THE AGE OF CUSTOMER EXPERIENCE 2012 ANNUAL REPORT The 3DEXPERIENCE Company TABLE OF CONTENTS OUR EXPERIENCE | 01 The Age of Customer Experience p. 02 Message from the Chairman & the President Management Driven by Long-Term Vision p. 04 p. 08 YOUR E YOUR EXPERIENCE Opportunities for Growth p. 12 Experiences Adopted by 12 Industries p. 14 OUR EXPERIENCES A Network of Talents 2012 at a Glance Financial Report 2012 p. 20 p. 22 p. 25 PROFILE Dassault Systèmes, the 3DEXPERIENCE Company, provides businesses and people with virtual universes to imagine sustainable innovations. Its 3DEXPERIENCE Platform leverages the Company’s world-leading 3D software applications to transform the way products are designed, produced, and supported, enabling businesses to craft delightful customer experiences. With the 3DEXPERIENCE Platform, our customers create “social enterprises” that involve their customers in the innovation process. With its online architecture, the 3DEXPERIENCE environment helps businesses to test and evaluate —anywhere in the development lifecycle of a product or service—the eventual experience they will deliver to their customers. In short, 3DEXPERIENCE powers the next-generation capabilities that drive today’s Experience Economy. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 02 | OUR EXPERIENCE THE AGE OF CUSTOMER EXPERIENCE | 03 THE AGE OF CUSTOMER EXPERIENCE February 9, 2012 was a new milestone with Dassault Systèmes becoming the 3DEXPERIENCE Company, launching a new strategy and introducing our pioneering Industry Solution Experiences. Why does Dassault Systèmes’ new strategy signal a new era? At Dassault Systèmes, we are committed to harmonizing product, nature and life—we believe that developing products to improve life while preserving nature can be achieved in a harmonious, holistic way. Sustainable development is a real and relevant mission dedicated to improving society, technology, and the world. It is a big purpose. But a true, relevant purpose motivates each of us to act as a catalyst for innovation and success. We are also committed to helping our customers thrive in the Age of Experience. Companies that dazzle customers by creating experiences, not just products, forge lasting loyalty and earn signifi cant price premiums. Enabling companies to put their customers at the heart of the innovation process is key to delivering great experiences that transcend mere products and services, and is a cornerstone of the 3DEXPERIENCE Platform. It takes a special kind of compass to explore the world’s possibilities, and Dassault Systèmes delivers. The Dassault Systèmes Compass represents every facet of the 3DEXPERIENCE Platform. Its four quadrants launch the power of our applications: Social and collaborative applications (ENOVIA for Collaborative Innovation and 3DSWYM for Social Innovation) for working in structured and unstructured environments; 3D modeling applications (CATIA for Digital Product Experience, SOLIDWORKS for 3D Design, and GEOVIA for Virtual Planet) for shaping ideas into reality; Content and simulation applications (SIMULIA for Realistic Simulation, 3DVIA for 3D Communication, and DELMIA for Digital Manufacturing & Production) where virtual worlds meet reality; and Information intelligence applications (EXALEAD for Discovery Intelligence and NETVIBES for Dashboard Intelligence) for dashboarding and transforming Big Data into actionable intelligence. Mastering so many facets of excellence is inherently complex. Dassault Systèmes’ Industry Solution Experiences cut through this complexity, delivering a superior experience to our customers by allowing them to implement quickly and effi ciently. Built on the solid foundation of 3DEXPERIENCE and nearly three decades of side-by-side collaboration with our customers in a dozen industries, Industry Solution Experiences assemble the applications appropriate for a specifi c industry or task into a single, powerful solution that is easy to deploy and use. With proven reductions in implementation time, Industry Solution Experiences deliver value faster. The simplifi cation and enterprise integration that companies achieve with the 3DEXPERIENCE Platform and Industry Solution Experiences boost return on investment and position our customers to thrive in today’s Experience Economy. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 04 | OUR EXPERIENCE MESSAGE FROM THE CHAIRMAN & THE PRESIDENT | 05 Expansion and diversifi cation of our business progressed very well during 2012. It was a year of record fi nancial performance for revenue, earnings, operating profi tability and cash fl ow. CHARLES EDELSTENNE CHAIRMAN OF THE BOARD OF DIRECTORS BERNARD CHARLÈS PRESIDENT & CHIEF EXECUTIVE OFFICER A YEAR OF EXPANSION One year ago, we shared with you the expansion of our purpose to provide businesses and people with 3DEXPERIENCE universes to imagine sustainable innovations capable of harmonizing product, nature and life. Our belief is that our customers are evolving their businesses to provide their end-users with delightful experiences. This is why we have evolved our purpose, and redefi ned our strategy. During 2012 we showcased, through a global corporate advertising campaign, the spirit we share with our customers, and with scientists and educators using our software: “IF WE ask the right questions, we can change the world”. The reaction of our customers and sales partners to our vision, strategy, and solutions has been very positive, as they perceive the value that this novel approach brings to business, whatever the industry vertical they are serving. We are very proud of the innovations being introduced by our customers across industries. So many of yesterday’s dreams are now being virtually created, explored, analyzed and experienced today with our software, and are poised to become tomorrow’s realities. 3DEXPERIENCE, A NATURAL EVOLUTION OF OUR STRATEGY 3DE X PERIEN CE is a signif ic ant transformation, but it capitalizes on what we have been building for 30 years with Digital Mock-Up and Product Lifecycle Management. With our software, our clients can now model and simulate products, manufacturing processes and environments and they can also simulate the way products are bought, felt, used and, in a word, experienced. 3D universes are the most inspiring and competitive environments for our customers to create delightful experiences that will truly make a difference. Our vision stems from the strong belief that whatever product or service you are buying, your ultimate opinion of that product or service is the experience you have with it. Our software solutions often trigger customers to rethink their business processes and innovation pathways. We asked no less of ourselves during this past year with 2012 being a period of significant transformation within Dassault Systèmes. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT Our global corporate advertising campaign showcases our spirit: “IF WE ask the right questions, we can change the world”. MESSAGE FROM THE CHAIRMAN & THE PRESIDENT | 07 revenue increased by double digits, and CATIA showed a good dynamic led by demand in high-growth countries well supported by customers in our largest markets. We are seeing increased interest in DELMIA as companies focus on advanced manufacturing initiatives. Although ENOVIA was more impacted by the weakening of the macro-environment during the second half of the year, it made important progress for the full year, with software revenue increasing 7%. We are enhancing our future opportunities with 20,000 new customers in 2012 and we are also increasing our touch points with nearly 10 million users among busine ss , e ducation and consumers interacting with the software applications of our brands. LOOKING FORWARD As a company, we enter 2013 very well positioned. Our operational initiatives during 2012 strengthened the entire organization, and our expansion initiatives were particularly notable in increasing the capacity of our indirect channels. We are reaching more industries, customers and users in all key geographic regions who are likely to enhance our future opportunities over the mid-term. Looking for ward, 3DE XPERIENCE represents a $32 billion addressable market, approximately double the PLM market. We believe that our addressable market opportunity is sizeable, are working hard to turn it from strategy to reality, and are confi dent that our Industry Solution Experiences will be an integral and important part of our progress. Bernard Charlès President & Chief Executive Offi cer Charles Edelstenne Chairman of the Board of Directors 06 | OUR EXPERIENCE RE-INVENTING OURSELVES Our software solutions often trigger customers to rethink their business processes and innovation pathways. We asked no less of ourselves during this past year with 2012 being a period of significant transformation within Dassault Systèmes. 3DEXPERIENCE drove our strategy, our por tfolio roadmap as well as our organizational and operational structure. We launched 12 Industry Solution Experiences designed to build the most accurate business value for our customers, and we will introduce additional Industry Solution Experiences at an even quicker pace in 2013. Our solutions are designed to optimize our customers’ most critical processes, combining the appropriate functionalities and technologies of our dif ferent brands, and thus bring our customers significant value in simplification and enterprise integration and boost return on investment. Our 3DEXPERIENCE Platform, a business platform supported by V6 architecture, connec t s and power s our brand applications to deliver the full capabilities of 3D technology, encompassing all the dimensions of experience. It is a social and collaborative platform to enable people to work and innovate both in a structured and unstructured way; a modeling platform to represent holistic 3D universes; a content and simulation plat form to e x tend and improve real-world experimentation; and an information intelligence platform to navigate Big Data. Our ambition to harmonize product, nature and life led us to target a new industry, Natural Resources, with the acquisition of Gemcom Software International, the global leader in mining industry software solutions, and to create a new brand, GEOVIA. More broadly, to advance our addressable market expansion strategy, we are continuously investing in growing our capabilities, with more than 500 people having joined Dassault Systèmes in 2012, bringing our total workforce to 10,122 in 37 countries. With close to 4,500 engineers, our Research & Development department brings unique skills to our customers. And acquisitions have enabled us to broaden the technologies we offer. In addition to Gemcom, we acquired Netvibes, the award-winning brand in dashboard intelligence, and SquareClock, a natural fit inside the 3DVIA brand, specialists in cloud-based Social 3D Experience product confi guration and space planning solutions for retail, professional and residential sites. DELIVERING A RECORD FINANCIAL PERFORMANCE Expansion and diversification of our business progressed very well during 2012. It was a year of record fi nancial performance for revenue, earnings, operating profitability and cash flow –even with the macro-environment weakening that occurred in the second half of 2012. We reached a new milestone of two billion euros (€2.04 billion non- IFRS) in total revenues, delivering 10% non-IFRS software revenue growth in constant currencies. Revenue growth and operational improvements contributed to our non-IFRS operating margin expanding 120 basis points to 31.6%. Non-IFRS EPS increased 15% to €3.37, refl ecting revenue growth and operating margin expansion. Finally, the 2012 fi nancials were characterized by a net operating cash fl ow generation of €566 million, an increase of 26%. We benefi ted from growth in all three regions, led by Asia with non-IFRS revenue increasing 14%, reflecting a further return to investment by Japanese customers and strong growth in China and Korea. Europe has been an area of strength over the last several years and in 2012, despite the softening of the macro-environment that began to affect regional results in the third quarter, full-year performance was solid with revenue higher by 8%. In the Americas, total revenue increased 7%, with growth strengthening in the second half of 2012. We continued to expand in our target verticals, which contributed nearly one-quarter of our end-user revenue in 2012, with good traction in Consumer Packaged Goods & Retail; Energy, Process & Utilities; Architecture, Engineering & Construction; and of course Natural Resources with the acquisition of Gemcom and the creation of GEOVIA. At the same time, results in our core industries, notably Transportation & Mobility and Industrial Equipment, demonstrated good growth, so we are diversifying from strength. Critical to our progress has been continual investment in our brands to enhance their value to users and to address the needs of the industries they are serving. During 2012 our brands showed healthy growth, with a stand-out performance in our simulation business. SIMULIA, among the most diversified of our brands from an industry perspective, posted double-digit software revenue growth. In design, SOLIDWORKS software We are very proud of the innovations being introduced by our customers across industries. So many of yesterday’s dreams are now being virtually created, explored, analyzed and experienced today with our software, and are poised to become tomorrow’s realities. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 08 | OUR EXPERIENCE EXECUTIVE TEAM | 09 MANAGEMENT DRIVEN BY LONG-TERM VISION EXECUTIVE COMMITTEE BERNARD CHARLÈS President & Chief Executive Offi cer BRUNO LATCHAGUE Executive Vice President, Global Sales Strategy & Operations, 3DS Value Solutions, Managing Director North America PASCAL DALOZ Executive Vice President, Corporate Strategy & Market Development DOMINIQUE FLORACK Senior Executive Vice President, Products, Strategy - R&D MONICA MENGHINI Executive Vice President, Industry, Marketing & Corporate Communications LAURENCE BARTHÈS Executive Vice President, Chief People & Information Offi cer SYLVAIN LAURENT Executive Vice President, 3DS Business Transformation THIBAULT DE TERSANT Senior Executive Vice President, Chief Financial Offi cer PHILIPPE FORESTIER Executive Vice President, Global Affairs & Communities DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 10 | OUR EXPERIENCE MANAGEMENT TEAM | 11 MANAGING DIRECTORS BRAND EXECUTIVES NAM Bruno Latchague LATAM Valeria Godoy EUROCENTRAL Andreas Barth EUROWEST Olivier Leteurtre INDIA Chandan Chowdhury EURONORTH Stephen Chadwick AP SOUTH Samson Khaou EURONORDICS Ylva Berg RUSSIA Laurent Valroff EUROMED Guido Porro GREATER CHINA Hao Feng Wang KOREA Youngbin Cho JAPAN Seiji Kajiya Philippe Laufer Bertrand Sicot Laurent Couillard Scott Berkey Freddy Mini Philippe Charlès Sophie Planté Andy Kalambi Lynne Wilson Rick Moignard DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 12 | YOUR EXPERIENCE OPPORTUNITIES FOR GROWTH | 13 YOUR EXPERIENCE Customers in 12 industries around the globe are bringing value to their customers via the 3DEXPERIENCE Platform. OPPORTUNITIES FOR GROWTH In an age in which natural resources are consumed in unprecedented amounts, a solution is desperately needed to secure the longevity of our planet for generations to come. With the acquisition of Gemcom Software International, the world leader in mining industry software applications and services, Dassault Systèmes took a signifi cant step towards fulfi lling its purpose of providing 3DEXPERIENCE universes for imagining sustainable innovations to harmonize products, nature and life. As a result of the acquisition, the Company expanded into a new industry, Natural Resources, and created a new brand, GEOVIA, to serve it. GEOVIA helps to model and simulate our planet to improve predictability, efficiency, safety and sustainability of the Natural Resources industry. By combining GEOVIA’s expert 3D modelling and planning applications with technologies of other Dassault Systèmes brands through the 3DEXPERIENCE Platform, the Company is creating an interactive, virtual environment, focused initially on the mining market. Mining companies are able to make informed, real-time decisions to maximize the value of their major asset, their ore body, from early exploration through delivery to their end customers while ensuring compliance with geological, logistical, operational, governmental, and environmental constraints. This platform will form the basis of the 3DEXPERIENCE for all Natural Resources and will transform how the world manages this critical intersection of product, nature and life. “Leveraging our substantial position in the mining sector, we are expanding our focus to create 3DEXPERIENCE universes that will help us to model and simulate our planet to improve predictability, effi ciency, safety and sustainability of all natural resources.” Rick Moignard Chief Executive Offi cer, GEOVIA Vice President, Natural Resources Industry NATURAL RESOURCES “GEOVIA has been a key partner for Dundee Precious Metals in the application of enabling technology to increase our mine effi ciency and production output. Now with the added value of the Dassault Systèmes technology, we see that the dream of creating a virtual 3D environment through the entire resource lifecycle, from early exploration to delivery of product to our customers, is possible and could help transform the mining industry.” Rick Howes Chief Executive Offi cer Dundee Precious Metals Inc. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT Use your smartphone to learn more about GEOVIA 14 | YOUR EXPERIENCE EXPERIENCES ADOPTED BY 12 INDUSTRIES | 15 Olivier Sappin Vice President TRANSPORTATION & MOBILITY Michel Tellier Vice President AEROSPACE & DEFENSE Alain Houard Vice President MARINE & OFFSHORE Philippe Bartissol Vice President INDUSTRIAL EQUIPMENT TRANSPORTATION & MOBILITY MARINE & OFFSHORE “Using 3DSWYM, a cloud-based application on the 3DEXPERIENCE Platform, enables us all to go to one source for information, which in turn enables speed and effi ciency. This helps us more quickly develop and deliver innovations that add value for vehicle manufacturers and drivers alike.” Tim Yerdon Global Director Innovation, Design, R&D Visteon Corporation AEROSPACE & DEFENSE “Every second, a P&WC-powered airplane takes off or lands somewhere in the world and our goal is to ensure the highest quality, best service cost, and overall product value for those customers. Dassault Systèmes is a strategic partner in executing our vision of a quality product and customer experience.” Walter Di Bartolomeo Vice President, Productivity & Engineering Pratt & Whitney Canada “To enable that collaborative process we need a strong, reliable solution that allows the entire team—including sailors and designers—to show the full model in meetings, zoom in to highlight certain parts, simulate how they would work, give feedback and make changes in real-time. Dassault Systèmes gives us those capabilities and we rarely have meetings without its tools on screen. As a result, we were able to reduce our drafting signifi cantly.” Christoph Erbelding Structural Design, Senior FEA Analyst ORACLE TEAM USA INDUSTRIAL EQUIPMENT “With Single Source for Speed, we have a complete view of our product information, traceability, and effi cient management and control at all times.” Michael Stöckli Head of IT Business Solutions Jakob Müller AG Use your smartphone to learn more about 3DEXPERIENCE for industries DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 16 | YOUR EXPERIENCE EXPERIENCES ADOPTED BY 12 INDUSTRIES | 17 Mark Messow Vice President HIGH-TECH Susan OlivIer Vice President CONSUMER GOODS & RETAIL Philippe Loeb Vice President CONSUMER PACKAGED GOODS & RETAIL Jean Colombel Vice President LIFE SCIENCES HIGH-TECH “We initially reviewed various products. But we ultimately decided that only Dassault Systèmes’ 3DEXPERIENCE applications would ensure the success of our PDM strategy.” Cheon Hee Youn Senior Manager LG Electronics CONSUMER PACKAGED GOODS & RETAIL “Adapting SIMULIA’s FEA software to the packaging design process enabled Tetra Pak® engineers to develop new ways to signifi cantly decrease development time while maintaining package quality. It was a world fi rst for the food processing and packaging industry.” Dr. Laurence Mott Vice President, Technologies and Service Products Tetra Pak CONSUMER GOODS & RETAIL “Luxottica’s worldwide expansion is thanks to constant attention to R&D and technological innovation, and adapting to market evolutions with respect to people and the environment. The 3DEXPERIENCE Platform is the global solution for our development of more than 1,500 new styles per year, helping us reach the market at the right time.” Roberto Corradini Corporate IT Luxottica Group S.p.A. L LIFE SCIENCES “SOLIDWORKS enabled us to come out with a series of concepts for the Firefl y Infant Phototherapy device incredibly quickly. We used the software’s simulation tools for stress testing and to analyze heat distribution, which are important factors because of the large number of LEDs involved. We’re about to begin production and will soon provide an affordable solution to a pressing healthcare need.” Will Harris Designer Design That Matters, Inc. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 18 | YOUR EXPERIENCE EXPERIENCES ADOPTED BY 12 INDUSTRIES | 19 Kevin Pleiter Vice President FINANCIAL & BUSINESS SERVICES Stéphane Declée Vice President ENERGY, PROCESS & UTILITIES Marty Doscher Vice President ARCHITECTURE, ENGINEERING & CONSTRUCTION FINANCIAL & BUSINESS SERVICES “When we needed innovative technology that could collect and analyze internal and external data quickly, whatever the format or location, we chose the unique semantic capabilities of EXALEAD. Its 360° view of all customer data provides end-users with analytical discovery pages that help them make smarter decisions and improve their operational effi ciency.” Dario Resnati Chief Innovation Offi cer BNP Paribas Securities Services ENERGY, PROCESS & UTILITIES “With the 3DEXPERIENCE Platform, we have an integrated environment for collaboration and data exchange. All project participants experience a sense of unity, working together closely using the same process. They get feedback in real time, implement changes on a daily basis, and work out problems faster than before.” Valery Limarenko President NIAEP OJSC and ASE JSC ARCHITECTURE, ENGINEERING & CONSTRUCTION “Moving beyond the immediate impacts of better design communication and construction trade coordination, 3DEXPERIENCE technology affords a level of partnership that inspires the team, helps maintain the momentum, and participates in making the project an exceptional experience for all.” Kerenza Harris Architect Morphosis Architects Use your smartphone to learn more about our Customer Stories DASSAULT SYSTÈMES / 2012 ANNUAL REPORT DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 20 | OUR EXPERIENCES A NETWORK OF TALENTS | 21 COMBINING SCIENCE, ART & TECHNOLOGY FOR A SUSTAINABLE WORLD Ranked as one of Forbes Magazine’s Top 10 most innovative companies in Europe, Dassault Systèmes teams partner every day with research and education organizations to serve 170,000 customers around the world. Collaborating via the 3DSWYM social innovation a p p li c a t i o n , m o r e t h a n 10 ,0 0 0 D a s s a u l t S y s t è m e s p e o p l e a n d t h e i r e c o s y s t e m continuously extend their scope of expertise, exchanging ideas at any time, sharing knowledge and experience to carry out global projects, bringing the value of 3D to all domains. In the healthcare field, Dassault Systèmes has been partnering with medical institutions to build immersive and interactive 3D Experiences. Examples include BornToBeAlive, demonstrating the steps in a mother’s life from pregnancy to childbir th, and StayingAlive, which uses simulation technologies for medical training, contributing to saving lives. Dassault Systèmes also creates cultural learning e xperiences. Working with his torians and researchers using period maps and archeological records, the Paris 3D Saga project uses Dassault Systèmes solutions to trace the history of Paris back 2,000 years. In September, 15,000 Parisians and tourists travelled back in time during a special event held at Paris City Hall. They enjoyed a virtual visit of the City of Light, projected on nine giant screens. This interactive 3D Experience is available on the Web, an iPad app, a documentary fi lm, and “touch” terminals at museums and universities. An ot h er w ay t o pr om ot e e du c at ion is t o encourage future generations to “think and dream” 3D by organizing competitions and events such as “3DEXPERIENCE Days” for kids. Children of employees at locations in China, France, India and the United States spent a special day experiencing Dassault Systèmes solutions and playing games to learn how virtual universes contribute to improving the real world. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 22 | OUR EXPERIENCES 2012 AT A GLANCE | 23 2012 AT A GLANCE A YEAR OF EXPANSION 2012 FINANCIAL PERFORMANCE Software revenue growth +10% in constant currencies* EPS growth +15% to €3.37* Operating margin expansion +120 basis points to 31.6%* Net operating cash fl ow growth +26% Proposed cash dividend +14% per share to €0.80 Customers expansion +20,000 new customers Users expansion Nearly 10 million users in total Geographic diversifi cation High-growth countries revenue growth +16% in constant currencies REVENUE REVENUE NON-IFRS* (millions €) DILUTED EPS DILUTED EPS NON-IFRS* (€) OPERATING MARGIN OPERATING MARGIN NON-IFRS* (%) NET CASH PROVIDED BY OPERATIONS (millions €) 8 2 0 2 , 9 3 0 2 , 3 8 7 1 , 4 8 7 1 , 4 6 5 1 , 0 8 5 1 , 7 3 3 . 6 6 2 . 2 9 2 . 3 3 2 . 0 5 2 . 2 8 1 . . 4 0 3 . 0 4 2 . 6 1 3 . 7 4 2 . 6 8 2 . 6 0 2 6 6 5 1 5 8 4 0 4 10 11 12 10 11 12 10 11 12 10 11 12 INDUSTRY DIVERSIFICATION Marine & Offshore 20% 13% Services & Other Other PLM Software 9% 18% CATIA Software Americas 40% 28% 27% Europe 45% 3DS Value Solutions 24% 20% 3DS Professional 3DS Business Transformation 56% REVENUE BY PRODUCT LINE REVENUE BY GEOGRAPHIC REGION REVENUE BY SALES CHANNEL Transportation & Mobility 1% 29% 13% Aerospace & Defense SOLIDWORKS Software ENOVIA Software Asia-Pacifi c New Industries • High-Tech • Consumer Goods & Retail • Consumer Packaged Goods & Retail • Life Sciences • Energy, Process & Utilities • Architecture, Engineering & Construction • Financial & Business Services • Natural Resources * Non-IFRS DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 13% Business Services 24% 20% Industrial Equipment REVENUE BY ACTIVITY SOFTWARE REVENUE Software 91% Services 9% Recurring Software 71% 29% New Licenses & Product Development * All fi nancial information is reported according to IFRS. In addition, the Company has provided supplemental non-IFRS fi nancial information which excludes the effect of adjusting the carrying value of acquired companies’ deferred revenue, the amortization of acquired intangibles, share-based compensation expense, certain other operating income and expense, net, certain one-time items included in fi nancial income and other, net, and certain one-time tax effects and the income tax effects of the above adjustments. DASSAULT SYSTÈMES / 2012 ANNUAL REPORT 24 | SHAREHOLDER INFORMATION ADDITIONAL INFORMATION SHAREHOLDERS’ COMPOSITION* Bernard Charlès Charles Edelstenne 0.8% 6.2% Free Float 51.5% 41.5% Groupe Industriel Marcel Dassault EMPLOYEES BY REGION* WORFORCE : 10,122 Europe & Middle East Asia-Pacifi c 42% 28% 30% Americas SPLIT OF FREE FLOAT* (identifi ed investors) France UK & Ireland 23% 22% Rest-of-World 4% 14% 37% North America Continental Europe (ex France) STOCK DATA* Listed on NYSE Euronext Paris and traded on the U.S. Over-the-Counter Market KEY 2013 SHAREHOLDERS’ EVENTS Share price ............................................................... €84.23 .................................................................................. $113.09 Thursday, April 25, 2013 Release of First Quarter Earnings Market capitalization ....................................... €10.5 billion ........................................................................... $14.1 billion Thursday, May 30, 2013 Annual Shareholders’ Meeting Stock price performance comparison Dassault Systèmes ...................................................... +36% CAC 40 ......................................................................... +15% Euronext 100 .............................................................. +15% Average daily volume traded on Euronext ................................................. 239,623 shares * As of December 31, 2012 Thursday, July 25, 2013 Release of Second Quarter Earnings Thursday, October 24, 2013 Release of Third Quarter Earnings Shareholders’ Contact Tel.: +33 (0)1 61 62 69 24 Fax: +33 (0)1 70 73 43 59 E-mail: investors@3ds.com www.3ds.com/investors Use your smartphone to learn more about our Investor Relations DASSAULT SYSTÈMES / 2012 ANNUAL REPORT Korea Mapo Tower 15F 418 Mapo-dong, Mapo-ku 121734 Seoul South Korea Tel.: +82 2 3270 7800 Japan Pier City Shibaura Bldg 10F 3-18-1 Kaigan, Minato-Ku Tokyo 108-0022 Japan Tel.: +81 3 5442 40 11 For more information, visit www.3ds.com Investor Relations Tel.: +33 (0) 1 61 62 69 24 Fax: +33 (0) 1 70 73 43 59 E-mail: investors@3ds.com HEADQUARTERS Dassault Systèmes 10, rue Marcel Dassault - CS 40501 78946 Vélizy-Villacoublay Cedex France Tel.: + 33 (0)1 61 62 61 62 GEO HEADQUARTERS NAM 175 Wyman Street Waltham, MA 02451 United States Tel.: +1 781 810 3000 LATAM Rua Quintana No. 887 14º. Andar Salas 142/143/144 CP 04569-011 Sao Paulo Brazil Tel.: +55 (11) 5105 0450 EuroCentral Meitnerstrasse 8 D-70563 Stuttgart Germany Tel.: +49 711 27300 0 EuroNorth Riley Court Suite 9 Milburn Hill Road CV4 7HP Coventry United Kingdom Tel.: +44 (0) 247 685 7400 EuroNordics Klara Södra kyrkogata 1, 6 tr SE-11152 Stockholm Sweden Tel.: +46 (0) 8 519 058 00 Russia Leningradskoe shosse, 16 A, b.1, fl oor 9 125171 Moscow Russia Tel.: +7 495 935 89 28 EuroMed Via Rossini 1/A 20020 Lainate Italy Tel.: +39 (0) 2334 3061 EuroWest 10, rue Marcel Dassault - CS 40501 78946 Vélizy-Villacoublay Cedex France Tel.: + 33 (0)1 61 62 61 62 India 12th Floor, Building 10 C, Cyber City Phase 2, 122002 Haryana India Tel.: +91 124 4577100 AP South 9 Tampines Grande #06-13 528735 Singapore Singapore Tel.: +65 6511 7988 Greater China China Central Place Tower 2, Room 707-709 No.79, Jianguo Road 100025 Chaoyang District (Beijing) China Tel.: +86 10 6536 2288 Design and production: Photographs courtesy of Anthony Gasparetto, BNP Paribas Securities Ser vices, Design That Matters, Inc., Dundee Precious Metals Inc., Getty Images, Guilain Grenier / ORACLE TEAM USA, Jakob Müller AG, LG Electronics, Luxottica Group S.p.A., Morphosis Architects, NIAEP OSJC and ASE JSC, Pratt & Whitney Canada, Tetra Pak, Visteon Corporation, Xavier Granet and the Dassault Systèmes team. Registered Trademarks CATIA, SOLIDWORKS, SIMULIA, DELMIA, ENOVIA, GEOVIA, EXALEAD, NET VIBES, 3D S W YM a n d 3D V I A a r e e i t h e r t r a d e m a r k s o r r e g i s t e r e d t r a d e m a r k s o f Dassault Systèmes or its subsidiaries in the United States and/or other countries. Use your smartphone to learn more about Dassault Systèmes © Dassault Systèmes 2013. All rights reserved. 29MAR201201524189 Annual Report 2012 Annual Financial Report This document is an English-language translation of Dassault Syst `emes’ Document de r ´ef´erence (registration document), which was filed with the AMF (French Financial Markets Authority) on April 3, 2013, in accordance with Articles 212-13 of the AMF General Regulation. Only the French version of the Document de r ´ef´erence is legally binding. DASSAULT SYST `EMES Annual Report 2012 1 General This Annual Report also includes: – the annual financial report to be prepared and published by every listed company within four months of the end of its fiscal year, pursuant to Article L. 451-1-2 of the Monetary and Financial Code and Article 222-3 of the AMF General Regulation; and – the annual management report of Dassault Syst `emes SA’s Board of Directors, which must be provided to the General Meeting of Shareholders approving the financial statements for each completed fiscal year, pursuant to Articles L. 225-100 et seq. of the French Commercial Code. The index set forth on page 203 provides cross-references to the relevant portions of these two reports. All references to ‘‘euro’’ or to the symbol ‘‘e’’ refer to the legal currency of the French Republic and certain countries of the European Union. All references to the ‘‘U.S. dollar’’ or to the symbol ‘‘$’’ refer to the legal currency of the United States. As used herein, ‘‘Dassault Syst `emes’’, the ‘‘Company’’ or the ‘‘Group’’ refers to Dassault Syst `emes SA and all the companies included in the scope of consolidation. ‘‘Dassault Syst `emes SA’’ refers only to the French parent company of the Group. In compliance with Article 28 of European Regulation no 809/2004 of the Commission, the following information is incorporated by reference in this Annual Report: (cid:127) the consolidated financial statements on pages 119 to 154 (inclusive), the parent company financial statements on pages 155 to 178 (inclusive), and the related audit reports on pages 180 to 184 (inclusive) of the registration document for the year 2011 filed with the AMF (French Financial Markets Authority) on March 29, 2012, under no D.12-0235; (cid:127) the financial information on pages 48 to 62 (inclusive) of the registration document for the year 2011 filed with the AMF on March 29, 2012, under no D.12-0235; (cid:127) the consolidated financial statements on pages 120 to 156 (inclusive), the parent company financial statements on pages 157 to 179 (inclusive), and the related audit reports on pages 181 to 186 (inclusive) of the registration document for the year 2010 filed with the AMF (French Financial Markets Authority) on April 1, 2011, under no D.11-0213; and (cid:127) the financial information on pages 44 to 58 (inclusive) of the registration document for the year 2010 filed with the AMF on April 1, 2011, under no D.11-0213. The portions of these documents which are not incorporated herein are either not relevant for current investors, or are covered in another section of this Annual Report. 2 DASSAULT SYST `EMES Annual Report 2012 Contents PERSON RESPONSIBLE 1 PRESENTATION OF THE GROUP 1.1 Key Figures 1.2 History 1.3 Group Organization 1.4 Business Activities 1.5 Research and Development 1.6 Risk Factors SOCIAL, SOCIETAL AND ENVIRONMENTAL 2 RESPONSIBILITY p. 4 p. 5 p. 5 p. 6 p. 11 p. 13 p. 23 p. 24 p. 33 2.1 Social and Societal Responsibility 2.2 Environmental Responsibility 2.3 Independent Verifier’s Attestation and Assurance Report on Social, Environmental and Societal Information p. 33 p. 49 p. 57 3 FINANCIAL REVIEW AND PROSPECTS 3.1 Operating and Financial Review 3.2 Financial Objectives 3.3 Interim and Other Financial Information FINANCIAL STATEMENTS 4 4.2 Parent Company Financial Statements 4.1 Consolidated Financial Statements 4.3 Legal and Arbitration Proceedings p. 60 p. 60 p. 73 p. 73 p. 74 p. 74 p. 111 p. 140 5 and Internal Control CORPORATE GOVERNANCE p. 141 5.1 Report of the Chairman on Corporate Governance 5.2 Report of the Statutory Auditors on Corporate Governance and Internal Control 5.3 Compensation and Benefits 5.4 Transactions in the Company’s Shares by the Management of the Company 5.5 Statutory Auditors p. 141 p. 159 p. 160 p. 168 p. 172 6 INFORMATION ABOUT DASSAULT SYSTEMES SA, THE SHARE CAPITAL AND THE OWNERSHIP STRUCTURE p. 173 7 6.1 Information about Dassault Syst `emes SA 6.2 Information about the Share Capital 6.3 Information about the Shareholders 6.4 Stock Market Information p. 173 p. 177 p. 183 p. 185 GENERAL MEETING OF SHAREHOLDERS p. 187 7.1 Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013 p. 187 7.2 Draft Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013 p. 192 CROSS-REFERENCE TABLES p. 203 DASSAULT SYST `EMES Annual Report 2012 3 PERSON RESPONSIBLE Person Responsible for the Registration Document Bernard Charl `es – President and Chief Executive Officer. Certification by the Person Responsible for the Registration Document V´elizy-Villacoublay, April 3, 2013. ‘‘I hereby certify, after having taken all reasonable measures for this purpose, that the information contained in this Registration Document (document de r ´ef´erence) is, to my knowledge, in accordance with the facts and that no information liable to affect its significance has been omitted. I certify that, to my knowledge, the financial statements have been prepared in accordance with applicable accounting standards and give a faithful representation of the assets, financial situation and results of Dassault Syst `emes SA and all the companies included in the scope of consolidation, and that the ‘‘Management Report’’ included in this Annual Report, as indicated in the cross-reference index below, presents a faithful representation of the business trends, results and financial situation of Dassault Syst `emes SA and all the companies included in the scope of consolidation as well as a description of the principal risks and uncertainties which they face. I have received a completion letter (lettre de fin de travaux) from the auditors stating that they have verified the information regarding the financial situation and the financial statements included in this Registration Document and that they have read this document in its entirety. The consolidated financial statements for the year ended December 31, 2010 are covered by a report of the Statutory Auditors, set forth on pages 182-183 of the Registration Document for the year 2010, which was filed with the AMF on April 1, 2011, under number D. 11-0213 and contains an observation.’’ Bernard Charl `es President and Chief Executive Officer 4 DASSAULT SYST `EMES Annual Report 2012 CHAPTER 1 – PRESENTATION OF THE GROUP 1.1 Key Figures The selected financial information set forth below has been prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) as adopted in the European Union, unless otherwise indicated. (in millions, except percentages and per share data) 2012 2011 2010 (cid:1) Year ended December 31, (cid:2) Total revenue Operating income As a percentage of total revenue Net income attributable to equity holders of the Company Diluted net income per share Dividend paid (per share) Supplemental non-IFRS financial information(2) Total revenue Operating income As a percentage of total revenue Net income attributable to equity holders of the Company Diluted net income per share e2,028.3 501.0 24.7% 334.8 e2.66 e0.80(1) e1,783.0 e1,563.8 427.9 24.0% 289.2 e2.33 e0.70 322.0 20.6% 220.5 e1.82 e0.54 e2,038.5 e1,783.5 e1,580.0 644.3 31.6% 424.5 e3.37 542.6 30.4% 362.1 e2.92 451.7 28.6% 302.6 e2.50 (1) (2) To be proposed for approval at the General Meeting of Shareholders scheduled for May 30, 2013. Readers are cautioned that the supplemental non-IFRS financial information is subject to inherent limitations. It is not based on any comprehensive set of accounting rules or principles and should not be considered in isolation from or as a substitute for IFRS measurements. The supplemental non-IFRS financial information should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with IFRS. Furthermore, the supplemental non-IFRS financial information may not be comparable to similarly titled adjusted measures used by other companies. For a reconciliation of this non-IFRS financial information with the Company’s audited financial statements, see paragraph 3.1.1.2 ‘‘Supplemental Non-IFRS Financial Information’’. (in millions) ASSETS Cash, cash equivalents and short-term investments Trade accounts receivable, net Other assets Total assets LIABILITIES Borrowings, non-current Other liabilities Parent shareholders’ equity Total liabilities (cid:1) Year ended December 31, (cid:2) 2012 2011 2010 e1,319.1 457.8 1,827.0 3,603.9 38.3 1,200.9 2,364.7 h3,603.9 e1,423.0 494.3 1,599.5 3,516.8 72.4 1,378.2 2,066.2 h3,516.8 e1,139.1 413.5 1,519.2 3,071.8 293.4 987.6 1,790.8 h3,071.8 DASSAULT SYST `EMES Annual Report 2012 5 Presentation of the Group 1 1.2 History 1.2.1 History and Development of the Company 1.2.1.1 Summary Dassault Syst `emes was established in 1981 through the spin-off of a small team of engineers from Dassault Aviation, which was developing software to design wind tunnel models and therefore reduce the cycle time for wind tunnel testing, using surfacing modeling in three dimensions (‘‘3D’’). The Company entered into a distribution agreement with IBM the same year and started to sell its software under the CATIA brand. With the introduction of its Version 3 (‘‘V3’’) architecture in 1986, the foundations of 3D modeling for product design were established. Through its work with large industrial customers, the Company learned how important it was for them to have a software solution that would support the design of highly diversified parts in 3D. The growing adoption of 3D design for all components of complex products, such as airplanes and cars, triggered the vision for transforming the 3D part design process into a systematic integrated product design. The Version 4 (‘‘V4’’) architecture was created, opening new possibilities to realize full digital mock-ups (‘‘DMU’’) of any product. The V4 architectured software solutions helped customers reduce the number of physical prototypes and realize substantial savings in product development cycle times, and it made global engineering possible as engineers were able to share their ongoing work across the globe virtually. In order to fulfill the mission to provide a robust 3D Product Lifecycle Management (‘‘PLM’’) solution supporting the entire product lifecycle from virtual design to virtual manufacturing, the Company developed and introduced its next software architecture in 1999, Version 5 (‘‘V5’’). In conjunction with its strategy and product portfolio development plans, the Company undertook a series of targeted acquisitions expanding its software applications portfolio offering to include digital manufacturing, realistic simulation, product data management and enterprise business process collaboration. In 2012, the Company unveiled its new horizon, 3DEXPERIENCE, expanded its purpose from product to nature and life, and introduced its Social Industry Experiences strategy including the launch of its initial industry solution experiences. The 3DEXPERIENCE Platform is a business platform which can be used on premise or online, in a public or private cloud leveraging the Company’s current technology architecture Version 6 (‘‘V6’’). See paragraphs 1.2.1.3 ‘‘Dassault Syst `emes’ Purpose’’, 1.4.1.1 ‘‘Summary’’ and 1.4.1.4 ‘‘Technology’’ for further information. 1.2.1.2 Summary Timeline 1981: (cid:127) Creation of Dassault Syst `emes to design products in 3D through the spin-off of a team of engineers from Dassault Aviation; (cid:127) The Company’s flagship brand, CATIA, is launched; (cid:127) Worldwide marketing, sales and support agreement with IBM, beginning of a long-standing partnership; (cid:127) Initial industry focus: automotive and aerospace. 1986: (cid:127) V3 software introduced for 3D Design. 1994: (cid:127) V4 architecture introduced offering a new technology enabling the full DMU of a product, enabling customers to significantly reduce the number of physical prototypes and to have a complete understanding of the virtual product; (cid:127) Expansion of the Company’s industry focus to seven industries, adding fabrication and assembly, consumer goods, high-tech, shipbuilding and energy. 6 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 1996: (cid:127) Initial public offering in Paris and listing on the NASDAQ (the Company voluntarily delisted from the NASDAQ in 2008). 1997: (cid:127) Broadening of the Company’s 3D design product line to the entry 3D market, with the acquisition of the start-up SOLIDWORKS, with a Windows-native architecture, to target principally the 2D to 3D migration market opportunity; (cid:127) Formation of the Company’s Professional channel, focused on marketing, sales and support of SOLIDWORKS; (cid:127) Organization of the Company into two business segments, process-centric (PLM), supporting its customers’ end-to-end product development process, and design-centric (Mainstream/SOLIDWORKS), dedicated to customers seeking to design products in a 3D design environment. 1998: (cid:127) Creation of the ENOVIA brand, focused on management of CATIA product data with the acquisition of IBM’s Product Manager software. 1999: (cid:127) Initial launch of V5, a new architecture software for the PLM market designed for both Windows NT and UNIX environments; (cid:127) The Company expands its ENOVIA product line with the acquisition of SmarTeam focused on product data management for the small and mid-sized companies (‘‘SMB’’) market. 2000: (cid:127) Creation of the DELMIA brand, addressing the digital manufacturing domain (digital process planning, robotic simulation and human modeling technology). 2005: (cid:127) Creation of the SIMULIA brand, addressing realistic simulation, representing a significant expansion of the Company’s simulation capabilities, leveraging the acquisition of Abaqus, as the core of its realistic simulation offerings and the Company’s existing simulation products; (cid:127) Sales generated through the long-standing distribution agreement with IBM account for 52% of the Company’s total revenues; (cid:127) Creation of the Company’s PLM Value Solutions sales channel, an indirect channel for the PLM market specifically focused on supporting SMB companies. 2006: (cid:127) Expansion of the ENOVIA portfolio with the acquisition of MatrixOne, a global provider of collaborative PLM software and services to medium-to-large organizations; (cid:127) Expansion of the Company’s industry focus from seven to 11 industries. 2007: (cid:127) Amendment of the IBM PLM partnership agreement, outlining the progressive assumption of full responsibility for the Company’s PLM Value Solutions channel; (cid:127) Creation of the 3DVIA brand. Building upon several years of research and investment, 3DVIA was launched to bring 3D technology to new users to imagine, communicate and experience in 3D; (cid:127) Further expanding its product offering for CATIA, the Company acquired ICEM, a U.K. company well-known in the automotive industry for its styling and high-quality surface modeling and rendering solutions. 2008: (cid:127) Introduction of the Company’s V6 architecture. DASSAULT SYST `EMES Annual Report 2012 7 Presentation of the Group 1 2010: (cid:127) The Company acquires full control of its distribution sales channels with the acquisition of IBM PLM, the IBM business unit dedicated exclusively to the marketing, sale and support of the Company’s PLM software; (cid:127) Signing of a Global Alliance agreement with IBM in which the Company and IBM defined the next steps in their relationship, extending their cooperation in key areas: professional services, cloud computing, middleware, flexible financing and hardware; (cid:127) Acquisition of Exalead, a French company providing search platforms and search-based applications for consumer and business users. 2011: (cid:127) DELMIA’s offering expands with the acquisition of Intercim, offering manufacturing and production management software for advanced and highly regulated industries; (cid:127) ENOVIA’s industry offering for formula-based industries expanded with the acquisition of Enginuity; (cid:127) 100% of the Company’s total revenues are derived from its wholly-directed three sales channels, completing the transition from IBM begun in 2005; (cid:127) Dassault Syst `emes announced its new online V6 architecture, its new store, a 3DStore online for 3DEXPERIENCE and applications, and its first online cloud business services. 2012: (cid:127) Expansion of the Company’s strategy to 3DEXPERIENCE. See paragraph 1.2.1.3 ‘‘Dassault Syst `emes’ Purpose’’; (cid:127) Creation of a new brand, GEOVIA, dedicated to model our planet, focus on a new industrial sector, Natural Resources, with the acquisition of Gemcom Software International Inc. (‘‘Gemcom’’) in the mining sector; (cid:127) Acquisitions of Netvibes, bringing intelligent dashboarding capabilities, and SquareClock, providing cloud-based 3D space planning solutions; (cid:127) Introduction of the Company’s first industry solution experiences. For further information on acquisitions made in 2011 and 2012, see paragraph 1.2.2 ‘‘Investments’’. 1.2.1.3 Dassault Syst `emes’ Purpose Dassault Syst `emes’ corporate mission is to provide business and people with 3DEXPERIENCE universes to imagine sustainable innovations capable of harmonizing product, nature and life. A growing number of companies in all industry verticals are evolving their innovation processes to imagine the future both with, and for, their end-consumers. To meet this challenge, it is vital to ensure collaborative work processes internally and externally to the enterprise with designers, engineers, researchers and marketing managers, as well as external ad hoc participants because the innovation flow comes from many directions. Ensuring this flow unleashes the potential of what companies and academics call the new ‘‘Social Enterprise’’. Dassault Syst `emes, with its 3DEXPERIENCE Platform leveraging its V6 architecture, provides this ‘‘linkage’’, enabling decision-makers to create the value that their ultimate consumers are seeking. The Company’s 3DEXPERIENCE portfolio is designed to enable the powering of 3D realistic virtual experiences representing usage of future products, and is comprised of social and collaborative applications, 3D modeling applications, content and simulation applications, and information intelligence applications. For Dassault Syst `emes to be able to help its customers simulate the end-consumer experience, it is important to have a complete understanding of the most critical business needs of the industries in which its customers operate. Therefore, in conjunction with the Company’s Social Industry Experiences strategy, Dassault Syst `emes has adapted its organizational structure to focus on users and business decision-makers through its brands, industry and sales channel organizations, while further developing its geographic reach. Dassault Syst `emes has brought value to customers since its inception in 1981 by providing solutions in 3D Design for product creation, DMU for replacing physical mock-ups, and PLM covering the product’s whole life, from design to manufacture and service. Now Dassault Syst `emes has crossed into the next stage in its vision of the future: the 3DEXPERIENCE era, a new phase already underway with key innovative customers who share this same vision and understand that ‘‘experiences’’ are the new way of doing business. The Company believes its 3DEXPERIENCE strategy broadens its addressable market opportunity. Specifically, the PLM software and services market was estimated to have an addressable market size of approximately $16 billion in 2011. During 2012 the Company expanded its strategy to encompass PLM and a broader market, which it has defined as the 3DEXPERIENCE market. It has estimated that this addressable market opportunity represents approximately a doubling of the current PLM market based upon the Company’s internal estimates and external market data. In addition to continued growth opportunities in the PLM market, 3DEXPERIENCE significantly 8 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 expands the market opportunity in virtual product experience, including systems behaviour and ergonomy, business intelligence, virtual training, resources management, as well as the representation of nature and life. 3DEXPERIENCE also enhances the Company’s presence in new industrial sectors such as Consumer Goods & Retail and Consumer Packaged Goods & Retail, Life Sciences, and Financial & Business Services. 1.2.2 Investments The Company’s investments, both through expenditures on its internal R&D efforts and through acquisitions, are closely aligned with its strategic roadmap. The Company’s internal R&D investments are the principal driver of its product innovations and enhancements and totaled e1.02 billion for the three-year period ended December 31, 2012. At the same time, with its goal to accelerate its penetration and expand its footprint within targeted industries, the Company will continue to evaluate potential external investments complementing and extending its technology, brands and industry knowledge through partnerships, minority investments or acquisitions. For further information, see paragraphs 1.4.1.4 ‘‘Technology’’ and 1.5 ‘‘Research and Development’’. 1.2.2.1 Acquisitions in 2012 and 2011 The Company completed three acquisitions in 2012, the two principal of which are described below, for a net investment of e281.5 million, and four main acquisitions in 2011 for a net investment of e37.4 million. 2012: Expansion of the Company’s industry offerings to Natural Resources In July 2012, in conjunction with the creation of a new brand, GEOVIA, to model and simulate our planet, the Company acquired Gemcom, a global leader in mining software solutions for an acquisition price of approximately e274 million. Gemcom provides software and services for mining customers to discover, measure, design, plan and manage their mining operations from exploration to production. Its customer base includes the top ten, as well as 30 of the 40 largest, mining companies in the world by revenue. Its employee base totals approximately 360. Its geographic presence further broadens the Company’s global geographic footprint through Gemcom’s work with companies with mines in countries in Africa and South America, Australia, western Canada, Indonesia, Kazakhstan, Mongolia and Russia. 2012: Expanding the Company’s information intelligence capabilities with Dashboarding Intelligence To further enhance information intelligence, the Company acquired Netvibes, a privately-held dashboarding technologies company with offices in Paris and San Francisco, with 33 employees, for approximately e21.2 million in February 2012. Netvibes Dashboard Intelligence helps enterprises monitor and manage information across internal systems as well as across the Web, on real-time, personalized dashboards. Netvibes’ technology was designed to enable companies to improve their decision-making. 2011: Extending the Company’s manufacturing software offering to the shop-floor To expand DELMIA offerings for advanced industries, including those where regulatory certification is important, the Company acquired Intercim, a U.S-based company with 65 employees in March 2011. Combining DELMIA and Intercim brings together the factory communities with the manufacturing and product engineers to establish a common understanding of the products being built and their potential design or certification non-conformance, and ensures effective coordination between manufacturing and engineering. For the Company’s customers, this enhanced communication translates into faster turn-around time to correct issues, improve product quality and production efficiency, and enhance conformity information for certification purposes. Intercim customers include a number of leading aerospace manufacturers. 2011: Expanding the Company’s offerings for formula-based industries In March 2011, the Company acquired Enginuity, a U.S.-based company with 25 employees, to help accelerate product innovation and product launches for formula-centric companies while successfully navigating complex regulatory requirements. Through a single, global PLM solution with ENOVIA V6, the Company can help its customers manage and leverage their formula, packaging and consumer intellectual property (‘‘IP’’) more effectively. Enginuity customers include several leading cosmetic and pharmaceutical companies. 2011: Expanding and advancing CATIA’s offering in composites and electrical wiring In July and October 2011, the Company completed two acquisitions complementing its CATIA V6 portfolio strategy for the composite and electrical industries: (cid:127) Simulayt (four employees), based in the U.K., specialized in composites simulation and advanced draping simulation technology; and DASSAULT SYST `EMES Annual Report 2012 9 Presentation of the Group 1 (cid:127) Elsys (17 employees), based in Belgium and in France, which develops applications able to address all aspects of the electrical logical and manufacturing definitions from design to manufacturing. Elsys customers include major international companies in the aerospace, automotive and shipbuilding industries. 1.2.2.2 Principal Acquisitions of the Past Three Years The Company’s principal acquisitions with an individual purchase price greater than e100 million over the last three years include: Acquisition Gemcom IBM PLM Exalead Year 2012 2010 2010 Purchase Price e274 million e361 million e132 million 1.2.3 Facilities Strategy The Company does not own the offices it occupies, with the exception of facilities totaling 21,000 square meters belonging to 3DPLM Software Solutions Limited (‘‘3DPLM Ltd’’) located in Pune, India. Except for the Pune facility, the Company does not have full ownership rights over any real estate or building, either directly or through a lease (see Notes 14 and 25 to the consolidated financial statements). Decisions regarding the location of Dassault Syst `emes facilities are guided by the objectives of supporting growth in the Company’s business and building the Company’s reputation. The Company is also guided by an ongoing desire to encourage synergies within the Company, control costs and reduce environmental impact, while also improving staff working conditions. The Company seeks to be close to its customers, its partners in research and principal schools and universities, which are one of the main sources of recruitment for Dassault Syst `emes. 1.2.3.1 Facilities Rationalization Strategy The rationalization of the Company’s facilities is determined by grouping together subsidiaries and operations on a limited number of sites throughout a single region or country. Co-localization analysis, particularly in connection with acquisitions, results in an audit of facilities and their usage conditions to determine steps to be taken in connection with the Company’s strategy (such as maintaining the lease, facilities rehabilitation, or consolidation). 1.2.3.2 Respecting the Environment The Company is committed to a voluntary process of limiting its impact on the environment (see paragraph 2.2.2 ‘‘Environmental Report’’). This process leads to seeking sites offering performance criteria in terms of modern facilities, communications networks, environmental impact, accessibility and Dassault Syst `emes’ corporate image, as illustrated by the decision to change facilities in Boston. The Company seeks to rent buildings certified ‘‘HQE’’ (Haute Qualit ´e Environnementale, or High Environmental Quality) like its corporate headquarters in V´elizy-Villacoublay, close to Paris (the ‘‘3DS Paris Campus’’). 10 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 1.2.3.3 Principal Sites At December 31, 2012, the principal sites occupied by Group companies in its three geographic regions are as set forth in the table below. Geographic region Europe Americas Asia Site V´elizy-Villacoublay, France(1) Waltham, Massachusetts, U.S.(2) Providence, Rhode Island, U.S. Montreal, Canada Tokyo, Japan Surface area (in square meters) 70,000 20,000 8,900 5,200 4,000 Activities on the site Headquarters – R&D – Marketing and sales R&D, Marketing and sales R&D, Marketing and sales Marketing and sales Marketing and sales (1) (2) The Company’s site in V´elizy-Villacoublay includes 60,000 square meters leased under a build-to-suit arrangement, occupied since 2008, and 10,000 square meters leased in a nearby facility, occupied since 2011. In February 2013, the Company entered into a build-to-suit lease agreement for a new building to expand its headquarters. Under this agreement the Company has committed to lease an additional 13,000 square meters of office space (see Note 25 to the consolidated financial statements). The Company has options to lease additional space as necessary in its 3DS Boston Campus. Dassault Syst `emes believes that its existing real estate facilities are adequate, and that it is possible to acquire additional or alternative space in the future, depending on needs, at reasonable conditions. 1.3 Group Organization 1.3.1 Dassault Syst `emes SA’s Position within the Group Dassault Syst `emes SA, the Group’s parent company, which owns directly or indirectly all the companies that make up the Group, has two primary functions: first, it is one of the Group’s largest operating companies and its principal R&D center, responsible for the development of a number of the Group’s software solutions, including CATIA, 3DSWYM and 3DVIA, as well as a part of the Group’s ENOVIA, DELMIA and SIMULIA solutions. Second, Dassault Syst `emes SA operates as a holding company and provides centralized services to all the companies in the Group. The business of Dassault Syst `emes SA’s subsidiaries is generally similar to the parent company’s business. Dassault Syst `emes SA defines the Group’s overall strategy and operating plans. The R&D policy is set by Dassault Syst `emes SA and R&D activities are carried out in laboratories located primarily in France, the United States, and India. The Company has R&D facilities in other countries as well, notably in Germany, South Korea, the United Kingdom, Sweden, Australia and Canada. With regard to marketing and sales, the entire range of products is commercialized through three sales channels (described in paragraph 1.4.2.3 ‘‘Sales and Marketing’’) by Dassault Syst `emes SA and its sales subsidiaries. The Group has defined three main regions: Europe, the Americas and Asia. Within these regions, the Group has established 13 distinct geographical areas in order to be closer to its clients and the issues they face, better adapt to the local market, and broaden its global reputation. Dassault Syst `emes SA provides support to the Group in a range of areas, such as finance, communications, marketing, legal, human resources and information technology. The costs of providing centralized services are charged back to the respective subsidiaries using these services. In 2012, the total amount charged back to subsidiaries by Dassault Syst `emes SA for these services was e61.5 million (compared to e61.8 million in 2011). With respect to the Company’s assets, IP for the Company’s products is held primarily in France by Dassault Syst `emes SA and Exalead SA, and in the United States by certain of the Company’s subsidiaries. 1.3.2 Principal Subsidiaries of the Company At December 31, 2012, the Company included Dassault Syst `emes SA and 80 operational subsidiaries, as compared to 65 operational subsidiaries in 2011; the increase was due principally to the acquisition of Gemcom. In 2012, the Company continued its effort to simplify the organization of its legal entities throughout the world. The objective of this effort, which was launched in 2007, is to reduce the number of legal entities held in each country. The Company is present in 37 countries. DASSAULT SYST `EMES Annual Report 2012 11 Presentation of the Group 1 The organigram below sets forth the Company’s main subsidiaries. Dassault Systèmes SA Dassault Data Services SAS (France) Dassault Systemes Deutschland GmbH (Allemagne) Dassault Systemes Delmia Corp. (USA) % 0 0 1 Dassault Systemes K.K. (Japan) Exalead SA (France) Dassault Systemes Korea Corp. (South Korea) Dassault Systemes SolidWorks Corp. (USA) SolidWorks Japan K.K. (Japan) Dassault Systemes Americas Corp. Dassault Systemes Simulia Corp. (USA) (USA) Dassault Systemes Services, LLC Dassault Systemes Geovia Inc.(1) (USA) (USA) % 0 0 1 Dassault Systemes Enovia Corp. (USA) Legend EMEA Asia Americas (1) Entity resulting from corporate simplification operations implemented further to the Gemcom Software international acquisition Direct or indirect equity interest 2APR201314534962 See also Note 27 to the consolidated financial statements and the table of subsidiaries and shareholdings under Note 25 to the parent company financial statements. 12 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 1.4 Business Activities 1.4.1 Principal Activities 1.4.1.1 Summary The Company is the world leader of the global PLM market based upon end-user software revenue (source: CIMData). The PLM software market is comprised of 3D software for design, simulation, digital manufacturing, product data management and social collaboration and was estimated to have an addressable market size of approximately $16 billion in software and services as of 2011. During 2012 the Company expanded its strategy to encompass PLM within a broader market, which it defined as the 3DEXPERIENCE market and estimated that this addressable market opportunity represents approximately a doubling of the current PLM market based upon its internal estimates and external market data. Dassault Syst `emes software applications allow businesses to digitally define and simulate products, as well as the processes and resources required to manufacture, maintain, and recycle them while minimizing their impact on the environment. As the pace of technological change accelerates, companies increasingly depend on their intellectual capital. Optimal response to an on-demand marketplace requires that products be designed, tested, shared, and experienced virtually in real-time. Simultaneously, the Internet has evolved to an environment with access to global information, online communities, and real-time interaction that position end-users to become contributors. Dassault Syst `emes believes that from product creators to the final consumers, everyone can play a critical role in creating ‘‘delightful’’ experiences, going beyond product features and functions. The Company’s software solutions and consulting services enable its customers to: (cid:127) innovate in the design and quality of products and services; (cid:127) reduce design-cycle time to accelerate time-to-market; (cid:127) collaborate with partners and suppliers; (cid:127) create, manufacture and maintain products and production facilities more cost effectively; (cid:127) capture and leverage information intelligence, whether from internal sources and/or from the Internet; and (cid:127) simulate their end-customers’ experiences. The Company’s software applications address a wide range of products, from apparel, consumer goods, machine parts and semiconductors to automobiles, aircraft, ships and factories. Its global customer base includes companies primarily in 12 industrial sectors: Aerospace & Defense; Transportation & Mobility; Marine & Offshore; Industrial Equipment; High-Tech; Architecture, Engineering & Construction; Consumer Goods & Retail; Consumer Packaged Goods & Retail; Life Sciences; Energy, Process & Utilities; Financial & Business Services; and Natural Resources. See paragraph 1.4.2.2 ‘‘Industries Served’’. In addition to its sales of software applications, which accounted for 91% of its total revenue in 2012, the Company also provides selected services, principally to large customers. These services comprise consulting services in methodology for design, deployment and support, training services and engineering services. The Company principally organizes its business and markets its products and services according to two types of applications: PLM, to support product development, production, maintenance and lifecycle management, and SOLIDWORKS, which is primarily focused on product design. For information on revenue and operating income by segment, see paragraph 3.1.3 ‘‘Revenue and Operating Income by Segment’’. 1.4.1.2 Key Business Strengths of the Company Dassault Syst `emes believes that its leadership of the global PLM market reflects the fact that it has developed the largest 3D PLM software applications portfolio in the world with leadership positions in 3D design, simulation, digital manufacturing and production and business process management. With the addition of its newest software brands bringing information intelligence, social collaboration and realistic 3D virtual experiences, the Company is positioned to work with companies from the first stage of virtual product design with sketching through virtual manufacturing and into the virtual store or showroom. DASSAULT SYST `EMES Annual Report 2012 13 Presentation of the Group 1 The Company’s software applications are focused on helping customers address many of their most critical product issues: (cid:127) Innovation to create delightful customer experiences; (cid:127) Product quality; (cid:127) Time-to-market; (cid:127) Globalization (design/manufacture anywhere); (cid:127) Supply chain collaboration; (cid:127) Regulatory compliance; (cid:127) IP protection; (cid:127) Manufacturing efficiency; and (cid:127) Social innovation. The Company maintains a long-term focus, well supported by its financial model with a high level of recurring software revenue. One of the key reasons for the Company’s market share leadership over more than a decade is its focus on the creation and maintenance of a long-term vision which is visible in its investment in people and its long-term financial model. The Company has a diverse, highly- educated employee base of over 10,000 employees representing 105 nationalities. The Company’s long-standing financial model, with a high level of recurring software revenue (accounting for 71% of the Company’s total software revenue, in both 2012 and 2011), has enabled the Company to maintain investments in critical resources in R&D and customer support even during challenging macroeconomic environments. The Company has a substantial commitment to technological innovation which has enabled it to define and create new markets, such as 3D Design, 3D DMU, 3D PLM and 3DEXPERIENCE. It maintains an active dialogue with customers and users in product development and an open development platform to broaden product offerings for customers. A key component to advancing the Company’s technology and enabling it to define and create new markets is the close relationship it has with its customers, including partnerships with customers who are global leaders in their respective industries, and the input the Company solicits from the day-to-day users of its software products. The Company works closely with customers, involving them in many phases of product development. Through these close, long-term working relationships, the Company develops a deep understanding of its customers and their most important business values. The Company believes that this level of knowledge enables it to develop software solutions more closely attuned to the requirements of its customers, highly suited to the industries it addresses, and designed to maximize user productivity and experience. The numerous important areas of investment in R&D include in particular systems engineering, industry-specific offerings, cloud-based applications, search-based technologies and bio-intelligence. The Company’s research is centered on advancing its virtual technologies to be able to provide a virtual product and end-customer experience environment closely approximating real life product behavior and end-customer experience, providing a faster return on investment and a lower total cost of ownership through industry solution experiences, simplifying adoption in particular for small and mid-sized companies through the introduction of on-the-cloud offerings, and broadening adoption through further advances in ease-of-use while offering robust technology to a wide array of users. The Company has developed a clear identity and value to its users through its market-proven brand strategy. During 2012 the Company began to launch industry solution experiences that focus on key business values and processes and bring together the appropriate applications from its market-leading brand applications portfolio. The Company’s brand strategy (see paragraph 1.4.2.1 ‘‘3DEXPERIENCE Software Applications Portfolio’’) focuses on providing significant value to end-users with the objective of each brand being a leader within its respective markets. The Company’s R&D strategies, as well as its sales and marketing strategies, support this objective. The Company has a resilient and dynamic ecosystem of sales partners, system integrators, development partners, educational institutions and research enterprises. The Company has developed a network of partners for sales and marketing and product development, which it calls its ‘‘extended enterprise’’ model, and it intends to continue to build on this model going forward. For marketing and sales, the Company operates through both a direct sales force and indirectly through value-added resellers, with total sales well balanced between direct and indirect sales channels. It continues to expand its indirect sales channel capacity and expertise across its 12 targeted industries. Moreover, the Group is engaging with more system integrators and software partners, working with more than 400 software development partners building applications complementing its software applications in both its PLM and SOLIDWORKS business segments. In addition, the Company works closely with research and academic organizations around the world. 14 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 1.4.1.3 Growth Strategy The Company’s principal growth opportunities reflect its current addressable market opportunity in PLM and the increased potential size of its addressable market with the introduction of its 3DEXPERIENCE strategy in 2012. The Company’s growth strategy is focused on advancing its 3DEXPERIENCE strategy and platform, broadening its industry coverage and diversification, deepening its regional market penetration, expanding its universe of users, and offering Software as a Service (‘‘SaaS’’). (cid:127) Advancing its 3DEXPERIENCE strategy and platform, based upon its V6 architecture and capabilities: the Company anticipates continued growth from its current applications portfolio as well as the further advancement of its portfolio through internal and external investments, well aligned with its strategy centered on product, nature and life; (cid:127) Deepening and broadening its industry coverage and diversification: through its focus on enriching its software applications portfolio and developing industry specific solutions, including its industry solution experiences, the Company has extended its reach to 12 vertical industries. The Company sees opportunities to expand its presence and has developed industry practices to further its progress in each of the industrial sectors it targets. For further information, see paragraph 1.4.2.2 ‘‘Industries Served’’; (cid:127) Deepening its regional market penetration: the Company sees opportunities to grow its presence in all geographic markets. The Company’s three global markets are Europe, representing approximately 45% of total revenue, the Americas (28%) and Asia (27%). In addition, the Company tracks ‘‘High-Growth’’ countries representing, as a group, 12% of total revenue during 2012. In order to strengthen and broaden its global footprint, the Company has established 13 regional organizations to enhance support for its strategic initiatives at a local level. See paragraph 3.1.1.1 ‘‘Executive Overview for 2012’’ for the regions included within ‘‘High-Growth’’ and further information on growth by geographic region; (cid:127) Expanding its user universe: the Company sees opportunities to expand the number of users of its software solutions and 3DEXPERIENCE Platform. Within a corporation, the Company’s applications now target a large portion of the enterprise employees, spanning the engineering, project management, compliance, manufacturing, quality assurance and maintenance departments and marketing and executive management. More broadly, the Company’s target user market includes business, education, research and final product consumers. For further information see paragraphs 1.4.1.4 ‘‘Technology’’ and 1.4.2 ‘‘Principal Markets’’; (cid:127) Offering Software as a Service and mobile applications: with its current on-line architecture, V6, the Company is also positioned to grow through offering SaaS. At present, its revenue contribution is not material, but the Company believes that it may become a growth driver with the progressive roll-out of its services offering over the next several years, as well as with the release of mobile applications using tablets. For further information see paragraph 1.4.1.4 ‘‘Technology’’. For a description of the challenges that must be met to maintain growth, see paragraph 1.6.1 ‘‘Risks Related to the Company’s Business’’. 1.4.1.4 Technology The Company has a substantial commitment to technological innovation. Important areas of investment in R&D include, among others, systems engineering, industry-specific offerings, cloud-based applications, mobility, search-based technologies and bio-intelligence. From a user perspective, the Company’s research is centered on advancing its virtual technologies to provide a more realistic 3DEXPERIENCE, reducing total cost of ownership through out-of-the-box industry solutions, simplifying adoption in particular for small and mid-sized companies through the introduction of on-the-cloud offerings, and broadening adoption through further advances in ease-of-use while offering robust technology to a wide array of users. During 2012 the Company continued to advance its product offerings with new releases. In conjunction with the launch of its Social Industry Experiences strategy, the Company has begun to introduce industry solution experiences, which target key business processes within a specific industry. These new solutions are based upon the 3DEXPERIENCE Platform and bring together the relevant applications from the Company’s different brands. PLM Since 1981, the Company has introduced six versions of its software, the most recent of which, V6, was first released in 2008. Due to the scope of the work involved, the roll-out of new versions of the Company’s PLM software has generally been structured over a multi-year timeframe. In developing its V6 software architecture, the Company analyzed strategic demand drivers from customers and was able to satisfy what it saw as the six key categories of requirements: (cid:127) A single platform for IP management: harnessing a company’s collective intelligence requires a single platform that can federate all product-related knowledge no matter where it resides, not just within the engineering and manufacturing realms, but all the way from idea to product experience. In addition, companies can share selected product information while better protecting their IP and all confidential information; DASSAULT SYST `EMES Annual Report 2012 15 Presentation of the Group 1 (cid:127) Global collaborative innovation: global collaborative innovation implies the expansion of PLM users to involve consumers working with designers and all the professional users employing the universal language of 3D and the power of online communities. V6 provides, through its object data management, a way to collaborate and reconcile all project contributions in real time; (cid:127) Realistic 3DEXPERIENCE: advanced product innovation requires that a 3D product be experienced as it looks and behaves in real life, as well as the most advanced intuitive interface capable of truly mimicking real life; (cid:127) Online creation and collaboration: collaborative online authoring is enabled for real-time, concurrent work across multiple remote locations with only a Web connection. Product development also brings product requirements together with functional, logical, and physical definitions of the product. Those capabilities are major breakthroughs for any company implementing a global engineering and manufacturing strategy; (cid:127) Ready-to-use PLM business processes: based on industry-specific business process solutions, ready-to-use PLM business processes software enables rapid deployment and thus a quick return on investment; (cid:127) Lower cost of ownership: V6 offers a single solution, on-the-cloud or on-premises, for all applications and embraces the latest technology standards, thereby substantially reducing the cost of ownership, allowing easy enterprise integration and rapid implementations, and spurring more efficient collaboration. The Company believes V6 is unique with its combination of online architecture, openness, scalability and flexibility and serves as the architecture underlying its 3DEXPERIENCE Platform. SOLIDWORKS The Company’s SOLIDWORKS technology enables designers and engineers to make an easy transition from 2D drafting to a 3D environment. Its intuitive user interface enables users to productively employ SOLIDWORKS software with minimal training. Each year a new release of SOLIDWORKS is introduced into the market with innovations to respond to customer requirements, further enhancements of existing functionalities that are more productive and easier to use, and specific enhancements explicitly requested by users through the close contact maintained by SOLIDWORKS and its sales channel with customers. Information Search Capabilities Technology Consistent with the Company’s understanding of the importance of harnessing and re-using data, the Company acquired Exalead during 2010. With the acquisition of Exalead, the Company has significantly expanded its internal search capabilities technology and acquired an important search-based infrastructure for the development of information intelligence applications. The Company’s search-based applications combine the sophisticated search and access typically associated with databases with the speed, scalability and simplicity of the Web. Cloud Initiatives In 2011 Dassault Syst `emes announced its investment in Outscale, a start-up to provide SaaS operator services. The Company’s V6 cloud- based solutions, which are in ‘‘beta test’’ versions, have been designed to enable users to get what they need, when they need it. Offered as a flexible subscription model, without upfront investments in additional infrastructure, long-term volume commitments or administrative burden, V6 online solutions are designed to adapt to the needs of organizations or projects of any scale. Technology and Software Partners The Company has established long-standing, technical collaborations with key partners in order to maximize the benefits from available technology and to increase the value for shared customers. The Company’s technology alliances are established with three objectives: to ensure compatibility between the IT infrastructure and its solutions; to expand the Company’s global network of partners sharing the same interests; and to integrate the latest features of these technologies into its solutions. The Company has software development partners working with all its software solutions. The Company’s largest program with software partners is its software community program that enables developers to create and market their own applications fully integrated with and complementary to the Company’s PLM software solutions. 16 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 1.4.2 Principal Markets 1.4.2.1 3DEXPERIENCE Software Applications Portfolio The Company’s 3DEXPERIENCE portfolio is designed to enable the powering of 3D realistic virtual experiences and is comprised of social and collaborative applications, 3D modeling applications, content and simulation applications, and information intelligence applications. Since its inception, the Company has focused on creating a portfolio of leading software brands, each focused on a specific critical application market. The Company continues to develop its brands and create new brands to expand its addressable market, and, in addition, has begun the introduction of industry solution experiences to advance its Social Industry Experiences strategy launched in 2012. These solutions are designed on an industry-by-industry basis, and are built by ‘‘industry-relevant modules’’ of several (or all) of its brand applications with the aim of modeling the company value chain. It is a solution designed to trigger and connect the value created by each discipline in an industry to ensure that the company value stream is not interrupted. The Company continues to invest in research and development as well as targeted acquisitions to advance its brand portfolio and introduce new brands. Its application coverage has enabled it to expand its addressable market to reach new industries, domains and key business processes within the industries served. SOLIDWORKS – 3D Design 3D Modeling Applications SOLIDWORKS applications cover all aspects of the product development process with a seamless, integrated workflow for design, simulation, technical communication and data management. Designers and engineers can span multiple disciplines with ease, shortening the design cycle, increasing productivity and delivering innovative products to market faster. SOLIDWORKS software applications are easy to learn and use and work together to help professionals to design products better, faster, and more cost-effectively. The SOLIDWORKS focus on ease-of-use allows more engineers, designers and other technology professionals than ever before to take advantage of 3D in bringing their designs to life. SOLIDWORKS applications include 3D tools to design, manage, simulate and communicate. (cid:127) 3D Design: 3D design application for rapid creation of parts, assemblies, and 2D drawings with minimal training. Application-specific tools for sheet metal, weldings, surfacing, and mold tool and die make it easy to deliver best-in-class designs. SOLIDWORKS 3D applications also include photo realistic rendering, a sophisticated components and parts library, design validation, as well as advanced wire and pipe routing functionality; (cid:127) Data Management: SOLIDWORKS product data management (‘‘PDM’’) applications help professionals to get design data under control and substantially improve the way teams manage and collaborate on product development; (cid:127) Simulation: SOLIDWORKS offers a comprehensive suite of simulation applications to set up virtual real-world environments to test product designs before manufacture. Tests can be conducted against a broad range of parameters during the design process – like durability, static and dynamic response, motion of assembly, heat transfer, fluid dynamics, and plastics injection molding – to evaluate design performance and improve quality and safety; (cid:127) Technical documentation: SOLIDWORKS Composer allows users to easily repurpose existing 3D design data to more rapidly create and update high quality graphical assets for product deliverables, including documentation, technical illustrations, animations, and interactive 3D experiences; (cid:127) Electrical Design: SOLIDWORKS Electrical applications provide a range of electrical system design functionality to meet the needs of design professionals. All project design data is synchronized with real-time, bi-directional updates between schematics and the 3D model. Powerful schematic design tools quickly develop embedded electrical systems for machines or products, with built-in symbol libraries, manufacturer part data, and 3D component models. In addition, SOLIDWORKS operates a development partnership program bringing together companies supplying complementary products that are either compatible with or tightly integrated with SOLIDWORKS. Through this program, over 300 compatible products have been made available to customers in many functional areas, including manufacturing, rapid prototyping and mold design. DASSAULT SYST `EMES Annual Report 2012 17 Presentation of the Group 1 CATIA – Digital Product Experience CATIA is the Company’s pioneer and largest brand and is the world’s leading solution for 3D product design and innovation. CATIA, which is used by companies of all sizes, addresses the complete product development process, from early product concept specification through product in service. CATIA has been designed to go far beyond traditional 3D CAD (‘‘Computer-Aided Design’’) software tools to offer a unique digital product experience. Sustainable development is driving companies around the globe to create a constant stream of innovative and inspiring smart products. Design, engineering, systems architecture and systems engineering of these products have become more demanding. (cid:127) CATIA Design: 3D Design is about art, science and technology. Successful products are usually those with designs which elicit positive emotional responses from their consumers. 3D Design products and solutions cover the entire shape design, styling and surfacing workflow, from industrial design to Class A. CATIA’s intuitive and easy-to-use shape design tools give everyone involved in the product design process, from industrial designers, Class A modelers to aero lofting engineers, a freedom to design any kind of complex shape. Advanced functionalities include reverse engineering, Class A surfacing, rapid propagation of design changes, powerful real-time diagnostic tools and high-end visualization. CATIA enables creative designers, design studios and engineering departments to work collaboratively in optimizing the product 3D Design for aesthetic and engineering purposes; (cid:127) CATIA Engineering: mechanical engineers equipped with 3D Modeling tools can gain insight into key factors of quality and performance early in the product development phase. Digital prototyping, combined with digital analysis and simulation, allows product development teams to virtually create and analyze a mechanical product in its operating environment. 