technology, Inc. for alleged patent infringement. The lawsuit alleges
that Brio Technology, Inc. infringes the Company's United States Patent No.
5,555,403 by making, using and selling its product known as BrioQuery
Enterprise. The Company's complaint requests that the defendant be enjoined
from further infringing the patent.

  In addition, the Company is involved in various legal proceedings arising in
the ordinary course of business.

                                      28
<PAGE>

QUARTERLY INFORMATION

  The following tables set forth statements of income data for each of the
eight quarters in the period ended December 31, 1997 and the percentage of the
Company's total revenues represented by each item in the quarter. This
unaudited quarterly information has been prepared on the same basis as the
annual information presented elsewhere herein and, in management's opinion,
includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the information for the quarters
presented. The operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                          -----------------------------------------------------------------------------
                          DEC. 31,  SEPT. 30, JUNE 30  MARCH 31, DEC. 31,  SEPT. 30, JUNE 30  MARCH 31,
                            1997      1997     1997      1997      1996      1996     1996      1996
                          --------  --------- -------  --------- --------  --------- -------  ---------
<S>                       <C>       <C>       <C>      <C>       <C>       <C>       <C>      <C>
Revenues:
 License fees...........  $24,265    $19,442  $18,032   $16,739  $19,503    $13,113  $17,230   $14,605
 Services...............   11,769      9,060    8,296     6,650    6,323      5,372    4,761     4,230
                          -------    -------  -------   -------  -------    -------  -------   -------
 Total revenues.........   36,034     28,502   26,328    23,389   25,826     18,485   21,991    18,835
Cost of revenues:
 License fees...........    1,388        826      739       820    1,038        822      733       643
 Services...............    4,377      3,505    2,859     2,366    1,994      1,763    1,704     1,319
                          -------    -------  -------   -------  -------    -------  -------   -------
 Total cost of revenues.    5,765      4,331    3,598     3,186    3,032      2,585    2,437     1,962
                          -------    -------  -------   -------  -------    -------  -------   -------
Gross margin............   30,269     24,171   22,730    20,203   22,794     15,900   19,554    16,873
Operating expenses:
 Sales and marketing....   19,744     17,095   17,135    14,141   14,748     11,853   12,664    10,773
 Research and
  development...........    4,132      3,503    3,279     3,136    2,936      2,712    2,525     2,460
 General and
  administrative........    3,456      2,874    2,660     2,086    1,966      2,004    1,950     1,482
                          -------    -------  -------   -------  -------    -------  -------   -------
 Total operating
  expenses..............   27,332     23,472   23,074    19,363   19,650     16,569   17,139    14,715
                          -------    -------  -------   -------  -------    -------  -------   -------
Income (loss) from
 operations.............    2,937        699     (344)      840    3,144       (669)   2,415     2,158
Net interest income and
 other..................      195        178      388       912      263        325      629       632
                          -------    -------  -------   -------  -------    -------  -------   -------
Income (loss) before
 minority interest and
 provision for income
 taxes..................    3,132        877       44     1,752    3,407       (344)   3,044     2,790
(Provision) benefit for
 income taxes...........   (1,713)      (716)     (19)     (736)  (1,596)        23   (1,126)   (1,038)
Minority interest in
 losses ................      223         35       (2)      --       --         --       --        --
                          -------    -------  -------   -------  -------    -------  -------   -------
Net income (loss).......  $ 1,642    $   196  $    23   $ 1,016  $ 1,811    $  (321) $ 1,918   $ 1,752
                          =======    =======  =======   =======  =======    =======  =======   =======
Net income (loss) per
 ADS and per share--
 basic(1)...............  $  0.10    $  0.01  $     0   $  0.06  $  0.11    $ (0.02) $  0.12   $  0.11
                          =======    =======  =======   =======  =======    =======  =======   =======
ADS and shares used in
 computing net income
 (loss) per ADS and
 share-- basic(1).......   16,770     16,689   16,614    16,417   16,361     16,276   16,260    16,143
Net income (loss) per
 ADS and per share--
 diluted(1).............  $  0.10    $  0.01  $     0   $  0.06  $  0.11    $ (0.02) $  0.11   $  0.10
                          =======    =======  =======   =======  =======    =======  =======   =======
ADS and shares used in
 computing net income
 per ADS and share--
 diluted(1).............   17,280     16,798   16,760    16,672   16,665     16,276   17,137    16,870
</TABLE>
--------
(1) Earnings per ADS and share amounts for 1996 and the first three quarters
    of 1997 have been restated to comply with Statement of Financial
    Accounting Standards No. 128, "Earnings per Share" (FAS 128). For further
    discussion of earnings per ADS and per share and the impact of FAS 128,
    see the notes to the consolidated financial statements beginning on page
    32.

  The growth in revenues and income from operations experienced by the Company
in recent quarters is not necessarily indicative of future results. In view of
the significant growth of the Company's operations in recent years, the
Company believes that period to period comparisons of its financial results
should not be relied upon as an indication of future performance.

                                      29
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Business Objects S.A.

  We have audited the accompanying consolidated balance sheets of Business
Objects S.A. as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included
the financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Business
Objects S.A. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          Ernst & Young LLP

San Jose, California
January 23, 1998

                                      30
<PAGE>

                             BUSINESS OBJECTS S.A.

                          CONSOLIDATED BALANCE SHEETS
             (IN THOUSANDS, EXCEPT FOR PER ORDINARY SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ----------------
                                                               1997     1996
                                                              -------  -------
<S>                                                           <C>      <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................. $36,508  $21,862
  Short-term investments.....................................   2,505   20,309
  Accounts receivable, net of allowances of $1,568 and $1,060
   at December 31, 1997 and 1996 respectively................  35,113   24,176
  Inventories................................................     344      510
  Deferred tax assets, net...................................   1,185      945
  Prepaid and other current assets...........................   4,365    2,255
                                                              -------  -------
    Total current assets.....................................  80,020   70,057
  Goodwill, net..............................................   1,626       --
  Property and equipment, net................................  12,020   10,101
  Deposits and other assets..................................     674      612
                                                              -------  -------
    Total assets............................................. $94,340  $80,770
                                                              =======  =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................... $ 8,089  $ 4,533
  Accrued payroll and related expenses.......................   9,944    7,541
  Investment grant...........................................     668      764
  Income taxes payable.......................................   1,269       --
  Deferred revenue...........................................  16,825   10,386
  Value added taxes payable..................................   2,901    2,125
  Other current liabilities..................................   3,829    3,476
  Current portion of capital lease obligations...............      16       90
                                                              -------  -------
    Total current liabilities................................  43,541   28,915
Long term portion of capital lease obligations...............      --       19
Commitments and contingencies
Shareholders' equity
  Ordinary shares, FF 1 nominal value ($0.17 U.S.):
    Authorized and outstanding--16,778 and 16,385 at December
     31, 1997 and 1996 respectively..........................   3,084    3,017
    Additional paid-in capital...............................  34,270   33,036
    Retained earnings........................................  18,107   15,230
    Cumulative translation adjustment........................  (4,662)     615
    Unearned compensation....................................      --      (62)
                                                              -------  -------
      Total shareholders' equity.............................  50,799   51,836
                                                              -------  -------
        Total liabilities and shareholders' equity........... $94,340  $80,770
                                                              =======  =======
</TABLE>

                            See accompanying notes.


                                       31
<PAGE>

                             BUSINESS OBJECTS S.A.

