Dassault Systemes Annual Report 2015

Plain-text annual report

2015 3DEXPERIENCE® A N N U A L R E P O R T DASSAULT SYSTÈMES FINANCIAL REPORT GROUP PRESENTATION FINANCIAL REVIEW & STATEMENTS CORPORATE GOVERNANCE GENERAL MEETING OF SHAREHOLDERS CONTENTS 1 2 3 4 PERSON RESPONSIBLE 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 RESPONSIBILITY 2.1 Social and Societal Responsibility 2.2 Environmental Responsibility 2.3 Independent Veriﬁ er’s Attestation and Assurance Report on Social, Societal and Environmental Information 3 5 6 8 12 14 27 28 37 38 58 68 FINANCIAL REVIEW AND PROSPECTS 71 3.1 Operating and Financial Review 3.2 2016 Financial Objectives and Multi-Year Growth Plan 3.3 Interim and Other Financial Information FINANCIAL STATEMENTS 4.1 Consolidated Financial Statements 4.2 Parent Company Financial Statements 4.3 Legal and Arbitration Proceedings 72 83 84 85 86 124 150 5 6 7 CORPORATE GOVERNANCE 151 5.1 Report of the Chairman on Corporate Governance and Internal Control 5.2 Report of the Statutory Auditors on Corporate Governance and Internal Control 5.3 Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5.4 Transactions in the Company’s Shares by the Management of the Company 5.5 Statutory Auditors INFORMATION ABOUT DASSAULT SYSTÈMES SE, THE SHARE CAPITAL AND THE OWNERSHIP STRUCTURE 6.1 Information about Dassault Systèmes SE 6.2 Information about the Share Capital 6.3 Information about the Shareholders 6.4 Stock Market Information GENERAL MEETING 7.1 Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7.2 Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 152 171 172 181 184 185 186 189 194 199 201 202 208 CROSS-REFERENCE TABLES 216 ANNUAL REPORT 2015 ANNUAL FINANCIAL REPORT This document is an English-language translation of Dassault Systèmes’ Document de référence (Annual Report), which was ﬁ led with the AMF (French Financial Markets Authority) on March 23 , 2016, in accordance with Articles 212-13 of the AMF General Regulation. Only the French version of the Document de référence is legally binding. DASSAULT SYSTÈMES ANNUAL REPORT 2015 1 GENERAL This Annual Report also includes: (cid:125) the annual ﬁ nancial report to be prepared and published by every listed company within four months of the end of its ﬁ scal year, pursuant to Article L. 451-1-2 of the Monetary and Financial Code and Article 222-3 of the French Financial Markets Authority (“AMF”) General Regulation; and (cid:125) the annual management report of Dassault Systèmes SE’s Board of Directors, which must be provided to the General Meeting of Shareholders approving the ﬁ nancial statements for each completed ﬁ scal year, pursuant to Articles L. 225-100 et seq. of the French Commercial Code. The index set forth on page 216 provides cross-references to the relevant portions of these two reports. All references to “euro” or to the symbol “€” 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 Systèmes”, the “Company” or the “Group” refers to Dassault Systèmes SE and all the companies included in the scope of consolidation. “Dassault Systèmes SE” refers only to the European parent company of the Group,which is governed by French law . 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:125) the consolidated ﬁ nancial statements on pages 84 to 120 (inclusive), the parent company ﬁ nancial statements on pages 123 to 143 (inclusive), and the related audit reports on pages 121 to 122 and, 145 to 148 (inclusive) of the Annual Report (Document de référence) for the year 2014 ﬁ led with the AMF on March 24, 2015, under no. D. 15- 0195; (cid:125) the ﬁ nancial information on pages 70 to 82 (inclusive) of the Annual Report (Document de référence) for the year 2014 ﬁ led with the AMF on March 24, 2015, under no. D. 15- 0195; (cid:125) the consolidated ﬁ nancial statements on pages 66 to 100 (inclusive), the parent company ﬁ nancial statements on pages 102 to 122 (inclusive), and the related audit reports on pages 101, 124 to 127 (inclusive) of the Annual Report (Document de référence) for the year 2013 ﬁ led with the AMF on March 28, 2014, under no. D. 14-0227; (cid:125) the ﬁ nancial information on pages 56 to 65 (inclusive) of the Annual Report (Document de référence) for the year 2013 ﬁ led with the AMF on March 28, 2014, under no. D. 14- 0227. 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 ANNUAL REPORT 2015 DASSAULT SYSTÈMES PERSON RESPONSIBLE Person Responsible for the Annual Report Bernard Charlès – President and Chief Executive Ofﬁ cer. Certiﬁ cation by the Person Responsible for the Annual Report Vélizy-Villacoublay, March 22 , 2016. “I hereby certify, after having taken all reasonable measures for this purpose, that the information contained in this Annual Report (Document de référence) is, to my knowledge, in accordance with the facts and that no information liable to affect its signiﬁ cance has been omitted. I certify that, to my knowledge, the ﬁ nancial statements have been prepared in accordance with applicable accounting standards and give a faithful representation of the assets, ﬁ nancial situation and results of Dassault Systèmes SE and all the companies included in the scope of consolidation, and that the “management report” included in this Annual Report, presents a faithful representation of the business trends, results and ﬁ nancial situation of Dassault Systèmes SE 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 veriﬁ ed the information regarding the ﬁ nancial situation and the ﬁ nancial statements included in this Annual Report and that they have read this document in its entirety. The consolidated ﬁ nancial statements for the year 2013 are covered by a report of the Statutory Auditors, set forth on page 101 of the English-language translation of the registration document for the year 2013 – ﬁ led with the AMF on March 28, 2014 under the number D. 14-0227 – which contains an observation”. Bernard Charlès President and Chief Executive Ofﬁ cer DASSAULT SYSTÈMES ANNUAL REPORT 2015 3 4 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 1 PRESENTATION OF THE GROUP CONTENTS 1.5 Research and Development 1.5.1 Overview 1.5.2 Intellectual Property 1.6 Risk factors 1.6.1 Risks Related to the Company’s Business 1.6.2 Financial and Market Risks 1.6.3 Insurance 27 27 27 28 28 35 36 1.1 Key Figures 1.2 History 1.2.1 History and Development of the Company 1.2.2 Investments 1.3 Group Organization 1.3.1 Dassault Systèmes SE’s Position within the Group 1.3.2 Principal Subsidiaries of the Company 1.4 Business Activities 1.4.1 Principal Activities 1.4.2 Principal Markets 1.4.3 Material Contracts 6 8 8 11 12 12 13 14 14 18 26 DASSAULT SYSTÈMES ANNUAL REPORT 2015 5 1 Presentation of the Group Key Figures 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. A financial review including a comparison of 2015 and 2014 can be found in Chapter 3, “Financial review and prospects”. (in millions, except percentages and per share data) Total revenue Software revenue Operating income As a percentage of total revenue Net income attributable to equity holders of the Company Diluted net income per share (1) Dividend per share (1) Supplemental non-IFRS financial information (3) Total revenue Software revenue Operating income As a percentage of total revenue Net income attributable to equity holders of the Company Diluted net income per share (1) Year ended December 31, 2015 €2,839.5 2,502.8 633.2 22.3% 402.2 €1.57 €0.47 (2) 2014 €2,294.3 2,035.0 430.8 18.8% 291.3 €1.14 €0.43 2013 €2,066.1 1,880.8 503.0 24.3% 352.3 €1.38 €0.42 €2,876.7 2,537.9 €2,346.7 2,078.6 €2,072.8 1,887.5 884.9 30.8% 576.6 €2.25 699.2 29.8% 465.5 €1.82 652.8 31.5% 445.5 €1.75 (1) All historical per share data reflects the two-for-one stock split effected in July 2014 (see paragraph 6.2 “Information about the Share Capital”). (2) To be proposed for approval at the General Meeting of Shareholders scheduled for May 26, 2016. (3) 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”. 6 ANNUAL REPORT 2015 DASSAULT SYSTÈMES (in millions) ASSETS Presentation of the Group Key Figures 1 Year ended December 31, 2015 2014* 2013 1 Cash, cash equivalents and short-term investments €2,351.3 €1,175.5 €1,803.7 Trade accounts receivable, net Other assets TOTAL ASSETS LIABILITIES AND EQUITY Unearned revenue Borrowings Other liabilities Parent shareholders’ equity TOTAL LIABILITIES AND EQUITY 739.1 3,221.0 6,311.4 778.0 1,000.0 1,064.9 3,468.5 627.7 3,159.2 4,962.4 636.8 360.1 1,022.0 2,943.5 €6,311.4 €4,962.4 * The consolidated balance sheet as of December 31, 2014 has been restated to reflect the finalized purchase price allocation for prior year business combinations. (in millions) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Year ended December 31, 2015 €633.3 (60.5) 548.4 55.1 2014 €499.5 (1,000.9) (170.3) 38.0 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS €1,176.3 €(633.7) 472.6 1,911.6 4,187.9 489.0 380.0 708.4 2,610.5 €4,187.9 2013 €506.8 (168.6) 276.2 (35.8) €578.6 DASSAULT SYSTÈMES ANNUAL REPORT 2015 7 1 Presentation of the Group History 1.2 History 1.2.1 History and Development of the Company 1.2.1.1 Summary Dassault Systèmes, the 3DEXPERIENCE Company, provides software applications and services, designed to support companies’ innovation processes. The Company’s software applications and services span design from ideation, to early 3D digital conceptual design drawings to full digital mock-up; virtual testing of products; end-to-end global industrial operations, including manufacturing management to operations planning & optimization; and in marketing and sales from digital marketing and advertising to end-consumer shopping experience. The Group brings value to over 200,000 customers of all sizes, in all industries, in more than 140 countries. Dassault Systèmes is the world leader of the global Product Lifecycle Management (“PLM”) market (design, simulation, manufacturing and collaboration) based upon end-user software revenue, a position which it has held since 1999. Dassault Systèmes 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 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. its work with Through industrial customers, the large 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 an 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 architected 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 design to 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 current horizon, 3DEXPERIENCE, based on the Company’s technology architecture Version 6 (“V6”) and designed to support its clients in their innovation process so that they can invent the future of their users’ experiences. 3DEXPERIENCE builds upon the Company’s work in 3D, DMU, and PLM, and reflects the evolution Dassault Systèmes began to see among its clients in different industry verticals. It can be used on premise or online, in a public or private cloud. With 3DEXPERIENCE, the Company expanded its purpose to encompass the harmonization of product, nature and life; and moved to an industry go-to-market strategy. See paragraphs 1.2.1.3 “Dassault Systèmes’ Purpose and Strategy”, 1.4.1.1 “Summary” and 1.4.1.4 “Technology and Science” for further information. 8 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group History 1 1 1.2.1.2 Summary Timeline 1981 (cid:96) Creation of Dassault Systèmes to design products in 3D through the spin-off of a team of engineers from Dassault Aviation; (cid:96) The Company’s ﬂ agship brand, CATIA, is launched; (cid:96) Worldwide marketing, sales and support agreement with IBM, beginning of a long-standing partnership; (cid:96) Initial industry focus: automotive and aerospace. 1986 (cid:96) V3 software introduced for 3D Design. 1994 (cid:96) V4 architecture introduced offering a new technology enabling the full Digital Mock-Up (“DMU”) of a product, enabling customers to signiﬁ cantly reduce the number of physical prototypes and to have a complete understanding of the virtual product; (cid:96) Expansion of the Company’s industry focus to seven industries, adding fabrication and assembly, consumer goods, high-tech, shipbuilding and energy. 1996 (cid:96) Initial public offering in Paris and listing on the NASDAQ (the Company voluntarily delisted from the NASDAQ in 2008). 1997 (cid:96) 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:96) Formation of the Company’s Professional channel, focused on marketing, sales and support of SOLIDWORKS. 1998 (cid:96) Creation of the ENOVIA brand, focused on management of CATIA product data with the acquisition of IBM’s Product Manager software. 2005 (cid:96) Creation of the SIMULIA brand, addressing realistic simulation, representing a signiﬁ cant expansion of the Company’s simulation capabilities, leveraging the acquisition of Abaqus; (cid:96) Creation of the Company’s PLM Value Solutions sales channel, an indirect channel for the PLM market speciﬁ cally focused on supporting SMB companies. 2006 (cid:96) Expansion of the ENOVIA portfolio with the acquisition of MatrixOne, a global provider of collaborative PDM software and services; (cid:96) Expansion of the Company’s industry focus from seven to 11 industries. 2007 (cid:96) Amendment of the IBM PLM partnership agreement, outlining the progressive assumption of full responsibility for the Company’s PLM Value Solutions channel; (cid:96) 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:96) Further expanding its product offering for CATIA, the Company acquired ICEM, a company well-known in the automotive industry for its styling and high-quality surface modeling and rendering solutions. 2008 (cid:96) Introduction of the Company’s V6 architecture. 2010 (cid:96) 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:96) Acquisition of Exalead, a French company providing search platforms and search-based applications for consumer and business users. 1999 (cid:96) Launch of V5, a new architecture software for the PLM market designed for both Windows NT and UNIX environments; (cid:96) 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. 2011 (cid:96) DELMIA’s offering expands with the acquisition of Intercim, offering manufacturing and production management software for advanced and highly regulated industries; (cid:96) 100% of the Company’s total revenues are derived from its wholly-directed three sales channels, completing the transition from IBM begun in 2005. 2000 (cid:96) Creation of the DELMIA brand, addressing the digital manufacturing domain (digital process planning, robotic simulation and human modeling technology). 2012 (cid:96) Expansion of the Company’s strategy to 3DEXPERIENCE and expansion of the Company’s purpose. See paragraph 1.2.1.3 “Dassault Systèmes’ Purpose and Strategy”; DASSAULT SYSTÈMES ANNUAL REPORT 2015 9 1 Presentation of the Group History (cid:96) Creation of a new brand, GEOVIA, dedicated to model the planet, focus on a new industrial sector, Natural Resources, with the acquisition of Gemcom in the mining sector; (cid:96) Acquisitions of Netvibes, bringing intelligent dashboarding capabilities, and SquareClock, providing cloud-based 3D space planning solutions; (cid:96) Introduction of the Company’s ﬁ rst Industry Solution Experiences. 2013 (cid:96) Unveiling of V6 Release 2014, available to select customers, on premise as well as Software as a Service (SaaS), featuring the controlled availability of existing and new industry-focused and user-focused offerings and the introduction of a new navigational user interface; (cid:96) Broadening of the Company’s manufacturing offerings to Manufacturing Operations Management with the acquisition of Apriso. 2014 (cid:96) Introduction of 3DEXPERIENCE R2014x, the ﬁ rst release of the Company’s new 3DEXPERIENCE platform, offering end-to-end engineering, manufacturing and business capabilities and services, with the V6 architecture as its foundation; integrated scientiﬁ c, and (cid:96) Creation of a new brand, 3DEXCITE, with the acquisition of Realtime Technology AG (“RTT”) providing professional high-end 3D visualization software, marketing solutions and computer generated imagery services to extend the Company’s offerings to marketing professionals; (cid:96) Creation of a new brand, BIOVIA, dedicated to address science-based industries, combining the acquisition of Accelrys and the Company’s internal developments in BioPLM; (cid:96) Further broadening of the Company’s manufacturing offerings with the Quintiq acquisition in operations planning and optimization. 2015 (cid:96) Introduction of 3DEXPERIENCE R2015x, offering a simpliﬁ ed and improved user experience, with powerful enhancements that signiﬁ cantly increase productivity on premise as well as on public or private cloud. In addition, R2015x introduces groupings of applications called “roles”, to cover industry- speciﬁ c needs; (cid:96) Dassault Systèmes completed the change of the legal status of the parent company from that of a french public limited company (société anonyme) to that of a European company. The adoption of the status of European company (Societas Europaea, SE) is reﬂ ecting the international dimension of the Company and its growing presence in Europe; (cid:96) CATIA’s capabilities were expanded to further enhance its coverage of complex mechatronics systems engineering, 10 ANNUAL REPORT 2015 DASSAULT SYSTÈMES with the acquisition of Modelon GmbH, an expert in “ready- to-experience” content for systems modeling and simulation which are strategic to transform the Transportation & Mobility industry. 2016 (cid:96) 3DEXPERIENCE 2016x general availability was announced on February 4, 2016. For further information on acquisitions over the last three years, see paragraph 1.2.2 “Investments”. 1.2.1.3 Dassault Systèmes’ Purpose and Strategy Dassault Systèmes’ corporate purpose 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. Enabling this flow unleashes the innovation its 3DEXPERIENCE potential. Dassault Systèmes, with platform leveraging its V6 architecture, provides this “linkage”, enabling its clients to create the value that their ultimate consumers are seeking. The Company’s 3DEXPERIENCE portfolio is designed to support 3D realistic virtual experiences representing usage of future products, and is comprised of social and collaborative applications, 3D modeling applications, simulation intelligence and applications. applications, information For Dassault Systèmes 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, Dassault Systèmes has adapted its organization to provide a strong focus on the users of its software through its brands structure, while at the same time, advancing the understanding and development of the needs of its 12 target industries through the combined action of its organization by industry, sales channels and local geographic presence. Dassault Systèmes 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 Systèmes has crossed into the next stage in its vision of the future: the 3DEXPERIENCE era, where helping customers reach a new milestone in terms of innovation for a greater end-user satisfaction, is the new way of doing business. 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. In addition, with its expanded purpose and Industry Solution Experiences strategy the Company is growing its addressable market along two axes: (i) broadening its offer to cover the key product disciplines of clients adding upstream consumer insights to its core markets of design, engineering, simulation and manufacturing, and extending through to business planning and operations and point of sales and end-consumer experiences; and (ii) expanding its market coverage to address industries focused on the interaction of business and people with nature (geosphere) and business and people with life sciences (biosphere). As a result, the Company has and will continue to evaluate potential external investments complementing and extending the business value it brings to industries, clients and users. For further information, see paragraphs 1.2.1.3 “Dassault Systèmes’ Purpose and Strategy” and 1.4.1.3 “Growth Strategy”. Acquisitions from 2013-2015 Well aligned with its expanded purpose and addressable market vision introduced in 2012, Dassault Systèmes has been in an active period of discussions with selected companies. On a net cash basis, the Company’s investments in acquisitions totaled €20.2 million in 2015, €952.9 million in 2014 and €213.4 million in 2013. systems complex mechatronics In 2015, Dassault Systèmes expanded CATIA’s capabilities in engineering, acquiring Modelon GmbH, an expert in “ready-to-experience” content for systems modeling and simulation which are strategic for the transportation and mobility industry. With this transaction, Dassault Systèmes reinforces its portfolio of industry-leading content, applications and services used in today’s age of experience. During 2014 the Company invested €952.9 million on a net cash basis to acquire companies in several key areas: (i) addressing the life sciences where it introduced a new brand, BIOVIA, based upon the acquisition of Accelrys and the Company’s in bio-intelligence; (ii) addressing marketers with the RTT acquisition, rebranded as 3DEXCITE, which enables the reuse of virtual mock-ups or 3D product designs to create images, marketing brochures, promotional films or virtual but very realistic show rooms; internal research Presentation of the Group History 1 1 and (iii) addressing business operations management with the acquisition of Quintiq, for supply chain, logistics and workforce operations planning and optimization. In addition, the Company strengthened the capabilities of its simulation brand, SIMULIA with the acquisition of SIMPACK for multi- body simulation. In 2013, the Company completed seven acquisitions, for a total net cash investment of €213.4 million, in manufacturing, simulation and in urban modeling as follows: in manufacturing where the Company significantly (i) expanded its DELMIA offering with Apriso, providing manufacturing operations management software solutions; (ii) in analysis and simulation, further strengthening CATIA and SIMULIA’s capabilities with SFE bringing a fully integrated design-simulation approach to run simulations at an early stage of concept design and shorten product development time; FE-DESIGN bringing powerful design optimization technology; SIMPOE for plastic injection molding simulation and Safe Technology for fatigue simulation to evaluate product durability; and (iii) in the automated creation and management of urban cities and landscapes with Archivideo. The Company’s principal acquisitions with an individual purchase price greater than €100 million over the last three years include: Acquisition Accelrys Quintiq RTT Apriso Year 2014 2014 2014 2013 Purchase Price €542 million €260 million €191 million €179 million 2014: Creation of the BIOVIA brand, addressing science- based industries with the acquisition of Accelrys and the Company’s internal BioPLM developments. In April 2014, Dassault Systèmes completed the acquisition of Accelrys, a leading provider of scientific innovation lifecycle management software for chemistry, biology and materials sciences industries, a publicly-traded company based in San Diego, United States. BIOVIA provides a scientific collaborative environment for biological, formulated products and advanced materials to help science- and process-driven companies develop better products faster and more cost-effectively in regulated and non-regulated environments. 