3D modeling solutions of CATIA Engineering Software enable the creation of any type of 3D assembly for a wide variety of mechanical engineering processes, ranging from casting and forging, plastic injection and other molding operations, composite parts design and manufacturing, machined and sheetmetal parts design, to advanced welding and fastening operations. As a result of these processes, designers or design and engineering departments gain tremendous productivity, not only to close on the mechanical design sooner but also to perform design changes much faster; (cid:127) CATIA Systems Architecture: from aircraft to cars, industrial machinery, ships, and white goods, the complexity of the products and the systems that keep them running is steadily increasing. CATIA enables the modeling and composing of complex products, while defining and executing their driving systems. The CATIA Systems Architecture solution ensures traceability from initial requirements definition through to final product delivery and support. It enables systems architects, product engineers, designers and technical experts to define the architecture and interdependencies of complex products and systems. This accelerates the systems engineering process from initial specification definition through to development, validation and right-to-market product delivery; (cid:127) CATIA Systems Engineering: CATIA Systems Engineering integrates complex product behavior into the product definition, enabling a realistic 3DEXPERIENCE that predicts the actual performance of products in the real world. The CATIA Systems Engineering solution allows engineers to use many different models to simulate the behavior of complex systems and products. This solution set provides a fully integrated systems modeling environment that leverages behavioral simulation for systems as well as for mechanical product assemblies; (cid:127) CATIA Product Experience: based on the 3DEXPERIENCE Platform, CATIA Product Experience brings together the design, functional, engineering, and architectural characteristics of a product definition to enable integration at the level of the complete product. It provides a social experience, where people of all roles and skills, generalist and specialist, come together to view, collaborate and review the overall project. GEOVIA – Virtual Planet GEOVIA models and simulates the planet to improve predictability, efficiency, safety and sustainability of natural resources. Already a leader in the mining industry, based on its dedicated portfolio that spans the entire mine lifecycle, GEOVIA is helping geologists, surveyors and mine engineers understand, model and manage mining orebody. GEOVIA’s goal is to extend its capabilities to other sectors that process natural resources such as water, vegetation, oil and gas, and many others, as well as sectors managing landscaping, city planning, and beyond. Key mining industry challenges addressed by GEOVIA are as follows: (cid:127) Resources availability: based on geological modeling and production management experiences for better exploration and productivity; (cid:127) Safety: using risk assessment and evaluation experiences as well as unique collaborations tools; (cid:127) Compliancy: using compliancy solutions to shorten mining projects study phases, and engineering and scheduling tools enabling mine sites to minimize their impact on the planet; and (cid:127) Skills shortage: based on collaboration platform to enable mining people to travel only if needed and increase their capability to work off-site from offices of mining companies. 18 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 GEOVIA’s software for the mining industry spans all phases including exploration and evaluation, development and production. Its products include: (cid:127) Gemcom Surpac for geology and mine planning, enabling users to save significant time and increase operational efficiency by enabling workflows to be automated; (cid:127) Gemcom GEMS, a data-driven collaborative geology and mine planning software to protect data integrity and ensure that the latest data is available on-demand, wherever it is needed; (cid:127) Gemcom Minex, fully integrating all aspects of mining from exploration through rehabilitation; (cid:127) Gemcom Whittle, a strategic mine planning software used to determine and optimize the economics of open pit mining projects; (cid:127) Gemcom MineSched, a production scheduling software; (cid:127) Gemcom PCBC, a leading block caving solution; (cid:127) Gemcom Hub, which provides secure remote collaboration that organizes, centralizes and enables the reliable sharing of exploration, planning, and production data over low-bandwidth connections; and (cid:127) Gemcom InSite records and evaluates data for service, support and production activities from the mine through to saleable product, enabling a rapid return on investment. SIMULIA – Realistic Simulation Content and Simulation Applications SIMULIA provides a scalable portfolio of realistic simulation applications designed to enable companies across a wide range of industries to improve product performance, reduce the number of physical prototypes and drive innovation. SIMULIA’s portfolio spans: (cid:127) Finite Element Analysis: with its finite element analysis software, companies are able to create and test virtual prototypes of products and processes; (cid:127) Multi-Physics Solutions: its multi-physics solutions enable companies to reach beyond the boundaries of a single domain to simulate two or more interacting physical phenomena; (cid:127) Optimization Analysis: SIMULIA also provides design exploration and optimization technology, enabling designers and engineers to perform rapid trade-off studies of real-world behavior and accelerate product development; (cid:127) Simulation Lifecycle Management: SIMULIA offers simulation lifecycle management, based upon the Company’s V6 architecture, offering collaboration capabilities for management of simulation data, processes and IP. DELMIA – Digital Manufacturing and Production Product innovation requires production innovation. DELMIA’s products and applications for manufacturing communities drive manufacturing innovation by virtually defining, planning, creating, monitoring and controlling all production processes. DELMIA, powered by the 3DEXPERIENCE Platform, allows all stakeholders in manufacturing, whatever their level of expertise, to be part of a single community with all of its members working toward the same shared objectives of production performance. DELMIA’s digital manufacturing applications range from virtual process definition, workcell set-up, optimization, scheduling, and operation, to maintenance of real-time production systems. Its solutions assist teams across the development enterprise in making better decisions faster and accelerating process engineering to achieve maximum production efficiency, lower costs, improve quality, and reduce time-to-market. DELMIA includes four principal domains: (cid:127) Manufacturing Planning: with comprehensive 3D process and resource planning tools for creating and optimizing build-to-order and lean production manufacturing systems; (cid:127) Plant and Resource Engineering: with tools to virtually define and optimize manufacturing assets concurrently with manufacturing planning; (cid:127) Program and Control Engineering: to virtually program, validate and simulate manufacturing systems for the virtual commissioning of production facilities; (cid:127) Production Execution: by offering an accurate virtual production system to enable companies to track real-time production activities, perform schedule changes, launch new programs, introduce model changeovers, and schedule maintenance operations. DASSAULT SYST `EMES Annual Report 2012 19 Presentation of the Group 1 3DVIA – 3D Communication 3DVIA software applications create that experience, when people immediately see and understand what you mean. The Company’s 3DVIA portfolio includes: (cid:127) 3DVIA Composer: which enables users to visually communicate accurate and up-to-date assembly procedures, technical illustrations and marketing materials leveraging existing 3D images and other 3D source engineering data; (cid:127) 3DVIA Store: which helps retailers to visually communicate merchandising strategy at three levels (store, department and shelf) and enables brand managers to virtually test consumer response to packaging and promotions; (cid:127) 3DVIA Studio Pro: a social development platform that leverages interactive gaming technology and enables teams of programmers, 3D artists and designers to rapidly prototype, develop and publish engaging 3D applications that enhance exploration, learning and teaching; and (cid:127) 3DVIA.com: offering a community website dedicated to 3D enthusiasts and digital content creators to showcase 3D interactive experiences. ENOVIA – Collaborative Innovation Social and Collaborative Applications ENOVIA offers a rich portfolio of collaborative enterprise business process applications, which run on the same web-based infrastructure. Applications are organized into user-role based segments in order to best target specific business needs – Governance user, Engineer/ Designer, Supply Chain user, Reviewer and IT/Administrator. Applications include ENOVIA accelerators which provide pre-packaged business processes by industry, enabling rapid implementation and increased return on investment. ENOVIA enables companies to bring together people, processes, content and systems involved in product creation, development, introduction and maintenance. ENOVIA applications by user-role include: (cid:127) For Governance Users: ENOVIA’s solutions aimed at product managers, program directors, project managers, compliance managers and other participants in governance processes. ENOVIA’s product portfolio, program/project management, regulatory compliance and materials compliance applications address the needs for monitoring enterprise-wide critical PLM business processes; (cid:127) For Engineer/Designer users: ENOVIA’s applications address bill of materials management, change management, multi-CAx management and systems engineering for designers, product engineers, manufacturing professionals and others collaborating on product development. These products help eliminate costly product development errors by enhancing collaborative product design, bill of material management integration and IP asset management; (cid:127) For Supply Chain Users: ENOVIA’s applications address supplier management, supplier quality, procurement and sourcing and sampling. Its solutions help buyer agents, supplier relationship managers and supplier representatives manage their most critical business processes; and (cid:127) For Reviewers: ENOVIA’s products for users to search and review data, to participate in approval processes and to collaborate with other users. 3DSWYM – Social Innovation 3DSWYM (‘‘See What You Mean’’) is an online solution for companies to foster social innovation. It enables people and businesses of any size to create their own on-the-cloud communities to facilitate instant collaboration, connecting ideas, knowledge and experiences. Whether employee, partner, supplier, consumer or stakeholder, everyone can become an active participant in the innovation process, extending and enriching the innovation ecosystem. Community members are given the possibility to network, explore ideas, share content and experiences spontaneously, in a safe and secure Web environment. 20 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 EXALEAD – Discovery Intelligence Information Intelligence Applications EXALEAD delivers discovery applications to help companies making sense of their large volume of digital information. As part of new user experiences, EXALEAD provides breakthrough industry solutions for customer interaction, digital asset management and machine data analysis. (cid:127) EXALEAD OneCall helps companies to transform contact to business into a single interactive event such as a call. In addition, the solution provides a direct feedback on the offer sales performance and almost real time segmentation of the customers to be reused as key input for the next innovation; (cid:127) Digital assets are massively sleeping in companies’ information systems resulting in a very low level of reuse. EXALEAD for Digital Asset is a suite of discovery applications that helps navigate a customer’s legacy, transform digital information into contextual knowledge and maximize reuse; (cid:127) Machine data are signals delivered by any connected devices. EXALEAD for Machine Data is a suite of discovery applications that helps make sense of the actual product usage by consumers. It transforms a sampling estimated usage approach into an exhaustive analytics approach. EXALEAD is at the heart of the 3DEXPERIENCE Platform, with discovery applications embedded in Social Industry Experiences. By providing advanced semantic and analytics capabilities, EXALEAD supports most enterprise processes for viewing, analyzing and interpreting digital information for all decision makers. EXALEAD also delivers access to external web information to complement a company’s digital knowledge. NETVIBES – Dashboard Intelligence NETVIBES dashboard intelligence helps enterprises monitor and manage information on real-time, personalized dashboards designed to enable better, faster decision-making. Netvibes enables companies to go beyond simply monitoring, searching and surfing, to tracking the most valued information in one dashboard, in real time, across a company’s internal systems and across the Web on any device. 1.4.2.2 Industries Served The Company’s target market is comprised of 12 industrial sectors: (cid:127) Aerospace & Defense; (cid:127) Transportation & Mobility; (cid:127) Marine & Offshore; (cid:127) Industrial Equipment; (cid:127) High-Tech; (cid:127) Architecture, Engineering & Construction; (cid:127) Consumer Goods & Retail; (cid:127) Consumer Packaged Goods & Retail; (cid:127) Life Sciences; (cid:127) Energy, Process & Utilities; (cid:127) Financial & Business Services; and (cid:127) Natural Resources. The approximate breakdown of end-user software revenue by major industry was as follows for 2012: (cid:127) Transportation & Mobility: 29%; (cid:127) Industrial Equipment: 20%; (cid:127) Aerospace & Defense: 13%; (cid:127) Business Services (for the Company’s core industries): 13%; and (cid:127) Other industries: 25%. To deepen its penetration of each industry, the Company undertakes industry targeted initiatives which include the establishment of practice groups, the continuing development of industry-specific solutions, both through internal development and by acquisition, and increasing its expertise through partnerships with leading companies and system integrators and the addition of specialized direct sales and sales partners. DASSAULT SYST `EMES Annual Report 2012 21 Presentation of the Group 1 Through strategic alliances with leading IT system integrators, service providers and consulting firms with deep expertise in industry processes, the Company’s Industry Solution Partnerships provide innovative PLM solutions and services by industry or industrial segment to address clients’ business challenges. Based on their strong competence in industries and application domains as well as their regional expertise, in conjunction with Dassault Syst `emes’ products and solutions, these partners help to deliver innovative solutions that customers need for success in their business. See paragraph 1.2.2 ‘‘Investments’’. 1.4.2.3 Sales and Marketing The Company’s customer base is comprised of a wide range of companies, from start-ups, small and mid-sized companies to the largest companies in the world as well as educational institutions and government departments. To ensure sales and marketing coverage of all its customers, the Company has developed three sales and distribution channels, with sales teams combining individuals with deep knowledge of their respective industries with brand specialists. No single customer or sales channel partner represented more than 5% of the Company’s total revenue in 2012. (cid:127) Direct sales through the 3DS Business Transformation channel: sales to large companies and government entities are generally conducted through the Company’s direct sales channel, the 3DS Business Transformation channel. Direct sales represented 56% of total revenue during 2012 compared to 57% in 2011. The Company completed a major transformation of this sales channel, bringing sales to large customers entirely under its management, with the acquisition and integration of IBM PLM in 2010; (cid:127) Indirect sales through the 3DS Value Solutions channel: sales to small and mid-sized companies in the PLM market are generally conducted indirectly through the Company’s PLM Value Solutions channel, a global network of value-added resellers. This channel represented 24% of the Company’s total revenue in 2012 and 2011; (cid:127) Volume unit sales through the 3DS Professional channel: the 3DS Professional channel is an indirect, multi-product channel focused on the volume market. It is comprised of a network of value-added resellers and distributors worldwide providing sales, local training, services and support to customers. Sales through this channel represented 20% and 19% of the Company’s total revenue in 2012 and 2011, respectively, and were comprised of principally SOLIDWORKS products as well as other Dassault Syst `emes software applications. In addition to its sales channels, the Company is actively developing and expanding relationships with system integrators, including IBM Global Services and Capgemini. The Company has an active educational program with universities and schools around the world. The Company estimates that its SOLIDWORKS educational products are utilized at over 80% of the world’s top engineering schools. To date, at least an estimated 2.5 million students are utilizing SOLIDWORKS and in addition, about 1 million have been using its PLM software applications in educational institutions. 1.4.2.4 Competition The Company operates in a highly-competitive marketplace. As it continues to broaden its addressable market, by expanding its current product portfolio, diversifying its client base in new sectors of activity, and developing new applications and markets, the Company faces an increasing level of competition, from new competitors ranging from technology start-ups to the largest technology companies in the world, as well as from existing competitors. The Company’s competitors generally compete with it in specific areas of its portfolio, but due to the breadth of the Company’s activities, no single company competes with it across its entire scope. The Company’s competitors include Siemens PLM Software (a business unit of Siemens Industry Automation Division), PTC Inc. and Autodesk Inc. (principally in the SOLIDWORKS market), which generally compete with it on a worldwide basis. Competitors also include companies focusing on specific PLM domains, niche solutions or industries, including among others Oracle with its Agile product family, and SAP PLM in product data management and collaboration. In simulation, where the Company has the largest presence among global PLM software vendors, it competes with simulation specialists such as ANSYS Inc., Altair and MSC Software, among others. In the Company’s overall addressable market, additional software developers competing with the Company in specific applications or industries include, among others, Adobe, Autonomy (owned by Hewlett Packard), Aveva, Bentley, Intergraph (owned by Hexagon AB), Microsoft, Nemetschek AG, Right Hemisphere (owned by SAP), and other software companies in the mining sector, information intelligence and social enterprise innovation and collaboration. For additional information, see also paragraph 1.6.1.14 ‘‘Competition and Pricing Pressure’’. 22 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 1.4.3 Material Contracts Other than contracts entered into in the ordinary course of business, the Company’s material contracts are principally the distribution agreements with its value-added resellers, as described in paragraph 1.4.2.3 ‘‘Sales and Marketing’’, and the strategic partnership contracts described in paragraph 1.4.1.4 ‘‘Technology’’ (see ‘‘Cloud Initiatives’’ and ‘‘Technology and Software Partners’’). The Company entered into a loan facility in 2005 for a total amount of e200 million, which was fully repaid by the end of 2012. In addition, in April 2010, the Company contracted a term loan facility in Japan for JPY14,500 million (the equivalent of e115.0 million at the subscription date), with the last payment being due in June 2015. See paragraph 3.1.5 ‘‘Capital Resources’’ and Note 21 to the consolidated financial statements. The Company signed long-term leases (for 12 full, consecutive years) for its corporate headquarters in V´elizy-Villacoublay, France (the 3DS Paris Campus) in 2008 and for its offices, technology lab and data center in Waltham, outside Boston, United States (the 3DS Boston Campus) in 2010, as described in paragraph 1.6.2.3 ‘‘Liquidity Risk’’ and Note 25 to the consolidated financial statements. In February 2013, the Company entered into a built-to-suit lease agreement for a new building in its 3DS Paris Campus and extended the lease term for a further five years ending November 2025, as described in paragraph 1.6.2.3 ‘‘Liquidity Risk’’ and Note 25 to the consolidated financial statements. 1.5 Research and Development 1.5.1 Overview At December 31, 2012, the Company’s R&D teams included 4,421 engineers, compared to 4,215 engineers at year-end 2011, representing approximately 44% of the total Company headcount. During 2012 the Company increased its total R&D headcount by 5% (including 154 personnel joining the Company in conjunction with acquisitions completed during 2012), and by 8% in 2011. The Company has research facilities located primarily in France, the United States and India (including the 1,593 and 1,306 employees at 3DPLM Ltd at December 31, 2012 and 2011, respectively), as well as in Germany, South Korea, the United Kingdom, Sweden, Australia and Canada. R&D expenses totaled e368.1 million for 2012, compared to e329.3 million for 2011, increasing 11.8%, or 8% excluding net negative currency effects. R&D costs benefited from government grants and other governmental programs supporting R&D of e19.9 million in 2012 and e26.9 million in 2011. These government grants include research and development tax credits received in France. The Company’s R&D is conducted in close cooperation with users and customers in their respective industries to develop a deeper understanding of the unique business processes of these industries as well as the future product directions and requirements of its users and customers. 1.5.2 Intellectual Property The Company relies on a combination of IP rights mainly via copyrights, patents, trademarks and trade secret to establish and protect its technology. The Company distributes its software products under licenses that grant software utilization rights, and not ownership rights, to the Company’s customers. The contracts contain various provisions protecting the Company’s IP rights over its technology, as well as related confidentiality rights. The source code (set of instructions written by a programmer in an intelligible form for the latter) of its products is protected as a copyrighted work and as a trade secret. In addition, some of the key capabilities of its software products are protected through patents when possible. DASSAULT SYST `EMES Annual Report 2012 23 Presentation of the Group 1 However, no assurance can be given that others will not copy or otherwise obtain and/or use the Company’s products or technology without authorization. In addition, effective copyright, trade secret, trademark and patent protection or enforcement may be unavailable or limited in certain countries. The Company is nevertheless also engaged in an active policy against piracy and takes systematic measures to prevent the illegal use and distribution of its products, ranging from regularizing illegal use to initiating court actions. With regard to trademarks, the Company’s policy is to register trademarks for its principal products and services in the countries where it does business. Such registrations are a combination of international trademark, European Community trademarks and/or national registrations. In order to protect its technology and key product capabilities, the Company generally files patent applications in countries where many of its main customers and competitors are located. At year-end 2012, the Company’s portfolio comprised more than 224 protected inventions, with 40 new inventions in 2012. Patents have been granted in one or more countries for more than half the inventions, and patents for the others are pending. In addition, certain inventions are kept secret, proof of creation being preserved if necessary. The Company also applies a policy of crossed licenses for patents with major players in its environment. See paragraph 1.6.1 ‘‘Risks Related to the Company’s Business’’, and particularly paragraph 1.6.1.3 ‘‘Infringement of Third-Party Intellectual Property Rights and Licensing of Third-Party Technology’’ for risks concerning possible third-party allegations of unauthorized use of their IP, and paragraph 1.6.1.2 ‘‘Challenges to the Company’s Intellectual Property Rights’’ for the difficulties in ensuring adequate protection for the Company’s own IP. 1.6 Risk Factors 1.6.1 Risks Related to the Company’s Business 1.6.1.1 Uncertain Global Economic Environment In light of the continuing uncertainties regarding economic, business, social and geopolitical conditions at the global level, the Company’s revenue, net earnings and cash flows may grow more slowly, whether on an annual or quarterly basis, due to the following factors: (cid:127) the deployment of the Company’s solutions may represent a large portion of a customer’s investments in software technology. Decisions to make such an investment are impacted by the economic environments in which the customers operate. Uncertain global economic conditions and the lack of visibility or the lack of financial resources may cause some customers to reduce, postpone or terminate their investments in information technology, or to reduce or terminate ongoing paid maintenance for their installed base. Such situations may impact the Company’s revenues; (cid:127) the automotive and industrial equipment industries, which represent a significant share of the Company’s revenue, have been and will continue to be impacted by the current economic context; and (cid:127) the sales cycle of the Company’s products – already relatively long due to the strategic nature of such investments for customers – could further lengthen due to the uncertain global economic context. The Company’s current outlook for 2013 takes into consideration, among other things, an uncertain macroeconomic outlook, but if global economic and business conditions further deteriorate, the Company’s business results may not develop as currently anticipated and may decline below their earlier levels for an extended period of time. Furthermore, due to factors affecting sales of the Company’s products and services as described above, there may be a substantial time lag between an improvement in global economic and business conditions and an upswing in the Company’s business results. The current economic context may also adversely impact the financial situation or financing capabilities of the Company’s potential and existing customers, reseller network and technology partners, some of whom may be forced to cease operations due to cash flow and profitability issues. The Company’s ability to collect outstanding receivables may be affected. In addition, the uncertain economic environment could generate increased price pressure, as customers seek lower prices from various competitors, which could negatively impact the Company’s revenue, financial performance and market position. Price pressure may have particularly negative consequences in geographic markets subject to inflation. 24 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 Finally, given the increased stresses on public finances, an increase in tax pressure resulting from either the modification of current tax structures, the creation of new taxes or more aggressive positions taken by tax administrations could have a negative effect on the Company’s business results. To limit the impact of the economic environment on its business and financial results, the Company continues to further diversify its customer base through expanding its presence in new business sectors and new geographic markets, and it is also continuing to control costs throughout the Company. 1.6.1.2 Challenges to the Company’s Intellectual Property Rights The Company’s success is heavily dependent upon its proprietary software technology. The Company relies on a combination of copyright, patent, trademark, trade secret law and contractual restrictions to protect the proprietary aspects of its technology. These legal protections afford only limited protection. In addition, effective copyright, patent, trademark and trade secret protection may be unavailable or limited in certain countries where IP rights are less protected than in the United States or Western Europe. If, despite the Company’s strategies for protecting its IP, certain third-parties are able to develop similar technology, a reduction in the Company’s software revenues may result. Furthermore, although the Company enters into confidentiality and license agreements with its employees, distributors, customers and potential customers, and limits access to and carefully controls the distribution of its software, documentation and other proprietary information, the measures taken may not be adequate to deter misappropriation or prevent independent third-party development of the Company’s technology. In addition, like most of its competitors, the Company faces a significant level of piracy of its leading products, by both individuals and groups acting worldwide, which could potentially affect the Company’s growth in specific markets. Litigation may be necessary to enforce the Company’s IP rights and determine the validity and scope of the proprietary rights of third- parties. Any litigation could result in substantial costs and diversion of Company resources and could seriously harm the Company’s operating results. The Company may not prevail in any such litigation and its IP rights may be found invalid or unenforceable. In order to protect its IP, the Company regularly registers patents for its most advanced innovations and systematically registers copyrights. The Company continues to strengthen its anti-pirating strategy, which is proving effective. 1.6.1.3 Infringement of Third-Party Intellectual Property Rights and Licensing of Third-Party Technology Third-parties, including the Company’s competitors, may own or obtain copyrights, patents or other proprietary rights that could restrict the Company’s ability to further develop, use, or sell its own product portfolio. Dassault Syst `emes has received, and may in the future receive, letters of complaint alleging that its products infringe the patents and other IP rights of others. Such claims could cause the Company to incur substantial costs to defend itself in any litigation which may be brought, regardless of its merits. If the Company fails to prevail in IP litigation, it may be required to: (cid:127) cease making, licensing or using the products or services that incorporate the challenged IP; (cid:127) obtain and pay for licenses from the holder of the infringed IP right, which might not be available on acceptable terms for Dassault Syst `emes, if at all; or (cid:127) redesign its products, which could involve substantial costs and require the Company to interrupt product licensing and product releases, or which may not be feasible at all. In addition, the Company embeds in its products an increasing number of third-party components selected either by the Company itself or by companies which it acquires over time. Although Dassault Syst `emes has implemented strict approval processes to certify the originality of third-party components and verify any corresponding licensing terms, the same approval processes may not have been adopted by companies acquired by Dassault Syst `emes. As a result, the use of third-party embedded components in the Company’s products generates exposure to the risk that a third-party will claim that these components infringe their IP rights. Also, due to the use of third-party components, there is also a risk that such license(s) might expire or terminate without renewal, thereby affecting certain Company products. If any of the above situations were to occur for a significant product, it could have a material adverse impact on the Company’s financial condition and results of operations. The Company seeks to limit this risk through a process for certifying the origins of its products with respect to IP. DASSAULT SYST `EMES Annual Report 2012 25 Presentation of the Group 1 1.6.1.4 Product Errors, Defects and Installation Problems Sophisticated software often contains errors, defects or other performance problems when first introduced or when new versions or enhancements are released. If the Company is not able to correct in a timely manner errors or defects discovered in its current or future products or provide an adequate response to its customers, the Company may need to expend significant financial, technical and management resources, or divert some of its development resources, to resolve or work around those defects. The Company may also incur an increase in its service and warranty costs. Errors, defects or other performance problems in the Company’s products may also result in the loss of, or delay in, the market acceptance of its products or postponement of customer deployment. Such difficulties could also cause the Company to lose customers and, particularly in the case of its largest customers, the potentially substantial associated revenues which would have been generated by its sales to companies participating in the customer’s supply chain. Technical problems, or the loss of a customer with a particularly important global reputation, could also damage the Company’s own business reputation and cause the loss of new business opportunities. Finally, the Company could experience problems in installing complex solutions with certain customers as a result of the customer’s infrastructure and software environment. Because product errors, defects or installation problems could result in significant financial or other damage to its customers, such customers could pursue claims against the Company. A product liability claim brought against Dassault Syst `emes, even if not successful, would likely be time consuming for its management and costly to defend and could adversely affect the Company’s marketing efforts. To reduce the risk of product errors or defects, the Company carries out advanced testing of its new products, releases, and versions prior to market launch, sometimes with carefully selected customers and partners. The Company also works as closely as possible with its customers to ensure successful product installation. The Company also subscribes to an ‘‘Errors & Omissions’’ insurance policy covering possible defects in its products, although insurance carried by the Company may only partially offset the cost of correcting significant errors (see paragraph 1.6.3 ‘‘Insurance’’). 1.6.1.5 Security of Internal Systems and Facilities The Company’s R&D facilities are computer-based and rely entirely on the proper functioning of complex software and integrated hardware systems. However, it is not possible to guarantee the uninterrupted operation and complete security of these systems. For example, the invasion of the Company’s computer-based systems by either computer hackers or industrial pirates could interfere with their proper functioning and cause substantial damage, loss of data or delays in on-going R&D activities. Computer viruses, whether deliberately or unintentionally introduced, could also cause similar damage, loss or delays. The increasing use of mobile devices (cellular telephones and portable computers) linked to certain of the Company’s computer systems tends to increase the risk of unauthorized access as a result of their loss or theft. In addition, because the Company’s key facilities are located in a limited number of sites, including Japan and California, which may be exposed to earthquakes, substantial physical damage to any one of the Company sites, by natural causes or by attack or local violence, could materially reduce its ability to continue its normal business operations. If any of these circumstances were to arise, the resulting damage, loss or delays could have a material negative impact on the Company’s business, results of operations and financial condition. The Company therefore maintains an IT security framework, including intrusion protection, data storage back-up and restricted access to critical and sensitive information, and also subscribes to insurance policies covering these risks (see paragraph 1.6.3 ‘‘Insurance’’). 1.6.1.6 Currency Fluctuations The Company’s results of operations have been, and may in the future be, significantly affected by changes in exchange rates. Exchange rate fluctuations can impact revenues and expenses recorded in the Company’s statement of income upon translation of other currencies into euro. Although the Company currently benefits from a natural coverage of most of its exposure to U.S. dollars from an operating margin perspective, the loss of revenue if the dollar weakens may still negatively impact the Company’s operating income, net income and earnings per share. In addition, the Company’s revenues denominated in Japanese yen, Korean won and British pound substantially outweigh its expenditures in these currencies. As a result, the Company’s financial results are exposed to a potential depreciation in the value of these currencies relative to the euro, which could adversely affect the Company’s revenue, as well as its operating income, operating margin, net income and earnings per share. The Company’s net financial revenue can also be significantly affected by changes in exchange rates between the time the revenue is recognized and when cash payments are received, and between the time an expense is recorded and when it is paid. Any such differences are accounted for in the ‘‘exchange gain/loss’’ portion of the Company’s financial revenue. 26 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 To address the risks created by currency fluctuations, the Company carries out hedging operations on a case-by-case basis (see paragraph 1.6.2.2 ‘‘Foreign Currency Risk’’ and Note 20 to the consolidated financial statements). Since market growth rates for the Company’s software applications and the revenue growth rates of its significant competitors are computed in U.S. dollars, such growth rates from period to period may not be comparable to the Company’s euro-computed revenue growth rates for the same periods. Finally, in the current economic and political context of stress on sovereign debt and financial institutions, the quality of the Company’s counter-parties may be subject to downgrading. As a result, the Company continues to maintain a strengthened review of the quality of its investments and remains vigilant as to the liquidity of its assets (see paragraphs 1.6.2.3 ‘‘Liquidity Risk’’ and 1.6.2.4 ‘‘Credit or Counterparty Risk’’). 1.6.1.7 Difficulties in Relationships with Extended Enterprise Partners The Company’s 3DEXPERIENCE strategy requires a fully integrated platform with access to computer-aided design (‘‘CAD’’), simulation and manufacturing and data management products, which are increasingly complex and whose installation at the customer represents significant enterprise projects. To implement its 3DEXPERIENCE strategy, Dassault Syst `emes has developed an extended enterprise model and partners with other companies in areas such as: (cid:127) computer hardware and technology, to maximize benefits from available technology; (cid:127) product development, to enable software developers to create and market their own software applications using Dassault Syst `emes’ open product architecture; and (cid:127) consulting and services, to support and accompany customers as needed to deploy 3DEXPERIENCE solutions. The Company believes that its partnering strategy allows it to benefit from complementary resources and skills and to reduce costs while achieving broader market coverage. The Company’s broad partnering strategy nevertheless creates a degree of dependency on such partners. The Company’s ability to establish partner relationships for developing and installing its 3DEXPERIENCE Platform is an important element of its strategy. Serious difficulties in the Company’s relationships with its partners, or an unfavorable change of control of these partners, may adversely affect the Company’s product and business development, and could cause it to lose the contribution of the employees or contractors of the Company’s partners, particularly in the area of R&D. In addition, any failure by the Company’s partners to deliver products of quality or according to the expected timing may cause delays in the delivery of, or deficiencies in, the Company’s own products. Due to the rapid evolution of the software development and distribution sectors, it is difficult to ensure the long-term success of the relationship with any particular partner. However, whenever entering into a relationship with a new partner, the Company carefully considers the potential new partner’s technical and financial viability. 1.6.1.8 Development of a New Services Offering for ‘‘Cloud Computing’’ Dassault Syst `emes is developing and distributing a services offering for the online use of certain of its products (SaaS) based on a ‘‘cloud computing’’ infrastructure. As a result, Dassault Syst `emes will manage data hosting on behalf of its customers. The Company will thus be responsible for the solutions provided and will have increased responsibility toward its clients, particularly as concerns uninterrupted access to online service and confidentiality of hosted data. The progressive roll out of these services and their distribution also involves the deployment of new support and management processes (for example, processing orders and billing). The Company will also become exposed to a complex legal environment and could have increased risk regarding regulatory compliance in the countries where it has operations. In case of difficulties in providing its clients with online services under satisfactory conditions, the Company’s revenues, results of operations and competitive position, as well as the reputation of Dassault Syst `emes, could be negatively affected. The Company is seeking to minimize these risks by developing alliances with partners with recognized technical capabilities, and by simulating and controlling, to the extent possible, the technical, legal, and financial consequences of processes put in place to serve its customers. 1.6.1.9 Legal Proceedings As a result of its business activity, the Company is subject to a variety of claims and lawsuits. The Company’s risk of litigation and administrative proceedings increases as it expands its activities, enhances its position and visibility on the software market and develops new approaches to its business, particularly in connection with online activities. Litigation can be lengthy, expensive, and disruptive to the DASSAULT SYST `EMES Annual Report 2012 27 Presentation of the Group 1 management of Company operations. Results cannot be predicted with certainty, and adverse outcomes in some or all of the claims pending against the Company may result in significant monetary damages or injunctive relief against the Company that could adversely affect its ability to conduct business. While, based on current knowledge, management believes that resolving any outstanding matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial position or results of operations, litigation and other claims are by their nature subject to uncertainties. Actual outcomes of litigation and other claims may differ from management expectations, which could result in a material adverse impact on the Company’s financial position and results of operations. The Company’s legal department, assisted by technical experts, monitors on a regular basis all outstanding claims and litigations, some of which may be covered by insurance (see paragraph 1.6.3 ‘‘Insurance’’). 1.6.1.10 Complex Regulatory Environment Due to the global reach of the Company’s operations, the breadth of its business, the diversity of its customers (particularly individuals), and its listing on the Paris stock exchange, the Company is subject to complex and rapidly evolving laws, regulations and requirements. The complex laws and regulations to which the Company is subject apply to general business practices, competitive practices, handling of personal data, consumer protection, financial reporting standards, corporate governance, internal controls, local and international tax regulations and export compliance for high-tech products. The Company seeks to have fully compliant practices and requires its subsidiaries to respect the regulations of the countries where they have activities. The failure or suspected failure to comply with any of these regulations may result in increased regulatory scrutiny through inquiries or investigations, adverse media attention and fines and sanctions, as well as an increase to the Company’s litigation risk or limits on the Company’s business operations. A number of these adverse consequences could occur even if it is ultimately determined that there has been no failure to comply. There can be no assurance that additional regulation in any of the jurisdictions in which the Company currently operates, or may operate in the future, would not significantly increase the cost of regulatory compliance. Personnel within the financial and legal departments attend regular training to stay abreast of regulatory or related issues, and the Company consults outside experts to validate the compliance of some of its practices with existing rules and regulations. 1.6.1.11 International Operations In 2012, the Group’s acquisitions extended its geographic footprint by strengthening its position in countries where it previously had not been, or had only marginally been, present. As an increasingly global participant in the software industry, the Company’s business is exposed to certain risks inherent in international operations that are beyond its control. These risks include tariffs, duties, export controls and other trade barriers, unexpected changes in regulatory requirements and applicable laws, and political and economic instability in certain countries. Any of these factors could harm the Company’s operating results. There can be no assurance that the Company will not experience material adverse effects with respect to its international operations and sales. The Company seeks to ensure compliance with applicable regulations by employee training and regular audits of its subsidiaries around the world. 1.6.1.12 Rapidly Changing and Complex Technologies PLM solutions are characterized by the use of rapidly changing technologies and frequent new product introductions or enhancements. These solutions must address complex engineering needs in various areas of product design, simulation and manufacturing, and must also meet sophisticated process requirements in the areas of change management, industrial collaboration and cross-enterprise work. As a result, the Company’s success is highly dependent upon its ability to: (cid:127) understand its customers’ complex needs in different business sectors, and support them in reengineering key product lifecycle processes and managing the migration of substantial amounts of data; (cid:127) enhance its existing solutions by developing more advanced technologies; (cid:127) anticipate and take timely advantage of quickly evolving technologies; and (cid:127) introduce new solutions in a cost-competitive and timely manner. The Company also continues to face the challenge of the increasingly complex integration of its products’ different functionalities to address customers’ requirements. As a result, more difficult industrialization work is required for new releases and offerings, with limitations on the options for interfacing with third-party systems installed at the customer. In addition, if the Company is not successful in anticipating technological leaps and developing new solutions and services that address its customers’ increasingly sophisticated expectations, demand for its products could decline, and the Company’s results of operations and financial condition could be negatively affected. 28 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 To limit this risk and keep abreast or ahead of technological developments which may affect its products, the Company commits substantial resources to the development of new offerings. It maintains close and regular contacts with its key customers to identify and capture their emerging needs and to offer solutions better adapted to their needs. In addition, the Company provides training courses to its R&D teams on new technologies. Complementing its internal R&D, the Company seeks to maintain an active monitoring of third-party technologies that it might acquire to improve its technology offerings where appropriate. 1.6.1.13 Retention of Key Personnel and Executives The Company’s success depends to a significant extent upon the continued service of its key managers and highly qualified R&D, technical support, sales management and other personnel, and on its ability to continue to attract, retain and motivate qualified personnel. In particular, if the Company fails to hire on a timely basis and retain highly skilled sales forces, revenue may grow more slowly. The competition for such employees is intense, and if the Company loses the ability to hire and retain key employees and executives with a diversity and high level of skills in appropriate domains (such as R&D and sales), it could have a material adverse impact on its business activities and operating results. The Company does not maintain insurance with respect to the loss of key personnel. In order to limit this risk, the Company has put in place training, career development and long-term compensation incentives to attract and retain key personnel, and has also diversified its R&D resources in different regions of the world. The identification of key personnel also constitutes an important step in the process of integrating newly acquired companies into the Company. 1.6.1.14 Competition and Pricing Pressure In the past few years, there has been consolidation in the Company’s historical software markets, which may lead to the adoption by competitors of business models different from Dassault Syst `emes’ model and thus a substantial decline in pricing which could require the Company to adapt to a substantially different commercial environment. These competitive pricing pressures could cause competitive wins by competitors and could negatively impact the Company’s revenue, financial performance and market position. In addition, by regularly expanding its product portfolio, entering new geographic markets, diversifying its client base in new sectors of activity, and developing new applications for its products, the Company encounters new competitors. Such competitors could have, as a result of their size or prior presence in these markets, financial, human or technological resources not readily available to the Company. The Company’s ability to expand its competitive position may thus be reduced. In the event the Company has difficulties setting up the infrastructures needed to manage its businesses and the new competitive context, the revenues, results of operations, competitive position and reputation of Dassault Syst `emes could be negatively impacted. 1.6.1.15 Organizational and Management Challenges Arising from the Evolution of the Company Dassault Syst `emes has continued to expand through acquisitions and internal development, and has substantially increased its addressable market through launching 3DEXPERIENCE. The Company’s management policies and internal systems must be adapted on an on-going basis to meet the needs of a larger, more complex structure and implement the Company’s strategy to reach a broader market. The Company must also continue to reorganize itself to maintain efficiency, while ensuring customer retention and the integration of newly acquired companies. If the Company does not address these issues effectively and on a timely basis, the Company’s product development, internal processes, cost management and commercial operations could be impacted or fail to satisfy adequately market or customer demands, which could negatively impact its business and results of operations. In addition, in order to realize acquisitions or investments, the Company may use significant financial resources, make potentially dilutive issuances of equity securities or incur debt. The acquisitions may also cause the Company to incur amortization expenses related to intangible assets other than goodwill, or generate goodwill subject to annual (or more frequent, if necessary) impairment tests, which may trigger depreciation. Minority interests in unaffiliated partners or other investments may also have to be written down in the Company accounts as a result of impairment. Acquired companies may also carry the risk of unanticipated or contingent liabilities, including litigation risk related to prior events (for example, see above the risk of claims that embedded components violate third-party IP rights). Each of these potential consequences of an investment or acquisition could reduce the Company’s operating margin or net income. The Company seeks to adjust on a regular basis its organization and management model to support its current level of growth. During 2012, the Company completed strengthening its industry-based and marketing organization to better understand the needs of its customers, provide solutions adapted to these needs and more effectively demonstrate the value it brings. DASSAULT SYST `EMES Annual Report 2012 29 Presentation of the Group 1 1.6.1.16 Variability in Quarterly Operating Results The Company’s quarterly operating results have in the past varied significantly, and may vary significantly in the future, depending on factors such as: (cid:127) the timing and cyclical nature of revenues received due to the signing of important new customer orders, the completion of major service contracts or the completion of customer deployments; (cid:127) the timing of any significant acquisitions or divestitures; (cid:127) fluctuations in foreign currency exchange rates; (cid:127) the Company’s ability to develop, introduce and market new and enhanced versions of its products and customer order deferrals in anticipation of these new or enhanced products; (cid:127) the number, timing and significance of product enhancements or new products that the Company develops or that are released by its competitors; and (cid:127) general conditions in the Company’s software markets, the software industry generally and computer industries and regional economies. A substantial portion of the Company’s orders and shipments typically occurs in the last month of each quarter and therefore, if any delay occurs in the timing of the order, the Company may experience significant quarterly fluctuations in its results of operations. Additionally, as is typical in the software applications industry, the Company has historically experienced its highest licensing activity for the year during the last quarter of the year. Delays in orders and shipments can also affect the Company’s revenue and income. The trading price of the Dassault Syst `emes’ shares may be subject to wide fluctuations in response to quarterly variations in the Company’s operating results and the operating results of other software applications developers in the Company’s markets. 1.6.1.17 Technology Stock Volatility Under conditions of increased market uncertainty, the trading price of the Company’s shares could be volatile. The market for shares of technology companies has in the past been more volatile than the stock market overall. 1.6.1.18 Shareholder Base Groupe Industriel Marcel Dassault SAS (‘‘GIMD’’), which represents the interests of some of the Company’s founding shareholders, owned 41.48% of the Company’s outstanding shares, representing 51.85% of the voting rights, as of December 31, 2012. As more fully described in paragraph 6.3 ‘‘Information about the Shareholders’’, GIMD plays a decisive role with respect to matters submitted to shareholders, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of the Company’s assets. 1.6.2 Market Risks The Company’s overall risk management policy is based upon the prudent management of the Company’s market risks, primarily interest rate risk and foreign currency exchange risk. The Company’s programs with respect to the management of these risks, including the use of hedging instruments, are discussed in Note 20 to the consolidated financial statements. The Company’s exposure to these risks may change over time and there can be no assurance that the benefits of the Company’s risk management policies will exceed the related costs. Such changes could have a materially adverse impact on the Company’s financial results. 1.6.2.1 Interest Rate Risk The Company generates positive cash flows from operations and has some financial obligations (e.g., bank loans, loan facilities, employee profit-sharing), but the Company’s cash position net of debt is positive throughout the year. The Company’s cash surplus generally earns interest at fixed or floating market rates, while the Company’s debt carries interest at floating rates. Therefore, the Company’s interest rate risk is primarily related to a reduction of financial revenue. See Note 20 to the consolidated financial statements. 1.6.2.2 Foreign Currency Risk The Company’s results of operations can be affected significantly by exchange rate movements, and particularly the USD/euro and JPY/euro exchange rates. 30 DASSAULT SYST `EMES Annual Report 2012 Presentation of the Group 1 The Company bills its customers in major currencies, principally euros, U.S. dollars and Japanese yen. The Company also incurs expenses in different currencies, principally euros, U.S. dollars and Japanese yen, through the Company’s employees and suppliers in different countries. Finally, the Company engages in mergers and acquisitions outside the euro zone and may lend money in different currencies to its fully or partially owned subsidiaries or affiliates. As a result, the Company’s results of operations may be significantly affected by changes in exchange rates, particularly between the U.S. dollar or the Japanese yen and the euro. Currency fluctuations may impact financial income as well as revenue and expenses. The main items of financial income subject to fluctuations linked to exchange rates are: (cid:127) the difference between the exchange rate used to record invoices in foreign currencies and the exchange rate when the Company receives or makes the payment; and (cid:127) the revaluation of monetary assets and liabilities denominated in foreign currencies. See Note 20 to the consolidated financial statements. 1.6.2.3 Liquidity Risk The Company generates positive cash flow from operations. The Company has financial debt (such as bank loans, loan facilities and employee profit-sharing in earnings), but has a positive net financial position throughout the year. The Company thus has a low liquidity risk. As of December 31, 2012, the Company’s cash, cash equivalents and short-term investments totaled e1.32 billion. See Note 12 to the consolidated financial statements. The Company has analyzed the amounts it will be required to pay under its contractual commitments at December 31, 2012. The Company believes that it will be able to meet such obligations. The following table summarizes the Company’s principal contractual obligations to make future payments as of December 31, 2012. Contractual obligations (in thousands) Operating lease obligations(1) Loan facilities(2) Employee profit-sharing Total (cid:1) Payments due by period (cid:2) Total e357,723 64,654 61,047 g483,424 Less than 1 year e51,673 25,992 55,313 g132,978 1-3 years 3-5 years e91,041 38,662 5,734 g135,437 e83,368 – – g83,368 More than 5 years e131,641 – – g131,641 (1) Including e150.7 million of future minimum rental payments for the Company’s headquarters facilities located in V´elizy-Villacoublay, France and e100 million of future minimum rental payments for the American subsidiaries’ facilities located in Waltham near Boston, United States (see Note 25 to the consolidated financial statements). (2) Including interest at Libor JPY plus 0.6% at December 31, 2012, or 0.73% per annum (see Note 21 to the consolidated financial statements). In February 2013, the Company entered into a built-to-suit lease agreement for a new building in its 3DS Paris Campus and extended the lease term for a further five years ending November 2025. Future minimum rental payments over the extended term amount to approximately e138 million in the aggregate and have not been included in the table presented above. 1.6.2.4 Credit or Counterparty Risk The financial instruments which could expose the Company to credit risk include principally its cash equivalents, short-term investments and customer receivables. The hedging agreements entered into with financial institutions pursuant to its policy for managing currency and interest rate risks also expose the Company to credit and counterparty risk. See Notes 12, 13 and 20 to the consolidated financial statements. 1.6.2.5 Equity Risk For cash management purposes, the Company does not directly invest in listed shares, or any material amounts in funds invested primarily in or indexed to stocks. The Company’s financial results are therefore not significantly and directly linked to stock market variations. DASSAULT SYST `EMES Annual Report 2012 31 Presentation of the Group 1 1.6.3 Insurance The Company is insured by several insurance companies for all significant risks. Most of these risks are covered either by insurance policies written in France, or by a North American policy that covers all the Company’s North American subsidiaries and their own subsidiaries and branches around the world. In addition, the Company subscribes to specific coverage and/or local policies to comply with applicable local regulations or to meet the specific needs of certain activities or projects. The insurance policies are reviewed regularly and may be modified to reflect changes in the revenue, activities and risks of the different companies within the Company. In addition, the Company has put in place internal preventative measures to continue operations and limit the impact of a significant loss in the event of major damage. As a result, several secured computer systems protect source codes and all electronic data stored on the servers, work stations and laptop computers used in the different entities of the Company. The computer protection systems are maintained in different sites. All Dassault Syst `emes companies are protected by an ‘‘Errors and Omissions’’ policy covering professional civil and product liability for a total insured amount of e20 million for 2012. A policy also covers the operating liability of Dassault Syst `emes SA and its French and foreign subsidiaries (other than those covered by the North American program) for a total insured amount of e20 million for 2012. The policy ceilings were raised to e30 million for 2013. In 2012, the Company renewed its policy covering risks related to directors and officers liability for Dassault Syst `emes SA and its subsidiaries, and subscribed an additional insurance policy providing the same coverage, increasing the total insured amount to e40 million. The Company also carries insurance to cover computer risks in an amount equal to the value of its computer equipment and coverage for damage to goods. Based on the legal requirements applicable in each country, the Company’s North American companies and most of their subsidiaries have specific insurance. This insurance includes in particular coverage for damage to goods, computer risks, loss of business and operational civil liability, and professional liability. In connection with this insurance, the Company also has coverage for work-related accidents and automobile accidents. As a complement to the different insurance policies covering the North American companies and their subsidiaries, Dassault Syst `emes carries an umbrella policy for a maximum amount of $10 million. Dassault Syst `emes has not established captive insurance coverage. 32 DASSAULT SYST `EMES Annual Report 2012 CHAPTER 2 – SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY 2.1 Social and Societal Responsibility 2.1.1 Dassault Syst `emes and its Employees At the beginning of 2012, Dassault Syst `emes announced its ambition to ‘‘provide business and people with 3DEXPERIENCE universes to imagine sustainable innovations capable of harmonizing product, nature and life’’. This ambition could not be pursued without the women and men of Dassault Syst `emes, its most valuable asset. They represent the culture and values of the Company and ensure its development. Technological innovation In order to respond to the challenges related to the growing scope of the market served by the Group and the development of innovative technology for harmonizing product, nature and life, Dassault Syst `emes recruits employees with very diverse expertise, and seeks to retain them with an environment that encourages their professional and personal development. The Gemcom and Netvibes acquisitions completed by Dassault Syst `emes in 2012 pursue this goal, providing the Group’s employees with new opportunities to develop their skills respectively in the Natural Resources sector, and in support to decision-making (see paragraph 1.2.2 ‘‘Investments’’). Social innovation Social innovation is, and will remain, at the heart of the Company’s development process. Dassault Syst `emes uses its products and solutions not only to bring value to its customers, but also to transform its own internal operations. In this context, the 3DSWYM application, which has replaced the Group’s intranet, strengthens the community spirit within Dassault Syst `emes and encourages social innovation. In 2012, this application has become a key element of major enterprise processes such as the management of R&D operations, and the identification and acquisition of new skills. This application promotes a new business model organized as networks, radically changing collaboration, innovation and learning, continuously enhancing the skills and contributions of each participant. In this context, all Dassault Syst `emes employees and partners become actors of a sustainable social innovation process. 2.1.2 Methodology for Employee Reporting Scope In general, employee reporting covers all Dassault Syst `emes companies, including employees of companies or businesses acquired during the year. Nevertheless, as indicated below, the scope covered for certain indicators may be more limited. Key employee indicators For the purposes of this social report, the Company has selected key indicators which are set forth beginning in paragraph 2.1.3 ‘‘Employees’’. They were selected according to the indicators of Articles R225-105-1 of the French Commercial Code and specific indicators based on the Group’s human resources policy. As part of them, Dassault Syst `emes has defined the following concepts: (cid:127) ‘‘Employee Headcount’’, which means employees of Dassault Syst `emes SA and subsidiaries in which it has at least 50% control; and (cid:127) ‘‘Total Workforce’’ which includes the Employee Headcount, employees of companies in which it has less than 50% control and outside service providers who have worked more than a full month at period end. At December 31, 2012, employees of companies in which the Group has less than 50% control include the employees of 3DPLM Ltd. DASSAULT SYST `EMES Annual Report 2012 33 Social, societal and environmental responsibility 2 Data related to employees is calculated on the basis of ‘‘Full-Time Equivalents’’, which corresponds to the proportion of ‘‘hours worked per standard full-time work hours’’ and which was jointly defined and shared by both Human Resources and Finance teams. Data related to employee arrivals and departures are denominated in number of work agreements. To make the reporting process more reliable, an internal methodological guide including definitions and rules for calculating each indicator is updated each year. Data reliability checks are carried out at the time of accounting consolidation as well as throughout the year in connection with analyzing changes from the preceding periods. Limits of the social report The Company operates in numerous countries with local regulations and practices which are not always harmonized or consolidated. For example, since notions generally adopted in France to define socio-professional categories (‘‘Non-Cadres’’ and ‘‘Cadres’’, which close to the concepts of the ‘‘Non-Exempt’’ and ‘‘Exempt’’ categories) are not used outside France, and more than two thirds of Dassault Syst `emes employees work outside France, the Company has used the following two categories: ‘‘Managers’’, who are responsible for a team, and ‘‘Non-Managers’’, who do not manage a team and are specialized in certain subjects. For the same reasons of local differences, the Company is not able to provide consolidated data for overtime, the degree of seriousness of work accidents and professional illnesses. Gathering and consolidating employee data Data for the social report are taken from human resources and financial management software, both of which are deployed among all the companies in the reporting perimeter. In addition, interviews are also held with the human resources managers of Dassault Syst `emes’ main companies with more than 150 employees, namely in France, the United States, Canada, Germany, the United Kingdom, Japan, South Korea, China and India, which represented 91% of the Employee Headcount in 2012, to extend the social reporting information to aspects related principally to the main policies regarding human relations, health and safety, to initiatives regarding discrimination, training and absenteeism. 2.1.3 Employees Overview of Total Workforce As of December 31, 2012, Total Workforce was 10,122, up 6.0% compared to December 31, 2011. The number of employees over the last three years is set forth below. At December 31 2012 2011 2010 Overview of Employee Headcount Growth of the Company Employees Service Providers 3DPLM Ltd Total Employees 8,101 7,660 7,507 428 395 449 1,593 1,497 1,079 10,122 9,552 9,035 Percent change 6.0% 5.7% 15.3% As of December 31, 2012, Employee Headcount was 8,101 employees, located in 37 countries and representing 105 nationalities, up 5.8% from December 31, 2011. This increase was principally due to the acquisitions made in 2012 (see paragraph 1.2.2 ‘‘Investments’’). Net growth in Employee Headcount, without taking into account the sale of Transcat PLM GmbH (see paragraph 3.1.1.1 ‘‘Executive Overview for 2012’’), was 8.5%. Distribution by geographic region At December 31 2012 2011 34 DASSAULT SYST `EMES Annual Report 2012 (cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees % Employees % Employees % Employees % 4,073 4,020 50% 52% 2,868 2,734 35% 36% 1,160 906 15% 12% 8,101 100% 7,660 100% Social, societal and environmental responsibility 2 With respect to their geographic location, the distribution among the three geographic regions above remained relatively stable between 2011 and 2012. The slight increase in Asia was due in part to the acquisition of Gemcom, which has a relatively significant proportion of its employees in Asia. Distribution by activity (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 R&D and maintenance Sales, marketing and services Administration and other Employees 2011 2,558 3,950 1,152 % 33% 52% 15% Employees 2012 1,541 1,933 599 % 38% 47% 15% Employees 2012 924 1,473 471 % 32% 51% 17% Employees 2012 148 858 154 % 13% 74% 13% Employees 2012 2,613 4,264 1,224 % 32% 53% 15% Total 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% The distribution of employees by activity remained stable between 2011 and 2012. Distribution by type of work agreement (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Open-term work agreement Fixed-term work agreement Employees 2011 7,571 89 % 99% 1% Employees 2012 3,991 82 % 98% 2% Employees 2012 Employees 2012 % 2,857 100% 11 0% 1,154 6 % 99% 1% Employees 2012 8,002 99 % 99% 1% Total 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% The distribution of types of work agreement was the same as in 2011: 99% of the Employee Headcount worked under open-term work agreements in 2012. Distribution by type of position (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Managers Non-Managers Total Employees 2011 1,646 6,014 % 21% 79% Employees 2012 868 3,205 % 21% 79% Employees 2012 599 2,269 % 21% 79% Employees 2012 260 900 % 22% 78% Employees 2012 1,727 6,374 % 21% 79% 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% In 2012, managers represented 21% of Dassault Syst `emes’ employees, as in 2011. Distribution by age At December 31 < 30 years old 31 to 40 years old 41 to 50 years old >51 years old Total (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) America (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees 2011 1,243 2,598 2,440 1,379 % 16% 34% 32% 18% Employees 2012 844 1,296 1,278 655 % 21% 32% 31% 16% Employees 2012 344 844 919 761 % 13% 29% 32% 26% Employees 2012 169 510 380 101 % 14% 44% 33% 9% Employees 2012 1,357 2,650 2,577 1,517 % 17% 33% 32% 18% 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% The distribution of the Company’s employees by age remained stable between 2011 and 2012. DASSAULT SYST `EMES Annual Report 2012 35 Social, societal and environmental responsibility 2 Distribution by years of tenure (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Fixed-term work agreements Less than 5 years 6 to 15 years More than 16 years Total Employees 2011 89 3,691 2,799 1,081 % 1% 48% 37% 14% Employees 2012 82 1,821 1,396 774 % 2% 45% 34% 19% Employees 2012 11 1,304 1,185 368 % 1% 45% 41% 13% Employees 2012 6 757 325 72 % 1% 65% 28% 6% Employees 2012 99 3,882 2,906 1,214 % 1% 48% 36% 15% 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% The distribution of employees by years of tenure remained stable between 2011 and 2012. Distribution by gender At December 31 Women Men Total (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees 2011 1,697 5,963 % 22% 78% Employees 2012 922 3,151 % 23% 77% Employees 2012 699 2,169 % 24% 76% Employees 2012 241 919 % 21% 79% Employees 2012 1,862 6,239 % 23% 77% 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% The relatively low proportion of women in the Company is due to the historically low number of women in engineering schools, which is one of Dassault Syst `emes’ principal sources of recruitment. The slight increase in the proportion of women (23% in 2012 compared to 22% in 2011) reflected the acquisition of Gemcom, whose employees were made up 35% by women and 65% by men. The distribution by socio-professional category between men and women is set forth below. At December 31 Women Managers Non-Managers Total Women Men Managers Non-Managers Total Men Total (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees 2011 Employees 2012 % Employees 2012 % Employees 2012 % Employees 2012 % % 298 1,399 18% 82% 1,697 100% 128 794 922 14% 86% 100% 140 559 699 20% 80% 100% 1,348 4,615 23% 77% 740 2,411 23% 77% 459 1,710 21% 79% 5,963 100% 3,151 100% 2,169 100% 37 204 241 223 696 919 15% 85% 100% 24% 76% 100% 305 1,557 16% 84% 1,862 100% 1,422 4,817 23% 77% 6,239 100% 7,660 4,073 2,868 1,160 8,101 As of December 31, 2012, 16% of women employees of Dassault Syst `emes and 23% of men are managers, compared to 18% and 23% respectively in 2011. The decrease in the percentage of women was due to the acquisition of Gemcom, where the percentage of women managers is 5%. See also paragraph 2.1.8 ‘‘Business Ethics and Professional Equality – Professional equality between men and women’’. Employee arrivals and departures Data concerning new hires and departures are expressed in terms of the number of work agreements. 36 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 New hires (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Open-term work agreement Fixed-term work agreement Employees 2011 967 159 % 86% 14% Total 1,126 100% 478 146 624 77% 23% 100% Employees 2012 Employees 2012 % % 96% 4% Employees 2012 374 8 % 98% 2% Employees 2012 1,305 175 % 88% 12% 453 21 474 100% 382 100% 1,480 100% Dassault Syst `emes did not experience any particular difficulties in recruiting employees, and hired 1,480 persons in 2012 compared to 1,126 in 2011, reflecting principally the acquisitions of Gemcom and Netvibes. Out of these 1,480 employees, 624 were located in Europe, 474 in the Americas and 382 in Asia. 88% of the work agreements signed in 2012 were for an open-term. Manager positions represented 9% of the new hires in 2012, compared to 5% in 2011, as a result of the acquisitions of Gemcom and Netvibes with their managers. In addition, 33% of the new hires in 2012 were women, an increase of four percentage points compared to 2011, again reflecting the proportion of women among the employees at Gemcom (35%). (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Women Men Total Employees 2011 332 794 % 29% 71% 1,126 100% Employees 2012 Employees 2012 % Employees 2012 % Employees 2012 % 223 401 624 36% 64% 100% 155 319 474 33% 67% 100% 106 276 382 28% 72% 100% % 33% 67% 484 996 1,480 100% Finally, the age distribution of new hires in 2012 remained relatively stable. (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees 2011 516 336 198 76 % 46% 30% 18% 6% Employees 2012 342 135 113 34 % 54% 22% 18% 6% Employees 2012 160 142 106 66 % 34% 30% 22% 14% Employees 2012 109 168 86 19 % 28% 44% 23% 5% Employees 2012 611 445 305 119 % 42% 30% 20% 8% 1,126 100% 624 100% 474 100% 382 100% 1,480 100% At December 31 < 30 years old 31 to 40 years old 41 to 50 years old > 51 years old Total Employee departures In 2012, 952 employees left the Company: 522 in Europe, 328 in the Americas and 102 in Asia, including 211 employees of Transcat PLM GmbH in Europe, which was sold. (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Open-term work agreement Fixed-term work agreement Total Employees 2011 797 91 % 90% 10% 888 100% 411 111 522 79% 21% 100% Employees 2012 Employees 2012 % % 96% 4% Employees 2012 99 3 % 97% 3% 314 14 328 100% 102 100% Employees 2012 824 128 952 % 87% 13% 100% The average rate of employee turnover on a global basis amounted to 9.8% for the year, compared to 9.9% in 2011 (not taking into account the sale of Transcat PLM GmbH in Germany). Excluding fixed-term work agreements, the turnover rate amounted to 8.2%. DASSAULT SYST `EMES Annual Report 2012 37 Social, societal and environmental responsibility 2 21% of employee departures were initiated by the Company in 2012 (compared to 29% in 2011): (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) At December 31 Employees 2011 Employees 2012 % Employees 2012 % Employees 2012 % Employees 2012 % % Employee departures initiated by the Company 254 29% 69 13% 103 31% 26 25% 198 21% External workforce and subcontractors Dassault Syst `emes regularly uses outside service providers when it needs to mobilize new resources with specific knowledge on projects for limited time periods. Payments made in 2012 to outside service providers amounted to e67.6 million (compared to e70.5 million in 2011), an amount which is not material when compared to the Company’s revenue of e2.03 billion in 2012. The Company’s policy is to seek to establish business relations only with subcontractors who respect the terms of the basic conventions of the International Labor Organization relating to the eradication of forced labor, the equality of pay between men and women, the absence of discrimination (in hiring and professional development), the elimination of child labor, and freedom and protection for labor unions. In addition, Dassault Syst `emes companies take actions to ensure that sub-contractors consider their social responsibilities. The standard contracts of the Group’s largest companies by number of employees (Dassault Syst `emes SA and Dassault Systemes Americas Corp. represent 38% of all Employee Headcount) include in their general conditions a clause regarding respect for employees’ rights. As for Dassault Syst `emes SA, the general conditions for service providers request that the service providers follow the principles of enterprise social responsibility with which Dassault Syst `emes complies. These general conditions also refer to the website (http:// www.3ds.com/company/corporate-social-responsibility/) dedicated to social responsibility and encourage service providers to follow Dassault Syst `emes’ example and respect the environment. At December 31, 2012, 428 outside service providers (in full-time equivalents) worked for the Company. At December 31 2012 2011 (cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees % Employees % Employees % Employees % 191 136 45% 35% 178 203 41% 51% 59 56 14% 14% 428 395 100% 100% 38 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 2.1.4 Organization Full-time and part-time 98% of the employees work on a full-time basis. 7% of the women employees and 1% of the men employees work on a part-time basis, comparable to 2011. (cid:1) Total (cid:2)(cid:1) Europe (cid:2)(cid:1) Americas (cid:2)(cid:1) Asia (cid:2)(cid:1) Total (cid:2) Employees 2011 Employees 2012 % Employees 2012 % Employees 2012 % Employees 2012 % % Full-time/part-time 7,500 160 98% 2% 3,924 149 96% 4% 2,850 18 99% 1% 1,155 100% 5 0% 7,929 172 98% 2% 7,660 100% 4,073 100% 2,868 100% 1,160 100% 8,101 100% Full-time/part-time by gender 1,575 122 93% 7% 1,697 100% 810 112 922 88% 12% 100% 683 16 98% 2% 238 3 99% 1% 1,731 131 93% 7% 699 100% 241 100% 1,862 100% 5,925 38 99% 1% 3,114 37 99% 1% 2,167 100% 917 100% 2 0% 2 0% 6,198 41 99% 1% 5,963 100% 3,151 100% 2,169 100% 919 100% 6,239 100% 7,660 4,073 2,868 1,160 8,101 Full-time Part-time Total Women Full-time Part-time Total Women Men Full-time Part-time Total Men Total Work time In each country where Dassault Syst `emes has operations, the length of the workweek is determined according to local regulations in effect. It is generally set at 40 hours. This is the case in Japan, China, India, the United States, Canada, the United Kingdom and Germany. In France, work time is determined according to whether an employee is subject to the system of annual working days (‘‘forfait jours’’) or the hourly system (‘‘mode horaire’’). Employees subject to the system of annual working days work a predefined number of days per calendar year and other employees work a certain number of hours as defined by local labor agreements. (cid:127) At Dassault Syst `emes SA, employees subject to the system of annual working days work 216 days per year, plus one day per year of ‘‘solidarity’’. For employees not working under the annual working days system, the work week is set at 37.8 hours and takes into account ‘‘days of reduced work time’’ (‘‘JRTTs’’). For Non-Cadres, the full-time workweek is set at 35 hours, taking into account JRTTs; (cid:127) At Dassault Data Services SAS, employees work a 37-hour week over five days (with 5 weeks of paid vacation plus 12 days of JRTTs), and employees working under the annual working days system work 216 theoretical work days per year (taking into account JRTTs, including the one day per year of ‘‘solidarity’’); (cid:127) At Dassault Syst `emes Provence SAS, full-time employees subject to the system of annual working days work 210 days a year plus one day of ‘‘solidarity’’; full-time employees not subject to the system of annual working days may choose one of the following systems: 39 hours per week for employees under the ‘‘1,670 hour’’ system (this includes 15 days of JRTTs), or 37.5 hours per week for employees under the ‘‘1,589 hour’’ system (this includes 13 days of JRTTs). For Non-Cadres, the workweek is set at 35 hours after taking into account time off for JRTTs; (cid:127) At SolidWorks Europe SARL, full-time employees subject to the system of annual working days work 217 days per year (taking into account JRTTs), full-time employees subject to an hourly basis work 1,600 hours per year, and Non-Cadres work 35 hours per week; (cid:127) At Exalead SA, full-time employees work on the basis of an average of 151.6 hours per month and have 10 days of JRTTs; (cid:127) At Netvibes, full-time employees working on an hourly basis work 35 hours per week. Absenteeism Absenteeism is tracked locally in accordance with regulations applicable in the countries where Dassault Syst `emes has operations. The Company does not have a harmonized system for managing absenteeism throughout its subsidiaries. DASSAULT SYST `EMES Annual Report 2012 39 Social, societal and environmental responsibility 2 The data presented below cover the Group’s French companies (Dassault Syst `emes SA, Dassault Syst `emes Provence SAS, Dassault Data Service SAS, SolidWorks Europe SARL and Exalead SA), which represent approximately one-third of the Company’s employees: (cid:127) In 2012, the reasons for absence other than paid time off are: illness: 11,514 days; maternity and paternity leave: 4,920 days; work and travel accidents: 172 days. The resulting absenteeism rate is 2.8%, a slight increase from 2011 (2.2%). The number of work and travel accident days decreased from 352 days in 2011 to 172 days in 2012; (cid:127) The total number of authorized absences (such as parental leave and leave for family events excluding paid leave) was 3,019 days, or 0.5% of the number of days theoretically worked. 2.1.5 Compensation Salaries and social charges Total salaries Total gross salaries paid by the Company (including for employees of 3DPLM Ltd) amounted to e669.7 million in 2012, compared to e600.6 million in 2011, an increase of 11.5% for the year principally driven by growth in total headcount. The salary policy at Dassault Syst `emes seeks to ensure that each employee receives compensation consistent with market practices in the advanced technology industry in each country where the Company has operations; and differentiated according to the individual performance of each employee as evaluated by his direct manager during an annual interview reviewing performance and goals. Increases take place for the entire Company in April each year. All the employees who were with the Company on October 1 of the preceding year are eligible for an annual salary increase. In 2012, the average increases granted by Dassault Syst `emes varied according to expected inflation in each country where the Company has activities. Social charges Social charges for the Company amounted to e197.2 million in 2012 compared to e167.3 million in 2011. This increase was principally driven by growth in total headcount and by an increase in the rate of social charges in France. Profit-sharing (pursuant to Titles I and II of Book III of the Labor Code) Employee profit-sharing (‘‘l’int ´eressement’’) and regulatory profit-sharing (‘‘la participation’’) are two methods of employee savings established by law in France. Employee profit-sharing is optional, while regulatory profit-sharing is required for all companies with more than 50 employees. In 2008, Dassault Syst `emes SA signed with labor unions an employee profit-sharing agreement and a regulatory profit-sharing agreement that is more favorable than what is imposed by the law. These two agreements covered 2008, 2009 and 2010. In 2011, Dassault Syst `emes SA renegotiated its agreements with labor unions for employee profit-sharing and regulatory profit-sharing for a period of three years, covering 2011, 2012 and 2013. Employee profit-sharing for the year 2011, which was paid in 2012 at Dassault Syst `emes SA, amounted to e13.8 million (e10.5 million in 2011). The total amount of the contribution by Dassault Syst `emes SA for regulatory profit-sharing for the year 2011, which was paid in 2012, was e13.3 million (e10.9 million in 2011). The results of operations recorded by Dassault Syst `emes SA for the year 2012, and which will be submitted for approval at the General Meeting of Shareholders on May 30, 2013, should permit the distribution of employee profit-sharing of e16,786,107 and of regulatory profit- sharing of e13,291,056. 40 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 The table below sets forth the amounts of employee profit-sharing and regulatory profit-sharing at Dassault Syst `emes SA over the past three years. (cid:1) 2012 (cid:2)(cid:1) 2011 (cid:2)(cid:1) 2010 (cid:2) (in thousands of euros) Employee profit-sharing (Int ´eressement) Regulatory profit-sharing (Participation) Total Amount 16,786 13,291 30,077 % of total remuneration 12% 9% 21% Amount 13,783 13,348 27,131 % of total remuneration 11% 11% 22% Amount 10,503 10,929 21,432 % of total remuneration 9% 10% 19% The amounts attributed individually to employee beneficiaries are, depending on the choice made by the employee, either directly received, contributed to one of the Company’s savings or group retirement plans, or deposited (only possible for regulatory profit-sharing) in a blocked bank account bearing interest at 110% of the average interest rate on private bonds (Taux de rendement Moyen des Obligations Priv´ees). At Dassault Data Services SAS, employee profit-sharing paid in 2012 with respect to the year 2011 represented 2.1% of total gross remuneration; regulatory profit-sharing amounting to 5.9% of total gross remuneration relating to 2011 was paid in 2012. At Dassault Syst `emes Provence SAS, employee profit-sharing for the year 2011 paid in 2012 amounted to 6.7% of total gross remuneration; regulatory profit-sharing for the year 2011 paid in 2012 amounted to 19.9% of total gross remuneration. At SolidWorks Europe SARL, employee profit-sharing for the year 2011 paid in 2012 represented 7.2% of total gross remuneration. There is no regulatory profit-sharing at SolidWorks Europe SARL. At Exalead SA, a specific profit-sharing agreement was signed in 2011. 