                       CONSOLIDATED STATEMENTS OF INCOME
               (IN THOUSANDS, EXCEPT PER ADS AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                       1997     1996     1995
                                                     --------  -------  -------
<S>                                                  <C>       <C>      <C>
Revenues:
  License fees.....................................  $ 78,478  $64,451  $48,782
  Services.........................................    35,775   20,686   11,824
                                                     --------  -------  -------
    Total revenues.................................   114,253   85,137   60,606
Cost of revenues:
  License fees.....................................     3,773    3,235    2,107
  Services.........................................    13,107    6,780    4,044
                                                     --------  -------  -------
    Total cost of revenues.........................    16,880   10,015    6,151
                                                     --------  -------  -------
Gross margin.......................................    97,373   75,122   54,455
Operating expenses:
  Sales and marketing..............................    68,115   50,038   30,666
  Research and development.........................    14,050   10,634    8,071
  General and administrative.......................    11,076    7,402    5,706
                                                     --------  -------  -------
    Total operating expenses.......................    93,241   68,074   44,443
                                                     --------  -------  -------
Income from operations.............................     4,132    7,048   10,012
Interest and other income, net.....................     1,088    1,556    2,205
Net foreign currency exchange gain (loss)..........       585      293     (206)
                                                     --------  -------  -------
Income before minority interest and provision for
 income taxes......................................     5,805    8,897   12,011
Provision for income taxes.........................    (3,184)  (3,737)  (3,963)
Minority interest in losses........................       256       --       --
                                                     --------  -------  -------
Net income.........................................  $  2,877  $ 5,160  $ 8,048
                                                     ========  =======  =======
Net income per ADS and share--basic................  $   0.17  $  0.32  $  0.51
                                                     ========  =======  =======
ADS and shares used in computing net income per ADS
 and share--basic..................................    16,624   16,265   15,843
                                                     ========  =======  =======
Net income per ADS and share--diluted..............  $   0.17  $  0.30  $  0.49
                                                     ========  =======  =======
ADS and shares and equivalents used in computing
 net income per ADS and share--diluted.............    16,876   16,924   16,497
                                                     ========  =======  =======
</TABLE>

                            See accompanying notes.


                                       32
<PAGE>

                             BUSINESS OBJECTS S.A.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS )

<TABLE>
<CAPTION>
                           COMMON STOCK    ADDITIONAL          CUMULATIVE                   TOTAL
                         -----------------  PAID-IN   RETAINED TRANSLATION   UNEARNED   SHAREHOLDERS'
                           SHARES   AMOUNT  CAPITAL   EARNINGS ADJUSTMENT  COMPENSATION    EQUITY
                         ---------- ------ ---------- -------- ----------- ------------ -------------
<S>                      <C>        <C>    <C>        <C>      <C>         <C>          <C>
Balance at December 31,
 1994................... 15,677,662 $2,875  $30,414   $ 2,022    $  (158)     $(444)       $34,709
 Issuance of stock
  pursuant to employee
  stock plans...........    405,090     82      358        --         --         --            440
 Compensation related to
  stock options.........         --     --      137        --         --         --            137
 Amortization of
  unearned compensation
  related to stock
  options...............         --     --       --        --         --        146            146
 Cancellation of
  options...............         --     --      (39)       --         --         39             --
 Translation adjustment.         --     --       --        --      2,981         --          2,981
 Net income.............         --     --       --     8,048         --         --          8,048
                         ---------- ------  -------   -------    -------      -----        -------
Balance at December 31,
 1995................... 16,082,752  2,957   30,870    10,070      2,823       (259)        46,461
 Issuance of stock
  pursuant to employee
  stock plans...........    211,511     42    1,003        --         --         --          1,045
 Common stock issued....     90,761     18    1,129        --         --         --          1,147
 Compensation related to
  stock options.........         --     --       35        --         --         71            106
 Amortization of
  unearned compensation
  related to stock
  options...............         --     --       --        --         --        125            125
 Cancellation of
  options...............         --     --       (1)       --         --          1             --
 Translation adjustment.         --     --       --        --     (2,208)        --         (2,208)
 Net income.............         --     --       --     5,160         --         --          5,160
                         ---------- ------  -------   -------    -------      -----        -------
Balance at December 31,
 1996................... 16,385,024  3,017   33,036    15,230        615        (62)        51,836
 Issuance of stock
  pursuant to employee
  stock plans...........    285,366     49      406        --         --         --            455
 Common stock issued....    107,273     18      828        --         --         --            846
 Amortization of
  unearned compensation
  related to stock
  options...............         --     --       --        --         --         62             62
 Translation adjustment.         --     --       --        --     (5,277)        --         (5,277)
 Net income.............         --     --       --     2,877         --         --          2,877
                         ---------- ------  -------   -------    -------      -----        -------
Balance at December 31,
 1997................... 16,777,663 $3,084  $34,270   $18,107    $(4,662)     $  --        $50,799
                         ========== ======  =======   =======    =======      =====        =======
</TABLE>

                            See accompanying notes.

                                       33
<PAGE>

                             BUSINESS OBJECTS S.A.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                 ------------------------------
                                                   1997      1996       1995
                                                 --------  ---------  ---------
<S>                                              <C>       <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income....................................  $  2,877  $   5,160  $   8,048
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation and amortization...............     4,179      2,075      1,310
   Amortization of goodwill....................       598         --         --
   Compensation expense........................        62        197        283
   Deferred income taxes.......................      (257)       135       (610)
   Changes in operating assets and liabilities:
     Accounts receivable.......................   (12,914)    (7,178)    (8,365)
     Inventories...............................       131       (259)      (113)
     Prepaid and other current assets..........    (2,326)      (653)      (290)
     Deposits and other assets.................      (151)      (250)      (118)
     Accounts payable..........................     4,017      1,221      1,581
     Accrued payroll and related expenses......     3,089      1,130      3,170
     Income taxes payable......................     1,310     (3,918)     3,905
     Deferred revenue..........................     7,007      4,407      3,255
     Value added taxes and other current
      liabilities..............................     1,297      2,028      1,643
                                                 --------  ---------  ---------
Net cash provided by operating activities......     8,919      4,095     13,699
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............    (6,332)    (8,260)    (2,776)
Acquisition of distributors....................    (2,640)        --         --
Purchases of short term investments............   (70,374)  (175,408)  (159,901)
Proceeds from sales of short term investments..    86,047    185,279    157,933
                                                 --------  ---------  ---------
Net cash provided by (used for) investing
 activities....................................     6,701      1,611     (4,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt...........        --         --        (51)
Principal payments on capital lease
 obligations...................................       (93)      (170)      (129)
Issuance of shares.............................     1,301      2,195        441
                                                 --------  ---------  ---------
Net cash provided by financing activities......     1,208      2,025        261
Effect of foreign exchange rate changes on cash
 and cash equivalents..........................    (2,182)      (514)       191
                                                 --------  ---------  ---------
Net increase in cash and cash equivalents......    14,646      7,217      9,407
Cash and cash equivalents at the beginning of
 the year......................................    21,862     14,645      5,238
                                                 --------  ---------  ---------
Cash and cash equivalents at end of the year...  $ 36,508  $  21,862  $  14,645
                                                 ========  =========  =========
Supplemental disclosures of non cash
 activities:
   Property and equipment acquired under
    capital leases.............................  $     --  $      --  $     217
Supplemental disclosures of cash flow
 information:
   Cash paid for income taxes..................  $  1,837  $   7,510  $   1,011
</TABLE>

                            See accompanying notes.

                                       34
<PAGE>

                             BUSINESS OBJECTS S.A.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Organization and Basis of Presentation

  Business Objects S.A. (the Company) was organized in 1990 as a societe
anonyme, or limited liability company, under the laws of the Republic of
France. The Company develops, markets and supports enterprise-wide decision
support software tools.