2014: Dassault Systèmes Extends 3DEXPERIENCE platform to Global Business Operations Planning with Quintiq Acquisition. DASSAULT SYSTÈMES ANNUAL REPORT 2015 11 1 Presentation of the Group Group Organization In September 2014, the Company completed the acquisition of Quintiq, a global leader in operations management and optimization with offerings spanning notably production, supply chain, logistics, and workforce management. Quintiq further enriches the 3DEXPERIENCE platform capabilities and enables a better support for the Company’s customers in industries such as metals, mining, oil & gas, air transport and rail, logistics and freight. Key reasons customers select Quintiq’s solutions include: i) a single, integrated solution able to solve operations planning puzzles; ii) a solution designed to be 100% adaptable to each client’s unique business processes, requirements and constraints; iii) KPI-based planning; iv) superior performance results from record-breaking technology; and v) seamless integration with existing IT infrastructure. 2014: Creation of the 3DEXCITE brand, following the acquisition of RTT, extending the Company’s offerings to address marketing professionals. January 2014, In the Company acquired Realtime Technology AG, a leading provider of professional high-end visualization software, marketing solutions and computer generated imagery services. Its customer base includes a number of the world’s leading automotive companies as well as global industry leaders in aerospace and consumer goods. With 3DEXCITE’s solutions, companies are able to: i) more closely link design and marketing domains thanks to very high level of realistic 3D real-time visualization; ii) speed time from design to sales thanks to the ability to conduct marketing all along the product development cycle; and in turn, iii) derive significant returns on investment over traditional marketing methods. 2013: Broadening of the Company’s manufacturing offerings to Manufacturing Operations Management In July 2013 Dassault Systèmes acquired Apriso, a leading provider of manufacturing operations management software solutions, headquartered in Long Beach, California. Apriso complements DELMIA’s application portfolio through its manufacturing operations management capabilities and expands DELMIA’s offer across multiple industries, such as Consumer Goods & Retail, Consumer Packaged Goods & Retail, High-Tech, Life Sciences, Transportation & Mobility, Aerospace & Defense and Industrial Equipment. Key reasons customers select DELMIA Apriso’s solutions i) flexibility to quickly adapt to customer environment while driving best-in-class manufacturing; ii) standardization across multiple plants to establish best practices; and iii) operations monitoring to synchronize product releases across all manufacturing operations. include: 1.3 Group Organization 1.3.1 Dassault Systèmes SE’s Position within the Group integrated Dassault Systèmes SE, the Group’s parent company, fulfills several roles: first, it is one of the Group’s largest operating companies and one of its principal R&D centers, responsible for the development of a number of the Group’s software the 3DEXPERIENCE platform. solutions Dassault Systèmes SE also operates as a holding company as it owns directly or indirectly all the companies that make up the Group. Dassault Systèmes SE plays a centralizing role, defining the Group’s overall strategy and the means for its deployment, as well as the marketing and sales policy through the Group’s three sales channels (described in paragraph 1.4.2.5 “Sales and in Marketing”). The parent company manages the Group’s cash and financing needs centrally (“cash pooling”), and provides support to the Group for a number of activities, including finance, communication, marketing, legal affairs (including management and protection of IP), human resources and IT, and pools certain costs for its subsidiaries. Dassault Systèmes SE receives dividends paid by its subsidiaries. Additionally, the costs of providing centralized services are charged back to the respective subsidiaries benefiting from support services and cost pooling, and it receives royalties related to the IP it holds. 12 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Group Organization 1 1.3.2 Principal Subsidiaries of the Company At December 31, 2015, the Company included Dassault Systèmes SE and 118 operational subsidiaries, as compared to 128 operational subsidiaries in 2014. T he decrease was due principally to the effort of the Company 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. 1 The chart below sets forth the Company’s main subsidiaries. Dassault Systèmes SE Dassault Systemes Deutschland GmbH (Germany) Dassault Systemes Americas Corp. (USA) Dassault Systemes UK Ltd (United Kingdom) Dassault Systemes SolidWorks Corporation (USA) % 0 0 1 Dassault Systemes K.K. (Japan) 100% Dassault Systemes Korea Corp. (South Korea) Dassault Systèmes (Shanghai) Information Technology Co., Ltd (China) Europe Asia Americas Direct and indirect equity interest See also Note 27 to the consolidated financial statements and the table of subsidiaries and shareholdings under Note 24 to the parent company financial statements. DASSAULT SYSTÈMES ANNUAL REPORT 2015 13 1 Presentation of the Group Business Activities 1.4 Business Activities 1.4.1 Principal Activities 1.4.1.1 Summary Dassault Systèmes, the 3DEXPERIENCE Company, provides end-to-end software, content and services, designed to support companies’ innovation processes. The Company’s software applications and services encompass three principal spheres: “Product-Sphere”, “Geo-Sphere” and “Bio-Sphere” reflecting the Company’s expanded purpose to provide business and people with 3DEXPERIENCE universes enabling to imagine innovations capable of harmonizing product, nature and life. Dassault Systèmes is the world leader of the global Product Lifecycle Management market based upon end-user software revenue (source: CIMdata, July 2015), a position which it has held since 1999. Its world leadership reflects its core DNA as a scientific company, combining science, technology and art to help advance the success of customers and users with the Company’s Industry Solution Experiences. Dassault Systèmes software offerings address users all across a company’s product development loop enabling the Group to provide companies with a comprehensive perspective, encompassing: (cid:125) product idea and specification; (cid:125) design with early 3D digital models to full digital mock-ups; (cid:125) virtual testing of products; 14 ANNUAL REPORT 2015 DASSAULT SYSTÈMES (cid:125) virtual production and manufacturing operations management; (cid:125) operations planning and optimization; (cid:125) digital marketing and sales; (cid:125) end-consumer shopping experience. Dassault Systèmes has a diverse customer base, working with the smallest manufacturers in the world to global leaders, and includes companies in 12 vertical 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 and Business Services; and Natural Resources. See paragraph 1.4.2.2 “3DEXPERIENCE Industries Served”. 1.4.1.2 Key Strengths of Dassault Systèmes Dassault Systèmes, the 3DEXPERIENCE Company, has the mission to provide business and people with 3DEXPERIENCE universes to imagine sustainable innovations harmonizing product, nature and life. Its world leading solutions transform the way products are designed, simulated, produced, marketed and supported, leveraging the virtual world to improve the real world. its current horizon, In 2012, the Company unveiled 3DEXPERIENCE, based on the Company’s technology architecture Version 6 (“V6”) and designed to support its clients in their innovation process so that they can invent the future of their users’ experiences. 3DEXPERIENCE builds upon the Company’s work in 3D, DMU, and PLM, and reflects the evolution Dassault Systèmes began to see among its clients in different industry verticals. It can be used on premise or online, in a public or private cloud. The Company is positioned to work with companies from ideation to consumer experience and across departments from research and development, engineering, testing, manufacturing, governance to marketing and sales. The Company believes its global market leadership and financial performance benefit from key characteristics of the Company. Dassault Systèmes is a scientific company serving science, technology and art for a sustainable society. Presentation of the Group Business Activities 1 1 The Company’s DNA to model and represent as scientifically accurate as possible products, nature and life has given birth to a unique portfolio of products and Industry Solutions whose key strength is in their scientific content and deep understanding of industrial processes. This applies to a wide spectrum of applicative domains from modelling and scientific simulation to production and logistics optimization, applicable from Natural Resources to Cities, Transportation, Buildings, Smart Products, Consumer Goods, all the way to biological systems and chemistry. Dassault Systèmes has a substantial commitment to technological innovation which has enabled it to define and create new markets, expanding from 3D Design to Digital Mock-Up, to Product Lifecycle Management and now 3DEXPERIENCE. 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. 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 good understanding of its customers and their most important business values. This level of knowledge enables the Group to develop software solutions more closely attuned to the customers’ requirements, highly suited to their industries, and designed to maximize user productivity and experience. Dassault Systèmes 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 the last sixteen years is its focus on a long-term vision which is characterized by investing in people and its long-term financial model. The Company has a diverse, highly-educated workforce which totalled 13,974, and represented an estimated 123 nationalities. The Company’s long-standing financial model, with a high level of recurring software revenue, representing 70% of the Company’s total non-IFRS software revenue in 2015, has enabled the Company to maintain as well as increase investments in critical resources in R&D and customer support even during challenging macroeconomic environments. Dassault Systèmes’ 3DEXPERIENCE software applications, comprised of leading market brands, have been integral to the Company’s success and continue to be principal areas of R&D investment. The Company’s 3DEXPERIENCE portfolio is designed to support 3D realistic virtual experiences representing usage of future products, and is comprised of 3D modeling applications, simulation applications creating virtual twins of products or production systems, social and collaborative applications, and information intelligence applications. The Company’s brand strategy (see paragraph 1.4.2.4 “3DEXPERIENCE Software Applications Portfolio – Addressing the Needs of its User Communities”) focuses on providing significant value to end-users with the objective of each brand/product line being a leader within its respective markets. In support of its “Social Industry Experiences” strategy, the Company packages its applications and user roles in Industry Processes chosen because of their business relevance in each of the 12 industries the Company targets. The Company is benefiting from a sophisticated organization supporting its multiple growth drivers. In connection with the Company’s 3DEXPERIENCE strategy and reflecting its broadening software applications capabilities, the Company has organized itself along three axes: (i) a strategy to cover customer processes based upon an industry-focused set of offerings, “Industry Solution Experiences” based upon the Company’s underlying software applications portfolio, content and services; (ii) a domain-focused group of software applications organized by brand in order to ensure a strong focus on the satisfaction of end-user needs; and (iii) a global-local-specialized organization in order to leverage its global strengths, while at the same time ensuring a strong local understanding and field operations. The Company believes the structure of its sales, well- balanced between its direct and indirect sales channels has enabled it to have a broad market reach. 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 selectively expand and extend its sales radius, deepen its industry expertise and relationships, as well as domain or discipline knowledge of its three sales channels. Dassault Systèmes has had a long history of partnering, leading to the development of a resilient and dynamic ecosystem of partners, including software development, education and research and technology, and system integrators. Since inception the Company has worked in close partnership in software development and with other professionals technology, in sales and marketing, in services and in education and research. The Company is also expanding its relationships with system integrators with strong industry expertise and regional presence for both sales and service engagements. Moreover, the Group is engaging with its ecosystem, working with more than 400 software development partners building applications complementing its software applications as well as working with key technology partners. Looking to the DASSAULT SYSTÈMES ANNUAL REPORT 2015 15 1 Presentation of the Group Business Activities future, Dassault Systèmes has had long-standing commitment and growing connections with academic, research and now medical organizations around the world, working to use 3D to enable an improved learning environment for students throughout the world and to collaborate in accelerating the creation of new software dedicated to help the digital world improve the real world. 1.4.1.3 Growth Strategy Dassault Systèmes principal growth opportunities reflect its current addressable market opportunity in PLM and the increased potential size of its addressable market, estimated at approximately $32 billion, with the expansion of its market to 3DEXPERIENCE. The Company’s growth strategy is focused on: (cid:125) users expansion in its core industries: the Company sees opportunities to expand the number of users of its software solutions within its core industries through diversification by addressing new disciplines and new segments. Within a corporation, the Company’s applications now target a large portion of the enterprise employees engaged in contributing to the end-consumer product experience, spanning from design, engineering and simulation, to manufacturing, quality assurance and compliance, and from project management, business planning & operations and service departments to marketing, point of sales. For further information see paragraph 1.4.2 “Principal Markets”; (cid:125) diversification of its industry coverage: through its focus on developing industry specific solutions for the 12 vertical industries it addresses, including its Industry Solution Experiences and processes, the Company sees opportunities to expand its presence and has developed industry solutions to further its progress in each of the industrial sectors it targets. For further information, see paragraph 1.4.2.2 “3DEXPERIENCE Industries Served”; (cid:125) deepening of its regional market penetration: the Company sees opportunities to grow its presence in all geographic markets. In order to strengthen and broaden its global footprint, the Company has established 12 regional field organizations to prioritize and drive the Company’s growth initiatives at a local level. See paragraph 3.1.1.1 “Executive Overview for 2015” for further information on growth by geographic region; (cid:125) availability of on premise solutions, on the cloud, and mobile applications: with the Company’s 3DEXPERIENCE platform utilizing a cloud-enabled V6 architecture, the Company is positioned to grow through its Cloud and Mobile offerings. The Company believes that it will become a growth driver with the progressive roll-out of its services offering over the coming years, as well as with the release of mobile applications using tablets because of the quick implementation time and the reduction in total cost of ownership it provides to customers. For further information see paragraph 1.4.1.4 “Technology and Science”; (cid:125) expanding through targeted acquisitions: in 2012, the its next horizon, 3DEXPERIENCE, Company unveiled representing a potential doubling of its addressable market, expanded its purpose and outlined a new strategy. Aligned with its strategy, the Company is complementing its internal developments with key selected acquisitions. For further information see paragraphs 1.2.2 “Investments”, 1.4.1.4 “Technology and Science” and 1.4.2 “Principal Markets”. 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 and Science Dassault Systèmes has a substantial commitment to technological innovation. Important areas of investment in R&D include, among others, the business 3DEXPERIENCE platform foundations and services, Modeling Technologies (3D, systems engineering, natural resources and biosystems), technologies for product, production and usage realistic simulation, intelligent information technologies (indexing, dashboarding and also project management and compliance) and connectivity technologies (for social and structured collaboration). Moreover, the Company’s R&D efforts are centered on advancing breakthrough user experiences, and expanding the reach of its solution with native cloud and mobility solutions. 3DEXPERIENCE business platform, based on the V6 organic architecture Since 1981, the Company has introduced six versions of its architecture, the most recent of which is V6. The V6 software architecture is the foundation of the revolutionary 3DEXPERIENCE Industry Solutions that offer end-to-end and integrated scientific, engineering, marketing, manufacturing and business capabilities and services. This is a unique holistic business-oriented platform. These solutions are based upon 3DEXPERIENCE platform offering the following capabilities: (cid:125) 3D Dashboarding Technologies and Services: The 3DEXPERIENCE platform provides capabilities to dashboard, monitor and summarize all enterprise and business activities. With semantics and mass tagging technologies, the platform provides unique ways of compassing any businesses with real-time streamed media and information in a context-aware, managed and intuitively-experienced fashion; (cid:125) Social Collaboration Technologies and Services: The 3DEXPERIENCE platform allows any business to become social, extending from structured project and organization 16 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Business Activities 1 1 to social and open communities. The technology and services allow seamless integration of communities, people, rich profiles and media with access control and best of breed practices (project management, ideation, wikis, blogs, suggestion engines); (cid:125) Technologies and Services for Enterprise Data and Assets: The 3DEXPERIENCE platform integrates Dassault Systèmes’ brands and industry offerings, with the semantic breadth representation and deepness to handle any kind of data and corporate Intellectual Property for any product, nature or life data sets. These dedicated technologies and services help enable unique experiences for social industries in terms of modeling, lifecycle management and data protection for all social industries; (cid:125) Cloud Technologies and Services: The 3DEXPERIENCE platform provides cloud-based workspaces services and technologies to enable secured, concurrent, and controlled online collaborative environments to share, and innovate on any IP. This technology is unique, optimized for big data and available for remote usage for a wide variety of industry practices; (cid:125) Experiences Play Technologies and Services: The 3DEXPERIENCE platform aims at providing real-time, realistic 3D experiences. The Play Technologies and Services deliver unmatched visualization, execution, interactivity, and scenarios experience in heterogeneous virtual universes. 