2.1.6 Labor Relations Social dialogue and collective agreements The quality of the social dialogue is based on the numerous exchanges between the Company’s management and the employees and employee representatives. Europe In France: In 2012, one meeting was held with the Group Council (le Comit ´e de Groupe). Numerous meetings were organized by French companies of the Group. Collective agreements, concerning one or several subjects in connection with working and employment conditions, were negotiated and signed: Dassault Syst `emes SA Dassault Data Services SAS Dassault Syst `emes Provence SAS Exalead SA(1) SolidWorks Europe SARL Netvibes(2) Number of collective agreements in effect at December 31, 2012 Number of collective agreements signed during 2012 39 5(3) 28 4(4) 9 3(5) 2 0 3 2(6) 0 0 (1) (2) (3) (4) (5) (6) At Exalead SA, employees are represented by a DUP (D ´el ´egation Unique du Personnel) consisting of five principal and five alternate elected representatives (elected in March 2012) in the Cadres group, and a Health, Safety and Working Conditions Committee consisting of three representatives of the Cadres group. At Netvibes, employees are represented by two delegates. These agreements concern in particular services related to the relocation of DELMIA’s R&D activities from Grenoble to Aix-en-Provence, the statutory annual salary negotiation, professional equality between men and women (see paragraph 2.1.8 ‘‘Business Ethics and Professional Equality’’), services related to moving from the site at Nancy (France), and employment of handicapped persons at Dassault Syst `emes SA. These agreements concern, among other matters, the statutory annual salary negotiation, professional equality between men and women (see paragraph 2.1.8 ‘‘Business Ethics and Professional Equality’’), profit-sharing and services related to moving from the site at Nancy (France). These agreements concern periods for holidays, the preelectoral agreement, and Amendment No. 1 to the profit-sharing agreement. Two amendments to the agreement regarding employee profit-sharing were signed with SolidWorks Europe SARL. DASSAULT SYST `EMES Annual Report 2012 41 Social, societal and environmental responsibility 2 In 2012, the following meetings were held: (cid:127) At Dassault Syst `emes SA, 22 meetings with the Workers’ Council, 12 with labor delegates and 28 with all the representative labor unions; (cid:127) At Dassault Data Services SAS, 16 meetings with the Workers’ Council, 12 with labor delegates, and 26 with labor union delegates; (cid:127) At Dassault Syst `emes Provence SAS, 12 meetings with the Workers’ Council, 12 with labor delegates, and 27 with all the representative labor unions; (cid:127) At SolidWorks Europe SARL, one monthly meeting was held with the employee representative; (cid:127) At Exalead SA, 12 meetings with the Workers’ Council and 12 with labor union delegates. In Germany, collective agreements are negotiated and signed with the Group Council and the Workers’ Council of each Company site (Stuttgart, Hanover and Aix-la-Chapelle). At December 31, 2012, there were seven agreements in effect at Stuttgart, 26 at Hanover, and seven with the Group Council. There is no specific agreement at Aix-la-Chapelle, which follows the agreements signed with the Group Council. In 2012, Dassault Syst `emes Deutschland GmbH signed five agreements at the level of the Group Council of which three concern employee salaries, one is related to human resources management, and one to the ‘‘Great Place To Work’’ annual survey; two agreements were signed in Stuttgart regarding salaries; and one agreement was signed in Hanover for human resources management. In the United Kingdom, there are no employee representatives or unions at Dassault Syst `emes. Americas In the United States and Canada, there are no employee representatives or unions at Dassault Syst `emes. Asia In South Korea, an employee representative is elected every year and participates in the organization of social activities. In Japan, China and India, there are no employee representatives or unions at Dassault Syst `emes. Health and safety The Company ensures that each of its employees has medical coverage in compliance with the practices in the countries where it has activities. In addition, in certain countries, employee representatives are responsible for communicating with the management of the relevant business units on employee health and safety. France Four Dassault Syst `emes companies in France have Health, Safety and Working Conditions Committees (‘‘CHSCT’’). In 2012: (cid:127) The CHSCT of Dassault Syst `emes SA met 10 times. An agreement to prevent psychosocial risks was signed on June 11, 2010, for three years. A working group on the prevention of such risks was created and met 10 times since its creation and once in 2012. Several actions have already been taken under this agreement: adding a section on psychosocial risks to the medical questionnaire, initiating certain projects for Communaut ´e DStress, and hiring an independent advisor to study the improvement of organization at work as regards psychosocial risks, the results of which were provided on June 25, 2012, to the Workers’ council, the CHSCT and the equal-opportunity working group; (cid:127) The CHSCT of Dassault Data Services SAS met five times; (cid:127) The CHSCT of Dassault Syst `emes Provence SAS met four times; (cid:127) The CHSCT of Exalead SA was appointed in November 2012 and held its first meeting on December 11, 2012. All employees in France have regular medical check-ups and benefit from supplementary health coverage. On the 3DS Paris Campus, a medical team composed of a physician and three nurses looks after the health and well-being of all on-site employees. In France, work or travel accidents resulting in absence from work for more than one day amounted to eight during 2012. Europe In Germany, employees follow local policies in effect regarding health matters. Work accidents resulting in absence from work for more than one day in 2012 amounted to two in Germany. 42 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 United States The Company has put in place a health coverage program for all its employees working at least 20 hours per week. Depending on their family situation, the employees have the choice between two distinct programs. These programs include an individual health check-up every year. Work accidents resulting in absence from work for more than one day numbered five during 2012. Canada Permanent employees are covered by a collective insurance policy including several benefits such as health insurance. The insurance program is required unless the employee is already insured elsewhere. Asia In Japan, an annual health check-up is organized by Dassault Syst `emes for each employee; in 2012, 72% of the employees participated. In addition, all the employees are covered by health insurance. In South Korea, an annual health check-up is organized each year for all the employees, who are also covered by a specific health insurance policy. In India and China, employees are covered by medical insurance and are offered an annual medical check-up. 2.1.7 Development, Training and Career Management A specific process dedicated to evaluating performance and development enables each employee to meet formally with his manager three times each year to evaluate the performance expectations of the past year, set the objectives for the year to come, and exchange, at mid-year, views on performance recognition. At the request of the employee or manager, an additional meeting can also be organized to discuss career development and set out an appropriate development path. In 2012, the goals of 96% of the Company’s employees were discussed and formally documented in this manner (as in 2011). In 2012, Dassault Syst `emes continued its investments in 3DSWYM applications to accelerate information sharing and expertise through communities and in particular by enabling employees to connect and exchange with all the Group’s experts on specific issues. Responses provided to customers, tricks for programming, and trends affecting markets can thus be rapidly communicated and handled by using knowledge shared across communities. In parallel with this social learning experiment, which is made available to employees, formal training programs are also set up within the Group. These two structured and non-structured approaches for learning thus allow the Group’s employees to develop their skills at the same speed as technological developments on the market. Specific training programs targeting sales and services teams are also delivered to enable them to provide their clients the best possible experience. These programs are related to acquiring basic knowledge about the solutions and project management and also include workshops focused on understanding the business sectors of the customers served by the Company. A training program is also set up for all the R&D functions (development, industrialization, customer support and industries). An initial training program, thus covering R&D processes and tools, is provided to new R&D employees to ensure that they fully understand the fundamentals of Dassault Syst `emes’ development techniques before starting a project. The initiative launched by the Group in 2011 concerning the deployment of a new managerial training program was continued in 2012. Two main themes are presented: management fundamentals for new managers and performance management. On a global basis, 703 employees participated in management training, representing 11,472 hours of training time (5,786 hours in Europe, 4,300 hours in the Americas, and 1,386 hours in Asia). DASSAULT SYST `EMES Annual Report 2012 43 Social, societal and environmental responsibility 2 In 2012, in France at Dassault Syst `emes SA, Dassault Data Services SAS, and Dassault Syst `emes Provence SAS, 1,694 employees (out of 2,792 employees) received at least one training course during the year, or 48,662 training hours, compared to 47,463 hours in 2011. The increase reflected principally an increase in the number of training hours provided at Dassault Syst `emes SA: 37,383 hours in 2012 compared to 35,846 hours in 2011. Distribution of training hours by type: 2012 2011 Management Job skills Health, safety and environment Language Computer skills (Dassault Syst `emes internal tools) Personal development Dassault Syst `emes solutions portfolio DIF (French-specific) Total Distribution of training hours by category: Managers Non-Managers Distribution of training hours by men/women: Men Women 4,315 23,906 248 2,604 1,450 4,396 8,440 3,303 3,057 26,015 30 3,003 1,669 3,148 6,704 3,837 48,662 47,463 11,332 37,330 36,673 11,989 9,360 38,103 34,811 12,652 2.1.8 Business Ethics and Professional Equality Business ethics Since its creation, Dassault Syst `emes has developed its culture and built its reputation on different fundamental principles, particularly the creation of long-term relationships with its employees, customers, partners and shareholders, as well as high-quality products with high value-added. Confidence and integrity, supported by rigorous ethics and regulatory compliance, are at the heart of Dassault Syst `emes’ commitments for sustainable innovation and growth. The Company’s commitment to professional ethics and business citizenship is formalized through procedures regarding corporate governance, in particular the ‘‘Code of Business Conduct’’ distributed to all the Company’s employees (see paragraph 5.1 ‘‘Report of the Chairman on Corporate Governance and Internal Control’’) and ‘‘Principles of Enterprise Social Responsibility’’ on the Company’s internet site. This commitment is also evidenced by the Company’s ethical and compliance awareness training for the Company’s new hires (more than 40 sessions in 2012 throughout the world) and by targeted training given to employees who are the most exposed to ethical risks in connection with their daily activities. Business Code of Conduct and professional equality The Business Code of Conduct, backed up by specific policies, is intended to serve as the reference for each Company employee to guide his conduct and his interactions in connection with his activities. It recalls the Dassault Syst `emes culture based on mutual respect, fairness and the diversity of its employees. In this context, it is established as a principle that hiring, training, promotion, assignments and other decisions regarding work are based on the competence, talent and results demonstrated by employees and their professional motivations, with no discrimination, harassment or intimidation. The Company is particularly attentive to the health and safety of its employees, in their work conditions and environment, and respect for their privacy, particularly as regards the protection of personal data. 44 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 Principles of Enterprise Social Responsibility The principles of Enterprise Social Responsibility, which the Company promotes to ensure that its ecosystem shares values based on the same universally recognized principles and rights, are founded on the recognition and respect of fundamental texts concerning social rights and the protection of the environment. Dassault Syst `emes requests that its suppliers and partners commit to the respect of the principles of eradicating labor by children required to attend school (and in any event under 15 years of age), eliminating forced labor, ensuring working conditions sufficient to provide for employee health and safety, respecting applicable minimum legal or regulatory levels of pay, and freedom to unionize and to collectively negotiate labor contracts. The Company also asks them to commit to ban all forms of discrimination, to fight against corruption and to respect applicable law on the protection of the environment. Professional equality between men and women The French, American, Canadian, Japanese, English and German companies of Dassault Syst `emes, which employ 84% of the Company’s employees included in the Employee Headcount, are subject to specific laws against professional discrimination between men and women. Dassault Syst `emes encourages hiring both men and women, developing access for women to different functions, and ensuring fair treatment for women’s career advancement, particularly for women who take maternity leave. Dassault Syst `emes Executive Committee consists of two women and seven men, and the Board of Directors consists of two women and eight men. Dassault Syst `emes takes care to respect applicable regulations regarding professional equality and non-discrimination in the different jurisdictions where it has employees. France and the United States are set forth below as examples. France The agreement regarding equal professional treatment and balanced employment between men and women at Dassault Syst `emes SA was renewed and signed on April 10, 2012. The agreement concerns the following subjects: hiring and development of professional balance between men and women, salary policy and equality between men and women, professional advancement and development, balancing professional and family life, and awareness and communications programs to develop attitudes and practices. In addition, in order to analyze the positioning of men and women at Dassault Syst `emes SA and to define actions to be undertaken to eliminate inequalities, an annual report on the situation comparing general employment conditions and training for men and women is prepared by the Company each year and has been available on the intranet site since 2010. Dassault Syst `emes Provence SAS has put in place an agreement on the promotion of diversity and has negotiated an agreement on professional equality between men and women (which was signed on January 15, 2013). On February 28, 2012, Dassault Data Services SAS signed an agreement on the professional equality of men and women concerning principally four areas: hiring, professional advancement, salary and more specifically reducing the differences between men and women, and harmonizing professional life and family responsibility. An action plan to promote professional equality between men and women was presented to the Workers’ Council of Exalead SA and was approved in August 2012. The plan concentrates on three principal axes: hiring, training and professional development, and harmonizing professional life with family responsibility. The results will be presented to the Workers’ Council in 2013. There is no specific agreement related to this topic for SolidWorks Europe SARL. United States In the United States, Dassault Syst `emes ensures compliance with regulations regarding equality on the job (hiring, training, promotions, compensation, firing and any other decision related to work), in particular Title VII of the Civil Rights Act. It sends reports of compliance with these regulations (EEO1, Vet 100 and Affirmative Action reports) to the U.S. authorities each year. Employment of handicapped employees The French, American, Canadian, Japanese, English and German companies of Dassault Syst `emes, which employ 84% of the Company’s employees, are subject to specific laws regarding the employment of handicapped workers. In 2012, Dassault Syst `emes has carried out different actions in favor of handicapped persons. DASSAULT SYST `EMES Annual Report 2012 45 Social, societal and environmental responsibility 2 France Dassault Syst `emes SA entered into an agreement for employing handicapped employees in 2003, creating conditions favorable for their integration; this agreement was renewed in 2007 for three years, and an agreement was reached in December 2009, for the period 2010-2012. The agreement provides for quantitative commitments in terms of recruitment, training and budget. These agreements reflect Dassault Syst `emes SA’s desire to make the hiring, training and continued employment of handicapped persons an important axis of its policy. The number of handicapped employees has thus been multiplied by a factor of 5 since 2003. As of December 31, 2012, 34 handicapped persons, of whom 8 had a major handicap, were employed by Dassault Syst `emes SA; 19 of them were engineers or Cadres. During 2012, 6 handicapped students were accepted for training or apprenticeship and 37 trainees seeking jobs were trained. Also, numerous actions for internal communication and awareness with respect to handicapped persons were performed (such as videos, articles, interviews, cartoons giving an inside look on what it means to be a handicapped employee, etc.). A new agreement concerning the hiring of handicapped persons for the years 2013 to 2015 was reached with the labor unions on December 21, 2012. Access to 3DS Paris Campus for handicapped persons was specifically considered during construction (such as floor quality, doors, furniture, Eo-Guidage signaling, magnetic loops, accessible meeting rooms, parking lot entrances, etc.). Since 2011, Dassault Data Services SAS has committed itself each year to adopt measures supporting the integration and employment of handicapped persons. In 2012, efforts were focused on enhancing sensitivities toward handicapped persons (a new external website to support hiring, participation in employment fairs, manager training, internal awareness training). There is no specific agreement related to this topic at Dassault Syst `emes Provence SAS, SolidWorks Europe SARL, or Exalead SA. United States In the United States, the regulations regarding equality on the job (see the paragraph above ‘‘Professional equality between men and women’’) apply in cases of discrimination against handicapped employees. It is, however, not permitted to ask about handicapped employees, so no data can be provided. Senior employees The agreement concerning the employment of senior employees at Dassault Syst `emes SA, signed in January 2010, reflects the new regulatory environment and the employment policy of Dassault Syst `emes. It establishes an approach toward considering senior employees within the business. The parties to the agreement agreed to be particularly attentive to job stability for senior employees, and to career management and professional development. The commission responsible for overseeing the agreement met on March 14, 2012, to examine actions for job stability for senior employees. An agreement on employing senior employees was put also in place at Dassault Data Services SAS and Dassault Syst `emes Provence SAS, and a company plan exists at SolidWorks Europe SARL and Exalead SA. 2.1.9 Social Projects and Relations with the Social, Regional and Associative Environment Social projects In France, Dassault Syst `emes SA subsidizes its Workers’ Council in the amount of 5.2% of total gross salaries paid during the year, with 5.0% for social and cultural activities and 0.2% for the operating budget. In 2012, the Workers’ Council thus received e7.9 million, compared to slightly more than e7.1 million in 2011 and e6.2 million in 2010. This yearly allocation by Dassault Syst `emes allows employees, as well as their spouses and children, to be offered a large range of social and cultural activities with many sections dedicated to specific domains from sport to art, as well as financial support, such as for vacations, children’s education, and membership in clubs. Dassault Data Services SAS and Dassault Syst `emes Provence SAS subsidize their Workers’ Councils at a level of 1.5% of their total gross salaries paid during the year, with 1.3% for social and cultural activities and 0.2% for the operating budget. 46 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 Relations with the social, regional and associative environment Contribution of the Company in terms of employment Dassault Syst `emes has operations in 37 countries and seeks to recruit most of its employees locally. At December 31, 2012, more than two-thirds of the Company’s 8,101 employees were located outside France and the Company had employees from 105 different countries. Company relations with secondary and post secondary education In each country where Dassault Syst `emes has operations, the Company has established a privileged relationship with the world of secondary and university education for several years. To facilitate innovation in teaching by the use of its technologies, Dassault Syst `emes works together with schools, high schools, technical institutions, universities and major teaching centers around the world. Dassault Syst `emes’ academic partnership program includes a variety of actions specific to each of its brands, which are put in place via a website dedicated to making available participative educational resources, granting of certificates and diverse partnerships. Each year, more than two million students become familiar with the Company’s PLM and SOLIDWORKS mechanical design technologies. In 2012, the Company chose to pursue initiatives seeking to: (cid:127) encourage professional interest in science and technology and contribute to eliminating the lack of interest among young people for these fields in developed countries with (i) sponsorship initiatives and participation in the work of associations (for example, the American Society for Engineering Education – ASEE – and the European Society for Engineering Education – SEFI), (ii) support for high school students participating in multidisciplinary competitions such as the ‘‘Race in Class’’, which were targeted to junior and senior high school students and led them, in the context of their courses and clubs, to use CATIA or SOLIDWORKS software to design, build, test and race miniature Formula 1 racecars. Begun in 2006 as a project for educational success, this initiative has maintained its peak level of participation, with 11,500 students in France; (cid:127) improve the employability of degrees issued by different educational branches by giving them access to the Company’s PLM solutions. This expertise should make it possible to respond rapidly to the needs of the 12 industrial sectors targeted by Dassault Syst `emes’ products and solutions. The need for engineers to combine technical knowledge acquired during a teaching course and knowledge of Dassault Syst `emes’ PLM tools and methods used by our industrial customers is increasing significantly in emerging economies. Together with the French Ministry of Higher Education and Research, the Company has extended its ‘‘PLM Competency Center’’ network to the Cape Peninsula University in South Africa. As part of the European Commission’s ‘‘EUGENE’’ research project, Dassault Syst `emes has provided an in-depth study on how to align engineering education with the needs of employers; (cid:127) prepare students for their future employers by providing certifications which enable them to access fundamental engineering design competencies, in 10 languages. SOLIDWORKS offers specialized programs for all-terrain vehicle, small racecar, airplane, and hybrid racing teams, for learning an integrated design and analysis process. The Group is a founding partner of the Association of Unmanned Vehicle Systems International, providing software to unmanned intelligent ground, air, and submarine vehicles and robotics systems. SOLIDWORKS enables students in sustainable development to make the right choices in material selection and manufacturing processes for our planet’s future; (cid:127) introduce new teaching methods using virtual models well adapted to the modes of interaction and learning of today’s students. The Company was thus retained in France as supplier of collaborative design technologies for projects financed by the Ministry of National Education (the ‘‘Virtualiteach’’ project for equipping high schools with 3DVIA-immersive teaching environments) or by the National Research Agency (the PLACIS project for teaching collaborative engineering with CATIA, ENOVIA, DELMIA and 3DSWYM). In 2012, the innovative teaching project was strengthened by making new methods available for teachers to include 3D content in their course material and for publishers of schoolbooks to provide 3D subject extensions on line. The SOLIDWORKS STEM Teacher blog and Dassault Syst `emes’ academic community ‘‘3DS Academy’’ on the Internet allow sharing of Dassault Syst `emes’ teaching materials for all of its brands with teachers of all levels. Working together with the education department of ILUMENS and the Fondation Paris Descartes, Dassault Syst `emes has supported a major health and public interest program by designing two 3D experiences. In one year, the 3D StayingAlive experience made it possible to train more than 15,000 people in life-saving measures. The other 3D experience, BornToBeAlive (www.borntobealive.fr), offers clear explanations, in real time, of the different stages of giving birth. The future parents can thus learn in a 3D environment about the universe of the maternity ward and visit the birthing room in order to understand better how the equipment operates. The user can also learn ways to help reduce stress on the day birthing begins. There is also a community to learn more and speak with specialists, mid-wives and doctors. Company commitment to sustainable development Dassault Syst `emes is involved with associations to support the virtual economy and encourage sustainable innovation. To promote the development of the virtual economy in France and in Europe, Dassault Syst `emes is a founding member of AFDEL (Association Fran¸caise des Editeurs de Logiciels, or the French Association of Software Editors). The goal of this association is to promote the software industry as an industry that contributes to sustainable growth. Dassault Syst `emes also supports the ‘‘Villette Foundation’’, a part of Universcience in France, whose goal is to promote and encourage scientific and technical culture to young people and to the public at large. Throughout the DASSAULT SYST `EMES Annual Report 2012 47 Social, societal and environmental responsibility 2 world, Dassault Syst `emes brands are involved in local community efforts. Most of the Company’s subsidiaries organize efforts to contribute to sustainable development within their community, such as days for voluntary work with local associations organized by the employees of SIMULIA, collecting food by the employees of DELMIA, subsidizing an orphanage by the employees of Dassault Syst `emes in China, participating in the PanMassachussets Challenge, a race intended to collect funds for the benefit of a health care and research institute (the Dana Farber Cancer Institute). Finally, the Company spearheaded an initiative to provide support for education and economic development in Rwanda. The project’s initial objective was to provide students with CAD program skills, with SOLIDWORKS contributing the licenses and teaching programs. The program evolved into helping participants structure and manage businesses providing modeling services, and subsequently into creating demand for such services. Other societal matters In light of the Company’s business and geographic locations, there is no detailed reporting of its impact on regional development and nearby or local populations, or steps taken for the health and safety of customers or human rights, since these matters are not reported on. 2.1.10 Correspondence Table Article R. 225-105-1 of the French Commercial Code Paragraph Page Total employees and distribution by gender, age and geographic location New hires and departures Compensation Organization of working time Absenteeism Organization of employee relations and employee communications, consultation and negotiation procedures Summary of collective agreements Health and safety conditions Summary of agreements reached with labor unions or employee representatives regarding health and safety Work accidents frequency and seriousness, and professional illnesses Training policies Total training time Measures for the equal treatment of men and women Measures for the employment of handicapped persons Anti-discrimination policy Respect for the freedom of association and the right to collective negotiation Eliminating discrimination at work Eliminating forced labor Eliminating child labor Regional, economic and social impact of the business Relations with persons and organizations interested by the company’s business, partners and benefactors Subcontractors and suppliers: social responsibility Good citizen practices and other measures to support human rights 2.1.3 2.1.3 2.1.5 2.1.4 2.1.4 2.1.6 2.1.6 2.1.6 2.1.6 2.1.6 2.1.7 2.1.7 2.1.8 2.1.8 2.1.8 2.1.8 2.1.8 2.1.8 2.1.8 2.1.9 2.1.9 2.1.3 2.1.9 34, 35, 36 36 40 39 39 41 41 42 41 42 43 43 45 45 44 44 44 45 45 47 46 38 48 Dassault Syst `emes makes available at the request of any shareholder a summary of Dassault Syst `emes SA’s social activities as provided for by Articles L. 2323-68 et seq. of the Labor Code. 48 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 2.2 Environmental Responsibility 2.2.1 Industrial and Environmental Risk The Group is not aware of any industrial or environmental risks which may have a significant impact on its financial condition or operating results, and it believes that its business has a very limited environmental impact: (cid:127) a significant portion of its assets are intangible, which reduces industrial and environmental risk; (cid:127) none of the Company’s sites produces dangerous waste or waste with an environmental impact on the ground, air or water, and none of them possesses criteria set forth under the European SEVESO directive regarding sites at risk due to dangerous substances, or is classified under ICPE (Installations Class ´ees – et pr ´esentant des risques – pour la Protection de l’Environnement); (cid:127) the Company does not believe that it is exposed to climate change issues in the short- or medium-term; (cid:127) Dassault Syst `emes’ business does not have known negative impact on biodiversity, nor does it create noise or odors which may create a nuisance locally. In addition, the Company is not involved with soil usage matters. The only aspect which the Group believes there is a minor environmental issue, which would not have a significant impact on its financial condition or results of operations, is the fuel storage at the 3DS Paris Campus and the 3DS Boston Campus, which would be used to produce electricity in case of an electrical shortage. Based on the Company’s limited industrial and environmental risks, costs resulting from evaluating, preventing and treating industrial and environmental risks are not significant and are included under different line items under investments and expenses in the consolidated financial statements. In 2012, no provisions or guaranties for environmental risks were recorded in the Company’s consolidated financial statements. In addition, no expense was taken in the financial statements related to a court judgment regarding environmental issues or actions taken to remediate any environmental damage. To remain alert to any regulatory risks related to environmental matters, Dassault Syst `emes watches out for environmental regulations which may have an effect on its business. 2.2.2 Environmental Report 2.2.2.1 Dassault Syst `emes and Environmental Issues Despite the negligible environmental impact of its business, Dassault Syst `emes is aware of its responsibility for protecting the environment. It has made sustainable development central to its objectives, with a strategy based on sustainable innovation, and implemented a strategy for optimizing and transforming its activities to reduce its environmental impact. 3DEXPERIENCE for Sustainability: Dassault Syst `emes’ applications for sustainable development Dassault Syst `emes offers its customers a 3DEXPERIENCE for Sustainability, enriching several of its industry experiences with added value that helps customers achieve their sustainability goals. The 3DEXPERIENCE Platform lets innovators truly understand the impact of their ideas and processes on people and environment. Eco-design for 3D modeling Reducing environmental impacts begins with designing out the impacts from product conception. Our applications in the SOLIDWORKS, CATIA, and GEOVIA applications allow designers to make conscious design decisions. For example, SOLIDWORKS Sustainability is an integrated Life Cycle Assessment (LCA) dashboard with which designers and engineers can estimate the environmental implications of each design decision across the product’s lifecycle, by measuring standard environmental indicators such as carbon footprint and energy. A commercial furniture manufacturer uses SOLIDWORKS Sustainability to predict the environmental impacts of custom furniture so that their customers can select the most environmentally-friendly options. DASSAULT SYST `EMES Annual Report 2012 49 Social, societal and environmental responsibility 2 Green manufacturing for content and simulation Our customers bring their ideas to life by using Dassault Syst `emes software to virtually prototype and digitally manufacture their design concepts. DELMIA applications allow customers to virtually prototype their manufacturing and assembly lines to eliminate wasteful physical testing. SIMULIA applications allow customers to maintain product function while optimizing material. For example, a packaging designer used Dassault Syst `emes applications to cut the use of plastic resins by 27% while maintaining product integrity. 3DVIA applications enable customers to communicate seamlessly across the organization, reducing time, material and energy spent on technical documentation. Environmental data management for information intelligence One of the most significant challenges that companies face in tracking progress for environmental sustainability is the availability of relevant data. EXALEAD applications enable the management of structured and unstructured environmental data, giving customers the decision support needed to execute their corporate sustainability and impact reduction strategies. Central to the success of these sustainability strategies is social listening. NETVIBES applications enable customers to gauge public sentiment about green marketing campaigns and to track competing programs for sustainable innovation. Community for social collaboration Finally, the engagement of multiple internal and external stakeholders is critical for the success of sustainability strategies. 3DSWYM applications allow customers to collaborate cross-functionally to tackle interdisciplinary sustainability challenges. With ENOVIA applications, customers can leverage the supply chain for traceability and measurement of impacts in the extended enterprise. For example, ENOVIA Material Compliance Central enables customers to achieve compliance with environmental regulations, such as RoHS and WEEE in the High-Tech industry. For example, in the High-Tech industry, companies are facing series of challenges both technological and ecological, such as managing fast evolving demands, mass volume production, and increasing product complexity. Dassault Syst `emes’ customers in the High-Tech industry have needs that can be addressed within the 3DEXPERIENCE Platform for Sustainability: (cid:127) Social listening for dashboarding sustainability trends, such as evolving environmental regulations and consumer preferences in the High-Tech sector; (cid:127) Eco-design for predicting product environmental impacts, such as carbon footprint, energy consumption, and health impacts of high-concern materials; (cid:127) Eco-engineering for virtual prototyping and supply chain management, including performance testing for consumer electronics usage, and management of conflict minerals (tin, tantalum, tungsten, and gold) for electronic devices; (cid:127) Green manufacturing for responsible operations and extended producer responsibility, including adherence to the Waste Electrical and Electronic Equipment (WEEE) product take-back statute; and (cid:127) Materials intelligence for regulatory and standards compliance, such as adherence to the Restriction of Hazardous Substances (RoHS) directive and participation in the Electronic Product Environmental Assessment Tool (EPEAT). Consideration of environmental matters in the Company’s operational locations Dassault Syst `emes’ desire to limit its environmental impact is also reflected through recent decisions regarding its operational locations: 3DS Paris Campus Dassault Syst `emes’ world headquarters, located in V´elizy-Villacoublay (France) received the ‘‘Haute Qualit ´e Environnementale’’ (HQE) certification ‘‘NF B ˆatiments tertiaires D ´emarche HQE’’ as well as a ‘‘very effective’’ score in five environmental areas (water, energy, the building and its immediate surroundings, construction site and maintenance), exceeding the minimum of three areas required for HQE certification. Optimization of energy consumption at the 3DS Paris Campus is based on different technologies, including: (cid:127) Computer servers: heat generated by the servers is used to heat a significant portion of air circulated; (cid:127) Lighting: Dassault Syst `emes saves energy by using motion detectors and detectors of natural light together with high-yielding lighting elements. For example, the lights used are 30% more efficient than fluorescent lights and five times more efficient than incandescent lights, with a 12 to 15-times greater life expectancy; and (cid:127) Maintenance: a centralized computer system oversees energy consumption, making it possible to locate leaks and defects and accelerate repair work to avoid energy loss. 50 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 Dassault Syst `emes generally includes requirements regarding sustainable development in the terms and conditions for bids from suppliers of the 3DS Paris Campus. In particular, the terms and conditions for maintaining the green spaces and cleaning require the service provider to use non-toxic products. To the extent possible, Dassault Syst `emes seeks to work with companies that are, or are in the process of becoming, ISO 9001 and 14001 certified. For example, the Company has put in place real-time monitoring of the results of operational incidents and building maintenance with the assistance of ISO 9001 certified companies. 3DS Boston Campus The 3DS Boston Campus received the American certification LEED Gold, awarded for buildings designed to optimize environmental performance and built according to strict environmental standards. The building’s construction used 61,000 metric tons of crushed materials (cement, masonry, steel, glass) and 2,000 metric tons of recycled steel for its embankment, and reused more than 75% existing materials. To optimize its energy consumption, the 3DS Boston Campus is equipped with condensation heaters, high-yield air conditioning, and daylight sensors. Environmental Management The Company’s Social and Environmental Responsibility Department (‘‘Responsabilit ´e Sociale de l’Entreprise’’, or ‘‘RSE’’) is responsible for environmental reporting, determining how to reduce the Company’s environmental impact, and creating awareness among the employees regarding the importance of sustainable development. In 2012, Dassault Syst `emes created a new group to strengthen the environmental reporting process and steps taken to reduce the Company’s environmental impact. In each geographic area, a ‘‘Sustainability Leader’’ was appointed. The Sustainability Leader is responsible for ensuring the collection of environmental data, the audit of environmental matters in his zone, the follow up on environmental indicators, and the creation of a local environmental management system. Each Sustainability Leader has created a ‘‘Green Team’’ made up of voluntary employees at each site. The Green Team supports actions for reducing the site’s environmental impact, both at the level of Dassault Syst `emes support services and through building awareness of employees and ‘‘eco-actions’’ training. Environmental impact of the Company’s transportation policy Since the Company’s business is publishing software, transportation is the principal source of its greenhouse gas emissions. Dassault Syst `emes’ travel policy limits the impact of travel on the environment. Under this policy, employees are encouraged to schedule meetings by conference call and video conference rather than by physical travel, train travel rather than air travel for trips under three hours in length, and economy class for air travel (the carbon footprint of business class being substantially greater than for economy class). The greenhouse gas effect of travel is presented in paragraph 2.2.2.4 ‘‘Greenhouse Gas Emissions’’. Environmental considerations of the Company’s computer equipment management policy Dassault Syst `emes places significant importance on managing its computer equipment both in terms of usage and recycling. The Company’s computer equipment includes fixed terminals, laptop computers and the servers of its data center and has received the ‘‘Energy Star’’ certificate. When buying new material, the Company gives preference to internationally recognized environmental certificates such as ‘‘Energy Star’’ and ‘‘TCO’’. Recycling of computer equipment is generally handled by businesses or groups complying with applicable local environmental requirements regarding the treatment of electronic waste. Management of the retirement of computer equipment is set forth in paragraph 2.2.2.3 ‘‘Company Environmental Indicators – Waste treatment’’. Creating Company employee awareness Dassault Syst `emes pursues an ongoing policy of employee awareness by involving them in steps taken to save water and energy through presentations of actions and technologies that can reduce the environmental impact of the Company’s activities. For example, the North America Green Team created an electronic waste collection and recycling program and strengthened on-going waste recycling at their site. The Green Team’s contribution to employee awareness of the importance of recycling caused certain services to reduce their paper consumption, by adopting a system of electronic document archiving which saves more than 65,000 sheets of paper each year. The week of communication dedicated to sustainable development, which was initiated in 2010, was organized again in 2012 on the 3DS Paris Campus, with a presentation of the carbon footprint analysis for the Campus by the RSE Department. In addition, the Department DASSAULT SYST `EMES Annual Report 2012 51 Social, societal and environmental responsibility 2 organized a seminar on sustainable development to train the recently appointed Sustainability Leaders (see the paragraph above ‘‘Environmental Management’’) regarding environmental issues specific to the Company. In 2011, Dassault Syst `emes created an internal on-line community ‘‘DS Global Green Team’’ to enable employees to exchange information on environmental topics at Dassault Syst `emes. In 2012, this initiative was continued and involved 180 employees. 2.2.2.2 Methodology for Environmental Reporting Methodology and scope of environmental reporting Dassault Syst `emes adopted its ‘‘Environmental Reporting Protocol’’ in 2010. This protocol defines: (cid:127) the Company’s environmental indicators and the methodology for collecting and calculating environmental information; (cid:127) the scope for collecting environmental data. As required by Article 225 of the so-called ‘‘Grenelle II’’ law, the targeted scope of environmental reporting includes Dassault Syst `emes SA and all of the more than 50% controlled companies, while excluding in 2012: (cid:127) companies acquired during the year (Gemcom, Netvibes, and SquareClock), which will be included starting in 2013 (after one full year of operation); (cid:127) companies which were sold during the year (Transcat PLM GmbH); and (cid:127) Delmia Solutions Private Ltd, which was merged in 2012 with 3DPLM Ltd (which is held at less than 50%). This change in scope affects environmental data for the Asia zone. Data for 2011 excluding Delmia Private Ltd are given to ensure the comparability of the data over the different periods. As part of the process of improving the quality and relevance of information communicated for environmental reporting, the Company decided in 2012, after analyzing consumption at all its sites, not to collect environmental data from sites with less than 40 employees. Such sites have a minimal environmental impact when compared to the Group. On this new basis, environmental reporting covered 81% of the Company’s employees in 2012 compared to 98% in 2011. The variations between 2011 and 2012 should be looked upon with caution as major changes in the scope have taken place. Environmental indicators thus determined for 2012 are presented in paragraph 2.2.2.3 ‘‘Company Environmental Indicators’’. The Company’s environmental reporting may evolve as part of the ongoing process of improvement undertaken by the Company, or to take account of changes in applicable regulations. Collecting and consolidating environmental data Environmental data were collected by the Sustainability Leaders and consolidated by the RSE Department on the basis of the Environmental Reporting Protocol and the responses to questionnaires sent to the Green teams. For certain questions, such as business travel and data concerning electronic waste, external service providers were also consulted. Limitations on environmental reporting When information could not be produced on the basis of real consumption (particularly for sites for which the charges related to water and energy consumption are included in rental charges), the Environmental Reporting Protocol specifies the approach to be followed to make necessary estimates (for example, an estimate of water and energy consumption on the basis of averages observed on other sites of the geographic region pro rata according to the number of employees or square footage occupied). Actual consumption may as a result be different from our estimates. In connection with waste treatment, collection is handled for most subsidiaries by the local government, which does not furnish any information on collected waste. It is thus not possible to provide any information on the amount of waste generated. Dassault Syst `emes has nevertheless inquired of all the subsidiaries included in the 2012 reporting scope as to whether recycling was put in place. The Company produces on this basis information on the percentage of sites adopting waste recycling rather than on the quantity of waste treated (see paragraph 2.2.2.3 ‘‘Company Environmental Indicators – Waste treatment’’). 2.2.2.3 Company Environmental Indicators The Company’s environmental indicators are set forth below. Dassault Syst `emes presents more detailed information for the 3DS Paris Campus, the Company’s headquarters and principal site. It should be noted that in July 2011 approximately 450 employees who worked on 52 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 site moved to a nearby facility. The information related to the 3DS Paris Campus no longer included these employees after the date of the move. Company consumption levels Energy Information set forth below concerns electricity consumption and, starting in 2012, consumption of natural gas, at Dassault Syst `emes sites and data centers. Natural gas consumption represents 6,7% of the total consumption of energy. The Company does not use renewable energy on its sites but has included in certain of its energy contracts, for example at the 3DS Boston Campus, the purchase of electricity produced by renewable resources. Electricity consumption (in mWh) Europe of which 3DS Paris Campus Americas Asia Total Year 2012 30,700 21,400 20,900 2,800 54,400 Year 2011 excluding Delmia Solutions Private Ltd 27,800 15,800 16,000 2,900 46,700 Year 2011 27,800 15,800 16,000 4,200 48,000 When considering data regarding energy consumption at the 3DS Paris Campus, the following information should also be taken into account: the energy supplier for the 3DS Paris Campus realized at the end of 2011 that the electricity counters of two of the four buildings at the Campus had not been properly activated. Recorded and billed consumption has as a result been understated in 2011 since Dassault Syst `emes moved into these facilities. Data set forth in the table above correspond to the consumption recorded and billed for each year. The increase in electricity consumption in the Americas region was due principally to the inclusion of natural gas in the information set forth above. Dassault Syst `emes has located part of its servers at several data centers in the world. Energy consumption at these centers is included in the total electricity consumption above. The largest center underwent major modifications in 2010 with the ‘‘virtualization’’ of its servers: the replacement of several physical servers by a single high density virtual server. The ‘‘virtualization’’ of servers leads to better use of material, savings in space at the data center and a reduction in power consumed by the infrastructure, and thus a reduction in greenhouse gas emissions. The percentage of virtual servers in the world was estimated at 28% for 2009 according to a study by Gartner. Dassault Syst `emes is far ahead in this area with more than 80% of the servers at its principal data center already virtualized. Water consumption Water consumption (in cubic meters) Europe of which 3DS Paris Campus Americas Asia Total Year 2012 24,100 19,000 22,900 3,600 50,600 Year 2011 31,900 19,500 20,300 3,200 55,400 Data related to water consumption presented above are partially based on estimates and as such may differ from actual water consumption (see paragraph 2.2.2.2 ‘‘Methodology for Environmental Reporting – Limitations on environmental reporting’’). DASSAULT SYST `EMES Annual Report 2012 53 Social, societal and environmental responsibility 2 Paper and packaging Paper consumption (in metric tons) Europe of which the 3DS Paris Campus Americas Asia Total Year 2012 31 22 16 10 57 Year 2011 58 24 23 19 100 At the 3DS Paris Campus total paper consumption amounted to 22 metric tons in 2012, compared to 24 metric tons in 2011 and paper consumption per employee decreased by 2 kilograms, due principally to the computerization of all general procedures. On the 3DS Paris Campus, the paper used is ‘‘FSC certified’’, an eco-label which ensures sustainable forest management. At a global level, 76% of employees use paper that is 100% recycled or ‘‘FSC’’ or ‘‘PEFC’’ certified, compared to 65% in 2011. Packaging at Dassault Syst `emes consists principally of packaging for the Company’s software products. The supplier responsible for packaging the Company’s products complies with ‘‘REACH’’ (‘‘Registration, Evaluation, Authorisation and Restriction of Chemicals’’), and received the ‘‘Imprim’Vert’’ label for its printing facility, which certifies, among other things, that no toxic products are used and that waste is sorted for recycling. The supplier’s packaging is 100% recyclable and biodegradable. For the other geographic regions, data for 2012 and 2011 are not comparable (see paragraph 2.2.2.2 ‘‘Methodology for Environmental Reporting – Methodology and scope of environmental reporting’’). Waste treatment Waste generally In light of the nature of its business, Dassault Syst `emes generates principally ordinary waste (food products) and paper, cardboard and plastic. The Company does not generate any hazardous waste. The table below indicates the percentage of employees with access to recycling facilities at their work location by geographic region. Percentage of employees with access to recycling facilities at their work location Europe of which the 3DS Paris Campus Americas Asia % of employees with access to recycling facilities at their work location in the world Year 2012 94% 100% 98% 91% 94% Year 2011 76% 100% 93% 100% 85% In 2012, the Company continued its efforts to establish recycling on its European and American sites. On the 3DS Paris Campus, the service provider that collects waste is ISO 9001 certified for collection and ISO 14001 certified at all its waste treatment sites. The service provider carries out the sorting and collection of paper and cardboard, removes large waste items once each quarter and offers electrical battery collection. Ordinary waste at the 3DS Paris Campus is recycled for energy production by the service provider. In the rest of the world, 2012 was notable for the establishment of recycling for a larger number of employees, particularly in Europe. Waste treatment at 3DS Paris Campus Normal waste (metric tons) Recyclable paper/cardboard waste (metric tons) % of ordinary waste recycled Year 2012 73 75 51% Year 2011 72 68 49% The proportion of recycled waste increased on the 3DS Paris Campus from 49% in 2011 to 51% in 2012. 54 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 Specific waste Quantity of DEEE(*) destroyed (in kg) Europe of which 3DS Paris Campus Americas Asia Total (*) DEEE: Electric and Electronic Equipment Waste Computers of DEEE recycled according to environmental standards (in kg) Europe of which 3DS Paris Campus Americas Asia Total Year 2012 40 – – – 40 Year 2012 11,400 10,400 7,000 1,200 19,600 Year 2011 500 – 900 1,700 3,100 Year 2011 6,900 6,300 – 100 7,000 In 2012, the Company continued its policy of recycling computers, with a minimum of computers destroyed. In 2012, on the 3DS Paris Campus, 10,400 kilograms of computer equipment were recycled by an association supporting and reinserting handicapped persons. The 3DS Paris Campus centralizes most of the computer recycling for all Dassault Syst `emes’ European sites, which explains its significant amount of DEEE. The management of electronic waste represented one of the priority improvement goals for the Company’s environmental footprint in 2012. Each Sustainability Leader had an objective to establish this type of recycling within his zone. The goal was achieved. In 2012, Dassault Syst `emes used specialized service providers to recycle 99.9% of its material, compared to 70% in 2011. 2.2.2.4 Greenhouse Gas Emissions To analyze its carbon footprint on a global basis, Dassault Syst `emes uses the ‘‘GHG Protocol’’ (‘‘GreenHouse Gas Protocol’’). This method of evaluation of greenhouse gas effects was launched in 2001 by the ‘‘World Business Council for Sustainable Development’’ (‘‘WBCSD’’) and the ‘‘World Resource Institute’’ (‘‘WRI’’). It was developed through a partnership among businesses, non-governmental organizations and governments in order to create a common framework for accounting and reporting, measurement tools and actions to resist climate change. The GHG Protocol divides the operational perimeter of greenhouse gas emissions as follows: (cid:127) Scope 1: direct emissions resulting from the combustion of fossil fuels from resources owned or controlled by the enterprise; (cid:127) Scope 2: indirect emissions resulting from the purchase or production of electricity; (cid:127) Scope 3: all other indirect emissions, from the extended supply chain to transport of goods and persons. DASSAULT SYST `EMES Annual Report 2012 55 Social, societal and environmental responsibility 2 The information used to evaluate the global carbon footprint of the Company covered a scope representing 81% of its employees. The results are set forth below: Scope 1 Emissions due to on-site natural gas and fuel consumption Total emissions due to the use of company vehicles Emissions due to the use of company vehicles in Europe Emissions due to the use of company vehicles in the Americas Emissions due to the use of company vehicles in Asia Emissions due to the use of refrigerants Total scope 1 Scope 2 Total emissions due to purchases of electricity Emissions due to purchases of electricity in Europe Emissions due to purchases of electricity in the Americas Emissions due to purchases of electricity in Asia Total scope 2 Scope 3 Total emissions due to employee business air travel Emissions due to employee business air travel in Europe Emissions due to employee business air travel in the Americas Emissions due to employee business air travel in Asia Total emissions due to employee business travel by train Emissions due to employee travel by train in Europe Emissions due to employee travel by train in the Americas Emissions due to employee travel by train in Asia Total emissions due to employee travel by personal car in connection with work Emissions due to employee travel using their personal vehicles in Europe Emissions due to employee travel using their personal vehicles in the Americas Emissions due to employee travel using their personal vehicles in Asia Total scope 3 Total greenhouse gas emissions (scopes 1 + 2 + 3) (*) Excluding Delmia Solutions Private Ltd., the total CO2 emissions due to electricity purchase in Asia were 1,560 metric tones. 2012 2011 Metric Tons CO2 emissions 640 Metric Tons CO2 emissions 1,460 1,640 1,510 – 130 410 2,690 10,290 2,990 5,850 1,450 10,290 17,840 6,050 8,860 2,930 1,490 210 10 1,270 2,630 880 1,310 440 21,960 34,940 3,140 3,000 10 130 220 4,820 12,240 3,180 6,310 2,750(*) 12,240 18,120 4,750 10,540 2,830 2,260 270 10 1,980 3,670 1,900 1,130 640 24,050 41,110 The decrease in greenhouse gas emissions was principally due to the change in the scope of environmental reporting (see paragraph 2.2.2.2 ‘‘Methodology for Environmental Reporting – Methodology and scope of environmental reporting’’). 56 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 2.2.2.5 NRE correspondence table Article R. 225-105-1 of the French Commercial Code (Code de commerce) Paragraph Page Water consumption Energy consumption Raw materials consumption Measures taken to improve energy efficiency Use of renewable energy 2.2.2.3 2.2.2.3 2.2.2.3 2.2.2.1 2.2.2.1 Conditions of use of the soil, discharge into the air, water and soil 2.2.1 and 2.2.2.1 Noise and odor Waste treatment 2.2.1 2.2.2.3 Measures taken to limit impact on environmental equilibrium and natural environments 2.2.1 and 2.2.2.1 Measures taken to ensure legal compliance Evaluation processes or business environmental certificates Expenses undertaken to prevent environmental impact of the Company’s business activities Existence of Company environmental management services Employee training and information Provisions and guaranties for environmental issues Indemnifications paid during the year pursuant to judicial decisions on environmental matters Matters assigned to foreign subsidiaries 2.2.1 2.2.2 2.2.1 2.2.2.1 2.2.2.1 2.2.1 2.2.1 2.2.2.1 52 52 52 49 49 49 49 52 49 49 49 49 49 49 49 49 49 2.3 Independent Verifier’s Attestation and Assurance Report on Social, Environmental and Societal Information This is a free translation into English of the original report issued in the French language and it is provided solely for the convenience of English speaking users. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Chief Executive Officer, Pursuant to your request and in our capacity as independent verifier of Dassault Syst `emes SA (hereafter the ‘‘Company’’), we hereby report to you on the consolidated social, environmental and societal information presented in the management report issued for the year ended December 31, 2012 in accordance with the requirements of Article L. 225-102-1 of the French Commercial Code (Code de commerce). Management’s Responsibility The Board of Directors is responsible for the preparation of the management report including the consolidated social, environmental and societal information (the ‘‘Information’’) in accordance with the requirements of Article R. 225-105-1 of the French Commercial Code (Code de commerce), presented as required by Dassault Syst `emes’ internal reporting standards (the ‘‘Guidelines’’) and available at the Company’s headquarters. Our Independence and Quality Control Our independence is defined by regulatory requirements, the Code of Ethics of our profession (Code de d ´eontologie) and Article L. 822-11 of the French Commercial Code (Code de commerce). In addition, we maintain a comprehensive system of quality control including documented policies and procedures to ensure compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. DASSAULT SYST `EMES Annual Report 2012 57 Social, societal and environmental responsibility 2 Independent verifier’s responsibility It is our role, on the basis of our work: (cid:127) To attest whether the required Information is presented in the management report or, if not presented, whether an appropriate explanation is given in accordance with the third paragraph of Article R. 225-105 of the French Commercial Code (Code de commerce) and Decree no. 2012-557 dated 24 April 2012 (Attestation de pr ´esence); (cid:127) To provide limited assurance on whether the Information is fairly presented, in all material respects, in accordance with the Guidelines (limited assurance). Considering that this is the first audit exercise, our report only relates to the information communicated for fiscal year 2012. 1. Certificate of presence (Attestation de pr ´esence) Our engagement was performed in accordance with professional standards applicable in France: (cid:127) We compared the Information presented in the management report with the list as provided for in Article R. 225-105-1 of the French Commercial Code (Code de commerce); (cid:127) We verified that the Information covers the consolidated perimeter, namely the Company and its subsidiaries within the meaning of Article L. 233-1 and the controlled entities within the meaning of Article L. 233-3 of the French Commercial Code (Code de commerce) within the limits specified in paragraphs 2.1.2 (social information) and 2.2.2.2 (environmental report) of the Reference document; (cid:127) In the event of the omission of certain consolidated Information, we verified that an appropriate explanation was given in accordance with Decree no. 2012-557 dated 24 April 2012. On the basis of our work, we attest that the required Information is presented in the management report. 2. Assurance report Nature and scope of the work We conducted our engagement in accordance with ISAE 3000 (International Standard on Assurance Engagements) and French professional guidance. We performed the following procedures to obtain limited assurance that nothing has come to our attention that causes us to believe that the Information is not fairly presented, in all material respects, in accordance with the Guidelines. A superior level of assessment would have requested more extensive verification works. Our work consisted in the following: (cid:127) We assessed the appropriateness of the Guidelines as regards their relevance, completeness, neutrality, clarity and reliability, taking into consideration, where applicable, the good practices in the sector. (cid:127) We verified that the Company had set up a process for the collection, compilation, processing and control of the Information to ensure its completeness and consistency. We examined the internal control and risk management procedures relating to the preparation of the Information. We conducted interviews with those responsible for social and environmental reporting. (cid:127) We selected the consolidated Information to be tested (workforce, hiring, occupational and travel accidents, total hours of training, amount of computers destroyed and recycled, energy consumption, greenhouse gases emissions) and determined the nature and scope of the tests, taking into consideration their importance with respect to the social and environmental consequences related to the Company’s business and characteristics, as well as its societal commitments. (cid:127) Concerning the quantitative consolidated information that we deemed to be the most important: (cid:127) at the level of the consolidating entity and the controlled entities, we implemented analytical procedures and, based on sampling, verified the calculations and the consolidation of this information. (cid:127) at the level of the entity that we selected (3DS Paris Campus, V ´elizy, France – Dassault Syst `emes SA) based on its contribution to the consolidated indicators and a risk analysis, we conducted interviews and performed tests of detail based on sampling to verify that the procedures were correctly applied. The sample thus selected represents 24% of the workforce and between 44% and 53% of the quantitative environmental information tested. (cid:127) Concerning the qualitative consolidated information that we deemed to be the most important, we conducted interviews and reviewed the related documentary sources in order to corroborate this information and assess its fairness. (cid:127) As regards the other consolidated information published, we assessed its fairness and consistency in relation to our knowledge of the Company and, where applicable, through interviews or the consultation of documentary sources. 58 DASSAULT SYST `EMES Annual Report 2012 Social, societal and environmental responsibility 2 Comments on the Guidelines and the Information We wish to make the following comments on the Guidelines and the Information: (cid:127) Concerning the consolidation perimeter: (cid:127) As specified in paragraph 2.2.2.2 of the Reference document, Dassault Syst `emes’ reporting guidelines imply that environmental information representing 19% of the Group’s workforce is not consolidated; (cid:127) As specified in paragraph 2.1.2 of the Reference document, the consolidation perimeter varies among social issues and represents in some cases less than half of the Group’s employees. (cid:127) The variations between 2011 and 2012 environmental data should be looked upon with caution as major perimeter evolutions have taken place. Conclusion Based on our work described in this report, nothing has come to our attention that causes us to believe that the Information is not fairly presented, in all material respects, in accordance with the Guidelines. Paris, March 28, 2013 The Independent Verifier Ernst & Young et Associ ´es French original signed by: Eric Mugnier DASSAULT SYST `EMES Annual Report 2012 59 CHAPTER 3 – FINANCIAL REVIEW AND PROSPECTS 3.1 Operating and Financial Review 3.1.1 General The executive overview in paragraph 3.1.1.1 ‘‘Executive Overview for 2012’’ highlights selected aspects of the Company’s IFRS financial results for 2012. The executive overview, the supplemental non-IFRS financial information and the more detailed discussion that follows should be read together with the Company’s consolidated financial statements and the related notes included in paragraph 4.1.1 ‘‘Consolidated Financial Statements’’. In discussing and analyzing the Company’s results of operations, the Company considers supplemental non-IFRS financial information which excludes (i) the effect of adjusting the carrying value of acquired companies’ deferred revenue, (ii) the amortization of acquired intangibles, (iii) share-based compensation expense, (iv) certain other operating income and expense, net, (v) certain one-time items included in financial income and other, net, and (vi) certain one-time tax effects and the income tax effects of the above adjustments. A reconciliation of this supplemental non-IFRS financial information with information set forth in the Company’s consolidated financial statements and the notes thereto is presented below under paragraph 3.1.1.2 ‘‘Supplemental Non-IFRS Financial Information’’. When the Company believes it would be helpful for understanding trends in its business, it restates percentage increases or decreases in selected financial data to eliminate the effect of changes in currency values, particularly the U.S. dollar and the Japanese yen, relative to the euro. When trend information is expressed below ‘‘in constant currencies’’, the results of the prior year have first been recalculated using the average exchange rates of the most recent year, and then compared with the results of the most recent year. All constant currency information is provided on an approximate basis. Unless otherwise indicated, the impact of exchange rate fluctuations is approximately the same for both the Company’s IFRS and supplemental non-IFRS financial data. 3.1.1.1 Executive Overview for 2012 Dassault Syst `emes, the 3DEXPERIENCE Company, provides business and people with 3D virtual universes to imagine sustainable innovations. Its world-leading solutions transform the way products are designed, produced, and supported. Dassault Syst `emes’ collaborative solutions foster social innovation, expanding possibilities for the virtual world to improve the real world. The Group brings value to over 170,000 customers of all sizes, in 12 industries, in more than 140 countries. 2012 represented an important juncture, with the unveiling of a new horizon, Dassault Syst `emes, the 3DEXPERIENCE Company, and the launching of the Company’s Social Industry Experiences strategy. In conjunction with its new strategy, the Company expanded its mission with the purpose of providing businesses and people with 3DEXPERIENCE universes to imagine sustainable innovations capable of harmonizing product, nature and life. It was a year of significant investment and transformation within the Company, with 3DEXPERIENCE driving the Company’s strategy, product roadmaps and organizational structure as it positioned itself to access a market opportunity estimated at $32 billion, representing a potential doubling of the current addressable PLM market. During 2012 the Company released its first 12 industry solution experiences. These offers are designed to enable companies to take full value from its brands in an easy manner, as the Company brings together the appropriate applications and technologies from its broad applications portfolio to address specific industry business objectives. 2012 was a record year for revenue, earnings, operating profitability and cash flow from operations. The financial performance during 2012 demonstrated the Company’s ability to execute on its ambitious roadmap for the future while also maintaining a strong operational focus. The Company completed three acquisitions during 2012 for cash consideration, net of cash acquired, of e281.5 million to advance its 3DEXPERIENCE strategy, most notably Gemcom to expand the Company’s focus to the Natural Resources industry. In addition, the Company acquired Netvibes to add dashboarding information intelligence capabilities for businesses and consumers, and SquareClock, providing cloud-based 3D space planning solutions. In 2012, the Company spun off Transcat PLM GmbH, its sales and services subsidiary and long time development partner dedicated to customers of all sizes in Germany and Slovakia, via a management buyout. 2012 Year in Review (all revenue growth comparisons are in constant currencies) (cid:127) Revenue: IFRS and non-IFRS total revenue increased 9% primarily driven by software revenue growth of 9% (IFRS) and 10% (non-IFRS). Software revenue represented 91% of total revenue. Services and other revenue increased 7%. 2012 results include the 60 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 acquisition of Gemcom and the divestiture of Transcat PLM GmbH. Excluding the six-month impact of these transactions, IFRS and non-IFRS revenue growth would have been 8%. (cid:127) Industries: During 2012 the Company saw a good dynamic in its largest industries, Transportation & Mobility and Industrial Equipment, as well as increased traction in target verticals, such as Consumer Product Goods – Retail, Energy, Process & Utilities, and Architecture, Engineering & Construction. With the acquisition of Gemcom in 2012, the Company is now present in the Natural Resources industry. (cid:127) Geographic regions: Asia was the best performing region, growing by 13%, Europe was higher by 8%, and the Americas by 7%. High-growth countries grew 16% and represented 12% of total revenue. The composition of high-growth countries includes both individual countries as well as regional markets as follows: China, India, South Korea, Latin America, Russia and the Commonwealth of Independent States. (cid:127) New business: The Company’s long-standing software licensing model gives customers the flexibility to choose either new licenses or rentals or a combination thereof. New business activity during 2012 was reflected in both new licenses revenue, which increased 9%, and periodic (rental) licensing revenue, which increased 17% and is included in recurring software revenue. (cid:127) Recurring software revenue: Recurring software revenue increased 9% (IFRS) and 10% (non-IFRS) from growth in maintenance from new licensing activity, strong renewal rates and growth in periodic (rental) licensing. Recurring software revenue represented 71% of total software revenue in 2012. (cid:127) Operating income: The Company reported strong growth in operating income principally due to higher revenue as well as an improvement in its operating margin reflecting continued focus on driving operational excellence. IFRS operating income increased 17% to e501.0 million and the operating margin improved 70 basis points to 24.7%. Similarly, on a non-IFRS basis, operating income increased 19% to e644.3 million and the non-IFRS operating margin expanded 120 basis points to 31.6%. (cid:127) Net income: Net income per diluted share increased 14% to e2.66 (IFRS) and 15% to e3.37 (non-IFRS). Growth in IFRS and non-IFRS earnings per share reflected higher revenue, operating margin expansion and growth in financial income offset in part by a higher effective tax rate. (cid:127) Cash flows: Net cash provided by operating activities totaled e566.3 million, representing an increase of 25.6% compared to e450.9 million for 2011, on higher net income and a significant improvement in working capital. The Company’s principal uses of cash during 2012 included acquisitions of e281.5 million, net of cash acquired, repayment of debt totaling e264.7 million, payment of cash dividends of e87.8 million, share repurchases of e75.1 million, and purchases of property and equipment of e34.9 million. 2013 Business Outlook The Company enters 2013 with a strengthened organization and increased sales capacity. At the same time, the Company continues to maintain a cautious view on the global macroeconomic environment with mixed trends among the various regional markets as it observed in its business during the second half of 2012. For a discussion of the Company’s 2013 business outlook, see paragraph 3.2 ‘‘Financial Objectives’’. For further information regarding risks facing the Company, see paragraph 1.6.1 ‘‘Risks Related to the Company’s Business’’. DASSAULT SYST `EMES Annual Report 2012 61 Financial review and prospects 3 3.1.1.2 Supplemental Non-IFRS Financial Information Readers are cautioned that the supplemental non-IFRS financial information is subject to inherent limitations. It is not based on any comprehensive set of accounting rules or principles and should not be considered in isolation from or as a substitute for IFRS measurements. The supplemental non-IFRS financial information should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with IFRS. Furthermore, the Company’s supplemental non-IFRS financial information may not be comparable to similarly titled non-IFRS measures used by other companies. Specific limitations for individual non-IFRS measures are set forth below. In evaluating and communicating its results of operations, the Company supplements its financial results reported on an IFRS basis with non-IFRS financial data. As further explained below, the supplemental non-IFRS financial information excludes the effects of: deferred revenue adjustments for acquired companies, amortization of acquired intangibles, share-based compensation expense, other operating income and expense, net, certain one-time items included in financial income and other, net, and the income tax effect of the non-IFRS adjustments and certain one-time tax effects. Subject to the limitations set forth above and below, the Company believes that the supplemental non-IFRS financial information provides a consistent basis for period-to-period comparisons which can improve investors’ understanding of its financial performance. The Company’s management uses the supplemental non-IFRS financial information, together with its IFRS financial information, to evaluate its operating performance, make operating decisions, conduct planning and set objectives for future periods. Compensation of its executive officers is based in part on the performance of its business measured with the supplemental non-IFRS information. The Company believes that the supplemental non-IFRS data also provides meaningful information to investors and financial analysts who use the information for comparing the Company’s operating performance to its historical trends and to other companies in its industry, as well as for valuation purposes. The supplemental non-IFRS financial information adjusts the Company’s IFRS financial information to exclude: (cid:127) deferred revenue adjustment of acquired companies: under IFRS, deferred revenue of an acquired company must be adjusted by writing it down to account for the fair value of customer support obligations assumed under support contracts acquired through the acquisition of the company. As a result, in the case of a typical one-year contract, the Company’s IFRS revenues for the one-year period subsequent to an acquisition do not reflect the full amount of revenue on assumed contracts that would have otherwise been recorded by the acquired entity in the absence of the acquisition. In its supplemental non-IFRS financial information, the Company has excluded this write-down to the carrying value of the deferred revenue, and reflects instead the full amount of such revenue. The Company believes that this non-IFRS measure of revenue is useful to investors and management because it reflects a level of revenue and operational results which corresponds to the combined business activities of Dassault Syst `emes and the acquired company. In addition, the non-IFRS financial information provides a consistent basis for comparing its future operating performance, when no further adjustments to deferred revenue are required, against recent results. However, by excluding the deferred revenue adjustment, the supplemental non-IFRS financial information reflects the total revenue that would have been recorded by the acquired entity but may not reflect the total cost associated with generating the non-IFRS revenue. (cid:127) amortization of acquired intangibles, including amortization of acquired technology: under IFRS, the cost of acquired intangible assets, whether acquired through acquisitions of companies or of technology or certain other intangible assets, must be recognized according to the assets’ fair value and amortized over their useful life. In its supplemental non-IFRS financial information, the Company has excluded the amortization expenses related to acquired intangibles in order to provide a consistent basis for comparing its historical results. For technology and other intangible assets the Company develops internally, it typically expenses costs in the period in which they are incurred. For example, because it typically incurs most of its R&D costs prior to reaching technical feasibility, its R&D costs are expensed in the period in which they are incurred. By excluding the amortization expenses related to acquired intangibles, the supplemental non-IFRS financial information provides a uniform approach for evaluating the development cost of all the Company’s technology, whether developed internally or acquired externally. As a result, the Company believes that the supplemental financial information offers investors a useful basis for comparing its historical results. However, the acquired intangible assets whose amortization costs are excluded contributed to revenue earned during the period, and it may not have been possible to earn such revenue without such assets. In addition, the amortization of acquired intangibles is a recurring expense until their total cost has been amortized. (cid:127) share-based compensation expense: under IFRS, the Company is required to recognize in its income statement all share-based payments to employees, including grants of employee stock options and performance shares, based on their fair values over the period that an employee provides service in exchange for the award. The Company excludes this expense in its supplemental non-IFRS financial information as financial analysts and investors use a valuation model which may not take into account its share-based compensation expense. The exclusion of share-based compensation 62 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 expense in the Company’s supplemental non-IFRS financial information therefore helps them ensure the consistency of their valuation metrics. The Company’s management considers the supplemental non-IFRS information which excludes share-based compensation expense when reviewing the Company’s operating performance, since share-based compensation expenses can fluctuate due to factors other than the level of its business activity or operating performance. However, share-based compensation is one component of employee compensation. By excluding share-based compensation expense, the supplemental non-IFRS financial information does not reflect the Company’s full cost of attracting, motivating and retaining its personnel. Share-based compensation expense is a recurring expense. (cid:127) other operating income and expense, net: under IFRS, the Company has recognized certain other operating income and expense comprised of the impact of restructuring activities, gains or losses on sale of subsidiaries or operations, costs directly related to acquisitions and costs related to site closings and relocations. In its supplemental non-IFRS financial information, the Company excludes other operating income and expense effects because of their unusual, infrequent or generally non-recurring nature. As a result, the Company believes that its supplemental non-IFRS financial information helps investors better understand the current trends in its operating performance. However, other operating income and expense are components of the Company’s income and expense and by excluding them the supplemental non-IFRS financial information excludes their impact to its net income. (cid:127) certain one-time items included in financial income and other, net: under IFRS, the Company has recognized certain one-time items in financial income and other, net comprised of gains or losses on previously held interest upon acquiring the control of businesses, gains and losses on disposals of investments and the expense recognized following the impairment of non-consolidated equity investments. In its supplemental non-IFRS financial information, the Company excludes certain one-time items included in financial income and other, net because of their unusual, infrequent or generally non-recurring nature. As a result, the Company believes that its supplemental non-IFRS financial information helps investors better understand the current trends in its operating performance. However, these one-time items included in financial income and other, net are components of the Company’s income and expense and by excluding them the supplemental non-IFRS financial information excludes their impact to its net income. (cid:127) certain one-time tax effects: in 2012, the Company restructured certain activities which, as a result, led to an immediate adjustment of deferred tax assets. The Company’s IFRS financial statements reflect the impact of these one-time tax effects. In its supplemental non-IFRS financial information for 2012, the Company has excluded these one-time tax effects because of their unusual nature in qualitative terms. The Company does not expect such tax effects to occur as part of its normal business on a regular basis. As a result, the Company believes that by excluding these one-time tax impacts, its supplemental non-IFRS financial information helps investors understand the current trends in its operating performance. The Company also believes that the exclusion of certain one-time tax effects facilitates a comparison of its effective tax rate between different periods. However, these one-time tax effects are a component of the Company’s income tax expense. By excluding these effects, the supplemental non-IFRS financial information understates the Company’s income tax expense. These one-time tax effects are not a recurring expense. DASSAULT SYST `EMES Annual Report 2012 63 Financial review and prospects 3 The following table sets forth the Company’s supplemental non-IFRS financial information, together with the comparable IFRS financial measure and a reconciliation of the IFRS and non-IFRS information. (in millions, except percentages and per share data) 2012 2012 IFRS Adjustment(1) non-IFRS 2011 2011 IFRS Adjustment(1) non-IFRS IFRS non-IFRS(2) (cid:1) Year ended December 31, (cid:2)(cid:1) % Change (cid:2) Total Revenue Total revenue by activity Software revenue Services and other revenue Total revenue by geography Americas Europe Asia Total revenue by segment PLM SOLIDWORKS Total Operating Expenses Share-based compensation expense Amortization of acquired intangibles Other operating income and expense, net Operating Income PLM SOLIDWORKS Operating Margin PLM SOLIDWORKS Financial income (expense) and other, net Income before Income Taxes Income tax expense (of which certain one-time tax restructuring effects) Minority interest Net Income attributable to shareholders Diluted Net Income per Share(3) g2,028.3 g10.2 g2,038.5 g1,783.0 g0.5 g1,783.5 14% 1,843.2 185.1 564.3 908.9 555.1 1,625.1 403.2 1,527.3 (36.8) (93.7) (2.6) 501.0 322.2 178.8 24.7% 19.8% 44.3% 18.1 519.1 (180.3) (5.0) (4.0) g334.8 g2.66 10.2 1,853.4 1,616.9 0.5 1,617.4 – 185.1 166.1 3.0 2.0 5.2 567.3 910.9 560.3 488.8 827.1 467.1 10.2 1,635.3 1,442.0 – 403.2 341.0 – – 0.2 0.3 0.5 – 166.1 488.8 827.3 467.4 1,442.5 341.0 (133.1) 1,394.2 1,355.1 (114.2) 1,240.9 36.8 93.7 2.6 143.3 143.2 0.1 (7.4) 135.9 (46.2) 5.0 – g89.7 g0.71 – – – 644.3 465.4 178.9 31.6% 28.5% 44.4% 10.7 655.0 (20.7) (83.6) (9.9) 427.9 283.5 144.4 24.0% 19.7% 42.3% 0.4 429.0 (226.5) (138.5) – (4.0) g424.5 g3.37 – (1.3) g289.2 g2.33 20.7 83.6 9.9 114.7 112.2 2.5 (2.4) 112.3 (39.1) – (0.3) g72.9 g0.59 – – – 542.6 395.7 146.9 30.4% 27.4% 43.1% (2.0) 541.3 (177.6) – (1.6) g362.1 g2.92 14% 11% 15% 10% 19% 13% 18% 13% 78% 12% (74)% 17% 14% 24% 21% 30% 16% 14% 14% 15% 11% 16% 10% 20% 13% 18% 12% – – – 19% 18% 22% 21% 28% 17% 15% (1) In the reconciliation schedule above, (i) all adjustments to IFRS revenue data reflect the exclusion of the deferred revenue adjustment of acquired companies, (ii) adjustments to IFRS operating expense data reflect the exclusion of the amortization of acquired intangibles, share-based compensation expense and related social charges, as detailed below, and other operating income and expense, net (iii) adjustments to IFRS financial income and other, net reflect the exclusion of certain one-time items included in financial income and other, net, and (iv) all adjustments to IFRS income data reflect the combined effect of these adjustments, plus with respect to net income and diluted net income per share, the income tax effect of the non-IFRS adjustments and certain one-time tax effects in 2012. (cid:1) Year ended December 31, (cid:2) (in millions) Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense 2012 IFRS e267.0 368.1 632.6 163.3 Adjustment 2012 non-IFRS e(0.6) (14.2) (11.0) (11.0) g(36.8) e266.4 353.9 621.6 152.3 2011 IFRS e249.4 329.3 535.3 147.6 Adjustment 2011 non-IFRS e(0.6) (10.1) (5.5) (4.5) g(20.7) e248.8 319.2 529.8 143.1 (2) The non-IFRS percentage change compares non-IFRS measures for the two different periods. In the event there is an adjustment to the relevant measure for only one of the periods under comparison, the non-IFRS change compares the non-IFRS measure to the relevant IFRS measure. (3) Based on a weighted average of 125.9 million diluted shares for 2012 and 124.0 million diluted shares for 2011. 64 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 3.1.1.3 Critical Accounting Principles The Company’s consolidated financial statements have been prepared in accordance with IFRS. The preparation of these financial statements requires the Company to make certain assumptions and judgments. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of its consolidated financial statements: revenue recognition, cost of software revenue, R&D, purchase price allocation for business combinations, goodwill and other intangible assets, and income taxes. See Note 2 to the consolidated financial statements for a description of these accounting policies. 