  During 1997, the Company acquired 51% of the outstanding shares of its
Italian distributor and all the outstanding shares of its Swiss distributor.
Both transactions were recorded using the purchase method.

  The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority controlled subsidiaries, after
elimination of intercompany transactions and balances.

  The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States, applied on a
consistent basis. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying footnotes. Actual results could differ from those estimates.

 Translation of Financial Statements of Foreign Entities

  The functional currency of the Company and its 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 U.S. dollar. Assets and liabilities of the Company and its
subsidiaries with functional currencies other than the U.S. dollar are
translated into U.S. dollar equivalents at the rate of exchange in effect on
the balance sheet date. Income and expenses are translated at the weighted
average 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.

  Due to the number of currencies involved, the constant change in currency
exposures, and the substantial volatility of currency exchange rates, the
effect of exchange rate fluctuations upon future operating results could be
significant. To date, the Company has not undertaken hedging transactions to
cover any currency exposure.

 Revenue Recognition

  The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 on Software Revenue
Recognition. Revenue from product licensing is generally recognized on
shipment of the product, provided that no significant vendor or post contract
support obligations remain and that the collection of the resulting receivable
is deemed probable by management. Insignificant vendor and post contract
support obligations are accrued upon shipment. Fees for consulting and
training are recognized at the time the service is performed. Revenue from
software maintenance contracts is deferred and recognized on a straight-line
basis over the period covered by the contract, which is generally one year.

 Sales Returns and Warranties

  The Company's distributors do not have the right to return merchandise for
credit or refund. Any other potential sales returns are covered by the
Company's allowance for sales returns and doubtful accounts. The Company
provides for the costs of warranty when specific problems are identified. The
Company has not experienced any significant warranty claims to date.

                                      35
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


 Net Income Per ADS and Per Share

  The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" (FAS 128), beginning with the Company's fourth quarter of
1997. FAS 128 replaced the calculation of primary and fully diluted earnings
per ADS and per share with basic and diluted earnings per ADS and per share.
Unlike primary earnings per ADS and per share, basic earnings per ADS and per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per ADS and per share is very similar to the
previously reported fully diluted earnings per ADS and per share. All prior
period earnings per ADS and per share data have been restated to conform to
the provisions of this statement.

  Net income per share and per ADS reflect the adjustment in May of 1996 of
the conversion between Ordinary Shares and American Depositary Shares (ADS)
from two-to-one to one-to-one, producing the same results as a two-for-one
stock split.

 Cash, Cash Equivalents and Short-Term Investments

  The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Investments
with maturity dates of greater than three months are considered to be short-
term investments. Cash equivalents and short-term investments include
marketable securities that are principally money market funds, certificates of
deposit, term deposits and commercial paper.

  Management classifies investments as held-to-maturity or available-for-sale
at the time of purchase and periodically reevaluates such designation under
the provision of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS 115).
Debt securities not classified as held-to-maturity are classified as
available-for-sale and are reported at fair value. Unrecognized gains or
losses on available-for-sale securities are included, net of tax, in equity
until their disposition. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are
included in interest income. The cost of securities sold is based on the
specific identification method.

  All the Company's cash equivalents and short-term investments are classified
as available-for-sale at December 31, 1997 and 1996, and are carried at
amortized cost, which approximates estimated fair value based on quoted market
prices.

 Inventories

  Inventories consist principally of software media and related documentation
stated at the lower of cost (first-in, first-out) or market.

 Software Development Costs

  The Company capitalizes eligible software development costs upon achievement
of technological feasibility subject to net realizable value considerations.
Based on the Company's development process, technological feasibility is
generally established upon completion of a working model. Research and
development costs prior to the establishment of technological feasibility are
expensed as incurred. Because the period between achievement of technological
feasibility and the general release of the Company's products has been of
relatively short duration, costs qualifying for capitalization were
insignificant during the years ended December 31, 1997 and 1996. There were no
capitalized software development costs at December 31, 1997 and 1996.

 Property and Equipment

  Property and equipment are stated at cost. Office and computer equipment is
depreciated using the straight-line method over estimated useful lives ranging
from three to five years. Assets under capital leases are amortized

                                      36
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

over the shorter of the asset life or the lease term. Leasehold improvements
are depreciated over the shorter of the asset life or the remaining lease
term.

 American Depositary Shares

  On May 10, 1996, the Company amended its Deposit Agreement with the Bank of
New York, changing the ratio at which the Company's Ordinary Shares are
converted into American Depositary Shares (ADSs). Under the original Deposit
Agreement, two Ordinary Shares converted into one ADS. Following the
amendment, one Ordinary Share converts into one ADS. All ADS and per ADS
amounts have been restated to reflect this change.

 Concentration of Credit Risk

  The Company sells its products to various companies across several
industries throughout the world. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit
losses. Such losses have been within management's expectations. The Company
generally requires no collateral from its customers. All revenues of the
Company are primarily derived from the successive releases of one product and,
as a consequence, any factor adversely affecting any release of this product
would have a material adverse effect on the Company.

 Employee Stock Option Plans

  The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for its employee stock options because the
alternative fair market value accounting provided for under Statement of
Financial Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), requires the use of option valuation models that were
not developed for use in valuing employee stock options. The Company generally
grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair market value of the shares at the date of
grant, and no compensation expense is recorded. When the exercise price of the
Company's employee stock options is less than the market price of the
underlying shares of the date of the grant, compensation expense is
recognized.

 Fair Value of Financial Instruments

  The carrying values of financial instruments reported in the balance sheet
for cash and cash equivalents and short-term investments approximate fair
value. The fair value of short-term investments is based on quoted market
prices.

 Advertising costs

  The Company expenses advertising expenses as incurred. Advertising expenses
totaled $1,672,000 and $1,492,000 for the years ended December 31, 1997 and
1996, respectively. Advertising expense was less than one percent of revenue
for the year ended December 31, 1995.

 Recent Pronouncements

  In October 1997, the Financial Accounting Standards Board issued Statement
of Position No. 97-2, "Software Revenue Recognition" (SOP 97-2). The Company
will be required to adopt this standard in its first quarter of fiscal year
1998. The criteria for recognizing revenue under SOP 97-2 are generally more
rigorous than the previous accounting standard and, in some cases,
significantly more rigorous. Due to uncertainties which

                                      37
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

exist with respect to the appropriate interpretations and manner of
implementation of SOP 97-2, the effect on the Company is uncertain but could
be significant.

  In June 1997, the Financial Accounting Standards Board issued Statement
Number 130, Reporting Comprehensive Income. This statement requires that all
items that are to be required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15, 1997, and
will be adopted by the Company for the year ended December 31, 1998.

  In addition, during June 1997, the Financial Accounting Standards Board
issued Statement Number 131, Disclosures About Segments of an Enterprise and
Related Information. This statement replaces Statement Number 14 and changes
the way public companies report segment information. This statement is
effective for fiscal years beginning after December 15, 1997 and will be
adopted by the Company for the year ended December 31, 1998.

 Reclassifications

  Certain prior year amounts have been reclassified to conform with current
year presentation.