3D Modeling Technologies The Company’s DNA to model and represent as scientifically accurate as possible products, nature and life has given birth to a unique portfolio of modeling technologies and services ranging from 3D Modeling to Systems Logical and Functional Modeling. This applies to a wide spectrum of applicative domains from Smart/Connected Products to urban systems, to natural resources, to biological systems and chemistry. Virtual + Real Technologies The 3DEXPERIENCE is made possible by real-time realistic simulation of virtual universes. The Company has therefore made significant investments in technologies and services, enabling simulation from product’s complex behaviors; factory and production systems execution; additive manufacturing; logistics operations and consumer usages in everyday life. This relies on unique assets for complexity management and distributed massive multi-discipline execution. ranging Intelligent Information Technologies Thanks to Exalead’s unique technologies, the Company has significantly expanded its indexing and 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. This allows the 3DEXPERIENCE platform customers to tackle big data challenges and benefit from next generation technologies to search, sort, filter, navigate and understand data. The real-time dashboarding technologies provided by Netvibes are in that regard a unique combination for all businesses consuming and producing massive sets of information. Connectivity Technologies The 3DEXPERIENCE platform is serving the social industry experience strategy. With unique connectivity technologies and services, allowing people and communities to connect in a secure and controlled environment, with mobility and online hybrid environments, it enables a new era of innovation on extended ecosystems and fosters a truly open platform innovation for all businesses. It also enables improved project management, conformity to standards, process certification for customers and supply chain relationships. Software, Technology and Science 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 cover end-to-end solutions with holistic offerings; to participate to the future structure of industries; and to integrate the most advanced features of these technologies into its solutions. Further, Dassault Systèmes is a participant in several hundred public-private projects (for example with DARPA, Harvard, INRIA, INSERM, MIT), collaborates with renowned scientists (including Nobel Prize winners) and is engaged in technology partnerships across the 12 industries (and industry sub-segments) it serves. Finally, the Company has software development partners working in each domain of its software solutions. The Company’s global affiliate program enables developers to create and market their own applications fully integrated with and complementary to the Company’s software solutions. DASSAULT SYSTÈMES ANNUAL REPORT 2015 17 1 Presentation of the Group Business Activities 1.4.2 Principal Markets 1.4.2.1 Overview In connection with the Company’s 3DEXPERIENCE strategy and reflecting its broad software applications capabilities, the Company has organized itself along three axes: (i) a strategy to cover customer processes based upon an industry-focused set of offerings, “Industry Solution Experiences” based upon the Company’s underlying software applications portfolio, content and services; (ii) a domain-focused group of software applications organized by brand in order to ensure a strong focus on the satisfaction of end-user needs; and (iii) a global-local-specialized organization in order to leverage its global strengths, while at the same time ensuring a strong local understanding and field operations. See also paragraph 1.4.1.3 “Growth Strategy”. 1.4.2.2 3DEXPERIENCE Industries Served The Company’s global customer base includes companies 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. For its latest full fiscal year 2015, the composition of end-user software revenue by major industry was approximately as follows: Transportation & Mobility about 32% (30% in 2014); Industrial Equipment about 15% (19% in 2014); Aerospace & Defense about 14% (12% in 2014); Business Services about 9% (11% in 2014); Diversification Industries about 30% (28% in 2014). In connection with the Company’s change in its go-to-market strategy evolution from brands to industries commencing in 2012, began the introduction of ‘Industry Solution Experiences’ which are designed to address key business processes of the respective individual industry and are comprised of industry process experiences. To deepen its penetration of each industry, the Company undertakes the continuing development of industry-specific internal development and by solutions, both through acquisition, and increasing its expertise through partnerships with leading companies and system integrators and the addition of specialized direct sales and sales partners. 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 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 Systèmes’ 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 3DEXPERIENCE Industry Solutions The 3DEXPERIENCE platform is a business experience platform. It provides software solutions for every organization within a company – from engineering to marketing and sales – that help clients, in their value creation process, to create differentiating consumer experiences. With a single, easy- to-use interface, the 3DEXPERIENCE platform, available on premise and on cloud, powers Industry Solution Experiences – based on 3D design, analysis, simulation, and intelligence software in a collaborative, interactive environment. industry-leading applications Dassault Systèmes offers the 3DEXPERIENCE platform: Design & delivered on Engineering, Manufacturing & Production, Simulation, for Governance & Lifecycle, 3D Design Experience Professionals, and number of solutions and processes. The 3DEXPERIENCE platform and industry solution experiences on premise and on cloud were first introduced in February 2014. The 3DEXPERIENCE Process Portfolio On Cloud is offered as Software as a Service (SaaS) on a public or private Cloud to provide increased flexibility and fast deployment. In addition to offering the same software applications which are also available on premise for a broad portfolio of Processes and Roles, it includes the operation of the Cloud environment in the price of the Processes. The public cloud operates permanently, and licensing, and upgrades. Total Cost of Ownership is improved by reducing requirements for computing and storage, as well as facility and human resources costs. includes maintenance, A single user interface – the 3D Compass – provides easy-to-use navigation, search, and collaboration in the 3DEXPERIENCE platform environment that is extensible to any discipline in a company – engineering, manufacturing, simulation, sales, marketing, finance, procurement, and management. The V6 architecture unifies the user experience for all Processes and Industries. Built to answer customer and industry specific needs for ease of use and lower training costs, it allows customization and the integration of customer data into a single environment. It provides a single source for truth by integrating all data required to improve processes while eliminating costly IT operations, such as database replication. See paragraph 1.4.1.4 “Technology and Science”. 18 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 1.4.2.4 3DEXPERIENCE Software Applications Portfolio – Addressing the Needs of its User Communities The Company’s 3DEXPERIENCE software applications portfolio is designed to enable the powering of 3D realistic virtual experiences and is comprised of 3D modeling applications, simulation applications, social and collaborative applications, and information intelligence applications. Since its inception, the Company has focused on creating a portfolio of leading brands, each focused on specific user groups. The Company continues to expand its brands and create new brands to meet the evolving needs of existing and new users across its expanded addressable market and, in addition, began introducing in 2012 Industry Solution Experiences. These solutions are designed on an industry-by- industry basis, and are designed to trigger and connect the value created by each discipline in an industry to ensure that the Company value stream is not interrupted. Dassault Systèmes’ investments in research and development, as well as targeted acquisitions, enable the Company to deepen and broaden its offerings for customers as well as to bring its significant assets to help advance innovation in other target domains and industries. These investments advance the Company’s brand portfolio and have led to the introduction of new brands. In 2014 the Company introduced two new brands: (i) BIOVIA, focused on science driven industries to help them introduce scientific innovation in the biologic, chemical and material sciences; and (ii) 3DEXCITE, focused on helping companies across core and other industries create marketing materials from virtual product representations. Presentation of the Group Business Activities 1 1 3D Modeling Applications SOLIDWORKS – Authentic Designer Experience 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:125) 3D Design: 3D design applications 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. (cid:125) 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:125) 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. (cid:125) 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:125) 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. DASSAULT SYSTÈMES ANNUAL REPORT 2015 19 1 Presentation of the Group Business Activities In February 2015, SOLIDWORKS Industrial Design was introduced, the second SOLIDWORKS application to be available on the 3DEXPERIENCE platform, following the launch in 2014 of SOLIDWORKS Conceptual Design. It provides social design capabilities and transparent data management that allow engineers and designers to quickly solve industrial design challenges and easily transition to mechanical design. Safe, secure, intelligent data storage on the cloud can be accessed anytime from anywhere to share designs, collaborate on ideas, save and evaluate multiple concepts. In addition to the products it offers to SOLIDWORKS users, SOLIDWORKS operates a development partnership program bringing together companies supplying complementary products that are either compatible with or tightly integrated. Through this program, over 300 compatible products have been made available to customers in many functional areas, including manufacturing, rapid prototyping and mold design. CATIA – Shape The World We Live In “CATIA is Dassault Systèmes’ pioneer brand and the world’s leading solution for 3D product design and innovation” (source: CIMdata, July 2015). CATIA addresses the complete experience development & innovation process, from the early concept definition to delivering interactive virtual product experiences. Providing innovators with “state of the art” user experiences, the Brand complete portfolio covers from design to engineering, and from styling to systems modeling, within a “3D Virtual Twin” experiencing Environment. CATIA shifts traditional 3D CAD (Computer Aided Design) expectations, delivering high-end solutions adapted to imagine and shape a human centric connected world. In alignment with its mission, CATIA proposes the capacity to design products in context of its intrinsic usage, ultimately enabling innovator communities to virtually experience and share their vision. CATIA 3DEXPERIENCE delivers: (cid:125) a social design environment driving product experience innovation, providing real collaborative features; (cid:125) an instinctive user experience, powered by state of the art and intuitive 3D modeling functionalities; (cid:125) an inclusive experience development platform, easily integrated with both modern and legacy tools, enabling all relevant communities to participate to the design process. (cid:125) CATIA Design: Delivering Advantage by Design Successful product designs evoke positive emotional responses from their consumers. Creative designers need software solutions that enable them to easily craft such products, while collaborating with engineering on the same functional scope. CATIA addresses the entire shape design, styling, and surfacing workflow, from Creative & Industrial Design to Class-A surfacing and Creative Experience. Intuitive shape design solutions deliver flexibility to simplify the design of any kind of complex shape, with advanced functionality like reverse engineering, real-time diagnostics, unified surface modeling, rapid propagation of design changes, and high-end visualization. CATIA enables creative designers, design studios, and engineering departments to easily collaborate and optimize both product aesthetics and engineering aspects concurrently. (cid:125) CATIA Engineering: Engineering Excellence CATIA Engineering enables the creation of any type of 3D components assemblies for all engineering processes. It addresses the requirements of a complete range of industries and processes, covering from cast and forged parts, to plastic injection & molding operations, up to composites part design and manufacturing, sheet metal parts design or even advanced fastening operations. Engineers rely on CATIA 3D Modeling capabilities to define complete mechanical products, including functional tolerances, 3D annotations as well as kinematics. Highly adapted roles in CATIA empower engineers to deliver greatly improved productivity, not only during mechanical design completion, but also when performing design changes for new releases. (cid:125) CATIA Systems Engineering: Mastering Cross-discipline Systems Development Within a dramatically increasing connected world, the complexity of embedded systems continues to grow. The definition, modelling and simulation of individual systems, as well as their interaction with other systems, are becoming definitely strategic. Systems Engineering is essential to avoid detecting unexpected system interactions during the validation and verification phases of the product development process. CATIA Systems Engineering delivers complete portfolio fully supporting cross-discipline systems engineering including Electrical and Fluidic systems, covering from systems definition up to modeling, simulation, and verification. Within this solution, CATIA provides unified and integrated approach to systems engineering that manages the overall development process of cross discipline definition of the many relationships existing between different systems artifacts that are defining today’s complex products. 20 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Business Activities 1 1 GEOVIA – Virtual Planet GEOVIA provides b usiness, g overnment and i ndividuals with 3DEXPERIENCE Universes to model and simulate the Earth from the vast expanse of the geosphere to the smallest details of urban settlements. The dramatic increase of the world’s urban population affects the entire planet, causing a rapid change in the geosphere, and a limited availability of global resources. GEOVIA supports the sustainable capture, use and re-use of natural resources across the planet, including minerals, fresh water, air, oil and gas, and various other forms of energy. From mining to urbanization, GEOVIA delivers innovations to improve people’s life. Mining In mining, GEOVIA’s customers are increasing productivity, efficiency, and safety during the identification and extraction of natural resources. At the same time, they are also achieving a greater level of production predictability and sustainability. With GEOVIA, geologists, mining engineers, operations managers, and executives improve how they model, plan, optimize and understand mining performance to increase profitability. GEOVIA’s software spans all mining phases, including: exploration and evaluation; mine planning; optimization; and mine production. Its applications include: (cid:125) Geology and Mine Planning: GEOVIA Surpac, GEOVIA GEMS, and GEOVIA Minex enable mineral deposits to be modeled and their extraction to be designed and planned in 3D; (cid:125) Optimization and Scheduling: GEOVIA Whittle links business strategy to mine optimization by examining the viability of mineral deposits in consideration of mine designs, mining equipment, and economic factors. Other applications are used to schedule mine production or for block cave mines; (cid:125) Secure, Remote Collaboration: GEOVIA Hub provides secure remote collaboration that organizes, centralizes and enables the reliable sharing of exploration, planning, and production data over low-bandwidth connections; (cid:125) Mine Production Management: GEOVIA InSite increases the confidence in a company’s operations’ ability to meet production targets, manage costs, and improve efficiencies to deliver expected results to stakeholders. Cities During 2014 the Company unveiled GEOVIA 3DEXPERIENCity, with the objective to help potential clients improve the quality of life for the citizens by creating better urban environments for today and tomorrow. With 3DEXPERIENCity, urban planners work in a virtual world to model and simulate the cityscapes and all components making up a city to improve its functions. GEOVIA 3DEXPERIENCity creates unique user experiences that holistically model and analyze all parts and processes constituent to urban life in the geosphere. Within the geosphere, human activities continuously relocate resources. In particular, urban settlements are aggregations and condensation points capturing, using, and reusing the planet’s natural resources. Consequently, the effects of urbanization are not limited to the city, but rather affect the entire geosphere, the entire planet. Through 3D simulation, the future can be displayed, by actively involving government, business, and individuals to facilitate critical decision-making processes with the aim to harmonize product, nature and life. BIOVIA – Virtual Biosphere and Materials BIOVIA provides a scientific collaborative environment for biological, formulated products and advanced materials to help science- and process-driven companies develop better products faster and more cost-effectively in regulated and non-regulated environments. BIOVIA solutions are used by more than 2,000 customers in the pharmaceutical and biotechnology, chemicals, consumer packaged goods, food and beverage, energy, high-tech, transportation and mobility and aerospace industries and in academic/government sectors. The following BIOVIA solution areas integrate the diversity of scientific and experimental processes, information and compliance requirements across research, development, QA/ QC (Quality Assurance and Quality Control) and manufacturing domains: (cid:125) Collaborative Science – faster discovery and innovation by leveraging multi-disciplinary collaboration and knowledge- based understanding, as well as modelling/simulation and predictive science; (cid:125) Unified Lab Management – optimized lab operations by managing all laboratory workflows and resources as well as supporting information sharing and collaboration within and between laboratories, internally and externally; DASSAULT SYSTÈMES ANNUAL REPORT 2015 21 1 Presentation of the Group Business Activities (cid:125) Process Production Operations – providing real-time, on- demand data access, analysis and reporting of quality and process data to optimize manufacturing processes and outcomes globally and throughout the wider ecosystem; (cid:125) Quality and Regulatory Management – supporting regulatory and quality operations to ensure compliance and reduce operational risk in life sciences and other highly regulated industries. BIOVIA’s vision is to allow organizations to collaborate more effectively by managing and sharing scientific information across the value chain from research to commercialization, internally and externally, with the supply chain and partners. By managing and sharing information down to the molecular level, scientists can better understand chemical, biological and new material substances. Integrating BIOVIA’s suite of scientific informatics solutions with Dassault Systèmes’ 3DEXPERIENCE platform will create significant opportunities for BIOVIA in terms of collaboration, project management, data and content reuse, traceability and other processes, applications and integrations that are absolutely critical to science-driven industries. Content and Simulation Applications SIMULIA – Simulation for Product, Nature and Life SIMULIA helps engineers and designers perform realistic virtual testing to provide simulation for product, nature, and life – from Products such as simple parts to entire airplanes, to Nature such as volcano magma chambers and oil reservoir geomechanics, to Life such as Dassault Systèmes’ Living Heart Project and Virtual Human initiative. As an integral part of the Dassault Systèmes 3DEXPERIENCE platform, SIMULIA’s applications accelerate the process of evaluating the performance, reliability, and safety of materials and products before committing to physical prototypes. The Company’s global team of simulation experts helps customers meet their education, research, and development needs. SIMULIA has expanded its technology applications through recent acquisitions to include multiphysics simulation; multiscale simulation; optimization; and simulation process, data and lifecycle management. SIMULIA’s technology portfolio includes Abaqus, fe-safe, Isight, Simpack, Simpoe- Mold, and Tosca. Multiphysics Simulation (cid:125) Structural Analysis (Finite Element Analysis): Analyze two or more interacting physical phenomena within a virtual prototype such as fluid-structure interaction, structural- acoustics, thermal-electric, and thermal-fluid-mechanical, among others. (cid:125) Computational Fluid Dynamics (CFD) Analysis: Gain deeper understanding of how fluids and gasses flow through or around products or systems, such as piping, valves, and human blood vessels. (cid:125) Plastic Injection Simulation: Predict and avoid manufacturing defects during the earliest stages of part and mold design. Also simulate the filling and packing phases, clamping forces for tools, and cooling of molds and parts, as well as many others. (cid:125) Durability and Fatigue: Analyze structural failure and life expectancy due to repeated or random loading cycles. Also analyze fatigue life and crack locations in metals, elastomers, and welded joints. Multiscale Simulation (cid:125) Multibody Dynamics: Generate and solve virtual 3D models to predict and visualize motion, forces, and stresses, into the including high-frequency transient analyses, acoustic range and complex nonlinear models with flexible bodies and harsh shock contact. Optimization (cid:125) Parametric Optimization: Manipulate and map parametric data between process steps and automate multiple simulations to greatly improve efficiency, reduce manual errors, and accelerate the evaluation of product design alternatives. (cid:125) Topology Optimization: Create lightweight, ready-to- manufacture product designs and reduce time-to-market, physical tests, and prototype builds. Simulation Process, Data, and Lifecycle Management Simulation and test data management enable to simplify the capture- and deploy-approved simulation methods, automate standard simulation processes, collaborate on performance- based decisions, and manage and secure simulation-generated intellectual property. DELMIA – The World of Value-Making An integral part of the Dassault Systèmes 3DEXPERIENCE platform is the connection between the virtual and real worlds. Operational excellence requires harmony across design, production, distribution, human resources management and processes. DELMIA enables the design and testing of products in a simulated production environment, and then to plan, execute, manage and optimize resources and customer delivery. 