3.1.2 Consolidated Information: 2012 Compared to 2011 Revenue The Company’s total revenue is comprised of (i) software revenue, which is its primary souce of revenue, representing 91% of total revenue in 2012, and (ii) services and other revenue, which represented 9% of total revenue in 2012. (in millions, except percentages) Total Revenue Total revenue by activity Software revenue Services and other revenue Total revenue by geographic region(1) Americas Europe Asia Total revenue by segment PLM revenue SOLIDWORKS revenue Year ended December 31, 2012 e2,028.3 1,843.2 185.1 564.3 908.9 555.1 1,625.1 e403.2 % change % change in constant currencies Year ended December 31, 2011 14% 14% 11% 15% 10% 19% 13% 18% 9% 9% 7% 7% 8% 13% 8% 12% e1,783.0 1,616.9 166.1 488.8 827.1 467.1 1,442.0 e341.0 (1) The Company’s largest national markets as measured by total revenue are the United States, Japan, Germany, and France. See Note 3 to the consolidated financial statements. Total revenue increased 13.8% or e245.3 million primarily driven by software revenue growth of 14.0% or e226.3 million, well supported by services and other revenue growth of 11.4% or e19.0 million. In constant currencies, total revenue increased approximately 9%, software revenue increased about 9% and services and other revenue increased about 7%. 2012 results include the acquisition of Gemcom and the divestiture of Transcat PLM GmbH. Excluding the six-month impact of these transactions, total revenue growth would have been 8% in constant currencies compared to the 9% reported. Similarly, non-IFRS total revenue increased 14.3% and approximately 9% in constant currencies to e2.04 billion in 2012 compared to e1.78 billion in 2011, primarily reflecting non-IFRS software revenue growth of 14.6% and approximately 10% in constant currencies. Total reported revenue and software revenue growth rates were higher than constant currency revenue growth by approximately 5 percentage points principally due to the euro weakening approximately 8% against the U.S. dollar and 8% against the Japanese yen. The average 2012 U.S. dollar to euro exchange rate was $1.28 compared to the 2011 average of $1.39 per euro. With respect to the Japanese yen, the average 2012 Japanese yen to euro exchange rate was 102.5 per euro compared to 111.0 per euro in 2011. As a percentage of total revenue, Europe represented 45% (47% in 2011), the Americas represented 28% (27% in 2011) and Asia represented 27% (26% in 2011). In terms of each region’s respective contribution to growth in consolidated revenues (and based on constant currencies), Asia contributed 39%, Europe contributed 40% and the Americas contributed 21%. (cid:127) Asia was the best performing region with revenue increasing 13% (14% non-IFRS) in constant currencies, reflecting a further return to investment by Japanese customers and strong growth in China and South Korea; (cid:127) Despite the impact of the macro-environment softening which began to affect regional results in Europe in the third quarter of 2012, full year performance was solid with revenue higher by 8% in constant currencies, led by Germany and France; DASSAULT SYST `EMES Annual Report 2012 65 Financial review and prospects 3 (cid:127) In the Americas, there were a number of important wins and contract renewals during the year in the Company’s PLM sales channels (3DS Business Transformation and 3DS Value Solutions) and good growth in its 3DS Professional channel, leading to a 7% increase in total revenue in constant currencies. High-growth countries posted 16% revenue growth in constant currencies on broad strength and represented 12% of total revenue in 2012, increasing from 11% in 2011 (the 2011 amount has been recalculated to reflect a more narrow definition of high growth countries instituted in 2012 by the Company). Software Revenue Software revenue is comprised of new licenses revenue and periodic licenses, maintenance and product development revenue. Periodic licenses and maintenance revenue are referred to together as ‘‘recurring revenue’’. The Company’s products are principally licensed pursuant to one of two payment structures: (i) new licenses, for which the customer pays an initial or one-time fee for a perpetual license or (ii) periodic (rental) licenses, for which the customer pays periodic fees to keep the license active. Access to maintenance and product updates or upgrades requires payment of a fee, which is recorded as maintenance revenue. Periodic (rental) licenses entitle the customer to corrective maintenance and product updates without additional charge. Product updates include improvements to existing products but do not cover new products. Periodic license revenue includes software revenue generated from new customers, or from new business with existing customers, if the customer chooses that payment structure. The Company’s product development revenue relates to the development of additional functionalities of standard products requested by customers. (in millions, except percentages) Software revenue New licenses revenue Periodic licenses, maintenance and product development revenue Total software revenue (as % of total revenue) (cid:1) Year ended December 31, (cid:2) 2012 2011 e532.3 1,310.9 g1,843.2 90.9% e465.0 1,151.9 g1,616.9 90.7% Software revenue grew 14.0%, and approximately 9% (10% non-IFRS) in constant currencies. Software revenue increased e226.3 million, with periodic licenses, maintenance and product development revenue increasing e159.0 million and representing 71.1% of total software revenue, and new licenses revenue increasing e67.3 million and representing 28.9% of total software revenue. By region, Asia was the largest contributor to growth in software revenue, well supported by Europe and the Americas. New licenses revenue increased 14.5%, and approximately 9% in constant currencies. New licenses revenue growth of e67.3 million reflected a sharp increase in Asia followed by Europe and the Americas. SIMULIA, CATIA and SOLIDWORKS reported the strongest new licenses revenue growth rates. Recurring software revenue increased 13.6% (14.5% non-IFRS) to e1.30 billion for 2012, compared to e1.15 billion in 2011, or approximately 9% (10% non-IFRS) in constant currencies. Recurring software revenue growth of e156.3 million reflected an increase in maintenance from new licensing activity, and growth in periodic (rental) licensing. In total, recurring software revenue growth was similar across the three geographic regions. Renewal rates on maintenance were strong and remained stable in 2012 in comparison to 2011. Periodic (rental) revenue growth was strongest in Europe and the Americas on a regional basis and for SIMULIA, CATIA and ENOVIA on a brand basis. Product development revenue increased to e6.5 million in 2012 compared to e3.8 million in 2011. 66 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 Services and Other Revenue Services and other revenue is largely comprised of revenue from consulting services in methodology for design, deployment and support, training services and engineering services. In addition, the Company has historically included commission revenue from its business partner operations in services and other revenue. For each of the years 2012 and 2011, substantially all the Company’s service revenue was generated by the PLM segment. (in millions, except percentages) Services and other revenue (as % of total revenue) (cid:1) Year ended December 31, (cid:2) 2012 g185.1 9.1% 2011 g166.1 9.3% Services and other revenue increased 11.4% and approximately 7% in constant currencies principally due to growth of service engagements. In June 2012, the Company divested its business partner operations in Germany, Transcat PLM GmbH, whose results were previously included in services and other revenue. Operating expenses (in millions) Operating expenses Adjustments(1) Non-IFRS operating expenses(1) (cid:1) Year ended December 31, (cid:2) 2012 2011 g1,527.3 (133.1) g1,394.2 g1,355.1 (114.2) g1,240.9 (1) The adjustments and non-IFRS operating expenses in the table above reflect adjustments to the Company’s financial information prepared in accordance with IFRS by excluding (i) the amortization of acquired intangibles, (ii) share-based compensation expense and related social charges, and (iii) other operating income and expense, net. For the reconciliation of this non-IFRS financial information with information set forth in the Company’s financial statements and the notes thereto, see paragraph 3.1.1.2 ‘‘Supplemental Non-IFRS Financial Information’’. Operating expenses increased 12.7%, or excluding net negative currency effects approximately 8% (similarly, 8% in non-IFRS). The increase in total operating expenses was principally driven by growth in total headcount coming from new hires and acquisitions, and investments in branding and market awareness. The increase in operating expenses also reflected the rise in the rate of social charges paid by the Company in France principally on the employee profit-sharing plan. Cost of Revenue The cost of revenue consists of: (cid:127) The cost of software revenue, which includes principally software personnel costs, licensing fees paid for third-party components integrated into the Company’s own products, CD costs, preparation costs for user manuals and delivery costs; (cid:127) The cost of services and other revenue, which includes principally personnel and other costs related to organizing and providing consulting services. (in millions) Cost of software revenue (excluding amortization of acquired intangibles) Cost of services and other revenue Cost of revenue (cid:1) Year ended December 31, (cid:2) 2012 e92.2 174.8 g267.0 2011 e80.8 168.6 g249.4 Cost of software revenue (excluding amortization of acquired intangibles) increased 14.1%, and approximately 8% excluding net negative currency effects. The increase in cost of software was principally due to growth in personnel, notably with the acquisitions of Gemcom and Netvibes, salary and benefits increases, and to higher royalty costs primarily reflecting growth in software revenue. The cost of software revenue (excluding amortization of acquired intangibles) represented 4.5% of total revenue in 2012 and 2011. Cost of services and other revenue increased 3.7%. Excluding a net negative currency impact of about 4 points, services and other revenue costs were flat. The services and other revenue gross margin increased to 5.6% in 2012, compared to a negative margin of (1.5)% in 2011, DASSAULT SYST `EMES Annual Report 2012 67 Financial review and prospects 3 principally reflecting operational improvements. The cost of services and other revenue amounted to 8.6% and 9.5% of total revenue in 2012 and 2011, respectively. Research and Development Expenses The Company believes that its ongoing significant investment in R&D is one of the most important elements of its success. The Company conducts its research in three principal countries: France, the United States and India (through its 3DPLM Ltd subsidiary), as well as in Germany, South Korea, the United Kingdom, Sweden, Australia and Canada. Expenses for R&D include primarily personnel costs as well as the rental, depreciation and maintenance expenses for computers and computer hardware used in R&D, development tools, computer networking and communication expenses. Costs for R&D of software are expensed in the period in which they were incurred. The Company generally does not capitalize any R&D costs. A small percentage of R&D personnel pursue R&D activities in the context of providing clients with software maintenance, and their cost is thus included under cost of software revenue. Expenses for R&D are recorded net of grants received from various governmental authorities to finance certain R&D activities (mainly R&D tax credits in France). (in millions, except percentages) Research and development expenses (as % of total revenue) (cid:1) Year ended December 31, (cid:2) 2012 g368.1 18.1% 2011 g329.3 18.5% R&D expenses increased 11.8%, or approximately 8% excluding a net negative currency impact. R&D expense increased principally as a result of a 6% average growth in R&D personnel, a decrease in government grants and other governmental programs supporting R&D (e19.9 million in 2012 compared to e26.9 million in 2011) and salary and benefit increases generally. The Company continues to focus on improving the balance of its research efforts in its three major locations in France, the United States and India. Marketing and Sales Expenses Marketing and sales expenses consist primarily of personnel costs, which include sales commissions and personnel for processing sales transactions; marketing and communications expenses, including advertising; travel expenses; and marketing infrastructure costs, such as information technology resources used for marketing. (in millions, except percentages) Marketing and sales expenses (as % of total revenue) (cid:1) Year ended December 31, (cid:2) 2012 g632.6 31.2% 2011 g535.3 30.0% Marketing and sales expenses increased 18.2%, or approximately 13% excluding a net negative currency effect. The principal drivers of the growth included a significant increase in marketing costs for a global advertising campaign, a 6% increase in average marketing and sales personnel headcount, principally related to the industry organization implementation, higher salaries, bonus and commissions, and increased expenses for travel, events and other support activities for the sales and distribution channels. General and Administrative Expenses (in millions, except percentages) General and administrative expenses (as % of total revenue) (cid:1) Year ended December 31, (cid:2) 2012 g163.3 8.1% 2011 g147.6 8.3% General and administrative expenses increased 10.6%, or approximately 7% excluding a net negative currency effect. The increase in general and administrative expenses reflected growth of 8% in personnel principally from acquisitions, annual salary and benefit increases and a net increase in recruiting, training and severance, offset in part by the settlement of third-party claims, particularly in the IP field. 68 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 Amortization of Acquired Intangibles Amortization of acquired intangibles includes mainly amortization of acquired technology, acquired customer relationships, and trademarks. (in millions) Amortization of acquired intangibles (cid:1) Year ended December 31, (cid:2) 2012 g93.7 2011 g83.6 Amortization of acquired intangibles increased e10.1 million, reflecting principally the acquisition of Gemcom in 2012. Other Operating Income and (Expense), Net Other operating income and (expense), net, includes the impact of events that are unusual, infrequent or generally non-recurring in nature. (in millions) Other operating income and (expense), net (cid:1) Year ended December 31, (cid:2) 2012 g(2.6) 2011 g(9.9) Other operating income and (expense), net, decreased by e7.3 million in 2012, principally reflecting a gain on the sale of Transcat PLM GmbH of e8.3 million, and lower restructuring costs of e4.5 million, which more than offset an increase in direct acquisition costs of e5.6 million. See Note 8 to the consolidated financial statements. Operating income (in millions) Operating income (cid:1) Year ended December 31, (cid:2) 2012 g501.0 2011 g427.9 Operating income increased 17.1% or e73.1 million from 2011 principally driven by a 13.8% increase in revenue and to a lesser extent, an improvement in the operating margin. Operating expenses increased 12.7% but declined as a percentage of total revenue to 75.3% compared to 76.0% in 2011. As a result, the operating margin improved to 24.7% for 2012 compared to 24.0% for 2011. Similarly, on a non-IFRS basis, operating income increased 18.7% to e644.3 million for 2012 from e542.6 million in 2011 and the non-IFRS operating margin increased to 31.6% for 2012, compared to 30.4% for 2011. Financial income (expense) and other, net Financial income (expense) and other, net includes (i) interest income and interest expense, net; (ii) foreign exchange gains or losses, net, primarily composed of realized and unrealized exchange gains and losses on receivables and loans denominated in U.S. dollars, Japanese yen, Korean won and Chinese yuan; and (iii) one-time items, net principally composed of net gains or losses on sales of investments. (in millions) Financial income (expense) and other, net (cid:1) Year ended December 31, (cid:2) 2012 g18.1 2011 g0.4 Financial income (expense) and other, net was mainly comprised of net financial interest income of e13.3 million (2011: e5.8 million) with the growth reflecting principally higher interest rates, as well as exchange losses of e(2.9) million (2011: e(7.9) million), and net gains from sales of investments of e7.4 million (2011: e2.5 million). See Note 9 to the consolidated financial statements. On a non-IFRS basis, financial income (expense) and other, net totaled e10.7 million for 2012 compared to e(2.0) million in 2011 and excluded one-time items in 2012 and 2011. DASSAULT SYST `EMES Annual Report 2012 69 Financial review and prospects 3 Income tax expense (in millions, except percentages) Income tax expense Effective consolidated tax rate (cid:1) Year ended December 31, (cid:2) 2012 g180.3 34.7% 2011 g138.5 32.3% Income tax expense increased 30.2%, or e41.8 million, principally reflecting a 21.0% increase in pre-tax income as well as an increase in the consolidated effective tax rate of 2.4 points, mainly due to lower tax credits received by the Company. See Note 10 to the consolidated financial statements for an explanation of the differences between the effective tax rate and the taxes computed at the statutory French tax rate of 36.10%. On a non-IFRS basis, income tax expense increased 27.5%, or e48.9 million, to e226.5 million, reflecting a 21.0% increase in pre-tax income as well as an increase in the non-IFRS effective consolidated tax rate to 34.6% for 2012 compared to 32.8% for 2011. Net income and diluted net income per share (in millions, except per share data) Net income attributable to shareholders Diluted net income per share Diluted weighted average number of shares outstanding (cid:1) Year ended December 31, (cid:2) 2012 g334.8 e2.66 e125.9 2011 g289.2 e2.33 e124.0 Net income attributable to shareholders increased 15.8%, reflecting an increase in pre-tax income of 21.0%, partially reduced by an increase in the effective tax rate. Diluted net income per share increased 14.2% principally reflecting an increase in net income attributable to shareholders, offset slightly by an increase in diluted weighted average shares outstanding of 1.5%. Similarly, non-IFRS net income increased 17.2% to e424.5 million compared to e362.1 million in 2011 and non-IFRS net income per diluted share increased 15.4% to e3.37 per share from e2.92 per share in 2011. 3.1.3 Revenue and Operating Income by Segment PLM Revenue (in millions, except percentages) Revenue (excluding inter-segment sales) PLM revenue Supplemental non-IFRS financial information(1) PLM non-IFRS revenue (cid:1) Year ended December 31, (cid:2) 2012 % of Total revenue 2011 % of Total revenue e1,625.1 80.1% e1,442.0 e1,635.3 80.2% e1,442.5 80.9% 80.9% (1) The supplemental non-IFRS financial information reflects adjustments to the Company’s audited financial information by excluding the effect of adjusting the carrying value of acquired companies’ deferred revenue. For the reconciliation of this non-IFRS financial information with information set forth in the Company’s financial statements and the notes thereto, see paragraph 3.1.1.2 ‘‘Supplemental Non-IFRS Financial Information’’ above. PLM software revenue increased 12.9% (13.6% non-IFRS), and approximately 8% (9% non-IFRS) on a constant currency basis. The PLM software revenue increase of e164.1 million reflected CATIA growth of e64.8 million, ENOVIA growth of e28.6 million and Other PLM (SIMULIA, DELMIA, EXALEAD, 3DVIA, 3DSWYM and the addition of GEOVIA) growth of e70.7 million in 2012. PLM service revenue increased 11.4% in 2012 to e185.1 million and approximately 7% on a constant currency basis. See paragraph 3.1.2 ‘‘Consolidated Information: 2012 Compared to 2011’’. 70 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 On a non-IFRS basis, CATIA software revenue increased 8.4% and approximately 5% in constant currencies, ENOVIA software revenue increased 12.4% and approximately 7% in constant currencies, and Other PLM software revenue increased 28.5% and approximately 22% in constant currencies. Operating income (in millions, except percentages) Operating income PLM operating income Supplemental non-IFRS financial information(1) PLM non-IFRS operating income (cid:1) Year ended December 31, (cid:2) 2012 e322.2 e465.4 % of Total operating income 64.3% 72.2% 2011 e283.5 e395.7 % of Total operating income 66.3% 72.9% (1) The supplemental non-IFRS financial information reflects adjustments to the Company’s audited financial information by excluding (i) the effect of adjusting the carrying value of acquired companies’ deferred revenue, (ii) the amortization of acquired intangibles, (iii) share-based compensation expense and related social charges and (iv) other operating income and expense, net. For the reconciliation of this non-IFRS financial information with information set forth in the Company’s financial statements and the notes thereto, see paragraph 3.1.1.2 ‘‘Supplemental Non-IFRS Financial Information’’. Operating income for the PLM segment increased 13.6%, reflecting a 12.7% increase in revenue and an increase in the PLM operating margin. On a non-IFRS basis, PLM operating income increased 17.6%, reflecting an increase of 13.4% in revenue and an improvement in the operating margin. The PLM operating margin was 19.8% in 2012 compared to 19.7% in 2011, and the non-IFRS PLM operating margin increased to 28.5% in 2012 from 27.4% in 2011, reflecting similar factors as for the Company’s consolidated operating margin growth. SOLIDWORKS Revenue (in millions, except percentages) Revenue (excluding inter-segment sales) SOLIDWORKS revenue (cid:1) Year ended December 31, (cid:2) 2012 % of Total revenue 2011 % of Total revenue e403.2 19.9% e341.0 19.1% SOLIDWORKS revenue increased 18.2% in 2012 and approximately 12% in constant currencies. SOLIDWORKS new license revenue rose double digits on an increase in new seats of 11% to 52,987 seats and growth in revenue from multi-product sales including SOLIDWORKS simulation and product data management, and increased sales capacity. SOLIDWORKS recurring software revenue increased double digits, benefiting principally from an increased number of seats under maintenance coming from new licensing activity as well as stable maintenance subscription and renewal rates in 2012 in comparison to 2011. Operating income (in millions, except percentages) Operating income SOLIDWORKS operating income Supplemental non-IFRS financial information(1) SOLIDWORKS non-IFRS operating income (cid:1) Year ended December 31, (cid:2) 2012 e178.8 e178.9 % of Total operating income 35.7% 27.8% 2011 e144.4 e146.9 % of Total operating income 33.7% 27.1% (1) The supplemental non-IFRS financial information reflects adjustments to the Company’s audited financial information by excluding (i) the effect of adjusting the carrying value of acquired companies’ deferred revenue, (ii) the amortization of acquired intangibles, (iii) share-based compensation expense and related social charges, and (iv) other operating income and expense, net. For the reconciliation of this non-IFRS financial information with information set forth in the Company’s financial statements and the notes thereto, see paragraph 3.1.1.2 ‘‘Supplemental Non-IFRS Financial Information’’. SOLIDWORKS operating income increased 23.8%, principally reflecting the 18.2% increase in revenue. In addition, the operating margin increased to 44.3% in 2012 from 42.3% for 2011. Similarly, on a non-IFRS basis, SOLIDWORKS operating income increased 21.8% in 2012 compared to 2011, and the operating margin improved to 44.4% in 2012 from 43.1% in 2011. DASSAULT SYST `EMES Annual Report 2012 71 Financial review and prospects 3 3.1.4 Trends in Quarterly Results The Company’s quarterly new licenses revenue has varied significantly and is likely to vary significantly in the future, according to business seasonality and clients’ decision process. The Company’s total revenue is however less sensitive to quarterly variation due to its significant level of recurring software revenue, which includes software rentals. The significant level of recurring software revenue serves as a stabilizing factor when new licensing activity is impacting revenue and net income. A significant portion of sales typically occurs in the last month of each quarter, and, as is typical in the software market, the Company normally experiences its highest licensing activity for the year in December. Software revenue, total revenue, operating income, operating margin and net income have generally been highest in the fourth quarter of each year. In 2012, revenue for the fourth, third, second and first quarters represented, respectively, 27.8% (28.7% in 2011), 24.6% (24.3% in 2011), 24.8% (24.0% in 2011) and 22.8% (23.0% in 2011) of the Company’s total revenue for the year. Nonetheless, it is possible that the Company’s quarterly total revenue could vary significantly and that its net income could vary significantly, reflecting the change in revenues, together with the effects of the Company’s investment plans. See paragraph 1.6.1.16 ‘‘Variability in Quarterly Operating Results’’. 3.1.5 Capital Resources Cash and cash equivalents and short-term investments amounted to e1.32 billion as of December 31, 2012 compared to e1.42 billion as of December 31, 2011. The Company’s net financial position was e1.28 billion at December 31, 2012, compared to e1.15 billion at December 31, 2011, and was comprised of cash, cash equivalents and short-term investments, less long-term debt. In 2011, the e200 million debt which was repaid in 2012 with cash on hand was also deducted to determine the Company’s net financial position. Short-term indebtedness amounted to e25.5 million at year-end 2012, compared to e228.9 million at year-end 2011. Note 21 to the consolidated financial statements provides a description of the Company’s borrowings and their contractual maturity. In 2012 the Company’s principal sources of liquidity were cash from operations amounting to e566.3 million, increasing by e115.4 million compared to 2011, proceeds from sales of short-term investments for a net amount of e107.9 million, and proceeds from exercise of stock options amounting to e98.7 million. During 2012 cash obtained from operations was used primarily to fund external growth investments in the amount of e281.5 million net, repay borrowings in the amount of e264.7 million, distribute cash dividends aggregating to e87.8 million, and repurchase Company shares in the amount of e75.1 million (see also the Consolidated Statements of Cash Flows in paragraph 4.1.1 ‘‘Consolidated Financial Statements’’). In 2011 the Company’s principal sources of liquidity were cash from operations amounting to e450.9 million, increasing by e42.5 million compared to 2010, and proceeds from exercise of stock options amounting to e233.4 million. During 2011 cash obtained from operations was used primarily to repurchase Company shares in the amount of e226.7 million (in order to mitigate the dilutive effect from stock options exercised in connection with the 2011 expiration of two major ten-year stock option programs), purchase short-term investments in the amount of e103.9 million, acquire tangible and intangible assets in the amount of e71.4 million, distribute cash dividends aggregating to e65.8 million, fund external growth investments in the amount of e37.4 million net, and repay borrowings in the amount of e26.2 million. Exchange rate fluctuations had a negative translation effect of e13.5 million on the Company’s December 31, 2012, cash balance compared to a positive translation effect of e27.1 million on the Company’s December 31, 2011, cash balance. The Company follows a conservative policy for investing its cash resources, mostly relying on short-term maturity investments. Investment rules are defined by the Company’s financial management and controlled by the treasury department of Dassault Syst `emes SA. 72 DASSAULT SYST `EMES Annual Report 2012 Financial review and prospects 3 3.2 Financial Objectives The Company confirms its initial 2013 non-IFRS financial objectives which were announced on February 7, 2013, when the preliminary, unaudited annual results for 2012 were released. These objectives are subject to the assumptions and cautionary statements set forth below and are subject to revision, as market and business conditions evolve during 2013. (cid:127) The Company’s initial 2013 revenue growth objective assumes a good level of recurring software revenue growth, with maintenance renewal rates similar to current levels and continued growth in rental licensing activity, and a slightly lower level of growth in new licenses revenue and in services and other revenue; (cid:127) The Company’s initial revenue growth objective for 2013 takes into consideration the mixed economic context which could cause extended sales cycles, postponements, reductions or cancellations in investment spending, including in the automotive sector and supply chain. See paragraph 1.6.1.1 ‘‘Uncertain Global Economic Environment’’. The Company’s initial 2013 non-IFRS financial objectives are as follows: (cid:127) Non-IFRS revenue growth objective range of about 5% to 7% in constant currencies (e2.06 billion to e2.09 billion based upon the 2013 currency exchange rate assumptions below); (cid:127) Non-IFRS operating margin of about 32%, slightly increasing as compared to 31.6% for 2012; (cid:127) Non-IFRS earnings per share range of about e3.45 to e3.60, representing growth between 2% and 7%; (cid:127) These financial objectives are based upon exchange rate assumptions of US$1.40 per e1.00 and JPY120.00 per e1.00. The Company’s objectives are prepared and communicated only on a non-IFRS basis. The non-IFRS objectives set forth above do not take into account the following accounting elements and are based upon the 2013 currency exchange rate assumptions above: 2013 deferred revenue write-downs currently estimated at approximately e4 million, share-based compensation expense currently estimated at approximately e35 million for 2013, and amortization expense for acquired intangibles currently estimated at approximately e94 million for 2013. These objectives do not include any impact from other operating income and expense, net. These estimates do not include any new share grants, stock-options or performance shares, nor any new acquisitions or restructurings completed after February 7, 2013. The information above includes statements that express objectives for the Company’s future financial performance. Such forward-looking statements are based on Dassault Syst `emes management’s views and assumptions as of the date of this Annual Report and involve known and unknown risks and uncertainties. The Company’s actual results or performance may be materially negatively affected and differ materially from those in such statements due to a range of factors as described in this Annual Report. For more information regarding the risks facing the Company, see paragraph 1.6.1 ‘‘Risks Related to the Company’s Business’’. 3.3 Interim and Other Financial Information Dassault Syst `emes has not published any quarterly or half-year financial information since the date of its last audited financial statements. DASSAULT SYST `EMES Annual Report 2012 73 CHAPTER 4 – FINANCIAL STATEMENTS The consolidated and parent company financial statements below will be submitted for approval at the General Meeting of Shareholders of Dassault Syst `emes scheduled for May 30, 2013. 4.1 Consolidated Financial Statements In compliance with Article 28 of the European Regulation no. 809/2004 of the European Commission, the consolidated financial statements for 2010 and 2011 are incorporated by reference in this Annual Report as stated on page 2 hereof. 4.1.1 Consolidated Financial Statements Consolidated Statements of Income (in thousands, except per share data) New licenses revenue Periodic licenses, maintenance and product development revenue Software revenue Services and other revenue Total revenue Cost of software revenue Cost of services and other revenue Research and development Marketing and sales General and administrative Amortization of acquired intangibles Other operating income and expense, net Operating income Interest income and expense, net Other financial income and expense, net Income from equity investees Income before income taxes Income tax expense Net income Attributable to: Equity holders of the Company Non-controlling interest Earnings per share Basic net income per share Diluted net income per share The accompanying notes are an integral part of these consolidated financial statements. 74 DASSAULT SYST `EMES Annual Report 2012 (cid:1) Year ended December 31, (cid:2) Notes 2012 2011 e532,338 1,310,859 1,843,197 185,145 2,028,342 (92,213) (174,821) (368,138) (632,566) (163,341) (93,718) (2,584) 500,961 13,311 4,782 – 519,054 (180,225) g338,829 e334,821 e4,008 e465,009 1,151,933 1,616,942 166,101 1,783,043 (80,842) (168,644) (329,295) (535,233) (147,626) (83,630) (9,855) 427,918 5,774 (5,399) 723 429,016 (138,515) g290,501 e289,184 e1,317 e2.72 e2.66 e2.38 e2.33 4 8 9 9 10 11 11 Financial statements 4 Consolidated Statements of Comprehensive Income (in thousands) Net income (Losses)/Gains on available for sale securities Derivative gains/(losses) on cash flow hedges Foreign currency translation adjustment Tax on items taken directly to or transferred from equity Other comprehensive income, net of tax Total comprehensive income, net of tax Attributable to: Equity holders of the Company Non-controlling interest The accompanying notes are an integral part of these consolidated financial statements. (cid:1) Year ended December 31, (cid:2) Notes 2012 2011 g338,829 g290,501 23 23 (165) 30,675 (28,108) (11,421) (9,019) g329,810 e328,691 e1,119 35 (7,734) 39,349 2,855 34,505 g325,006 e324,824 e182 DASSAULT SYST `EMES Annual Report 2012 75 Financial statements 4 Consolidated Balance Sheets (in thousands) Assets Cash and cash equivalents Short-term investments Trade accounts receivable, net Income tax receivable Other current assets Total current assets Property and equipment, net Investments and other non-current assets Deferred tax assets Intangible assets, net Goodwill Total non-current assets Total assets Liabilities and equity Trade accounts payable Accrued compensation and other personnel costs Unearned revenue Income tax payable Borrowings, current Other current liabilities Total current liabilities Deferred tax liabilities Borrowings, non-current Other non-current liabilities Total non-current liabilities Common stock Share premium Treasury stock Retained earnings and other reserves Other items Parent shareholders’ equity Non-controlling interest Total equity Total liabilities and equity The accompanying notes are an integral part of these consolidated financial statements. 76 DASSAULT SYST `EMES Annual Report 2012 (cid:1) Year ended December 31, (cid:2) Notes 2012 2011 12 12 13 13 14 15 10 17 18 21 19 10 21 19 23 e1,159,300 e1,154,275 159,765 457,819 56,322 98,180 1,931,386 107,843 39,839 65,308 671,101 788,435 268,693 494,341 65,020 74,384 2,056,713 106,601 28,619 82,995 593,866 647,990 1,672,526 g3,603,912 1,460,071 g3,516,784 e90,791 211,890 484,673 34,708 25,526 80,907 928,495 76,944 38,289 179,236 294,469 125,097 314,402 e99,844 183,849 492,036 19,568 228,942 113,926 1,138,165 59,350 72,355 163,255 294,960 123,093 263,875 (57,399) (36,524) 2,036,065 1,763,065 (53,446) (47,316) 2,364,719 2,066,193 16,229 2,380,948 g3,603,912 17,466 2,083,659 g3,516,784 Consolidated Statements of Cash Flows (in thousands) Net income Adjustments for non-cash items Changes in operating assets and liabilities Net cash provided by operating activities Additions to property, equipment and intangibles Purchases of short-term investments Proceeds from sales and maturities of short-term investments Payment for acquisition of businesses, net of cash acquired Other Net cash used in investing activities Proceeds from exercise of stock options Cash dividends paid Repurchase of common stock Repayment of borrowings Net cash used in financing activities Effect of exchange rate changes on cash Increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure Income taxes paid Cash paid for interest The accompanying notes are an integral part of these consolidated financial statements. Financial statements 4 (cid:1) Year ended December 31, (cid:2) Notes 2012 2011 24 24 14, 17 16 23 23 16, 21 g338,829 166,224 61,245 566,298 (40,626) (160,198) 268,064 (281,468) (4,550) (218,778) 98,699 (87,827) (75,136) (264,683) (328,947) (13,548) 5,025 g290,501 161,855 (1,493) 450,863 (71,358) (420,372) 316,509 (37,364) (2,294) (214,879) 233,369 (65,777) (226,697) (26,162) (85,267) 27,076 177,793 1,154,275 g1,159,300 976,482 g1,154,275 e105,397 e6,432 e108,634 e7,247 DASSAULT SYST `EMES Annual Report 2012 77 Financial statements 4 Consolidated Statements of Shareholders’ Equity (in thousands) January 1, 2011 Common stock Share premium Treasury stock Retained earnings and other reserves Other items Parent shareholders’ equity Non- controlling interest Total Equity g121,333 g229,865 g(7,172) g1,529,721 g(82,956) g1,790,791 g1,016 g1,791,807 Comprehensive income, net of tax Cash dividends paid Exercise of stock options – – – – 5,190 220,753 – – – Treasury stock transactions (3,430) (186,743) (29,352) – – – 289,184 35,640 324,824 182 325,006 (65,627) – (7,172) 17,290 – – – – (65,627) 225,943 (226,697) 17,290 (150) (65,777) – – – 225,943 (226,697) 17,290 Share-based payments Other changes December 31, 2011 Comprehensive income, net of tax Cash dividends paid Exercise of stock options Treasury stock transactions Share-based payments Other changes December 31, 2012 – g123,093 – g263,875 – g(36,524) (331) g1,763,065 – g(47,316) (331) g2,066,193 16,418 16,087 g17,466 g2,083,659 – – – – 2,625 95,757 – – – (644) (45,230) (20,875) – – – 334,821 (6,130) 328,691 1,119 329,810 (86,293) – (8,387) 25,049 – – – – (86,293) (1,534) (87,827) 98,382 (75,136) 25,049 – – – 98,382 (75,136) 25,049 23 g125,097 – g314,402 – g(57,399) 7,810 g2,036,065 – g(53,446) 7,833 g2,364,719 (822) 7,011 g16,229 g2,380,948 The accompanying notes are an integral part of these consolidated financial statements. 78 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Notes to the Consolidated Financial Statements for Years Ended December 31, 2012 and 2011 Note 1. Description of Business The ‘‘Company’’ or the ‘‘Group’’ refers to Dassault Syst `emes SA and its subsidiaries. The Company provides software solutions and consulting services. It aims at enabling 3DEXPERIENCE of products for its customers. The Company’s global customer base includes companies primarily in 12 industries: Aerospace & Defense; Transportation & Mobility; Marine & Offshore; Industrial Equipment; High-Tech; Architecture, Engineering & Construction; Consumer Goods & Retail; Consumer Packaged Goods & Retail; Life Sciences; Energy, Process & Utilities; Financial & Business Services and Natural Resources, following the acquisition of Gemcom in 2012 (see Note 16. Business Combinations). To serve these industries, the Company has developed a broad software applications portfolio, comprised of social and collaborative applications, 3D modeling applications, content and simulation applications, and information intelligence applications, all powered by its 3DEXPERIENCE Platform. Dassault Syst `emes SA is a soci ´et ´e anonyme, a form of limited liability company, incorporated under the laws of France. The Company’s registered office is located at 10, rue Marcel Dassault, in V´elizy-Villacoublay, France. The Dassault Syst `emes SA shares are listed in France on NYSE Euronext Paris. These consolidated financial statements were established under the responsibility of the Board of Directors on March 27, 2013. Note 2. Summary of Significant Accounting Policies Basis of preparation and consolidation The accompanying consolidated financial statements were prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) as adopted in the European Union. The consolidated financial statements are presented in thousands of euros except where otherwise indicated. The consolidated financial statements include the accounts of Dassault Syst `emes SA and its subsidiaries. Companies over which the Company has control over operating and financial policies are fully consolidated. Companies over which the Company exercises significant influence over operating and financial policies are accounted for under the equity method. Intercompany transactions and balances are eliminated. Impact of recently issued accounting standards The standards, interpretations and amendments which became mandatory from January 1, 2012 and were published in the Official Journal of the European Union at December 31, 2012 had no material impact on the Company’s consolidated financial statements. The Company undertakes no early application of any standard or interpretation or associated amendments, including the following which were already published in the Official Journal of the European Union at December 31, 2012: (cid:127) Amendment to IAS 1, ‘‘Presentation of financial statements’’, on presentation of items of other comprehensive income, mandatory for financial years beginning on or after July 1, 2012. This amendment affects presentation only and is not expected to have a material impact on the Company’s consolidated financial statements; (cid:127) IAS 19 (Revised), ‘‘Employee benefits’’, mandatory for financial years beginning on or after January 1, 2013. In particular, the amendments to IAS 19 require immediate recognition of actuarial gains and losses in other comprehensive income (the corridor approach is removed), immediate recognition of past service costs in the consolidated statement of income, and eliminate the concept of expected returns on plan assets. Had the Company applied the revised standard for financial year beginning on January 1, 2012, the estimated impact on its consolidated financial statements as of December 31, 2012 would have been a decrease in shareholders’ equity, net of tax, of approximately e27 million, and no material impact on the Company’s consolidated statement of income. DASSAULT SYST `EMES Annual Report 2012 79 Financial statements 4 (cid:127) IFRS 10 ‘‘Consolidated financial statements’’, IFRS 11 ‘‘Joint arrangements’’, and IFRS 12 ‘‘Disclosures of interests in other entities’’, mandatory for financial years beginning on or after January 1, 2014. The adoption of these standards is not expected to have a material impact on the Company’s consolidated financial statements. In addition, the Company’s consolidated financial statements do not take into account new standards, interpretations and amendments not yet approved by the European Union at December 31, 2012. Summary of significant accounting policies Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. Examples include: estimating loss contingencies; assessing product lifecycles; identifying the different elements comprising a software arrangement, including the distinction between upgrades/enhancements and new products; determining when technological feasibility is achieved for its products; estimating the fair value of goodwill; determining when a decline in value of the Company’s investments is other-than-temporary; determining the nature, fair value and useful life of acquired intangible assets in a business combination; determining assumptions for share-based payments; and assessing the realizability of deferred tax assets. Actual results and outcomes could differ from management’s estimates and assumptions. Foreign currency adjustments The functional currency of the Company’s foreign subsidiaries is generally the applicable local currency. Assets and liabilities with functional currencies other than the euro are translated into euro equivalents at the rate of exchange in effect on the balance sheet date. Revenues, expenses and cash flows are translated at the average exchange rates for the year unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case revenues, expenses and cash flows are translated at the rate on the dates of the transactions. Translation gains or losses are recorded in Other items in shareholders’ equity. Exchange differences on the settlement or retranslation of monetary items in a currency other than the Company’s and its subsidiaries’ functional currency are recorded in the statement of income. Revenue recognition The Company derives revenue from two primary sources: (1) new software licenses, periodic licenses, maintenance and product development, which includes software license updates, technical support and the development of additional functionalities of standard products requested by clients; (2) consulting and training services and other revenue. Revenues are disclosed net of taxes collected from customers and remitted to governmental authorities. Software License, Maintenance and Product Development Revenue – Software license revenue represents fees earned from granting customers licenses to use the Company’s software. The Company’s software license revenue consists of perpetual and periodic license sales of software products. Software license revenue is recognized (to the extent the Company has no remaining obligations to perform) when: evidence of an arrangement exists, delivery and acceptance has occurred, the amount of revenue and associated costs can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Company. In instances when any of the four criteria are not met, the Company defers recognition of software license revenue until all criteria are met. Revenue related to the licensing of software through value-added resellers (VARs) is generally recognized when evidence of a sale to an end-user customer is provided to the Company, assuming all other revenue recognition criteria have been met. Periodic licenses generally have a one-year term and the corresponding fee is recognized ratably over the term of the license. Maintenance revenue represents periodic fees associated with the sale of unspecified product updates on a when-and-if-available basis and technical support. Maintenance agreements are entered into in connection with the initial software license purchase. Maintenance support may be renewed by the customer at the conclusion of each term. Revenue from maintenance is recognized on a straight-line basis over the term of the maintenance agreement. Product development revenue relates to the development of additional functionalities of standard products requested by clients and is recognized as the development work is performed. Recurring fees for periodic license and maintenance and product development revenue are reported within software revenue. Revenue under multiple-element arrangements, which typically include new software licenses and maintenance agreements sold together, is allocated to each element in the arrangement primarily using the residual method based upon the fair value of the undelivered elements. Discounts, if any, are applied to the delivered elements, usually software licenses, under the residual method. For maintenance, fair value is generally determined based upon the expected renewal rate. 80 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Services and Other Revenue – Services and other revenue consists primarily of fees from consulting services and training. Services generally do not require significant modification or customization of software products and are accounted for separately to the extent they are not essential to the functionality of software products. Service revenues derived from time and material contracts are recognized as time is incurred. Service revenues derived from fixed price contracts are generally recognized using a percentage of completion basis. For customer support contracts, when no performance pattern is discernible, revenue is recognized ratably over the term of the contract, generally one year, on a straight-line basis. Share-based payment The Company recognizes compensation expense for share-based payment awards expected to vest on a straight-line basis over the requisite service period of the entire award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company estimates the fair value of share-based payment awards on the date of the grant using an option-pricing model based on assumptions made by management on expected volatility, expected option life and distributed dividends. Cost of software revenue Cost of software revenue primarily includes software license expense for software products included in the Company’s software, maintenance costs, CD duplication costs and delivery expense. Research and development Costs incurred to develop computer software products include mainly payroll and other headcount-related costs associated with development of the Company’s products. They also include amortization expense, lease and maintenance costs of computer equipment used for product development, software expenditures and costs of information technology and communication. Research costs are expensed as incurred. Development expenditure on an individual project is recognized as an intangible asset when the Company can demonstrate: (cid:127) the technical feasibility of completing the intangible asset; (cid:127) its intention to complete the intangible asset; (cid:127) its ability to use or sell the asset; (cid:127) how the asset will generate probable future economic benefits, notably demonstrating the existence of a market for the asset; (cid:127) the availability of technical, financial and other resources to complete and sell the asset; and (cid:127) the ability to measure reliably the expenditure during development. Due to specificities in the software industry, the Company has determined that technological feasibility is the key criteria to capitalize development expenditure as it is generally the last criteria to be met. Currently the risks and uncertainties inherent in the software development process make it difficult to demonstrate technological feasibility before a working prototype has been completed, which generally occurs shortly before the commercial release of its software products. As a consequence, costs incurred after technological feasibility is established that could potentially be capitalized are not material. Government grants The Company receives grants from various governmental authorities to finance certain research and development activities, including research and development tax credits in France that are treated as government grants because they are realizable in cash in the event the Company has insufficient income tax payable. Government grants are recognized as a reduction of research and development costs or cost of services and other revenue when the qualifying research and development activities have been performed and there is reasonable assurance that the grants will be received. Other operating income and expense, net The Company distinguishes income and expense that is unusual, infrequent or generally non-recurring in nature in the consolidated statement of income. Such income and expense includes the impact of restructuring activity and other generally non-recurring events, such as gain or loss on sale of subsidiaries or operation, costs directly related to acquisitions, certain real estate transactions, and costs related to site closings or moving from one site to another. DASSAULT SYST `EMES Annual Report 2012 81 Financial statements 4 Other financial income and expense, net Other financial income and expense primarily includes the impact of remeasuring financial instruments at fair value, gains and losses on disposals and the impairment of investments in non-consolidated companies, exchange gains and losses on monetary items and change in fair value of derivative financial instruments not qualified for hedge accounting. Income taxes Deferred income tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Allowance for doubtful accounts and loans receivable The allowance for doubtful accounts and loans receivable reflects the Company’s best estimate of probable losses inherent in the receivable balance. The Company determines the allowance based on known troubled accounts, historical experience and other currently available evidence. Financial instruments Fair Value – The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses approximate fair value, due to the short-term maturities of such instruments. Foreign exchange options, futures, and forward contracts, which are designated and serve as hedges, are recorded at their fair market value. Based on the three hierarchy levels defined by IFRS 7 (Revised) (level 1: quoted price in active markets; level 2: inputs observable directly or indirectly, other than quoted price included in level 1; level 3: inputs not based on observable market data), cash, cash equivalents and short-term investments are measured using the level 1 fair value. Derivative instruments are measured using the level 2 fair value. Other investments that are not equity method investments are measured using the level 3 fair value. Cash and Cash Equivalents and Short-Term Investments – The Company considers deposits with banks, investments in money market mutual funds and marketable debt securities with short-term maturities to be cash equivalents since they are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Other marketable debt securities and mutual funds that do not qualify as cash equivalents are considered to be short-term investments and are generally classified as trading securities with changes in fair value recorded in other financial income and expense, net. Investments – Investments include, principally, available-for-sale equity securities at fair value, loans and deposits at amortized cost and equity method investments. For available-for-sale equity securities, any unrealized holding gains and losses excluded from operating results and are recognized in the consolidated statements of comprehensive income until realized. The Company assesses declines in the value of individual investments to determine whether such decline is other-than-temporary and thus the investment is impaired. This assessment is made by considering available evidence including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the individual company, and the Company’s intent and ability to hold the investment. Derivative Instruments – The Company uses derivative instruments to manage exposures to foreign currency and interest rates. Derivative instruments are measured at their fair value and changes in the fair value affect the consolidated statements of income unless specific hedge accounting criteria are met. Changes in the fair value of derivatives designated as cash-flow hedges are reported as a component of shareholders’ equity until the hedged item is recognized in earnings. Property and equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives: computer equipment, two to five years; office furniture and equipment, five to 10 years; buildings, 30 years; leasehold improvements are depreciated over the shorter of the life of the assets or the remaining lease term. Repair and maintenance costs are expensed as incurred. 82 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Intangible assets Intangible assets primarily include acquired technology, contractual customer relationships, computer software and trademarks. Costs related to intangible assets are capitalized and amortized using the straight-line method over their estimated useful lives, which range from two to 14 years. No intangible assets have been identified with an indefinite useful life. Business combinations and goodwill Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed on the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the date of acquisition, irrespective of the extent of any non-controlling interest. Goodwill is initially measured at cost being the excess of the cost of the business combination over the Company’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash generating units or group of cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Goodwill is tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and at a minimum annually. For the purpose of the impairment test, the Company relies upon projections of future cash flows and takes into account assumptions regarding the evolution of the market and its ability to successfully develop and commercialize its products. Changes in market conditions could have a major impact on the valuation of assets and liabilities and could result in additional impairment losses. Provisions Provisions are recognized as liabilities to cover probable outflows of resources that can be estimated and that result from present obligations (legal, contractual or constructive) relating to past events. In cases where a potential obligation resulting from past events exists, but where occurrence of the outflow of resources is not probable or where the amount cannot be reliably estimated, a contingent liability is disclosed among the Company’s commitments. The amount of the provision provided is the best estimate of the outflow of resources required to extinguish this present obligation. Treasury shares Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from equity. Gains and losses on the purchase, sale, issue or cancellation of the Company’s own equity instruments are credited or charged to shareholders’ equity and are not recognized in the statement of income. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Any difference between the recorded amount and the redemption value is amortized into income over the period of the borrowing using the effective interest rate method. Post-employment benefits The Company’s payments for defined contribution plans are recorded as expenses for the relevant period. For defined benefit plans concerning post-employment benefits, the Company uses the Projected Unit Credit Method to determine the present value of its obligations. Under this method, benefits are attributed to periods of service according to the plan’s benefit formula. However, if an employee’s service in later years will earn a materially higher level of benefit than in earlier years, benefits are attributed to periods of service on a straight-line basis. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting period exceed 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date (this is referred to as the corridor approach). These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plans. The future payments for employee benefits are measured on the basis of future salary increases, retirement age, mortality and length of employment with the company, and are discounted at a rate determined by reference to yields on long-term high quality corporate bonds of a duration corresponding to the estimated duration of the benefit plan concerned. DASSAULT SYST `EMES Annual Report 2012 83 Financial statements 4 The net expense for the year, corresponding to the sum of the current period service costs, the discount cost less the expected return on fund assets and a portion of deferred past service costs, is charged in full to operating income. Note 3. Segment and Geographic Information Operating segments are components of the Company for which discrete financial information is available and whose operating results are regularly reviewed by management to assess performance and allocate resources. The Company operates in two reportable business segments: the Product Lifecycle Management (‘‘PLM’’) segment and the SOLIDWORKS segment. The PLM market serves customers seeking to optimize their industrial processes from the design stage through to manufacturing and maintenance. The SOLIDWORKS market serves companies seeking to support product design. The accounting policies of the reportable segments are the same as those described in Note 2. Summary of Significant Accounting Policies. Data by reportable segment is as follows: (in thousands) Software revenue Services and other revenue Total revenue Operating income (in thousands) Software revenue Services and other revenue Total revenue Operating income (cid:1) Year ended December 31, 2012 (cid:2) PLM SOLIDWORKS Elim. Total e1,440,304 e403,060 e(167) e1,843,197 185,145 1,625,449 g322,212 – 403,060 g178,749 – (167) g – 185,145 2,028,342 g500,961 (cid:1) Year ended December 31, 2011 (cid:2) PLM SOLIDWORKS Elim. Total e1,276,167 e340,963 e(188) e1,616,942 166,101 1,442,268 g283,540 – 340,963 g144,378 – (188) g – 166,101 1,783,043 g427,918 Information about certain non-cash and balance sheet items is as follows: (in thousands) PLM SOLIDWORKS Elim. Total (cid:1) Year ended December 31, 2012 (cid:2) Depreciation of property and equipment and amortization of intangible assets Non-cash share-based payment expense Additions to property, equipment and intangible assets Goodwill (in thousands) e128,717 24,733 38,094 e760,267 e3,402 316 2,532 e28,168 e– – – e– e132,119 25,049 40,626 e788,435 (cid:1) Year ended December 31, 2011 (cid:2) PLM SOLIDWORKS Elim. Total Depreciation of property and equipment and amortization of intangible assets Non-cash share-based payment expense Additions to property, equipment and intangible assets Goodwill e107,565 17,290 67,813 e619,268 e4,746 – 3,545 e28,722 e– – – e– e112,311 17,290 71,358 e647,990 84 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Data by geographic operations of the Company is established according to geographical location of the consolidated companies and is as follows: (in thousands) 2012 Europe of which France of which Germany Americas of which the United States of America Asia Pacific of which Japan Total 2011 Europe of which France of which Germany Americas of which the United States of America Asia Pacific of which Japan Total Revenue Total assets e732,497 e2,065,536 395,698 178,672 780,868 737,708 514,977 409,241 g2,028,342 1,662,584 161,984 1,215,541 880,016 322,835 194,118 g3,603,912 e687,841 e2,163,892 367,704 164,871 678,001 649,234 417,201 335,940 g1,783,043 1,755,374 197,100 1,000,603 963,052 352,289 241,658 g3,516,784 Additions to property, equipment and intangibles e22,609 17,540 868 12,366 11,571 5,651 1,164 g40,626 e31,411 29,206 825 32,530 32,244 7,417 1,414 g71,358 The Company also receives data that identifies the location of the Company’s end-user customers. Using such information, revenue by geographic area would be as follows: (in thousands) Europe of which France of which Germany Americas of which the United States of America Asia Pacific of which Japan Total revenue (cid:1) Year ended December 31, (cid:2) 2012 2011 e908,890 e827,134 234,463 297,304 564,377 488,003 555,075 212,977 291,084 488,878 466,350 467,031 337,287 g2,028,342 289,937 g1,783,043 DASSAULT SYST `EMES Annual Report 2012 85 Financial statements 4 Note 4. Software Revenue Software revenue is comprised of the following: (in thousands) New licenses revenue Periodic licenses and maintenance revenue Product development revenue Software revenue Note 5. Personnel Costs Personnel costs (cid:1) Year ended December 31, (cid:2) 2012 2011 e532,338 1,304,379 6,480 g1,843,197 e465,009 1,148,110 3,823 g1,616,942 Personnel costs, excluding share-based payments (e25.0 million in 2012 and e17.3 million in 2011, see Note 6. Share-based Payments) and associated payroll taxes (e10.9 million in 2012 and e3.4 million in 2011), are presented in the following table: (in thousands) Personnel costs Social security costs Total (cid:1) Year ended December 31, (cid:2) 2012 2011 e(739,415) (186,234) g(925,649) e(642,224) (163,939) g(806,163) Individual right to training for employees in France French law provides employees employed under indefinite-term employment contracts by French entities within the Company with the right to receive individual training of at least 20 hours per year. Individual training rights can be accumulated over six years and the related costs are expensed as incurred. As of December 31, 2012, accumulated individual training rights were approximately 258,000 hours. 86 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 6. Share-based Payments Compensation expense related to share-based payments is recorded in the consolidated statements of income as follows: (in thousands) Research and development Marketing and sales General and administrative Cost of services and other revenue Total compensation expense related to share-based payments (cid:1) Year ended December 31, (cid:2) 2012 2011 e(10,870) (8,151) (5,494) (534) g(25,049) e(8,349) (4,445) (3,981) (515) g(17,290) Changes during 2012 and 2011 of unvested options and performance shares to which IFRS 2, ‘‘Share-based Payment’’ is applicable are as follows: Unvested at January 1, 2011 Granted Vested Forfeited Unvested at December 31, 2011 Granted Vested Forfeited (cid:1) Number of awards (cid:2) Performance shares Stock options Total 300,000 556,400 (150,000) – 706,400 689,230 (150,000) (15,975) 3,450,964 3,750,964 – (397,574) (76,790) 556,400 (547,574) (76,790) 2,976,600 3,683,000 – – (82,600) 689,230 (150,000) (98,575) Unvested at December 31, 2012 1,229,655 2,894,000 4,123,655 As of December 31, 2012, total compensation cost related to unvested awards expected to vest but not yet recognized was e66.4 million, and the Company expects to recognize this expense over a weighted average period of 1.4 year, no later than September 7, 2016. Performance shares Pursuant to an authorization granted by the shareholders at the General Meeting of Shareholders held on May 27, 2010, the Board of Directors decided to grant 689,230 shares to employees and executives on September 7, 2012 (539,230 shares of the 2010-04 plan and 150,000 shares of the 2010-05 plan) and 556,400 shares to employees and executives on September 29, 2011 (406,400 shares of the 2010-02 plan and 150,000 shares of the 2010-03 plan). Such shares shall be vested at the end of an acquisition period of two to four years, subject to the condition that the beneficiary be an employee or a director of the Company at the acquisition date. 2010-04 shares granted to employees and executives are subject to non-market performance conditions based on actual non-IFRS diluted earnings per share of the Group compared to the upper limit of the non-IFRS earnings per share objective for each of the years 2012, 2013 and 2014. As provided for in the Code AFEP-MEDEF and on the basis of the recommendations of the Compensation and Nomination Committee, the Board of Directors made the vesting by the Chief Executive Officer (‘‘CEO’’) of the 14,000 shares of the 2010-04 plan, of the 150,000 shares of the 2010-05 plan, of the 14,000 shares of the 2010-02 plan and of the 150,000 shares of the 2010-03 plan, subject to a performance condition related to variable compensation actually paid to the CEO over two financial years for the 2010-05 and 2010-03 plans, and three financial years for the 2010-04 and 2010-02 plans. The level of such variable compensation is itself dependent on achieving performance criteria previously established by the Board. In no case, however, may the number of free performance shares received exceed the number of performance shares initially granted by the Board. All performance shares are measured at fair value based on the quoted price of the Company’s common stock on the date of grant. DASSAULT SYST `EMES Annual Report 2012 87 Financial statements 4 Stock option Since 1996, the General Meeting of Shareholders has authorized the Board of Directors to implement several stock option plans for eligible employees and executives. Options generally vest over various periods ranging from one to four years, subject to continued employment. Options generally expire seven to ten years from grant date, or after termination of employment, whichever is earlier. To date options have generally been granted at an exercise price equal to or greater than the grant-date market value of the Company’s share. A summary of the Company’s stock option activity is as follows: Outstanding as of January 1, Granted Exercised Forfeited Outstanding as of December 31, Exercisable (cid:1) 2012 (cid:2)(cid:1) 2011 (cid:2) Number of shares 7,402,852 – (2,624,237) (90,196) 4,688,419 1,794,419 Weighted average exercise price g40.38 – 37.49 41.77 g41.96 e41.50 Number of shares 12,738,712 – (5,190,045) (145,815) 7,402,852 4,426,252 Weighted average exercise price g41.66 – 43.53 38.75 g40.38 e39.12 A summary of the remaining contractual life and the exercise price of options outstanding as of December 31, 2012 is presented below: SOP plan 2008-02 2010-01 2008-01 2006-02 2006-01 2002-03 2002-04 Outstanding as of December 31, 2012 Number of shares Remaining life (years) Exercise price 1,718,900 1,175,100 877,136 562,195 256,506 93,067 5,515 4,688,419 4.91 5.40 2.73 1.43 0.77 0.05 0.05 3.88 e39.00 47.00 38.15 47.50 47.00 23.00 18.57 g41.96 Note 7. Government Grants Government grants and other government assistance were recorded in the consolidated statements of income as a reduction to research and development expenses and to cost of services and other revenue expenses, as follows: (in thousands) Research and development Costs of services and other revenue Total government grants Government grants include research and development tax credits received in France. (cid:1) Year ended December 31, (cid:2) 2012 e19,936 2,727 g22,663 2011 e26,930 2,836 g29,766 88 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 8. Other Operating Income and Expense, Net Other operating income and expense, net are comprised of the following: (in thousands) Gain on sale of subsidiary(1) Acquisition costs(2) Restructuring costs(3) Other, net Other operating income and expense, net (1) Gain recognized following the sale of a consolidated entity in 2012. (cid:1) Year ended December 31, (cid:2) 2012 e8,317 (6,658) (4,017) (226) g(2,584) 2011 e– (1,009) (8,496) (350) g(9,855) (2) (3) In 2012, transaction costs primarily relating to the acquisition of Gemcom (see Note 16. Business Combinations). In 2012 and 2011 primarily composed of severance costs relating to the termination of employees following the Company’s decision to rationalize its sales organization principally in Europe and in Japan and the reorganization of one of its R&D labs in France. Note 9. Interest Income and Expense, Net and Other Financial Income and Expense, Net Interest income and expense, net and other financial income and expense, net for the years ended December 31, 2012 and 2011 are as follows: (in thousands) Interest income(1) Interest expense(2) Interest income and expense, net Foreign exchange losses, net(3) Other, net(4) Other financial income and expense, net (cid:1) Year ended December 31, (cid:2) 2012 e21,071 (7,760) 13,311 (2,908) 7,690 g4,782 2011 e13,720 (7,946) 5,774 (7,945) 2,546 g(5,399) (1) (2) (3) (4) The increase in interest income is due primarily to the increase in interest rates on investments. In 2006, the Company borrowed e200 million under the loan facility entered into in December 2005 (see Note 21. Borrowings), which bears interest at Euribor plus 0.18% per annum, and entered into interest rate swap agreements to fix interest payable (see Note 20. Derivatives and Currency and Interest Rate Risk Management). The Company recorded interest expense of e5.5 million and e5.9 million for the years ended December 31, 2012 and 2011, respectively. Foreign exchange losses, net are primarily composed of realized and unrealized exchange gains and losses on receivables and loans denominated in U.S. dollars, Japanese yen, Korean won and Chinese yuan. In 2012, mainly includes gains on sales of investments. In 2011 mainly includes gains of e5.0 million on previously held interest (see Note 16. Business Combinations) and a loss on investment of e2.6 million. DASSAULT SYST `EMES Annual Report 2012 89 Financial statements 4 Note 10. Income Taxes Deferred tax assets and liabilities are as follows: (in thousands) Deferred tax assets: Accelerated depreciation and amortization for financial statement purposes Profit-sharing and pension accruals Provisions and other expenses Net tax loss and tax credit carryforward assets Valuation reserves Total deferred tax assets Deferred tax liabilities: Accelerated depreciation and amortization for tax purposes Amortization of acquired intangibles Other Total deferred tax liabilities Net deferred tax (liability)/asset The schedule of deferred tax assets and liabilities is as follows: (in thousands) Current deferred tax assets Non-current deferred tax assets Total deferred tax assets Current deferred tax liabilities Non-current deferred tax liabilities Total deferred tax liabilities Net deferred tax (liability)/asset (cid:1) Year ended December 31, (cid:2) 2012 2011 e31,057 10,465 71,428 51,584 (11,940) 152,594 (34,594) (98,014) (31,622) (164,230) h(11,636) e64,572 6,661 58,553 44,127 (7,863) 166,050 (41,129) (94,803) (6,473) (142,405) h23,645 (cid:1) Year ended December 31, (cid:2) 2012 e34,101 31,207 65,308 (5,697) (71,247) (76,944) h(11,636) 2011 e60,046 22,949 82,995 (4,620) (54,730) (59,350) h23,645 Current deferred tax assets relate primarily to provisions and other expenses not currently deductible. Non-current deferred tax liabilities mainly include the tax effect of intangible assets created through business combinations (primarily IBM PLM, Gemcom and Exalead). Change in deferred taxes can be summarized as follows: (in thousands) Net deferred tax asset as of January 1, Changes included in the income statement Currency translation adjustments Other(1) Net deferred tax (liability)/asset as of December 31, (1) In 2012, other changes mainly relate to the acquisition of Gemcom. 90 DASSAULT SYST `EMES Annual Report 2012 (cid:1) Year ended December 31, (cid:2) 2012 g23,645 5,449 (459) (40,271) g(11,636) 2011 g15,544 3,029 705 4,367 g23,645 The components of income before income taxes are as follows: (in thousands) France Foreign Income before income taxes The significant components of income tax expense are as follows: (in thousands) France Foreign Current taxes Change in deferred taxes Income tax expense Financial statements 4 (cid:1) Year ended December 31, (cid:2) 2012 2011 e219,766 299,288 g519,054 e191,392 237,624 g429,016 (cid:1) Year ended December 31, (cid:2) 2012 2011 e(97,815) (87,859) (185,674) 5,449 g(180,225) e(90,017) (51,527) (141,544) 3,029 g(138,515) Differences between the income tax provision and the provision computed using the statutory French income tax rate are as follows: (in thousands) Taxes computed at the statutory rate of 36.10% Foreign tax rate differentials R&D tax credit and other tax credits(1) Tax exempt income(2) Change in valuation allowance Share-based payments(3) Other, net(4) Income tax expense Effective tax rate (cid:1) Year ended December 31, (cid:2) 2012 2011 e(187,379) e(154,875) (1,348) 6,986 11,074 3,086 (2,445) (10,199) g(180,225) 34.7% 2,164 11,687 10,407 463 (2,266) (6,095) g(138,515) 32.3% (1) (2) (3) (4) R&D tax credit and other tax credits derived mainly from tax research credits in France in 2012 and in 2011. Income received by the Company in connection with certain intercompany financing arrangements is taxed at a reduced rate. In certain tax jurisdictions, the Company will not receive tax deductions relating to share-based payments. Therefore, no deferred tax asset is recognized on the related compensation expense. Includes notably in 2011 and 2012, the CVAE (‘‘Cotisation sur la Valeur Ajout ´ee des Entreprises’’), a component of the CET (‘‘Contribution Economique Territoriale’’) in France, for e5.5 and e6.8 million respectively. At December 31, 2012, there were net tax operating losses and tax credit carryforwards of e146.7 and e2.9 million respectively, which are scheduled to expire after 2018. Note 11. Earnings per Share Basic net income per share is determined by dividing net income attributable to equity holders of the Company by the weighted average number of common shares outstanding during the period. Diluted net income per share is determined by dividing net income attributable to equity holders of the Company by the combination of the weighted average number of common shares outstanding during the period and the dilutive effect of stock options and performance shares. DASSAULT SYST `EMES Annual Report 2012 91 Financial statements 4 The following table presents the calculation for both basic and diluted net income per share: (in thousands, except shares and per share data) Net income attributable to equity holders of the Company Weighted average number of shares outstanding Dilutive effect of share-based payments Diluted weighted average number of shares outstanding Basic net income per share Diluted net income per share (cid:1) Year ended December 31, (cid:2) 2012 2011 e334,821 e289,184 123,279,850 121,435,518 2,628,636 2,544,088 125,908,486 g2.72 g2.66 123,979,606 g2.38 g2.33 Note 12. Cash and Cash Equivalents and Short-term Investments Cash and cash equivalents are comprised of the following: (in thousands) Bank accounts Cash equivalents Cash and cash equivalents (cid:1) Year ended December 31, (cid:2) 2012 2011 e78,911 1,080,389 g1,159,300 e80,838 1,073,437 g1,154,275 At December 31, 2012 and 2011, approximately 66% and 54% of cash and cash equivalents was denominated in U.S. dollars, respectively. Short-term investments of e159.8 and e268.7 million at December 31, 2012 and 2011, respectively, were primarily comprised of bank certificates of deposit, mutual funds and fixed term deposits. At December 31, 2012 and 2011, short-term investments included approximately 21% and 13% of investments denominated in U.S. dollars, respectively. Cash, cash equivalents and short-term investments are maintained on deposit with high credit-quality financial institutions, principally in France. The Company follows a conservative policy for investing its cash resources, mostly relying on short-term maturity investments. Investment rules are determined and controlled by the treasury department of Dassault Syst `emes SA. The Company has adopted policies regarding financial ratings and the spread of maturity dates in order to ensure the security and liquidity of its financial instruments. The Company’s management oversees the credit-worthiness of its counterparts and the quality of its investments closely and believes that it has minimal exposure to the risk of bankruptcy of any one of them. The Company also closely oversees the liquidity of its financial assets held at these same counterparts. In this regard, the Company follows in particular the credit rating of each of its counterparties and, up to the present time, all of its counterparties are rated in the Investment Grade category by rating agencies. As a result, the Company believes that it has very low exposure to credit or counterparty risk. Note 13. Trade Accounts Receivable, Net and Other Current Assets Trade accounts receivable and other current assets are receivables measured at amortized cost. 92 DASSAULT SYST `EMES Annual Report 2012 Trade accounts receivable (in thousands) Trade accounts receivable Allowance for trade accounts receivable Trade accounts receivable, net The maturities of trade accounts receivable, net, were as follows: (in thousands) Less than 3 months past due 3 to 6 months past due More than 6 months past due Trade accounts receivable past due Trade accounts receivable not yet due Total trade accounts receivable, net Financial statements 4 (cid:1) Year ended December 31, (cid:2) 2012 2011 e478,859 (21,040) g457,819 e503,827 (9,486) g494,341 (cid:1) Year ended December 31, (cid:2) 2012 e49,638 11,994 3,471 65,103 392,716 g457,819 2011 e65,074 10,459 6,910 82,443 411,898 g494,341 The Company is not dependent on any of its principal clients. No single customer or sales channel partner represented more than 5% of the Company’s total revenue in 2012. Other current assets Other current assets consist of the following: (in thousands) Value added tax Prepaid expenses Derivatives(1) Other current assets Total other current assets (1) See Note 20. Derivatives and Currency and Interest Rate Risk Management. (cid:1) Year ended December 31, (cid:2) 2012 e35,970 30,972 13,623 17,615 g98,180 2011 e31,460 27,187 197 15,540 g74,384 Note 14. Property and Equipment Property and equipment consist of the following: (in thousands) Computer equipment Office furniture and equipment Leasehold improvements Buildings Total (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) Year ended December 31, 2011 (cid:2) Gross Accumulated depreciation Net Gross Accumulated depreciation Net e132,215 e(97,082) e35,133 e122,186 e(92,164) e30,022 44,120 68,445 6,424 g251,204 (24,695) (21,031) (553) g(143,361) 19,425 47,414 5,871 g107,843 43,045 67,233 5,978 g238,442 (22,210) (17,144) (323) g(131,841) 20,835 50,089 5,655 g106,601 DASSAULT SYST `EMES Annual Report 2012 93 Financial statements 4 The change in the carrying amount of property and equipment as of December 31, 2012 is as follows: (in thousands) Net property and equipment as of January 1, 2012 Additions Business combinations Disposals and other changes Depreciation for the period Exchange differences Net property and equipment as of December 31, 2012 Computer equipment g30,022 23,231 1,325 95 (19,044) (496) Office furniture and equipment g20,835 4,669 547 (772) (5,416) (438) Leasehold improvements Buildings Total g50,089 6,162 585 (543) (8,001) (878) g5,655 807 – – (261) (330) g106,601 34,869 2,457 (1,220) (32,722) (2,142) g35,133 g19,425 g47,414 g5,871 g107,843 The change in the carrying amount of property and equipment as of December 31, 2011 is as follows: (in thousands) Net property and equipment as of January 1, 2011 Additions Business combinations Disposals Depreciation for the period Exchange differences Net property and equipment as of December 31, 2011 Computer equipment g24,660 18,646 868 (66) (14,488) 402 Office furniture and equipment g13,913 9,066 2,582 (115) (4,858) 247 Leasehold improvements Buildings Total g27,822 26,347 – (210) (5,617) 1,747 g – 3,264 2,747 – (92) (264) g66,395 57,323 6,197 (391) (25,055) 2,132 g30,022 g20,835 g50,089 g5,655 g106,601 Note 15. Investments and Other Non-Current Assets Investments and other non-current assets consist of the following: (in thousands) Investments Loans receivable, non current Deposits and other non-current assets Investments and other non-current assets (cid:1) Year ended December 31, (cid:2) 2012 e3,035 12,249 24,555 g39,839 2011 e4,130 7,623 16,866 g28,619 94 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 16. Business Combinations Netvibes On February 9, 2012, the Company completed its acquisition of 100% of Netvibes Ltd for cash consideration of approximately e21.2 million. Netvibes is an Internet platform that offers dashboard intelligence technologies for the businesses and consumers. The allocation of the purchase price resulted in e10.1 million of goodwill, which has been assigned to the PLM segment. In addition, intangible assets subject to amortization and included in the fair value of the net assets acquired are as follows: (in thousands) Technology Trademark Total amortizable intangible assets acquired Fair value e13,000 892 g13,892 Pro forma results of operations reflecting this acquisition are not presented because the results of operations of the acquired company are immaterial to the Company’s results of operations. Gemcom On July 11, 2012, the Company completed its acquisition of 100% of the outstanding common shares of Gemcom Software International Inc. (‘‘Gemcom’’) for cash consideration of approximately e273.8 million. Headquartered in Vancouver, Canada, Gemcom is a global leader in mining software solutions, and takes the lead of the newly created GEOVIA brand, which aims to model and simulate the planet. The allocation of the purchase price resulted in e138.6 million of goodwill, which has been assigned to the PLM segment. The purchase price has been allocated to identifiable assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition, as follows: (in thousands) Cash and cash equivalents Trade accounts receivable Other assets Intangible assets acquired(1) Unearned revenue(2) Other liabilities(3) Deferred taxes, net Goodwill Total purchase price (1) Intangible assets acquired are subject to amortization and include the following: (in thousands) Technology Customer relationships Trademark Total amortizable intangible assets acquired e24,301 11,847 10,532 169,855 (3,042) (51,219) (27,002) 138,561 g273,833 e103,738 64,996 1,121 g169,855 (2) (3) The carrying value of Gemcom’s unearned revenue was reduced to reflect the fair value of customer support obligations assumed. As a result, approximately e14.2 million of revenues that would have otherwise been recorded by Gemcom had this entity not been acquired by the Company will not be recognized in the Company’s consolidated statements of income. Includes a financial debt for e36.1 million that was fully repaid by the Company on July 17, 2012. The unaudited financial information presented in the table below summarizes the combined results of operations for the year ended December 31, 2012 as if the acquisition of Gemcom had occurred at the beginning of the period. This financial information reflects the DASSAULT SYST `EMES Annual Report 2012 95 Financial statements 4 adjustment to reduce Gemcom unearned revenue to the fair value of the associated support obligation, and the additional amortization expense, assuming the fair value adjustments to deferred revenue and intangible assets had been applied from the beginning of the period, with the related tax effects. (in thousands) Revenue Net income Year ended December 31, 2012 (unaudited) e2,072,787 e342,737 In addition, the portion of Gemcom’s revenue and net income generated since the acquisition date and included in the Company’s consolidated financial statements as of December 31, 2012 is respectively e29.2 million and e(2.9) million. Intercim On March 17, 2011, the Company completed its acquisition of 82% of the outstanding common shares of Intercim LLC for cash consideration of approximately e24.7 million. As a result of this transaction, the Company increased its percentage of interest from 18% to 100%. Intercim LLC, a U.S.-based company, provides manufacturing and production operations management software solutions for advanced and highly regulated industries. As a result of this transaction, a gain of e3.3 million on the previously held interest was recorded in other financial income and expense, net. The allocation of the purchase price resulted in e5.7 million of goodwill assigned to the PLM segment. In addition, intangible assets subject to amortization and included in the fair value of the net assets acquired are as follows: (in thousands) Technology Customer relationships Total amortizable intangible assets acquired Fair value e21,139 1,786 g22,925 Pro forma results of operations reflecting this acquisition are not presented because the results of operations of the acquired company are immaterial to the Company’s results of operations. Enginuity On March 21, 2011, the Company acquired 100% of Enginuity PLM LLC for cash consideration of approximately e7.1 million. Enginuity PLM LLC provides lifecycle management of formula-based products. This transaction resulted in e3.5 million of goodwill assigned to the PLM segment. 3DPLM Software Solutions Limited (‘‘3DPLM Ltd’’) Effective July 1, 2011, the Company obtained the regulatory approvals required for the merger of the activities of its Indian subsidiary Delmia Solutions Private Limited into 3DPLM Ltd, an important contributor to the Company’s global research and development platform since 2002. As a result the Company increased its share in 3DPLM Ltd from 30% to 42% and fully consolidates identifiable assets and liabilities of 3DPLM Ltd. As a consequence of this transaction, a gain of e1.7 million on the previously held interest was recorded in other financial income and expense, net. The allocation of the purchase price resulted in e5.5 million of goodwill assigned to the PLM segment. Elsys, Simulayt and RiWebb In 2011 the Company completed the acquisitions of Elsys, Simulayt and RiWebb for total cash consideration of approximately e10.4 million resulting in e3.5 million of goodwill assigned to the PLM and the SOLIDWORKS segments for e1.8 and e1.7 million, respectively. 96 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 17. Intangible Assets Intangible assets consist of the following: (in thousands) Software Customer relationships Other intangible assets Total intangible assets (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) Year ended December 31, 2011 (cid:2) Gross Accumulated amortization Net Gross Accumulated amortization Net e557,861 e(276,135) e281,726 e440,414 e(244,190) e196,224 612,958 (228,571) 21,376 g1,192,195 (16,388) g(521,094) 384,387 4,988 g671,101 574,294 (181,750) 20,969 g1,035,677 (15,871) g(441,811) 392,544 5,098 g593,866 The change in the carrying amount of intangible assets as of December 31, 2012 is as follows: (in thousands) Net intangible assets as of January 1, 2012 Gemcom acquisition Other business combinations Other additions Amortization for the period Exchange differences Net intangible assets as of December 31, 2012 Software g196,224 103,738 21,304 5,757 (40,447) (4,850) g281,726 Customer relationships g392,544 64,996 – – (56,952) (16,201) g384,387 The change in the carrying amount of intangible assets as of December 31, 2011 is as follows: (in thousands) Net intangible assets as of January 1, 2011 Business combinations Other additions Amortization for the period Exchange differences Net intangible assets as of December 31, 2011 Software Customer relationships g181,217 g427,898 31,632 13,884 (33,025) 2,516 g196,224 3,520 – (51,566) 12,692 g392,544 Other intangible assets g5,098 1,121 892 – (1,998) (125) g4,988 Other intangible assets g7,582 – 151 (2,665) 30 g5,098 Total intangible assets g593,866 169,855 22,196 5,757 (99,397) (21,176) g671,101 Total intangible assets g616,697 35,152 14,035 (87,256) 15,238 g593,866 Total intangible amortization expense was e99.4 and e87.3 million for the years ended December 31, 2012, and 2011, respectively. The future amortization expense relating to all intangible assets that are currently recorded on the consolidated balance sheet at December 31, 2012 is estimated to be the following: (in thousands) 2013 2014 2015 2016 2017 and thereafter Estimated intangible assets’ amortization expense e(102,464) (98,671) (95,197) (84,025) e(290,744) DASSAULT SYST `EMES Annual Report 2012 97 Financial statements 4 Note 18. Goodwill The change in the carrying amount of goodwill as of December 31, 2012 and 2011 is as follows: (in thousands) Goodwill as of January 1, Gemcom acquisition Other acquisitions Exchange differences Goodwill as of December 31, 2012 2011 g647,990 138,561 19,037 (17,153) g788,435 g616,619 – 19,048 12,323 g647,990 The Company performed annual impairment tests in the fourth quarter of 2012 and 2011; no impairment of goodwill was identified as a result of these tests. For the purpose of the impairment test, the Company identified 9 cash-generating units (‘‘CGUs’’) or groups of CGUs as of December 31, 2012, generally corresponding to the Company’s main software products. Each CGU represents the lowest level within the Company at which goodwill is monitored for internal management purposes. Goodwill tested for impairment purposes was allocated to each CGU, or groups of CGUs that were expected to benefit from the synergies of the combination. The CGUs are allocated to the Company’s two operating segments, the PLM segment and the SOLIDWORKS segment. Goodwill allocated to each CGU or groups of CGUs is as follows: PLM CATIA SIMULIA ENOVIA GEOVIA Other SOLIDWORKS Total Goodwill 2011 Gemcom acquisition Other acquisitions Exchange differences 2012 h619,268 h138,561 195,526 173,263 139,922 – – – – 138,561 110,557 28,722 g647,990 – – g138,561 h19,037 420 – – – 18,617 – g19,037 h(16,599) h760,267 (3,765) (3,349) (2,644) (6,793) (48) (554) g(17,153) 192,181 169,914 137,278 131,768 129,126 28,168 g788,435 The recoverable amount of each CGU or groups of CGUs has been determined based on a value in use calculation. This calculation uses cash flow projections based on financial budgets covering a five- to ten-year period. The ten-year period projections are used for activities that have longer development cycles. Key assumptions used to determine the value in use of assets are derived from management objectives for revenue growth and operating margin of each CGU or groups of CGUs. The discount rates before taxes are between 12.8% and 14.7%. Cash flows beyond that five- to ten-year period have been extrapolated using a steady growth rate comprised between 2% and 3%, reflecting long-term growth rates in the software industry. At December 31, 2012, based on management estimates, the Company concluded that the value in use of each CGU or groups of CGUs significantly exceeded its carrying value. Management believes that any reasonable possible change in key assumptions listed above on which recoverable amount is based would not cause each CGU or groups of CGUs’ carrying amount to significantly exceed its recoverable amount. In particular, an increase of 200 basis points in the pre-tax discount rate or a decrease of 200 basis points in the long-term growth rates would not cause each CGU or groups of CGUs’ carrying amount to significantly exceed its recoverable amount. 