2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

  The Company's cash and cash equivalents and short-term investments as of
December 31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 1997    1996
                                                                ------- -------
     <S>                                                        <C>     <C>
     Cash and cash equivalents:
       Cash.................................................... $29,739 $ 7,441
       Money market funds......................................   6,769  14,421
                                                                ------- -------
         Total cash and cash equivalents....................... $36,508 $21,862
                                                                ======= =======
     Short-term investments:
       Certificates of deposit................................. $ 2,505 $ 3,246
       Commercial paper........................................     --   17,063
                                                                ------- -------
         Total short-term investments.......................... $ 2,505 $20,309
                                                                ======= =======
</TABLE>

  Unrealized holding gains and losses on available-for-sale securities at
December 31, 1997 and 1996 and gross realized gains and losses on sales of
available-for-sale securities during 1997, 1996 and 1995 were insignificant.

3. PROPERTY AND EQUIPMENT

  Property and equipment at December 31, 1996 and 1997 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                1997     1996
                                                               -------  -------
     <S>                                                       <C>      <C>
     Office and computer equipment............................ $16,552  $11,956
     Leasehold improvements...................................   2,900    2,527
                                                               -------  -------
       Total property and equipment...........................  19,452   14,483
     Accumulated depreciation and amortization................  (7,432)  (4,382)
                                                               -------  -------
       Property and equipment, net............................ $12,020  $10,101
                                                               =======  =======
</TABLE>

                                      38
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  Depreciation and amortization expense on property and equipment totaled
$4,179,000, $2,075,000 and $1,310,000 for the years ended December 31, 1997,
1996 and 1995, respectively.

4. INVESTMENT GRANT

  In May 1992 the Company was awarded a grant from the French Ministry of the
Economy, Finance and the Budget (the Ministry). The Company received FF
2,500,000 in August 1992 and FF 1,500,000 in December 1993 from this grant.
Using the end of period exchange rate at December 31, 1997, the dollar
equivalent of the grant is $668,000, and it is currently included in current
liabilities in the accompanying consolidated balance sheet. The Company
operated in compliance with the terms of the grant, which were in effect
through May 1997, and is awaiting confirmation from the Ministry before
recognizing the grant as income.

5. CAPITAL LEASE OBLIGATIONS

  The Company leases certain of its equipment under capital leases.
Capitalized costs of approximately $491,000 and $561,000 are included in
property and equipment at December 31, 1997 and 1996, respectively.
Accumulated amortization of these leased assets was approximately $402,000 and
$401,000 at December 31, 1997 and 1996, respectively. Future minimum lease
payments under capital lease obligations mature in 1998 and total $16,000.

6. ACQUISITIONS

  During April 1997, the Company acquired 51% of the outstanding shares of a
division of Datamat Ingegneria dei Sistemi S.p.A., its Italian distributor, in
exchange for $1,300,000 in cash. The purchase agreement provides for a
call/put option that gives the Company the right to purchase and Datamat
Ingegneria dei Sistemi S.p.A. the right to require the Company to purchase an
additional 29% of the shares of the division in 1998 and the remaining 20% of
the shares in 1999 for an amount determined using a net asset and revenue
based formula. Goodwill of approximately $1,539,000 was recorded as a result
of the initial purchase of shares, and is being amortized over three years.
The additional purchase price will be fully allocated to goodwill, and will be
amortized over a three-year period beginning with the month that the
incremental outstanding shares are purchased.

  During May 1997, the Company acquired all the outstanding shares of Delphi
Software A.G., its Swiss distributor, in exchange for approximately $900,000
in cash. Goodwill of approximately $1,058,000 was recorded as a result of the
purchase, and is being amortized over three years.

  The Company has accounted for both acquisitions using the purchase method.
The operating results of the acquired companies have been included in the
accompanying consolidated financial statements from their dates of
acquisition. Accumulated amortization of goodwill totaled $598,000 at December
31, 1997.

7. COMMITMENTS AND CONTINGENCIES

  The Company leases its facilities and certain equipment under operating
leases that expire through 2002. Future minimum lease payments under operating
leases due for the fiscal years ending December 31 are as follows (in
thousands):

<TABLE>
            <S>                                   <C>
            1998................................. $ 6,080
            1999.................................   5,615
            2000.................................   4,629
            2001.................................   3,688
            2002.................................   1,166
                                                  -------
              Total.............................. $21,178
                                                  =======
</TABLE>

                                      39
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  Rent expense under all operating leases was approximately $5,800,000,
$3,900,000 and $2,300,000 for the years ended December 31, 1997, 1996 and
1995, respectively.

  The Company leases certain facilities under operating leases that contain
free rent periods. Rent expense under these leases has been recorded on a
straight-line basis over the lease term. The difference between amounts paid
and rent expense is recorded as deferred rent and is included in other current
liabilities. The deferred rent liability under these leases was $382,000 and
$467,000 at December 31, 1997 and 1996, respectively.

  The Company is involved in various legal proceedings arising in the ordinary
course of business. The Company believes that the ultimate resolution of these
matters will not have a material effect on the Company's financial position,
results of operations or cash flows.

8. SHAREHOLDERS' EQUITY

 Dividend Rights

  Net income in each fiscal year after deduction for legal reserves is
available for distribution to shareholders of the Company as dividends,
subject to the requirements of French law and the Company's "statuts", or
articles of association. Dividends may also be distributed from reserves of
the Company, subject to approval by the shareholders and certain limitations.
Dividend distributions, if any, will be made in French francs. Payment of
dividends is fixed by the ordinary general meeting of shareholders at which
the annual accounts are approved following recommendations of the Board of
Directors. If net income is sufficient, the Board of Directors has the
authority subject to French law and regulation without the approval of
shareholders to distribute interim dividends. The Company has not distributed
any dividends since its inception.

  The Company is required to maintain a legal reserve equal to 10% of the
aggregate nominal value of its share capital, funded by a transfer of at least
5% of the Company's net income per year to such legal reserve. The legal
reserve balance requirement was $308,000 and $302,000 as of December 31, 1997
and 1996, respectively. The legal reserve is distributable only upon the
liquidation of the Company. The Company's statuts also provide that
distributable profits, after deduction of any amounts required to be allocated
to the legal reserve, can be allocated to one or more special purpose reserves
or distributed as dividends as may be determined by the general meeting of
shareholders.

 Liquidation Rights

  In the event that the Company is liquidated, the assets of the Company
remaining after payment of debts, liquidation expenses and all remaining
obligations will be distributed first to repay in full the capital of any
outstanding shares. The surplus, if any, will then be distributed pro rata
among the shareholders in proportion to the nominal value of their share
holdings and subject to special rights granted to holders of priority shares,
if any.

 Preemptive Subscription Rights

  Shareholders have preemptive rights to subscribe for additional shares
issued by the Company for cash on a pro rata basis. Shareholders may waive
such preemptive subscription rights at an extraordinary general meeting of
shareholders under certain circumstances. Preemptive subscription rights, if
not previously waived, are transferable during the subscription period
relating to a particular offer of shares.

 Repurchase of Shares

  Pursuant to French company law, the Company may not make open market
repurchases of its shares or otherwise acquire shares except (a) to reduce its
share capital by subscription and cancellation of such shares

                                      40
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

under certain circumstances with approval of the shareholders at an
extraordinary general meeting, (b) to obtain shares for distribution to
employees under an approved profit-sharing or stock option plan and (c) to
make purchases for the stabilization of quotation on a securities exchange
after obtaining approval from the shareholders at an extraordinary general
meeting. Purchases under (c) may only be effected to increase, or control
excessive fluctuations in the liquidity of the shares. The amounts repurchased
under (b) and (c) may not, in either case, result in the Company holding more
than 10% of the then outstanding shares.