22 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Business Activities 1 1 DELMIA Digital Manufacturing solutions drive manufacturing innovation and efficiency by digitally planning, simulating, and modeling global production processes. DELMIA allows manufacturers to virtually experience their entire factory production. These simulation activities allow manufacturers to better address and shift processes so as to quickly respond to the competition, or to take advantage of new market opportunities. improve visibility Moreover, DELMIA Manufacturing Operations Management solutions help into, control over and synchronization across manufacturing operations and supply chain processes on a global scale. The end result is improved agility and expanded continuous improvement across the enterprise and extended global supply chain. Manufacturers leverage DELMIA solutions to establish a common set of operational processes that can be managed holistically. Further, for better performance and higher profitability, Quintiq powers planning, scheduling and optimization for complex processes across all planning horizons. It enables customers to build on their competitive differentiators and plan for profit by capturing their operational reality – down to the last significant detail. This enables customers to integrate supply chain planning and optimization to plan their workforce, manufacturing environment, and logistics operations. 3DVIA – 3DEXPERIENCE for All 3DVIA provides Brands & Consumer Communities, with engaging 3D Universes enabling the co-creation of personal & personalized experiences. 3DVIA enables consumers to virtually create and experience their personal projects in both a fun and social way. With HomeByMe’s online service, consumers can find inspiration from thousands of other projects, create their own concepts or simply visualize ideas using dedicated online experience. Within HomeByMe, top designers, brands and retailers propose their full catalogues in a myriad of colors and materials allowing the user to create and review their unique customized home experience. Social and Collaborative Applications ENOVIA – Collaborative Innovation ENOVIA enables companies to bring together people, processes, content and systems involved in product creation, development, introduction and maintenance. ENOVIA offers a rich portfolio of collaborative enterprise business process applications that leverage the 3DEXPERIENCE platform and facilitate business processes orchestration. ENOVIA applications by business themes include: (cid:125) Product Planning and Programs: ENOVIA’s applications for Program and Project Management, Contract Management, and Design History File Management for regulatory compliance processes address the need for informing and monitoring enterprise-wide critical PLM business processes leveraging invisible governance; (cid:125) Strategic Customer Relationships: ENOVIA’s customer relationship portfolio enables users to manage and leverage requirements, manage the product to be delivered, understand customer needs, and define point of sale experience using 3DMerchanding. These products help companies transform from designing products to creating customer experiences; (cid:125) Global Product Development: ENOVIA’s applications eliminate costly product development errors by enhancing collaborative innovation among the product development stakeholders. Designers, product engineers, manufacturing professionals and others collaborating on product development are able to innovate leveraging bill of materials, enterprise change management, multiple computer aided technologies environments, management and systems engineering; (cid:125) Strategic Supplier Relationships: ENOVIA’s users in supplier management, supplier quality, procurement, sourcing and sampling are able to leverage applications that reduce the latency typically found in supply chain innovation processes. Its solutions help buyer agents, supplier relationship managers and supplier representatives manage their most critical business processes and increase the value addition of the development supply chain; (cid:125) Quality and Compliance: ENOVIA’s applications support users in material compliance, auditing, document, and records management. These applications help companies pro-actively manage regulatory compliance as part of the product development process; (cid:125) IP Classification and Security: ENOVIA’s applications for IP Classification and Security provide users with the flexibility to collaborate on a global scale while maintaining the security required for operating their businesses. This provides teams with the confidence to innovate while optimizing the product catalog and reducing the carrying cost of non-value added design inventory. 3DEXCITE – Marketing in the Age of Experience 3DEXCITE software, solutions, and computer-generated imagery (“CGI”) services provide high-end 3D visualizations in real-time. 3DEXCITE opens up creative freedom to deliver DASSAULT SYSTÈMES ANNUAL REPORT 2015 23 1 Presentation of the Group Business Activities emotional assets for digital, interactive marketing, and sales experiences. From consulting to workflow to final visualization assets, 3DEXCITE transforms engineering data into powerful visual experiences. interactive experiences are what make the CGI services portfolio so unique. The main categories of CGI services include: Stills; Films and animations; Real-time interactive visuals; and Data preparation. (cid:125) Software: 3DEXCITE’s leading software applications and technologies form the basis to create 3D visualizations for all types of products with the highest visual quality – even before they are built. Key products include: (cid:125) high-end 3D visualization: 3DEXCITE Deltagen, Deltaview, Deltatex; (cid:125) visual asset management: 3DEXCITE Picturebook, Powerhouse. Drawing on the innovative software applications, creative, interactive solutions cover all aspects of the product lifecycle. Solutions are structured along the four key disciplines of Design, Development, Marketing, and Sales: (cid:125) 3DEXCITE Design Solutions enable a borderless workflow, allowing designers to continuously review the geometry, materials, and design throughout the creative process. Dedicated tools and functions allow them to effectively communicate their ideas in real-time, involving consumers and decision-makers from the very start; (cid:125) 3DEXCITE Development Solutions permit instant and continuous visual and functional analysis, simulation, and review of engineering work. Highly realistic 3D visualizations allow testing of complex situations in real- time, enriched by different types of simulation data, leading to extensive cost and time savings; (cid:125) 3DEXCITE Marketing Solutions create a seamless interplay between design and marketing disciplines to accelerate communication from early stages, taking internal awareness of a new product to a new level. Global marketing teams are only a mouse-click away from the latest visualizations of future products, allowing them to fine-tune for local requirements. Companies can plan launch events even before the product is built – thanks to cross-channel imagery productions based on 3D design data; (cid:125) 3DEXCITE Sales Solutions provide the tools for a unique product experience – whether at the Point of Sale (PoS), at events, online, or on the go. Its integrated approach intelligently uses source data created in earlier stages of the product development process, helping to significantly reduce the sales cycle and facilitating for customers their decision process, from try to buy. (cid:125) Computer Generated Imagery services: Highest visual quality, sophisticated artistic effects, and spellbinding Information Intelligence Applications EXALEAD – The Data Science EXALEAD helps organizations access, analyze and reveal any enterprise digital intellectual properties or external information, thus transforming big data into data discovery and analytics applications. More specifically, EXALEAD is focusing on two areas: PLM Search & Analytics These applications are based on technology developed to combine innovative big data approaches with Dassault Systèmes unique PLM DNA, such as 3D or complex multi-level configured product structures. EXALEAD OnePart allows any design, standardization or procurement engineer to quickly and efficiently discover the most relevant reusable parts that fit design constraints (technical, costs, compliance). It empowers engineers with unique search and compare capabilities (keywords, 3D, big data) while linking CAD and PLM systems with other enterprise IT systems, such as ERP (Enterprise Resource Planning) and SCM (Supply Chain Management). EXALEAD OnePart Reduce accelerates the value delivered by OnePart by applying machine learning technologies to the millions of legacy CAD parts available, quickly identifying potential deduplication and leveraging procurement with suppliers via an “automated” shape-based classification approach. EXALEAD PLM Analytics: Dassault Systèmes has developed the best of analytics and made it applicable to PLM while leveraging the richness and the full potential of product design and manufacturing processes. EXALEAD PLM Analytics allows customers to fully manage product programs, from design to traceability of changes, cost, quality, and issue analytics. Customer Support & Service Analytics Companies are able to compile, analyze and uncover the value of “product-generated” data, combined with customer information and aggregated data found in any systems that may be used during product support and operations, creating new services and enhancing competiveness and customer satisfaction. 24 ANNUAL REPORT 2015 DASSAULT SYSTÈMES EXALEAD OneCall With a 360-degree view of customers and analytics capabilities, OneCall unlocks the value of data and information, improving customer interaction, recommendations, and engagement. Product in Operations Product in Operations is a range of collaborative search-based solutions developed for collecting, analyzing and capitalizing on information about product and machine use. Organizations can manage in real time after-sales, maintenance, and customer interactions. Processes are optimized while new, innovative products and services are created. NETVIBES – Dashboard Intelligence NETVIBES dashboard intelligence helps enterprises identify and manage everything on real-time, personalized dashboards designed to enable better, faster decision-making. All employees can understand everything that matters across all internal systems and across the social web, anywhere, anytime, on any device – all in one place. NETVIBES also goes beyond business intelligence with real-time, industry-specific social analytics and SmartTagging for gathering expert human opinions, and it helps users save time with automated reporting and intelligent alerts on what matters. NETVIBES includes a Dashboard of Things which enables users to program their business logic by automating digital activities and customizing individualized real-time alerts from the dashboard. By creating a “Potion” with specific Trigger(s) and Action(s), anyone can easily program automatic interactions between data, apps and connected devices. Through a customer-facing, programmable dashboard, enterprises can also empower consumers to design their own custom product experiences. 1.4.2.5 Sales and Marketing The Company’s customers range 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 one direct and two indirect sales channels. No single customer or sales channel partner represented more than 5% of the Company’s total revenue in 2015 and 2014. (cid:125) 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 59% and 58% of revenue in 2015 and 2014, respectively. (cid:125) 3DS Value Solutions channel: sales to small and mid-sized companies are conducted indirectly generally through the Company’s Value Solutions channel, a global network of Presentation of the Group Business Activities 1 value-added resellers with Industry specialization. This channel represented 21% and 23% of the Company’s revenue in 2015 and 2014, respectively. 1 (cid:125) 3DS Professional channel: the 3DS Professional channel is an indirect channel focused on the volume market. It is comprised of a network of value-added resellers and local training, distributors worldwide providing sales, services and support to customers. Sales through this channel represented 20% and 19% of the Company’s total revenue in 2015 and 2014, respectively. In addition to its sales channels, the Company is actively developing and expanding relationships with system integrators with industry and domain expertise. 1.4.2.6 Education Initiatives Dassault Systèmes has had a long-standing commitment to education, with its solutions in use in nearly 40,000 schools around the world. An estimated five million students use the Company’s solutions. Students that apply Dassault Systèmes tools in school and in research are well prepared for their future jobs and careers. leader (STEM) and Mathematics As the 3DEXPERIENCE in Science Technology Engineering education, Dassault Systèmes works hand-in-hand with teachers all over the world to develop innovative pedagogical curriculum and learning experiences through enhanced teaching methods and 3D experiences, which will contribute to the training for the engineers of tomorrow. Dassault Systèmes is committed to help develop the 21st century global skill sets. In 2015, Dassault Systèmes successfully launched the 3DEXPERIENCE for Academia on the Cloud. In addition, Dassault Systèmes has also invented a very innovative pedagogical approach named the Peer Learning Experience. It consists of gathering teachers from various universities and to have them co-develop very comprehensive multi-disciplinary and very flexible curricula which then become available, free of charge, for any new school joining the 3DEXPERIENCE for Academia community. To do so, they use a methodology, templates, data and data models provided by the Company which also does the overall project management. Dassault Systèmes put in place a new Certification Program which aims at certifying that students trained on the Company’s solutions to ensure that they master them at a good enough level compatible with employers’ expectations thus maximizing employment and careers perspectives. That program is mostly based on proctored practice workbenches run on the Cloud. At the end of 2015, there are approximately 80 Certification Centers in operation all over the world with a majority of them located on Universities’ campuses. DASSAULT SYSTÈMES ANNUAL REPORT 2015 25 1 Presentation of the Group Business Activities Dassault Systèmes is one of the founders of key academic associations such as the Global & European Engineering Deans Councils, the International Federation of Engineering Education Societies or the Cartagena Network of Engineering. 1.4.2.7 Competition its current product portfolio, diversifying The Company operates in a highly-competitive marketplace. As it continues to broaden its addressable market, by expanding 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. The Company’s competitors generally compete with it in specific areas of its portfolio or in a specific set of industries, 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), (principally with respect to the Company’s Autodesk SOLIDWORKS product line) and PTC. Competitors also include companies focusing on specific domains or industries, including among others Oracle and SAP with respect to ENOVIA and DELMIA software applications and Altair Engineering, ANSYS, CD-adapco and MSC Software, among others, with respect to SIMULIA software applications. Additional software developers who may compete directly or indirectly with the Company include, among others, Adobe, ARAS, Aveva, Bentley, Intergraph (owned by Hexagon), Microsoft, Nemetschek, Onshape, Salesforce.com, and other software companies in the mining sector or offering information intelligence and social enterprise innovation and collaboration software capabilities, and developers in all areas of molecular chemistry or biology, optimizing processes or digital marketing. 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 and system integrators, as described in paragraph 1.4.2.5 “Sales and Marketing”, and the strategic partnership contracts described in paragraph 1.4.1.4 “Technology and Science” (see “Technology and Software Partners”). In 2011 Dassault Systèmes announced its investment in Outscale, a start-up to provide Cloud operator services, and signed an agreement to use these services. In June 2013, Dassault Systèmes SE entered into a term loan facility agreement for €350 million, which will be repaid in July 2019. In October 2015, Dassault Systèmes SE entered into a new five-year €650 million credit facility which will be repaid in October 2020 and which maturity can be extended by two additional years at the Company’s option. See paragraph 3.1.4 “Capital Resources” and Note 20 to the consolidated financial statements. The Company signed long-term leases (for 12 years) for its corporate headquarters in Vélizy-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. 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 during the first quarter of 2017 when construction is expected to be completed. See paragraph 1.6.2.3 “Liquidity Risk” and Note 25 to the consolidated financial statements. 26 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Research and Development 1 1.5 Research and Development 1 1.5.1 Overview At December 31, 2015, the Company’s R&D teams included 5,853 personnel, compared to 5,562 at year-end 2014, representing approximately 42% of the Company’s total headcount. The Company increased its total R&D headcount by 5.2% in 2015 primarily through internal growth and by 16.5% in 2014, principally reflecting growth in R&D resources through acquisitions. R&D expenses totaled €492.5 million for 2015, compared to €409.7 million for 2014, increasing 20.2%, or approximately 11% excluding net negative currency effects. R&D costs benefited from government grants and other governmental programs supporting R&D of €34.8 million in 2015 and €43.1 million in 2014. These government grants include research and development tax credits received in France. The Company has research facilities located primarily in France, the United States and Germany, as well as in India, Malaysia, the United Kingdom, Netherlands, Poland, Australia and Canada. The Group has R&D facilities in the countries where its clients and hight-talent employees are located: in Europe (mainly France, Germany, the United Kingdom, the Netherlands and Poland), the Americas (United States and Canada) and Asia-Pacific (mainly India, Malaysia and Australia). 