98 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 (cid:1) Year ended December 31, (cid:2) 2012 e61,930 3,963 1,656 13,358 g80,907 e56,112 43,212 40,265 31,469 8,178 g179,236 2011 e61,884 19,865 9,490 22,687 g113,926 e50,992 37,902 27,019 33,055 14,287 g163,255 Total Provisions g60,482 15,529 (10,476) (7,248) (519) g57,768 Note 19. Other Liabilities Other liabilities are comprised of the following: (in thousands) Value added tax and other taxes Derivatives, current(1) Provisions, current(2) Other current liabilities Total other current liabilities Provisions, non-current(2) Post-employment benefits(3) Accrual for deferred lease incentives Employee profit sharing, non-current Other non-current liabilities Total other non-current liabilities (1) (2) (3) See Note 20. Derivatives and Currency and Interest Rate Risk Management. See reconciliation of provisions below. See Note 22. Post-employment Benefits. The change in the carrying value of provisions as of December 31, 2012 is as follows: (in thousands) Provisions as of January 1, 2012 Additions Utilization Reversal of unused amounts Exchange differences and other changes Provisions as of December 31, 2012 Tax risks g44,824 5,047 – (3,824) (307) g45,740 Claims, litigation and other Restructuring g6,205 8,148 (947) (3,023) (11) g10,372 g9,453 2,334 (9,529) (401) (201) g1,656 Note 20. Derivatives and Currency and Interest Rate Risk Management The fair market values of derivative instruments were determined by financial institutions using option pricing models. All financial instruments related to the foreign currency hedging strategy of the Company have maturity dates of less than 27 months when the maturity of interest rate swap instruments is less than two years and a half. Management believes counter-party risk on financial instruments is minimal since the Company deals with major banks and financial institutions. A description of market risks the Company is exposed to is provided in paragraph 1.6.2 ‘‘Market Risks’’. DASSAULT SYST `EMES Annual Report 2012 99 Financial statements 4 Foreign currency risk The Company transacts in various foreign currencies, primarily U.S. dollars and Japanese yen. In 2012, revenue denominated in U.S. dollars represented approximately 35% of total revenue, compared with 37% in 2011. The Company’s operating expenses denominated in U.S. dollars represented 35% of total operating expenses in 2012, compared with 36% in 2011. As a result, the Company’s net operating exposure to U.S. dollars amounted to e171.3 million in 2012 (8% of the Company’s total revenue). The average value of the U.S. dollar increased by approximately 8% against the euro in 2012 following a decrease of 5% in 2011, resulting in a positive impact on the Company’s revenue and operating income in 2012. In 2012, revenue denominated in Japanese yen represented approximately 16% of total revenue (16% in 2011). The Company’s operating expenses denominated in Japanese yen represented 6% of total operating expenses in 2012 (7% in 2011). The Company’s net operating exposure to Japanese yen amounted to e219.6 million in 2012 (11% of the Company’s total revenue), and this exposure was in part hedged through market instruments at a level of e125.3 million, as further described below. In 2012, the average value of the Japanese yen increased by approximately 8% against the euro, after an increase in value of approximately 5% in 2011, resulting in a positive impact on the Company’s revenue and operating income in 2012 and 2011. The Company usually hedges exchange rate risk related to its revenues and expenses coming from usual and predictable activity arising in the normal course of operations. The Company may also cover occasional exchange rate risk arising from specific transactions, such as acquisitions paid for in foreign currencies. The Company exclusively uses forward agreements or financial instruments with a guaranteed rate when the instruments are put in place. Hedging activities are generally carried out and managed by Dassault Syst `emes SA for its own account and on behalf of its subsidiaries. In certain cases, however, the Company can authorize selected subsidiaries to enter into hedging instruments directly. All hedging transactions and the Company’s net exposure are reported to the Chief Financial Officer on a monthly basis. The table below sets forth, for the year ended December 31, 2012, the euro value of the Company’s revenue, operating expenses and net position, before and after hedging, denominated in U.S. dollars, Japanese yen and other currencies, principally the euro. (in thousands) Revenue Operating expenses Net position Hedge Net position after hedge (cid:1) Year ended December 31, 2012 (cid:2) U.S. dollars e701,017 (529,730) 171,287 – g171,287 Japanese yen Euro and other currencies e318,149 e1,009,176 (98,515) (899,136) 219,634 125,347 g94,287 110,040 – g110,040 With all other variables held constant, movements in euro/USD exchange rates by +10% or (cid:1)10% would have had an impact of e(15.6) and e19.0 million on operating income, respectively. In addition, with all other variables held constant, movements in euro/JPY exchange rates by +10% or (cid:1)10% would have had an impact of e(20.0) and e24.4 million on operating income, respectively. To manage currency exposure, the Company generally uses foreign exchange forward contracts, currency options and collars. Except as indicated in the table below, the derivative instruments held by the Company are designated as accounting hedges, have high correlation with the underlying exposure and are highly effective in offsetting underlying price movements. The effectiveness of forward contracts and currency options is measured using forward rates and the forward value of the underlying hedged transaction. During 2012, the portion of gains or losses from hedging instruments excluded from the assessment of effectiveness and the ineffective portions of hedges was nil (2011: e1.4 million recorded in other financial income and expense, net in the consolidated statement of income). 100 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 At December 31, 2012 and 2011, the fair value of instruments used to manage the currency exposure was as follows: (in thousands) (cid:1) (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) 2011 (cid:2) (cid:2) Nominal amount Fair value Nominal amount Fair value Forward exchange contract Japanese yen/euros – sale(1) e107,835 e11,366 e212,141 e(18,105) Forward exchange contract U.S. dollars/Indian rupees – sale(1) Forward exchange contract Japanese yen/U.S. dollars – sale(1) Forward exchange contract Japanese yen/euros – purchase(1) Collars Japanese yen/euros(1) Forward exchange contract Australian dollars/euros – sale(2) Forward exchange contract Canadian dollars/euros – sale(2) Other instruments(2) 64,750 24,721 5,802 – 121,591 65,236 38,751 (4,676) 1,124 (78) – 1,190 232 1 3,626 16,099 – (439) (909) – 14,909 (1,293) – – 15,321 – – 197 (1) (2) Instruments entered into by the Company to hedge the foreign currency exchange risk of forecasted sales. Derivatives not designated as hedging instruments. Changes in the derivatives’ fair value were recorded in other financial income and expense, net in the consolidated statement of income. In 2012, these instruments mainly relate to the acquisition of Gemcom. Interest rate risk Except for their impact on the general economic environment, which is difficult to quantify, the Company believes that changes in interest rates in 2012 did not materially affect its revenue and earnings before financial income. Similarly, interest rates are not expected to affect its business or future operating income. Therefore, the Company’s interest rate risk is primarily a risk related to a reduction of financial revenue. In December 2005, the Company entered into a e200 million multicurrency revolving loan facility which bore interest at variable rates and which was extended for two additional years (see Note 21. Borrowings). In June 2009 and in July 2009, the Company entered into interest rate swap agreements for a nominal amount of e100 and e100 million, respectively that fixed the underlying interest payable at 3.18% and 2.98% starting September 15, 2010 and continuing through December 3, 2012. In April 2010, the Company entered into interest rate basis swap agreements for a nominal amount of e200 million converting variable rates at Euribor 3 months into Euribor 1 month. This facility was completely repaid in 2012 and the related interest rate swaps instruments also matured. In June 2010, the Company entered into interest rate swap agreements for a total amount of JPY14,500 million that have the economic effect of modifying forecasted interest obligations relating to the term loan facility in Japan (see Note 21. Borrowings) so that the interest payable effectively becomes fixed at 0.41% until June 9, 2015. Financial revenue, which is composed of interest income from cash, cash equivalents and short-term investments, is sensitive to fluctuations in interest rates. As of December 31, 2012, cash and cash equivalents and short-term investments totaled e1,319.1 million, including e477.0 million sensitive to fluctuations in interest rates mostly in Europe. With all other variables held constant, an increase in interest rates of 100 basis points would have had a positive impact in 2012 of e3.9 million on financial income and a decrease in interest rates of 100 basis points would have had a negative impact of e3.0 million. As of December 31, 2011 cash and cash equivalents and short-term investments totaled e1,423.0 million, including e1,052.0 million sensitive to fluctuations in interest rates mostly in Europe. With all other variables held constant, an increase in interest rates of 100 basis points would have had a positive impact in 2011 of e10.1 million on financial income, and a decrease in interest rates of 100 basis points would have had a negative impact of e8.7 million. At December 31, 2012 and 2011, the fair value of instruments used to manage the interest rate risk was as follows: (in thousands) Interest rate swaps in Japanese yen Interest rate swaps in euros Interest rate basis swaps in euros (cid:1) (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) 2011 (cid:2) (cid:2) Nominal amount e63,815 – – Fair value Nominal amount e(289) e101,297 – – 200,000 200,000 Fair value e(446) (3,405) (188) DASSAULT SYST `EMES Annual Report 2012 101 Financial statements 4 Note 21. Borrowings In December 2005, the Company entered into a e200 million multicurrency revolving loan facility (the ‘‘Loan Facility’’). This agreement provided for revolving credit for a period of five years, which could be extended twice by one additional year at the Company’s option. Borrowings under the Loan Facility bore interest at Euribor plus 0.18% per annum. In March 2006, the Company drew down e200 million under the Loan Facility. In 2006 and in 2007, the Company exercised its options to extend the revolving loan facility for the two additional years. In April 2010, the Company used its option under the Loan Facility agreement to pay interest at Euribor 1 month instead of Euribor 3 months. In November 2012, the Company fully repaid the Loan Facility. In April 2010, the Company entered into a term loan facility in Japan for JPY14,500 million (the equivalent of e115.0 million as of the draw date) in order to finance a portion of the IBM PLM acquisition. The facility bears interest at Japanese yen Libor plus 0.60% per annum, and is scheduled to be repaid by the Company in ten equal semi-annual installments, with the last payment being due in June of 2015. The table below provides a breakdown of total borrowings by contractual maturity date as of December 31, 2012: (in thousands) Term loan facility in Japanese yen Total (cid:1) Payments due by period (cid:2) Total e63,815 63,815 Less than 1 year e25,526 25,526 1-3 years 3-5 years e38,289 38,289 – – More than 5 years – – Note 22. Post-employment Benefits Contributions made to defined contribution plans were e13.2 million and e10.6 million in 2012 and 2011 respectively. The Company provides defined benefit retirement indemnities to the employees of its French operations, and sponsors defined benefit pension plans for certain employees in the United States of America. The Company also has certain defined benefit plans in other countries, mainly in Germany and in Japan. In France, defined employee benefits include certain gratifications paid upon anniversary of employment and retirement indemnities that are based upon an individual’s years of credited service and annualized salary at retirement. Retirement indemnity benefits vest and are settled as a lump sum paid to the employee upon the employee’s retirement. In the United States, pension benefits are based upon years of credited service and the employee’s average final earnings. Retirement benefits are funded by the Company’s contributions to segregated pension plan assets, in an amount that is sufficient to meet or exceed the minimum annual funding requirements of the Employee Retirement Income Security Act. In 2011, the Company decided to freeze the American defined-benefit pension plan. The projected benefit obligation was determined using the prospective method, based on the following assumptions: Assumptions Assumptions used to determine the benefit obligation: (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) Year ended December 31, 2011 (cid:2) Europe U.S. Asia Europe U.S. Asia Discount rate 3.50% Expected return on plan assets 4.00% – 5.25% 3.80% 8.00% 1.25% 5.25% – 4.00% – 5.25% 4.60% 8.00% 1.40% – Average rate of compensation increase 2.50% – 3.00% N/A 2.50% 2.50% – 3.00% 3.00% 2.50% 102 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Assumptions used to determine the net periodic benefit cost: (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) Year ended December 31, 2011 (cid:2) Europe U.S. Asia Europe U.S. Asia Discount rate 5.25% Expected return on plan assets 4.00% – 5.25% 4.60% 8.00% 1.40% 5.25% – 4.00% – 5.25% 5.50% 8.00% 1.60% – Average rate of compensation increase 2.50% – 3.00% 3.00% 2.50% 2.00% – 3.00% 3.00% 2.50% To develop the expected long-term rate of return on pension plan assets assumption, the Company considers the current and expected asset allocations, as well as historical and expected returns on each category of plan assets. Components of net periodic costs The components of net periodic benefit cost were as follows: (in thousands) Current service cost Interest cost Expected return on plan assets Curtailments and settlements Net amortization and deferral Net periodic benefit cost Obligations and funded status Changes in benefit obligations and plan assets as of December 31, 2012 and 2011 are as follows: (in thousands) Benefit obligations at beginning of year Current service cost Interest cost Net actuarial loss Curtailments and settlements Benefits paid Exchange rate differences Benefit obligations at end of year Fair value of plan assets at beginning of year Employer contribution Actual return on plan assets Benefits paid Exchange rate differences Fair value of plan assets at end of year Funded status Unrecognized actuarial losses Unrecognized past service cost Accrued benefit cost(1) (cid:1) Year ended December 31, (cid:2) 2012 2011 e(4,665) (5,001) 3,329 – (1,789) g(8,126) e(5,774) (4,604) 2,981 2,077 (269) g(5,589) (cid:1) Year ended December 31, (cid:2) 2012 e106,222 4,665 5,001 26,657 – (1,893) (1,650) g139,002 53,872 4,133 2,986 (883) (609) g59,499 (79,503) 38,934 2,463 g(38,106) 2011 e93,449 5,774 4,604 7,304 (4,147) (2,794) 2,032 g106,222 50,371 2,073 1,101 (659) 986 g53,872 (52,350) 13,755 2,607 g(35,988) (1) Composed in 2012 and 2011 of an accrued benefit cost in the amount of e(43.2) and e(37.9) million respectively, and a prepaid benefit cost of e5.1 and e1.9 million respectively. DASSAULT SYST `EMES Annual Report 2012 103 Financial statements 4 The benefit obligation by geographical location is as follows: Europe United States of America Asia Pacific Total benefit obligations The fair value of plan assets by geographical location is as follows: Europe United States of America Total fair value of plan assets Plan assets The weighted average asset allocations are as follows: Debt instruments Equity instruments Total Cash flows (cid:1) Year ended December 31, (cid:2) 2012 63% 29% 8% 100% 2011 57% 34% 9% 100% (cid:1) Year ended December 31, (cid:2) 2012 54% 46% 100% 2011 59% 41% 100% (cid:1) Year ended December 31, (cid:2) 2012 75% 25% 100% 2011 70% 30% 100% The Company does not expect to make any additional contributions to its pension plans in 2013. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Total e(2,333) (2,862) (3,253) (3,509) (4,488) e(33,317) (in thousands) 2013 2014 2015 2016 2017 2018-2022 104 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 23. Shareholders’ Equity Shareholders’ equity activity As of December 31, 2012, Dassault Syst `emes SA had 125,096,778 common shares issued with a nominal value of e1 per share. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and for the purpose of increasing the profitability of shareholders’ equity and earnings per share. The Company manages its capital structure and adjusts it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended December 31, 2012 and 2011. Shareholders’ equity includes foreign currency translation adjustment of e(84.8) and e(56.7) million as of December 31, 2012 and 2011, respectively. Dividend rights Dassault Syst `emes SA is required to maintain a legal reserve equal to 10% of the aggregate nominal value of its issued share capital. The legal reserve balance was e12.3 and e12.1 million as of December 31, 2012 and 2011, respectively, and represents a component of retained earnings in the consolidated balance sheet. The legal reserve is distributable only upon the liquidation of the Company. Distributable profit, consisting of net income of the year increased by retained earnings from prior years and after deduction for legal reserve when required, is available for distribution to shareholders of the Company as dividends. Allocation of this profit is subject to approval by the General Meeting of Shareholders following recommendations by the Board of Directors. A dividend on ordinary shares relating to the periods ended December 31, 2011 and December 31, 2010 was paid in the immediately subsequent year, amounting to e86.3 and e65.6 million, respectively. Dividends per share were e0.70 and e0.54 as of December 31, 2011 and December 31, 2010, respectively. A dividend of e1.5 and e0.2 million was paid to non-controlling interest in 2012 and 2011 respectively. Stock repurchase programs The General Meeting of Shareholders authorized the Board to implement a share repurchase program limited to 10% of the Company’s share capital. Under this authorization, the Company may not buy shares at a price exceeding e85 per share or above a maximum annual aggregate amount of e500 million. Under the Company’s share repurchase program, the Company repurchased 1,042,679 shares in 2012 for an aggregate amount of e75.1 million out of which 643,600 were canceled and repurchased 4,079,920 shares in 2011 for an aggregate amount of e226.7 million out of which 3,429,920 were canceled. Components of other comprehensive income (in thousands) Cash flow hedges: Gains/(Losses) arising during the year Less: reclassification adjustments for losses included in the income statement Available-for-sale securities: (Losses)/Gains arising during the year Less: reclassification adjustments for gains or losses included in the income statement (cid:1) Year ended December 31, (cid:2) 2012 2011 e13,202 (17,473) g30,675 e(165) – g(165) e(13,363) (5,629) g(7,734) e35 – g35 DASSAULT SYST `EMES Annual Report 2012 105 Financial statements 4 Note 24. Consolidated Statements of Cash Flows Adjustments for non-cash items consist of the following: (in thousands) Depreciation of property and equipment Amortization of intangible assets Non-cash share-based payment expense Other Adjustments for non-cash items Changes in operating assets and liabilities consist of the following: (in thousands) Decrease (Increase) in trade accounts receivable Increase in accounts payable Increase in accrued compensation Increase (Decrease) in income tax payable Increase in unearned revenue Changes in other assets and liabilities Changes in operating assets and liabilities (cid:1) Year ended December 31, (cid:2) Notes 2012 2011 14 17 6 e32,722 99,397 25,049 9,056 g166,224 e25,055 87,256 17,290 32,254 g161,855 (cid:1) Year ended December 31, (cid:2) 2012 2011 e34,822 e(71,372) 4,116 17,277 23,508 14,939 (33,417) g61,245 3,340 496 (28,470) 85,555 8,958 g(1,493) Note 25. Commitments and Contingencies Leases The Company leases computer equipment, premises and office equipment under operating leases. Rent expense under operating leases was e52.4 million and e48.4 million for the years ended December 31, 2012, and 2011, respectively. At December 31, 2012, future minimum annual rental commitments under non-cancelable lease obligations were as follows: (in thousands) 2013 2014 2015 2016 2017 2018 and thereafter Total future minimum lease payments 106 DASSAULT SYST `EMES Annual Report 2012 Operating leases e51,673 46,645 44,396 42,705 40,663 131,641 g357,723 Financial statements 4 3DS Paris Campus (Headquarters facilities in V´elizy-Villacoublay) The Company leases approximately 60,000 square meters of office space for its headquarters facilities located in V´elizy-Villacoublay, outside Paris, France, over a non-cancelable initial term of 12 years, with options to renew for additional periods. Future minimum rental payments over the initial term, which began on June 30, 2008, amount to approximately e150.7 million in the aggregate and have been included in the table presented above. In December 2012, the Company agreed to sign a built-to-suit lease agreement for an additional building in its headquarters facilities and to extend the initial term for a further five years. Under this agreement signed in February 2013, the Company has committed to lease an additional 13,000 square meters of office space and to enter into a new lease for its headquarters facilities for a non-cancelable initial term of 10 years which will take effect starting November 2015 when construction is expected to be completed. Future minimum rental payments over the extended term amount to approximately e138 million in the aggregate and have not been included in the table presented above. 3DS Boston Campus In 2010, the Company entered into a lease for office, technology lab and data center space in Waltham, outside Boston, Massachusetts, United States, forming the DS Boston Campus and regrouping the primary operating facilities of the Company’s main American activities. Under this agreement, the Company committed to lease approximately 20,000 square meters of office space for a non-cancelable initial term of 12 years, with options to renew for additional periods. The total rented space will progressively increase, reaching 30,000 square meters after six years. Future minimum rental payments over the initial term, which began on June 1, 2011, amount to approximately e100 million in the aggregate and have been included in the table presented above. Litigation and other proceedings The Company is involved in litigation and other proceedings, such as civil, commercial and tax proceedings, incidental to normal operations. It is not possible to determine the ultimate liability, if any, in these matters. In the opinion of management, after consultation with legal counsel, the resolution of such litigation and proceedings will not have a material effect on the consolidated financial statements of the Company. Note 26. Related-Party Transactions Compensation of key management personnel The table below summarizes compensation granted to key management personnel composed of respectively 10 and 12 executive officers as of December 31, 2012 and 2011: (in thousands) Short-term benefits(1) Share-based compensation(2) Compensation of key management personnel (1) (2) Including gross salaries, bonus, incentives, profit-sharing, directors’ fees and fringe benefits. Expense recorded in the income statement for share-based payments (stock options and performance shares). (cid:1) Year ended December 31, (cid:2) 2012 e8,336 12,932 g21,268 2011 e8,349 10,455 g18,804 The Group Chief Executive Officer is entitled to an indemnity payment upon the termination of his functions as Chief Executive Officer. The amount of the indemnity due would be equivalent to a maximum of two years of compensation as Chief Executive Officer and would depend on satisfying the performance conditions established for calculating his variable compensation. Other transactions with related parties The Company licenses its products for internal use to Dassault Aviation, a sister company to the Company. The Chairman of Dassault Syst `emes SA was also the Chief Executive Officer of Dassault Aviation until January 2013. Dassault Aviation licenses the Company’s products on commercial terms consistent with those granted to the Company’s other customers of similar size. These licenses generated e15.7 and e12.9 million of software revenue for the years ended December 31, 2012 and 2011, respectively. DASSAULT SYST `EMES Annual Report 2012 107 Financial statements 4 The Company also provides service and support to Dassault Aviation. Such activity generated service revenues of e11.3 and e15.2 million in the years ended December 31, 2012 and 2011, respectively. The balances of trade accounts receivable with Dassault Aviation were e13.3 million, and e8.6 million at December 31, 2012 and 2011, respectively. Most of the Company’s development organizations subcontract software development work to 3DPLM Ltd, a company located in India. On July 1, 2011, the Company increased its share in 3DPLM Ltd from 30% to 42% (see Note 16. Business Combinations). Prior to this transaction, 3DPLM Ltd was a related party to the Company. 3DPLM Ltd is now fully consolidated in the Company’s financial statements. Services purchased from 3DPLM Ltd for the period from January 1 through June 30, 2011 amounted to e13.6 million. In July 2012, the Company issued 23,412 new shares to compensate the contribution of 5% of the share capital of Dassault Data Services subsidiary from the Chairman of the Company to the Group, for a total value of e1.7 million. As a result of this transaction, the Company increased its share in Dassault Data Services from 95% to 100%. Note 27. Principal Dassault Syst `emes Companies The principal Dassault Syst `emes SA subsidiaries included in the scope of consolidation as at December 31, 2012 are as follows: Country France France France Germany Italy Sweden Consolidated companies Dassault Data Services SAS Dassault Syst `emes Provence SAS Exalead SA Dassault Syst `emes Deutschland GmbH Dassault Syst `emes Italia Srl Dassault Syst `emes AB United Kingdom Dassault Syst `emes United Kingdom Ltd Canada Canada United States United States United States United States United States United States United States United States United States Australia China India India Dassault Syst `emes Canada Inc. Gemcom Software International Inc. Dassault Syst `emes Americas Corp. Dassault Syst `emes Corp. Dassault Syst `emes Delmia Corp. Dassault Syst `emes Enovia Corp. Dassault Syst `emes Simulia Corp. Dassault Syst `emes Services, LLC Dassault Syst `emes SolidWorks Corp. Spatial Corp. Inceptra LLC Gemcom Software Australia Pty., Ltd Dassault Syst `emes (Shanghai) Information Technology Co., Ltd 3DPLM Software Solutions Ltd Dassault Syst `emes India Private Ltd South Korea Dassault Syst `emes Korea Corp. Japan Japan Dassault Syst `emes KK SolidWorks Japan KK 108 DASSAULT SYST `EMES Annual Report 2012 % of Interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 42% 100% 100% 100% 100% Financial statements 4 Note 28. Events After the Reporting Period In February 2013, the Company entered into a built-to-suit lease agreement for a new building in its 3DS Paris Campus and extended the lease term for a further five years ending November 2025 (see Note 25. Commitments and Contingencies). 4.1.2 Report of the Statutory Auditors on the Consolidated Financial Statements This is a free translation into English of the statutory auditors’ report issued in French and is provided solely for the convenience of English speaking users. The statutory auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the opinion on the consolidated financial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account balances, transactions, or disclosures. This report also includes information relating to the specific verification of information given in the Group’s management report. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders In compliance with the assignment entrusted to us by your General meetings, we hereby report to you, for the year ended 31 December 2012, on: (cid:127) the audit of the accompanying consolidated financial statements of Dassault Syst `emes, (cid:127) the justification of our assessments, (cid:127) the specific verification required by law. These consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these consolidated financial statements based on our audit. I – Opinion on the consolidated financial statements We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at 31 December 2012 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. II – Justification of our assessments In accordance with the requirements of article L. 823-9 of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we bring to your attention the following matters: (cid:127) Note 2 to the consolidated financial statements sets out the accounting principles and methods used to account for revenue including firstly new software licenses along with related maintenance, and secondly services and other revenue. (cid:127) Notes 2, 16 and 17 to the consolidated financial statements set out the accounting principles and methods used to determine the value of the assets and liabilities acquired through business combinations, which are based on significant assumptions and estimates made by management. DASSAULT SYST `EMES Annual Report 2012 109 Financial statements 4 (cid:127) Notes 2 and 6 to the consolidated financial statements set out the accounting principles and methods used to determine the fair value of the share-based payment awards granted to the Directors, Senior Management and employees, which is based on significant assumptions and estimates made by management. As part of our work, we verified the above-mentioned accounting principles and methods, examined the assumptions used and their application, and verified that the information provided in the notes above was appropriate. These assessments were made as part of our audit of the consolidated financial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the first part of this report. III – Specific verification As required by law, we have also verified in accordance with professional standards applicable in France the information presented in the Group’s management report. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements. Neuilly Sur Seine and Paris-La D ´efense, on 28 March 2013 The Statutory Auditors PRICEWATERHOUSECOOPERS AUDIT ERNST & YOUNG ET AUTRES French original signed by: French original signed by: Pierre Marty Jean-Fran¸cois Ginies 110 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 4.2 Parent Company Financial Statements The financial statements presented below are the individual parent company financial statements of Dassault Syst `emes SA. Presentation of the parent company financial statements and the valuation methods used The financial statements for the year ended December 31, 2012 have been prepared in accordance with the French General Chart of Accounts (Plan Comptable G ´en ´eral), the French Commercial Code and French regulatory requirements. They are presented in the same manner and prepared using the same valuation methods as the preceding year. Results of operations of Dassault Syst `emes SA In 2012, operating revenue increased 15.8% to e997.6 million from e861.1 million in 2011. Software revenue amounted to e839.9 million in 2012, compared to e716.3 million in 2011, an increase of 17.2%, primarily due to good performance by all of the Dassault Syst `emes SA’s brands, particularly CATIA, and to the favorable effect of the exchange rates on the Japanese yen and the US dollar on the royalties paid to Dassault Syst `emes SA regarding the brands for which it holds the intellectual property. The portion of revenue earned from export sales increased to e813.0 million, or 82.1% of net sales. Operating expenses increased 17.4% to e769.7 million in 2012 from e655.6 million in 2011. The main drivers of this increase are: (cid:127) salary costs increased +19.9%, due to: (cid:127) the effect of the new tax laws implemented last summer which increased the social contributions on the granted performance shares from 14% to 30%, and the social contributions on the employee profit sharing from 8% to 20%; (cid:127) the full year effect of the merged companies Geensoft SAS, Dassault Syst `emes Simulia France SAS and Intercim SAS and the hiring realized in 2012, particularly to strengthen the industry organization. (cid:127) other purchases and external expenses (+15.1%), driven by an increase in: (cid:127) marketing and communication expenses for the promotion and the development of the fame of Dassault Syst `emes; (cid:127) IT and R&D subcontracting expenses. (cid:127) other expenses, and specifically intercompany licensing fees increased 22.5% to e183.7 million in 2012 mainly due to the good level of performance demonstrated by all products distributed by Dassault Syst `emes SA. (cid:127) depreciation and amortization expenses and reserves for risk increased 5.8% due to an increase of the depreciation of the intangible assets resulting from the purchase of intellectual properties and of the financial software that went live this year. Operating income increased 10.9% to e227.9 million. Financial revenue for 2012 amounted to e137.7 million compared to e143.4 million for the preceding year, a decrease of 4.0%. This change was principally due to the net reversal of provisions for a decline in value of long term investments of e26.3 million in 2011, partially offset by an increase in dividends received (e124.5 million in 2012 compared to e111.8 million in 2011) and an increase in the net revenue from disposals of investment securities (e20.5 million in 2012 compared to e8.1 million in 2011). Net income amounted to e254.8 million in 2012 compared to e264.8 million in 2011. At December 31, 2012, cash and short-term investments amounted to e1,133.9 million compared to e1,224.0 million at December 31, 2011. This decrease is due to the acquisition of Gemcom and to the reimbursement of the loan of e200.0 million offset by the benefit brought by the roll out of the centralized cash management arrangement, particularly the US subsidiaries, and to cash from operations. DASSAULT SYST `EMES Annual Report 2012 111 Financial statements 4 4.2.1 Balance Sheets (in thousands) ASSETS FIXED ASSETS Intangible assets Goodwill Concessions, patents, licenses, trademarks Assets in progress, advances and on-account payments Property, plant & equipment Machinery & equipment Other property, plant & equipment Property, plant & equipment in progress Financial assets Investments in subsidiaries Loans and advances to subsidiaries Loans Deposits and guarantees CURRENT ASSETS Advances and on-account payments Receivables Trade receivables Other operating receivables Marketable securities Treasury shares Cash and cash equivalents Prepaid expenses Unrealized exchange losses TOTAL ASSETS (cid:1) Year ended December 31, Notes Gross Amortization or provision for depreciation 2012 Net (cid:2) 2011 Net 3, 4 g2,386,873 g(228,649) g2,158,224 g1,841,578 222,111 123,426 97,905 780 99,752 61,024 38,469 259 2,065,010 1,786,483 277,737 450 340 g1,393,097 218 201,572 141,242 60,330 1,130,185 57,400 3,722 13,919 5,075 g3,798,964 5 6 7.1 7.2 8 (57,824) (2,280) 164,287 121,146 143,927 111,871 (55,544) 42,361 20,459 – (61,388) (44,849) (16,539) – (109,437) (109,437) – – – g(15,031) – (15,031) (15,031) – – – – – 780 38,364 16,175 21,930 259 1,955,573 1,677,046 277,737 450 340 g1,378,066 218 186,541 126,211 60,330 11,597 37,225 12,358 23,657 1,210 1,660,426 1,551,890 107,481 685 370 g1,527,348 61 266,756 183,040 83,716 1,130,185 1,212,102 57,400 3,722 13,919 36,524 11,905 8,226 – g(243,680) 5,075 g3,555,284 854 g3,378,006 112 DASSAULT SYST `EMES Annual Report 2012 (in thousands) LIABILITIES SHAREHOLDERS’ EQUITY Common stock Share premium Contribution premiums Legal reserve Retained earnings Earnings for the financial year Regulated provisions Accelerated depreciation Provisions for contingencies and losses LIABILITIES Financial liabilities Bank loans and borrowings Miscellaneous loans and borrowings Payables Trade payables Tax and social security payables Other payables Unearned revenue Unrealized exchange gains TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Financial statements 4 (cid:1) Years ended December 31, (cid:2) 2012 2011 Notes Before AGM’s resolutions Before AGM’s resolutions 9 g2,389,190 g2,168,738 125,097 314,402 271,591 12,309 123,093 263,875 269,978 12,133 1,395,566 1,217,238 254,847 14,450 928 264,795 16,836 790 44,762 g1,077,189 30,383 g1,122,460 10 11 22,487 308 22,179 13 1,054,702 64,101 111,812 878,789 42,734 14 221,380 200,710 20,670 901,080 110,760 101,282 689,038 53,696 1,409 g3,555,284 2,729 g3,378,006 DASSAULT SYST `EMES Annual Report 2012 113 Financial statements 4 4.2.2 Statements of Income (in thousands) Operating revenue (I) Sales of equipment Royalties and services Net sales Of which exports Capitalized production Reversals of provisions, amortization and transfers of expenses Other revenue Operating expenses (II) Purchases of materials Other purchases and external expenses Taxes, duties and similar payments Salaries and wages Social security contributions Depreciation and amortization of fixed assets Appropriations to provisions for depreciation of current assets Appropriations to provisions for contingencies and liabilities Other expenses OPERATING INCOME (III = I + II) Financial income (IV) Other interest and similar revenue Reversals of provisions and transfers of expenses Exchange gains Net revenue from disposals of investment securities Financial expenses (V) Appropriations to provisions Interest and similar expenses Exchange losses Net loss from disposals of investment securities FINANCIAL INCOME/LOSS (VI = IV + V) CURRENT INCOME (III + VI) Extraordinary revenue (VII) From management transactions From capital transactions Reversals of provisions and transfers of expenses Extraordinary expenses (VIII) On management transactions On capital transactions Appropriations to amortization and provisions EXTRAORDINARY INCOME (IX = VII + VIII) Regulated and optional employee profit-sharing (X) Optional employee profit-sharing Regulated employee profit-sharing Corporate income tax (XI) NET INCOME (III + VI + IX + X + XI) 114 DASSAULT SYST `EMES Annual Report 2012 (cid:1) Years ended December 31, (cid:2) Notes 2012 2011 16 19 g997,550 – 990,706 990,706 812,952 2,165 4,625 54 g861,105 – 850,023 850,023 679,705 7,206 3,564 312 (769,692) (655,579) – (288,191) (13,460) (164,251) (88,240) (21,406) (5,378) (5,055) (227) (250,443) (14,301) (140,056) (70,506) (16,661) (9,036) (4,396) (183,711) (149,953) 227,858 176,141 128,012 1,088 26,644 20,477 (38,483) (5,075) (8,130) (25,278) – 137,658 365,516 24,092 2 10,718 13,372 (52,434) (160) (39,780) (12,494) (28,342) (29,869) (16,404) (13,465) 205,526 205,471 122,178 61,142 14,088 8,063 (62,064) (32,960) (11,332) (17,624) (148) 143,407 348,933 36,606 366 26,818 9,422 (46,573) (8) (32,803) (13,762) (9,967) (27,358) (14,165) (13,193) 20 (52,458) g254,847 (46,813) g264,795 Financial statements 4 4.2.3 Notes to the Parent Company Financial Statements Note 1. Description of Business and Key Events of the Year Description of business Dassault Syst `emes SA is the parent company of the Dassault Syst `emes Group, world leader of Product Lifecycle Management (‘‘PLM’’) software solutions powered by three-dimensional (3D) representation. Dassault Syst `emes SA provides software solutions and consulting services which enable its customers to innovate in the design and quality of products and services, reduce design-cycle time to accelerate time-to-market, collaborate with partners and suppliers in product development, reduce the development, manufacturing, and maintain products more cost effectively, obtain and capture and leverage information intelligence, whether from internal sources and/or from the Internet, and simulate their end-customers’ experiences. Dassault Syst `emes SA also provides consulting and training services to its customers. Significant operations on long term financial investment On June 29, 2012, Dassault Syst `emes SA sold 100% of its subsidiary Transcat PLM GmbH to the company Transcat GmbH. Following to a decision of the Board taken on July 25, 2012, Dassault Syst `emes SA proceeded to a capital increase of 23,412 new shares in remuneration of Mr. Charles Edelstenne’s ownership of 5% of the capital of Dassault Data Services SAS for an amount of e1.7 million. On August 2, 2012, Dassault Syst `emes SA acquired for e19.1 million the company Netvibes France from Netvibes Ltd. The Netvibes group developed an Internet platform offering dashboard intelligence technologies. On October 24, 2012, Dassault Syst `emes SA subscribed to the capital increase of its subsidiary Dassault Syst `emes International SAS for a total amount of e100.3 million as well as to the capital increase of its subsidiary Dassault Syst `emes India Pvt Ltd for a total amount of $5.0 million on November 27, 2012. In addition, during December 2012, Dassault Syst `emes SA proceeded to the capital increase of Exalead SA for an amount of e20,2 million. Respectively on January 3, 2012 and October 2, 2012, the French companies Intercim SAS and Nsided SAS were merged into Dassault Syst `emes SA. Dividend payment The Combined General Meeting of Shareholders held on June 7, 2012, approved a dividend of e86.7 million, based on the existing shares as at February 29, 2012. The effective dividend paid to the shareholders amounted to e86.3 million of which e1.2 million representing the dividend on treasury shares and e0.8 million resulting from the difference between existing number of shares as at February 29, 2012 and actual number of shares as at June 7, 2012. Performance shares The General Meeting of Shareholders of May 27, 2010, authorized the Board of Directors that decided on September 29, 2012 to grant Dassault Syst `emes SA performance shares to the extent that, the maximum number of performance shares cannot exceed more than 1.5% of Dassault Syst `emes SA’s capital at the date of the General Meeting of Shareholders. Pursuant to this authorization, during the year ended December 31, 2012, the Board of Directors allocated 150,000 performance shares to the Dassault Syst `emes SA’s Chief Executive Officer (‘‘CEO’’) (called ‘‘Actions 2010-05’’), and 539,230 performance shares to employees and executive officers (‘‘mandataires sociaux’’) of Dassault Syst `emes SA and the Group (called ‘‘Actions 2010-04’’) of which 14,000 were granted to the CEO. Such shares shall become vested pursuant to the following conditions: (cid:127) By the Chief Executive Officer at the end of an acquisition period of two years for the 150,000 ‘‘Actions 2010-05’’, subject to the condition that the CEO be an executive officer of Dassault Syst `emes SA at the acquisition date, and subject to the fulfillment of performance DASSAULT SYST `EMES Annual Report 2012 115 Financial statements 4 conditions established by the Board of Directors. In addition, the CEO is required to hold the vested shares until the end of a two-year lock-up period; the CEO will have to keep at least 15% of the ‘‘Actions 2010-05’’ until he has left his current functions; (cid:127) By the employees and the executive officers under the Performance Share Plan ‘‘Actions 2010-04’’ at the end of an acquisition period of three years, subject to the condition that they are still with Dassault Syst `emes SA or one of its subsidiaries at the acquisition date, and subject to the fulfillment of performance condition established by the Board of Directors. In addition, they are required to hold the vested shares until the end of a two-year lock-up period; (cid:127) By the employees and the executive officers of the Group for the International Performance Share Plan ‘‘Actions 2010-04’’ at the end of an acquisition period of four years, subject to the condition that the they are still part of the Group at the acquisition date, and subject to the fulfillment of performance conditions established by the Board of Directors. The recharge of these expenses to the Group’s subsidiaries will be done at the acquisition date on the basis of the effective attribution of the shares. During the vesting period, Dassault Syst `emes SA accrues only for the costs related to the performance shares attributed to its own employees. Stock repurchase program The General Meeting of Shareholders of May 26, 2011 and June 7, 2012 authorized the Board of Directors to implement a share repurchase program not to exceed 10% of Dassault Syst `emes SA’s share capital. In addition, these programs specify that Dassault Syst `emes SA may not purchase shares at a price exceeding e85 per share and that the aggregate amount may not exceed e500 million. During 2012, 1,042,679 shares were repurchased for a total amount of e75.1 million. Shareholder base On December 31, the share capital of Dassault Syst `emes SA was held by: (In %) Public Groupe Industriel Marcel Dassault Charles Edelstenne and assignees(1) Bernard Charl `es SW Securities LLC Treasury shares Other directors and executive officers Total On December 31, the voting rights in Dassault Syst `emes SA were held by: (In % of exercisable voting rights)(1) Groupe Industriel Marcel Dassault Public Charles Edelstenne and assignees(2) Bernard Charl `es Other directors and executive officers Total 2012 50.6 41.5 6.2 0.8 0.2 0.7 – 2011 49.9 42.2 6.2 1.0 0.2 0.5 – 100.0 100.0 2012 51.9 38.0 9.2 0.9 – 2011 51.7 37.9 9.4 1.0 – 100.0 100.0 (1) The total number of exercisable voting rights in the table above is the ‘‘net’’ number of voting rights (which does not include shares for which voting rights are suspended), or the number of votes which may be exercised in a Meeting of Shareholders. (2) At December 31, 2012, Mr. Edelstenne held 1,942,459 shares with all ownership rights and 1,542 shares through two family companies which he manages, representing in the aggregate 1.57% of the outstanding capital and 2.30% of the exercisable voting rights, as well as 5,763,600 shares with ‘‘usage’’ rights (usufruit). For the usage rights with respect to these 5,763,600 shares, representing 6.87% of the voting rights; Mr. Edelstenne can only exercise the right to vote on decisions of the General Meeting of Shareholders concerning the allocation of profit; the holders of the bare property rights (nue-propri ´et ´e) exercise the right to vote for other resolutions in compliance with Article 11 of the by-laws. 116 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Event after the reporting period In February 2013, Dassault Syst `emes SA entered into a built-to-suit lease agreement for a new building in its headquarters facilities in V´elizy-Villacoublay, outside Paris, France, and extended the lease term for a further five years ending November 2025 (see Note 15.3 Other Commitments). Note 2. Summary of Significant Accounting Policies The financial year lasts for 12 months from January 1 through December 31. The annual financial statements for the year ending December 31, 2012, have been prepared and are presented in accordance with CRC Regulation 99-03. General accounting conventions have been applied in keeping with the principle of prudence, the principle of continuity of accounting methods from one year to the next, the independence of financial years, and the assumption that the business is a going concern. Assets and liabilities are initially recorded at historical cost. Dassault Syst `emes SA applies accounting rules on the definition, valuation, amortization and depreciation of assets defined, in particular, in Regulation 2002-10 of December 12, 2002 and 2004-6 of November 23, 2004, by the Comit ´e de la R `eglementation Comptable (French Accounting Regulation Committee). Significant accounting polices applied are as follows: 2.1 Intangible assets and property, plant and equipment Intangible assets and property, plant and equipment are recognized at their acquisition cost when they are purchased, at their production cost when they are produced internally, and at their integration value when they are transferred. Technical deficits resulting from merger operations are recorded as goodwill. Dassault Syst `emes SA reviews the net realizable value of such assets periodically to ensure that the net realizable value is not less than the carrying value. Acquisition cost includes the purchase price and any additional expenses directly relating to the acquisition. The amortizable amount depends on the acquisition costs less any market value net of disposal costs at the end of their term of use. Intangible assets are amortized using the straight-line method over their expected useful life (three to five years for software and seven to eight years for intellectual property). The useful life and amortization methods applied to property, plant and equipment are presented below: 1) Declining balance method: New IT equipment New office equipment 2) Straight-line method: Secondhand IT equipment Laptop computers Transportation equipment Office equipment Fixtures and fittings Office furniture 3 to 7 years 3 to 7 years 3 years 2 years 4 years 7 years over the term of the lease over the term of the lease DASSAULT SYST `EMES Annual Report 2012 117 Financial statements 4 2.2 Financial assets Investments in subsidiaries are initially valued at their historical acquisition cost. Since 2007, expenses directly related to the acquisition of equity securities have been included in the acquisition cost of these securities and depreciated, for tax and accounting purposes, over five years. Loans and advances to subsidiaries are valued at their net realizable value. Periodically and at least at the annual closing period, Dassault Syst `emes SA reviews the net realizable value of its investments and loans and advances to subsidiaries. In particular, the net realizable value of securities takes into account the amount of shareholders’ equity, long-term profitability and strategic factors. An impairment is recognized if the net realizable value is less than the acquired book value when the reduced value is at long term. 2.3 Marketable securities Marketable securities are recorded at their acquisition price and are depreciated, when applicable, by referring to their stock market value at the end of the year. Marketable securities acquired in foreign currencies are converted at the closing exchange rate. 2.4 Receivables and payables Trade receivables and payables are carried at their nominal value. A provision for depreciation is recorded when the net realizable value is lower than the historical value taking into account, in particular, their age and their probability of collectability. 2.5 Foreign currency transactions Transactions in foreign currencies are recorded in Euros in the income statement at the monthly average exchange rate. Receivables, debts and cash in foreign currencies are converted in Euros in the balance sheet at the closing exchange rate or at the hedged rate when they are subject to exchange rate hedging. The conversion differences are recorded on the balance sheet in ‘‘Unrealized Exchange Losses/ Gains’’. In the event of unrealized losses, a provision for contingencies (exchange loss) is recorded. However, the reevaluation at closing rate of the current accounts used for the Group cash pooling and the cash and cash equivalent excepted marketable securities is considered as realized exchange gains or losses and is presented in net flows in the financial result. 2.6 Net sales Dassault Syst `emes SA derives revenue from the following sources: (i) new software licenses and periodic licenses; (ii) maintenance which includes software license updates and technical support; (iii) development of additional functionalities of standard products requested by clients and (iv) royalties coming from distribution agreements mainly signed with Dassault Syst `emes Group subsidiaries. Software license revenue represents fees earned from granting customers licenses to use the Dassault Syst `emes SA’s software. Software license revenue consists of perpetual and periodic license sales of software products and is recognized when: an agreement with the customer exists, the delivery and the acceptation of the software has occurred, the software license fee and associated costs are fixed or determinable; and it is probable that the economic benefits associated with the transaction will flow to Dassault Syst `emes SA. In instances when any of the four criteria are not met, the revenue recognition of software license is deferred until all criteria are met. Revenue related to the licensing of software through value-added resellers (VARs) is generally recognized when evidence of a sale to an end-user customer is provided to Dassault Syst `emes SA, assuming all other revenue recognition criteria have been met. Periodic licenses generally have a one-year term and the corresponding fee is recognized ratably over the term of the license. Maintenance revenue represents periodic fees associated with the sale of unspecified product updates on a when-and-if-available basis and technical support. Maintenance agreements are entered into in connection with the initial software license purchase. The maintenance support may be renewed at the conclusion of each term. Revenue from maintenance is recognized on a straight-line basis over the term of the maintenance agreement. Product development revenue relates to the development of additional functionalities of standard products requested by clients and is recognized as the development work is performed. Revenue under multiple-element arrangements, which typically include new software licenses and maintenance agreements sold together, is allocated to each element in the arrangement primarily using the residual method based upon the fair value of the undelivered elements. Discounts, if any, are applied to the delivered elements, usually software licenses, under the residual method. For maintenance, fair value is determined based upon an expected renewal rate. 118 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Services and other revenue consist primarily of fees from consulting services and training. Services generally do not require significant modification or customization of software products and are accounted for separately to the extent they are not essential to the functionality of software products. Service revenues derived from time and material contracts are recognized as time is incurred. Service revenues derived from fixed price contracts are generally recognized using a percentage of completion basis. For customer support contracts, when no performance pattern is discernible, revenue is recognized ratably over the term of the contract, generally one year, on a straight-line basis. 2.7 Research & Development (‘‘R&D’’) expenses Research costs are expensed as incurred. Since it is difficult to demonstrate technological feasibility before a working prototype has been completed, such costs are expensed. Technological feasibility is generally demonstrated shortly before the commercial release of software products. As a consequence, costs incurred after technological feasibility is established that could potentially be capitalized are not material. 2.8 Provisions for contingencies and losses Dassault Syst `emes SA applies accounting rules on liabilities, in Regulation 2002-06 by the Comit ´e de la R `eglementation Comptable (French Accounting Regulation Committee) which means that the Dassault Syst `emes SA has to accrue for provisions for contingencies and losses in order to face probable decrease of resources toward third parties without any counterpart for Dassault Syst `emes SA. These provisions are estimated taking in account the most probable hypothesis at the closing date. 2.9 Derivatives Dassault Syst `emes SA generally mitigates foreign currency exposure to revenue and cost generated by its ongoing and predictable activity. Dassault Syst `emes SA can also mitigate a given foreign currency exposure linked to operations realized, for instance, when it undertakes an acquisition in foreign currency. Dassault Syst `emes SA, in order to mitigate foreign currency exposure, uses only foreign exchange contracts or financial instruments for which total maximum losses are known from the outset. Interest rate derivatives The financial income and expense resulting from the use of derivatives is recorded in the income statement in the same manner as income and expense from the covered transactions when the derivatives are considered to be hedging transactions from an accounting perspective. If the instruments do not qualify as hedging, they are evaluated as follows: (cid:127) unrealized losses on negotiated financial instruments are fully reserved; (cid:127) net gains on negotiated financial instruments are recognized in the income statement upon settlement. Exchange rate derivatives Exchange rate derivatives are included in Dassault Syst `emes Group’s currency position. Unrealized losses on these derivatives are taken into account in determining the provision for unrealized exchange losses. DASSAULT SYST `EMES Annual Report 2012 119 Financial statements 4 Notes to the Balance Sheet Note 3. Changes in Fixed Assets (in thousands) Intangible assets Goodwill Patents, licenses and trademarks Intangible assets in progress Tangible assets Machinery and equipment Other property, plant & equipment Fixtures and fittings Vehicles Office furniture Office equipment PP&E in progress Financial assets Investments in subsidiaries Loans and advances to subsidiaries Loans Deposits and guarantees Total gross fixed assets Gross 12/31/2011 g191,851 111,871 68,383 11,597 92,004 50,831 39,963 25,483 269 7,538 6,673 1,210 1,769,912 1,661,327 107,530 685 370 g2,053,767 Contributions merged companies g90 – 90 – – – – – – – – – – – – – – g90 Additions 2012 g42,761 11,555 30,426 780 16,343 13,828 2,256 1,431 – 818 7 259 679,126 159,376 519,700 15 35 g738,230 Disposals 2012 g(12,591) – (994) (11,597) (8,595) (3,635) (3,750) (3,257) (55) (22) (416) (1,210) (384,028) (34,220) (349,493) (250) (65) g(405,214) Gross 12/31/2012 g222,111 123,426 97,905 780 99,752 61,024 38,469 23,657 214 8,334 6,264 259 2,065,010 1,786,483 277,737 450 340 g2,386,873 Fixed assets in progress and advances and on-account payments on fixed assets are recorded under the fixed asset item to which they relate. The increase in intangible assets in 2012 was mainly due to the acquisition of intellectual properties for e18.9 million, to the inclusion of goodwill related to the mergers completed during the year for e10.4 million and to the capitalization of the upgrade of the finance information system of Dassault Syst `emes SA (in assets in progress). The increase in the tangible assets is mainly explained by the recurring investments of office IT equipment and servers for e13.8 million of which e6.9 million are linked to the implementation of the new Data Center. Financial assets are mainly composed of investments in subsidiaries and loans and advances to subsidiaries, details of which are presented in the information concerning subsidiaries and shareholdings (see Note 25. Information Relating to Subsidiaries and Shareholdings), as well as loans and advances granted to employee and deposits and guarantees. The main variations on investments in subsidiaries are explained in Note 1. Description of Business and Key Events of the Year. The variation of loans and advances to subsidiaries is explained by the new loans granted to the subsidiaries which are driven by the acquisition plan of the Group. 120 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 4. Changes in Amortization, Depreciation and Impairment (in thousands) Intangible assets Patents, licenses and trademarks Other intangible assets Tangible assets Machinery and equipment Other property, plant & equipment Fixtures and fittings Vehicles Office furniture Office equipment Financial assets Investments in subsidiaries Loans and advances to subsidiaries Loans Deposits and guarantees Total amortization and impairment Amortization and impairment at 12/31/2011 Contributions merged companies Additions in 2012 Reversals and transfers 2012 Amortization and impairment at 12/31/2012 g47,924 47,924 – 54,779 38,475 16,304 7,795 257 1,884 6,368 109,486 109,437 49 – – g212,189 – – – – – – – – – – – – – – – – g9,944 7,664 2,280 13,742 9,804 3,938 2,911 12 769 246 – – – – g(44) (44) – (7,133) (3,430) (3,703) (3,208) (55) (24) (416) (49) – (49) – g57,824 55,544 2,280 61,388 44,849 16,539 7,498 214 2,629 6,198 109,437 109,437 – – – g23,686 – g(7,226) – g228,649 Depreciation of the intangible assets is principally explained by depreciation of a part of a goodwill recorded by Dassault Syst `emes SA. The decrease of tangible assets depreciations is mainly linked to the renewal of the IT equipments and to the disposal of the former data center, as mentioned above in Note 3. Changes in Fixed Assets. Note 5. Trade Receivables Trade receivables are broken down as follows: (In thousands) Trade accounts receivable Accrued revenue Allowance for trade accounts receivable Total trade receivables 12/31/12 12/31/11 e127,643 13,599 (15,031) g126,211 e158,395 36,468 (11,823) g183,040 The due date of all trade receivables and related items is less than one year. The increase in bad debt reserve amounting to e3.2 million is principally explained by the additional provision for a reseller receivable in Southern Europe. DASSAULT SYST `EMES Annual Report 2012 121 Financial statements 4 Note 6. Other Receivables Other receivables consist of the following elements: (In thousands) Income tax receivable Value added tax Current accounts receivable Accrued credit notes Derivatives Receivable related to the exercise of stock options Other Total other receivables 12/31/12 e15,857 17,053 15,470 3,906 1,441 2,537 4,066 g60,330 12/31/11 e21,637 15,755 33,179 9,524 184 2,863 574 g83,716 The due date of other receivables is less than one year for e58.3 million. The part over one year is equal to e2.0 million and is related to the portion of sale price of the company Transcat PLM GmbH sold in 2012 and remaining to be collected. The change in current accounts receivable is principally due to the recapitalization of Exalead SA compensated with their current account for e20.2 million, offset by an increase in receivables from certain European subsidiaries. Note 7. Cash and Cash Equivalents 7.1 Marketable Securities (In thousands) Marketable securities 12/31/12 12/31/11 g1,130,185 g1,212,102 On December 31, 2012, marketable securities were denominated in euros. The decrease of marketable securities is mainly due to the operations of external growth of the Group, in particular the Gemcom Group acquisition, as well as the reimbursement of the loan of e200.0 million in November 2012. In addition, the Group cash pooling and Dassault Syst `emes SA current activity continued to generate additional cash. e1,122.5 million of marketable securities are held in monetary investments and e7.7 million are held in diversified investment structures. 122 DASSAULT SYST `EMES Annual Report 2012 7.2 Treasury Shares Treasury shares as of January 1, 2012 Transfer of shares Repurchase of treasury shares Cancelation of treasury shares Treasury shares as of December 31, 2012 Note 8. Prepaid Expenses Prepaid expenses are comprised of the following: (In thousands) IT maintenance Other Total prepaid expenses Financial statements 4 Number of shares Average price (in Euros) Total shares (in thousands) 650,000 (150,000) 1,042,679 (643,600) 899,079 g56.19 55.91 72.06 71.28 g63.84 g36,524 (8,386) 75,136 (45,874) g57,400 12/31/12 e5,781 8,138 g13,919 12/31/11 e4,289 3,937 g8,226 The increase of other prepaid expenses is mainly explained by 2013 expenses received at end of 2012. Note 9. Shareholders’ Equity 9.1 Share Capital Movements in share capital during the year ended December 31, 2012 were as follows: Shares as of January 1, 2012 Shares issued pursuant to stock option plans (refer to Note 9.2) Capital reduction by canceling shares Capital increase (refer to Note 1.) Shares as of December 31, 2012 Number of shares Par value (in Euros) Capital (in Euros) 123,092,729 2,624,237 (643,600) 23,412 125,096,778 g1 1 1 1 g1 g123,092,729 2,624,237 (643,600) 23,412 g125,096,778 DASSAULT SYST `EMES Annual Report 2012 123 Financial statements 4 9.2 Stock Option Plans The table below summarizes the options exercised since each plan was introduced: Number of options allocated Option exercise price (in euros) Exercise dates Number of options exercised through 2006 Number of options exercised in 2007 Number of options exercised in 2008 Number of options exercised in 2009 Number of options exercised in 2010 Number of options exercised in 2011 Number of options exercised in 2012 Number of options canceled Number of options in circulation on December 31, 2012 Number of options allocated Option exercise price (in euros) Exercise dates Number of options exercised through 2006 Number of options exercised in 2007 Number of options exercised in 2008 Number of options exercised in 2009 Number of options exercised in 2010 Number of options exercised in 2011 Number of options exercised in 2012 Number of options canceled Plan May 28, 2002 2002-01 2002-02 Plan January 20, 2003 2002-03 2002-04 Plan March 29, 2005 2002-05 2002-06 Plan October 9, 2006 2006-1 SUB TOTAL CARRY- FORWARD 1,363,563 355,300 3,325,000 675,000 967,150 232,850 1,405,700 8,324,563 45.50 45.50 23.00 23.00 39.50 39.50 47.00 – From 05/28/03 to 05/27/12 From 05/28/03 to 05/27/12 From 01/20/04 to 01/19/13 From 12/31/04 to 01/19/13 From 03/30/07 to 03/28/12 From 03/30/06 to 03/28/12 From 10/10/09 to 10/08/13 – 440 – – 217,400 743,790 312,863 89,070 – 66,305 96,481 37,609 6,113 21,933 20,563 40,760 65,536 – 71,725 504,841 205,592 158,798 856,569 641,931 772,252 20,225 93,067 385,120 107,245 17,900 11,930 19,655 12,300 64,735 50,600 5,515 5,700 – 2,800 950 326,135 436,694 61,369 133,502 – 4,300 61,600 28,550 14,700 16,150 27,800 37,000 42,750 – – – – – 533,150 770,607 292,451 192,491 98,768 1,556,610 219,242 607,784 223,400 256,506 2,102,320 1,896,763 625,083 355,088 SUB TOTAL CARRY- FORWARD Plan June 6, 2007 2006-02 Plan Sept 25, 2008 2008-01(2) Plan Nov 27, 2009 2008-02 Plan May 27, 2010 2010-01 TOTAL 8,324,563 1,325,900 1,436,600 1,851,500 1,240,000 14,178,563 47.50 38.15 39.00 47.00 – From 06/07/10 to 06/05/14 From 09/25/09 to 09/24/15 From 11/27/13 to 11/26/17 From 05/27/14 to 05/26/18 533,150 770,607 292,451 192,491 1,556,610 2,102,320 1,896,763 625,083 355,088 – – – – 28,721 192,640 392,265 150,079 562,195 – – – – 25,275 61,398 335,209 137,582 877,136 – – – – – – – – 1,300(1) 900(1) – – – – 131,300 64,000 1,718,900 1,175,100 533,150 770,607 292,451 192,491 1,612,806 2,356,358 2,624,237 1,108,044 4,688,419 Number of options in circulation on December 31, 2012 (1) Options exercised under specific provisions. (2) 33% per annum exercisable beginning September 25, 2009, 2010 and 2011 respectively. 124 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 9.3 Movements in Shareholders’ Equity Movements in shareholders’ equity for the year ended December 31, 2012 were as follows: (in thousands) Common stock Share premium Contribution premium Legal reserve Retained earnings Income (loss) for the fiscal year Regulated provisions(1) Shareholders’ equity 2011 Before AGM’s resolutions g123,093 263,875 269,978 12,133 1,217,238 264,795 17,626 g2,168,738 Appropriation of 2011 earnings by AGM – – – 176 178,328 (264,795) – g(86,291) Effect of exercising options and canceling shares e1,981 50,527 – – – – – g52,508 Net income for 2012 fiscal year – – – – – 254,847 – g254,847 2012 Before AGM’s resolutions g125,097 314,402 271,591 12,309 1,395,566 254,847 15,378 g2,389,190 Other(1) e23 – 1,613 – – – (2,248) g(612) (1) The ‘‘Other’’ variations of shareholders’ equity corresponds to the emission of 23,412 shares as remuneration of the contribution of 1,500 shares Dassault Data Services SAS, as well as a reversal of regulated provisions mainly generated from the regulated company profit sharing scheme set up for the benefit of Dassault Syst `emes SA employees. From 2012, there is no longer such a regulated provision as a consequence of the disappearance of the tax benefit voted by the French Parliament. Note 10. Provisions for Contingencies and Losses Movements of provisions for contingencies and losses were as follows: (in thousands) Provisions for post-employment benefits Provisions for jubilee awards Provisions for exchange losses Other provisions for contingencies and losses Total provisions Opening balance on 01/01/12 Additions for 2012 fiscal year Reversals for 2012 fiscal year Closing balance on 12/31/12 e10,550 2,746 855 16,232 g30,383 e1,814 931 5,075 21,000 g28,820 – (14) (855) (13,572) g(14,441) e12,364 3,663 5,075 23,660 g44,762 Dassault Syst `emes SA’s commitment in terms of retirement payments was evaluated using the future rights pro-rata method. This method, which is based on an actuarial valuation of rights, takes into account rights acquired by employees on the date of their retirement, computed on the basis of the employees’ seniority and annual salary at the time of retirement. These rights are acquired and paid to the employee when he/she retires as a fixed amount. Provisions are made for rights to retirement payments acquired by employees during their career on the basis of actuarial assumptions and calculations. Retirement commitments on December 31, 2012 were computed using the prospective method using the following assumptions: retirement between 60 and 65 years of age, discount rate of 3.50%, average increase in salaries of 3% and a 4% expected return on plan. In 1998, Dassault Syst `emes SA took out an insurance policy with Sogecap, a life insurance company affiliated with the Soci ´et ´e G ´en ´erale, intended to cover the retirement payment commitments. Pursuant to this policy, Dassault Syst `emes SA has invested a total of e8.3 million. DASSAULT SYST `EMES Annual Report 2012 125 Financial statements 4 Change in other provisions for contingencies and liabilities between December 31, 2011 and December 31, 2012 corresponds primarily to: (cid:127) a provision for an obligation for e16.4 million as a result of the attribution of performance shares in 2012; (cid:127) a reversal of a provision of e8.4 million following the delivery of performance shares in May 2012. Dassault Syst `emes SA is involved in litigation and other proceedings, such as civil, commercial, social and tax proceedings, incidental to normal operations. Dassault Syst `emes SA estimates that the resolution of such litigation and proceedings will not have a material effect on its financial statements. Note 11. Financial Liabilities At December 31, 2012, financial liabilities were as follows: (In thousands) Regulated employee profit-sharing scheme Bank loans and borrowings Other debts, reimbursable advances Banks Total financial liabilities Gross e21,444 38 736 269 g22,487 Due dates less than one year e3,734 – 14 269 g4,017 Due dates over one year e17,710 38 722 – g18,470 As at December 31, 2011, the financial liabilities included a e200 million multi-currency credit facility. This credit facility was entirely reimbursed in November 2012. As at December 31, 2012, the financial liabilities are principally explained by a debt related to the regulated employee profit sharing which is blocked on a dedicated current account for five years which generated interest based on 110% private bound average rate (‘‘TMOP ’’). Note 12. Elements Concerning Related Companies (In thousands) Loans granted (balance at year end) Loans contracted (balance at year end) Interest received or accrued during the year on loans granted Cash advances granted Dividends received during the year Current accounts with debit balances (at year end) Interest received or accrued during the year on current accounts Current accounts with credit balances (at the year-end cut-off date) Interest paid or accrued during the year-end on current accounts obtained Trade accounts receivable and related items Accounts payable and related items 126 DASSAULT SYST `EMES Annual Report 2012 12/31/12 12/31/11 e276,987 e106,639 – 3,119 – 124,529 15,489 281 871,565 1,542 40,474 e2,633 – 4,114 1,000 111,768 33,179 384 681,962 1,627 75,364 e38,124 Financial statements 4 Loans granted to subsidiaries and intercompany current accounts are paid according to market conditions. The increase in loans is principally driven by the financing of the acquisition of Gemcom group in 2012 done by the Group. The increase in creditor current accounts is due to the continuing roll out of the Dassault Syst `emes Group’s centralized treasury management (cash pooling) to all the Group worldwide level, mainly to the US subsidiaries. The decrease in debtor current accounts is due to the recapitalization of Exalead SA through incorporation of a portion of their current account. The decrease of trade accounts receivable and accounts payable and related items is the result of the reduction of the payment terms policy which results in earlier settlement of Group payables and receivables. e124.5 million in dividends were received during the 2012 fiscal year. Note 13. Trade Payables Trade payables were as follows: (in thousands) Suppliers Invoices not received Total trade payables All trade payables are due in less than one year. 12/31/12 e12,486 51,615 g64,101 12/31/11 e46,080 64,680 g110,760 In accordance with Articles L. 441-6-1 and D. 441-4 of the French Commercial Code related to information regarding payment due dates, at December 31, 2012, the balance of Dassault Syst `emes SA’s trade payables to its suppliers amounted to e12,486,222.0 (2011: e46,080,013.0). Due dates are as follows: (cid:127) 37.6% payable within 30 days (2011: 37.3%); (cid:127) 62.4% payable within 60 days (2011: 62.7%). 90% of the trade payables as at December 2012 are related to external suppliers. The decrease of trade payables of e46.7 million between 2011 and 2012 is principally explained by an acceleration of the intercompany payment terms. Tax and social security payables were as follows: (in thousands) Value added tax Other taxes and duties Regulated and optional profit-sharing Accrued vacation Other employee expenses Total tax and social security payables 12/31/12 e9,901 1,617 23,610 32,543 44,141 g111,812 12/31/11 e12,839 1,983 22,198 29,224 35,038 g101,282 DASSAULT SYST `EMES Annual Report 2012 127 Financial statements 4 Other payables were as follows: (in thousands) Current accounts with credit balances Discounts to be granted and credit notes to be established Other Total other payables 12/31/12 12/31/11 e871,565 1,015 6,209 g878,789 e681,962 1,789 5,287 g689,038 The increase in current accounts with credit balances is explained by the roll out of the centralized Group cash management program by Dassault Syst `emes SA at the worldwide level. Note 14. Unearned Revenue Unearned revenue is comprised of the following elements: (in thousands) Software royalties Other revenue Total unearned revenue 12/31/12 e42,733 1 g42,734 12/31/11 e53,083 613 g53,696 Unearned revenues are mainly related to deferred revenues of software, maintenance and support for periods subsequent to this year end. The decrease versus last year is driven by the reversal, during 2012, of non recurring revenues, in application of the revenue recognition rules, particularly on software revenues that are recognized when the service is delivered. 128 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Note 15. Financial Commitments 15.1 Financial Instruments At December 31, 2012 and 2011, the fair value of instruments used to manage currency exposure was as follows: (cid:1) (cid:1) Year ended December 31, 2012 (cid:2)(cid:1) 2011 (cid:2) (cid:2) (in thousands) Interest rate swaps in euros(1) Interest rate basis swaps in euros(1) Nominal amount – – Fair value – – Forward exchange contract Japanese yen/euros – sale(2) 107,835 11,366 Forward exchange contract Japanese yen/euros – purchase(2) Collars Japanese yen/euros(2) Forward exchange contract Japanese yen/euros – sale(2) Interest rate swaps in Japanese yen(3) Interest rate swaps in Japanese yen(3) Forward exchange contract Japanese yen/U.S. dollars – sale(3) Forward exchange contract U.S. dollars/Japanese yen – purchase(3) Forward exchange contract Australian dollars/euros – sale(4) Forward exchange contract Canadian dollars/euros – sale(4) Forward exchange contract Australian dollars/euros – purchase(4) Other instruments(5) Nominal amount e200,000 200,000 212,141 – 14,909 9,383 101,297 101,297 5,802 – – 63,815 63,815 (78) – – (289) 289 24,721 (1,124) 16,099 24,721 121,591 65,236 9,938 e28,813 1,124 1,190 232 (40) e(41) 16,099 – – – e5,673 Fair value e(3,405) (188) (18,105) – (1,293) 166 (446) 446 (909) 909 – – – e18 (1) (2) Dassault Syst `emes SA has reimbursed in November 2012 the multi-currency credit facility (see Note 11. Financial Liabilities). Financial instruments designated to cover the exchange rate risk on the future budgeted sales in Japanese yen. Dassault Syst `emes SA has signed hedging contracts for its subsidiaries. These operations do not have any impact on the result of Dassault Syst `emes SA. (3) (4) Within the framework of the loans granted to the subsidiaries for the financing of acquisitions (see Note 12. Elements Concerning Related Companies), Dassault Syst `emes SA has signed hedging contracts; instruments qualifying the hedging accounting. (5) Derivatives not designated as hedging instruments. The fair value of derivatives has been calculated by financial institutions on the basis of the market price and option valuation models. All these instruments have been concluded within the framework of Dassault Syst `emes SA’s hedging strategy and mature in less than 12 months for the exchange rate hedging instruments and in approximately two years and half for the interest rate swaps. Dassault Syst `emes SA’s management believes that the counterparty risk relating to these instruments is minimal as counterparties are first ranked financial institutions. DASSAULT SYST `EMES Annual Report 2012 129 Financial statements 4 15.2 Increases and Reductions in Future Income Tax Payable Increases and reductions in future income tax payable have been evaluated on the basis of the standard corporate tax rate, plus extraordinary contributions when applicable. They originate from time lags between the tax regime and the accounting recognition of revenue and expenses. (in thousands) Nature of temporary differences Short term (36.10% tax rate) Provision for regulated profit-sharing Unrealized exchange gains Depreciation of receivables Other Long term (34.43% tax rate) Provision for post-employment benefits Provision for contingencies Total temporary differences Net reduction of the future corporate tax debt (36.10% tax rate) (34.43% tax rate) 15.3 Other Commitments 12/31/12 12/31/11 g37,484 g32,862 16,092 1,409 15,031 4,952 13,530 12,364 1,166 g51,014 13,532 e4,658 13,174 2,729 11,822 5,137 11,715 10,549 1,166 g44,577 11,863 e4,033 On December 31, 2012, commitments stood at e173.3 million for real estate and equipment rentals including: (i) e150.7 million relating to the lease for the headquarters in V´elizy-Villacoublay, effective as from June 30, 2008 for 12 years (compared to e165.1 million on December 31, 2011); (ii) e14.7 million related to the lease of a new building close to the headquarters, effective as from July 2011. In December 2012, Dassault Syst `emes SA agreed to sign a built-to-suit lease agreement for an additional building in its headquarters facilities and to extend the initial term for a further five years. Under this agreement signed in February 2013, Dassault Syst `emes SA has committed to lease an additional 13,000 square meters of office space and to enter into a new lease for its headquarters facilities for a non-cancelable initial term of ten years which will take effect starting November 2015 when construction is expected to be completed. Future minimum rental payments over the extended term amount to approximately e138 million in the aggregate and have not been included in the above paragraph. At the Board meeting of April 25, 2012, Dassault Syst `emes SA guaranteed all the commitments taken by Dassault Syst `emes Acquisition Corp. regarding the payment of the purchasing price of Gemcom International Software Inc. for a global maximum amount of CAD350.0 million, as well as the a compensation that could be claimed by the vendors in case of non compliance with the statements and warranties for that kind of transactions. 15.4 Individual Training Rights French law provides permanent employees in French entities with the right to receive individual training of at least twenty hours per year (‘‘Individual Training Rights’’). Individual Training Rights can be accumulated over six years and the related costs are expensed as incurred. As of December 31, 2012, accumulated Individual Training Rights amounted to 214,031 hours out of which 211,101 hours have not yet been requested by the employees. 130 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 12/31/12 12/31/11 e839,860 28,205 122,641 g990,706 e716,331 16,190 117,502 g850,023 12/31/12 12/31/11 e480,511 236,304 120,895 2,150 g839,860 e402,958 185,794 126,192 1,387 g716,331 Notes on the Income Statement Note 16. Breakdown of Net Sales (in thousands) Software (royalties and other product developments) Services and others Other revenue Total net sales The breakdown of net software sales by geographic zone is as follows: (in thousands) Europe Asia Americas Other Total net software sales Note 17. Statutory Auditors’ Fees The amount of Statutory Auditors’ fees appearing in the income statement for the year is as follows: (in thousands) Certification of the individual and consolidated financial statements Other services Total Statutory Auditors’ fees 12/31/12 12/31/11 e1,254 573 g1,827 e1,245 115 g1,360 Note 18. Research and Development Expenses In 2012, Dassault Syst `emes SA recorded a total of e168.8 million of research and development expenses. DASSAULT SYST `EMES Annual Report 2012 131 Financial statements 4 Note 19. Financial Income/Loss Financial income for the year 2012 was e137.7 million compared to e143.4 million for the year 2011. The main reasons for this decrease were: (cid:127) dividends received in 2012 were e124.5 million compared to e111.8 million in 2011 (see Note 12. Elements Concerning Related Companies); (cid:127) net gains of e20.5 million in 2012 compared to net gains of e8.1 million in 2011 on marketable securities disposals; (cid:127) a net provision for risk of e4.1 million concerning the receivable mainly related to the increase of the provision for exchange losses, compared to a net reversal of e1.9 million in 2011; (cid:127) a net reversal of e26.3 million of the impairment of investments in subsidiaries booked in 2011 whereas no movement on impairment was booked in 2012. Note 20. Extraordinary Income/Loss Extraordinary loss for the year 2012 was e28.3 million compared to e10.0 million for the year 2011. This increase of extraordinary loss was mainly due to a net loss of e18.0 million on subsidiaries shares sold in 2012. Note 21. Breakdown of Income Tax The breakdown of income tax between current income and extraordinary income for the year ended December 31, 2012, is as follows: (in thousands) Current income Extraordinary income(1) Breakdown of income tax (1) Including regulated and supplemental employee profit-sharing. Income before tax Tax (expense) profit e365,516 (58,211) g307,305 e(66,521) 14,063 g(52,458) Income after tax e298,995 (44,148) g254,847 The effective income tax rate for the year ended December 31, 2012 was 17.07% (2011: 15.02%). The increase in the effective tax rate was mainly due to the utilization of the losses carry forwards of the subsidiaries merged in 2011 and to a decrease in the research and development tax credit in 2012. The tax group consisted of 6 entities at the end of December 2012. Under the tax integration agreement, it is agreed that the tax charge of the tax-integrated company will be the same as it would have been if such subsidiary had not been a member of the group. Without the tax integration agreements, Dassault Syst `emes SA’s tax charge would have been e53.8 million in 2012. 132 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Additional Information Note 22. Compensation of Managing Directors The total gross compensation paid in euros by Dassault Syst `emes SA during 2012 was as follows: Salaries Benefits in kind Directors’ fees(1) Total e3,643,877 16,314 78,000(1) g3,738,191 (1) 2011 directors’ fees paid in 2012. 2012 directors’ fees to be paid in 2013 will represent e79,800. Following the authorizations granted to the Board of Directors by the General Meeting of Shareholders, the Board granted to the CEO 150,000 shares on May 27, 2010, 164,000 shares (150,000 ‘‘AGA 2010-03’’ and 14,000 ‘‘AGA 2010-02’’) on September 29, 2011 and 164,000 shares (150,000 ‘‘AGA 2010-05’’ and 14,000 ‘‘AGA 2010-04’’) on September 7, 2012. Such shares shall be vested at the end of an acquisition period of two years subject to the condition that the CEO be a managing director of Dassault Syst `emes SA at the acquisition date. The share vesting is dependant of a performance condition. At the end of the acquisition period, the CEO must hold the shares acquired for a period of two years. In addition, the CEO must maintain in registered form at least 15% of the total amount of shares he acquires until he has left his current functions at Dassault Syst `emes SA. Note 23. Average Headcount and Breakdown by Category Employees by category Managers Supervisors and technicians Employees Total average headcount (in full time equivalents) 12/31/12 12/31/11 2,106 78 188 2,372 1,908 72 161 2,141 Note 24. Identity of the Consolidating Company Dassault Syst `emes SA’s business is included in the consolidated financial statements of Groupe Industriel Marcel Dassault SAS, whose registered office is located at 9 Rond-point des Champs-Elys ´ees – Marcel Dassault, 75008 Paris. DASSAULT SYST `EMES Annual Report 2012 133 Financial statements 4 Note 25. Information Relating to Subsidiaries and Shareholdings (in thousands of euros) Dassault Syst `emes Corp.