 Stock Option Plans

  The Company's 1991 and 1993 Stock Option Plans (the Plans) provide for the
grant of stock options to certain employees and executive officers of the
Company. Under these plans, the Board of Directors determines the vesting and
exercise of the option grants. Generally options granted under the plans vest
at a rate of 25% per year subject to one year of continued service with the
Company. The exercise price per share, which was fixed at the date of grant,
was determined by a formula which was based on the share price applicable with
respect to the last subscription of the capital of the Company prior to the
particular grant date of the options granted to the employee. The share price
formula also took into consideration the number of days intervening between
such subscription date and the particular grant date and the revenues
generated by the Company in the four quarters preceding such grant date.

  On August 17, 1994, the shareholders of the Company authorized the creation
of a new share option plan (the 1994 Plan) pursuant to which the Board of
Directors was authorized to issue options to subscribe for 1,000,000 shares.
On June 13, 1996, the shareholders of the Company authorized an additional
1,000,000 shares reserved for issuance under the 1994 Plan. On June 19, 1997,
the shareholders of the Company authorized an additional 1,000,000 shares
reserved for issuance under the 1994 Plan. The 1994 Plan was approved by the
Company's shareholders at the 1995 Annual Meeting and is intended to qualify
as an incentive stock option plan within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended. The Board of Directors determines
the vesting and exercise of the option grants. Generally options granted under
the plan vest at a rate of 25% per year subject to one year of continued
service with the Company. The 1994 Plan provides that the exercise price of
options granted will be based on the closing price of the American Depositary
Shares (ADSs) on the Nasdaq National Market, after converting the dollar
closing price into French francs at the Noon Buying Rate on the date prior to
such grant. The options granted under the 1994 Plan are exercisable up to ten
years from the date of grant (other than options granted to employees in the
United Kingdom, which have a term of seven years less one day). The options
granted under the 1994 Plan are exercisable up to ten years from the date of
grant (other than options granted to employees in the United Kingdom, which
will have a term of seven years less one day).

  Due to a decline in the market price of the Company's shares, the Board of
Directors implemented an Option Exchange Program in November 1996, under which
optionees were offered the opportunity to exchange their outstanding options
for new options at a lower exercise price. The Program was restricted to
outstanding options with an exercise price above 103 French francs per share
(equivalent to approximately $17 per share based on the exchange rate at
December 31, 1997). Members of the senior management of the Company were not
eligible to participate in the Program. In addition, in consideration for the
new lower exercise price, participating employees were required to relinquish
their rights to 10% of the number of underlying shares. Approximately 144,000
options were canceled and 130,000 options were granted as a result of the 1996
Exchange Program.

  The Board of Directors approved a second Option Exchange Program on July 28,
1997. The exchange period ended on September 2, 1997. All employees, including
executive officers and officers, were eligible to participate in the Program,
with the exception however, of the Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer. Under the Program, participating
employees were permitted to exchange one or

                                      41
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

more of their outstanding options with an exercise price above 50 French
francs per share (equivalent to approximately $8 per share based on the
exchange rate at September 2, 1997) on a one-for-one basis for new options. In
consideration for the new exercise price, the number of shares vested under
the new option for the entire twelve months following the exchange date was
determined to be equal to only 50% of the shares vested under the old option
as of the exchange date. Beginning on September 2, 1998, the new options shall
be exercisable to the same extent as the old option would have been, had no
exchange taken place. Specific exercisability features of new options granted
to French employees were provided in order to eliminate any potential social
security costs arising from the exercise of the new options and disposition of
underlying shares prior to the expiration of a five-year period from the date
of the exchange. Approximately 1,141,000 options were canceled and granted as
a result of the 1997 Exchange Program.

  In December 1996, the French parliament adopted a law that requires French
companies to pay French social contributions and certain salary-based taxes of
up to 45% for France-based employees on the difference between the exercise
price of a stock option and the fair market value of the underlying shares on
the exercise date, if the beneficiary disposes of the shares before a five-
year period following the grant of the option. The law applies to all options,
whatever the grant date, exercised after January 1, 1997.

  The Company has not recorded a liability for social charges which may be
assessed for options granted as of December 31, 1997 as the liability, being
dependent on future trading values of the Company's shares and the timing of
employees' decisions to exercise options and sell the related shares, cannot
be estimated. In 1997, the related costs were immaterial.

  Options granted after the adoption of the new law are subject to a minimum
holding period on the underlying shares, whereby French optionees will not be
allowed to sell or dispose of the shares before the expiration of a 5-year
period from the grant date.

 Employee Stock Purchase Plans

  The Company has an Employee Stock Purchase Plan intended to qualify under
the provisions of sections 421 and 423 of the 1986 Internal Revenue Code of
the United States under which 150,000 shares have been authorized for
issuance. Under the terms of the Plan, employees may contribute via payroll
deductions up to 10% of their compensation to purchase shares at a price equal
to 85% of the lower of the fair market value as of the beginning or end of the
six month offering period. French employees are not eligible to participate in
this Plan. The Company issued 83,971 shares under this Plan during 1997.

  In addition the Company also has an Employee Stock Purchase Plan available
to the Company's French employees as part of the Employee Savings Plan, which
is qualified under the provisions of French tax regulations. 150,000 shares
have been authorized for issuance under this Plan. Stock purchases are limited
under the Plan to 10% of an employee's compensation received during the
offering period. The Company issued 15,802 shares under the Employee Savings
Plan during 1997.

 Stock Based Compensation

  Pro forma information regarding net income and net income per share is
required by FAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of FAS 123. The
fair value for these options for 1997 and 1996 was estimated at the date of
grant using a Black-Scholes option pricing model assuming no dividends, risk-
free weighted average interest rates of 6% and a weighted average expected
option life of six months and three years for options granted under Employee
Stock Purchase Plans and Stock Options Plans, respectively. The volatility
factor of the expected market price of the Company's ordinary shares was
assumed to be 70% and 60% for 1997 and 1996, respectively.

                                      42
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. The Black-Scholes model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because the changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

  For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows (in thousands, except for net
income and pro forma net income per share information):

<TABLE>
<CAPTION>
                                                                   1997   1996
                                                                  ------ ------
     <S>                                                          <C>    <C>
     Net income as reported...................................... $2,877 $5,160
     Pro forma net income........................................ $  291 $  836
     Net income per share as reported--basic..................... $ 0.17 $ 0.32
     Pro forma net income per share--basic....................... $ 0.02 $ 0.05
     Net income per share as reported--diluted................... $ 0.17 $ 0.30
     Pro forma net income per share--diluted..................... $ 0.02 $ 0.05
</TABLE>

  During the initial phase-in period, as required by FAS 123, the pro forma
amounts were determined based on stock option grants in 1996 and 1995. Since
pro forma compensation expense is recognized over vesting periods of four
years, the pro forma amounts for compensation cost may not be indicative of
the pro forma effects of application of FAS 123 on net income and net income
per share for future years.

  A summary of the Company's stock option activity, and related information
for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                        OPTIONS OUTSTANDING
                                                     ---------------------------
                                                                    WEIGHTED
                                          OPTIONS      NUMBER        AVERAGE
                                         AVAILABLE   OF SHARES   PRICE PER SHARE
                                         ----------  ----------  ---------------
                                                                     (IN FF)
     <S>                                 <C>         <C>         <C>
     Balance at December 31, 1994.......  1,338,860   1,165,512       10.42
       Granted..........................   (744,200)    744,200       93.92
       Canceled.........................    126,491    (126,491)      32.84
       Exercised........................        --     (405,090)       5.40
                                         ----------  ----------      ------
     Balance at December 31, 1995.......    721,151   1,378,131       54.93
       Shares reserved..................  1,000,000         --          --
       Granted.......................... (1,097,326)  1,097,326      108.84
       Canceled.........................    501,856    (501,856)     129.63
       Exercised........................        --     (211,511)      25.12
                                         ----------  ----------      ------
     Balance at December 31, 1996.......  1,125,681   1,762,090       70.80
       Shares reserved..................  1,000,000         --          --
       Granted.......................... (2,176,576)  2,176,576       54.17
       Canceled.........................  1,464,038  (1,464,038)      82.54
       Exercised........................        --    ( 285,366)       9.20
                                         ----------  ----------      ------
     Balance at December 31, 1997.......  1,413,143   2,189,262       54.32
                                         ==========  ==========      ======
</TABLE>

  Options to purchase approximately 392,000 shares were exercisable at
December 31, 1997.