1.5.2 Intellectual Property its technology by applying a The Company protects combination of IP rights including copyrights, patents, trademarks and trade secrets. The Company distributes its software products to its customers under licenses that grant software utilization rights without transfer of ownership. 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 under an intelligible form, and used, once compiled, to generate the object code licensed to clients and partners) of the Company’s products is protected both as a copyrighted work and as a trade secret. In addition, some of the key capabilities of its software products are protected through patents whenever possible. 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 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 legal proceedings. With regard to trademarks, the Company’s policy is to register trademarks for its principal products and services The Company’s R&D is conducted in close cooperation with customers and users 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 these industries, customers and users. in the countries where it does business. Protection through the trademark international trademark, European Community trademarks and/or national registrations. is a combination of law 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 2015, the Company’s portfolio comprised 429 protected inventions, including 50 new inventions in 2015. Patents have been granted in one or more countries for more than half these inventions, and patents for the others are pending. When a patent protection is deemed unsuitable, certain inventions are kept secret, with the proof of creation being saved. The Company also has a cross-license policy for patents with major players in its industry. See paragraph 1.6.1 “Risks Related to the Company’s Business”, and particularly 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 intellectual property, and paragraph 1.6.1.12 “Infringement of Third-Party Intellectual Property Rights and of Third-Party risks concerning possible Technology’s Licenses” third-party allegations of unauthorized use of their intellectual property. for DASSAULT SYSTÈMES ANNUAL REPORT 2015 27 1 Presentation of the Group Risk factors 1.6 Risk factors The Risk Factors are set out hereafter in two main categories: risks related to the Group’s Business (1.6.1) and financial and market risks (1.6.2). These are the main risks identified as being material, relevant and likely to have a negative impact on the Company’s business and financial position as of the date on which this Annual Report (Document de référence) was filed with the AMF. However, other risks not mentioned or not yet identified can affect the Company, its financial position, its reputation, its outlook or the share price of Dassault Systèmes SE. 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, mainly due to the following factors: (cid:125) 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 environment 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, or to reduce or not renew ongoing paid maintenance for their installed base. Such situations may impact the Company’s revenues. This is particularly the case in core industries (aerospace, automotive, industrial equipment), which represent a significant part of the Company’s revenue. Continued pressure on raw materials and energy prices could also slow down the Company’s diversification efforts in new industries; (cid:125) 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; and (cid:125) the political, economic and monetary situation in certain geographic regions where the Company operates could continue to deteriorate. The Company makes every effort to take into consideration this uncertain macroeconomic outlook. The Company’s business results, however, may not develop as anticipated. 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. Finally, given public debt challenges, 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 Information: 2015 (see paragraph 3.1.2 “Consolidated Compared to 2014” for the breakdown of consolidated Group revenue by geographic region). It also continues to ensure that its costs are controlled for the entire organization. 1.6.1.2 Challenges to the Company’s Intellectual Property Rights The Company’s success 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 is heavily dependent upon 28 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Risk factors 1 1 of its technology. These legal protections don’t provide a full coverage of the Company’s products and can be breached by third parties. 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 entered 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 be inappropriate 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 extend its anti-piracy and compliance programs, which are proving effective. 1.6.1.3 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. It could also lead to damage to or loss of data hosted by the Company on behalf of its customers as part of its cloud offerings, or to increased liability with respect to interrupted access to online service. Computer viruses, whether deliberately or unintentionally introduced, could also cause similar damage, loss or delays. The increasing use of mobile devices (cellular telephones, tablets 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 terrorist 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, as well as its reputation. In order to reduce this risk, 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”). Access to sites and security of employees traveling to specific countries is also monitored. 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. DASSAULT SYSTÈMES ANNUAL REPORT 2015 29 1 Presentation of the Group Risk factors 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 Systèmes, 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. The Company also works as closely as possible with its customers to ensure successful product installation. The Company has also subscribed 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 Currency Fluctuations The Company’s results of operations have been affected by changes and high volatility in exchange rates in 2015, and are likely to continue to be impacted in the future. In particular, exchange rate fluctuation of the Japanese yen or of the U.S. dollar relative to the euro, can impact revenues and expenses recorded in the Company’s statement of income upon translation of other currencies into euro. 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, depending on the Company’s employees and suppliers location in different countries. Moreover, the Company engages in mergers and acquisitions, particularly outside the euro zone and may lend money in different currencies to its wholly or partially owned subsidiaries or affiliates. Although the Company currently benefits from a natural coverage of most of its exposure to U.S. dollars from an operating margin perspective, exchange rate fluctuation of the U.S. dollar relative to the euro may impact the Company’s revenue and consequently its 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 – in particular the Japanese yen – 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 “foreign exchange gain/loss” caption of the Company’s financial statements. The main items of financial income subject to fluctuations linked to exchange rates are: (cid:125) 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:125) the revaluation of monetary assets and liabilities denominated in foreign currencies. To address the risks created by currency fluctuations, the Company carries out hedging operations on a case-by-case basis (see Note 21 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 spite of less stress on sovereign debt and financial institutions, 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”). 1.6.1.6 Complex International Regulatory and Compliance Environment – Legal Proceedings Establishing or strengthening the Company’s presence in countries where it previously had not been located or had been present only marginally until now, and increasing the breadth of its business and the diversity of its customers (particularly individuals), have added to the complexity of the regulatory environment in which the Company operates. 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 many different fields, such as general business practices, competitive practices, handling of personal data, consumer protection, financial reporting standards, corporate governance, ethics and compliance, employment laws, internal controls, local and international tax regulations and export compliance for high-tech products. Being listed on the French stock exchange, the Company also is subject to specific requirements and reporting standards. The Company seeks to conduct its business in a wholly ethical and requires all of is employees, subsidiaries and indirect sales channels to comply with all applicable laws and regulations. The failure or suspected failure to comply with any of these laws and regulations may result in increased regulatory 30 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Risk factors 1 1 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. Furthermore, the focus on tax matters is rapidly increasing in many countries where the Company has operations. risk of litigation and administrative The Company’s proceedings also increases as it expands its activities, enhances its position and visibility on the software market, and develops new approaches to its business, including product distribution and online services. Litigation can be lengthy, expensive, and disruptive to the 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. 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. In order to reduce this risk, the Company has implemented an Ethics & Compliance program (as further described in paragraph 2.1.5 “Business E thics, S ocial D ialogue and P ersonal S afety”) which in particular requires all employees to attend online Ethics & Compliance trainings. Moreover the Company audits its subsidiaries around the world on a regular basis and consults outside experts to validate the compliance of various aspects of its practices with applicable regulations. The Company’s Legal department, assisted by technical experts, also monitors on a regular basis all outstanding claims and litigation (see also paragraph 4.3 “Legal and Arbitration Proceedings” and Note 25 to the consolidated financial statements), some of which may be covered by insurance (see paragraph 1.6.3 “Insurance”). 1.6.1.7 Competition and Pricing Pressure In the past few years, there have been fewer contenders in the Company’s historical software markets. As the various players compete for market share, adoption by competitors of business models different from Dassault Systèmes’ could lead to substantial declines 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. At the same time, 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 development of cloud computing offers may also lead to new participants entering the market. The Company’s ability to expand its competitive position may thus be reduced. In the event the Company has difficulties setting up the organization needed to manage its businesses and the new competitive context, the revenues, results of operations, competitive position and reputation of Dassault Systèmes could be negatively impacted. 1.6.1.8 Relationships with Extended Enterprise Partners The Company’s 3DEXPERIENCE strategy requires a fully integrated platform with access to computer-aided design (“CAD”), simulation, collaboration, manufacturing and data management products, which are increasingly complex and for which customer installations represent significant enterprise projects. To implement its 3DEXPERIENCE strategy, Dassault Systèmes has continued to develop an extended enterprise model and partners with other companies in areas such as: (cid:125) computer hardware and technology, to maximize benefits from available technology; (cid:125) product development, to enable software developers to create and market their own software applications using Dassault Systèmes’ open product architecture; and (cid:125) consulting and services, to support and assist customers as needed to deploy Industry Solution Experiences on the 3DEXPERIENCE platform. 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. In addition to its own sales force, the Company also relies on an international network of distributors and value-added resellers. The type of relationship that the Company has with its distributors and value-added resellers, as well as their financial and technical reliability, could impact the Company’s ability to sell and deploy its product and service offerings. DASSAULT SYSTÈMES ANNUAL REPORT 2015 31 1 Presentation of the Group Risk factors The Company’s ability to establish partner relationships for the development, sale and deployment of 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 Company’s 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. 1.6.1.9 Organizational and Operational Challenges Arising from the Evolution of the Company through its addressable market Dassault Systèmes has continued to expand through acquisitions and internal development, and has substantially launching increased 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 continue to reorganize itself to maintain efficiency, while ensuring customer retention and the integration of newly acquired companies. It must also continue to focus on quality of execution while maintaining innovation. As its organization evolves, the Company must also ensure the profiles and competencies of its employee are constantly upgraded and adapted. 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 financial or operational performance. 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. 32 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Moreover, these operations may require the Company to recognize amortization of acquired intangible assets and/or depreciation of goodwill in case of impairment (see Note 2 to the consolidated financial statements). 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 risks related to off-balance sheet commitments , including litigation risk related to pre-acquisition events (for example, see below the risk of claims that embedded components violate IP rights). Each of these potential consequences of an investment or acquisition could reduce the Company’s operating margin, net income or cash. The Company seeks to adjust on a regular basis its organization and management model to support its current level of growth by enhancing its geographic-based organization and providing a consistent client experience around the globe. 1.6.1.10 Market introduction of a New Services Offering for Cloud Computing Dassault Systèmes is developing and distributing a services offering for the online use of certain of its products (SaaS) based on a cloud computing infrastructure. It continues to grow its portfolio of software solutions and processes available on the cloud. An inability to introduce such solutions at the desired speed, with the appropriate pricing model and with the right level of quality could impact the Company’s growth and future results, and give rise to technical and legal challenges: (cid:125) 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); increased (cid:125) the Company also will become exposed to a complex risk legal environment and could have regarding regulatory compliance in the countries where it has operations, in particular with respect to data privacy, consumer laws and data confidentiality. In case of difficulties in providing its clients with online services under appropriate conditions, the Company’s revenues, results of operations and competitive position, as well as the reputation of Dassault Systèmes, 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. Presentation of the Group Risk factors 1 1 1.6.1.11 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 personnel, in particular in R&D, technical support and sales management, and on its ability to continue to attract, retain and motivate qualified personnel, as well as keep their skills continuously up to date in line with the organizational needs. 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 diverse and high level of skills in appropriate domains (such as R&D, industry 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 executives, 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. 1.6.1.12 Infringement of Third-Party Intellectual Property Rights and of Third-Party Technology’s Licenses 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 Systèmes 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:125) cease making, licensing or using the products or services that incorporate the challenged IP; (cid:125) obtain and pay for licenses from the holder of the infringed IP right, which might not be available on acceptable terms for Dassault Systèmes, if at all; or (cid:125) 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 Systèmes 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 Systèmes before their acquisition. 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 before making them available for sale. 1.6.1.13 Rapidly Changing and Complex Technologies The Company’s software 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:125) understand its customers’ complex needs in different business sectors, and support them in reengineering key product lifecycle processes, managing the migration of substantial amounts of data in the process; (cid:125) enhance its existing solutions by developing more advanced technologies; (cid:125) anticipate and take timely advantage of quickly evolving technologies; and (cid:125) introduce new solutions in a cost-competitive and timely manner. DASSAULT SYSTÈMES ANNUAL REPORT 2015 33 (cid:125) the number, significance of product enhancements or new products that the Company develops or that are released by its competitors; and timing and (cid:125) general conditions in the Company’s software markets and the software industry generally. A substantial portion of the Company’s orders and shipments typically occur in the last month of each quarter, and, therefore, if any delay occurs in the timing of significant orders, the Company may experience 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 Systèmes’ 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 application developers in the Company’s markets. 1.6.1.15 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. 1.6.1.16 Shareholder Base Groupe Industriel Marcel Dassault SAS (“GIMD”), which represents the interests of some of the Company’s founding shareholders, owned 41.18% of the Company’s outstanding shares, representing 55.53% of the exercisable voting rights (55.12% of theoretical rights) as of December 31, 2015. 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 Presentation of the Group Risk factors 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. To reduce 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 also maintains close and regular contacts with its key customers to identify and capture their emerging needs and to offer the most adapted solutions. 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. 1.6.1.14 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:125) 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:125) the timing of any significant acquisitions or divestitures; (cid:125) fluctuations in foreign currency exchange rates; (cid:125) 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; 34 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Presentation of the Group Risk factors 1 1 1.6.2.2 Foreign Currency Risk See paragraph 1.6.1.5 “Currency Fluctuations” above and Note 21 to the consolidated financial statements. 1.6.2.3 Liquidity Risk The Company has a low liquidity risk. As of December 31, 2015, the Company’s cash, cash equivalents and short-term investments totaled €2.35 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, 2015. The Company believes that it will be able to meet such obligations. 1.6.2 Financial and Market Risks The Company’s overall risk management policy is based upon the prudent management of the Company’s market risks, primarily foreign currency exchange risk and interest rate risk. The Company’s programs with respect to the management of these risks, including the use of hedging instruments, are discussed in Note 21 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. The Company generates positive cash flows from operations and has 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. 