(1) Dassault Syst `emes Americas Corp. Dassault Syst `emes Simulia Corp. Exalead SA Dassault Syst `emes Deutschland GmbH Dassault Syst `emes Israel Ltd Dassault Syst `emes International SAS Dassault Syst `emes KK Dassault Syst `emes Provence SAS Dassault Syst `emes Canada Inc. Netvibes France SAS SquareClock SAS Dassault Syst `emes UK Ltd Dassault Syst `emes AB Dassault Syst `emes India Pvt Ltd Dassault Data Services SAS Allegorithmic(2) Dassault Syst `emes Italia Srl Dassault Syst `emes Belgium SA 3DPLM Software Solutions Ltd Dassault Syst `emes (Switzerland) Ltd Dassault Syst `emes Centrale Num ´erique SAS Dassault Syst `emes Espana SL Gross book value of shares Net book value of capital and share % of shares interest premiums Share Reserves Net profit or (loss) and Dividends Loans and for last retained earnings fiscal year Revenue collected advances 643,059 643,059 100 1,249,277 90,997 79,856 – 80,051 278,106 278,106 10 383,532 (3,117) 51,450 358,787 19,142 242,977 152,099 242,977 152,099 10 97.44 142 31,669 182,001 (30,651) 28,345 137,841 (7,551) 14,127 14,219 – 76,354 63,801 100 39,282 (855) 21,766 175,449 64,883 – 100 35,110 (45,284) 9,022 32,793 163,023 43,742 131,023 43,742 100 100 108,924 48,342 (1,671) 32,507 526 – 37,254 361,864 32,248 32,248 100 32,394 45,775 16,013 36,323 20,892 19,139 13,350 20,892 19,139 13,350 12,012 9,540 12,012 9,540 100 100 100 100 100 22,300 577 873 12,403 2,540 10,630 (1,777) 546 (1,836) 38,611 776 (3,878) 2,099 (751) 9,643 6,607 7,726 40,251 (2,399) 35,490 8,823 8,823 100 8,239 3,254 (731) 33,608 – – – – – – – – – – – 2,576 1,250 2,576 1,250 100 17.70 3,000 3,699 13,871 (2,666) 4,371 (608) 57,516 1,116 3,990 – 1,139 1,139 100 1,181 904 (4,106) 25,939 392 392 99.99 392 193 741 4,976 – – 90 68 37 90 68 25 100 37 100 3 3 1,785,802 1,676,366 100 214 18,012 6,255 – 426 83 5,157 (4,645) 8,702 37 3 (19) (3) – 799 (393) 9,172 – – – 117,828 1,574 107,734 Guarantees and sureties(5) – – – – – – (3) – – – – – – – – – – – – – – – – – 45,025 – – – – 12,179 4,437 – 38,835 4,661 – – – 810 213 – – – (1) (2) (3) U.S. holding company owning 100% of Dassault Syst `emes SolidWorks Corp., 100% of Dassault Syst `emes Russia Corp. and Dassault Syst `emes Holding LLC, the latter itself holding 90% of Dassault Syst `emes Americas Corp. and Dassault Syst `emes Simulia Corp. and 100% of Dassault Syst `emes Delmia Corp. and Spatial Corp. Equity interests. As regards the Japanese subsidiary Dassault Syst `emes KK, Dassault Syst `emes SA is the guarantor for up to 14.5 billion Japanese yen through July 31, 2015 for the benefit of the Bank of Tokyo-Mitsubishi and the Soci ´et ´e G ´en ´erale, for the credit line granted by these banks. Dassault Syst `emes SA has not granted any other significant guarantees or endorsements to its subsidiaries. The loans granted to subsidiaries are detailed in Note 12. Elements Concerning Related Companies. The 2012 earnings of foreign subsidiaries have been converted using the average annual exchange rates for the relevant currencies. The shareholders’ equity of foreign subsidiaries have been converted using the closing rates in effect at year-end. 134 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 4.2.4 Selected financial and other information for Dassault Syst `emes SA over the last five years (in euros except headcount) Share capital 2008 2009 2010 2011 2012 Share capital Number of shares authorized and issued 118,862,326 118,862,326 118,367,641 118,367,641 121,332,605 121,332,605 123,092,729 123,092,729 125,096,778 125,096,778 Statement of income data Revenue Result before income tax, profit sharing, amortization and provisions Result before income tax, profit sharing, amortization and provisions and reversals of provisions Income tax Regulated employee profit-sharing Optional employee profit-sharing Net income Data per share Result after income tax and profit sharing and before amortization and provisions Basic net income per share Dividend per share Personnel Average headcount Personnel costs paid during the year Social security contributions paid during the year 554,651,006 547,060,093 742,259,080 850,023,294 990,705,543 210,541,064 228,213,442 365,948,323 415,780,289 386,581,931 202,315,635 12,489,386 9,202,886 8,140,149 115,307,017 198,578,445 6,492,806 10,683,300 7,208,561 108,874,103 339,981,856 33,005,838 11,058,164 10,501,560 219,126,831 341,652,678 46,812,886 13,192,985 14,165,501 264,795,422 367,577,134 52,457,635 13,464,860 16,403,788 254,846,867 1.45 0.97 0.46 1.47 0.92 0.46 2.35 1.81 0.54 2.17 2.15 0.70 2.28 2.04 0.80(1) 1,794 102,594,289 1,887 106,372,002 2,022 120,640,263 2,141 140,056,445 2,372 164,250,610 53,986,160 58,556,427 69,681,295 70,506,943 88,239,898 (1) To be proposed for approval at the General Meeting of Shareholders scheduled for May 30, 2013. DASSAULT SYST `EMES Annual Report 2012 135 Financial statements 4 4.2.5 Report of the Statutory Auditors on the Parent Company Financial Statements This is a free translation into English of the statutory auditors’ report on the financial statements issued in French and it is provided solely for the convenience of English-speaking users. The statutory auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the audit opinion on the financial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the financial statements taken as a whole and not to provide separate assurance on individual account balances, transactions or disclosures. This report also includes information relating to the specific verification of information given in the management report and in the documents addressed to the shareholders. This report should be read in conjunction with and construed in accordance with French law and professional auditing standards applicable in France. To the Shareholders, In compliance with the assignment entrusted to us by your shareholders’ meetings, we hereby report to you, for the year ended 31 December 2012, on: (cid:127) the audit of the accompanying financial statements of Dassault Syst `emes SA; (cid:127) the justification of our assessments; (cid:127) the specific verifications and information required by law. These financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit. I. Opinion on the financial statements We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as at 31 December 2012 and of the results of its operations for the year then ended in accordance with French accounting principles. II. Justification of our assessments In accordance with the requirements of article L. 823-9 of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we bring to your attention the following matters: (cid:127) Note 2.1 to the financial statements summarizes the methods of recognition and valuation of intangible assets. We verified that the values in use of the business assets (‘‘fonds de commerce’’) were consistent with their carrying value. (cid:127) Note 2.2 to the financial statements summarizes the methods of recognition and valuation of financial fixed assets. We verified that the values in use of the long-term equity interests were consistent with their carrying values. (cid:127) Note 2.6 to the financial statements sets out the accounting principles and methods used to account for revenue including firstly new software licenses along with related maintenance, and secondly services and other revenue. We verified the appropriateness of the accounting principles adopted, their implementation and related information provided in the notes. These assessments were made as part of our audit of the financial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the first part of this report. 136 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 III. Specific verifications and information We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law. We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given in the management report of the Board of Directors and in the documents addressed to shareholders with respect to the financial position and the financial statements. Concerning the information given in accordance with the requirements of article L. 225-102-1 of the French Commercial Code (Code de commerce) relating to remunerations and benefits received by the directors and any other commitments made in their favour, we have verified its consistency with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your company from companies controlling your company or controlled by it. Based on this work, we attest the accuracy and fair presentation of this information. In accordance with French law, we have verified that the required information concerning the purchase of investments and controlling interests, the identity of the shareholders and holders of the voting rights has been properly disclosed in the management report. Neuilly Sur Seine and Paris-La D ´efense, 28 March 2013 The Statutory Auditors PRICEWATERHOUSECOOPERS AUDIT ERNST & YOUNG ET AUTRES French original signed by: French original signed by: Pierre Marty Jean-Fran¸cois Ginies 4.2.6 Special report of the Statutory Auditors on Regulated Agreements and Commitments This is a free translation into English of a report issued in the French language and is provided solely for the convenience of English- speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France. To the Shareholders, In our capacity as statutory auditors of your company, we hereby report on certain related party agreements and commitments. We are required to inform you, on the basis of the information provided to us, of the terms and conditions of those agreements and commitments indicated to us, or that we may have identified in the performance of our engagement. We are not required to comment as to whether they are beneficial or appropriate or to ascertain the existence of any such agreements and commitments. It is your responsibility, in accordance with Article R. 225-31 of the French Commercial Code (Code de commerce), to evaluate the benefits resulting from these agreements and commitments prior to their approval. In addition, we are required, where applicable, to inform you in accordance with Article R. 225-31 of the French Commercial Code (Code de commerce) concerning the implementation, during the last financial year, of the agreements and commitments already approved by the General Meeting of Shareholders. We performed those procedures which we considered necessary to comply with professional guidance issued by the national auditing body (Compagnie Nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in verifying that the information provided to us is consistent with the documentation from which it has been extracted. DASSAULT SYST `EMES Annual Report 2012 137 Financial statements 4 Agreements and commitments submitted for approval by the General Meeting of Shareholders We hereby inform you that we have been advised of the following agreements or commitments authorized in the course of the year to be submitted to the General Meeting of Shareholders for approval in accordance with Article L. 225-40 of the French Commercial code (Code de Commerce). 1. With Dassault Syst `emes Acquisition Corp., subsidiary of your company Related director Mr Thibault de Tersant, Director of your company and President of Dassault Syst `emes Acquisition Corp. Nature and purpose Acquisition contract of Gemcom Software International and any document relative to this acquisition Conditions Dassault Syst `emes Acquisition Corp., created for the acquisition of Gemcom Software International has for president Thibault de Tersant. The acquisition of Gemcom Software International Inc. required, at request of the seller, the support of your company on the transaction to guarantee the commitments taken by Dassault Syst `emes Acquisition Corp. Mr Thibault de Tersant, as president of Dassault Syst `emes Acquisition Corp. and board member of your company, signed the contract of acquisition for both entities of the group. 2. With Mr Charles Edelstenne, Board Director Nature and purpose Contract of contribution in kind of 1,500 securities of Dassault Data Services for the benefits of your company. Conditions In its meeting on 7 June 2012, the Board of Directors authorized the contract of contribution in kind of 1,500 securities of Dassault Data Services from Mr Charles Edelstenne for the benefits of your company, on July 25, 2012. A report on this contribution was done by a ‘‘commissaire aux apports’’. In exchange for this contribution, Mr Charles Edelstenne obtained 23,412 shares of your company. Agreements and commitments already approved by the General Meeting of Shareholders Agreements and commitments approved in prior years a) the implementation of which continued during the year In accordance with Article R. 225-30 of the French Commercial Code (Code de commerce), we have been advised that the implementation of the following agreements and commitments, which were approved in prior years, continued during the year. With Dassault Systemes Americas Corp. (formerly Enovia Corp.), subsidiary of your company Nature and purpose Agreement on brand license granted free of charge. Conditions A non-exclusive, free-of-charge license for the Enovia brand has been granted to Enovia Corp. This agreement was authorized by the Board of Directors at its meeting on 11 March 1998. It was entered into on 28 December 1998 for an indefinite period, it being specified that Enovia Corp. changed its name on 1 January 2006 to become Dassault Systemes Americas Corp. b) which were not implemented during the year In addition, we have been advised that the implementation of the following agreements and commitments, which were approved in prior years, did not continue during the year. 1. With Mr Bernard Charl `es, directeur g ´en ´eral Nature and purpose Indemnity in the event of the removal of Mr Bernard Charl `es from corporate office 138 DASSAULT SYST `EMES Annual Report 2012 Financial statements 4 Conditions At its meeting on 27 May 2010, on the occasion of the renewal of Mr Bernard Charl `es’ term of office as directeur g ´en ´eral, the Board of Directors authorized, upon the proposal of the Remuneration and Selection Committee, the renewal of the agreement granting Mr Bernard Charl `es a compensation in case of the termination of his functions as directeur g ´en ´eral according to the terms adopted by the Board of Directors at its meetings on 28 March 2008 and 27 March 2009. At its meeting on 27 May 2010, the Board of Directors decided to make no change to the conditions, as defined by the Board of Directors at its meetings on 28 March 2008 and on 27 March 2009, in which this compensation would be due in view of the recommendations of the Remuneration and Selection Committee and in accordance with the recommendations integrated into the AFEP/MEDEF Consolidated Corporate Governance Code (Code de gouvernement d’entreprise consolid ´e) of December 2008. The amount of the indemnity due would be equivalent to a maximum of two years of remuneration of the directeur g ´en ´eral and would depend on meeting performance targets established for the calculation of his variable remuneration. The amount paid would be calculated as a prorated percentage of the variable remuneration paid during the three years prior to the departure in relation to the target variable remuneration for these same years. Thus, the amount due would be calculated according to the following formula: (cid:127) total gross remuneration (including variable remuneration but excluding benefits in kind and directors’ fees) due in respect of his corporate office for the two fiscal years ended prior to the date of departure, (cid:127) multiplied by the figure resulting from the division i) of the amount of the variable remuneration paid to the directeur g ´en ´eral during the three fiscal years ended prior to the date of the departure (numerator), by ii) the amount of the target variable remuneration decided for each of these same years by the Board of Directors according to the achievement of the targets fixed for the company (denominator). The indemnity may only be paid in the event of a change of control or strategy duly established by the Board of Directors that results in a forced departure within the following twelve months. It could also be paid in a scenario of a forced departure without being related to poor results of the company or to mismanagement by the directeur g ´en ´eral; the Board of Directors can then decide to grant all or part of the termination compensation. The indemnity will not be due in a situation where the directeur g ´en ´eral leaves the company on his own initiative to take up a new position, or changes position within the group, or if he is able to claim a pension within a short time period. Besides, in the event of exceptional events that could seriously damage the company’s image or income and have a significant negative impact on the stock market share price of your company, according to the assessment of the Board of Directors, or in the event of misconduct independent of his functions and incompatible with the normal performance of his office as directeur g ´en ´eral, the Board of Directors may establish that the indemnity will not be due. 2. With the Board Members of the company, in connection with the insurance policy ‘‘Civil liability of the directors and the corporate officers ‘‘signed with the company CHARTIS Insurance (A.I.G) a. Nature and purpose Advance to the Board Members of their expenses of possible legal defense instituted against them in the exercise of their mandate Conditions In its meeting on 24 July 1996, the Board of Directors authorized the decision to have your company advance their expenses to a legal and compensations that the Board Members might have if their personal civil liability would be questioned, in case the insurance policy signed with the company CHARTIS Insurance (A.I.G), would not cover these advances and financial consequences. b. Nature and purpose Payment of the possible legal defense expenses of Board Members taking place in the United States. Conditions In its meeting on 23 September 2003, the Board of Directors authorized the decision to have your company pay the fees and travel expenses that Board Members of the company and of its subsidiaries might have to meet to prepare their personal defense before a civil, criminal or administrative jurisdiction of the United States if this defense were to be exercised within the scope of an inquiry or investigations being carried out against your company. DASSAULT SYST `EMES Annual Report 2012 139 Financial statements 4 Payment of these expenses is ensured on the three-part condition that the Board Members and senior executives concerned are assisted by lawyers selected by the company, that the company remains in control of its strategic choices in terms of procedure and methods of defense and that the expenses incurred be reasonable. Neuilly-sur-Seine and Paris-La D ´efense, March 28, 2013 The Statutory Auditors PRICEWATERHOUSECOOPERS AUDIT ERNST & YOUNG ET AUTRES French original signed by: French original signed by: Pierre Marty Jean-Fran¸cois Ginies 4.3 Legal and Arbitration Proceedings From time to time in the ordinary course of business, the Company is involved in litigation, tax audits or regulatory inquiries. To the Company’s knowledge, there is no outstanding, suspended or threatened government proceeding, litigation or arbitration, which has had during the last twelve months preceding the publication of this 2012 Annual Report, or is likely to have, a significant impact on the Company’s financial condition or results of operations. For information purposes only, the Company notes that MatrixOne Inc., a U.S. company that the Company acquired in May 2006 (subsequently renamed Dassault Syst `emes Enovia Corp.), was one of more than 300 companies named as defendants in coordinated class action lawsuits filed in federal court in New York beginning in late 2000. The consolidated amended complaint in the coordinated action filed in April 2002 alleged, among other matters, that MatrixOne Inc., and the other defendants violated U.S. securities laws by misrepresenting how their shares would be allocated to investors by banks underwriting initial public offerings of the issuer defendants’ shares. On October 6, 2009, the federal court issued an order approving a global settlement of these coordinated cases. Multiple appeals were filed objecting to the approval of the settlement. In January 2012, the final outstanding appeal was dismissed with prejudice, as a result of which the settlement became final. All settlement proceeds have been disbursed. The Company had no financial liability in connection with the settlement. 140 DASSAULT SYST `EMES Annual Report 2012 CHAPTER 5 – CORPORATE GOVERNANCE 5.1 Report of the Chairman on Corporate Governance and Internal Control Report of the Chairman of the Board of Directors to the Combined Meeting of Shareholders of May 30, 2013 To the Shareholders of Dassault Syst `emes, The purpose of this report is to describe the composition of the Board of Directors of Dassault Syst `emes SA, the application thereto of the principle of balanced representation of men and women, and the conditions under which the work of its Board of Directors is prepared and organized, as well as the internal control and risk management procedures established by the Company during the fiscal year ended December 31, 2012. It is presented to you in addition to the Management Report included in the Annual Report (Document de r ´ef´erence) of the Company for 2012. This report has been prepared pursuant to Article L. 225-37 of the French Commercial Code and the recommendations of the AMF (‘‘Autorit ´e des march ´es financiers’’) contained in particular in its Report on corporate governance and executive compensation in listed companies of October 11, 2012. The Chairman of the Board of Directors has entrusted the diligence related to the preparation of this report to the finance, legal and internal audit departments; the report was then reviewed by the Audit Committee and approved by the Board of Directors during its meeting held on March 27, 2013. Dassault Syst `emes SA is a French company listed on NYSE Euronext Paris – Compartiment A since 1996. With respect to corporate governance, Dassault Syst `emes SA refers to the recommendations of the AFEP-MEDEF Code (available on the MEDEF website www.medef.fr). As recommended by the AMF, the principles of this Code with which Dassault Syst `emes SA does not strictly comply, and the related explanations, are noted on the summary table in paragraph 5.1.5 of this report. 5.1.1 Composition and Practices of the Board of Directors 5.1.1.1 Composition of the Board of Directors The Board of Directors of Dassault Syst `emes SA is composed of ten members: Charles Edelstenne, Bernard Charl `es, Jean-Pierre Chahid- Noura¨ı, Nicole Dassault, Serge Dassault, Arnoud De Meyer, Bernard Dufau, Andr ´e Kudelski, Toshiko Mori and Thibault de Tersant. The directors’ term of office is four years. Half of the members of the Board are independent directors, as this term is defined by the criteria set forth by the AFEP-MEDEF Code and applied by the Board of Directors. These criteria are based on the general rule according to which an independent director should not be in a position which may compromise the independence of his judgment or create an actual or potential conflict of interest. According to the terms of the Company’s internal regulation, a director is independent when he has no relationship whatsoever with the Group, the Company or its management which might compromise his free judgment. The five independent Directors of the Company are Ms. Mori and Messrs. Chahid-Noura¨ı, De Meyer, Dufau and Kudelski. The independence of the directors is subject to an annual review by the Board, which was conducted this year on March 27, 2013, on the basis of a questionnaire completed by the directors concerned. The terms as Directors of Messrs. Dufau and Kudelski expire at the General Meeting of Shareholders of May 30, 2013. It is proposed to the General Meeting of Shareholders to appoint a new Director, Mrs. Odile Desforges (information regarding this nominee is set forth in paragraph 7.1 ‘‘Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013’’). The proportion of women on the Board of Directors of Dassault Syst `emes SA complies with the requirements for 2013 as set forth in the AFEP-MEDEF Code and the law. The proportion of independent directors also complies with the recommendations of the AFEP-MEDEF Code). The Board of Directors of Dassault Syst `emes does not include any director named by the employees of Dassault Syst `emes. The three foreign Directors representing 30% of the Board, are Belgian, Japanese and Swiss. The average age of the Directors is 67 at the date of this Annual Report. DASSAULT SYST `EMES Annual Report 2012 141 Corporate governance 5 The terms and responsibilities of the directors (mandataires sociaux) of Dassault Syst `emes in 2012 are set forth in the table below. Charles Edelstenne – Chairman of the Board Biography: Charles Edelstenne was the founder of Dassault Syst `emes in 1981 and was its Managing Director (G ´erant) until it was transformed into a soci ´et ´e anonyme in 1993. From 1993 to 2002, Mr. Edelstenne was Chairman and Chief Executive Officer (Pr ´esident-Directeur G ´en ´eral) of Dassault Syst `emes, and since 2002, Mr. Edelstenne has served as Chairman of the Board. Mr. Edelstenne devotes the majority of his time to his duties at Groupe Dassault, as indicated opposite. Age: 75 Nationality: French Professional address: Groupe Industriel Marcel Dassault – 9 Rond-point des Champs Elys ´ees – Marcel Dassault, 75008 Paris – France Main position: Chairman and Chief Executive Officer (Pr ´esident-Directeur G ´en ´eral) of Dassault Aviation (a listed company) (until January 8, 2013) and Chief Executive Officer of Groupe Industriel Marcel Dassault SAS (GIMD)(*) since January 9, 2013 and Member of the Supervisory Board (Conseil de surveillance) of GIMD (*) GIMD is the main shareholder of Dassault Syst `emes SA. See paragraph 6.3.2 ‘‘Controlling Shareholder’’ End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending December 31, 2013 Date of first appointment: 04/08/1993 Dassault Syst `emes shares owned at December 31, 2012: 7,707,601 shares (including 5,763,600 beneficial ownership shares). Bernard Charl `es – President and Chief Executive Officer Biography: Bernard Charl `es has been Chief Executive Officer (Directeur G ´en ´eral) of Dassault Syst `emes since 2002 when Mr. Edelstenne became solely the Chairman of the Company’s Board. Since 1995, Mr. Charl `es has had executive functions which he shared with Mr. Edelstenne. Prior to holding this position, Mr. Charl `es served as Director of the New Technology, Research and Development and Strategy department from 1986 to 1988 and as President of Strategy, Research & Development from 1988 to 1995. In France: Director of Sogitec Industries SA, Director of Dassault Aviation, Thales and Carrefour (listed companies), Manager (G ´erant) of soci ´et ´es civiles Arie, Arie 2, Nili and Nili 2 Outside France: Director of SABCA, Chairman of Dassault Falcon Jet Corporation, President of Dassault International, Inc. Other positions expired during the last five years: Director of Thales Syst `emes A ´eroport ´es Age: 56 Nationality: French Professional address: Dassault Syst `emes – 10 rue Marcel Dassault, 78140 V ´elizy-Villacoublay – France Principal responsibility: President and Chief Executive Officer of Dassault Syst `emes SA End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending Outside France: Chairman of the Board of Directors of Dassault December 31, 2013 Systemes SolidWorks Corp., Dassault Systemes Simulia Corp., Dassault Systemes Delmia Corp., Dassault Systemes Enovia Corp., Dassault Systemes Corp. and Dassault Systemes Date of first appointment: 04/08/1993 Dassault Syst `emes shares owned at December 31, 2012: Geovia Inc. 1,024,243 Other positions expired during the last five years: Director of Business Objects 142 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Thibault de Tersant – Senior Executive Vice President and Chief Financial Officer Biography: Thibault de Tersant has been Senior Executive Vice President and Chief Financial Officer of Dassault Syst `emes since 2003. He joined Dassault Syst `emes in 1988 as Executive Vice President and Chief Financial Officer. Prior to joining Dassault Syst `emes, Mr. de Tersant served as a finance executive at Dassault International. Mr. de Tersant is also a member of the Board of Directors of the DFCG (the French National Association of Chief Financial Officers and Financial Controllers). Age: 55 Nationality: French Professional address: Dassault Syst `emes – 10 rue Marcel Dassault, 78140 V ´elizy-Villacoublay – France Principal responsibility: Senior Executive Vice President and Chief Financial Officer End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending December 31, 2013 In France: President of Dassault Syst `emes International SAS Outside France: Manager (G ´erant) of Elsys SPRL, Chairman of the Board of Directors of Spatial Corp., Director of Dassault Systemes SolidWorks Corp., Dassault Systemes Delmia Corp., Dassault Systemes Corp., Dassault Systemes Simulia Corp., Dassault Systemes Enovia Corp. and Temenos (a listed company) Other positions expired during the last five years: Director of Icem Ltd Age: 74 Nationality: French Professional address: 56 rue de Boulainvilliers, 75016 Paris – France Date of first appointment: 04/08/1993 Dassault Syst `emes shares owned at December 31, 2012: 17,315 Jean-Pierre Chahid-Noura¨ı – Independent Director Member of the Audit Committee is an Biography: Jean-Pierre Chahid-Noura¨ı independent consultant. He was a managing Director (Administrateur D ´el ´egu ´e) of Finanval Conseil from 1992 to 2007. A former member of the Executive Team (G ´erance) and Chief Financial Officer of Michelin, Mr. Chahid-Noura¨ı has also worked as an investment banker for MM. Lazard Fr `eres et Cie, Banque Vve Morin-Pons, Financi `ere Indosuez and S.G. Warburg and as a consultant with McKinsey & Co. He has also contemporaneously taught finance at ESSEC, the Centre de Formation `a l’Analyse Financi `ere, INSEAD and CEDEP (Centre Europ ´een d’Education Permanente). End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending December 31, 2014 In France: Director of the Fondation Stanislas pour l’Education Other positions expired during the last five years: Date of first appointment: 04/15/2005 Dassault Syst `emes shares owned at December 31, 2012: Garaison, Managing Director 1,010 Finanval Conseil Director of Stanislas SA and of the Fondation Notre Dame de (Administrateur D ´el ´egu ´e ) of Nicole Dassault – Director Age: 81 Nationality: French Professional address: Groupe Industriel Marcel Dassault, 9 Rond-Point des Champs Elys ´ees – Marcel Dassault, 75008 Paris – France Main position: Member of the Supervisory Board (Conseil de surveillance) of GIMD End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending December 31, 2014 In France:Vice-Chairman of the Supervisory Board (Conseil de surveillance) of Immobili `ere Dassault SA, Chief Executive Officer (Directeur G ´en ´eral D ´el ´egu ´e) of Rond-Point Immobilier SAS, Director of Dassault Aviation (a listed company), Dassault Medias SA, Soci ´et ´e des Amis du Louvre, Soci ´et ´e des Amis d’Orsay, Groupe Figaro SAS, and Artcurial SA Date of first appointment: 05/26/2011 Dassault Syst `emes shares owned at December 31, 2012: 0 DASSAULT SYST `EMES Annual Report 2012 143 Corporate governance 5 Serge Dassault – Director Age: 87 Nationality: French Professional address: Groupe Industriel Marcel Dassault – 9 Rond-Point des Champs Elys ´ees – Marcel Dassault, 75008 Paris – France Main position: President and member of the Supervisory Board (Conseil de surveillance) of GIMD End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending December 31, 2015 Date of first appointment: 06/07/2012 Dassault Syst `emes shares owned at December 31, 2012: 96 In France: Honorary Chairman (Pr ´esident d’honneur) and Director (Administrateur ) of Dassault Aviation (a listed company), President of GIFAS (Groupement des Industries Fran¸caises A ´eronautiques et Spatiales), Chairman of the Board and Chief Executive Officer (Pr ´esident Directeur G ´en ´eral) of Dassault Media SA, President of Groupe Figaro SAS, Soci ´et ´e du Figaro SAS, Rond-Point Immobilier SAS, Rond-Point Holding SAS, Chief Executive Officer (Directeur G ´en ´eral) of Ch ˆateau Dassault SAS, Member of the Strategic Committee of Dassault D ´eveloppement SAS, Manager (G ´erant) of Soci ´et ´e Civile Immobili `ere de Maison Rouge, Rond-Point Investissement SARL and SCI des Hautes Bruy `eres Bernard Dufau – Independent Director Chairman of the Audit Committee Member of the Compensation and Nomination Committee Biography: Bernard Dufau first joined the IBM group as a commercial engineer and then served in various management positions notably as Sales Director of IBM France and as Executive Director of Distribution for IBM Europe. He was Chairman and Chief Executive Officer of IBM France from 1995 to 2001. Outside France: Director (Administrateur) of Dassault Falcon Jet Corporation, Dassault International Inc., Dow Kokam LLC and Chairman of Dassault Belgique Age: 71 Nationality: French Professional address: 165 avenue de Wagram, 75017 Paris – France End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending December 31, 2012 In France: Director and Chairman of the Audit Committee of France Telecom SA (a listed company) Date of first appointment: 05/31/2001 Dassault Syst `emes shares owned at December 31, 2012: 1,000 Outside France: Director and Member of the Audit Committee of Kesa Electricals plc Other positions expired during the last five years: Director of Neo S ´ecurit ´e 144 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Andr ´e Kudelski – Independent Director Chairman of the Compensation and Nomination Committee Member of the Audit Committee Age: 52 Nationality: Swiss Biography: Andr ´e Kudelski is President and Chief Executive Officer (Pr ´esident et Administrateur D ´el ´egu ´e) of Kudelski SA and of Nagra Plus SA, a joint-venture of Kudelski SA and Canal+. Mr. Kudelski started as a research and development engineer and Main position: President and Chief Executive Officer (Pr ´esident then was Product Manager for pay-TV products at Kudelski SA from 1989 to 1990 and Managing Director of Nagravision, the pay-TV division of the group. Professional address: Kudelski SA – Route de Gen `eve 22, Case Postale 134 - 1033 Cheseaux- sur-Lausanne – Switzerland et Administrateur D ´el ´egu ´e) of Kudelski SA (a listed company) End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending Outside France: Chairman and Director December 31, 2012 Date of first appointment: 05/31/2001 Dassault Syst `emes shares owned at December 31, 2012: 10 (Pr ´esident et Administrateur D ´el ´egu ´e ) of Nagra Plus SA, Director (Administrateur D ´el ´egu ´e ) of Nagravision, Co-Chairman of NagraStar LLC, Member of the Supervisory Board of SkiData AG,Vice-Chairman of A ´eroport International of Geneva, Director and Chairman of the Audit Committee of Edipresse SA, Director of HSBC Private Banking Holdings SA, Director and Member of the Audit Committee of Nestl ´e SA (a listed company), Member of the Comit ´e d’Economie Suisse and Vice-Chairman of the Swiss- American Chamber of Commerce Arnoud De Meyer – Independent Director Member of the Scientific Committee Age: 58 Other positions expired during the last five years: Chairman of the Board of Directors of Open TV Nationality: Belgian Biography: Arnoud De Meyer is President of the Singapore Management University. Mr. De Meyer is a specialist in the management of innovation and has published numerous articles and books on this subject. He was previously Director of Judge Business School (University of Cambridge, U.K.) and Professor of Main position: President of Technology Management at INSEAD and Deputy Dean of INSEAD in France in charge of Administration and External Relations. He has also taught at Waseda University and Keio Business School in Japan and created the INSEAD Campus in Singapore. University Professional address: Singapore Management University – 81 Victoria Street, Singapore 188065 – Singapore the Singapore Management End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending Outside France: Director of Kylian Technology Management December 31, 2014 Pte. Ltd, Temasex Management Services Pte. Ltd, Singapore International Chamber of Commerce, SMU Ventures Pte. Ltd, Member of the Board of Directors of Singapore National Research Foundation Dassault Syst `emes shares owned at December 31, 2012: 250 Date of first appointment: 04/15/2005 Other positions expired during the last five years: Director of SR&DM, INSEAD (Singapore) and INSEAD EAC Pte. Ltd, Director of Option International NV Professor and Director of the Judge Business School at the University of Cambridge, United Kingdom DASSAULT SYST `EMES Annual Report 2012 145 Corporate governance 5 Toshiko Mori – Independent Director Member of the Scientific Committee Age: 60 Professional address: Toshiko Mori Architect, 199 Lafayette Street, New York NY 10012 – USA Nationality: Japanese Biography: Toshiko Mori is the Robert P. Hubbard Professor in the Practice of Architecture at Harvard University’s Graduate School of Design and was the chairman of the Department of Architecture from 2002 to 2008. She is principal of Toshiko Mori Architect, and founder of VisionArc, a think-tank promoting global dialog for a Main Position: Member of Toshiko Mori Architect PLLC sustainable future. Her firm’s recent work includes performance spaces for the Brooklyn Children’s Museum and for ART/New York, as well as the School of Environmental Science for Brown University, a Master Plan for New York University, and a laboratory facility for Novartis’ Cambridge Campus. She is also a Member of the World Economic Forum Global Agenda Council on Design & Innovation, Member of the G1 Summit (Japan) and Master Jury Member of the Aga Khan Prize. Date of first appointment: 05/26/2011 End of current term: General Meeting of Shareholders called to Other current positions and Directorships: approve the financial statements for the financial year ending Outside France: Robert P. Hubbard Professor in Harvard Graduate December 31, 2014 School of Design, Member of the American Institute of Architects College of Fellows, Member of the World Economic Forum Global Agenda Council on Design & Innovation, Member of the Board of Architecture for Humanity, Member of the Supervisory Board (Conseil de surveillance) of A + U Magazine and of Sarasota Architectural Foundation, Member of the G1 Summit (Japan) and Master Jury Member in Aga Kahn Prize Dassault Syst `emes shares owned at December 31, 2012: 300 Other positions expired during the last five years: President of World Economic Forum Global Agenda Council on Design 5.1.1.2 Practices of the Board of Directors Organization For purposes of good corporate governance, the offices of Chairman of the Board and Chief Executive Officer have been separated. The Chairman of the Board, Mr. Charles Edelstenne, organizes and supervises the work of the Board and reports thereon at the General Meeting of Shareholders. He ensures the proper functioning of the Board and its committees and their compliance with the principles and practices of good corporate governance. He ensures in particular that the directors are able to perform their duties. The Chairman is regularly informed by the Chief Executive Officer of significant matters concerning the Company, and in particular its strategy, organization and investment projects. The Chairman also oversees maintaining quality relations with shareholders in close coordination with measures taken in this area by the Chief Executive Officer. All of these tasks of the Chairman of the Board are directed toward serving the Company, and his actions are taken into account in reviewing and determining his compensation. The Chief Executive Officer, Mr. Bernard Charl `es, is legally vested with the widest powers to act in any circumstances in the name of the Company, subject to the limitations set forth in paragraph 5.1.1.4 ‘‘Powers of the Chief Executive Officer’’ below, and represents the Company in its relations with third parties. Specialized committees have been established to assist the Board of Directors in the performance of its duties: the Audit Committee in 1996 and, in 2005 the Compensation and Nomination Committee and the Scientific Committee. The Committees report regularly to the Board as to the performance of their missions. Internal Regulation The Board’s internal regulation defines its objectives, the rules governing the composition and operation of the Board and its committees, and their interactions. It also sets the normal frequency of Board meetings, the means of participating in them and the rules related to the information to be continuously available to the members of the Board, including if an event occurs which might have a significant impact on the Company’s prospects or outlook or the implementation of the Company’s strategy. The internal regulation also defines the principles for limiting the powers of the Chief Executive Officer and conducting the annual review of the independence of the directors. 146 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 The internal regulation specifies that the Board proceed with an annual review of its practices, and formal assessments shall be made every three years. The last formal review took place in 2012 on the basis of an internal questionnaire addressed to each director. The members of the Board expressed their satisfaction regarding the constant progress made over more than five years in the Board’s practices, particularly as regards the review of strategy, the collaboration between the Board and its Chairman, and the practices of the Audit Committee. The internal regulation reminds directors of their legal confidentiality obligation. The directors must also comply with the insider trading rules established by Dassault Syst `emes SA, which prohibit them from trading in any securities issued by Dassault Syst `emes SA if they are aware of any insider information and during the trading blackout periods established by Dassault Syst `emes SA. In addition to these two restrictions, trading by directors in Dassault Syst `emes’ securities is not permitted without the prior approval of the Insiders Committee. Finally, in compliance with the internal regulation, the external directors (i.e., directors who are neither executives nor employees of Dassault Syst `emes SA) meet at least once a year without the presence of the other directors to perform a general review of how the Board is operating and to discuss any other matters, as they may wish. In 2012, the external directors thus reviewed the risks facing Dassault Syst `emes SA. The Board of Directors Activities in 2012 The Board of Directors met eight times in 2012, with an attendance rate of 91%. In addition to the deliberations and resolutions on its agenda pursuant to the laws and regulations in France (including the notice of General Meeting of Shareholders and the approval of the annual Management Report), the Board also discussed principally the following issues: (cid:127) the Company’s strategy (definition and review of strategic directions, review of partnership and acquisition transactions); (cid:127) the accounts and the budget (approval of the 2011 parent company and consolidated accounts, the consolidated accounts for the first half of 2012, review of quarterly results). The Board is kept informed as to the Company’s financial condition by reports from the Audit Committee and presentations made at each meeting by the Senior Executive Vice President and Chief Financial Officer; (cid:127) the compensation of directors (mandataires sociaux); (cid:127) the granting of performance shares; (cid:127) the granting of shares to the Chief Executive Officer in connection with the plan, adopted several years ago, to progressively associate the Chief Executive Officer with the Company’s capital; (cid:127) internal control (review of the assessment of the internal control procedures); and (cid:127) the compliance of Dassault Syst `emes SA with French and European rules and recommendations on financial communication and corporate governance. 5.1.1.3 Composition, Practices and Activities of the Board Committees Audit Committee In 2012, the Audit Committee was composed of three Directors, each of whom is independent: Bernard Dufau, Chairman, Andr ´e Kudelski, and Jean-Pierre Chahid-Noura¨ı. Bernard Dufau and Andr ´e Kudelski are or have been company managers. Jean-Pierre Chahid-Noura¨ı, who held responsible positions in finance in companies and commercial banks, offers specific skills in finance or accounting. In compliance with the applicable regulations and its charter, the Audit Committee’s mission is to monitor matters related to the preparation and the monitoring of accounting and financial information. Without limiting the powers of the Board of Directors, this Committee is, in particular, responsible for overseeing the preparation process of the financial information, the effectiveness of the internal control and risk management systems, the audit by the Statutory Auditors of the annual parent company and consolidated accounts and the independence of the Statutory Auditors. The Audit Committee is responsible for examining these various matters and reporting its recommendations to the Board of Directors. The Audit Committee oversees the relationship between the Company and its Statutory Auditors and participates in their appointment or the renewal of their mandate. The Audit Committee also approves the annual plan for the internal audit. The Director of the Internal Audit reports to the Committee regarding his conclusions based on the audit. In the performance of its mission, the Audit Committee met seven times in 2012, including three physical meetings. The Senior Executive Vice President and Chief Financial Officer of Dassault Syst `emes, the Company Finance Vice President, the Consolidation Director, the Internal Audit Director, the General Counsel and the Statutory Auditors of the Company attended these meetings. In order to review the quarterly earnings announcements and other occasional issues, the members of the Audit Committee held four conference calls with the same persons present, except for the Internal Audit Director. The attendance rate for these meetings and calls was 100% in 2012. In 2012, the Audit Committee also proceded with a review of the Group’s insurance policies and their relevance in light of the risks faced. DASSAULT SYST `EMES Annual Report 2012 147 Corporate governance 5 Compensation and Nomination Committee The Compensation and Nomination Committee is composed of two independent Directors: Bernard Dufau and Andr ´e Kudelski. The missions and the operating rules of the Committee are defined in the internal regulation of the Board of Directors. The Compensation and Nomination Committee’s main missions are: (i) to propose to the Board of Directors the amounts for compensation and benefits of the Chairman of the Board and the Chief Executive Officer, to set the formulas and the rules to apply for determining the variable part of their compensation, and to verify the application of these rules, (ii) to evaluate the global amount and the allocation of the directors’ fees, (iii) to propose to the Board the nomination or renewal of directors and review the independence of those who are so identified, (iv) to examine the Company’s policy for nominating, and to be informed of the compensation policy for, the executive officers, (v) to consider the employee profit-sharing policy based on the Company’s shares, and (vi) to propose to the Board of Directors solutions in case of vacancy of the position of Chairman of the Board and of Chief Executive Officer. In 2012, this Committee met five times, once physically and four times by conference call, with an attendance rate of 100%. It confirmed the independence of the Board’s ‘‘independent directors’’, on the basis of responses to the questionnaire sent to each director concerned. It formulated recommendations to the Board of Directors about the allocation of directors’ fees, the compensation of the Chairman and the Chief Executive Officer, and the granting of shares of Dassault Syst `emes SA to the Chief Executive Officer and the related lock-up commitment in connection with the plan, adopted several years ago, to progressively associate the Chief Executive Officer with the Company’s capital. The Committee also made recommendations regarding the granting of performance shares to certain executives and employees of the Company and the related performance conditions and reviewed the allocation process of performance shares in general. The Committee also discussed the evolution in 2012 of the composition of the Executive Committee as well as the structure and level of remuneration of executive officers who are not members of the Board. Finally, this Committee was consulted on the composition of the Scientific Committee and on the appointment as Director of Mr. Serge Dassault proposed to the General Meeting of Shareholders held on June 7, 2012. The Compensation and Nomination Committee examined as a general matter Dassault Syst `emes SA’s compliance with the law and the recommendations of the AFEP-MEDEF Code relating to the composition of the Board of Directors. Scientific Committee The Scientific Committee is composed of two independent Directors, Mr. Arnoud De Meyer and Mrs. Toshiko Mori, Mr. Bernard Charl `es and Mr. Dominique Florack, the Company’s Senior Executive Vice President, Products, Strategy – Research & Development, were also members of the Committee until April 25, 2012. The Scientific Committee meets at least once a year. The Committee reviews the main directions of research and development, examines the Company’s technological achievements and makes recommendations on these matters. The persons with principal responsibility for these matters within Dassault Syst `emes are invited to the Committee’s meetings. The Scientific Committee met twice in 2012 with an attendance rate of 67% and considered a number of topics central to Dassault Syst `emes’ strategy, thus confirming the Company’s strategic orientation. With respect to the 3DEXPERIENCE strategy, the Committee considered in particular the business and orientation of the Company’s ‘‘Design Studio’’ Department. In fact, the technological ideas, considerations and break-throughs of the design communities bring substantial changes and unique possibilities for all of the Group’s targeted customers (industry, education, research, society). In addition, with respect to the Group’s diversification policy, the Scientific Committee discussed the creation of the GEOVIA brand. This brand results from the acquisition of Gemcom Software International Inc. (in July 2012) which enables the Company to be present in the Natural Resources industrial sector, as part of its support for sustainable development. Finally, the creation of a single navigation tool for all digital content, whether on the Internet or within a company, was also examined. 5.1.1.4 Powers of the Chief Executive Officer Pursuant to French law, the Chief Executive Officer represents Dassault Syst `emes SA to third parties within the limits set by the corporate purpose of the Company and by the powers reserved by law to the shareholders or the Board of Directors. In addition, pursuant to the Board’s internal regulation, certain decisions of the Chief Executive Officer must be submitted to the prior authorization of the Board. Thus, the completion of a significant transaction outside the scope of the Company’s strategy presented to the Board of Directors requires the prior approval of the Board. Such prior approval is also required in case of any acquisition or disposal of any entity or minority interests, any organic growth investment, any internal restructuring and any external financing (through bank debt or accessing the capital markets), in the event where these transactions exceed a threshold which is determined at the beginning of the year by the Board of Directors when meeting to establish the accounts for the preceding fiscal year. The Board of Directors meeting on March 27, 2013, thus raised the threshold from e400 million to e500 million, above which amount the prior approval of the Board is required for the operations mentioned above. Finally, on March 27, 2013, the Board renewed its authorization to the Chief Executive Officer to grant guarantees in the name of Dassault Syst `emes SA up to an aggregate amount of e500 million. 148 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 5.1.2 Senior Management The Company’s senior management in 2012, who are all members of the Executive Committee except Mr. Charles Edelstenne, is set forth below. Charles Edelstenne(*) Bernard Charl `es(*) Thibault de Tersant(*) Laurence Barth `es Chairman of the Board President and Chief Executive Officer Senior Executive Vice President and Chief Financial Officer Executive Vice President, Chief People & Information Officer Laurence Barth `es has been Executive Vice President, Chief People & Information Officer, since 2009. She began her career at Dassault Syst `emes in 1987 in R&D and served in various management positions in quality, business process and product industrialization. In 2002 she was appointed Vice President, Customer Support & Satisfaction and in 2008 Chief Information Officer. Pascal Daloz Executive Vice President, Corporate Strategy & Market Development Pascal Daloz has been Executive Vice President Strategy & Market Development since 2003. Before joining the Company in 2001, he served five years at Arthur D. Little, where he was a consultant and member of Arthur D. Little’s Technology Innovation Management team, and then four years at Credit Suisse First Boston Technology Group, where he served as a senior technology analyst. Dominique Florack Senior Executive Vice President, Products & Strategy – R&D Dominique Florack has been Senior Executive Vice President, Products & Strategy – R&D since 2007. Mr. Florack served as Executive Vice President, Strategy – R&D of Dassault Syst `emes from 2004 to 2006, Executive Vice President – Strategy, Applications, R&D from 1995 to 1999, Director of Mechanical CAD from 1995 to 1995, Director of Strategy and Research from 1990 to 1993 and manager for database solutions from 1986 to 1989. Philippe Forestier Executive Vice President, Global Affairs & Communities Bruno Latchague Philippe Forestier has been Executive Vice President, Global Affairs & Communities of Dassault Syst `emes since 2009. He joined Dassault Syst `emes in 1981 and was responsible for marketing and technical support, then for sales and marketing for the Americas from 1995 to 2001, Executive Vice President, Alliances, Marketing and Communications until 2006, and Executive Vice President, Network Selling through 2008. Executive Vice President, Global Sales Strategy & Operations, 3DS Value Solutions Executive Vice President, ‘‘Managing Director’’ for North America, Bruno Latchague has been Executive Vice President, Global Sales Strategy & Operations, 3DS Value Solutions since April 2011. He is also ‘‘Managing Director’’ of Dassault Syst `emes for North America. At Dassault Syst `emes, Mr. Latchague was responsible for PLM Business Transformation (large accounts) from 2007 to 2011, director of research and development and director of infrastructure. Prior to joining the Company in 1987, Mr. Latchague served as Manager of CAD/CAM Product Support at Renault. Sylvain Laurent Executive Vice President, 3DS Business Transformation Monica Menghini Executive Vice President, Industry, Marketing & Corporate Communications Sylvain Laurent has been Executive Vice President, 3DS Business Transformation since 2011. He joined Dassault Syst `emes in 2008 as head of BT Sales in Europe. Mr. Laurent previously worked at Siemens PLM Software and IBM PLM. Monica Menghini has been Executive Vice President, Industry, Marketing & Corporate Communications since January 1, 2012, after becoming part of the Executive Committee in July 2011, when she was promoted to Executive Vice President, Industry. Ms. Menghini joined Dassault Syst `emes in 2009 to serve as Vice President, Industry for the consumer goods, consumer packaged goods, and retail sectors. Between 2007 and 2009 she worked in partnership with Dassault Syst `emes. Ms. Menghini previously held various management positions at Saatchi & Saatchi and Procter & Gamble. DASSAULT SYST `EMES Annual Report 2012 149 Corporate governance 5 Jeff Ray Executive Vice President, Geographic Operations until May 31, 2012 Jeff Ray was Executive Vice President, Geographic Operations until May 31, 2012, when he left the Company. From 2007 to 2010, he was Chief Executive Officer of SolidWorks and of the Professional channel. Mr. Ray joined SolidWorks in 2003 as Chief Operating Officer. He started his career at IBM before becoming Vice President Global Solutions at Compuware Corp. and Vice President Worldwide Field Operations at Progress Software Corp. (*) Biographical information for Charles Edelstenne, Bernard Charl `es and Thibault de Tersant is set forth in paragraph 5.1.1.1 ‘‘Composition of the Board of Directors’’ above. 5.1.3 Declarations Regarding the Administrative Bodies and Senior Management To Dassault Syst `emes SA’s knowledge: (cid:127) there is no family relationship between the Company’s directors, or between the Company’s directors and its executive officers listed in paragraph 5.1.2 ‘‘Senior Management’’ with the exception of Mr. Serge Dassault and his wife Mrs. Nicole Dassault; (cid:127) in the past five years, none of the directors or officers has been convicted of fraud, been declared bankrupt or their property impounded or liquidated, been subject to an official accusation and/or penalty delivered by legal or regulatory authorities, or been prohibited by a court from becoming a member of an administrative, management or supervisory body of a company, or from being involved in the management or direction of the affairs of a company; (cid:127) there are no potential conflicts of interest between the duties to the Company of the members of the Board of Directors and their private interests and/or other duties, and no director or member of senior management has been named to the Board or to an administrative, management or supervisory body as a result of an agreement between the Company’s main shareholders, customers, suppliers or any other persons; (cid:127) no director or senior manager is party to a service contract with Dassault Syst `emes SA, or one of its subsidiaries, which provides him with a personal benefit; and (cid:127) no loans or guaranties have been granted or established on behalf of the directors or members of senior management, and there are no assets used by the Company which belong directly or indirectly to the directors, members of senior management or their families. Bernard Charl `es and Charles Edelstenne have agreed to the lock-ups of their shares in Dassault Syst `emes SA, described at the end of paragraph 5.1.4.3 ‘‘Performance Shares and Share Subscription Options’’ and in paragraph 6.3.3 ‘‘Shareholder Agreements’’. 5.1.4 Principles and Rules Established by the Board of Directors of Dassault Syst `emes SA to Determine the Compensation of the Executive Directors and Senior Management Dassault Syst `emes SA’s compensation policy is designed to attract, motivate and retain highly qualified individuals in order for Dassault Syst `emes to reach success, which depends on the achievement of its objectives, in particular, strategic, business and financial objectives. In setting forth criteria for the determination of compensation, the balance between short-term and long-term financial objectives is sought, the creation of stockholder value is taken into account and individual performance is recognized. 5.1.4.1 Fixed and Variable Compensation From this perspective, the annual compensation of each executive officer includes two portions – a fixed portion and a variable portion – except for the Chairman of the Board of Directors, who receives only a fixed portion. The variable portion may represent a significant part of the total compensation if the annual targets are achieved or overachieved. The targets are reviewed every year in order to be consistent with the Company’s strategic orientations and include individual management targets. 150 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Beyond their fixed and variable compensation, the French executive officers, except for the Chairman of the Board and the Chief Executive Officer, are eligible for corporate profit-sharing in the same manner as other employees of the Company based on Company agreements. The annual target compensation with objectives achieved for the Chief Executive Office is comprised of a fixed portion for 50%, paid monthly, and a variable portion for 50%, paid annually as a function of the achievement of the performance criteria previously set by the Board of Directors. The level of achievement of the objectives determines the amount actually paid for the variable compensation, which can result in a payment below the target, or up to 140% above the target. In addition, the Chief Executive Officer receives benefits in-kind, as indicated in paragraph 5.3 ‘‘Compensation and Benefits’’, which contains all the data with respect to compensation of the executive officers. The Board of Directors, during its meeting held on March 27, 2013, decided to fix the amount of the variable compensation due to the Chief Executive Officer for 2012, paid in 2013, at e1,141,950, after review of the achievement of the performance criteria set in 2012, which included the diluted net profit per share on a non-IFRS consolidated basis (hereinafter referred to as the (‘‘EPS’’) for 2012 as announced by the Company, an evaluation of the Company’s efficiency processes as reflected by the non-IFRS operating margin, Dassault Syst `emes’ competitive position as reflected by growth in total revenues compared to its competitors, the product portfolio and the implementation of the Company’s short, medium and long term strategy, contributing to its future growth. At its meeting on March 27, 2013, the Board of Directors also fixed the performance criteria governing the payment of the variable compensation to the Chief Executive Officer for 2013, using the same criteria as in 2012, which are described in the preceding paragraph. In order to protect the Company’s competitive position, the Board of Directors considered that it was not appropriate to reveal more details about these performance criteria, which are subject to discussion by the Compensation and Nomination Committee and by the Board of Directors. These criteria are both internal and external and relate to the annual performance of the Group or to its multiannual (medium and long term) strategy. In addition, they include a strong dimension of ‘‘Social and Environmental Responsibility’’ in relation with the Group’s business, each of Dassault Syst `emes’ brands containing a promise of sustainable development (see paragraphs 2.2.2.1 ‘‘Dassault Syst `emes and Environmental Issues’’, 2.1.8 ‘‘Business Ethics and Professional Equality’’ and 2.1.9 ‘‘Social Projects and Relations with the Social, Regional and Associative Environment’’). At its meeting on March 27, 2013, the Board of Directors decided to set the Chairman’s fixed compensation for 2013 at e951,500 and the annual target compensation with objectives achieved of the Chief Executive Officer for 2013 at e2,050,000, with e1,025,000 for fixed compensation and e1,025,000 for the target variable compensation. As in preceding years, the Chairman and the Chief Executive Officer will receive director’s fees (see paragraph 5.3 ‘‘Compensation and Benefits’’). The Board meeting of March 27, 2013, also noted the achievement of the performance conditions regarding (i) the 2010-03 shares granted on September 29, 2011, to the Chief Executive Officer in connection with the plan, adopted several years ago, to progressively associate the Chief Executive Officer with the Company’s capital, and the final number of shares acquired as a result (150,000 shares), and (ii) the 2008-02 share subscription options granted to the Chief Executive Officer on November 29, 2009, which will be exercisable starting November 27, 2013 (50,000 options). As a result, the Chief Executive Officer will acquire the 2010-03 performance shares on September 29, 2013, and the right to exercise the 2008-02 options cited above on November 27, 2013, provided that he is still a director (mandataire social) at such date. 5.1.4.2 Indemnities Due in Case of the Imposed Departure (D ´epart Contraint) of the Chief Executive Officer In accordance with the AFEP-MEDEF Code, the principle and the amount of the indemnity paid to the Chief Executive Officer upon the termination of his functions are subject to conditions, in particular performance conditions. Thus the indemnity would be due in case of a change in control or strategy of the Company duly acknowledged by the Board of Directors, which results in an imposed departure (d ´epart contraint) in the subsequent 12 months. The indemnity may also be paid if the imposed departure is not linked to poor results of the Company or to mismanagement by the Chief Executive Officer, the Board of Directors being entitled to decide to pay all or part of the indemnity. The Board decided to provide for this indemnity payment, which is in addition to those recommended by the AFEP-MEDEF Code, given the shareholder structure of the Company and the length of service to the Company of the Chief Executive Officer. The indemnity would not be due in the event the Chief Executive Officer would leave the Company on his own initiative to take a new position elsewhere, or would be assigned a new position within the Company, or if he would be able to benefit from pension rights shortly after leaving. Furthermore, in the event of exceptional circumstances seriously damaging the image or results of the Company and significantly reducing, in the opinion of the Board, the market price of the Company’s shares or in the event of misconduct other than in connection with his corporate functions (faute s ´eparable de ses fonctions) and incompatible with the normal performance of his mandate, the Board may decide that the indemnity payment is not due. Finally, the amount of the indemnity due to the Chief Executive Officer in the event of the termination of his functions will be equivalent to a maximum of two years of compensation as Chief Executive Officer and will depend on satisfying the performance conditions established for DASSAULT SYST `EMES Annual Report 2012 151 Corporate governance 5 calculating his variable compensation. The amount paid would be calculated pro rata with respect to the percentage of variable compensation which was paid during the three years preceding his departure as compared to the targeted variable compensation for such years. The amount due would be calculated by applying the following formula: (cid:127) the aggregate gross compensation (including variable compensation but excluding compensation in kind and directors’ fees) due in connection with his position for the two financial years completed prior to the date of departure; (cid:127) multiplied by the quotient of (i) the amount of variable compensation actually paid during the three financial years completed prior to the date of departure with respect to their respective years of reference, divided by (ii) the amount of target variable compensation determined for each of these years by the Board of Directors on the basis of achievement of the objectives set for the Company. The indemnity is thus subject to performance conditions related to achieving targets fixed for the variable compensation. 5.1.4.3 Performance Shares and Share Subscription Options The executive officers are given long-term incentives notably through grants of Dassault Syst `emes performance shares (and prior to 2011, of stock options) to associate them with the development and performance of the Company. In general, performance shares may be granted to key employees, including executive officers, of the Company, and the number granted is dependent on individual performance and level of responsibility. In 2012, the Company’s Chief Executive Officer was granted, as one of 939 beneficiaries, 14,000 performance shares under the ‘‘2010-04’’ plan (the ‘‘2010-04 Shares’’). In conformity with the recommendation of the AFEP-MEDEF Code, the definitive acquisition of these shares is subject to the condition that the Chief Executive Officer remains with the Company, to the performance condition provided by the regulation of the 2010-04 Shares plan for all plan beneficiaries, the satisfaction of which is measured according to the EPS of Dassault Syst `emes actually realized, compared to the high end of the range set for the EPS objective announced, respectively, for the years 2012, 2013 and 2014, and to a performance condition related to variable compensation actually paid to the Chief Executive Officer over several financial years. Provided that the Chief Executive Officer complies with these three conditions, the 2010-04 Shares granted to the Chief Executive Officer will be definitively vested at the end of a 3-year vesting period starting on the grant date (i.e., September 2015). In any event, the number of 2010-04 Shares actually acquired may not exceed the number of 2010-04 Shares granted by the Board on September 7, 2012. To ensure transparency, it is noted that on September 7, 2012, the Board of Directors also decided, upon the recommendation of the Compensation and Nomination Committee, to grant to the Chief Executive Officer 150,000 shares (the ‘‘2010-05 Shares’’) as part of a plan relating to a different policy from the 2010-04 performance shares. In fact, the 150,000 shares were granted as part of a plan, adopted several years ago, of progressively associating the Chief Executive Officer with the Company’s capital, with the goal of recognizing his entrepreneurial role during more than thirty years with the Company and to provide him an equity interest comparable to that of his peers in technology companies around the world. In conformity with the recommendation of the AFEP-MEDEF Code, the definitive acquisition of these shares is subject to the condition that the Chief Executive Officer remains with the Company and to a performance condition related to variable compensation actually paid to the Chief Executive Officer over several financial years. The 2010-05 Shares granted to the Chief Executive Officer will not be definitively vested until the end of a two-year vesting period starting on the date of the Board meeting which granted them (i.e., September 2014), subject to the condition that the Chief Executive Officer is an executive director (mandataire social) at such acquisition date and the performance condition related to his variable compensation. In any event, the number of 2010-05 Shares actually acquired may not exceed the number of 2010-05 Shares granted by the Board on September 7, 2012. In accordance with the law, the Board of Directors decided at the time of each of the share and option grants since 2007, including those of September 7, 2012, upon the recommendation of the Compensation and Nomination Committee, that the Chairman of the Board and the Chief Executive Officer agree to a lock-up commitment with respect to shares which they may hold as a result of exercising stock options or the effective acquisition of shares. In light of the grants made, the Chief Executive Officer must maintain in registered form at least 15% of the total amount of shares he subscribes or acquires in connection with stock options or shares granted to him since 2007, until he has left his current functions at the Company. For shares granted in 2012, this percentage is calculated after deduction of the number of shares which it would be necessary to sell to pay taxes, social charges and expenses related to the sale of the total number of shares vested. In addition, upon the recommendation of the Compensation and Nomination Committee, the Board of Directors set the number of shares which could be granted to the executive directors (dirigeants mandataires sociaux) at 35% of the global envelope approved at the General Meeting of Shareholders of May 27, 2010, or 624,473 shares. Thus, the 2010-04 Shares granted to the Chief Executive Officer on September 7, 2012, represent 0.8% of the global envelope decided by the General Meeting of Shareholders on May 27, 2010. Taking into account the 150,000 2010-05 Shares which were also granted to the Chief Executive Officer on September 7, 2012, as part of the plan, 152 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 adopted several years ago, of progressively associating the Chief Executive Officer with the Company’s capital, and which represent 8.4% of the same global envelope, all the performance shares which have been granted to him since 2010 represent 26.8% of this global envelope. In accordance with the AFEP-MEDEF Code, the Chief Executive Officer may not engage in hedging transactions to ensure the gains which would result from the sale of the performance shares or the exercise of stock options until the end of the legally required lock-up period. Finally, the share grants noted above are in compliance with the law no 2008-1258 of December 3, 2008, regarding remuneration from work. Other information concerning share subscription options and performance shares are provided in paragraph 5.3 ‘‘Compensation and Benefits’’ of the Annual Report for 2012. No company other than Dassault Syst `emes SA has granted shares to directors (mandataires sociaux). 5.1.4.4 Directors’ Fees The maximum annual amount of directors’ fees was set at e320,000 for the year 2012 and thereafter until otherwise decided by the shareholders. For the year ended December 31, 2012, directors’ fees for Dassault Syst `emes SA amounted to e260,947, of which e162,547 were for retainer fees and e98,400 were for attendance at meetings of the Board of Directors and its Committees. The allocation of directors’ fees in 2012 was based on the following principles decided by the Board of Directors on June 7, 2012: e15,000 for each director, and an additional e15,000 for the Chairman of the Board and an additional e4,000 for the Chairman of the Audit Committee (these amounts were paid on a pro rata basis for the effective period during the year when the positions were held); e1,200 per meeting of the Board attended in person; e2,400 per meeting of the Audit Committee attended in person; e1,200 per meeting attended in person of the Compensation and Nomination Committee or the Scientific Committee; and e600 for each meeting of the Board or its Committees attended by telephone or video-conference. 5.1.4.5 Employee Profit-sharing Finally the Company has profit-sharing plans for all employees. The results of the financial year ended December 31, 2012, which are subject to the approval by the General Meeting of Shareholders on May 30, 2013, should thus enable the distribution of e16,786,107 in profit and to set aside a special profit-sharing reserve (participation) of e13,291,056. More than 90% of the employees of the French Subsidiaries held directly by Dassault Syst `emes SA also benefit from profit-sharing agreements. For more information on these agreements, see paragraph 2.1.5 ‘‘Compensation’’. DASSAULT SYST `EMES Annual Report 2012 153 Corporate governance 5 5.1.5 Application of the AFEP-MEDEF Code Dassault Syst `emes refers to the recommendations of the AFEP-MEDEF Code recommendations in connection with corporate governance. The Company strives each year to improve its good corporate governance practices. However, as summarized in the table below, certain provisions of the Code have required adaptation or interpretation in light of the Company’s specific circumstances or to comply with other provisions of the AFEP-MEDEF Code. RECOMMENDATIONS OF THE AFEP-MEDEF CODE WHICH HAVE BEEN ADAPTED OR INTERPRETED EXPLANATION Indemnity payment in the event of the departure of the Chief Executive Officer only in the case of an imposed departure or due to a change in control or of strategy (Article 20.2.4 of the AFEP-MEDEF Code) Dassault Syst `emes SA respects the exclusions of the AFEP-MEDEF Code in this area and will not pay an indemnity in the event of poor Company results or mismanagement by the officer. It nevertheless retains three cases for payment, one of which is not explicitly provided for by the AFEP-MEDEF Code, in light of the Company’s shareholder base and the long term of service of Mr. Charl `es in the Company. It applies in the event of an imposed departure (d ´epart contraint) if the departure is not related to poor results of the Company or mismanagement on the part of the Chief Executive Officer. In such case, the Board could decide to pay all or a portion of the departure indemnity. Similar calendar period for the granting of performance shares As for the prior grants of share subscription options, the Company seeks to grant performance shares during the same calendar periods. (Article 20.2.3 of the AFEP-MEDEF Code) Proportion of performance shares in executive officer compensation (Article 20.2.3 of the AFEP-MEDEF Code) Acquisition of shares by the executive officers (dirigeants mandataires sociaux) benefitting from grants of performance shares (Article 20.2.3 of the AFEP-MEDEF Code) A significant portion of the shares granted to the Chief Executive Officer is done as part of the plan adopted several years ago to progressively associate with the Company’s capital, with the goal of recognizing his entrepreneurial role during more than thirty years with the Company and to provide him an equity interest comparable to that of his peers in technology companies around the world, and not as part of the Company’s senior management incentive and equity interest plan. The portion of performance shares (14,000 2010-04 Shares granted in 2012) represents 35% of his total remuneration. Dassault Syst `emes believes that the lock-up of 15% of the shares which may be acquired by the Chief Executive Officer as a result of grants, until he terminates his functions, represents a mechanism with an effect equivalent to the recommendation in the AFEP-MEDEF Code to subject the performance shares granted to executive directors to the purchase of a fixed number of shares once such performance shares become available. 5.1.6 Internal Control Procedures and Risk Management Because Dassault Syst `emes SA was listed on the stock market in the United States until the end of 2008, Dassault Syst `emes defined and implemented an internal control procedure based mainly on the COSO (Committee of Sponsoring Organization of the Treadway Commission) framework, as well as on the AMF’s suggested reference framework regarding internal control updated on July 22, 2010. According to the COSO framework, internal control is a process carried out by the Board of Directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of the following objectives: realization and optimization of operations, reliability of financial and accounting information and compliance with applicable law and regulations. The Chairman’s report on internal control procedures applies to Dassault Syst `emes SA and its consolidated subsidiaries. 5.1.6.1 Internal Control Objectives The internal control procedures within the Company, whether at the level of Dassault Syst `emes SA or its subsidiaries, are designed to: (cid:127) improve the performance and efficiency of operations through optimized use of available resources (an objective inspired by the COSO framework); 154 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 (cid:127) ensure the reliability, quality and availability of financial data (an objective inspired by the COSO and AMF frameworks); (cid:127) ensure that operations comply with legislation in effect and the Company’s internal procedures (an objective inspired by the COSO and AMF frameworks); (cid:127) guarantee the security of assets, particularly intellectual property, the human and financial resources and the image of the Company (an objective inspired by the AMF framework); and (cid:127) prevent risks of error or fraud. 5.1.6.2 Internal Control Participants and Organization All corporate governance bodies participate in the implementation of the internal control processes. The Board of Directors, concerned with the issue of internal control, created in 1996 an Audit Committee, with the mission described above (see paragraph 5.1.1.3 ‘‘Composition, Practices and Activities of the Board Committees’’. In parallel, the Company’s management has established the following bodies: (cid:127) An Insider Committee responsible for setting and communicating to employees, directors and consultants the dates of the periods during which buying or selling Dassault Syst `emes SA shares is prohibited, in order to prevent insider trading. This Committee also requires be informed of transactions carried out by members of the management of the Company. The Company applies the rules and recommendations of the AMF regarding the prevention of insider trading; (cid:127) An internal audit department reporting to the Senior Executive Vice President and Chief Financial Officer and to the Audit Committee, whose mission is to evaluate the relevance of Dassault Syst `emes’ internal control processes, to alert the management and the Audit Committee regarding possible deficiencies or risks, and to propose measures that will limit the risks and improve the efficiency of operations. In 2012, the internal audit department was responsible for evaluating, on behalf of the management team, internal control mechanisms related to financial reporting. Together with the legal department and a specialized service provider, it also evaluated the coverage provided by the Company’s insurance policies and their relevance in light of the risks faced. The findings of this evaluation were presented to the Audit Committee. Following this analysis, a presentation of risks was made at the annual meeting of the outside directors; and (cid:127) An Ethics & Compliance Department reporting to the Chief Executive Officer, responsible for ensuring the implementation and respect of the Code of Business Conduct, which defines the ethical behavior rules applicable within the Company, as well as the Company’s specific policies, recommendations and procedures regarding ethics and compliance. The internal control organization is also based on the principle of giving responsibility to each of the departments and subsidiaries of the Company in its respective area of expertise, and on delegations of powers to certain members of the Executive Committee of the Company. Moreover, the subsidiaries’ local chief executive and financial officers are responsible for preparing the subsidiaries’financial statements which are included in the Company’s consolidated accounts, and the annual accounts and activity reports for each of their respective subsidiaries, whether the accounts are prepared by their own financial teams or by shared internal financial and accounting services centers, particularly in the United States and France. The Company’s financial planning and analysis department is responsible for directing the financial objectives of the Company in accordance with budget monitoring procedures and, in this respect, performs specific controls and analyses of the quarterly accounts. It is also responsible for identifying, analyzing and warning of any differences from the previous year, the previous quarter and the Company’s budget objectives, which are subject to a quarterly update. 5.1.6.3 Internal Control and Risk Management Procedures The internal control mechanisms developed by the Company are based on the COSO methodology and on the recommendations of the framework recommended by the AMF, and promote internal control in the following areas: (cid:127) Control environment: The professional ethics of the Company are set forth in the corporate governance procedures, and specifically in the Code of Business Conduct, which describes the manner in which Dassault Syst `emes expects to conduct business and which may serve as a reference tool for each Group employee to help guide their behavior and their interactions in their professional work. The Code of Business Conduct, which applies to all employees of Dassault Syst `emes and is available on the Company’s internet and intranet sites, addresses, in particular (i) compliance with regulations applicable to the Company’s business, (ii) individual interactions within the Company and with its ecosystem, and (iii) protecting the Company’s assets (in particular, the Company’s intellectual property and that of its clients and partners). The Code also includes rules governing conflicts of interest, insider trading and financial reporting; (cid:127) Risk analysis: The main risks which may impact the performance of the Company are identified, assessed and regularly reviewed by the management of the Company. These risks are described in paragraph 1.6.1 ‘‘Risk Related to the Company’s Business’’ which indicates DASSAULT SYST `EMES Annual Report 2012 155 Corporate governance 5 the measures taken by the Company to manage or limit the risks when possible. The external directors have reviewed measures to limit the main risks which could affect the Company. Operational risks are managed mostly at the level of the subsidiaries, IP risks, ethical conduct and compliance risks and financial risks are handled by Dassault Syst `emes SA. (cid:127) Protection and monitoring activities : 1) Protecting the Company’s intellectual property is a constant concern. This protection is ensured by implementing and monitoring corporate processes designed to verify the Company’s rights before it markets its software products. The Company has also developed during recent years protection for its inventions through a reasonable and well-considered approach to filing patents in several jurisdictions. The Company’s principal brands are also registered in a large number of countries. In addition, the Company has also set up a program to protect its products from pirating. 2) Information systems security, which is critical to ensuring the protection of the source codes for the Company’s applications, is continually evaluated, tested and strengthened in the areas of network access or performance, anti-virus protection, and the physical security of servers and other information system facilities; 3) The internal control policies related to the main processes within the Company (information technology security, sales administration, human resources, protection of intellectual property, closing and publication of financial statements, treasury management, client credit risk management) are formalized and updated at the level of both Dassault Syst `emes SA and its main subsidiaries or the related shared services centers; 4) Key control points making it possible to prevent or detect risks impacting the financial information in the significant entities of the Company are documented; 5) Tests are performed annually on these key control points to evaluate their effectiveness; and 6) The operational entities implement action plans with the goal of continuous improvement. (cid:127) Communication : The Company has deployed processes to monitor, review and analyze on a regular basis its performance as well as the performance at the level of its main subsidiaries (budget review meetings, quarterly activity review, Board meetings), brands, distribution channels and geographical areas. In addition, quarterly communication meetings are also held to ensure a better dissemination of the Group’s strategy to all managers and discussions facilitating its implementation. (cid:127) Monitoring : In 2012 the internal audit department carried out different missions within the Company’s subsidiaries to verify compliance of the local internal control procedures with the Company objectives. These missions, authorized by the Audit Committee, result in the issuance of recommendations to the local management teams and the implementation of action plans when deemed necessary to reinforce the audited processes and organizations. The internal audit department carries out a review of the implementation of these plans. 5.1.6.4 Internal Control Procedures Relating to the Preparation and Treatment of Financial and Accounting Information Finally, with respect to the internal control processes related to the preparation of financial and accounting information, the Company’s focus has been to: (cid:127) Implement a quarterly control system to update budget objectives and identify and analyze any variation from the objectives set by the Financial Department of the Company and from the previous quarter and financial year. Thus, each of the subsidiaries prepares a detailed and documented presentation of its sales activity for the past quarter and the year, and performs a comparative analysis of its financial results (revenues and costs) in comparison with its budget targets and with the same quarter for the previous year. Budget projections are reviewed, analyzed and updated each quarter to take into account all changes in the market and the economic environment, particularly as regards exchange rates, and to present realistic objectives to shareholders and financial markets; (cid:127) Improve the reliability of its consolidation tools and processes in order to establish and publish required financial information every quarter as soon as possible. The consolidation procedure as defined by the Company is based on: 1) giving responsibility to the chief financial officers in the subsidiaries, who are required to certify the quarterly statements transmitted to Dassault Syst `emes SA and to provide detailed business reviews and analyses before the accounts are consolidated; 156 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 2) 3) the use of reporting and consolidation tools that make data transmission and processing secure and allow the elimination of intragroup transactions; the implementation of an annual process to monitor off-balance sheet commitments, related-party or regulated agreements (conventions r `eglement ´ees); 4) a detailed review of the quarterly accounts of the subsidiaries and of the parent company by the Group’s financial division; and 5) the detailed analysis by the Company’s accounting department of all the software and services transactions with a significant impact on the financial statements in order to validate the accounting process. (cid:127) Systematize the processes by which the Audit Committee and the Board of Directors review financial information prior to publication; and (cid:127) Structure its financial communications to ensure simultaneous and equivalent publication of information on its principal markets of financial results or operations that could have an impact on the price of its shares. 5.1.6.5 Evaluation of Internal Control Since its voluntary delisting from the NASDAQ in October 2008, Dassault Syst `emes SA is no longer subject to the requirements of the U.S. Sarbanes-Oxley Act with regard to the assessment of its internal control procedures. The Company evaluates its internal control procedures applicable to its principal processes and subsidiaries in accordance with European regulations. Thus, in 2012, detailed assessment work was performed, the management of the Company intending to maintain a high level of internal control within the Company. This work is in line with the continuing improvement process of internal control, and allows the implementation of action plans and specific audits. In this respect, the scope of Group entities subjected to an internal control evaluation continued to be expanded, via self-evaluation questionnaires, to entities that had previously been considered immaterial and newly acquired companies. 