                                      43
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  The following table summarizes the status of the Company stock options
outstanding and exercisable at December 31, 1997:

<TABLE>
<CAPTION>
                              STOCK OPTIONS OUTSTANDING      STOCK OPTIONS EXERCISABLE
                         ----------------------------------- ---------------------------
                                       WEIGHTED
                                       AVERAGE      WEIGHTED                 WEIGHTED
                                      REMAINING     AVERAGE                  AVERAGE
        RANGE OF         NUMBER OF CONTRACTUAL LIFE EXERCISE   NUMBER OF     EXERCISE
    EXERCISE PRICES       SHARES       IN YEARS      PRICE      SHARES        PRICE
    ---------------      --------- ---------------- -------- ------------- -------------
<S>                      <C>       <C>              <C>      <C>           <C>
FF  1.78-FF 11.67.......    87,874       5.46       FF  7.68        86,008      FF  7.61
FF 24.56-FF 67.77....... 1,634,718       9.19       FF 48.55       169,476      FF 46.40
FF 72.79-FF 98.59.......   427,525       8.72       FF 80.54       116,711      FF 85.92
FF110.02-FF114.49.......    39,145       7.53       FF113.50        19,800      FF113.50
                         ---------                            ------------
  All options........... 2,189,262       8.92       FF 54.32       391,995      FF 53.05
                         =========                            ============
</TABLE>

  For certain options granted, the Company recognized as compensation the
excess of the fair value of the common stock issuable upon exercise of such
options over the aggregate exercise prices of such options. The compensation
expense is amortized ratably over the vesting period of the options. Unearned
compensation at December 31, 1997 and 1996 was $0 and $62,000 respectively.
The exchange rate at December 31, 1997 was approximately 6 French francs per
U.S. dollar.

 Warrants

  In October 1993, the Board of Directors approved the issuance of warrants to
purchase 30,000 Class B shares to a Director with an exercise price of FF 5.52
per share (equivalent to approximately $1 per share based on the exchange rate
at December 31, 1997), vesting at a rate of 25% per year from January 31,
1993. The warrants were issued in April 1994 after formal shareholder
approval. The difference between the exercise price and the estimated fair
value of such warrants as determined in October 1993 was insignificant. 7,500
warrants were exercised during 1997.

  On April 25, 1995, the Board of Directors approved the issuance of warrants
to purchase 12,000 shares to a Director with an exercise price of FF 72.79 per
share (equivalent to approximately $12 per share based on the exchange rate at
December 31, 1997), vesting at a rate of 33.33% per year from June 22, 1995.
The warrants were issued in June 1995 after formal shareholder approval. The
difference between the exercise price and the estimated fair value of such
warrants as determined in April 1995 was immaterial. As of December 31, 1997,
all of such warrants were outstanding.

  On April 28, 1997, the Board of Directors approved the issuance of warrants
to purchase 12,000 shares to four Directors, representing 48,000 shares in
total, with an exercise price of FF 55.33 per share (equivalent to
approximately $9 per share based on the exchange rate at December 31, 1997).
These warrants vest monthly over three years commencing January 1, 1997. The
warrants were issued in June 1997 after formal shareholder approval. The
difference between the exercise price and the estimated fair value of such
warrants as determined in April 1997 was immaterial. As of December 31, 1997,
all of such warrants were outstanding.

9. EMPLOYEE SAVINGS PLANS

  During 1991, the Company established an Employee Savings Plan that allows
voluntary tax deferred contributions by all full-time employees who are
employed by the Company's French entity and have completed a trial period. In
1995, the Employee Savings Plan was amended to allow these employees to
purchase shares of

                                      44
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Company. Eligible employees may contribute up to 25% of pretax earnings to
the Plan, of which a maximum of 10% of pre-tax earnings may be used to
purchase shares of the Company. See Employee Stock Purchase Plans. The Company
does not match employee contributions.

  The Company is subject to a Statutory Profit Sharing Plan (Statutory Plan)
for substantially all of the employees of its French entity. Contributions
under the Statutory Plan are based on a formula prescribed by French law. In
addition, employees of the Company's French entity may receive contributions
from a separate profit sharing plan sponsored by the Company (Company Plan).
Contributions under the Company Plan are based on the achievement of certain
goals established by the Board of Directors. Contributions under the Company
Plan are reduced by contributions required to be made under the Statutory
Plan.

  The Company's subsidiary in the United States has a defined contribution
401(k) plan covering substantially all of its employees. Participants may
elect to contribute up to 15% of their compensation to this plan up to the
statutory maximum amount. The Company can make discretionary contributions to
the plan determined solely by the Board of Directors. The Company has not made
any contributions to the plan through December 31, 1997.

10. EARNINGS PER SHARE

  The following table sets forth the computation of basic and diluted earnings
per ADS and per share (in thousands, except per ADS and per share amounts):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                        -----------------------
                                                         1997    1996    1995
                                                        ------- ------- -------
   <S>                                                  <C>     <C>     <C>
   Numerator:
     Net income.......................................  $ 2,877 $ 5,160 $ 8,048
                                                        ------- ------- -------
   Denominator:
     Weighted average ADS and shares outstanding......   16,624  16,265  15,843
                                                        ------- ------- -------
   Denominator for basic earnings per ADS and per
    share.............................................   16,624  16,265  15,843
   Incremental common shares attributable to shares
    issuable under employee stock plans and warrants .      252     659     654
                                                        ------- ------- -------
   Denominator for diluted earnings per ADS and per
    share.............................................   16,876  16,924  16,497
                                                        ======= ======= =======
   Net income per ADS and per share--basic............  $  0.17 $  0.32 $  0.51
                                                        ======= ======= =======
   Net income per ADS and per share--diluted..........  $  0.17 $  0.30 $  0.49
                                                        ======= ======= =======
</TABLE>

11. INCOME TAXES

Income before provision for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                           ---------------------
                                                            1997   1996   1995
                                                           ------ ------ -------
   <S>                                                     <C>    <C>    <C>
   France................................................. $2,589 $5,582 $ 9,175
   Rest of world..........................................  3,216  3,315   2,836
                                                           ------ ------ -------
     Total................................................ $5,805 $8,897 $12,011
                                                           ====== ====== =======
</TABLE>

                                      45
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         ----------------------
                                                          1997    1996    1995
                                                         ------  ------  ------
   <S>                                                   <C>     <C>     <C>
   Current:
     France............................................. $1,288  $1,973  $3,645
     Rest of world......................................  2,300   1,756   1,037
                                                         ------  ------  ------
       Total Current....................................  3,588   3,729   4,682
   Deferred:
     France.............................................   (254)    292    (729)
     Rest of world......................................   (150)   (284)     10
                                                         ------  ------  ------
       Total deferred...................................   (404)      8    (719)
                                                         ------  ------  ------
                                                         $3,184  $3,737  $3,963
                                                         ======  ======  ======
</TABLE>