1.6.2.1 Interest Rate Risk 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 Notes 20 and 21 to the consolidated financial statements. The following table summarizes the Company’s principal contractual obligations to make future payments as of December 31, 2015. CONTRACTUAL OBLIGATIONS (in thousands of euros) Operating lease obligations(1) Loan facilities(2) Employee profit-sharing TOTAL Total 544,863 1,046,348 57,786 Less than 1 year 77,353 10,596 57,786 Payments due by period 1-3 years 135,690 3-5 years 111,331 22,369 1,013,383 - - More than 5 years 220,489 - - 1,648,997 145,735 158,059 1,124,714 220,489 (1) Including €253.2 million of future minimum rental payments for the Company’s headquarters facilities located in Vélizy-Villacoublay, France and €105.2 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 interests on the €350 million and €650 million term loan facilities (see Note 20 to the consolidated financial statements). 1.6.2.4 Credit or Counterparty Risk 1.6.2.5 Equity Risk include principally The financial instruments which could expose the Company its cash equivalents, to credit risk 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 21 to the consolidated financial statements. The Company uses a rigorous selection process for its counterparts according to credit quality, based on several criteria including agency ratings and depending on the maturity dates of the transactions. 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 SYSTÈMES ANNUAL REPORT 2015 35 1 Presentation of the Group Risk factors 1.6.3 Insurance Dassault Systèmes is insured by several insurance companies for all significant risks. Most of these risks are covered either by insurance policies underwritten in France for the whole Group, or by a North American policy that covers all the 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. All of the Group’s companies are protected by a policy covering professional and product liability as well as civil liability for operations for a total insured value of €50 million for 2015. In 2015, the Group renewed its Directors and Officer’s Liability Policy for Dassault Systèmes SE and its subsidiaries for a total insured amount of €50 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 North American companies and most of their subsidiaries have specific insurance cover. 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 additional coverage for the various insurance policies covering the North American companies and their subsidiaries, Dassault Systèmes carries an “umbrella” policy for a maximum amount of $25 million. 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 Group. Dassault Systèmes has not established captive insurance coverage. 36 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 2 SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY 2.1 Social and Societal Responsibility 38 2.2 Environmental Responsibility 58 CONTENTS 2.1.1 Group Organization and Employees 2.1.2 Attracting and Developing Talented Individuals 2.1.3 Welcoming employees who have joined the Group via recently acquired companies 39 42 49 2.1.4 Rewarding Performance and Recognizing Employees 50 2.1.5 Business ethics, social dialogue and personal safety 52 2.1.6 Methodology for Employee Reporting 2.1.7 Appendices regarding the Group’s Employee Headcount 54 56 2.2.1 The Group’s vision for environmental responsibility 58 2.2.2 Responsible Company 2.2.3 Responsible Employee 2.2.4 Responsible Partner 2.2.5 Methodology for Environmental Reporting 2.2.6 Industrial and Environmental Risk 2.3 Independent Veriﬁ er’s Attestation and Assurance Report on Social, Societal and Environmental Information 59 65 65 66 67 68 DASSAULT SYSTÈMES ANNUAL REPORT 2015 37 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility “The 3DEXPERIENCE Company”, Dassault Systèmes, constantly strives to provide businesses and individuals with 3D universes that allow them to imagine sustainable innovations capable of harmonizing product, nature and life. Through this ambition, Dassault Systèmes contributes to the improvement of society and quality of the environment. By their very nature, virtual universes and the virtual experience that they produce make it possible to address major industrial challenges, such as the management of environmental impacts on a large scale, safety or ergonomics. The adoption of the 3DEXPERIENCE platform by customers allows them to envisage new ways of imagining, creating and producing. Planning better, collaborating better, learning better: these virtual universes are also essential to gaining insight into and resolving the current issues in society. The 13,974 Group employees spread over 40 countries are driven by this ambition. Dassault Systèmes has been recognized in various sustainable development indices and rankings, including the Global 100 Index, the FTSE4Good and the Carbon Disclosure Project. 2.1 Social and Societal Responsibility Harmonizing product, nature and life: this ambition can only be achieved with the support of the Group’s employees, who are its most valuable asset. They represent the Company’s culture and values and are at the heart of its strategy and its long-term development. In the light of the Group’s rapid growth, the climate of innovation in which it operates, and its growing number of markets, its main social and societal challenges are as follows: Sharing and increasing skills For Dassault Systèmes, sharing skills means mobilizing the Group’s technologies and talented people to improve society in areas such as education. Created in 2015, “The Dassault Systèmes Foundation” lends it support to the academic world, research centers and general interest organizations (non- profit organizations, museums etc.) in Europe in their quest for knowledge and contributes to transforming the learning experience. Virtual universes can bring much more than traditional classroom books and boards, such as the “3Dcodex”, a new generation of scientific media that can produce models of the physical world with astonishing realism, like a digital twin. Dassault Systèmes is permanently extending its range of expertise and collaborates with varied profiles: biologists, doctors, geologists, designers, architects… The Group has numerous “selling points” to attract these candidates and keep them motivated: a long-term and high societal value strategic vision, as well as a dynamic and collaborative working environment based on the 3DEXPERIENCE platform and centered on communities of interest and expertise. Inventing new ways to collaborate Dassault Systèmes developed an initiative in 2015 to create new collaborative methods and a more transversal work model, more conducive to creativity. This initiative aims to allow each person to reveal and use their skills as well as to diversify their activity and expand their network. Among other initiatives, the 3DEXPERIENCE Lab, implemented in November 2015, is an open innovation laboratory within the company to help innovative start-ups to grow . This initiative gives employees the opportunity to get involved in new projects, not necessarily connected to their positions. information, Structuring information, a strategic value for the Company and its ecosystem The continual interaction of employees within the Company and with its ecosystem of customers and partners, through applications, or on-line communities , generates a vast quantity of including structured and non- structured data on a daily basis, which form part of the Company’s intellectual and economic property. The challenge lies with analyzing, processing in real time, connecting and representing this information and data so that it can be converted into competitive advantages and decision-making aids. With its 3DEXPERIENCE platform, Dassault Systèmes already has its own tools for managing and monitoring the Company’s business. 38 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 Accelerating the integration of new employees A major challenge within a constantly growing company is to integrate new employees. To address this, in addition to the reception and initial support process, Dassault Systèmes provides online communities with fast-paced access to information on the Company, organizations and projects, while showcasing the responsibilities, skills and contributions of each employee. The different indicators related to these challenges and, more broadly, the human resources initiatives implemented within the Group are presented below. (cid:125) Group organization and employees (2.1.1); (cid:125) Attracting and developing talented individuals (2.1.2); (cid:125) Welcoming employees who have joined the Group via recently acquired companies (2.1.3); (cid:125) Rewarding performance and recognizing employees (2.1.4); (cid:125) Business ethics, social dialogue and personal safety (2.1.5). is described in paragraph 2.1.6. The methodology “Methodology for Employee Reporting” and additional information is presented in paragraph 2.1.7. “Appendices regarding the Group’s Employee Headcount”. 2 2.1.1 Group Organization and Employees The Group is organized by major fields of activity: R&D; Sales, Marketing and Services; and Administration and Other functions for its main markets (see paragraph 1.4.2 “Principal Markets”) within the three geographic regions (Europe, Americas and Asia). The Total Workforce is made up of employees, employees of 3D PLM Software Solutions Ltd and 3DPLM Global Services Private Ltd, in which the Group owns less than 50% and service providers. The data related to the Group’s workforce presented in this report is expressed in Full Time Equivalents according to the methodology defined in paragraph 2.1.6. “Methodology for Employee Reporting”. The other indicators used are also explained in this paragraph. Overview and Growth of Total Workforce As of December 31, 2015, the Total Workforce was 13,974, up 5% compared to December 31, 2014. The number of employees over the last three years is set forth below: Year ended December 31, 2015 2014 2013 * Indicator verified by the independent verifier. Employees 11,422* 11,013 8,587 S ervice Providers 405 474 378 3D PLM Total Workforce Percent change 2,147 1,825 1,689 13,974 13,312 10,654 5.0% 24.9% 5.3% Overview and Growth of Employee Headcount Growth of the Company As of December 31, 2015, the Employee Headcount increased 4% year over year to 11,422 full-time equivalent employees, located in 40 countries and originating from 123 different countries. This growth is due principally to recruitment carried out in 2015. For more details, see paragraph 2.1.2.1. “Attracting talented individuals – Movements in Employee Headcount over the period”. The Employee Headcount remained overall stable between 2014 and 2015. indicators presented below DASSAULT SYSTÈMES ANNUAL REPORT 2015 39 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility Distribution by geographic region Year ended December 31 Employees % Employees % Employees % Employees Europe Americas Asia Total 2015 2014 * Indicator verified by the independent verifier. Distribution by activity 5,987 5,787 52% 53% 3,524 3,449 31% 31% 1,911 1,777 17% 11,422* 16% 11,013 Europe Americas Asia Total Total Year ended December 31 R&D Sales, Marketing and Services Administration and other Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % 2,281 2,924 782 38% 49% 13% 1,139 1,933 452 32% 55% 13% 300 1,425 186 16% 75% 9% 3,720 6,282 1,420 33% 55% 12% 3,518 6,091 1,404 % 100% 100% % 32% 55% 13% TOTAL 5,987 100% 3,524 100% 1,911 100% 11,422* 100% 11,013 100% * Indicator verified by the independent verifier. Distribution by gender The proportion of women in the Group, while stable between 2014 and 2015, may still seem relatively low. This is mainly explained by the low number of women in engineering schools which is one of the main sources of recruitment for Dassault Systèmes. Year ended December 31 Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % Europe Americas Asia Total Total Women Men TOTAL 1,372 4,615 5,987 23% 77% 100% 876 2,648 3,524 25% 75% 100% 463 1,448 1,911 * Indicator verified by the independent verifier. 24% 76% 2,711 8,711 24% 76% 2,586 8,427 100% 11,422* 100% 11,013 100% % 23% 77% Other characteristics of Employee Headcount As at December 31, 2015, the key figures to note are as follows (indicator verified by the independent verifier in 2015): (cid:125) 98% of the Employee Headcount had permanent contracts and Managers represented 19% of total headcount; (cid:125) 14% of the 2,711 women employed by Dassault Systèmes and 20% of the 8,711 men working for the Company are Managers; among the 2,156 Managers, 17% are women. These figures are relatively stable compared to 2014. The breakdown of this information and additional information with regard to the distribution by age and seniority are presented in paragraph 2.1.7 “Appendices regarding the Group’s Employee Headcount”. Outside service providers and sub-contracting Dassault Systèmes regularly calls on outside service providers when it requires resources with specific know-how or for projects with a limited duration. The cost of using outside service providers in 2015 amounted to €78.0 million, compared to €75.1 million in 2014, an insignificant amount in relation to the Dassault Systèmes operating expenses (€2.21 billion in 2015 and €1.86 billion in 2014). 40 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 At December 31, 2015, 405 outside service providers (data expressed in full-time equivalents) worked for the Group: Year ended December 31, Employees % Employees % Employees % Employees 2015 2014 188 217 46% 46% 144 177 36% 37% 73 80 18% 17% 405 474 Europe Americas Asia Total % 100% 100% 2 Dassault Systèmes only establishes contractual relationships with sub-contractors that respect the fundamental laws and regulations concerning labor law and environmental protection (see “Principles of Enterprise Social Responsibility and commitments to ensuring respect for basic rights” in paragraph 2.1.5 “Business ethics, social dialogue and personal safety”). Organization Work time In each country where Dassault Systèmes has operations, the length of the workweek is determined according to the local regulations. For example, in France, work time is determined according to whether an employee is under the system of annual working days (forfait jours) or the hourly system (régime horaire). Employees under 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 in force within each company. In most of the other countries where the Group is located, the workweek is set at 40 hours. This is the case in Germany, the United Kingdom, the Netherlands, the United States, Canada, Japan, Malaysia, China and India. In Australia, the workweek is 38 hours. Full-time and part-time 97% of the Employee Headcount works on a full-time basis. 7% of women and 1% of men work on a part-time basis. These figures are relatively stable versus 2014. Full details of the information on this indicator are presented in paragraph 2.1.7 “Appendices regarding the Group’s Employee Headcount”. Absenteeism Absenteeism is tracked locally in accordance with regulations applicable in the different countries where Dassault Systèmes operates. The Company does not have a harmonized system for managing absenteeism throughout its subsidiaries (indicator verified by the independent verifier in 2015). The information presented below covers a part of the Group’s French companies (Dassault Systèmes SE, Dassault Systèmes Provence SAS, Dassault Data Services SAS, Netvibes SAS, 3DVIA SAS, Quintiq SAS, Dassault Systèmes Biovia SARL), which represent 30% of the Employee Headcount: (cid:125) in 2015, the reasons for employees not reporting for work, excluding annual leave, are as follows: illness for 10,272 days, maternity and paternity leave for 4,801 days, work accident and work-related travel accident for 285 days. The resulting absenteeism rate is 2.1%, stable compared to 2014 (2.2%); (cid:125) the total number of authorized absences (such as parental leave and leave for family events excluding paid leave) was 2,765 days at end 2015, or 0.4% of the number of days theoretically worked. This rate is identical to that of 2014. In the other main countries where the Group operates, the absenteeism rate was the following in 2015: 3.6% in Germany compared to 2.9% in 2014, 1.0 % in the United Kingdom compared to 1.3% in 2014, 3.3% in the Netherlands, 0.8% in the United States compared to 0.9% in 2014, 3.3% in Canada compared to 2.9% in 2014, 0.6% in Japan compared to 0.5% in 2014, 3.2% in Malaysia, 0.6% in China compared to 1.8% in 2014 and 2.4% in Australia. The rate remains very low in South Korea and India (less than 0.5%), where absenteeism for reasons of short-term illness is difficult to ascertain as it is included in paid leave. DASSAULT SYSTÈMES ANNUAL REPORT 2015 41 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility 2.1.2 Attracting and D eveloping T alented I ndividuals 2.1.2.1 Attracting talented individuals To work for Dassault Systèmes, it is important to have a passion for technological innovation, a desire to work with other people and constantly learn and have an appetite for a challenge; these qualities correspond to the Group’s values. Dassault Systèmes offers its employees an attractive working environment, in facilities, many of which boast excellent green ratings and infrastructure conducive to teamwork. In 2015, 62% of the Employee Headcount worked in certified offices compared to 57% in 2014. This increase comes from the environmental reporting perimeter change as defined in the paragraph 2.2.5 “Methodology for Environmental Reporting”. Employees are mainly recruited locally with permanent contracts, thus contributing to economic growth in each of the 40 countries in which it operates. At December 31, 2015, two-thirds of the Group’s Employee Headcount was located outside France and the Group had employees from 123 different countries. In general, all available positions are published internally and externally and priority is given to internal promotion over external recruitment where the skill level is equal. Recruitment is a priority for Dassault Systèmes, in order to meet requirements generated by its growth. The Group aims to be recognized as an exemplary employer that contributes to the development of all its people (permanent employees, apprentices and interns). Dassault Systèmes forges relationships with educational establishments and universities in the major countries in which the Group operates. Initiatives are undertaken in the vast majority of the countries where the Group has facilities (see also paragraph 2.1.2.3 “Developing relations with the social, regional and community environment”). Movements in Employee Headcount over the period Employee arrivals (Equivalent Full-time) Most employee arrivals carried out in 2015 stem from direct recruiting efforts. In 2014, acquisitions represented over two-thirds of the Group’s new employees and explain most variations between 2015 and 2014. Year ended December 31 Permanent contracts Temporary contracts TOTAL Europe Americas Asia Total Total Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % 637 141 778 82% 18% 100% 443 7 98% 2% 324 9 98% 2% 1,404 90% 3,298** 157 10% 225** 450 100% 333 100% 1,561* 100% 3,523** 100% Indicator verified by the independent verifier. * ** The figures reported for 2014 are based on the new methodology adopted for the year 2015 for this indicator (see paragraph 2.1.6 “Methodology for Employee Reporting”). Year ended December 31, Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % Europe Americas Asia Total Total Women Men TOTAL 236 542 778 30% 70% 100% 137 313 450 30% 70% 100% 106 227 333 32% 68% 479 31% 932** 1,082 69% 2,591** 100% 1,561* 100% 3,523** 100% Indicator verified by the independent verifier. * ** The figures reported for 2014 are based on the new methodology adopted for the year 2015 for this indicator (see paragraph 2.1.6 “Methodology for Employee Reporting”). The breakdown of employees recruited by type of activity is as follows: 58% in Sales, Marketing and Services, 26% in R&D, 16% in Administration and other. Additional Information with regard to the age pyramid is presented in paragraph 2.1.7 “Appendices regarding the Group’s Employee Headcount”. 42 ANNUAL REPORT 2015 DASSAULT SYSTÈMES % 94% 6% % 26% 74% Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 Employee departures (Full-Time Equivalent) In 2015, 1,130 employees left the Company. Departures were broken down as follows: Year ended December 31, Permanent contracts Temporary contracts TOTAL Europe Americas Asia Total Total Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % 437 102 539 81% 19% 100% 390 4 99% 1% 194 3 98% 2% 1,021 109 90% 10% 950** 107** 394 100% 197 100% 1,130* 100% 1,057** 100% % 90% 10% 2 Indicator verified by the independent verifier. * ** The figures reported for 2014 are based on the new methodology adopted for the year 2015 for this indicator (see paragraph 2.1.6 “Methodology for Employee Reporting”). On average, the attrition rate was 10.1% in 2015 versus 10.5% in 2014. Excluding temporary contracts, the rate was 9.3% in 2015 and 10.1% in 2014. 