5.1.6.6 Limitations on Internal Control The internal control system cannot provide an absolute guarantee that the Company’s objectives in this area will be achieved. Inherent limitations apply to all internal control systems, related in particular to uncertainties in the external environment, the exercise of individual judgments, or dysfunctions which may occur as a result of human failure or simple error. 5.1.7 Other Information Required Pursuant to Section L. 225-37 of the French Commercial Code 5.1.7.1 Specific Modalities Related to Shareholders’ Participation in the Meeting of Shareholders Shareholders participate in the Meetings of Shareholders of the Company according to provisions specified by law and by Articles 24 to 33 of the Company’s by-laws. More specifically, every shareholder has the right to participate in Meetings of Shareholders and deliberations either personally or via a proxy, regardless of the number of shares held, according to conditions specified by Article 27 of the by-laws of Dassault Syst `emes (see paragraph 6.1.2 ‘‘Memorandum and Specific By-Laws Provisions’’). The right to vote attached to shares whose ownership rights have been split belongs to the owner of the bare property (nu-propri ´etaire) except for votes on decisions concerning the allocation of benefits, the right to which belongs to the holder of beneficial rights (l’usufruitier). DASSAULT SYST `EMES Annual Report 2012 157 Corporate governance 5 5.1.7.2 Publication of the Information as Required by Section L. 225-100-3 of the French Commercial Code. Information required by section L. 225-100-3 of the French Commercial Code is set out in the 2012 Annual Report in Chapter 6.3 ‘‘Major Shareholders’’ (concerning control by GIMD), paragraph 6.2.4 ‘‘Summary of Pending Delegations to the Board of Directors’’ (concerning share issuances), paragraph 6.2.5 ‘‘Treasury Shares’’ (relating to the repurchase by the Company of its own shares), paragraph 6.1.2.2 ‘‘Meetings of Shareholders’’ (concerning conditions of voting rights) and paragraph 5.1.4.2’’Indemnities due in case of the imposed departure (depart constraint) of the Chief Executive Officer’’ (concerning an indemnity for the Chief Executive Officer in the event of an imposed departure (d ´epart contraint)), which also constitutes the annual Management Report of the Board of Directors. The 2012 Annual Report (‘‘Document de r ´ef´erence’’) is available on the AMF website (www.amf-france.org) and on the Dassault Syst `emes website (www.3ds.com). A press release is issued to announce when the Annual Report becomes available. Charles Edelstenne Chairman of the Board of Directors 158 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 5.2 Report of the Statutory Auditors on Corporate Governance and Internal Control For the year ended December 31, 2012 This is a free translation into English of the Statutory Auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. Statutory Auditors’ report, prepared in accordance with Article L. 225-235 of the French Commercial Code on the report prepared by the Chairman of the Board of Directors of Dassault Syst `emes SA To the Shareholders, In our capacity as Statutory Auditors of Dassault Syst `emes SA, and in accordance with article L. 225-235 of the French Commercial Code (Code de commerce), we hereby report to you on the report prepared by the Chairman of your company in accordance with article L. 225-37 of the French Commercial Code for the year ended December 31, 2012. It is the Chairman’s responsibility to prepare, and submit to the Board of Directors for approval, a report describing the internal control and risk management procedures implemented by the company and providing the other information required by article L. 225-37 of the French Commercial Code in particular relating to corporate governance. It is our responsibility: (cid:127) to report to you on the information set out in the Chairman’s report on internal control and risk management procedures relating to the preparation and processing of financial and accounting information, and (cid:127) to attest that the report sets out the other information required by article L. 225-37 of the French Commercial Code, it being specified that it is not our responsibility to assess the fairness of this information. We conducted our work in accordance with professional standards applicable in France. Information concerning the internal control and risk management procedures relating to the preparation and processing of financial and accounting information The professional standards require that we perform procedures to assess the fairness of the information on internal control and risk management procedures relating to the preparation and processing of financial and accounting information set out in the Chairman’s report. These procedures mainly consisted of: (cid:127) obtaining an understanding of the internal control and risk management procedures relating to the preparation and processing of financial and accounting information on which the information presented in the Chairman’s report is based, and of the existing documentation, (cid:127) obtaining an understanding of the work performed to support the information given in the report and of the existing documentation, (cid:127) determining if any material weaknesses in the internal control procedures relating to the preparation and processing of financial and accounting information that we may have identified in the course of our work are properly described in the Chairman’s report. On the basis of our work, we have no matters to report on the information given on internal control and risk management procedures relating to the preparation and processing of financial and accounting information, set out in the Chairman of the Board’s report, prepared in accordance with article L. 225-37 of the French Commercial Code. Other information We attest that the Chairman’s report sets out the other information required by article L. 225-37 of the French Commercial Code. Neuilly-sur-Seine and Paris-La D ´efense, on March 28, 2013 The statutory auditors PRICEWATERHOUSECOOPERS AUDIT French original signed by: Pierre Marty ERNST & YOUNG ET AUTRES French original signed by: Jean-Fran¸cois Ginies DASSAULT SYST `EMES Annual Report 2012 159 Corporate governance 5 5.3 Compensation and Benefits 5.3.1 Compensation of the Company’s Executive Directors (Mandataires Sociaux) Compensation and benefits paid to each executive director (mandataire social) of Dassault Syst `emes SA are summarized in the table below, as recommended by the AMF and the AFEP-MEDEF Code (see also paragraphs 5.1.4 ‘‘Principles and Rules Established by the Board of Directors of Dassault Syst `emes SA to Determine the Compensation of the Executive Directors and Senior Management’’ and 5.3.2.1. ‘‘Dassault Syst `emes Subscription Options’’). Table 1 – Summary of the compensation, options and shares awarded to each executive director Charles Edelstenne, Chairman of the Board of Directors Compensation due for the year (detailed in Table 2) Value of the stock options awarded during the year (detailed in Table 4) Value of the performance share grants awarded during the year (detailed in Table 6) Bernard Charl `es, President and Chief Executive Officer Compensation owed for the year (detailed in Table 2) Value of the stock options awarded during the year (detailed in Table 4) Value of the performance share awarded during the year (detailed in Table 6)(1) 2011 2012 e935,000 e958,600 – – – – 2,113,663 – e744,520 2,167,484 – e1,079,680 (1) 14,000 2010-02 performance Shares were granted to the Chief Executive Officer in 2011 and 14,000 2010-04 performance Shares were granted to him in 2012 as part of the Company’s senior management incentive and equity interest plan. The unit valuation of the shares granted in 2012 was e77.12 for the 2010-04 Shares and e53.18 for the 2010-02 Shares, based on the IFRS 2 method used for the consolidated financial statements. Valuation of the shares granted during the year 2012 to the Chief Executive Officer as part of the plan to progressively associate him with the Company’s capital Year 2011 Year 2012 Bernard Charl `es, Chief Executive Officer Valuation of shares granted during the year as part of the plan to progressively associate the Chief Executive Officer with the Company’s capital (see Table 6)(1) e8,068,500 e11,686,500 (1) 150,000 2010-03 Shares were granted in 2011 and 150,000 2010-05 Shares were granted in 2012 as part of the plan, adopted several years ago, to progressively associate the Chief Executive Officer with the Company’s capital, with the goal of recognizing his entrepreneurial role for more than thirty years with the Company and giving him an equity interest comparable to that of his peers in technology companies around the world. The 150,000 2010-03 Shares had a value of e53.79 each and the 150,000 2010-05 Shares had a value of e77.91,according to the IFRS 2 method used to prepare the consolidated financial statements. The global gross compensation paid in 2012 by the Group to its senior management, made up of 11 executive officers as set forth above in paragraph 5.1.2 ‘‘Senior Management’’, amounted to e8,335,554, including profit-sharing. 160 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Table 2 – Summary of the compensation of each executive director Gross compensation before tax of the executive directors (dirigeants mandataires sociaux) is set forth in the table below. (cid:1) 2011 (cid:2)(cid:1) 2012 (cid:2) Amounts due for 2011 Amounts paid in 2011 Amounts due for 2012 Amounts paid in 2012 Charles Edelstenne Chairman of the Board Fixed compensation Variable compensation Extraordinary compensation Directors’ fees Benefits Total Bernard Charl `es, President and Chief Executive Officer Fixed compensation Variable compensation(1) Extraordinary compensation Directors’ fees Benefits(5) Total e899,000 e899,000 e922,000 e922,000 – – 36,000 – 935,000 – – 37,200 – 936,200 – – 36,600 – 958,600 – – 36,000 – 958,000 968,000 968,000 993,000 993,000 1,113,200(4) 1,071,800(2) 1,141,950(3) 1,113,200(4) – 21,000 11,463 g2,113,663 – 22,200 11,463 g2,073,463 – 21,600 10,934 g2,167,484 – 21,000 10,934 g2,138,134 (1) (2) (3) (4) (5) Rules governing the determination of variable compensation to the executive directors are described in the paragraph 5.1.4 ‘‘Principles and Rules Established by the Board of Directors of Dassault Syst `emes SA to Determine the Remuneration of the Company’s Executive Directors and Senior Management’’. Variable portion due for 2010 and paid in 2011. Variable portion due for 2012 and paid in 2013. Variable portion due for 2011 and paid in 2012. These benefits are related to the use of a car provided by Dassault Syst `emes SA. DASSAULT SYST `EMES Annual Report 2012 161 Corporate governance 5 Table 3 – Directors’ fees and other compensation received by the directors The directors do not receive any compensation other than the fees set forth in the table below, except for Charles Edelstenne and Bernard Charl `es, whose compensation is set forth in Table 2 above, and Thibault de Tersant, Senior Executive Vice President and Chief Financial Officer, whose compensation is set forth in Note 2 to the table below. Charles Edelstenne(1) Bernard Charl `es Thibault de Tersant(2) Paul Brown(3) Jean-Pierre Chahid-Noura¨ı Nicole Dassault(4)(6) Laurent Dassault(3) Serge Dassault(5) Bernard Dufau Andr ´e Kudelski Arnoud De Meyer Toshiko Mori(4) Total Director’s fees paid in 2011 for the year 2010 Director’s fees paid in 2012 for the year 2011 e37,200 e36,000 22,200 22,200 24,000 31,800 – 20,400 – 38,200 30,600 22,200 21,000 21,000 16,200 30,600 18,600 16,200 – 37,600 33,000 23,400 – g248,800 19,800 g273,400 (1) GIMD paid to Charles Edelstenne e20,740 in directors’ fees in 2011 in connection with his mandate as a member of the Supervisory Board of GIMD and e23,333 in 2012. (2) Global compensation received by Thibault de Tersant in 2011 and 2012 is as set forth below. Thibault de Tersant, Director, Senior Executive Vice President and Chief Financial Officer Fixed compensation Variable compensation Extraordinary compensation Directors’ fees Benefits(c) Total Compensation paid in 2011 Compensation paid in 2012 e385,000 265,000(a) – 22,200 6,874 g679,074 e400,000 215,000(b) 677 21,000 5,380 g642,057 (a) (b) (c) Variable portion due for 2010. In 2011, Thibault de Tersant also received e30,924 under the Company’s French profit-sharing plans. Variable portion due for 2011. In 2012, Thibault de Tersant also received e32,845 under the Company’s French profit sharing plans. These benefits are related to the use of a car provided by Dassault Syst `emes SA. (3) (4) Paul Brown and Laurent Dassault’s mandates as Directors expired at the General Meeting of Shareholders held on May 26, 2011. Nicole Dassault and Toshiko Mori were appointed Directors by the General Meeting of Shareholders held on May 26, 2011; thus, they did not receive any directors’fees in 2011 for 2010. (5) Serge Dassault was appointed Directors by the General Meeting of Shareholders held on June 7, 2012, thus, he did not receive any directors’ fees in 2012 for 2011, nor in 2011 for 2010. (6) GIMD paid to Nicole Dassault e18,600 in directors’ fees in 2011 and 2012, in connection with her mandate as a member of the Supervisory Board of GIMD. Other elements relating to the compensation of the directors are described in paragraph 5.1.4.4 ‘‘Directors’ Fees’’. 162 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Table 4 – Subscription or purchase options awarded during 2012 to each executive director Number and date of plan Type of option (purchase or subscription) Valuation of the options Exercise price Exercise period Number of options awarded in 2012 none none Charles Edelstenne Total Bernard Charl `es Total Table 5 – Subscription or purchase options exercised during 2012 by each executive director Charles Edelstenne Total Bernard Charl `es Total Number and date of plan 2002-01, 05/28/2002 2002-03, 01/20/2003 Number of options exercised during 2012 none 217,819 518,411 736,230 Exercise price e45.50 e23.00 Mr. Bernard Charl `es generally reinvests the gains realized through the exercise of subscription stock options in shares of Dassault Syst `emes SA, after accounting for taxes, social charges and transaction fees. Table 6 – Performance shares granted in 2012 to each director (mandataire social) Number and date of plan 2010-04(2), 09/07/2012 2010-05(2), 09/07/2012 2010-04, 09/07/2012 Charles Edelstenne Bernard Charl `es Thibault de Tersant Jean-Pierre Chahid-Noura¨ı Nicole Dassault Serge Dassault Bernard Dufau Andr ´e Kudelski Arnoud De Meyer Toshiko Mori Total Valuation of the shares based on the method used for the consolidated financial statements(1) Number of performance shares awarded during 2012 Acquisition date Availability date e1,079,680 e11,686,500 e1,311,040 9/07/2015 9/07/2014 9/07/2015 9/07/2017 9/07/2016 9/07/2017 none 14,000 150,000 17,000 none none none none none none none 181,000 g14,077,220 (1) The valuation retained for the performance shares granted is e77.12 for the 2010-04 Shares and e77.91 for the 2010-05 Shares based on the IFRS 2 method used for the consolidated financial statements. (2) The condition of allocation of the 2010-04 Shares and 2010-05 Shares to the Chief Executive Officer are described in paragraph 5.1.4.3 ‘‘Performance Shares and Share Subscription Options’’. The 2010-05 Shares were granted as part of the plan, adopted several years ago, to progressively associate the Chief Executive Officer with the Company’s capital, with the goal of recognizing his entrepreneurial role during more than thirty years with the Company and providing him with an equity interest comparable to that of his peers in technology companies around the world. DASSAULT SYST `EMES Annual Report 2012 163 Corporate governance 5 Table 7 – Shares that have become available during 2012 for each director (mandataire social) Number and date of plan Number of shares that became available during 2012 Acquisition terms Charles Edelstenne Bernard Charl `es Thibault de Tersant Jean-Pierre Chahid-Noura¨ı Nicole Dassault Serge Dassault Bernard Dufau Andr ´e Kudelski Arnoud De Meyer Toshiko Mori Total 09/25/2008 none 150,000(1) none none none none none none none none 150,000 (1) The 150,000 shares which became available in 2012 were granted to the Chief Executive Officer as part of the plan, adopted several years ago, to progressively associate him with the Company’s capital. It should be noted that, by law, a part of these shares is subject to a holding period (see paragraph 5.1.4.3 ‘‘Performance Shares and Share Subscription Options’’). (cid:127) Shares subject to a holding period of two years Shares acquired by Bernard Charl `es in 2011 and in 2012 (150,000 shares each year) pursuant to former grants of shares made in 2009 and 2010, respectively, as part of the plan, adopted several years ago, to progressively associate him with the Company’s capital, are subject to a two-year lock-up period. (cid:127) Shares being acquired In addition to the 2010-04 Shares and 2010-05 Shares granted to Bernard Charl `es by the Board of Directors on September 7, 2012, 14,000 performance shares, granted in 2011 and 150,000 shares also granted in 2011 as part of the plan, adopted several years ago, to progressively associate him with the Company’s capital, are being acquired. They should be acquired, subject to the performance conditions, in September 2013 and September 2014, respectively, and become available in September 2015 and September 2016, respectively, following a 2-year vesting period, provided that Bernard Charles is still an Executive Director at such date. (cid:127) Authorization of the General Meeting of Shareholders The authorization granted to the Company’s Board of Directors by the shareholders on May 27, 2010 to grant performance shares to Company management and employees or certain categories of management and employees, representing up to 1.5% of the share capital, was still valid in 2012, since it was granted for a 38-month period. Taking into account the grants of shares decided by the Board in May 2010 and September 2011 and 2012, a further 146,473 performance shares may still be granted by the Board. Table 8 – Grants of share subscription or purchase options See paragraph 5.3.2.1 ‘‘Dassault Syst `emes Subscription Options’’ below. Table 9 – Share subscription options granted to the ten employees who are not executive directors and who received the most share subscription options, and options exercised by these employees See paragraph 5.3.2.1 ‘‘Dassault Syst `emes Subscription Options’’ below. 164 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Table 10 – Follow-up of the AFEP-MEDEF’s Recommendations As indicated in the table below, Dassault Syst `emes SA complies with the main recommendations of the AFEP-MEDEF regarding compensation and benefits granted to executive directors (dirigeants mandataires sociaux). Executive directors Employment agreement Additional retirement plan Indemnities or benefits due or which may become due in the event of termination of or change in present functions Indemnities related to a non-competition clause Yes No X X Charles Edelstenne Chairman of the Board Director since (1st appointment): 08/04/1993 Term: until the annual General Meeting of Shareholders to be held in 2014 Bernard Charl `es President and Chief Executive Officer Director since (1st appointment): 08/04/1993 Term: until the annual General Meeting of Shareholders to be held in 2014 Yes Yes No X No X Yes X X No X X At the time of the renewal of the mandate of the Chief Executive Officer, the Board of Directors authorized on May 27, 2010, upon the proposal of the Compensation and Nomination Committee and in compliance with Article L. 225-42-1 of the French Commercial Code, the renewal of the agreement regarding the Company’s undertakings to Bernard Charl `es relating to indemnities which would be due upon the termination of his functions as Chief Executive Officer, according to the terms adopted by the Board of Directors at its meetings on March 28, 2008, and March 27, 2009. The conditions for payment and the amount of the indemnities owed are described in paragraph 5.1.4.2 ‘‘Indemnities Due in Case of the Imposed Departure (d ´epart contraint) of the Chief Executive Officer’’. There is no specific complementary retirement plan (‘‘r ´egime compl ´ementaire de retraite’’) for the executive directors. The companies controlled by Dassault Syst `emes SA have not paid any compensation or granted any other benefits to the executive directors (‘‘mandataires sociaux’’) mentioned above. 5.3.2 Interests of Executive Management and Employees in the Company’s Share Capital 5.3.2.1 Dassault Syst `emes Subscription Options As of December 31, 2012, there were seven active stock option subscription plans for the benefit of certain Company management and employees. Two stock option subscription plans expired during 2012. The exercise price of stock options granted pursuant to all the plans was fixed without a discount in relation to the market value of the Dassault Syst `emes shares on the date of grant of the stock options, with the exception of the 2008-01 plan, for which a discount of 3% was applied. The General Meeting of Shareholders on May 27, 2010, authorized the Board of Directors to grant stock options to subscribe or to purchase Company shares for a period of 38 months, provided that the total of all outstanding stock options does not give a right to more than 15% of Dassault Syst `emes SA’s share capital. The Board of Directors did not use this authorization in 2012. The new shares created by the exercise of options between the 1st of January and the date of the annual General Meeting of Shareholders deciding on the allocation of profit related to the most recently completed financial year are entitled to receive the dividend distributed with respect to that year. The new shares are quoted on the same line as the previously existing shares. DASSAULT SYST `EMES Annual Report 2012 165 Corporate governance 5 On the other hand, the new shares created as of the day after the General Meeting of Shareholders do not have a right to receive this dividend. Those shares are temporarily quoted on a second trading line until the date the shares trade ex-dividend (i.e., without the right to receive the dividend to be distributed on Dassault Syst `emes shares). The following table provides certain information on the Company’s stock options plans in effect during 2012. Grants of subscription or purchase options (This table corresponds to Table 8 of the recommendation issued by the AMF on the compensation of directors (mandataires sociaux) on December 22, 2008.) Stock option plan 2002-01 2002-02 2002-03 2002-04 2002-05 2002-06 2006-01 2006-02 2008-01 2008-02 2010-01 Total Board of Directors General Meeting 05/28/2002 05/28/2002 01/20/2003 01/20/2003 03/29/2005 03/29/2005 10/09/2006 06/06/2007 09/25/2008 11/27/2009 05/27/2010 05/28/2002 05/28/2002 05/28/2002 05/28/2002 05/28/2002 05/28/2002 06/08/2005 06/08/2005 05/22/2008 05/22/2008 05/27/2010 Number of options granted 1,363,563 355,300 3,325,000 675,000 – to mandataires sociaux 651,433 – 526,433 125,000 454,000 – – – – 1,500,000 – 1,200,000 300,000 – – – – 139,000 1,060,000 219,000 967,150 80,000 – – 80,000 405,000 232,850 1,405,700 1,325,900 1,436,600 1,851,500 1,240,000 14,178,563 – – – – 104,000 150,000 150,000 150,000 170,000 110,000 2,961,433 – 50,000 100,000 410,000 – 50,000 100,000 407,000 – 50,000 100,000 440,000 – 50,000 120,000 490,000 – 50,000 60,000 – 1,976,433 985,000 313,000 4,441,000 Charles Edelstenne Bernard Charl `es Thibault de Tersant – to the top 10 beneficiary employees (excluding mandataires sociaux) Maximum number of shares Number of beneficiaries Exercise price in euro Exercise period Number of options exercised in 2012 Number of options cancelled in 2012 Number of options outstanding as of 12/31/2012 Number of options exercised between 01/01/13 and 02/28/2013 Number of options cancelled between 01/01/13 and 02/28/2013 Number of options outstanding as of 02/28/2013(1) Number of options exercised as of 02/28/2013 Number of options exercisable as of 02/28/2013 1,363,563 355,300 3,325,000 675,000 967,150 232,850 1,405,700 1,325,900 1,436,600 1,851,500 1,240,000 14,178,563 378 45,50 401 45,50 803 23,00 533 23,00 264 39,50 88 39,50 447 47,00 462 47,50 502 38,15 539 39,00 542 47,00 From 05/28/03 to 05/27//12 From 05/28//03 to 05/27/12 From 01/20/04 to 01/19/13 From 12/31/04 to 01/19/13 From 03/30/07 to 03/28/12 From 03/30/06 to 03/28/12 From 10/10/09 to 10/08/13 From 06/07/10 to 06/05/14 From From From 09/25/09 to 11/27/2013 to 05/27/2014 to 05/26/2018 11/26/2017 09/24/15 312,863 40,760 772,252 64,735 61,369 37,000 607,784 392,265 335,209 0 0 2,624,237 320 660 1,200 200 0 0 0 0 0 0 0 0 93,067 5,515 92,767 4,415 300 1,100 0 0 2 0 0 0 0 0 0 0 0 0 2,500 600 2,114 51,100 31,500 90,196 256,506 562,195 877,136 1,718,900 1,175,100 4,688,419 15,495 97,625 82,186 0 0 292,488 0 0 0 12,700 8,000 22,100 241,011 464,570 794,950 1,706,200 1,167,100 4,373,831 1,274,493 289,764 3,304,475 623,300 833,648 190,100 941,289 711,251 504,068 1,300 900 8,674,588 0 0 0 0 0 0 241,011 464,570 794,950 1,706,200 1,167,100 4,373,831 (1) For information regarding the dilutive effect of the exercise of stock options, see also paragraph 6.2.1 ‘‘Share Capital at February 28, 2013’’. The Company’s internal rules provide for periods during which it is recommended not to buy or sell Dassault Syst `emes SA’s shares, notably during periods preceding and following the announcement of quarterly, half-year or annual results. At December 31, 2012, the only Company Directors (mandataires sociaux) owning such options were Bernard Charl `es and Thibault de Tersant. For information regarding the equity interests in Dassault Syst `emes SA of the Directors (mandataires sociaux), see paragraphs 5.1.1 ‘‘Composition and Practices of the Board of Directors’’ and 6.3 ‘‘Information about the Shareholders’’ in this Annual Report. 166 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Subscription and purchase options of the top ten employees who are not executive directors and options they exercised during 2012 (The table corresponds to Table 9 of the recommendation issued by the AMF on the compensation of directors (mandataires sociaux) on December 22, 2008). The following table sets forth, on a global basis, the total number and weighted average exercise price of shares subscribed by the ten Company employees who exercised the largest number of Company stock-options during 2012 and who are not directors of the Company, it being recalled that no option to subscribe shares was granted in 2012. Total number of options Weighted average exercise price None Plan no 2002-01 Plan no 2002-03 Plan no 2006-01 Plan no 2006-02 Plan no 2008-01 668,360 e44.27 440 41,116 290,000 229,000 107,804 Stock options granted in 2012 to the ten employees who received the largest number of stock options Stock options exercised in 2012 by the ten employees who exercised the largest number of stock options 5.3.2.2 Performance Shares The General Meeting of Shareholders of May 27, 2010, authorized the Board of Directors to grant Dassault Syst `emes SA shares during a 38-month period, representing up to 1.5% of Dassault Syst `emes SA’s capital at the date of the General Meeting (i.e. up to 1,784,210 shares). The Board of Directors used this authorization on September 7, 2012, to grant 539,230 performance shares to 939 beneficiaries under the ‘‘2010-04’’ plan (‘‘2010-04 Shares’’). The 2010-04 Shares will be fully vested within (i) three years, followed by a two-year lock-up period for residents of France and/or beneficiaries of the French social security system or (ii) four years without any lock-up period for beneficiaries not subject to this system. The 2010-04 Shares will be fully vested at the end of the vesting period applicable to the beneficiary, provided the beneficiary remains with the Company and satisfaction of a performance condition, which is measured according to the non-IFRS diluted earnings per share actually realized compared to the high end of the range set for Dassault Syst `emes’ EPS objective as published for each of the 2012, 2013 and 2014 fiscal years. In compliance with the AFEP-MEDEF Code, the definitive vesting of these performance shares granted to the Chief Executive Officer is subject to an additional performance condition in relation to his variable compensation actually received over three financial years (2012, 2013 and 2014) (see also paragraph 5.1.4.3 ‘‘Performance Shares and Share Subscription Options’’ concerning the grant of 150,000 2010-05 Shares as part of the plan, adopted several years ago, to progressively associate the Chief Executive Officer with the Company’s capital, to recognize his entrepreneurial role during more than thirty years with the Company and to provide him with an equity interest comparable to that of his peers in technology companies around the world). In light of the grants in May 2010, and September 2011 and 2012, 146,473 more performance shares may still be granted. Because this authorization expires on July 27, 2013, it will be proposed to the General Meeting of Shareholders on May 30, 2013 to renew the authorization (see paragraph 7.1 ‘‘Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 30, 2013’’). DASSAULT SYST `EMES Annual Report 2012 167 Corporate governance 5 5.4 Transactions in the Company’s Shares by the Management of the Company Pursuant to Article 223-26 of the AMF, the purchase, sale, subscription or exchange of any security issued by Dassault Syst `emes SA made by directors or executive officers of the Company, or by persons related to them (according to Article R. 621-43-1 of the French Monetary and Financial Code), must be disclosed to the Company’s shareholders. The tables below present those transactions as published by the AMF in 2012 (‘‘SO Exercise’’ means ‘‘Stock-Option Exercise’’). Date and place Directors and Executive Officers Nature of the transaction Unit Price Gross amount Date and place Directors and Executive Officers Nature of the transaction Unit Price Gross amount 02/13/2012 Euronext Paris 02/13/2012 Euronext Paris 02/13/2012 Euronext Paris 02/14/2012 Euronext Paris 02/15/2012 Euronext Paris 02/15/2012 Euronext Paris 02/16/2012 Euronext Paris 02/17/2012 Euronext Paris 02/17/2012 Euronext Paris 02/17/2012 Euronext Paris 02/23/2012 Euronext Paris 02/24/2012 Euronext Paris 02/24/2012 Euronext Paris 02/24/2012 Euronext Paris 02/24/2012 Euronext Paris 02/24/2012 Euronext Paris 02/24/2012 Euronext Paris 02/28/2012 Euronext Paris 02/28/2012 Euronext Paris 02/29/2012 Euronext Paris 02/29/2012 Euronext Paris 03/01/2012 Euronext Paris 03/01/2012 Euronext Paris 03/01/2012 Euronext Paris 03/01/2012 Euronext Paris 03/02/2012 Euronext Paris 03/02/2012 Euronext Paris 03/02/2012 Euronext Paris 03/02/2012 Euronext Paris 03/05/2012 Euronext Paris 03/05/2012 Euronext Paris 03/05/2012 Euronext Paris 03/05/2012 Euronext Paris 03/09/2012 Euronext Paris Thibault de Tersant Thibault de Tersant Bernard Charl `es Dominique Florack Dominique Florack Bernard Charl `es Bernard Charl `es Thibault de Tersant Bernard Charl `es Bernard Charl `es Laurence Barth `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Laurence Barth `es Philippe Forestier Bruno Latchague Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Jeff Ray Bruno Latchague Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale e45.5000 e62.5348 e23.0000 e62.7165 e45.5000 e63.5027 e47.0000 e62.1885 e47.0000 e62.3333 e45.5000 e63.0000 e45.5000 e63.0000 e23.0000 e62.4594 e45.5000 e63.0000 e45.5000 e63.0000 e23.0000 e62.7300 e45.5000 e63.0550 e45.5000 e63.0000 e45.5000 e63.0000 e23.0000 e63.0000 e23.0000 e62.9800 e23.0000 e63.0000 e47.0000 e62.7500 e23.0000 e62.5190 e23.0000 e62.2537 e23.0000 e62.2088 e23.0000 e62.6000 e45.5000 e62.6000 e23.0000 e62.5000 e45.5000 e62.4130 e45.5000 e62.6000 e23.0000 e62.6000 e45.5000 e62.5062 e47.5000 e62.3523 e47.0000 e62.8097 e45.5000 e62.6000 e23.0000 e62.6641 e23.0000 e62.6000 e23.0000 e63.1104 e1,592,500.00 e2,188,718.00 e345,000.00 e940,747.50 e102,102.00 e102,429.86 e5,246,422.00 e6,941,853.50 e1,803,578.00 e2,391,978.05 e1,214,304.00 e1,217,979.00 e40,904.50 e41,076.00 e575,000.00 e1,561,485.00 e251,478.50 e252,252.00 e223,951.00 e224,658.00 e14,168.00 e38,641.68 e1,820,000.00 e1,827,333.90 e1,596,049.00 e1,601,082.00 e313,313.00 e314,433.00 e535,049.00 e1,465,569.00 e29,900.00 e81,874.00 e460,000.00 e1,260,000.00 e203,463.00 e271,644.75 e920,000.00 e2,500,760.00 e920,000.00 e923,844.91 e920,000.00 e923,178.59 e526,355.00 e527,968.40 e1,316,178.50 e1,320,171.40 e920,000.00 e923,125.00 e1,820,000.00 e1,831,821.55 e79,079.00 e79,376.80 e115,322.00 e115,684.80 e708,662.50 e711,008.03 e475,000.00 e623,523.00 e2,146,537.00 e2,868,581.81 e424,742.50 e426,493.80 e920,000.00 e924,295.48 e278,323.00 e279,696.80 e442,520.00 e1,214,244.10 03/09/2012 Euronext Paris 03/09/2012 Euronext Paris 04/30/2012 Euronext Paris 04/30/2012 Euronext Paris 04/30/2012 Euronext Paris 05/02/2012 Euronext Paris 05/02/2012 Euronext Paris 05/03/2012 Euronext Paris 05/07/2012 Euronext Paris 05/09/2012 Euronext Paris 05/10/2012 Euronext Paris 05/10/2012 Euronext Paris 05/11/2012 Euronext Paris 05/17/2012 Euronext Paris 05/17/2012 Euronext Paris 05/22/2012 Euronext Paris 05/22/2012 Euronext Paris 05/24/2012 Euronext Paris 05/24/2012 Euronext Paris 05/25/2012 Euronext Paris 07/05/2012 Euronext Paris 07/31/2012 Euronext Paris 07/31/2012 Euronext Paris 07/31/2012 Euronext Paris 08/06/2012 Euronext Paris 10/12/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris Bernard Charl `es Bernard Charl `es Thibault de Tersant Thibault de Tersant Laurence Barth `es Laurence Barth `es Laurence Barth `es Bernard Charl `es Dominique Florack Bernard Charl `es Bernard Charl `es Dominique Florack Dominique Florack Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es Bernard Charl `es Bernard Charl `es Bernard Charl `es SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale Thibault de Tersant SO Exercise Thibault de Tersant personne li ´ee `a Thibault de Tersant personne li ´ee `a Thibault de Tersant Bruno Latchague SO Exercise Sale Sale Sale SO Exercise Sale Thibault de Tersant SO Exercise Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es Laurence Barth `es SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale e23.0000 e63.3318 e23.0000 e63.2290 e23.0000 e73.7004 e47.0000 e74.7004 e23.0000 e74.2300 e23.0000 e74.4800 e23.0000 e74.4800 e23.0000 e74.0038 e47.5000 e73.0000 e23.0000 e71.5479 e23.0000 e72.6681 e47.5000 e71.8148 e47.5000 e71.9344 e23.0000 e71.4800 e23.0000 e71.2300 e23.0000 e71.9800 e23.0000 e73.7300 e23.0000 e72.6800 e23.0000 e74.5382 e23.0000 e74.0000 e23.0000 e47.0000 e80.0056 e80.0890 e920,000.00 e2,533,272.00 e920,000.00 e2,529,160.00 e690,000.00 e2,211,012.00 e940,000.00 e1,474,008.00 e27,600.00 e89,076.00 e1,150.00 e3,724.00 e29,900.00 e96,824.00 e460,000.00 e1,480,076.00 e15,722.50 e24,163.00 e920,000.00 e923,683.39 e595,884.00 e597,695.12 e4,615,907.50 e6,978,746.82 e2,493,370.00 e3,775,980.52 e35,650.00 e110,794.00 e31,050.00 e96,160.50 e50,600.00 e158,356.00 e47,150.00 e147,046.50 e690,000.00 e694,065.60 e690,000.00 e692,739.81 e230,000.00 e230,880.00 e345,000.00 e1,410,000.00 e2,400,168.00 e440,444.00 e80.0890 e440,444.00 e47.5000 e81.1317 e23.0000 e38.1500 e83.2900 e38.1500 e83.0800 e38.1500 e82.8800 e38.1500 e82.6800 e38.1500 e82.4800 e38.1500 e82.2874 e38.1500 e82.2342 e38.1500 e82.1800 e38.1500 e82.1455 e1,187,500.00 e2,028,292.50 e103,500.00 e70,196.00 e153,253.60 e68,288.50 e148,713.20 e66,381.00 e144,211.20 e64,473.50 e139,729.20 e62,566.00 e135,267.20 e60,658.50 e130,837.07 e58,751.00 e126,640.75 e56,843.50 e122,448.20 e54,936.00 e118,289.55 168 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Date and place Directors and Executive Officers Nature of the transaction Unit Price Gross amount Date and place Directors and Executive Officers Nature of the transaction Unit Price Gross amount 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/30/2012 Euronext Paris 10/30/2012 Euronext Paris 11/13/2012 Euronext Paris 11/16/2012 Euronext Paris 12/03/2012 Euronext Paris 12/04/2012 Euronext Paris 12/05/2012 Euronext Paris Laurence Barth `es Philippe Forestier Thibault de Tersant Thibault de Tersant Laurence Barth `es SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale SO Exercise Sale Laurence Barth `es SO Exercise e38.1500 e82.0800 e47.0000 e83.1052 e23.0000 e82.0500 e47.0000 e81.8285 e38.1500 e81.9300 e38.1500 e53,028.50 e114,091.20 e940,000.00 e1,662,104.00 e21,896.00 e78,111.60 e2,350,000.00 e4,091,425.00 e32,427.50 e69,640.50 e114,450.00 Bernard Charl `es Bernard Charl `es Bernard Charl `es Sale Sale Sale e87.0361 e3,636,368.26 e86.4207 e4,321,035.00 e85.0475 e4,951,465.45 12/06/2012 Euronext Paris 12/07/2012 Euronext Paris 12/12/2012 12/13/2012 Euronext Paris 12/14/2012 Euronext Paris 12/14/2012 Euronext Paris 12/14/2012 Euronext Paris 12/14/2012 Euronext Paris 12/14/2012 Euronext Paris Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Bernard Charl `es Sale Sale Sale Sale Sale Sale Sale e85.0426 e2,696,700.85 e85.3753 e5,128,494.27 e85.7866 e85.5453 e2,985,373.68 e2,003,470.93 e85.0845 e297,795.75 e85.0064 e42,503.20 e85.2448 e1,875,385.60 Dominique Florack Dominique Florack SO Exercise Sale SO Exercise Sale e38.1500 e85.5883 e38.1500 e85.0845 e1,201,877.60 e2,696,373.80 e125,895.00 e280,778.85 With respect to Mr. Bernard Charl `es, it should be noted that he generally reinvests the gains realized through the exercise of subscription options in shares of Dassault Syst `emes SA, after accounting for taxes, social charges and transaction fees. A press release was issued on December 21, 2012, regarding shares which he sold in December 2012. Transactions made by GIMD, a legal entity linked to Nicole Dassault and Serge Dassault, Directors of Dassault Syst `emes SA: Date and place Nature of the transaction Unit price Gross amount Date and place Nature of the transaction Unit price Gross amount 01/04/2012 Over the counter market 01/04/2012 Over the counter market 01/05/2012 Over the counter market 01/05/2012 Over the counter market 01/10/2012 Over the counter market 01/10/2012 Over the counter market 01/18/2012 Over the counter market 01/18/2012 Over the counter market 02/09/2012 Over the counter market 02/09/2012 Over the counter market 02/13/2012 Euronext Paris 02/13/2012 Euronext Paris 02/15/2012 Euronext Paris 02/15/2012 Euronext Paris 02/15/2012 Over the counter market 02/15/2012 Over the counter market 02/17/2012 Euronext Paris 02/17/2012 Euronext Paris 02/21/2012 Euronext Paris 02/21/2012 Euronext Paris 02/23/2012 Euronext Paris 02/23/2012 Euronext Paris 02/23/2012 Over the counter market 02/23/2012 Over the counter market 02/29/2012 Over the counter market 02/29/2012 Euronext Paris 02/29/2012 Euronext Paris 03/05/2012 Euronext Paris Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of put options Sale of put options Sale of call options Sale of call options Sale of call options Sale of call options Sale of put options Sale of call options Sale of put options Sale of call options Sale of put options Sale of call options Sale of call options Sale of call options Sale of call options Sale of put options Sale of put options e0.50 e0.50 e0.44 e0.44 e0.50 e0.50 e0.60 e0.60 e0.52 e0.52 e0.85 e0.69 e0.93 e0.62 e0.51 e0.51 e0.72 e0.90 e0.59 e0.87 e0.63 e0.79 e0.67 e0.67 e0.52 e0.52 e0.73 e0.73 e11,974.31 e7,982.88 e13,226.40 e8,817.60 e33,831.00 e22,554.00 e27,211.50 e40,817.25 e23,580.00 e35,370.00 e33,800.00 e27,760.00 e37,200.00 e24,800.00 e34,182.00 e22,788.00 e28,772.00 e36,048.00 e23,552.00 e34,804.00 e25,200.00 e31,600.00 e30,222.00 e45,333.00 e23,400.00 e15,600.00 e29,248.00 e29,280.00 03/06/2012 Euronext Paris 03/08/2012 Over the counter market 03/08/2012 Over the counter market 03/08/2012 Euronext Paris 04/20/2012 Over the counter market 04/20/2012 Over the counter market 04/20/2012 Over the counter market 04/20/2012 Over the counter market 04/23/2012 Over the counter market 04/23/2012 Over the counter market 04/23/2012 Over the counter market 04/23/2012 Over the counter market 04/26/2012 Over the counter market 04/26/2012 Over the counter market 04/26/2012 Over the counter market 04/26/2012 Over the counter market 04/26/2012 Over the counter market 04/26/2012 Over the counter market 05/02/2012 Euronext Paris 05/02/2012 Euronext Paris 05/02/2012 Euronext Paris 05/03/2012 Euronext Paris 05/04/2012 Over the counter market 05/04/2012 Over the counter market 05/04/2012 Over the counter market 05/04/2012 Over the counter market 05/08/2012 Over the counter market 05/08/2012 Over the counter market Sale of put options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Sale of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Sale of call options Sale of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options e0.56 e0.52 e0.52 e0.45 e2.05 e2.05 e1.71 e1.71 e1.08 e1.92 e1.08 e1.92 e5.69 e3.00 e3.00 e2.95 e5.69 e2.95 e6.63 e4.42 e2.18 e1.67 e3.30 e3.30 e5.05 e5.05 e2.44 e2.44 e22,228.00 e34,978.50 e23,319.00 e18,020.00 e46,125.00 e69,187.50 e38,382.75 e57,574.13 e36,288.00 e43,200.00 e24,192.00 e64,800.00 e383,737.50 e135,000.00 e202,500.00 e132,750.00 e255,825.00 e199,125.00 e265,200.00 e176,800.00 e87,000.00 e66,944.00 e99,000.00 e148,500.00 e113,625.00 e170,437.50 e73,200.00 e109,800.00 DASSAULT SYST `EMES Annual Report 2012 169 Corporate governance 5 Date and place Nature of the transaction Unit price Gross amount Date and place Nature of the transaction Unit price Gross amount 05/08/2012 Over the counter market 05/08/2012 Euronext Paris 05/09/2012 Euronext Paris 05/10/2012 Euronext Paris 05/10/2012 Euronext Paris 05/15/2012 Euronext Paris 05/16/2012 Euronext Paris 05/16/2012 Euronext Paris 05/17/2012 Over the counter market 05/17/2012 Over the counter market 05/17/2012 Over the counter market 05/17/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/22/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Over the counter market 05/23/2012 Euronext Paris 05/23/2012 Euronext Paris 05/25/2012 Euronext Paris 05/25/2012 Euronext Paris 07/19/2012 Over the counter market 07/19/2012 Over the counter market 07/30/2012 Euronext Paris 07/30/2012 Euronext Paris 07/31/2012 Euronext Paris 07/31/2012 Euronext Paris 07/31/2012 Euronext Paris 07/31/2012 Euronext Paris 08/01/2012 Euronext Paris 08/02/2012 Euronext Paris 08/09/2012 Over the counter market 08/09/2012 Over the counter market Acquisition of call options Acquisition of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Acquisition of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options e3.46 e4.17 e4.17 e3.92 e3.92 e4.42 e4.37 e4.37 e4.08 e4.08 e2.75 e2.75 e2.02 e2.02 e2.55 e2.55 e2.55 e2.02 e2.02 e2.55 e3.27 e2.50 e2.50 e3.27 e3.27 e2.50 e3.27 e2.50 e4.23 e4.23 e5.73 e5.73 e5.03 e4.77 e12.23 e12.23 e11.28 e11.28 e5.10 e5.10 e1.80 e2.73 e6.02 e6.02 e116,775.00 e166,700.00 e166,700.00 e156,712.00 e156,712.00 e176,800.00 e174,800.00 e174,800.00 e183,375.00 e122,250.00 e123,750.00 e185,625.00 e90,900.00 e60,600.00 e57,289.50 e85,934.25 e85,934.25 e60,600.00 e90,900.00 e57,289.50 e110,244.38 e75,000.00 e112,500.00 e73,496.25 e110,244.38 e75,000.00 e73,496.25 e112,500.00 e169,268.00 e169,268.00 e229,248.00 e229,248.00 e226,314.00 e214,650.00 e489,200.00 e489,200.00 e451,200.00 e451,200.00 e204,000.00 e204,000.00 e65,754.75 e109,076.00 e271,120.50 e180,747.00 08/09/2012 Over the counter market 08/09/2012 Over the counter market 08/14/2012 Over the counter market 08/14/2012 Over the counter market 08/14/2012 Over the counter market 08/14/2012 Over the counter market 08/15/2012 Over the counter market 08/15/2012 Over the counter market 08/15/2012 Over the counter market 08/15/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Over the counter market 08/20/2012 Euronext Paris 08/20/2012 Euronext Paris 08/21/2012 Euronext Paris 08/21/2012 Euronext Paris 08/21/2012 Euronext Paris 08/21/2012 Euronext Paris 08/22/2012 Euronext Paris 08/22/2012 Euronext Paris 08/23/2012 Euronext Paris 08/23/2012 Euronext Paris 08/24/2012 Euronext Paris 08/24/2012 Euronext Paris 08/24/2012 Euronext Paris 09/03/2012 Over the counter market 09/03/2012 Over the counter market 09/03/2012 Over the counter market 09/03/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/12/2012 Over the counter market 09/25/2012 Over the counter market Sale of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options Sale of put options Sale of call options Acquisition of call options Sale of call options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of put options Acquisition of call options Acquisition of call options Sale of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options e4.15 e4.15 e6.30 e4.66 e6.30 e4.66 e6.36 e4.92 e6.36 e4.92 e6.00 e4.00 e6.00 e4.00 e6.00 e4.00 e6.00 e4.00 e9.59 e9.50 e9.50 e0.92 e1.12 e9.59 e8.73 e8.73 e4.23 e4.23 e8.10 e8.10 e1.08 e4.50 e4.50 e5.05 e5.05 e3.80 e3.86 e3.86 e3.80 e3.80 e3.86 e3.86 e3.80 e7.51 e124,500.00 e280,125.00 e212,760.00 e104,850.00 e141,840.00 e214,360.00 e214,683.75 e110,700.00 e143,122.50 e216,480.00 e270,000.00 e120,000.00 e180,000.00 e270,000.00 e270,000.00 e120,000.00 e180,000.00 e270,000.00 e383,600.00 e380,000.00 e380,000.00 e18,400.00 e22,400.00 e383,600.00 e349,200.00 e349,200.00 e169,200.00 e169,200.00 e324,000.00 e324,000.00 e43,084.00 e202,500.00 e135,000.00 e151,500.00 e227,250.00 e114,000.00 e173,700.00 e115,800.00 e171,000.00 e114,000.00 e173,700.00 e115,800.00 e171,000.00 e338,098.50 170 DASSAULT SYST `EMES Annual Report 2012 Corporate governance 5 Date and place Nature of the transaction Unit price Gross amount Date and place Nature of the transaction Unit price Gross amount 09/25/2012 Over the counter market 09/25/2012 Over the counter market 09/25/2012 Over the counter market 10/09/2012 Over the counter market 10/09/2012 Over the counter market 10/09/2012 Over the counter market 10/09/2012 Over the counter market 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/29/2012 Euronext Paris 10/20/2012 Euronext Paris 10/30/2012 Euronext Paris 10/30/2012 Euronext Paris 10/30/2012 Euronext Paris 10/30/2012 Euronext Paris Sale of call options Acquisition of call options Acquisition of call options Acquisition of call options Acquisition of call options Sale of call options Sale of call options e7.51 e7.62 e7.62 e6.58 e6.58 e6.35 e6.35 e507,147.75 e342,900.00 e514,350.00 e444,150.00 e296,100.00 e285,750.00 e428,625.00 Acquisition of call options e14.45 e578,000.00 Sale of put options Sale of call options Sale of call options Acquisition of call options Sale of call options Sale of call options e1.57 e1.72 e4.65 e4.65 e1.57 e1.46 e62,720.00 e68,800.00 e186,000.00 e186,000.00 e62,916.00 e58,272.00 Acquisition of call options e13.14 e525,600.00 10/31/2012 Euronext Paris 10/31/2012 Euronext Paris 11/05/2012 Euronext Paris 11/05/2012 Euronext Paris 11/05/2012 Euronext Paris 11/05/2012 Euronext Paris 11/06/2012 Euronext Paris 11/06/2012 Euronext Paris 11/06/2012 Euronext Paris 11/15/2012 Euronext Paris 11/15/2012 Euronext Paris 11/15/2012 Euronext Paris 11/22/2012 Euronext Paris 11/22/2012 Euronext Paris 11/22/2012 Euronext Paris Sale of put options Sale of call options Acquisition of call options Sale of call options Acquisition of call options Sale of call options Sale of call options Sale of put options e1.77 e1.34 e1.50 e1.70 e10.80 e10.60 e1.34 e1.02 e70,800.00 e53,600.00 e60,000.00 e68,000.00 e432,000.00 e424,000.00 e53,756.00 e40,832.00 Acquisition of call options e13.05 e522,040.00 Sale of call options Sale of put options Acquisition of call options e1.31 e1.22 e5.16 e52,260.00 e48,808.00 e206,400.00 Acquisition of call options e14.99 e599,600.00 Sale of call options Sale of put options e1.73 e1.37 e69,280.00 54,760.00 DASSAULT SYST `EMES Annual Report 2012 171 Corporate governance 5 5.5 Statutory Auditors Principal Statutory Auditors PricewaterhouseCoopers Audit, member of the Compagnie R ´egionale des Commissaires aux Comptes de Versailles, 63, rue de Villiers – 92200 Neuilly-sur-Seine, represented by Pierre Marty, whose first mandate began on June 8, 2005 and was renewed on May 26, 2011 for a period of six fiscal years expiring at the General Meeting of Shareholders approving the financial statements for the fiscal year ending on December 31, 2016. Ernst & Young et Autres, member of the Compagnie R ´egionale des Commissaires aux Comptes de Versailles, 1/2, place des Saisons – 92400 Courbevoie – Paris-La D ´efense 1, represented by Jean-Fran¸cois Ginies, was appointed on May 27, 2010 to replace Ernst & Young Audit; this mandate will expire at the General Meeting of Shareholders approving the financial statements for the fiscal year ending on December 31, 2015. Deputy Statutory Auditors Yves Nicolas, 63, rue de Villiers – 92200 Neuilly-sur-Seine, whose mandate began on May 26, 2011 for a period of six fiscal years expiring at the General Meeting of Shareholders approving the financial statements for the fiscal year ending on December 31, 2016. The company Auditex, 1/2, place des Saisons – 92400 Courbevoie – Paris-La D ´efense 1, whose mandate was renewed on May 27, 2010 and will expire at the General Meeting of Shareholders approving the financial statements for the fiscal year ending on December 31, 2015. Principal accountants fees and services The following table presents the amount of fees paid to each of the Company’s principal Statutory Auditors in 2012 and 2011: (cid:1) (cid:1) PricewaterhouseCoopers Audit Amount (cid:2)(cid:1) % (cid:2)(cid:1) (cid:2)(cid:1) Ernst & Young et Autres Amount (cid:2)(cid:1) % (cid:2) (cid:2) (In thousands) 2012 2011 2012 2011 2012 2011 2012 2011 Audit Audit opinion, review of statutory and consolidated financial statements(1): – Issuer – Other consolidated subsidiaries Other audit-related services(2): – Issuer – Other consolidated subsidiaries Subtotal Other services(3) Legal, tax, social Subtotal Total e1,031 1,333 e1,027 1,342 – – – – 2,364 2,369 57 57 g2,421 50 50 g2,419 43% 55% – – 98% 2% 2% 43% 55% – – 98% 2% 2% 100% 100% e223 204 573 – 1,000 67 67 g1,067 e218 113 115 – 446 41 41 g487 21% 19% 54% – 94% 6% 6% 45% 23% 24% – 92% 8% 8% 100% 100% (1) Audit fees consist of fees billed for the annual audit services engagement and other audit services for the years ended December 31, 2012 and 2011, which are those services that only the Statutory Auditor reasonably can provide, and include the Group audit, statutory audits, consents, attest services, and services provided in connection with documents filed with the AMF. (2) Audit-related fees generally consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the Statutory Auditor, and include due diligence services related to acquisitions, consultations concerning financial accounting and reporting standards, attestation services not required by statute or regulation, and information system reviews. In 2012, they primarily included fees related to the acquisition of Gemcom. (3) Fees billed by members of the Statutory Auditors’ respective networks to consolidated subsidiaries are related to local and international tax compliance services, including the review of tax returns and tax services regarding statutory, regulatory or administrative developments and expatriate tax assistance and compliance. 172 DASSAULT SYST `EMES Annual Report 2012 CHAPTER 6 – INFORMATION ABOUT DASSAULT SYSTEMES SA, THE SHARE CAPITAL AND THE OWNERSHIP STRUCTURE 6.1. Information about Dassault Syst `emes SA 6.1.1 General Information 6.1.1.1 Commercial Name and Registered Office Dassault Syst `emes 10, rue Marcel Dassault – 78140 V´elizy-Villacoublay Telephone number: + 33 (0)1 61 62 61 62 6.1.1.2 Legal Form – Applicable Law – Place of Corporate Registration and Registration Number – APE code Dassault Syst `emes SA is a public limited liability company (soci ´et ´e anonyme) under French law, with a Board of Directors, subject to the provisions of the French Commercial Code. The Company is registered with the Versailles trade and companies registry under number 322 306 440. The Company’s APE code is 5829 C. 6.1.1.3 Date of Incorporation and Term Dassault Syst `emes SA was created as a form of limited liability company (soci ´et ´e `a responsabilit ´e limit ´ee) on June 9, 1981 for a period of 99 years starting on the date of its registration (until August 4, 2080). The Company was transformed into a public limited liability company (soci ´et ´e anonyme) on April 8, 1993. 6.1.1.4 Corporate Purposes As set forth in Article 2 of the Company’s by-laws, the purposes of Dassault Syst `emes SA, in France and abroad, are: (cid:127) to develop, produce, market, purchase, sell, rent and provide after-sale service of computer hardware and/or software; (cid:127) to supply and provide services to users specifically in the area of training, demonstration, methodology, display and utilization; (cid:127) to supply and provide services of data centers, including to supply services dedicated to Software as a Service and to operate and supply the corresponding infrastructures; and (cid:127) to supply and sell computer resources, together or separate from software or services; in the areas of computer-aided manufacturing and design, management of the lifecycle of products, collaborative work, technical databases, management of manufacturing processes, and software development tools, as well as in any extension of these areas. 6.1.1.5 Fiscal Year The 12-month fiscal year covers the period from January 1 to December 31 of each year. 6.1.1.6 Documents Available to the Public Dassault Syst `emes SA’s by-laws, minutes of the Meetings of Shareholders and reports to Meetings of Shareholders from the Board of Directors, reports of the independent Statutory Auditors, financial statements for the last three fiscal years and, more generally, all documents provided or made available to shareholders pursuant to the law may be viewed at the headquarters of Dassault Syst `emes SA. A certain number of documents relating to the Company are also available on the website of the Company (www.3ds.com). DASSAULT SYST `EMES Annual Report 2012 173 Information about Dassault Systemes SA, the share capital and the ownership structure 6 6.1.2 Memorandum and Specific By-Laws Provisions 6.1.2.1 Allocation of Profits (Article 36 of the Company’s By-Laws) The profits for each year, less, as the case may be, losses from prior periods, are first allocated to the reserves required by law. Thus, 5% of profits are allocated to the legal reserve fund. This allocation is no longer required when the legal reserve fund reaches one-tenth of the share capital. The allocation becomes once again obligatory in the event the legal reserve fund falls below one-tenth of the share capital for any reason. The distributable profit is composed of the profit from the year less losses from prior periods and the amounts allocated to reserves in accordance with the law or the Company’s by-laws, and increased by retained profits. From this distributable profit, the General Meeting of Shareholders then allocates the amounts judged appropriate for any reserve funds, ordinary or extraordinary, established voluntarily by the Company, or to be retained. The balance, if any, is distributed to all shares proportionately to the amount paid-up and not amortized. However, except in the case of a reduction in capital, no distribution may be made to shareholders if the share capital is or would be, following the capital reduction, less than the capital taken together with the reserves which the law or the Company’s by-laws do not allow to be distributed. The Meeting of Shareholders may decide to distribute amounts taken from available reserves, either to pay or increase a dividend, or as an exceptional distribution. In this case, the decision explicitly identifies which reserves are to be distributed. Nevertheless, the dividends are distributed in order of priority starting with the distributable profit of the year. Losses, if any, after approval of the financial statements by the Meeting of Shareholders, are recorded in a special account to be applied against the profits of future years, until they have been eliminated. Article 11 of the Company’s by-laws limits the voting right of the beneficial owner (usufruitier) to the decisions relating to the allocation of profits (see paragraph 6.1.2.3 ‘‘Shares and Voting Rights’’ hereunder). 6.1.2.2 Meetings of Shareholders Notice and agenda (Articles 25 and 26 of the Company’s by-laws) Meetings of Shareholders are convened either by the Board of Directors or, if the Board of Directors fails to convene a Meeting of Shareholders, by the Statutory Auditor(s) or by a representative designated by the President of the Commercial Court acting on the demand of one or several shareholders holding together at least one-twentieth of the corporate share capital. Notice of the meeting is made through an announcement placed in a journal of legal notices in the department of the corporate headquarters, and in the Bulletin of required legal notices (Bulletin des Annonces L ´egales Obligatoires (BALO)). Shareholders holding registered shares for at least one month from the date of the announcement are also notified of all Meetings of Shareholders by letter sent by ordinary mail or, at their request and expense, by registered letter. The Meeting of Shareholders cannot be held less than 15 days after the announcement is published or the letter is sent to registered holders. One or more shareholders, representing at least the required percentage of the registered capital, also have the possibility to require the inclusion of matters on the agenda in accordance with applicable law and regulations then in effect. Conditions of admission (Article 27 of the Company’s by-laws) Every shareholder has the right to participate in Meeting of Shareholders personally or by proxy, provided his shares are fully paid-up and: (cid:127) for holders of registered shares, that they are held in a registered account (directly or through a financial intermediary) at 0h00 (Paris time) on the third business day preceding the meeting; (cid:127) for holders of shares in bearer form, that they are registered in bearer accounts by the accredited intermediary at 0h00 (Paris time) on the third business day preceding the meeting. The registration of the shares in bearer accounts by the accredited intermediary must be demonstrated by a certificate (attestation de participation) issued by the accredited intermediary to the holder of the shares. This certificate must be attached to the voting form (formulaire de vote `a distance) or the proxy or the request for an admission card (carte d’admission) issued under the name of the 174 DASSAULT SYST `EMES Annual Report 2012 Information about Dassault Systemes SA, the share capital and the ownership structure 6 shareholder. A certificate can also be issued to a shareholder who wishes to participate physically at the Meeting of Shareholders and who has not received an admission card on the third business day preceding the meeting. Every shareholder may vote by mail using a form available as indicated in the notice of the Meeting of Shareholders. The form, duly completed and accompanied, as the case may be, by a certificate (attestation de participation), must be received by Dassault Syst `emes SA at least three days before the date of the Meeting of Shareholders, or it will not be taken into consideration. A shareholder may be represented by his spouse or by any other physical or legal person holding a mandate, under conditions provided by the law. The shareholders who are legal persons are represented by the physical persons duly authorized to represent them towards third parties or by any person to whom the representation powers have been transferred, without being necessary for the representative to be a shareholder. A shareholder, who is not domiciled on French territory, as defined in Article 102 of the French Civil Code, may have himself represented at Meetings of Shareholders by an accredited intermediary registered according to the conditions set forth in the applicable legal and regulatory provisions. Such shareholder will be considered in calculating the quorum and the results of voting. Any shareholder may also, if the Board of Directors so decides when convening the Meeting of Shareholders participate and vote at Meetings of Shareholders by video-conference or by any other means of telecommunications permitting him to be identified and to participate effectively. Such participation must comply with the conditions and means set forth in the applicable legal and regulatory provisions. Such shareholder will be considered in calculating the quorum and the results of voting. Actions needed to change shareholder rights (Articles 13, 31 and 32 of the Company’s by-laws) Shareholder rights can only be modified by an Extraordinary Meeting of Shareholders, and in compliance with legal and regulatory requirements. Except as may be otherwise provided for under applicable law and with the exception of reverse share splits carried out in accordance with the law, no majority may impose on shareholders an increase in their commitments. If new classes of shares are created, no modification may be made to the rights of shares of one of the classes without the approval of an Extraordinary Meeting of Shareholders and of a special Meeting of Shareholders open only to holder of the class concerned. 6.1.2.3 Shares and Voting Rights Rights, privileges and restrictions attached to each class of issued shares (Articles 13 and 39 of the Company’s by-law) All the shares are of the same class and benefit under the Company’s by-laws from the same rights, in connection with the distribution of benefits and amounts distributed in the event of liquidation (see also paragraph 6.1.2.1 ‘‘Allocation of Profits (Article 36 of the Company’s By-Laws)’’). However, a double voting right is attributed to any fully paid-up share held in registered form for at least two consecutive years in the name of the same holder (see paragraph ‘‘Double voting rights (Article 29 of the Company’s by-laws)’’ below). The new shares created by exercise of subscription options between the 1st of January and the date of the annual General Meeting of Shareholders deciding on the allocation of profit related to the preceding financial year are entitled to receive the dividend distributed with respect to that financial year. As a result, the new shares are quoted on the same line as the previously existing shares. However, the new shares created as from the day after this annual General Meeting do not have a right to receive this dividend. Those shares continue to be temporarily quoted on the second trading line until the date the shares trade ex-dividend (i.e., without the right to receive the dividend to be distributed on Dassault Syst `emes shares). Voting (Articles 11 and 29 of the Company’s by-laws) The right to vote carried by shares, or by beneficial interests therein, is proportional to the portion of capital they represent. Voting is carried out by show of hands, by roll call or secret ballot, by optical or electronic means, as decided by the secretariat of the meeting subject to the approval of the meeting. Shareholders may also vote by mail, by video-conference or by any other means of communication, as indicated in the preceding paragraph. In case of vote by mail, the voting forms not indicating the nature of the vote or expressing an abstention are considered as ‘‘No’’ votes. In case of stripping of the ownership of the shares, the voting right attached to the share belongs to the bare owner (nu-propri ´etaire), except for the decisions relating to the allocation of profits for which it belongs to the beneficial owner (usufruitier). Double voting rights (Article 29 of the Company’s by-laws) Each share gives the right to one vote. Nevertheless, since 2002, a double vote will be awarded to all fully paid-up shares held in registered form for at least two consecutive years in the name of the same holder. In the case of a capital increase by incorporation of reserves, profits DASSAULT SYST `EMES Annual Report 2012 175 Information about Dassault Systemes SA, the share capital and the ownership structure 6 or premiums, this double voting right will be attached on the date of their issuance to registered new shares allotted to a shareholder in consideration for the old shares giving rise to such right. Under the law, any share converted into a bearer share or changing hands shall lose the right to the double voting right unless in case of transfer from a registered account to a registered account on succession or in case of partition of property jointly owned within a family, or in case of a gift inter vivos to a spouse or a relative entitled to succeed to the donor’s estate. The double voting right may also be cancelled by a resolution of the shareholders at an Extraordinary Meeting approved by the special Meeting of Shareholders having a double voting right. Limitations on voting rights There are no provisions in the Company’s by-laws restricting the right to vote its shares. 6.1.2.4 Declarations Concerning Crossing of the Ownership Thresholds (Article 13 of the Company’s By-Laws) In addition to the legal obligation to inform Dassault Syst `emes SA and the AMF in the event a shareholder’s interest passes the thresholds set out in Article L. 233-7 of the French Commercial Code, any physical or legal person, acting alone or in concert with others, who acquires directly or indirectly shares representing at least 2.5% of Dassault Syst `emes’ share capital or voting rights must inform Dassault Syst `emes SA, by registered letter with return receipt requested, of the total number of shares or voting rights which it holds, within four trading days following the date of acquisition. This declaration must be made, in the same conditions, each time another threshold of 2.5% of the total number of Dassault Syst `emes shares or voting rights is crossed, until 50% (inclusive). The declaration mentioned above must also be made when the equity interest or voting rights fall below the thresholds mentioned above. In each declaration, the shareholder must certify that the declaration includes all shares or voting rights held or owned, in accordance with Article L. 233-7 et seq. of the French Commercial Code. The declaration must also indicate the date or dates on which the acquisitions or divestitures occurred. In the event this requirement is not respected, the shares exceeding the fraction of 2.5% which should have been declared will lose their voting rights, upon the request recorded in the minutes of the Meeting of Shareholders, of one or more shareholders holding a portion of Dassault Syst `emes SA share capital or voting rights equal to at least 2.5% of the capital or voting rights. The voting rights will be lost for all meetings of shareholders held until the expiration of two years following the date on which the required declaration is made. 6.1.2.5 Terms in the Company’s By-Laws, Charter or Regulation Which Could Slow, Postpone or Prevent a Change in Control Other than the double voting right attached to certain shares (see paragraph 6.1.2.3 ‘‘Shares and Voting Rights’’) and the obligation to declare when holdings exceed 2.5% (see paragraph 6.1.2.4 ‘‘Declarations Concerning Crossing of the Ownership Thresholds (Article 13 of the Company’s By-Law)’’, Article 10 of the Company’s by-laws provides that Dassault Syst `emes SA may, at any time, in compliance with legal and regulatory requirements, request that a central depositary maintaining records of shares issued by the Company, communicate to it the name or the denomination, the nationality, the year of birth or the year of creation and the address of holders of Dassault Syst `emes shares in bearer form which grant, immediately or over time, the right to vote at Meetings of Shareholders, as well as the number of shares held by each of such shareholders and, as the case may be, any restrictions applicable to such shares. 6.1.2.6 Terms in the Company’s By-Laws Concerning Modifications in Share Capital Which Are More Restrictive than the Law The by-laws of Dassault Syst `emes SA do not contain any provisions concerning modifications of share capital which are more restrictive than those provided under the law. 176 DASSAULT SYST `EMES Annual Report 2012 Information about Dassault Systemes SA, the share capital and the ownership structure 6 6.2 Information about the Share Capital 6.2.1 Share Capital at February 28, 2013 At February 28, 2013, the Company’s share capital was e125,389,266, divided into 125,389,266 fully paid-up shares with a nominal value of e1.00 per share. The Company’s share capital was e125,096,778 on December 31, 2012. 6.2.2 Potential Share Capital At February 28, 2013, outstanding share options, whether or not exercisable, would, if all were exercised, result in the issuance of 4,373,831 new shares, representing approximately 3.49% of the Company’s share capital at that date. At the same date, on the basis of the closing price of the Company’s shares on February 28, 2013 (e86.94 per share), the exercise of all issued options which could be exercised and whose exercise price was less than that closing price, would have resulted in the issuance of 1,500,531 new shares, representing approximately 1.20% of the Company’s share capital at that date. The dilutive effect per share at December 31, 2012, is also set forth in Note 11 to the consolidated financial statements. In connection with the acquisition of the company SolidWorks in 1997, Dassault Syst `emes SA issued shares for the purpose of distribution to the holders of stock options and warrants previously issued by SolidWorks. These Dassault Syst `emes shares have historically been held by a U.S. subsidiary 100% owned by the Company, SW Securities LLC. No further stock options or warrants for Dassault Syst `emes shares issued by SolidWorks remain outstanding at this time. At December 31, 2012, as at February 28, 2013, SW Securities LLC held 251,807 shares, or approximately 0.20%, of the Company’s share capital. Similar to treasury shares, the shares held by SW Securities LLC do not have voting rights, and they are not eligible for dividends. Other than the share subscription options granted in connection with stock option plans and share grants as described in paragraph 5.3.1 ‘‘Compensation of the Company’s Directors (Mandataires Sociaux)’’ and paragraph 5.3.2 ‘‘Interests of Executive Management and Employees in the Share Capital’’, there are no other securities giving a right to subscribe shares of Dassault Syst `emes, and there is no agreement which could result in a capital increase. Dassault Syst `emes SA has not issued any securities which do not represent an interest in its share capital. Pledges of shares To the Company’s knowledge, there was no pledge of Dassault Syst `emes SA’s shares in registered form and representing a significant part of its share capital as of March 15, 2013. Shares held by Dassault Syst `emes SA in its subsidiaries and the on-going businesses of its subsidiaries are not subject to any lien. To the Company’s knowledge, no share of its subsidiaries which is not held by Dassault Syst `emes SA is subject to any lien. DASSAULT SYST `EMES Annual Report 2012 177 Information about Dassault Systemes SA, the share capital and the ownership structure 6 6.2.3 Changes in Dassault Syst `emes SA Share Capital over the Past Three Years Date Operation February 28, 2010 Exercise of share subscription options December 31, 2010 Exercise of share subscription options February 28, 2011 Exercise of share subscription options March 25, 2011 Share capital reduction through cancellation of treasury shares August 31, 2011 Exercise of share subscription options September 29, 2011 Share capital reduction through cancellation of treasury shares December 31, 2011 Exercise of share subscription options February 29, 2012 Exercise of share subscription options June 30, 2012 Exercise of share subscription options July 25, 2012 Capital increase by contributions in kind August 31, 2012 Exercise of share subscription options October 2, 2012 Share capital reduction through cancellation of treasury shares December 31, 2012 Exercise of share subscription options February 28, 2013 Exercise of share subscription options Nominal value (in euros) Amount of share capital (in euros) Total number of shares Change in share capital (in euros) 1 1 1 1 1 1 1 1 1 1 1 1 1 1 118,426,012 118,426,012 121,332,604 121,332,604 122,718,122 122,718,122 120,868,122 120,868,122 123,689,828 123,689,828 58,371 2,906,592 1,385,518 1,850,000 2,821,706 122,109,908 122,109,908 1,579,920 123,092,729 123,092,729 123,846,961 123,846,961 982,821 754,232 125,035,796 125,035,796 1,188,835 125,059,208 125,059,208 125,190,837 125,190,837 124,547,237 124,547,237 125,096,778 125,096,778 125,389,266 125,389,266 23,412 131,629 643,600 549,541 292,488 The changes in share capital resulting from the operations through December 31, 2012, set forth above are included in the ‘‘Consolidated Statements of Shareholders’ Equity’’. 6.2.4 Summary of Pending Delegations to the Board of Directors The following table summarizes the delegations and authorizations granted by the General Meeting of Shareholders to the Board of Directors and with effect during the 2012 financial year and as of the date of this Annual Report. It includes authorizations to increase share capital and to repurchase and cancel the Company’s own shares. Type of authorization Purpose of the authorization Cancellation of shares Cancel previously repurchased shares in the framework of the share buy-back program Validity of the delegation Cap Utilization in 2012 10% of the share capital per 24-month period Described in paragraph 6.2.5. ‘‘Treasury Shares’’ Granted by: General Meeting of June 7, 2012 (8th resolution) For a period of: approximately 12 months (expiring at the General Meeting of Shareholders approving the financial statements for the fiscal year ending on December 31, 2012) Expiry date: May 30, 2013 178 DASSAULT SYST `EMES Annual Report 2012 Information about Dassault Systemes SA, the share capital and the ownership structure 6 Type of authorization Purpose of the authorization Share buy-back Purchase Dassault Syst `emes SA shares Capital increase Increase the share capital by issuance of shares or securities giving right to shares of Dassault Syst `emes SA and issue securities giving right to debt securities, with preemptive right of shareholders and by public offering Capital increase Increase the share capital by issuance of shares or securities giving right to shares of Dassault Syst `emes SA and issue securities giving right to debt securities, without preemptive right of shareholders and by public offering Capital increase Increase the share capital and issue securities giving right to debt securities, without preemptive rights of shareholders by a private placement, under Section II of the Article L. 411-2 of the French Monetary and Financial Code Capital increase Increase the number of securities to be issued in connection with a capital increase, with or without preemptive rights Capital increase Increase the share capital by incorporation of reserves, profits or premiums Capital increase Increase the share capital for the purpose of compensating contributions in kind of shares or equity-linked securities Capital increase Increase the share capital for the benefit of members of a corporate saving plan of Dassault Syst `emes SA and its related companies Validity of the delegation Cap Utilization in 2012 Granted by: General Meeting of June 7, 2012 (7th resolution) For a period of: approximately 12 months (expiring at the General Meeting of Shareholders approving the financial statements for the fiscal year ending on December 31, 2012) Expiry date: May 30, 2013 Granted by: General Meeting of May 26, 2011 (14th resolutions) For a period of: 26 months Expiry date: July 26, 2013 Granted by: General Meeting of May 26, 2011 (15th resolution) For a period of: 26 months Expiry date: July 26, 2013 10% of the share capital up to a maximum amount of e500 million Described in paragraph 6.2.5 ‘‘Treasury Shares’’ Not used Not used For a maximum nominal amount of e15 million for shares or securities For a maximum nominal amount of e750 million for debt securities For a maximum nominal amount of e15 million for shares or securities For a maximum nominal amount of e750 million for debt securities Granted by: General Meeting of May 26, 2011 (16th resolution) For a period of: 26 months Expiry date: July 26, 2013 to be deducted from the aforementioned overall limit of e15 million Not used Granted by: General Meeting of May 26, 2011 (17th resolution) For a period of: 26 months Expiry date: July 26, 2013 Granted by: General Meeting of May 26, 2011 (18th resolution) For a period of: 26 months Expiry date: July 26, 2013 Granted by: General Meeting of May 26, 2011 (19th resolution) For a period of: 26 months Expiry date: July 26, 2013 Granted by: General Meeting of May 26, 2011 (20th resolution) For a period of: 26 months Expiry Date: July 26, 2013 15% of the initial issuance up to the aforementioned overall limit of e15 million Not used 15% of the initial issuance up to the aforementioned overall limit of e15 million Not used 10% of the share capital Issuance of 23,412 new shares on July 25, 2012 For a maximum nominal amount of e10 million Not used DASSAULT SYST `EMES Annual Report 2012 179 Information about Dassault Systemes SA, the share capital and the ownership structure 6 Validity of the delegation Cap Utilization in 2012 Granted by: General Meeting of May 27, 2010 (15th resolution) For a period of: 38 months Expiry Date: July 27, 2013 1.5% of the share capital Described in paragraph 5.3.2.2 ‘‘Performance Shares’’ Granted by: General Meeting of May 27, 2010 (16th resolution) For a period of: 38 months Expiry Date: July 27, 2013 15% of the share capital Not used Type of authorization Purpose of the authorization Allocation of free shares Grant for the benefit of certain employees and/or executive directors of the Company and its affiliated entities according to Article L. 225-197-2 of the French Commercial Code, free Company’s shares, existing or to be issued Allocation of stock subscriptions or purchase options Grant for the benefit of certain employees and/or executive directors of the Company and its affiliated entities according to Article L. 225-180 of the French Commercial Code, stock options giving right subscribe new shares or purchase existing Company’s shares The authorizations to repurchase the Company’s shares and to cancel these repurchased shares expire at the end of the General Meeting of Shareholders of May 30, 2013; it is thus proposed to the General Meeting of Shareholders to renew these authorizations (see paragraph 6.2.5.2 ‘‘Description of the Share Repurchase Program Proposed to the General Meeting of Shareholders on May 30, 2013’’). It is also proposed that the General Meeting of the Shareholders renew the existing delegations allowing for share capital increases, with the same terms and conditions, grant a new delegation authorizing the Board of Directors to issue redeemable warrants (bons de souscription et/ou d’acquisition d’actions remboursables or ‘‘BSAAR’’) through a capital increase reserved to a category of persons and renew, with new limits, the existing authorizations to grant performance shares and subscription or purchase options. See paragraph 7.1 ‘‘Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013’’ for further information. 6.2.5 Treasury Shares 6.2.5.1 Use of the Share Repurchase Authorizations Granted by the Shareholders in May 2011 and June 2012 In connection with the terms of Article L. 225-209 of the French Commercial Code, the General Meeting of Shareholders of May 26, 2011 authorized the Board of Directors to put in place a share repurchase program for a maximum amount of 10% of the Company’s share capital on the date of the Meeting of Shareholders, and for a maximum purchase price per share of e85. This authorization was replaced by a new authorization granted by the General Meeting of Shareholders on June 7, 2012, to the Board of Directors, to repurchase the Company’s shares under the same conditions. This authorization will expire at the end of the General Meeting of Shareholders approving the financial statements for the year ended December 31, 2012, on May 30, 2013. The new share repurchase program to be proposed to the General Meeting of Shareholders on May 30, 2013, is described in paragraph 6.2.5.2 ‘‘Description of the Share Repurchase Program Proposed to the General Meeting of Shareholders on May 30, 2013’’ below. During the financial year 2012, in connection with the above authorizations, the Company repurchased 1,042,679 of its own shares at an average price of e72.06 per share, for a total cost of e75,136,018.52, among which 420,854 shares by over-the-counter market block purchase at an average price per share of e72.38, for a total cost of e30,459,705.16. The transaction costs paid by the Company in connection with these share repurchases amounted to e33,511.70 all taxes included (including the tax on financial transactions for an amount of e6,552.91). 180 DASSAULT SYST `EMES Annual Report 2012 Information about Dassault Systemes SA, the share capital and the ownership structure 6 These repurchased shares were allocated as follows: (cid:127) 643,600 shares to be cancelled in order to increase the return on equity capital and net income per share; (cid:127) 399,079 shares to cover the Company’s obligations resulting from performance share grants. The Company undertook the following actions with respect to these shares: (cid:127) in October 2012, 643,600 shares, allocated to this purpose, were cancelled through a reduction of the share capital. The Company undertook the following actions with respect to shares repurchased before 2012: (cid:127) in May 2012, 150,000 shares, which had been allocated to cover the Company’s obligations resulting from share grants decided in 2010, were transferred to the beneficiary (see paragraph 5.3.1 ‘‘Compensation of the Company’s Directors (Mandataires Sociaux)’’. Following these transactions, on December 31, 2012, the Company held directly 899,079 of its own shares, nominal value e1, which had been repurchased at an average price of e63.84, representing 0.72% of share capital at that date, and which were allocated to cover the Company’s obligations resulting from performance share grants. During the financial year 2012 and the period from January 1 to March 27, 2013, the Company did not repurchase any share, has not performed any transactions on derivative securities linked to its shares and has not purchased or sold any of its shares by exercising or through the maturity of such derivative securities. 6.2.5.2 Description of the Share Repurchase Program Proposed to the General Meeting of Shareholders on May 30, 2013 In accordance with Article 241-2 of the General Regulation of the AMF, this paragraph provides a description of the share repurchase program that will be proposed for the approval of the shareholders at the General Meeting on May 30, 2013. In connection with the terms of Article L. 225-209 of the French Commercial Code, the Board of Directors will propose to this General Meeting of Shareholders, to authorize the Board to implement a new share repurchase program. Such authorization will terminate the current share repurchase program. On March 27, 2013, the Company holds 899,079 of its own shares directly and 251,807 indirectly. At that same date, the 899,079 shares held following share repurchases carried out by Dassault Syst `emes SA were allocated to cover the Company’s obligations resulting from share grants decided in 2011 and 2012. The purposes of the new share repurchase program would be as follows: 1) cancel shares in order to increase the return on equity capital and net income per share; 2) 3) provide for securities (representing no more than 5% of the share capital of the Company) for payment, or for exchange, particularly in connection with external growth transactions; ensure that there is a market or liquidity for the shares of Dassault Syst `emes SA through the activities of an investment services provider acting under a liquidity contract, in accordance with the ethical code recognized by the AMF; 4) meet obligations related to share option programs or other share grants to employees or directors (mandataires sociaux) of Dassault Syst `emes SA or of an affiliated company; 5) meet the Company’s obligations in cash based on an increase in the market price of Dassault Syst `emes shares, as made to employees and directors (mandataires sociaux) of the Company or of an affiliated company; 6) provide for shares in connection with the exercise of rights attached to securities providing access to the capital of Dassault Syst `emes SA; and 7) carry out any market practice which may be recognized by the law or by the AMF. The purposes 1-4 and 6 above correspond to the terms of European regulation no 2273/2003 of December 22, 2003, in application of the directive 2003/6/CE of January 28, 2003, and market practices accepted by the AMF. The General Meeting of Shareholders of May 30, 2013, will also be asked to authorize the Board of Directors to cancel, as the case may be, all or part of the shares which it may repurchase in connection with the share repurchase program and to carry out the corresponding reduction in share capital. DASSAULT SYST `EMES Annual Report 2012 181 Information about Dassault Systemes SA, the share capital and the ownership structure 6 In connection with the proposed new authorization, the Board of Directors may repurchase Dassault Syst `emes SA shares representing up to 10% of the Company’s share capital at the date of the Meeting of Shareholders authorizing the program. At February 28, 2013, the most recent date for determining the corporate capital, this 10% limit would correspond to a limit of 12,538,926 shares. The Board of Directors could repurchase shares for a maximum price of e130 per share, and within the limits set by applicable regulations. The maximum amount which could be paid for the repurchase of the Company shares would be e500 million. The authorization granted would be valid until the General Meeting of Shareholders approving the financial statements for the financial year ended December 31, 2013. 