  A reconciliation of income taxes computed at the French statutory rate
(36.7% in 1995 and 1996 and 41.7% in 1997) to the provision for income taxes
is as follows (in thousands):

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                        ----------------------
                                                         1997    1996    1995
                                                        ------  ------  ------
   <S>                                                  <C>     <C>     <C>
   Income tax provision computed at the French
    statutory rate..................................... $2,420  $3,261  $4,404
   Use of prior loss carryforwards and decrease in
    valuation allowance................................    --     (190)   (477)
   Research credits....................................    --      --   (1,038)
   Operating losses and tax credits not utilized.......    779     228     492
   Non-deductible provisions...........................    149     340     609
   Other individually immaterial items.................   (164)     98     (27)
                                                        ------  ------  ------
                                                        $3,184  $3,737  $3,963
                                                        ======  ======  ======
</TABLE>

  Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                                 --------------
                                                                  1997    1996
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Deferred tax assets:
     Net operating loss carryforwards........................... $4,283  $2,863
     Deferred revenue...........................................    986     431
     Accrued bonuses and compensation...........................    363     266
     Allowance for doubtful accounts............................    415     291
     Other reserves and accruals not currently deductible.......    800     517
     Other......................................................    229     244
                                                                 ------  ------
       Total deferred tax assets................................  7,076   4,612
       Valuation allowance...................................... (5,649) (3,493)
                                                                 ------  ------
                                                                  1,427   1,119
   Deferred tax liabilities:
     Exchange loss in shareholders' equity......................    (62)    (55)
     Other......................................................   (180)   (119)
                                                                 ------  ------
       Total deferred tax liabilities...........................   (242)   (174)
                                                                 ------  ------
       Net deferred tax assets.................................. $1,185  $  945
                                                                 ======  ======
</TABLE>

                                      46
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  Approximately $ 3.5 million of the valuation allowance is attributed to
stock options, the benefit of which will be credited to additional paid-in
capital when realized.

  As of December 31, 1997, the Company has U.S. federal and state net
operating loss carryforwards of approximately $7.6 million and $2.9 million
respectively. These net operating loss carryforwards will expire in the years
1998 through 2013, if not utilized. Utilization of the net operating loss
carryforwards may be subject to an annual limitation due to ownership change
limitations provided by the Internal Revenue Code and similar state tax
provisions. The net operating loss carryforwards in the United States are
primarily attributable to deductions for stock options, the benefit of which
will be credited to additional paid-in capital when realized. The Company also
has German, Singapore, Canadian, and Italian net operating loss carryforwards
of approximately $2.5 million, $0.5 million, $0.3 million, and $0.2 million
respectively. Tax losses in Singapore and Germany may be carried forward
indefinitely. Tax losses in Canada and Italy may be carried forward for seven
years and five years respectively. Pursuant to the Singaporian Tax Code, use
of net operating losses may be limited if certain changes in ownership occur.
The utilization of these net operating loss carryforwards is limited to the
future operations of the Company in the tax jurisdictions in which such
carryforwards arose.

  The Company received notice from the French tax authorities in 1996
asserting deficiencies in French corporate income taxes for the Company's
taxable years 1993 and 1994. The Company contested the asserted deficiencies
through the administrative appeals process and has received official notice
from the tax authorities that most reassessments are cancelled. The amounts
ultimately assessed and accepted by the Company were insignificant to the
Company's results of operations.

12. BONUS PLAN

  The Company's Board of Directors determines the amount of cash bonuses and
establishes the specific goals upon which awards are based.

                                      47
<PAGE>

                             BUSINESS OBJECTS S.A.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)


13. INDUSTRY AND GEOGRAPHIC INFORMATION

  The Company and its subsidiaries operate in one industry segment, the
development, marketing and support of enterprise-wide decision support tools.
Operations outside of France consist principally of sales, marketing and
customer support. Transfers between geographic areas are accounted for at
amounts that are generally above cost and consistent with the rules and
regulations of governing tax authorities. Such transfers are eliminated in the
consolidated financial statements. Identifiable assets are those assets that
can be directly associated with a particular geographic area. The following is
a summary of operations within geographic area:

<TABLE>
<CAPTION>
                           REVENUES   TRANSFERS
                             FROM      BETWEEN
                         UNAFFILIATED GEOGRAPHIC  TOTAL     INCOME (LOSS)  IDENTIFIABLE
                          CUSTOMERS     AREAS    REVENUES  FROM OPERATIONS    ASSETS
                         ------------ ---------- --------  --------------- ------------
                             (IN THOUSANDS)
<S>                      <C>          <C>        <C>       <C>             <C>
1997:
  France................   $ 27,492    $17,744   $ 45,236      $ 1,288       $63,395
  United Kingdom........     23,394        --      23,394        2,900        16,728
  Rest of Europe........     21,633        --      21,633          196        25,093
  North America.........     34,905        --      34,905       (1,028)       24,641
  Asia Pacific..........      6,829        --       6,829        1,067         5,593
  Eliminations..........        --     (17,744)   (17,744)        (291)      (41,110)
                           --------    -------   --------      -------       -------
                           $114,253    $   --    $114,253      $ 4,132       $94,340
                           ========    =======   ========      =======       =======
1996:
  France................   $ 24,987    $16,098   $ 41,085      $ 3,528       $60,661
  United Kingdom........     17,198        --      17,198        2,531        12,151
  Rest of Europe........     10,274        --      10,274          246         7,140
  North America.........     28,429        --      28,429           81        18,450
  Asia Pacific..........      4,249        --       4,249          667         3,315
  Eliminations..........        --     (16,098)   (16,098)          (5)      (20,947)
                           --------    -------   --------      -------       -------
                           $ 85,137    $   --    $ 85,137      $ 7,048       $80,770
                           ========    =======   ========      =======       =======
1995:
  France................   $ 18,470    $11,435   $ 29,905      $ 5,420       $60,312
  United Kingdom........     10,711        --      10,711        2,267         7,558
  Rest of Europe........      7,913        --       7,913        1,236         3,319
  North America.........     22,246        --      22,246        1,385        11,825
  Asia Pacific..........      1,266        --       1,266         (377)        1,801
  Eliminations..........        --     (11,435)   (11,435)          81       (13,802)
                           --------    -------   --------      -------       -------
                           $ 60,606    $   --    $ 60,606      $10,012       $71,013
                           ========    =======   ========      =======       =======
</TABLE>

  The Company does not have any customer representing 10% or more of the
Company's revenues.

14. RELATED PARTY TRANSACTIONS

  During June 1997, the Company loaned $200,000 to one of the its executive
officers. The loan is secured by a deed of trust, and bears interest at the
rate of 6.23% per annum. Principal and interest are due on July 1, 1999. The
loan is included in other assets in the consolidated balance sheet at December
31, 1997.

                                      48
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

  None.

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

  Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December
31, 1997.

  Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is hereby incorporated herein by reference
from the section entitled "Election of Directors--Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

  Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December
31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December
31, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December
31, 1997.

                                      49
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

  (A)1.FINANCIAL STATEMENTS

        See Item 8 of this Form 10-K.

    2.FINANCIAL STATEMENT SCHEDULES

        The following financial statement schedule of the Company for each
      of the years ended December 31, 1997, 1996 and 1995 is filed as part
      of this Form 10-K and should be read in conjunction with the
      Consolidated Financial Statements, and related notes thereto, of the
      Company.

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                          NUMBER
                                                                          ------
         <S>                                                              <C>
         Schedule II-Valuation and Qualifying Accounts...................   54
</TABLE>

        Schedules other than those listed above have been omitted since
      they are either not required, not applicable, or the information is
      otherwise included.