2.1.2.2 Developing, training and managing (cid:125) the R&D College: IT technologies; the careers of Dassault Systèmes employees 3DS University In an environment of constant innovation, “Passion to Learn” is one of Dassault Systèmes’ core values. This core value is driven by the 3DS University mission, which is to offer development initiatives in line with the activities and the objectives for each employee. Via the 3DEXPERIENCE University tool, based on the 3DEXPERIENCE platform and communities of experts, Dassault Systèmes offers a range of training modules and tests in various formats (on-line, face-to-face, e-classes), to validate knowledge and skills. In 2015, strategic development focused on boosting the performance of sales forces and services teams, consolidating and sharpening the technical skills of R&D employees and ensuring that all employees had a solid grasp of Dassault Systèmes’ solutions and applications. Within this framework, the challenge is for each person to be able to participate in the modules at any time via a digital learning experience. The focus has been placed on blended learning: e-learning, exchanges with experts and ongoing dialogue with peers in on-line communities. To propose a coherent training offering, the 3DS University is structured around core skills development. Five Colleges address job skills and two Programs deal with cross-sector skills. Each College and Program offers a reference libraries of learning opportunities: (cid:125) the Sales College: customer relations and marketing, sales and technical-commercial skills and service job skills; (cid:125) the Business Administration College: finance, legal and human resources management; (cid:125) the Industry College: knowledge of Dassault Systèmes’ software range; (cid:125) the Brand College: mastery of products sold and used by customers; (cid:125) the Manager Program: leadership and team management; (cid:125) the SwYmer Program: skills associated with knowledge of Dassault Systèmes, its values and soft skills. Key 2015 actions in the Colleges An on-line onboarding program for the sales team was developed in the Sales College. The sales teams can now consult modules, work on exercises, and learn the sales processes and methods for their field at the most convenient time for them. This program was tested in 2015. Already one third of new employees in this function have taken the courses. The marketing department also benefited from modules made available on-line at the end of 2015, to understand the strategy, tools and processes implemented within Dassault Systèmes. The sales support teams also took part in the programs, focusing on understanding the sales force challenges and contract management, in order to strengthen and optimize everyone’s work in the sales process. Web development training on the 3DEXPERIENCE platform was deployed worldwide. Technological innovation is at the heart of Dassault Systèmes’ concerns. Half of all hours were provided in the e-learning format. This has allowed each Group employee to receive the same content, which doubled the total training hours provided worldwide. DASSAULT SYSTÈMES ANNUAL REPORT 2015 43 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility 2015 was also an important year for the deployment of training on product knowledge and solutions. Dassault Systèmes’ solutions experts set up workshops to offer training to all technical-sales employees, which were replicated worldwide. The provision of on-line trainings to enhance product knowledge was a major component in improving skills in these subjects. Key 2015 actions in the Programs As part of its ongoing development efforts for Managers undertaken in 2014, Dassault Systèmes added new training offering to support individuals in their role. The Company has expanded its offer to include: coaching, tutorial sessions and special team-building events. This has reinforced Dassault Systèmes’ values and consolidated a network of internal experts devoted to this activity. The implementation of onboarding sessions was harmonized and is being gradually rolled out in the different countries where the Group operates. All new Group employees take part in the onboarding program, which presents the Dassault Systèmes Group, its strategy, values and the 3DEXPERIENCE platform on Day 1. 90 days later, additional sessions are organized to consolidate knowledge and canvas feedback from the new arrivals to continuously forge a sense of community and sharing. In 2015, 236,043 training hours were delivered in the main Group countries (see paragraph 2.1.6 “Methodology for Employee Reporting”). This number represents all trainings formally reported by the different countries. It, however, excludes other learning conditions falling outside this formal context, such as on-the-ground learning, workshops and virtual exchange communities. Training associated with the solutions portfolio in the Dassault Systèmes’ offering (Brand College) are now counted in this volume of hours as the result of an updated reporting system. The ratio of training hours per employee increased to 23 hours in 2015 compared to 13.3 hours in 2014. This 70% increase can be explained by the fact that in 2015 the following were accounted for: the training on the solutions portfolio in the Dassault Systèmes’ offering (Brand College) and the integration of companies acquired in the operations of the 3DS University. Excluding the impact of these two combined effects, the ratio of training hours per employee was stable: 14 hours in 2015 compared to 13.3 hours in 2014. The number of hours of online training also increased is considerably. Online training was used more and accounted for in all training courses. It is accessible from the 3DEXPERIENCE University and built into the employee career development path. The share of this online training increased to 52% in 2015 compared to 7% in 2014, mainly explained by the significant use of this type of training by employees from Quintiq Group companies acquired in 2014. 27% of the 236,043 training hours accounted for comes from these companies. Training hours for women represent 22% of the total number of hours in 2015 compared to 25% in 2014. The Brand College explains this decrease which was predominantly attended by men (87%), representing 49,094 hours at end 2015. However, excluding Brand College, this proportion remained relatively stable in 2015 (24%) compared to 2014 (25%). 44 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 Distribution of training hours by College or Program at December 31, 2015 Sales College R&D College Business Administration College Industry College Brand College SwYmers Program Managers Program TOTAL Distribution of training hours by category Managers Non-Managers TOTAL Distribution of training hours by men/women Men Women TOTAL Ratio Europe(1) Americas(1) 13,402 30,017 11,802 2,839 19,303 25,865 4,765 107,993 14,495 93,498 107,993 82,930 25,063 107,993 8,705 11,055 12,291 1,890 18,756 9,983 3,189 65,869 9,775 56,094 65,869 52,152 13,717 65,869 Asia(1) 10,278 17,893 5,472 1,881 11,035 12,312 3,310 62,181 7,457 54,724 62,181 49,856 12,325 62,181 2015 Total 32,385 58,965 29,565 6,610 49,094 48,160 11,264 % 14% 25% 12% 3% 21% 20% 5% 236,043* 100% 31,727 204,316 236,043* 184,938 51,105 236,043* 23 H(2) 13% 87% 100% 78% 22% 100% 2 Indicator verified by the independent verifier. * (1) Country > 150 Employees - Europe: France/Germany/United Kingdom/Netherlands – Americas: United States/Canada – Asia: Japan/Malaysia/China/South Korea/India/Australia. (2) Ratio = average number of hours per employee excluding 2015 acquisitions. Promoting diversity and gender balance The Code of Business Conduct demonstrates the extent to which the Dassault Systèmes culture is based on mutual respect, fairness, and the diversity of its employees. Within this context, recruitment, training, promotion, assignment and more generally, all work-related decisions are based on competencies, talent, achievements and employee motivation, without any form of discrimination, harassment or bullying. Professional equality between men and women Dassault Systèmes encourages gender equality within its workforce by developing access for women to its different businesses and by spearheading initiatives for women’s career advancement. In June 2015, a first 3DS WIN (Women Initiative) Summit brought together 23 Group representatives globally. An assessment and a list of priority actions were drafted, in order to develop the recruitment plan for women at Dassault Systèmes and have more women in management positions. At December 31, 2015, 24% of 3DS employees were women, representing 17% of Managers. 31% of people recruited during the year were women, spread over the following services: 49% in Sales, Marketing and Services, 30% in Administration and other, and 21% in R&D. It is important to highlight that the Group’s ability to hire more female engineers is very limited as they are under-represented in engineering schools. The 3DS WIN (3DS WOMEN INITIATIVE) internal community, implemented in 2012, continued to coordinate a network of women and men determined to encourage, inspire and mentor women to develop their careers within Dassault Systèmes. In 2015, numerous actions were implemented locally including: a partnership with the Women’s Forum for Economy and Society; a conference on leadership at the 3DS Paris Campus; actions to promote the recruitment of women in India; an inter-company exchange on best practices in North America, etc. The Dassault Systèmes Executive Committee is comprised of two women and eight men while the Board of Directors has four women members and five men. in the different countries where Dassault Systèmes endeavors to comply with applicable regarding professional equality and non- regulations discrimination it has employees. The French, German, English, Dutch, American, Canadian, Japanese, Chinese, South Korean and Australian companies of Dassault Systèmes, which employ 86% of the Company’s Employee Headcount, are subject to specific employment anti-discrimination and gender-equality laws. DASSAULT SYSTÈMES ANNUAL REPORT 2015 45 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility For example, in France, the agreement regarding equal professional treatment and balanced employment between men and women at Dassault Systèmes SE was renewed and signed on July 9, 2015 for a three-year period. It covers the following themes: hiring and developing the professional gender balance, the equal compensation and pay policy between men and women, promotion and career development, work-life balance, awareness and communication campaigns to change mindsets and behavior. In addition, in order to analyze the positioning of men and women at Dassault Systèmes SE and to define actions to be undertaken to eliminate possible inequalities, a report on the situation comparing general employment conditions and training for men and women is prepared each year in accordance with the law. It has been available on the intranet site since 2010. Some French subsidiaries have also implemented agreements on equality or the promotion of diversity (Dassault Systèmes Provence SAS, Dassault Data Services SAS). In the United States, Dassault Systèmes ensures compliance with regulations regarding equality in the workplace (hiring, training, promotions, compensation, dismissals 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, Vet100 and Affirmative Action reports) to the U.S. authorities each year. Disabled persons The French, German, English, Dutch, American, Canadian, Japanese, South Korean and Australian companies of Dassault Systèmes, which employ more than 80% of the Employee Headcount are subject to specific laws on disabled persons. This is also the case for most of the other European countries where employees are located. In France, since the first agreement implemented in 2003 within Dassault Systèmes SE to promote the employment of workers with disabilities, which created conditions favorable for their integration, several agreements have been renewed, the last of which was signed on December 7, 2015 (Insertion and Employment of people with disabilities within the Dassault Systèmes Group 2016 - 2017 - 2018). These agreements reflect Dassault Systèmes SE’s commitment to make the hiring, training and continued employment of workers with disabilities a major component of its policy. At December 31, 2015, 51 known and reported disabled persons were employed by Dassault Systèmes SE compared to 48 in 2014. Dassault Systèmes SE is committed to training and hiring at least 35 disabled persons under all types of contracts (permanent, fixed term, interns, work-study) over three years, including at least 12 permanent contracts, for all types of qualifications. large number of Furthermore, a initiatives concerning employee support, training and awareness have been launched: improving workstations, conferences, videos, sessions aimed at raising awareness with regard to welcoming and integrating disabled employees, etc. Actions with external service providers have also been carried out, including partnerships with the protected sector and services on the 3DS Paris Campus. Access to 3DS Paris Campus for disabled persons was specifically considered during construction (such as floor quality, doors, furniture, Eo-guidage signaling, magnetic loops, accessible meeting rooms, parking lot entrances, for example). Since 2011, Dassault Data Services SAS has committed itself each year to adopt measures supporting the integration and employment of disabled persons. In 2015, the following efforts were continued: initiatives in favor of recruitment, adapting workstations, training and awareness. There are no specific agreements on this topic for the other French subsidiaries. In the United States, the regulations regarding job equality (see the paragraph above “Professional equality between men and women”) apply in cases of discrimination against disabled employees. It is, however, not permissible to ask about the type of the employee’s disability. As a result, no data is provided. Intergenerational agreements In application of French law, an intergenerational agreement was signed at Dassault Systèmes SE on October 8, 2013 for a three-year period. This agreement extends from the agreement regarding employing senior employees (agreement signed in 2010), building on the measures initiated to anticipate career changes, develop and transfer skills and manage the transition between working life and retirement. It has now been broadened to include a component aimed at facilitating the recruitment and integration of young people within the Company. An intergenerational agreement has also been put in place at Dassault Data Services SAS and Dassault Systèmes Provence SAS for a three-year period and there are corporate action plans at Netvibes SAS and 3DVIA SAS in particular. There are no specific agreements for the Quintiq SAS and Dassault Systèmes Biovia SARL companies. 46 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 2.1.2.3 Developing relations with the social, regional and community environment The Foundation The Dassault Systèmes Foundation was created in the form of an endowment fund on August 15, 2015 (Official Journal, announcement no. 1460). Its purpose is to contribute to transforming education and research by building on the powerful possibilities of learning and discovery offered by 3D technology and virtual universes. The Dassault Systèmes Foundation wants to support the creation of conditions conducive to developing creative thinking to harmonize product, nature and life. Its aim is to: Company relations with secondary and post-secondary education Dassault Systèmes’ relations with the world of education are aimed at constantly updating teaching methods and fostering the skills and talents expected by its clients. This effort was stepped up in 2015. Training the engineers and technicians required by Dassault Systèmes’ customers At the end of 2015, five million pupils and students were using one or more of the Group’s technologies in an educational context, mainly in secondary and higher education. The Company’s efforts have led to the overall broadening of the user community as well as developing and modernizing their uses. To date, they include 36,000 institutions worldwide. (cid:125) actively support the transformation of teaching and educational innovation particularly through 3D experience imaging and content; SOLIDWORKS continued its expansion to a total of 2.4 million licenses, including a large-scale installation of 20,000 licenses to the 13 California State University campuses. 2 (cid:125) generate interest from young people for careers in engineering, sciences and digital technologies; (cid:125) broaden access for schools and universities to 3D technologies and content, as well as simulations; (cid:125) encourage scientific and technological research, and (cid:125) contribute to the preservation, conservation and enhancement of humanity’s intellectual heritage. The Dassault Systèmes Foundation grants scholarships and provides digital content and virtual technology expertise to education and research projects led by universities, research institutes or other European general interest organizations. This support promotes access to 3D technologies which have been used for a long time by industry to design, develop and manufacture most of the products on which society is based. Nine projects were selected in 2015. Eight of the nine projects were innovative educational initiatives in three types of schools: engineering schools, schools that provide Professional Aptitude Certificates, and schools for disadvantaged youth. The Dassault Systèmes Foundation also supports an ambitious international scientific mission that aims to use the most recent technologies and 3D simulation to understand how the Kheops pyramid was built. The Dassault Systèmes Foundation focuses its general interest mission on society to build a better future in a constantly- changing world. The academic skills certification program for CATIA was completely remodeled and includes a group of 86 certification centers in France, Spain, the United States, Canada, Japan, China and South Korea. The program for the creation of education expertise centers (“PLMCC”), joining Dassault Systèmes and the French Ministries of National Education and of Higher Education and Research, was extended by the addition of two new sites, in Mexico at the Technological University of Aguascalientes and in Argentina, at the National University of Cordoba. In Mexico, the center serves 125 institutions where 100 teachers have already been trained to use Dassault Systèmes solutions. In Argentina, 2,000 teachers and students have access to these solutions. In order to encourage greater interest in the sciences and technology, and contribute towards reversing the trend of disinterest among young people for these disciplines in France, the multidiscipline Course en Cours competition has maintained its level of participation across France and French high schools abroad, with 11,000 secondary and high school students taking part. Facilitating educational innovation The development of new educational practices implementing Dassault Systèmes’ solutions took on a new dimension in 2015 with the creation of a “Learning Lab” on the 3DS Paris Campus in Vélizy. Numerous directors of academic institutions worldwide have visited this lab to discover new learning experiences which replicate real life experiences which students can apply to their future work environment. DASSAULT SYSTÈMES ANNUAL REPORT 2015 47 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility One of the many new uses of the Learning Lab illustrated by the Company is the increasing number of internet-based educational activities on industrial objects. New activities that draw more from the 3DEXPERIENCE platform in this area include the use of the humanoid robot, “Poppy”, an open source system that creates numerous learning scenarios. In the area of scientific research, an innovative geology project was completed with La Salle Institute in Beauvais. This project broke new ground in the modelling of lava cooling phenomena and created new frameworks for students’ practical work. In particular, the project validated the transferability of industrial in life cycle management methods, generally practiced industry, to the scientific domain. Dassault Systèmes provided an international consortium of universities and engineering schools, led by the Metz National Engineering School, assistance and tools necessary to the implementation of the “Digital Farm”, a one-of-a-kind project for the collaborative design of a precision agriculture solution. This project brought together 14 universities, engineering and agronomy schools, with students from 11 countries and across four continents, using diverse engineering skills to leverage the social and technical collaboration environment provided by the 3DEXPERIENCE platform. la Formation des Ingénieurs (European Society for Engineer Training (SEFI), the International Federation of Engineering Education Societies (IFEES), the Global Engineering Deans Council (GEDC), the Indian Society for Technical Education (ISTE), the European SchoolNet, the National Academy of Engineering and the Association Française d'Ingénierie des Systèmes (French Association for Systems Engineering). Dassault Systèmes also cooperated with the ICEE (Indo-US Collaboration on Engineering Education) which works towards modernizing technical educational practices in India. Facilitating open innovation, collective intelligence The 3DEXPERIENCE Lab is Dassault Systèmes’ open innovation laboratory that was officially announced on November 9, 2015. Its objective is to invent unique breakthrough products and services mixing different sectors, driven by its ambition to move society forward. This system is based on the strong conviction that breakthrough projects are born out of collective intelligence. Its aims is to incubate projects in partnership with players including start- ups, and research or innovation laboratories. This implies a new dynamic which will give these projects greater scope, as well as encompassing the idea of societal transformation. Through