182 DASSAULT SYST `EMES Annual Report 2012 Information about Dassault Systemes SA, the share capital and the ownership structure 6 6.3 Information about the Shareholders 6.3.1 Shareholder Base and Double Voting Rights The table below sets forth certain information concerning Dassault Syst `emes SA’s shareholder base over the last three fiscal years. Double voting rights are attributed to all fully paid-up shares held in nominative form registered in the name of the same shareholder for at least two years. The major shareholders do not hold voting rights which are different from voting rights of other shareholders, and may benefit from double voting rights under the same conditions as any other shareholder (i.e., fully paid-up shares held in registered form by the same shareholder for at least two years). Shareholders At December 31, 2012 Groupe Industriel Marcel Dassault (‘‘GIMD’’) Charles Edelstenne(1) and beneficiaries(2) Bernard Charl `es SW Securities LLC(3) Treasury shares Directors and senior management(4) Public Total At December 31, 2011 GIMD Charles Edelstenne(1) and beneficiaries(2) Bernard Charl `es SW Securities LLC(3) Treasury shares Directors and senior management(4) Public Total At December 31, 2010 GIMD Charles Edelstenne(1) and beneficiaries(2) Bernard Charl `es SW Securities LLC(3) Treasury shares Directors and senior management(4) Public Total Number of shares held Capital % Number of voting rights Voting %(5) 51,887,334 7,707,601 1,024,243 251,807 889,079 23,213 63,313,501 125,096,778 51,887,334 7,684,189 1,165,139 251,807 650,000 28,749 61,425,511 123,092,729 51,887,334 7,684,189 817,655 251,807 150,000 12,649 60,528,970 121,332,604 41.48% 6.16% 86,974,668 15,391,790 0.82%(6) 1,467,645 0.20% 0.71% 0.02% 50.61% 100% 42.15% 6.24% 0.95% 0.20% 0.53% 0.02% 49.91% 100% 42.76% 6.33% 0.67% 0.21% 0.12% 0.01% 49.90% 100% – – 35,626 63,881,686 167,751,415(5) 84,603,735 15,368,378 1,615,879 – – 41,328 61,924,904 163,554,224(5) 80,032,735 15,342,311 1,118,395 – – 24,728 61,120,521 157,638,690(5) 51.85% 9.18% 0.87% – – 0.02% 38.08% 100% 51.73% 9.40% 0.99% – – 0.03% 37.85% 100% 50.77% 9.73% 0.71% – – 0.02% 38.77% 100% (1) (2) (3) (4) (5) (6) Including shares held in trust for the benefit of his family and managed by Charles Edelstenne. At December 31, 2012, Mr. Edelstenne held 1,942,459 shares with all ownership rights and 1,542 shares through two family companies which he manages, representing in the aggregate 1.57% of the outstanding capital and 2.30% of the exercisable voting rights, as well as 5,763,600 shares, representing 6.87% of the outstanding share capital, with ‘‘beneficial’’ rights (usufruit). For the beneficial rights with respect to these shares, Mr. Edelstenne can only exercise the right to vote on decisions of the General Meeting of Shareholders concerning the allocation of profit; the holders of the bare property rights (nue-propri ´et ´e) exercise the right to vote for other resolutions in compliance with Article 11 of the by-laws. Because SW Securities LLC is a subsidiary of the Company, shares held by SW Securities LLC do not have voting rights. ‘‘Senior management’’ includes the senior officers listed in paragraph 5.1.2 ‘‘Senior Management’’ of this Annual Report, other than Mr. Edelstenne and Mr. Charl `es. See the following paragraph for an explanation. For further information, see paragraph 5.4 ‘‘Transactions in the Company’s Shares by the Management of the Company’’. DASSAULT SYST `EMES Annual Report 2012 183 Information about Dassault Systemes SA, the share capital and the ownership structure 6 The total number of votes published on Dassault Syst `emes’ web site is different from the number set forth in the table above. The number of votes published each month by Dassault Syst `emes is an unadjusted number, which includes the voting rights attached to shares for which voting rights are suspended, in accordance with Article 223-11 of the General regulation of the AMF. This number is used as the denominator by shareholders calculating their percentage holdings of equity interests and voting rights for purposes of required declarations of shareholdings (in particular, declarations concerning crossing ownership thresholds). The total number of voting rights in the table above is the ‘‘net’’ number of voting rights (which does not include shares for which voting rights are suspended), or the number of votes which may be exercised in a Meeting of Shareholders, in order for the presentation above to be consistent. At December 31, 2012, the total number of voting rights amounted to 168,902,301 (the number of votes which may be exercised, not including shares for which voting rights have been suspended, was 167,751,415) and, on February 28, 2013, the total number was 169,215,385 (the number of votes which may be exercised was 168,064,499). MFS Institutional Advisors, Inc. (MFSI) notified Dassault Syst `emes SA, on April 27, 2011, that the holdings of the various funds it managed, directly or indirectly, had crossed the 2.5% threshold of the share capital of Dassault Syst `emes SA. On September 24, 2012, MFSI’s parent company, MFS Investment management (MFS), notified Dassault Syst `emes SA that funds managed directly or indirectly by companies within its group, including MFSI, held more than 2.5% of the share capital of Dassault Syst `emes. To the knowledge of Dassault Syst `emes SA, based on shareholder obligations to declare their equity interest or voting rights if they exceed or fall below certain levels, there are no other shareholders (except as indicated in the table above) who held 2.5% or more of the Company’s share capital or voting rights (the threshold set forth in the Company’s by-laws), directly or indirectly, alone or in agreement with other shareholders, at December 31, 2012. Although Dassault Syst `emes SA effected a voluntary delisting of its shares from NASDAQ in October 2008, it continues to maintain its ADR (‘‘American Depositary Receipts’’) program in the United States. The American Depositary Shares ‘‘ADS’’ are now traded on the over-the-counter market (see paragraph 6.4.1 ‘‘Stock Exchange Place’’. On February 28, 2013, there were 3,557,574 ADS outstanding and 58 record holders of ADS, holding either for themselves or for third parties. In January 2013, Dassault Syst `emes SA commissioned a survey on the Company’s shares from an external specialized services provider. The survey indicated that 340 institutional investors, each holding more than 2,000 shares, held in the aggregate approximately 47.5% of the Company’s share capital as of December 31, 2012. As of the date of this Document, Dassault Syst `emes SA holds 899,079 treasury shares, 500,000 of which were repurchased by the Company as part of the share repurchase program authorized by the General Meeting on May 26, 2011 and 399,079 of which were repurchased by the Company as part of the share repurchase program authorized by the General Meeting on June 7, 2012. These treasury shares represented approximately 0.72% of the Company’s outstanding share capital as of February 28, 2013, and carry no right to vote or to dividends. As of December 31, 2012, 62,585,984 outstanding shares (i.e., approximately 50.03% of the share capital) were held in registered form, representing 105,492,904 voting rights (i.e. approximately 62.46% of total voting rights). In accordance with Article L. 225-102 of the French Commercial Code, the number of Dassault Syst `emes shares held by the employees through the corporate savings plan (plan d’ ´epargne entreprise) was 45,475 shares at December 31, 2012, or approximately 0.04% of the total number of shares at that date. 6.3.2 Controlling Shareholder GIMD is the principal shareholder of Dassault Syst `emes SA with, as of December 31, 2012, 41.48% of the share capital and 51.85% of the exercisable voting rights. Since GIMD holds more than 50% of the voting rights of Dassault Syst `emes SA, GIMD controls Dassault Syst `emes. GIMD is wholly-owned by the members of the Dassault family. In order to ensure that GIMD’s ability to control the Company is not used in an abusive manner, half of the Company’s Board of Directors is composed of independent directors, and the Audit Committee and the Compensation and Nomination Committee are composed entirely of independent directors. In light of applicable regulations, because GIMD possesses more than one third but less than half of the shares and more than one half of the voting rights in the Company, GIMD may not increase its participation by more than 2% of the total number of shares of the Company in less than twelve consecutive months, unless it launches a public tender offer on all the equity securities issued by Dassault Syst `emes, unless it receives an exemption from the obligation to make an offer based on Article 234-9 (6(cid:2)) of the General Regulations of the AMF, which the latter can grant in its discretion. 184 DASSAULT SYST `EMES Annual Report 2012 Information about Dassault Systemes SA, the share capital and the ownership structure 6 6.3.3 Shareholder Agreements In 2012, Dassault Syst `emes SA was informed that, in compliance with the Article 787 B of the General Tax Code, a collective agreement not to sell shares for two years at least, was signed on June 25 and 26, 2012, by GIMD, Charles Edelstenne and Bernard Charl `es. This agreement concerns 33,852,003 shares of Dassault Syst `emes SA, representing on May 31, 2012, 27.1% of the outstanding share capital and 40.1% of the voting rights. In 2011, Dassault Syst `emes SA was informed that, in the same context and according to the Article 885 I bis of the General Tax Code, collective agreements not to sell shares for two years were signed on June 21 and July 11, 2011, by GIMD, Charles Edelstenne, and Bernard Charl `es and certain persons connected to him. These agreements concern 34,029,003 shares and 36,432,938 shares of Dassault Syst `emes SA, respectively, representing 27.6% of the outstanding share capital and 38.9% of the voting rights for the agreements of June 21, 2011, and 29.6% of the outstanding share capital and 41.8% of the voting rights for the agreement of July 11, 2011. To the Company’s knowledge, other than the collective agreements cited above and the share lock-up agreements applicable to the executive directors (see paragraph 5.1.4.3 ‘‘Performance Shares and Share Subscription Options’’), there is no shareholders’ agreement or other convention between the shareholders of Dassault Syst `emes SA. The Company is not party to an agreement which could result in a change of control, and has no knowledge of the existence of such an agreement. Dassault Syst `emes SA is not party to any shareholders’ agreement with respect to any company, listed or unlisted, the terms of which could have a material effect on the market price of the shares of Dassault Syst `emes SA. 6.4 Stock Market Information 6.4.1 Stock Exchange Place Shares of Dassault Syst `emes have been listed on Compartiment A of NYSE Euronext Paris (ISIN Code FR0000130650) since June 28, 1996. Its shares were also listed on the NASDAQ in the form of ADS under the symbol DASTY until October 16, 2008. Since then the ADS may be traded on the U.S. Over-The-Counter market. One ADS represents one ordinary share (see paragraph 6.3.1 ‘‘Shareholder Base and Double Voting Rights’’). For dividend policy, see the paragraph 7.1 ‘‘Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013’’ DASSAULT SYST `EMES Annual Report 2012 185 Information about Dassault Systemes SA, the share capital and the ownership structure 6 6.4.2 Market Price Market price (in euros) and trading volumes of Dassault Syst `emes shares from January 1, 2012: January 2012 February 2012 March 2012 April 2012 May 2012 June 2012 July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 January 2013 February 2013 March 2013 (Source: NYSE Euronext) Number of shares traded Last trading price of the month Highest market price during the month Lowest market price during the month 4,603,056 5,656,493 5,628,245 7,027,547 7,269,126 7,740,188 4,999,325 3,396,984 4,565,144 4,094,493 3,770,887 2,591,980 3,793,497 4,517,986 3,428,946 63.38 62.32 68.99 73.32 73.54 73.92 80.40 77.21 81.76 81.29 87.00 84.23 81.88 86.94 90.18 64.29 65.10 69.07 76.76 74.71 76.10 81.50 81.92 84.11 84.33 87.75 87.21 86.50 88.25 90.99 59.86 61.26 61.60 67.06 68.73 70.00 73.25 76.18 76.07 80.32 80.49 83.16 81.84 78.24 86.5 6.4.3 Person Responsible for Financial Communications Fran¸cois-Jos ´e Bordonado, Vice President Investor Relations. To obtain documents published by the Company, and for all financial information, please contact: Investor Relations Service 10 rue Marcel Dassault – CS 40501 78946 V´elizy-Villacoublay Cedex – France Telephone: +33 (0)1 61 62 69 24 – Facsimile: + 33 (0)1 70 73 43 59 e-mail: investors@3ds.com 6.4.4 Indicative Timetable for the Publication of Financial Information The indicative timetable is based on information known as of the date hereof. (cid:127) First quarter results: April 25, 2013; (cid:127) Second quarter results: July 25, 2013; (cid:127) Third quarter results: October 24, 2013; (cid:127) Fourth quarter results: February 2014. 186 DASSAULT SYST `EMES Annual Report 2012 CHAPTER 7 – GENERAL MEETING OF SHAREHOLDERS 7.1 Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013 Parent company financial statements and allocation of the results We invite you to approve the financial statements of Dassault Syst `emes SA (or the ‘‘Company’’ for the purposes of the present Chapter 7 ‘‘General Meeting of Shareholders’’) for the financial year ended December 31, 2012, prepared on the basis of French accounting principles, as they have been presented in paragraph 4.2 ‘‘Parent Company Financial Statements’’. Dassault Syst `emes SA has paid dividends every year since 1986. The decision to distribute dividends and their amount depend on the profits and the financial situation of Dassault Syst `emes SA as well as other factors. Dividends which have been distributed but are not collected by a shareholder escheat to the French State at the end of the five-year period following the date of their payment. Based on the financial statements and the Management Report of the Board of Directors included in this Annual Report, a profit of e254,846,866.68(1) has been realized for the financial year ended December 31, 2012, which we propose that you allocate as follows: (cid:127) to the legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:127) for distribution of a dividend of (e0.80 (cid:3) 125,389,266 shares)(2) (cid:127) to retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . which, increased by the retained earnings from the prior financial years (e1,395,565,578.69) brings the amount of retained earnings to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e200,404.81 e100,311,412.80 e154,355,049.07 e1,549,900,627.76 (1) (2) This profit, increased by the retained earnings from the prior financial years (e1,395,565,578.69), results, after allocation to the legal reserve, in a distributable profit amounting to e1,650,212,040.56. The aggregate amount of dividend will be increased, based on the number of new shares created between March 1, 2013 and the date of the General Meeting of Shareholders of May 30, 2013, consecutively to the exercise of subscription options, it being specified that the maximum number of shares which could be issued upon the exercise of subscription options is 1,500,531, i.e. a maximum amount of supplementary dividend of e1,200,424.80. Further new shares created by exercise of options until the date of the annual General Meeting of Shareholders deciding on the allocation of profit related to the preceding year will be entitled to receive the dividend distributed with respect to that year (see paragraphs 5.3.2.1 ‘‘Dassault Syst `emes Subscription Options’’ and 6.4 ‘‘Stock Market Information’’). Therefore we propose to the General Meeting of Shareholders of May 30, 2013, to approve (i) to distribute for the year 2012 a dividend of eighty cents (e0.80) per share of corporate capital as of the date of this General Meeting, resulting – on the basis of the number of shares making up the corporate capital as of February 28, 2013 – in an aggregate amount of e100,311,412.80, and (ii) to distribute where applicable, an additional aggregate maximum amount of e1,200,424.80 which corresponds to the maximum number of new shares which could be issued between March 1, 2013 and the date of the General Meeting of Shareholders (i.e. 1,500,531 shares). Shares will be traded ex-dividend as of June 5, 2013 and dividends made payable as from June 28, 2013. In accordance with the provisions of Article L. 225-210 of the French Commercial Code, the amount of dividends corresponding to the treasury shares of Dassault Syst `emes SA or held by SW Securities LLC, a company which is controlled by the Dassault Syst `emes Group, as of the date of payment, shall be allocated to ‘‘retained earnings’’. In addition, prior to distribution of the dividend, the Board of Directors, or if so delegated, the Chief Executive Officer, will determine the number of additional shares issued as a result of the exercise of subscription options between March 1 and the date of the General Meeting of Shareholders of May 30, 2013; the amount required for payment of dividends for shares issued during this period will be taken from ‘‘retained earnings’’. The amount distributed may be taken into account for determining shareholders’ total revenue subject to the progressive rate of income tax for the year during which it was received after application of an uncapped deduction of 40% (as provided by Article 158-3-2 of the French Tax Code). The dividend shall be subject to a non-discharging withholding of the income tax to the rate of 21% (as provided by Article 117 quarter of the French Tax Code). DASSAULT SYST `EMES Annual Report 2012 187 General meeting of shareholders 7 Pursuant to Article 243 bis of the French Tax Code, it is noted that dividends per share paid over the last three financial years have been as follows: Dividend 2011 e0.70 2010 e0.54 2009 e0.46 Number of shares eligible to dividends 125,026,338 123,162,687 118,367,641 Sumptuary expenses and general charges set forth in Article 223 of the French Tax Code. In accordance with the provisions of Article 223 quater of the French Tax Code, we inform you that the total amount of non-deductible tax expenses and charges for 2012 is e252,927, which resulted in a corporate tax of e91,307. Option for the payment of dividends in the form of shares It is proposed that each shareholder be granted the option to choose to receive payment of the dividends noted above, in cash or in the form of new shares of the Company. If the option for payment in the form of new shares is chosen, the new shares will be issued at a price equal to the average of the closing prices quoted on NYSE Euronext Paris during the 20 stock exchange sessions preceding the date of the General Meeting of Shareholders less the amount of the dividend and rounded up to the next one hundredth of a euro. Shareholders may choose payment of the dividend in new shares between June 5, 2013, and June 19 2013, inclusive, by sending their request to the financial intermediaries that are authorized to pay the dividend or, for shareholders listed in the direct registered share accounts held by the Company, to their authorized representative (Soci ´et ´e G ´en ´erale, Securities Department, 32 rue du Champ de Tir, CS 30812, 44308F Nantes Cedex 3). Consequently every shareholder who would not have chosen payment of dividends in shares before the end of this period, will receive the dividend in cash as from June 28, 2013. For shareholders who have chosen to receive payment of the dividend in shares, the new shares will be delivered as of the same day. If the amount of dividends for which payment in the form of shares has been chosen does not correspond to a whole number of shares, the number of shares to be received by the shareholder will be rounded up to the next whole number upon the shareholder paying the difference in cash on the day the choice to receive payment in the form of shares is made or the number of shares to be received by the shareholder will be rounded down to the next whole number and the shareholder will receive the balance in cash. Approval of the consolidated financial statements In addition to the 2012 parent company annual financial statements, we invite you to approve the Company’s consolidated financial statements for the financial year ended December 31, 2012, prepared in accordance with IFRS methods as set forth in paragraph 4.1.1 ‘‘Consolidated Financial Statements’’. Regulated agreements The following agreements, which have been approved in accordance with Article L. 225-38 et seq. of the French Commercial Code, have continued during the financial year ended December 31, 2012: (cid:127) Free and non-exclusive license of the ENOVIA trademark granted to Dassault Syst `emes Americas Corp. (decided at the Board meeting on March 11, 1998); (cid:127) The following undertakings made by the Company in connection with its ‘‘Directors & Officers’’ liability insurance policy entered into with CHARTIS Insurance (A.I.G.): – to assume, under certain conditions, the cost of legal defense expenses of directors in the event of their personal liability being sought, and indemnify the directors for the financial implications of such liability to the extent they would not be covered by that insurance policy (approved by the Board of Directors’ meeting held on July 24, 1996); – to assume, under certain conditions, the cost of legal defense expenses of directors of the Company should they have to prepare their personal defense before a civil, criminal or administrative court in the United States in connection with an inquiry or investigation conducted against the Company (approved by the Board of Directors’ meeting held on September 23, 2003); (cid:127) Agreement regarding the Company’s undertakings to Bernard Charl `es, relating to indemnities which would be due upon the termination of his functions as Chief Executive Officer. The amount of the indemnity would not exceed two years of the Chief Executive Officer’s compensation and would depend on the satisfaction of the performance conditions for the payment of his variable compensation (decision of the Board of Directors on May 27, 2010) (see paragraph 5.1.4.2 ‘‘Indemnities Due in Case of the Imposed Departure (D ´epart Contraint) of the Chief Executive Officer’’ and Table 10 of paragraph 5.3.1 ‘‘Compensation of the Company’s Directors (Mandataires Sociaux)’’). 188 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 In addition, the following new agreements, duly authorized by the Board of Directors during the financial year ended December 31, 2012 are subject to the approval of the General Meeting of Shareholders: (cid:127) Agreement on April 25, 2012 for the acquisition of the Gemcom Software International Inc. and all related documents; Dassault Syst `emes SA guaranteed the commitments taken by Dassault Syst `emes Acquisition Corp, the Canadian subsidiary created for the needs of this acquisition; Mr. Thibault de Tersant, Director of Dassault Syst `emes SA, was also the Chairman of this subsidiary (approved at the Board meeting on April 25, 2012); (cid:127) Agreement for contribution in kind dated on July 25, 2012, of 1,500 shares of the Dassault Data Services subsidiary by the Chairman of the Board of Directors, Mr. Charles Edelstenne, in favor of the Company. This contribution was the subject of a report drafted by Mrs. Isabelle de Kerviler, Share Auditor (approved at the Board meeting on June 7, 2012). The Statutory Auditors have prepared a special report pursuant to Article L. 225-40 of the French Commercial Code as set forth in paragraph 4.2.6 ‘‘Special Report of the Statutory Auditors on Regulated Agreements and Commitments’’. Appointment of one new Director The terms of the Directors Mr. Bernard Dufau and Mr. Andr ´e Kudelski expire at the General Meeting of Shareholders on May 30, 2013. After seeking an opinion from the Compensation and Nomination Committee, the Board of Directors proposes to you to appoint one new Director, Mrs. Odile Desforges. In compliance with Article R. 225-83 of the French Commerical Code, information regarding the director proposed for nomination by the General Meeting of Shareholders is set forth below. Madame Odile Desforges – Candidate Administrateur Professional address: 3, rue Henri Heine, 75016 Paris – France Age: 63. Nationality: French Biography: Born in 1950 in Rouen (France), Mrs. Desforges graduated from the Ecole Centrale Paris in 1973. She began her career at the Transport Research Institute, before joining Renault in 1981 as Planner and then Product Engineer. In 1986, she joined the Purchasing Department. She was Body Equipment Purchasing General Manager for Renault/Volvo Purchasing Organization, then for Renault. In 1999, she became Executive Other current position and Directorships: Vice-President of Renault VI-Mack Group, before becoming President of Volvo Group’s 3P Business Unit. In 2003, she was appointed Senior Vice-President, Purchasing, and Chairman and Other positions expired during the past five years: Managing Director of Renault Nissan Purchasing Organization. Between March 1, 2009 and July 1, 2012, she was Executive Vice-President, Engineering and Quality, and a member of the Group Executive Committee. She is currently a non-executive Director of Safran and Sequana. Director of RNBV, RNTBCI and Renault Espana SA Number of Dassault Syst `emes shares held: 0 Main position: Director In France: Director of Safran and Sequana (listed companies) Authorization to repurchase shares of the Company The authorization to repurchase shares of the Company granted to the Board of Directors at the General Meeting of Shareholders on June 7, 2012, will expire at the General Meeting of Shareholders of May 30, 2013, approving the financial statements for the financial year ended December 31, 2012. Pursuant to this authorization, share repurchases have been made in 2012, as described in paragraph 6.2.5 ‘‘Treasury Shares’’. Additional share repurchases may be made until the date of the General Meeting of Shareholders, and will be described in the Annual Report including the Management Report of the Board of Directors for the financial year ending December 31, 2013. We invite you to renew the authorization to the Board of Directors to repurchase shares of the Company according to the conditions set forth in Articles L. 225-209 et seq. of the French Commercial Code, within the limit of 10% of the share capital of the Company at the date of the General Meeting of Shareholders, for a maximum purchase price of e130 per share and within the limits provided by the applicable rules. The maximum amount of funds dedicated to repurchase shares of the Company may not exceed e500 million. Should you approve this proposal, the authorization will be valid until the annual General Meeting of Shareholders approving the financial statements for the financial year ended December 31, 2013. DASSAULT SYST `EMES Annual Report 2012 189 General meeting of shareholders 7 This authorization to repurchase shares may be used for the following purposes: 1) To cancel shares for the purpose of increasing the profitability of shareholders’ equity and income per share, subject to adoption by the Extraordinary Meeting of Shareholders of the resolution permitting shares to be cancelled; 2) To provide securities representing no more than 5% of the share capital of the Company in payment or in exchange, including external growth transactions; 3) To animate the market or provide liquidity for the Company’s shares through the intermediary of an investment services provider by means of a liquidity contract complying with an ethical code accepted by the Autorit ´e des march ´es financiers; 4) To perform all obligations related to stock options plans or other grants of shares to employees or directors of the Company and its affiliates; 5) To ensure coverage of the Company’s commitments resulting from rights granted to the employees and directors of the Company and its affiliates to payment in cash based on increases in the market price of the shares of the Company; 6) To provide shares upon exercise of rights to the Company’s share capital which are attached to issued securities; 7) To implement any stock exchange market practice which may be recognized by law or by the Autorit ´e des march ´es financiers. The share repurchase program is described in paragraph 6.2.5 ‘‘Treasury Shares’’, where all relevant information is presented. In light of the possible cancellation of the repurchased shares, we propose that you also authorize the Board of Directors to cancel, as the case may be, for the same period, all or a portion of the shares which it has repurchased and to reduce in a corresponding amount the share capital, within a limit of 10% of its amount. Delegation to the Board of Directors to increase the share capital a) Financial authorizations Delegations to increase the share capital granted by the General Meeting of Shareholders held on May 26, 2011 to the Board of Directors are expiring on July 2013. It is therefore proposed to delegate again to the Board of Directors, the necessary authority to increase the share capital for a duration of 26 months, in order to permit to the latter, at any time, from among a wide range of securities giving access to the share capital, with or without the shareholder’s preferential subscription rights, by public offer or by private placement, the most appropriate funding for the development of the Group, based on the state of the market at the relevant time. It is also proposed that the General Meeting of the Shareholders renew the existing delegations authorizing the Board of Directors to increase the share capital by incorporation of reserves, profits or premiums, and to increase the share capital in order to compensate contributions in kind of securities. The proposed resolutions will replace the resolutions adopted by the General Meeting of Shareholders held on May 26, 2011. The use of these resolutions is defined to the paragraph 6.2.4 ‘‘Summary of Pending Delegations to the Board of Directors’’ hereinabove. The Board of Directors did no other exercises of these resolutions since the beginning of the financial fiscal year ended December 2013 until the date of preparation of this Annual Report. Should you adopt these resolutions; the Board of Directors will have the opportunity to: (cid:127) Proceed with share capital increases with or without preferential subscription rights of shareholders (by using the faculty offered by the law to use private placements with investment managers or qualified investors) within the limit of e15 million par value and, relating to the debts securities granting access to the share capital, within the limit of e750 million par value. This cap of e15 million represents the total cap of the amount of all share capital increases to be performed according to the resolutions 9 to 13 and 17; (cid:127) Proceed with share capital increases by incorporation of reserves, profits or premiums, within the limit of this same e15 million amount par value; (cid:127) Increase the share capital in remuneration of securities contributions within the limit of 10% of the share capital. b) Financial authorizations for employees and Company’s directors It is also proposed that the General Meeting of the Shareholders grant a new delegation authorizing the Board of Directors to issue redeemable subscription and or purchase warrants (bons de souscription et/ou d’acquisition d’actions remboursables or ‘‘BSAAR’’), with cancellation of the shareholders’ preferential subscription rights, for the benefit of a category of persons including employees and directors (mandataires sociaux) of the Company. This delegation would allow the Company to put in place a new instrument aiming at associating employees and executive officers in its share capital. The nominal amount of increase in the share capital likely to be made pursuant to this delegation may not exceed e6 million and the duration of such delegation would be 18 months. 190 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 In accordance with the law, it is also proposed that the General Meeting of the Shareholders renew the existing delegation authorizing the Board of Directors to increase the share capital for the benefit of employees of Dassault Syst `emes SA and/or companies related to it who participate in a corporate savings plan, by issuing shares or securities granting access to the share capital. The nominal amount of increase in the share capital likely to be made pursuant to this delegation may not exceed e5 million. This delegation will cancel and replace the delegation granted by the General Meeting of the Shareholders on May 26, 2011. Performance shares The authorization granted to the Company’s Board of Directors by the shareholders on May 27, 2010 to grant free shares to Company employees and management is due to expire on July 27, 2013. Therefore, we propose that you once again authorize grants of bonus shares. Bonus shares granted under this authorization may not give rights to a total amount of shares greater than 2% of the share capital on the day of the General Meeting of Shareholders on May 30, 2013. The relevant information on the different uses of the Board of Directors granted in 2010 by the General Meeting of Shareholders are contained in paragraphs 5.3 ‘‘Compensation and Benefits’’ and 5.1 ‘‘Report of the Chairman on Corporate Governance and Internal Control’’. This authorization may supersede, for the unused portion, the prior authorizations granted to the Board of Directors. Subscription or purchase options The authorization granted to the Company’s Board of Directors by the shareholders on May 27, 2010, to grant subscription or purchase options is due to expire on July 27, 2013. Therefore, we propose that you once again authorize the Board of Directors to grant subscription and purchase options. This authorization would be granted for a period of 38 months, the maximum number of options which can be granted and not yet exercised may not give the right to subscribe or acquire shares representing more than 5% of the share capital. The relevant information related to the different uses of the Board of Directors of the authorization granted by the General Meeting of Shareholders in 2010, and all option plans of Dassault Syst `emes SA are contained in paragraphs 5.3 ‘‘Compensation and Benefits’’ and 5.1 ‘‘Report of the Chairman on Corporate Governance and Internal Control’’. In accordance with the AFEP-MEDEF Code, subscription and purchase options for executive directors of the Company are granted without discount and will be subject to conditions of performance. This authorization would cancel any unused portion of any prior authorization granted to the Board of Directors. You can find further information about the proposed resolutions in the proposed draft resolutions submitted hereafter to you. DASSAULT SYST `EMES Annual Report 2012 191 General meeting of shareholders 7 7.2 Draft Resolutions Proposed by the Board of Directors to the General Meeting of Shareholders on May 30, 2013 ORDINARY GENERAL MEETING FIRST RESOLUTION Approval of the parent company annual financial statements The General Meeting, after the reading of the Management Report of the Board of Directors and the report of the Statutory Auditors, in addition to the complementary explanations made orally, hereby approves in all respects the report of the Board and the parent company annual financial statements for the financial year ended December 31, 2012, as they have been presented. The General Meeting consequently approves any transactions disclosed by such financial statements or summarized in such reports and in particular, in accordance with the provisions of Article 223 quater of the French Tax code, the total amount of non-deductible tax expenses and charges referred to in Article 39.4 of the French Tax code, which amounts to e252,927 and results in a corporate income tax of e91,307. Approval of the consolidated financial statements SECOND RESOLUTION The General Meeting, after the reading of the report of the Board of Directors with respect to management of the Company included in the Management Report and the report related to the consolidated financial statements of the Statutory Auditors, in addition to complementary explanations made orally, hereby approves in all respects the report of the Board and the consolidated financial statements for the financial year ended December 31, 2012, as they have been presented. The General Meeting consequently approves any transactions disclosed by such consolidated financial statements or summarized in such reports. Allocation of the results THIRD RESOLUTION The General Meeting, upon the proposal of the Board of Directors, hereby resolves to allocate the profit of the financial year amounting to e254,846,866.68(1) as follows: (cid:127) to the legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:127) for distribution to the 125,389,266 shares making up the corporate capital as of February 28, 2013, of a dividend of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (e0.80 (cid:3) 125,389,266 shares)(2) (cid:127) to retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . which, increased by the retained earnings from the prior financial years (e1,395,565,578.69) brings the amount of retained earnings to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e200,404.81 e100,311,412.80 e154,355,049.07 e1,549,900,627.76 (1) (2) This profit, increased by the retained earnings from the prior financial years (e1,395,565,578.69), results, after allocation to the legal reserve, in a distributable profit amounting to e1,650,212,040.56. The aggregate amount of dividend will be increased, based on the number of new shares created between March 1, 2012 and the date of the General Meeting of Shareholders of May 30, 2013, consecutively to the exercise of subscription options, it being specified that the maximum number of shares which could be issued upon the exercise of subscription options is 1,500,531, i.e. a maximum amount of supplementary dividend of e1,200,424.80. Shares will be traded ex-dividend as of June 5, 2013 and dividends made payable as from June 28, 2013. In accordance with the provisions of Article L. 225-210 of the French Commercial Code, the amount of dividend corresponding to the treasury shares of Dassault Syst `emes SA or held by SW Securities LLC, a company which is controlled by the Dassault Syst `emes Group, as of the date of payment, shall be allocated to ‘‘retained earnings’’. 192 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 In addition, prior to distribution of the dividend, the Board of Directors, or if so delegated, the Chief Executive Officer will determine the number of additional shares issued as a result of the exercise of subscription options between March 1 and the date of this General Meeting; the amount required for payment of dividends for shares issued during this period shall be taken from ‘‘retained earnings’’. The amount distributed may be taken into account for determining shareholders’ total revenue subject to the progressive rate of income tax for the year during which it was received after application of an uncapped deduction of 40% (as provided by Article 158-3-2(cid:2) of the French Tax Code). The dividend shall be subject to a non-discharging withholding of the income tax to the rate of 21% (as provided by Article 117 quarter of the French Tax Code). Pursuant to Article 243 bis of the French Tax Code, it is noted that dividends per share paid over the last three financial years have been as follows: Dividend 2011 e0.70 2010 e0.54 2009 e0.46 Number of shares eligible to dividends 125,026,338 123,162,687 118,367,641 Option to receive payment of dividends in the form of shares FOURTH RESOLUTION The General Meeting of Shareholders after reviewing the Board of Directors’ Report, and finding that the capital is fully paid-up, decides to offer each shareholder the possibility of choosing to receive payment of the net dividend decided in the third resolution, and to which he is entitled, in the form of new shares in the Company. Each shareholders may decide to receive payment of the dividend in cash, or in new shares. The choice may apply only on the amount of the dividend to which he is entitled and according to the fraction he will determine. If the shareholder chooses to receive payment of the dividend in the form of shares, the new shares will be issued without discount at a price equal to the average of the closing prices quoted on the regulated market of NYSE Euronext Paris during the 20 stock exchange sessions preceding the date of the General Meeting of Shareholders less the net amount of the dividend decided in the third resolution rounded up to the next one hundredth of a euro. Such new shares will be eligible for dividends declared with respect to the period starting January 1, 2013, and will have all the rights and privileges with the other shares issued by Dassault Syst `emes SA. Shareholders may choose payment of the dividend in cash or new shares between June 5, 2013, and June 19, 2013, inclusive by sending their request to the financial intermediaries that are authorized to pay the dividend or, for shareholders listed in the direct registered share accounts held by the Company, to their authorized representative (Soci ´et ´e G ´en ´erale, Securities department, 32 rue du Champ de Tir, CS 30812, 44308 Nantes Cedex 3. After June 19, 2013, the dividend will only be paid out in cash. For shareholders who have not chosen payment of the dividend in shares, the dividend shall be paid as from June 28, 2013, after the period for choosing payment in the form of cash or new shares has expired. For shareholders who have chosen to receive payment of the dividend in shares, the new shares will be delivered as of the same day. If the amount of dividends for which payment in the form of shares has been chosen does not correspond to a whole number of shares, the number of shares to be received by the shareholder will be rounded up to the next whole number upon the shareholder paying the difference in cash on the day the choice to receive payment in the form of shares is made or the number of shares to be received by the shareholder will be rounded down to the next whole number and the shareholder will receive the balance in cash. The General Meeeting of Shareholders gives full powers to the Board of Directors, with the right of sub-delegation to the Chairman of the Board under the conditions stipulated by law, to execute the payment of dividends in new shares, to stipulate the terms of application and implementation, to record the number of new shares issued under this Resolution, to make any necessary changes in the Company’s by-laws relating to the share capital and the number of shares it contains, and, more generally, to do whatever may be appropriate or necessary. Regulated agreements (conventions r `eglement ´ees) FIFTH RESOLUTION The General Meeting, after the reading of the special report of the Statutory Auditors on the agreements governed by Articles L. 225-38 et seq. of the French Commercial Code, approves such report and the new agreements mentioned in it and authorized by the Board of DASSAULT SYST `EMES Annual Report 2012 193 General meeting of shareholders 7 Directors and entered into during the financial year ended December 31, 2012, and acknowledges the information relating to agreements previously approved, which continued to be performed during the financial year ended on December 31, 2013: (cid:127) The Agreement on April 25, 2012 for the acquisition of the Gemcom Software International Inc. and all related documents; Dassault Syst `emes SA guaranteed the commitments taken by Dassault Syst `emes Acquisition Corp, the Canadian subsidiary created for the needs of this acquisition; Mr. Thibault de Tersant, Director of Dassault Syst `emes SA was also the Chairman of this subsidiary; (cid:127) The Agreement for contribution in kind dated on July 25, 2012, of 1,500 shares of the Dassault Data Services subsidiary by the Chairman of the Board of Directors, Mr. Charles Edelstenne, in favor of the Company. Appointment of a new Director SIXTH RESOLUTION The General Meeting decides to appoint Mrs. Odile Desforges as member of the Board of Directors for a four-year term. This mandate will expire at the General Meeting of Shareholders approving the financial statements for the financial year ending December 31, 2016. Authorization to repurchase shares of Dassault Syst `emes SA SEVENTH RESOLUTION The General Meeting, after the reading of the report of the Board of Directors, authorizes the Board of Directors to repurchase a number of shares representing up to 10% of the share capital of Dassault Syst `emes SA at the date of the General Meeting, in accordance with the terms and conditions provided by Articles L. 225-209 et seq. of the French Commercial Code. This authorization may be used by the Board of Directors for the following purposes: 1) 2) 3) 4) 5) to cancel shares for the purpose of increasing the profitability of shareholders’ equity and income per share, subject to adoption by the General Meeting of the eighth resolution; to provide securities (representing no more than 5% of the share capital of the Company) in payment or in exchange, particularly in connection with external growth transactions; to animate the market and provide liquidity of the Company’s shares through the intermediary of an investment services provider by means of a liquidity contract complying with an ethical code accepted by the Autorit ´e des march ´es financiers; to perform all obligations related to stock options plans or other grants of shares to employees or directors of the Company and its affiliates; to ensure coverage of the Company’s commitments resulting from rights granted to the employees and directors to payment in cash based on increases in the market price of the shares of the Company; 6) to provide shares upon exercise of rights to the Company’s share capital which are attached to issued securities; 7) to implement any stock exchange market practice which may be recognized by law or by the Autorit ´e des march ´es financiers. The acquisition, sale, transfer or exchange of such shares may be effected by any means allowed on the market (whether or not the market is regulated), multilateral trade facilities (‘‘MTF’’) or through a systematic internalizer or over-the-counter, in particular acquisition of blocks, and at the times deemed appropriate by the Board of Directors or any person acting pursuant to a sub-delegation and according to the law. Such means shall include use of available cash flow, the use of any derivative financial instrument negotiated on a market (whether or not the market is regulated), MTF or through a systematic internalizer or over-the-counter, and the implementation of optional transactions (purchase and sale of put options, provided however that the use of these means does not create a significant increase of the volatility of the stock exchange price). The maximum amount of funds dedicated to repurchase of shares of the Company may not exceed e500 million, this condition being cumulative with the cap of 10% of the capital of the Company. Dassault Syst `emes SA may not purchase shares at a price per share which exceeds e130 (excluding acquisition costs), and in any case the price per share shall not exceed the maximum price provided by the applicable legal rules, subject to adjustments in connection with transactions on its share capital, in particular by capitalization of reserves and free allocation of shares and/or regrouping or split of shares. This authorization can be used by the Board of Directors for all the treasury shares held by Dassault Syst `emes. 194 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 This authorization shall be valid commencing on the date of this General Meeting until the Ordinary General Meeting ruling on the financial statements for the financial year ending December 31, 2013. The General Meeting hereby grants any and all powers to the Board of Directors with option of delegation when legally authorized, to place any stock orders or orders outside the market, enter into any agreements, prepare any documents including information documents, determine terms and conditions of Company transactions on the market, as well as terms and conditions for purchase and sale of shares, file any declarations, including those required by the Autorit ´e des march ´es financiers, accomplish any formalities, and more generally, carry out any necessary measures to complete such transactions. The General Meeting also grants any and all powers to the Board of Directors, in case that the law or the Autorit ´e des march ´es financiers appear to extend or to complete the authorized objectives concerning the share repurchase program, in order to inform the public, pursuant to applicable regulations and laws, about the potential changes of the program concerning the modified objectives. In compliance with the provisions of Articles L. 225-211 and R. 225-160 of the French Commercial Code, the Company or the intermediary in charge of securities administration for the Company shall keep registers which record purchases and sales of shares pursuant to this program. This authorization shall replace and supersede the previous share repurchase program authorized by the Combined General Meeting of Shareholders of June 7, 2012, in its seventh resolution EXTRAORDINARY GENERAL MEETING EIGHTH RESOLUTION Authorization granted to the Board of Directors to reduce the share capital by cancellation of previously repurchased shares in the framework of the share repurchase program The General Meeting, after the reading of the report of the Board of Directors and the special report of the Statutory Auditors, hereby authorizes the Board of Directors, pursuant to the provisions of Article L. 225-209 of the French Commercial Code to: (cid:127) reduce the share capital by cancellation, in one or several transactions, of all or part of the shares repurchased by the Company pursuant to its share repurchase program, up to a limit of 10% of the share capital over periods of twenty-four months; (cid:127) deduct the difference between the repurchase value of the cancelled shares and their nominal value from available premiums and reserves. The General Meeting hereby gives, more generally, all powers to the Board of Directors to set the terms and conditions of such share capital reduction(s), record the completion of the share capital reduction(s) made pursuant to the cancellation transactions authorized by this resolution, amend the by-laws of the Company as may be necessary, file any declaration with the Autorit ´e des march ´es financiers or other institutions, accomplish any formalities and more generally take any necessary measures for the purposes of completing this transaction. This authorization is granted to the Board of Directors for a period ending at the end of the General Meeting called to approve the financial statements for the financial year ending December 31, 2013. NINTH RESOLUTION Delegation to the Board of Directors to increase the share capital by issuance of shares or securities giving right to shares of the Company and to issue securities giving right to debt securities, with preferential subscription right of shareholders The General Meeting, after review of the report of the Board of Directors and the special report of the Statutory Auditors: 1) delegates to the Board of Directors, pursuant to the provisions of Articles L. 225-129 to L. 225-129-6, L. 228-91 and L. 228-92 of the French Commercial Code, powers to decide, in one or more transactions, at the time and in the proportions which it deems appropriate, both in France and abroad, the issuance of ordinary shares and/or of any other securities giving right to shares of the Company; it being specified that the Board of Directors may delegate to the Chief Executive Officer, or in agreement with the latter, to one or several Delegate Executive Officers, under the conditions permitted by law, all necessary powers to decide an increase of the share capital; 2) resolves that are expressly excluded any issuance of preferred shares and securities giving right to preferred shares; 3) resolves that the maximum nominal amount of increases in the share capital to be made either now or in the future pursuant to this delegation shall not exceed e15 million to which may be added the nominal amount of shares to be issued as a supplement to preserve the rights of holders of securities giving right to shares in compliance with applicable legal rules, and as the case may be, with the contractual provisions providing for other adjustment cases; DASSAULT SYST `EMES Annual Report 2012 195 General meeting of shareholders 7 4) further delegates to the Board of Directors the authority to decide on the issuance of securities giving right to debt securities; 5) 6) 7) 8) 9) furthermore resolves that the nominal amount of debt securities giving access to the share capital of the Company or to debt securities to be issued pursuant to such delegation, shall not exceed a maximum of e750 million or the corresponding value of such amount in foreign currency or in account units set in reference to several currencies; resolves that the shareholders may exercise, subject to the conditions set by law, their preferential subscription right in respect to securities to be issued pursuant to this resolution; resolves that in case the subscriptions `a titre irr ´eductible and, as applicable, `a titre r ´eductible, have not exhausted the totality of an issue of securities, the Board of Directors may offer all or part of the non-subscribed securities to the public; acknowledges that such delegation automatically grants in favor of holders of securities giving right to shares of the Company, the waiver by the shareholders of their preferential subscription rights to the shares to which such securities give right; resolves that the sum due or to fall due to the Company for each share issued pursuant to such delegation shall be at least equal to the nominal value of the shares at the date of issuance; 10) resolves that the Board of Directors will have the authority, if it deems appropriate, to deduct from any capital surplus specifically to cover the costs and fees arising in connection with the transactions, and to deduct from such amount the sums required to bring the legal reserve to one tenth of the level of the new share capital after each transaction; 11) resolves that this delegation shall replace and supersede the previous delegation of the same nature granted by the General Meeting of Shareholders on May 26, 2011, in its fourteenth resolution. The delegation hereby granted to the Board of Directors shall be valid for a term of 26 months from the date of this Meeting. TENTH RESOLUTION Delegation to the Board of Directors to increase the share capital by issuance of shares or securities giving right to shares of the Company and to issue securities giving right to debt securities, without preferential subscription right of shareholders The General Meeting, after reading of the report of the Board of Directors and the special report of the Statutory Auditors: 1) delegates to the Board of Directors, pursuant to the provisions of Articles L. 225-129 to L. 225-129-6, L. 225-135, L. 225-136, L. 225-148 and L. 228-91 to L. 228-93 of the French Commercial Code, authority to decide, by public offering or, as the case may be, in the event of the approbation a specific resolution by the General Meeting, by an offering set forth in Section II of Article L. 411-2 of the French Monetary and Financial Code, in one or more transactions, at the time and in the proportions which it deems appropriate, both in France and abroad; a) the issuance of shares and/or of any other securities giving right to shares of the Company; b) c) the issuance of shares or of other securities giving right to shares of the Company to be issued further to the issuance by the companies in which the Company owns directly or indirectly more than half of the share capital of any securities giving right to shares of the Company; the issuance of shares or of other securities by the Company giving right to shares of a company in which the Company owns directly or indirectly more than half of the share capital; The Board of Directors may delegate to the Chief Executive Officer, or in agreement with the latter, to one or several Delegate Executive Officers, under the conditions permitted by law, all necessary powers to decide an increase of the share capital. This decision shall pertain by law, to the benefit of the holders of securities likely to be issued by the subsidiaries, waiver by the shareholders of the Company of their preferential subscription right to the shares or other securities to which these securities give right; 2) resolves that the maximum nominal amount of increases in the share capital likely to be made either now or in the future pursuant to this delegation may not exceed e15 million, to which may be added the nominal amount of shares to be issued as a supplement to preserve the rights of holders of securities giving right to shares of the Company, according to applicable legal rules or as the case may be according to contractual provisions providing for other adjustment cases; 3) resolves that the nominal amount likely to be issued pursuant to this delegation will be deducted from the aggregate nominal maximum amount of share capital increases of e15 million set forth pursuant to the ninth resolution of this General Meeting; 196 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 4) resolves that are expressly excluded any issuance of preferred shares and securities giving right to preferred shares; 5) 6) 7) 8) resolves that this capital increase may result from the exercise of an attribution right resulting from any securities issued by any company in which the Company owns directly or indirectly more than half of the capital and in agreement with such company; further delegates to the Board of Directors the authority to decide on the issuance of securities giving right to the grant of debt securities; furthermore resolves that the nominal amount of debt securities giving right to shares of the Company or to debt securities likely to be issued pursuant to this delegation shall not exceed e750 million or the corresponding value of such amount in foreign currency or in account units set by reference to several currencies, and will be deducted from the maximum of e750 million set forth in the ninth resolution of this General Meeting of Shareholders; resolves to suppress the preferential subscription right of shareholders to the securities to be issued, subject to the right of the Board of Directors to grant to the shareholders a priority time period for subscription with respect to all or part of the issuance pursuant to the terms and conditions and within such time periods as it deems appropriate, pursuant to provisions of Article L. 225-135 of the French Commercial Code, this priority time period shall not give rise to the creation of negotiable rights; 9) acknowledges that this delegation pertains by law, to the benefit of holders of securities giving right in the future to shares of the Company, the waiver by the shareholders of their preferential subscription right to the shares to which such securities give right; 10) resolves that the amount due or to fall due to the Company for each share issued or to be issued pursuant to this delegation, shall be at least equal to the minimum value determined by the applicable rules at the time this delegation is used, this minimum value being currently the weighted average of the share prices on the regulated market of NYSE Euronext Paris during the three trading days preceding the determination of the issue price, which may be discounted by a maximum of 5%, and after correction of this amount to take into account a difference in the date at which the shares give right to dividends; 11) resolves that the Board of Directors may use this delegation in whole or in part for the purpose of remunerating securities contributed through a public offer of exchange initiated by the Company, within the limits and subject to the terms and conditions set by Article L. 225-148 of the French Commercial Code; 12) resolves that the Board of Directors will have the authority, if it deems appropriate, to deduct from any capital surplus specifically to cover costs and fees arising in connection with the transactions, and to deduct from such amount the sums required to bring the legal reserve to one tenth of the level of the new share capital after each transaction; 13) resolves that this delegation shall replace and supersede the previous delegation of the same nature granted by the Combined General Meeting of Shareholders on May 26, 2011, in its fifteenth resolution. This delegation granted to the Board of Directors shall be valid for a term of 26 months from the date of this Meeting. ELEVENTH RESOLUTION Delegation to the Board of Directors to increase the share capital by issuance of shares or securities giving right to shares of the Company and to issue securities giving right to debt securities, without pre-emptive subscription rights of shareholders by a private placement under II of Article L. 411-2 of the French Monetary and Financial Code The General Meeting, after reading of the report of the Board of Directors and the special report of the Statutory Auditors: 1) 2) 3) delegates to the Board of Directors, pursuant to the provisions of Article L. 225-136 of the French Commercial Code, authority to decide, in accordance with and under the conditions specified in the tenth resolution of this General Meeting and within a maximum global nominal amount of e15 million, to issue shares or debt securities in an offer under II of Article L. 411-2 of the French Monetary and Financial Code; resolves that the maximum nominal amount of increases in capital which may be realized immediately and/or over time under this delegation will be deducted from the total nominal maximum of e15 million fixed under the ninth resolution of this General Meeting of Shareholders; resolves that this delegation shall replace and supersede the previous delegation of the same nature granted by the Combined General Meeting of Shareholders on May 26, 2011, in its sixteenth resolution. This delegation granted to the Board of Directors shall be valid for a term of 26 months from the date of this Meeting. DASSAULT SYST `EMES Annual Report 2012 197 General meeting of shareholders 7 TWELFTH RESOLUTION Authorization to the Board of Directors to issue redeemable subscription or purchase warrants (bons de souscription et/ou d’acquisition d’actions remboursables, or ‘‘BSAARs’’) to employees and directors (mandataires sociaux) of the Company without preemptive rights for shareholders In accordance with the provisions of Article L. 228-91 et seq. Article L. 225-129 to L. 225-129-6 and L. 225-138 of the French Commercial Code, after reviewing the report of the Board of Directors and the special report of the Statutory Auditors, the General Meeting: 1) 2) 3) 4) delegates to the Board of Directors, with the option of further delegation, its authority to issue, on one or more occasions, redeemable subscription or purchase warrants (bons de souscription et/ou d’acquisition d’actions remboursables, or ‘‘BSAARs’’); resolves that the maximum nominal amount of increases in share capital which may be carried out pursuant to this authority shall not exceed e6 million, given that this cap is defined not being taken into account the nominal amount of the shares to be issued, in order to preserve the rights of the holders of the shares giving access to the share capital, pursuant to applicable legislation and regulations and, where applicable, to contractual provisions allowing other adjustment cases; resolves that the maximum nominal amount of increases in share capital increases which may be carried out pursuant to this authority immediately or over time shall be deducted from the aggregate nominal maximum amount set forth pursuant to the ninth resolution; resolves to cancel shareholders’ preemptive subscription rights with respect to the BSAARs and to limit this right to employees and directors (mandataires sociaux) of Dassault Syst `emes SA and its French and foreign subsidiaries. The Board of Directors will establish to the list of persons authorized to subscribe BSAARs (the ‘‘Beneficiaries’’) as well as the maximum number of BSAARs which each Beneficiary may subscribe; 5) acknowledges, that this delegation constitutes a waiver by the shareholders – for the benefit of holders of the BSAARs – of their preemptive right to subscribe shares issued upon the exercise of the BSAARs; 6) resolves that the Board of Directors (or the Chief Executive Officer upon delegation by the Board): a) will determine all the conditions of the BSAARs, and in particular their subscription price, which will be set, with the advice of an independent expert, according to the factors affecting their value (i.e., principally the exercise price, the period when they will not be available, their exercise period, their reimbursement trigger point and period, the interest rate, the dividend distribution policy, and the market price and volatility of the Company’s shares) as well as the conditions for issuance and the terms and conditions of the subscription contract; b) will determine the subscription or purchase price of the shares upon exercise of the BSAARs, it being specified that the BSAARs will give the right to subscribe, or to purchase, one share of the Company at a price equal to at least 110% of the average of the closing price of the Company’s shares during the 20 share trading days preceding the date upon which were set the terms and conditions of the BSAARs and their issuance. This delegation granted to the Board of Directors shall be valid for a term of 18 months from the date of this Meeting. THIRTEENTH RESOLUTION Delegation to the Board of Directors to increase the capital by incorporation of reserves, profits or premiums The General Meeting, ruling in the conditions of quorum and majority required for ordinary general meetings pursuant to the provisions of Article L. 225-130 of the French Commercial Code, and after review of the report of the Board of Directors: 1) 2) 3) delegates to the Board of Directors any and all powers necessary for the purpose of increasing the capital, in one or more transactions, at the time and in the proportions which it deems appropriate, by incorporation of reserves, profits or premiums, or any other sums the capitalization of which is allowed, or by conjunction with a capital increase in cash pursuant to the ninth, tenth or eleventh resolution of this Meeting, by issuing and granting free shares or by increasing of the nominal value of the existing shares, or by combining the two transactions; it being specified that the Board of Directors may delegate to the Chief Executive Officer, or in agreement with the latter, to one or several Delegate Executive Officers, under the conditions permitted by law, all necessary powers to decide an increase of the share capital; resolves that the maximum nominal amount of increases in the share capital likely to be made pursuant to this delegation may not exceed e15 million; resolves that the nominal maximum amount will be deducted from the nominal aggregate maximum of share capital increases which may be realized pursuant to the ninth delegation of this General Meeting; 198 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 4) 5) 6) resolves that rights constituting split shares shall not be negotiable and that the corresponding shares shall be sold. The sums collected from such sale being allocated to the holders of those rights within 30 days from the date on which the full number of shares is recorded in their account; resolves that the Board of Directors will have the authority, if it deems appropriate, to deduct from any capital surplus specifically to cover any costs and fees arising in connection with the transactions, and to deduct from such amount the sums required to bring the legal reserve to one tenth of the level of the new share capital after each transaction; resolves that this delegation shall replace and supersede the previous delegation of the same nature granted by the Combined General Meeting of the Shareholders dated May 26, 2011, in its eighteenth resolution. This delegation granted to the Board of Directors shall be valid for a term of 26 months from the date of this Meeting. FOURTEENTH RESOLUTION Delegation of powers granted to the Board of Directors to increase the capital within a limit of 10% with the purpose to compensate contributions in kind The General Meeting, after reading of the report of the Board of Directors: 1) 2) delegates to the Board of Directors, pursuant to the provisions of Article L. 225-147 of the French Commercial Code, any and all powers necessary to increase the share capital, within a limit of 10% of the share capital, after review of the report of the auditors, with a view to compensate the contributions in kind to the Company of shares or equity-linked securities, when the provisions of Article L. 225-148 of the French Commercial Code are not applicable; decides that the Board of Directors shall have any powers to use this delegation, in particular to the effect of determining terms and conditions of authorized transactions and to evaluate contributions, as well as the granting, as the case may be, of specific advantages (avantages particuliers), the number of securities to be issued as compensation of the contributions as well as the date at which the securities to be issued shall give right to dividends, of proceeding as applicable with any deduction from contribution premiums, in particular of costs incurred by the realization of the relevant issuances, of acknowledging the realization of the increase of capital and amending the by-laws accordingly, and to take any useful measures and enter into any agreement, accomplish any formalities required for the listing of the issued shares and accomplish any publicity formality; 3) resolves that this delegation shall replace and supersede the previous delegation of the same nature granted by the General Meeting of the Shareholders dated May 26, 2011, in its nineteenth resolution. This delegation to the Board of Directors is valid for a period of 26 months from the date of this Meeting. FIFTEENTH RESOLUTION Authorization granted to the Board of Directors to make grants of Company shares to the employees and to the directors of Dassault Syst `emes SA and its related companies The General Meeting, after review of the report of the Board of Directors and the special report of the Statutory Auditors: 1) 2) 3) authorizes the Board of Directors, in accordance with Articles L. 225-197-1 et seq. of the French Commercial Code, to grant, in one or several transactions, free shares of the Company, existing or to be issued, for the benefit of employees or certain categories of employees, determined amongst eligible employees and directors of the Company or its affiliates as defined by Article L. 225-197-2 of the French Commercial Code; resolves that the Board of Directors will determine the identity of the beneficiaries of the grants as well as the conditions and, as the case may be, the criteria for the grants; resolves that free share grants made under this authorization may not give rise to a total number of shares greater than 2% of the share capital of the Company at the date of this General Meeting, it being understood that this amount does not take into account possible adjustments which may be made pursuant to applicable legislative and regulatory provisions and, as the case may be, to contractual terms and conditions providing for other cases of adjustment, in order to preserve the rights of the holders of securities or other rights giving access to the share capital of the Company. Toward this end, the General Meeting authorizes, if need be, the Board of Directors to increase the share capital accordingly; 4) resolves (a) that the grant of shares to the beneficiaries will be final after the expiration of an acquisition period the duration of which will be determined by the Board of Directors, it being specified that such period may not be less than two years and (b) that the beneficiaries will be required to hold the aforementioned shares for a duration determined by the Board of Directors and which may not DASSAULT SYST `EMES Annual Report 2012 199 General meeting of shareholders 7 5) 6) 7) be less than two years as from the final grant of the shares. However, and without prejudice to the provisions set forth under Article L. 225-197-1-II of the last paragraph of the French Commercial Code, the General Meeting authorizes the Board of Directors, only where the acquisition period for all or part of one or several grants is at least equal to four years, to provide for a holding period of less than two year or to not provide a holding period for the said shares; furthermore resolves that in the event of disability of the beneficiary, as defined under the second or third categories set out in Article L. 341-4 of the French Social Security code, the shares will be definitively granted to the beneficiary before the expiration of the remainder of the acquisition period. The said shares may be freely transferred from the date of their delivery; this authorization provides, in favor of the beneficiaries of free share grants, a waiver by the shareholders of their preferential subscription right to the shares which may be issued pursuant to this resolution; resolves that the Board of Directors shall have any and all powers, including the power of delegation, subject to legal and regulatory terms, to implement this authorization under the conditions set forth above and within the limits authorized by the laws and regulations in effect, and, in particular, to determine the terms and conditions of each issuance pursuant to this authorization, to set the dates after which the new shares will give right to dividends, to take any measures, as may be decided by it, to protect the rights of the beneficiaries of the free share grants by making appropriate adjustments, to record the resulting capital increases, to amend the by-laws accordingly, and more generally, to carry out any formalities required for the issuances, the listing or the administration of the issued shares and take any measures which may be appropriate and required by applicable law and regulations; 8) resolves that this authorization shall be valid for a term of 38 months from the date of this Meeting; 9) resolves that this authorization shall replace and supersede the previous authorization of the same nature granted by the Combined General Meeting of Shareholders held on May 27, 2010, in its fifteenth resolution. SIXTEENTH RESOLUTION Authorization to the Board of Directors to grant stock subscription or purchase options to the employees and to the directors of Dassault Syst `emes SA and its related companies The General Meeting, after review of the report of the Board of Directors and the special report of the Statutory Auditors: 1) authorizes the Board of Directors, in accordance with Articles L. 225-177 et seq. of the French Commercial Code, to grant stock options giving right to subscribe new shares or purchase existing shares (the ‘‘Options’’) to employees and directors (mandataires sociaux) of the Company or its affiliates (as defined by Article L. 225-180 of the French Commercial Code), who individually hold less than 10% of the share capital of the Company (hereinafter, the ‘‘Beneficiaries’’); 2) resolves that this authorization shall be valid for a term of 38 months commencing from the date of this Meeting; 3) 4) 5) 6) resolves that the maximum number of options which may be granted by the Board of Directors and which have not yet been exercised may not provide entitlement to subscribe or purchase a number of shares exceeding 5% of the share capital. This limit shall be assessed at the time of the grant of the options by the Board considering not only the new options thus offered but also those options which were previously granted and not yet exercised; resolves that the list of persons granted Options amongst the Beneficiaries and the number of options granted to each of them shall be freely determined by the Board of Directors; acknowledges that, pursuant to the law, no stock subscription or purchase option may be granted during the black-out periods as defined by Article L. 225-177 of the French Commercial Code; resolves that the subscription price of the new shares or the purchase price of the existing shares upon exercise of the options shall be determined by the Board of Directors on the day on which the options are granted and that (i) in the case of a grant of options to subscribe shares, this price may not be less than 80% of the average stock price during the twenty (20) stock exchange trading sessions of NYSE Euronext Paris preceding the date when the options are granted and (ii) in the case of a grant of options to buy shares, this price may neither be less that the amount determined as in (i) above, nor less than the average stock price defined by Article L. 225-179 of the French Commercial Code. The option exercise price, as determined above, may only be modified if the Company carries out a financial or securities transaction of a kind described under Article L. 225-181 of the French Commercial Code. In such case, the Board of Directors shall proceed, in accordance with legal and regulatory conditions, with an adjustment of the price and number of shares to be purchased or subscribed, as the case may be, by the exercise of the options in order to take into account the impact of the transaction in question; 200 DASSAULT SYST `EMES Annual Report 2012 General meeting of shareholders 7 7) 8) acknowledges that this authorization includes, in favor of the Beneficiaries of options to subscribe shares, the express waiver by the shareholders of their preferential subscription right to shares which will be issued over time by the exercise of the options; grants all powers to the Board of Directors in order to determine the terms and conditions of the Options and, in particular, to determine, without limitation the following: (cid:127) the period for validity of the options, it being understood that the exercise of the options may not take place more than ten years after their date of allocation; (cid:127) the date(s) or periods of exercise of the options, it being understood that the Board of Directors may (a) move forward the dates or periods of exercise of the options, (b) maintain the exercisable nature of the options or (c) modify the dates or periods during which the shares arising from exercise of the options may not be transferred or put in bearer form; (cid:127) any terms prohibiting immediate resale of all or part of shares arising from the exercise of the options, provided that the time limit during which the shares may not be sold may not exceed three years after the date of exercise of the option, without prejudice to the terms set forth under Article L. 225-185 of paragraph 4 of the French Commercial Code; (cid:127) where appropriate, limit, suspend, restrain or prohibit the exercise of options or the transfer of shares or their being put into bearer form, with respect to shares acquired through the exercise of the options during certain periods or following certain events, and its decision may be applied to all or part of the options or shares or concern all or part of the Beneficiaries; (cid:127) define the date, even retroactively, at which the new shares arising from the exercise of the options will give right to dividends; 9) resolves that the Board of Directors shall have any and all powers, including the power of delegation, subject to legal terms, to record the capital increase up to the amount of the shares actually subscribed by the exercise of subscription options, amend the by-laws accordingly, and upon its sole discretion deduct the expenses resulting from the increase of capital from the amount of the premium relating to these transactions and deduct from this amount the amounts necessary to bring the legal reserve to one-tenth of the new share capital after each increase, and carry out any useful formalities required for the listing of the shares thus issued, all filings with the authorities and organizations and take any other measures which may be required; 10) resolves that this authorization shall render any unused portion of any prior authorization given to the Board of Directors to grant share subscription or purchase options and, in particular the authorization granted by the Combined General Meeting of Shareholders of May 27, 2010 in its sixteenth resolution. SEVENTEENTH RESOLUTION Delegation to the Board of Directors to increase the share capital for the benefit of members of a Company’s savings plan The General Meeting, after reviewing the report of the Board of Directors and the special report of the Statutory Auditors, ruling in accordance with the provisions of Articles L. 3332-1 et seq. of the French Labor code and Articles L. 225-138-1 and L. 225-129-6 of the first and second paragraphs of the French Commercial Code: 1) 2) 3) 4) delegates to the Board of Directors its power to increase the share capital of the Company, in one or more transactions, upon its sole decision, of a nominal amount not exceeding e5 million, through the issue of new shares or other securities giving access to the share capital of the Company in the conditions set by the law, reserved to the employees of Dassault Syst `emes and/or to its affiliates as defined in Article L. 225-180 of the French Commercial Code and in accordance with Article L. 3344-1 of the French Labor code, who are members of a Company’s savings plan; resolves to cancel the shareholders’ preferential subscription rights to the new shares to be issued or other securities giving access to the share capital and to the securities to which the securities issued under this resolution will give a right in favor of the members of the plans defined in the preceding paragraph, and to waive any rights to the shares or other securities which may be granted pursuant to this resolution; resolves that the maximum nominal amount which may be issued under this delegation will be deducted from the aggregate nominal maximum of e15 million referred to in the ninth resolution of this General Meeting; resolves that the subscription price of the new shares shall be equal to 80% of the average stock price during the twenty (20) stock exchange trading sessions of the regulated market of NYSE Euronext Paris preceding the date of the decision determining the opening date of subscriptions when the time period of non-availability as provided for in the plan d’ ´epargne pursuant to Article L. 3332-25 of the French Labor code is less than ten years, and to 70% of this average when such time period of non-availability is equal to or greater than ten years. However, the General Meeting expressly authorizes the Board of Directors, if appropriate in its opinion, to reduce or eliminate the above-mentioned discounts, within the applicable legal and regulatory limits, in order to take into account, inter alia, the applicable local legal, accounting, tax and labor regimes; DASSAULT SYST `EMES Annual Report 2012 201 General meeting of shareholders 7 5) 6) 7) 8) resolves that the Board of Directors may also substitute all or part of the discount by the granting free shares or other securities giving access to the share capital of the Company, existing or to be issued, the total benefit resulting from such grant and, as the case may be, from the above-mentioned discount, not exceeding the total benefit which the members of the plan d’ ´epargne would have received if the discount had been 20% or 30%, depending on whether the period of non-availability as provided by the plan is equal to or greater than ten years; resolves that the Board of Directors may provide for, pursuant to Article L. 3332-21 of the French Labor code, grants of free shares or other securities giving access to the share capital of the Company, issued or already issued through an employer contribution, it being understood that their total monetary benefit, evaluated at the subscription price, may not exceed the legal or regulatory limits; resolves that the characteristics of the other securities giving access to the share capital of the Company shall be determined by the Board of Directors in accordance with regulations; resolves that the Board of Directors shall have any and all powers, including the power of delegation and sub-delegation, subject to legal and regulatory terms, subject to the limits and conditions set forth above, to determine all terms and conditions of the transactions, and in particular, to decide the amount to be issued, the issue price, the modalities of each issue; to decide and set the modalities for granting free shares or other securities giving access to the share capital, pursuant to the authorization given above to set the dates for opening and closing of the subscriptions; to set the period granted to the subscribers for the payment of their securities, which shall not exceed three years; to set the date, with or without retroactive effect, after which the securities shall carry dividend rights; to request the listing of the securities wherever it will choose; to record the capital increase up to the amount of the shares actually subscribed; and to take all measures in order to duly carry out the capital increases; to perform all formalities resulting from the capital increases and amend the by-laws accordingly; and upon its sole discretion and if it considers it appropriate, to deduct the expenses resulting from these increases of capital from the amount of the premium relating to the capital increases and deduct from this amount the sums necessary to bring the legal reserve to one-tenth of the new share capital after each increase; 9) resolves that this delegation shall replace and supersede any previous delegation relating to the increase of share capital for the benefit members of a plan d’ ´epargne d’entreprise and in particular the delegation granted by the Combined General Meeting of Shareholders on May 26, 2011, in its twentieth resolution; 10) this delegation to the Board of Directors shall be valid for a term of 26 months from the date of this Meeting. ORDINARY AND EXTRAORDINARY GENERAL MEETING EIGHTEENTH RESOLUTION Powers for formalities The General Meeting hereby grants any and all powers to the bearer of an original, a copy or an excerpt of the minutes of these deliberations for the purpose of carrying out any legal formalities for publication. 202 DASSAULT SYST `EMES Annual Report 2012 CROSS-REFERENCE TABLES Annual Financial Report The cross-reference table below allows to identify the information included in the Annual Financial report provided by the article L. 451-1-2 of the Monetary and Financial French Code and by the article 225-3 of the General Regulation of the Autorit ´e des march ´es financiers. ANNUAL FINANCIAL REPORT 1. Parent Company Financial Statements 2. Consolidated Financial Statements of the Group 3. Management Report 4. Certification of the Person Responsible for the Reference Document 5. Statutory Auditors Report on the Parent Company Financial Statements 6. Statutory Auditors Report on the Consolidated Financial Statements 7. Principal Accountants Fees and Services Reference Document Paragraphs Pages 4.2 4.1 111 74 See Annual Management report below 4.2.5 4.1.2 5.5 4 136 109 172 Annual Management report The cross-reference table below identifies in the Reference Document the information included in the Annual Management Report to be provided by the Company’s Board of Directors, as required by articles L. 225-100 and seq. of the French Commercial Code. ANNUAL MANAGEMENT REPORT Reference Document Paragraphs Pages 1. Business Trends Analysis 2. Analysis of Results 3. Financial Operations Analysis 4. Description of Main Risks and Uncertainties 5. Financial Instruments Use 6. Risk Factors such as Pricing, Credit, Liquidity in Cash and Treasury 7. Current Delegations to the Board of Directors and their Use during the Fiscal Year 2012 8. Information Required by the Article L. 225-100-3: Possible Consequences in Case of a Public Tender Offer 9. Information Required by the Article L. 225-211 of the French Commercial Code, Relating to the Shares Repurchases 10. Situation during the Fiscal year 2012 11. Foreseeable Trend of the Situation 3.1 3.1 3.1 1.6 4.1.1 – Note 2 1.6.2 6.2.4 5.1.7.2 6.2.5 60 60 60 24 79 30 178 158 180 1.3.1, 3.1, 4.2 11, 60, 111 3.1.1.1, 3.2 60, 73 109, 115 23 12. Substantial Events Occurred since the End of 2012 4.1.1 – Note 28, 4.2.3 – Note 1 13. Research & Development Activities 1.5 14. Business and Results of Operations of the Parent Company Dassault Syst `emes SA 1.3, 1.4, 4.2.3 – Note 1 11, 13, 115 15. Business and Results of the Parent Company’s Subsidiaries during the Fiscal Year 2012 16. 2013 Business Outlook 17. Selected Financial Information of Dassault Syst `emes SA over the Last Five Fiscal Years 18. Employees’ Involvement in the Capital of the Issuer the Last Day of the Fiscal Year 19. Compensation and Benefits Granted to each Director (mandataires sociaux) of Dassault Syst `emes in 2012 20. List of the Terms and Responsibilities of the Directors (mandataires sociaux) of Dassault Syst `emes in 2012 21. Social and Environmental Information 1.3, 1.4 3.1.1.1, 3.2 4.2.4 6.3.1 5.3.1 5.1.1.1 2 11, 13 60, 73 135 183 160 141 33 22. Equity Holdings or Controlled Companies, Subsidiaries with a French Head-Office 4.2.3 – Notes 1, 25 115, 134 DASSAULT SYST `EMES Annual Report 2012 203 Cross-reference tables ANNUAL MANAGEMENT REPORT 23. Table of Transactions in the Company’s Shares by the Management of the Company 24. Information on the Payment Cycles for Suppliers 25. Chairman of the Board’s Report on Corporate Governance and Internal Control 26. Dividends Paid over the Last Three Fiscal Years Reference Document Paragraphs Pages 5.4 4.2.3 – Note 13 5.1 7.1 168 127 141 187 Cross-reference table including the European Directive no 809/2004 – Annex 1 items The cross-reference table below identifies the information included in the Reference Document, and reflects the transposition of the European Directive no 809/2004 in its Annex 1, adopted by the European Commission of April 29, 2004. EUROPEAN DIRECTIVE – ANNEX 1 ITEMS Paragraphs Pages Reference Document 1. PERSONS RESPONSIBLE 1.1 Name and function of the persons responsible 1.2 Declaration of the persons responsible 2. STATUTORY AUDITORS 3. SELECTED FINANCIAL INFORMATION 4. RISK FACTORS 5. INFORMATION ABOUT THE ISSUER 5.1 History and development of the Company 5.2 Investments 6. BUSINESS OVERVIEW 6.1 Principal activities 6.2 Principal markets 6.3 Exceptional factors 6.4 Extent to which the issuer is dependent on patents or licenses, industrial, commercial or financial contracts or new manufacturing processes 6.5 Basis for any statements made by the issuer regarding its competitive position 7. ORGANIZATIONAL STRUCTURE 7.1 Brief description of the Group 7.2 List of the significant subsidiaries 4 4 172 5 24 6 9 13 17 24 13 11 11 5.5 1.1 1.6 1.2.1 1.2.2 1.4.1 1.4.2 None 1.6 1.4.1 1.3.1 1.3.2 8. PROPERTY, PLANT AND EQUIPMENT 8.1 Existing or planned material tangible fixed assets 8.2 Any environmental issues that may affect the issuer’s utilization of the tangible 1.2.3.3, 4.1.1 – Notes 14, 25 11, 93, 106 fixed assets 9. OPERATING AND FINANCIAL REVIEW 10. CAPITAL RESOURCES 11. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 12. TREND INFORMATION 13. PROFIT FORECASTS OR ESTIMATES 14. ADMINISTRATIVE, MANAGMENT AND SUPERVISORY BODIES AND SENIOR MANAGEMENT 1.2.3.2 3.1 3.1.5 1.5 1.6.1.1 3.2 10 60 72 23 24 73 14.1 Information relating the Board of Directors and Senior Management 14.2 Administrative, Management and Supervisory Bodies and Senior Management Conflicts 5.1.1, 5.1.2 141, 149 of Interests 15. REMUNERATION AND BENEFITS 15.1 Amount of remuneration paid and benefits in kind 15.2 Amount set aside or accrued to provide pension, retirement or similar benefits 5.1.3 5.3 5.3.1 – Table 10 150 160 165 204 DASSAULT SYST `EMES Annual Report 2012 Cross-reference tables EUROPEAN DIRECTIVE – ANNEX 1 ITEMS Paragraphs Pages Reference Document 16. BOARD PRACTICES 16.1 Date of expiration of the current term of office 16.2 Service contracts with the issuer 16.3 Information about the Committees 16.4 Statement of compliance with the regime of corporate governance 17. EMPLOYEES 17.1 Number of employees 17.2 Shareholdings and stock options 17.3 Arrangement involving the employees in the issuer’s capital 18. MAJOR SHAREHOLDERS 18.1 Shareholders having more than 5% of interest in the issuer’s capital or of voting rights 18.2 Existence of different voting rights 18.3 Control of the issuer 18.4 Arrangement, known to the issuer, the operation of which may at a subsequent date result in a change in control of the issuer 19. RELATED PARTY TRANSACTIONS 20. FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES 20.1 Historical Financial Information 20.2 Pro forma Financial Information 20.3 Financial Statements 20.4 Auditing of Historical Annual Financial Information 20.5 Date of the latest financial statements 20.6 Interim and Other Financial Information 20.7 Dividend Policy 20.8 Legal and Arbitration Proceedings 20.9 Significant Change in the Issuer’s Financial or Trading Position 21. ADDITIONAL INFORMATION 21.1 Share Capital 21.2 Memorandum and By-laws 22. MATERIAL CONTRACTS 23. THIRD-PARTY INFORMATION, EXPERTS’ STATEMENTS AND DECLARATION OF ANY INTEREST 24. DOCUMENTS AVAILABLE TO THE PUBLIC 5.1 5.1.1.1 5.1.3 5.1.1.3 5.1, 5.1.5 2.1.2, 2.1.3 5.1.1, 5.3.2 None 6.3 6.3.1 6.1.2.3 6.3.2 6.3.3 141 141 150 147 141, 154 33, 34 141, 165 183 183 175 184 185 4.1.1 – Note 26, 4.2.6, 7.1 107, 137, 187 4.1 Not applicable 4.2 4.1.2, 4.2.5, 4.2.6 December 31, 2012 3.3 7.1 4.3 4.1.1 – Note 28 74 111 109, 136, 137 73 187 140 109 6.2, 6.3 6.1.2 1.4.3 177, 183 174 23 Not applicable 6.1.1.6 173 25. INFORMATION ON HOLDINGS 1.3.2, 4.1.1 – Note 27, 4.2.3 – Note 25 11, 108, 134 DASSAULT SYST `EMES Annual Report 2012 205 M O C S D 3 W W Tél. : +33 (0)1 61 62 61 62 W 10, rue Marcel Dassault CS 40501 78946 Vélizy-Villacoublay Cedex France . .