    3.EXHIBITS

        The exhibits listed in the accompanying index to exhibits are
      filed as part of this report.

  (B)REPORTS ON FORM 8-K

      No reports on Form 8-K were filed during the quarter ended December
    31, 1997.

                                      50
<PAGE>

                                  SIGNATURES

  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

Date: March 31, 1998                      Business Objects S.A.

                                                   /s/ BERNARD LIAUTAUD
                                          By: _________________________________
                                                      Bernard Liataud
                                                  Chairman of the Board,
                                               President and Chief Executive
                                                          Officer

  KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bernard Liautaud and Clifton T. Weatherford,
jointly and severally, his attorneys-in fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to
this Annual Report on Form 10-K, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue thereof.

  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----

<S>                                  <C>                           <C>
/s/ Bernard Liautaud                 Chairman of the Board,          March 31, 1998
____________________________________ President and Chief
   Bernard Liautaud                  Executive Officer (Principal
                                     Executive Officer)

/s/ Clifton T. Weatherford           Chief Financial Officer and     March 31, 1998
____________________________________ Senior Group Vice President
   Clifton T. Weatherford            (Principal Financial and
                                     Accounting Officer)

/s/ Denis Payre                      Director                        March 31, 1998
____________________________________
   Denis Payre

/s/ Arnold Silverman                 Director                        March 31, 1998
____________________________________
   Arnold Silverman

/s/ Philippe Claude                  Director                        March 31, 1998
____________________________________
   Philippe Claude

/s/ Vincent Worms                    Director                        March 31, 1998
____________________________________
   Vincent Worms

/s/ Albert Eisenstat                 Director                        March 31, 1998
____________________________________
   Albert Eisenstat
</TABLE>

                                      51
<PAGE>

                             BUSINESS OBJECTS S.A.

                               INDEX TO EXHIBITS
                                 [ITEM 14 (A)]

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
  3.0*   Status or Charter of the Company (English translation), is
         incorporated herein by reference to Exhibit 3.1 filed with the
         Company's Registration Statement on Form S-8 filed with the SEC on
         December 11, 1997 (File No. 333-42063).
  3.1    Bylaws of the Company, as amended, dated February 10, 1998.
  4.0*   Form of Deposit Agreement, dated as of May 8, 1996, among Business
         Objects S.A., the Bank of New York, as Depositary, and holder from
         time to time of American Depositary Shares issued thereunder
         (including as an exhibit the form of American Depositary Receipt and
         the form of side agreement) is incorporated herein by reference to
         Exhibit 4.1(1) filed with the Company's Registration Statement on Form
         S-8 (File No. 333-5542).
 10.0    Lincoln Park Lease Agreement by and between Metropolitan Life
         Insurance Company and the Company dated January 18, 1996, as amended,
         and assignment of interest to Speiker Properties, L.P.
 10.1    Office Building Lease by and between Nabarro Nathanson, D.J. Downing,
         J.M. Jones Properties Limited and the Company dated March 6, 1996.
 10.2    Commercial Lease by and between Foncierne Chaptal and the Company
         dated June 4, 1996.
 10.3*   1991 Stock Option Plan is incorporated herein by reference to Exhibit
         10.2 filed with the Company's Registration Statement on Form F-1 filed
         with the SEC on September 20, 1994 (File No. 33-83052).
 10.4*   1993 Stock Option Plan is incorporated herein by reference to Exhibit
         10.3 filed with the Company's Registration Statement on Form F-1 filed
         with the SEC on September 20, 1994 (File No. 33-83052).
 10.5*   1994 Stock Option Plan is incorporated herein by reference to Exhibit
         4.2 filed with the Company's Registration Statement on Form F-1 filed
         with the SEC on September 20, 1994 (File No. 33-83052).
 10.6    Promissory Note issued by Dave Ellett, Chief Operating Officer of the
         Company, to the Company dated June 23, 1997.
 10.7*   1995 International Employee Stock Purchase Plan, amended, is
         incorporated herein by reference to Exhibit 4.2 filed with the
         Company's Registration Statement on Form S-8 filed with the SEC on
         December 11, 1997 ( File No. 333-42063).
 10.8*   French Employee Savings Plan is incorporated herein by reference to
         Exhibit 4.3 filed with the Company's filed with the SEC on December
         11, 1997 ( File No. 333-42063).
 10.9*   Summary: in English of 1992 Grant by the French Ministry of the
         Economy, Finance and the Budget is incorporated herein by reference to
         Exhibit 10.4 filed with the Company's Registration Statement on Form
         F-1 filed with the SEC on September 20, 1994 (File No. 33-83052).
 10.10*  Stock subscription warrant for Albert Eisenstat is incorporated herein
         by reference to Exhibit 4.2 filed with the Company's Registration
         Statement on Form S-8 filed with the SEC on September 5, 1995 (File
         No. 333-96598).
 10.11*  Stock subscription warrant for Arnold Silverman is incorporated herein
         by reference to Exhibit 4.3 filed with the Company's Registration
         Statement on Form S-8 filed with the SEC on September 5, 1995 (File
         No. 333-96598).
 10.12*  Stock subscription warrant for Philippe Claude dated June 19, 1997 is
         incorporated herein by reference to Exhibit 4.2 filed with the
         Company's Registration Statement on Form S-8 filed with the SEC on
         December 11, 1997 (File No. 333-42059).
</TABLE>


                                       52
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                            DESCRIPTION
 -------                           -----------
 <C>     <S>                                                               <C>
 10.13*  Stock subscription warrant for Albert Eisenstat dated June 19,
         1997 is incorporated herein by reference to Exhibit 4.3 filed
         with the Company's Registration Statement on Form S-8 filed
         with the SEC on December 11, 1995 (File No. 333-42059).
 10.14*  Stock subscription warrant for Arnold Silverman dated June 19,
         1997 is incorporated herein by reference to Exhibit 4.4 filed
         with the Company's Registration Statement on Form S-8 filed
         with the SEC on December 11, 1995 (File No. 333-42059).
 10.15*  Stock subscription warrant for Vincent Worms dated June 19,
         1997 is incorporated herein by reference to Exhibit 4.5 filed
         with the Company's Registration Statement on Form S-8 filed
         with the SEC on December 11, 1995 (File No. 333-42059).
 10.16+  Value Added Reseller Agreement for Visigenics Products with
         Reseller Rights dated March 27, 1997, by and between the
         Company.
 21.0    List of Subsidiaries of the Company.
 23.0    Consent of Ernst & Young, LLP, Independent Auditors.
 24.0    Power of Attorney is herein referenced to the Signature page of
         this Annual Report on Form 10-K.
 27.0    Financial Data Schedule
</TABLE>
--------
*  Previously filed.
+  Certain information in this exhibit has been omitted and filed separately
   with the Securities and Exchange Commission pursuant to a confidential
   treatment request under 17 C.F.R. (S)(S) 200.80(b)(4), 200.83 and 230.46.

                                      53
<PAGE>

                             BUSINESS OBJECTS S.A.

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                      BALANCE      CHARGED    CHARGED   BALANCE
                                    AT BEGINNING   TO COSTS   TO OTHER  AT END
                                     OF PERIOD   AND EXPENSES ACCOUNTS OF PERIOD
                                    ------------ ------------ -------- ---------
<S>                                 <C>          <C>          <C>      <C>
Allowance for doubtful accounts:
  Year ending December 31, 1995....    $  440        $419        --     $  859
  Year ending December 31, 1996....    $  859        $201        --     $1,060
  Year ending December 31, 1997....    $1,060        $508        --     $1,568
</TABLE>

                                       54