projects financed by the European Union and the Agence Nationale de la Recherche (National Research Agency), Dassault Systèmes has provided its expertise and solutions to different educational innovation projects: The 3DEXPERIENCE Lab supports projects based on themes from everyday life, i.e. cities, life styles and modes, life sciences, connected objects, the ideation (idea creation) process, and “Fab Labs”. (cid:125) conclusion of “Manuskills”, an international project led by the Polytechnic University of Milan, to increase the outreach of manufacturing industries; (cid:125) continuation of “PLACIS”, led by the Paris Institut supérieur de mécanique (Higher Institute for Mechanics) with the aim of developing an international program to train systems engineers; (cid:125) initial findings of the European collaborative robotics project, EURLAB, headed by the Louis Armand High School in Nogent-sur-Marne, France, involving high school students in Germany and Italy in a first phase. These research activities enable full use of the possibilities offered by the latest version of the 3DEXPERIENCE solutions on the cloud, solutions which saw their first rollout in most of the countries where the Group operates. The 3DEXPERIENCE Lab program will give start-ups the most advanced professional software on the market, a dedicated collaborative cloud area, and a user community. In addition, start-ups will receive high level mentoring to support their digital projects. The unique market positioning of the 3DEXPERIENCE Lab program is also reflected in the possibility of giving these start- ups access to the networks and connections with Dassault Systèmes’ extended ecosystem at an international level. Finally, the 3DS Paris Campus welcomes these start-up founders to the 3DEXPERIENCE Lab with a dedicated area for training and coaching, the availability of high performance equipment, and a Fab Lab for fast prototyping of parts. (For more information, http://3dexperiencelab.3ds.com/en/). All of these activities were supported by the active collaboration of the Group in conjunction with a number of scientific associations including the American Society for Engineering Education (ASEE), the Société Européenne pour Company commitment to associations Dassault Systèmes is involved with associations to support the virtual economy and encourage sustainable innovation. To promote the development of the digital economy in France 48 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 and in Europe, Dassault Systèmes is a founding member of AFDEL (Association Française des Éditeurs de Logiciels, 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 Systèmes also co-chairs the Alliance for the Industry of the Future in France, of which the AFDEL is a founding member. This Alliance helps promote the transformation of French production tools and support companies in transforming their business models, organizations, design modes and marketing. The Group also supports the “Villette-Universcience Company” in France, whose goal is to promote and encourage the diffusion of scientific and technical culture to young people and to the general public. Throughout the world, Dassault Systèmes brands are involved in local community efforts. 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 has evolved into helping participants structure and manage businesses by providing modeling services, and subsequently creating demand for such services. Social projects In France, Dassault Systèmes SE subsidizes its Works Council in the amount of 5.2% of total gross annual payroll , with 5.0% for social and cultural activities and 0.2% for the operating budget. In 2015, the Works Council thus received €10.5 million, compared to slightly more than €9.1 million in 2014 and €8.5 million in 2013. This yearly allocation by Dassault Systèmes SE 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 sports to art, as well as financial support, such as for vacations, children’s education, and membership in clubs. Dassault Data Services SAS subsidizes its Works Council at a level of 1.5% of its total gross annual payroll , with 1.3% for social and cultural activities and 0.2% for the operating budget. Dassault Systèmes Provence SAS subsidizes its Works Council in the amount of 1.8% of total gross annual payroll , with 1.6% for social and cultural activities and 0.2% for the operating budget. 2 2.1.3 Welcoming employees who have joined the Group via recently acquired companies Due to the strong growth, speeding up the onboarding of employees joining the Group is a major challenge. The goal is to share a common strategy and set of processes, culminating in the integration of the products into the portfolio. For this purpose, Dassault Systèmes has defined a methodology and processes aimed at implementing an integration plan. This plan takes place in three stages: (cid:125) the preparation of the finalization of the acquisition, which defines the integration strategy; (cid:125) a communication program on the date of the signature and a convergence plan for each function with an associated schedule. This plan is co-drafted by the teams of the acquired company and Dassault Systèmes based on a value analysis of the respective processes; (cid:125) the implementation of the convergence plan at a rate that can vary depending on the acquired companies. This goes from the adoption of Dassault Systèmes’ processes up to the complete integration of the legal entities. Throughout this process, a project monitoring system is leveraged to manage the progress, allowing for plan modifications if necessary. Feedback is solicited to continually improve the process. For example, in 2015, integration perception surveys were conducted with employees from newly acquired companies. Each integration process is adapted specifically to each acquired company, with the aim of motivating and building the loyalty of talented individuals and providing each employee with learning opportunities. This methodology is based in particular on the 3DEXPERIENCE platform as well as the online communities which provide easy access to the information concerning the Company, organizations the responsibilities, competencies and contributions of each person. and projects, while highlighting A team of employees from Dassault Systèmes as well as the acquired company is formed to conduct this convergence project focusing on different processes: R&D and Customer Support, Sales and Marketing, Finance, Sales Administration, Human Resources, IT and Working Environment. DASSAULT SYSTÈMES ANNUAL REPORT 2015 49 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility 2.1.4 Rewarding P erformance and R ecognizing E mployees As part of the performance evaluation process, each employee meets his or her manager on a formal basis at least twice a year, to define goals for the year and to assess the results of the past year. A mid-year review is also recommended. These discussions relate to rewards and recognition attributed to the employees for their performance and contribution to Dassault Systèmes’ development. Dassault Systèmes also values initiatives with particular attention paid to the spirit of innovation as well as collective and social actions: (cid:125) innovations developed within the Group by the teams, in all organizations, are showcased in the 3DS Innovation Forwards, that, each year, reward the most innovative projects put forth by employees worldwide; (cid:125) programs and initiatives are put into place to recognize the employees’ hard work and enhance the work environment; (cid:125) Dassault Systèmes also recognizes the importance of being a strong corporate citizen, and actively participates and encourages employees to contribute to community based activities. Performance and compensation Compensation The compensation policy at Dassault Systèmes 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. Compensation is differentiated according to the individual performance of each employee as appraised by his or her 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 2015, the salary increases granted by Dassault Systèmes depended on individual performance and market changes in each country where the Company has activities. Total gross annual payroll paid by the Group (including for the employees of 3D PLM Software Solutions Ltd and 3DPLM Global Services Private Ltd) amounted to €1,019.0 million in 2015 compared to €822.7 million in 2014, an increase of 24% for the year, principally due to negative currency effects and to the addition of acquisitions. Payroll taxes for the Group amounted to €254.5 million in 2015 compared to €228.9 million in 2014. In 2015 and 2014, payroll taxes included an amount directly related to a grant of performance shares. Proﬁ t-sharing (pursuant to Titles I and II of Book III, Section III of the Labor Code) Employee profit-sharing (l'intéressement) and regulatory profit-sharing (la participation) are two employee savings vehicles established by law in France. Employee profit-sharing is optional, while regulatory profit-sharing is required for all companies with more than 50 employees. The employee profit-sharing and regulatory profit-sharing agreements renegotiated by Dassault Systèmes SE with the labor unions in 2014 are applicable for three years (2014, 2015 and 2016). Employee profit-sharing for the year 2014, which was paid in 2015 at Dassault Systèmes SE, amounted to €17.9 million (€18.4 million in 2013). The total amount of the contribution by Dassault Systèmes SE for regulatory profit-sharing for the year 2014, which was paid in 2015, was €17.9 million (€15.5 million in 2013). The results of operations recorded by Dassault Systèmes SE for the year 2015, and which will be submitted for approval at the General Shareholders’ Meeting on May 26, 2016 should permit the distribution of employee profit-sharing and regulatory profit-sharing of €21,163,228 each. The table below sets forth the amounts of employee profit-sharing and regulatory profit-sharing at Dassault Systèmes SE over the past three years: 2015 2014 2013 (in thousands of euros) Amount % payroll Amount % payroll Amount % payroll Contractual employee profit-sharing (intéressement) Regulatory profit-sharing (participation) TOTAL 21,163 21,163 42,326 11.0% 11.1% 22.1% 17,921 17,921 35,842 10.5% 10.4% 20.9% 18,422 15,512 33,934 12.0% 10.2% 22.2% Payroll percentages are calculated on a capped payroll base as per the current profit sharing agreements. 50 ANNUAL REPORT 2015 DASSAULT SYSTÈMES The amounts attributed individually to employee beneficiaries are, at the employee's option 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 Privées). At Dassault Data Services SAS and Dassault Systèmes Provence SAS, the amount of contractual employee profit- sharing paid in 2015 in respect of year 2014 represented 9.1% and 6.1% of the payroll respectively, and the regulatory profit-sharing represented 1.9% and 18.9%. Optional profit- sharing agreements were also signed in 2013 and contractual profit-sharing agreements in 2014 in Netvibes SAS and 3DVIA SAS. These contractual employee profit-sharing agreements (intéressement) represented respectively 17.5% and 8.4% of the payroll of these companies. There are no agreements at Quintiq SAS and Dassault Systèmes Biovia SARL. Other plans In Canada, there is a “Deferred Profit-Sharing Plan” (DPSP) which allows a portion of profits to be distributed to employees registered on the “Registered Pension Plan” (RPP). Recognizing the ﬂ air for innovation and showcasing collective initiatives advocated by the values of Dassault Systèmes 3DS INNOVATION Forwards Every year, the 3DS INNOVATION Forwards reward the most innovative projects led by Dassault Systèmes’ teams worldwide. Launched in 2004, the initiative encourages a spirit of innovation within the Group, promotes recognition, and deepens understanding of the corporate strategy. The proposed projects are designed to provide solutions for the Company’s strategic issues: contributing to meet industry challenges, creating new user experiences enabling them to see the advantages of the products made by the Dassault Systèmes brands, participating in the Company’s commitment to its customers and partners, increasing the value of the 3DEXPERIENCE platform, offering new experiences that contribute to the development of the Group’s employees and its business activities, etc. All Dassault Systèmes employees are invited to submit a full description of the project within a dedicated on-line community, set up on the 3DEXPERIENCE platform. The projects can be seen by everyone and are selected via an employee vote and a jury made up of members of the Executive Committee. There were 250 applicants in the 2015 edition of the competition representing 1,799 employees, with 25 winning teams. Initiatives to reward work and improve the lives of employees Since 2010, an internal satisfaction survey has been open to all Dassault Systèmes employees worldwide. This survey Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 enables employees to give their opinion about various themes such as well-being at work, mutual respect, collaboration, pride in working for Dassault Systèmes, etc. Following the annual survey, a specific action plan is implemented at the global or local levels to encourage progress year over year. The global action plan is based on a catalogue of 40 initiatives from best practices tested within the organizations. The initiatives are classified according to three major themes which are: 2 1) recognition and celebrations, 2) the learning company and 3) the working environment. To promote the action plan and enrich the initiative catalogue, a worldwide on-line community - called life @3DS- was opened to all in November 2015. Each employee can thus discover, exchange and propose new ideas. Collective company and social initiatives Most of the Group’s subsidiaries organize or take part in local initiatives within their communities. This involves taking part in sporting events to collect funds for various charity organizations. For example, the “Paris to London cycle ride” in the United Kingdom, including the collection of donations for the “Prince’s Trust” organization helps people from 13 to 30 years old in education or employment. Employees also participated in the “Mekong Challenge” running race in Belgium to collect funds to improve the life of poor children in South-East Asia. Finally, the “Montreal-Quebec” cycling race contributed to cancer research . Actions supporting children were also carried out. In Germany, donations were made to the F.U.N.K.e.V charity, which supports the neuropediatric department in Stuttgart Hospital. In France, Dassault Systèmes is a partner in the “Rêves de Gosse: Tour 2015” initiative which offers “extraordinary” children (sick children) the opportunity to go on a first flight organized by amateur and professional pilots. In the United States, toys were collected and donated. Also in the United States, employees volunteer days with non-profits, such as the “Ronald Mc Donald House” whose aim is to facilitate the hospital stay for seriously ill children. Initiatives in favor of disabled persons: in South Korea, Dassault Systèmes conducts an intern program for disabled students in partnership with the “Korea National University of Welfare”. In France, again within the “Rêves de Gosse” initiative, the disability taskforce sponsored and staffed a booth and organized conferences in schools in the Yvelines département as well as a flight simulator competition with teams including with disabled employees. Sustainable development actions are also carried out globally. For example, in France and the United States IT and electronic equipment is collected by employees for recycling. In Canada, volunteer days are held at the Peter McGill Eco-Quarter DASSAULT SYSTÈMES ANNUAL REPORT 2015 51 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility program, whose mission is to encourage Montreal inhabitants to improve daily the quality of their living environment and reduce the impact of their life styles on the environment. Finally, support has also been extended to local organizations via the “SnowFlake” initiative in the United States that collects winter clothes, and “Sow Much Good”, an agricultural farm that grows and distributes vegetables to local populations. 2.1.5 Business ethics, social dialogue and personal safety (cid:125) using Dassault Systèmes’ funds or assets to pay bribes or kickbacks or make payments of a similar nature liable directly or indirectly to benefit third parties, including shareholders or companies, whether they are partners, customers, suppliers, service or other companies or organizations, with the goal of benefiting from preferential treatment; and (cid:125) using Group funds to make a contribution of any kind to political candidates or parties. These principles are supplemented by an “anti-corruption policy”, which applies to each Dassault Systèmes company. Principles of Enterprise Social Responsibility and commitments to ensuring respect for basic rights The Code of Business Conduct requires Dassault Systèmes’ employees to comply with international standards, such as the Universal Declaration of Human Rights of the United Nations and the various Basic Conventions of the International Labor Organization. With respect to the Group’s activities, the risk of these basic standards being violated is very low and the actions undertaken to support human rights are not specifically reported on. The Group also promotes corporate responsibility with respect to its ecosystem, based on the acknowledgment of and compliance with basic laws on social rights and environmental protection; the general terms and conditions of the sub- contracting and purchase agreements of Dassault Systèmes’ major companies include specific commitments: (cid:125) the Dassault Systèmes SE model contracts oblige its service providers to follow the social and environmental responsibility principles which Dassault Systèmes uphold. They are available at the following link: http://www.3ds. com/fileadmin/COMPANY/Ethics-and-compliance/ Principes-de-Responsabilite-Sociale.pdf; (cid:125) the agreements between Group entities in France, Germany, the United Kingdom, the Netherlands, the United States, Canada, Japan, China, South Korea, India, Australia and other European countries (which account for 73% of the Group’s Employee Headcount) and their service providers contain clauses regarding respect for employees’ rights. Business ethics Since its creation, Dassault Systèmes 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 added-value. Confidence and integrity, supported by rigorous ethics and regulatory compliance, are at the heart of Dassault Systèmes’ commitments for sustainable innovation and growth. is formalized The Company’s commitment to professional ethics and business citizenship 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 “DS Principles of Social Responsibility” on the Company’s internet site. The Code of Business Conduct, which is backed up by specific policies, is intended to serve as the reference for all Company employees to guide their behavior and interactions when performing their activities. This commitment is also borne out by the policy of making new employees aware of ethics and compliance and by targeted training courses taken by the employees most exposed to ethical risks in their daily duties. The online ethics and compliance training, created in 2013, is now an integral part of the onboarding program for all new employees. This course comprises 14 modules, each of which is broken down into a theory section followed by practical applications in a question/answer format. The topics dealt with include the fight against corruption, the protection of intellectual property, respect for confidentiality, ethics in the workplace, competition law, information systems security, personal data protection, and conflicts of interest etc. The ﬁ ght against corruption The Code of Business Conduct prohibits Group employees from: (cid:125) exchanging gifts or invitations in order to favor or influence a business decision, whether it be taken by a customer, partner, supplier or employees of the Group; 52 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 Dassault Systèmes requests that its suppliers and partners comply with the provisions of the basic conventions of the International Labor Organization, in particular the principles of eradicating child labor by requiring children 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, freedom to unionize and the protection of labor union rights, and the freedom to collectively negotiate labor contracts. The Company also asks them to commit to ban all forms of discrimination (with respect to recruitment, professional development and the end of labor relations), to fight against corruption, and to respect applicable law on the protection of the environment. Impact of products and services on the health and safety of the Group’s customers The direct impact of Dassault Systèmes’ products and services on the health and safety of its customers is very limited given their non-material nature. They are therefore not specifically reported on. 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. In France, numerous meetings were organized by the relevant French companies of the Group. Collective agreements, concerning one or several subjects in connection with working and employment conditions, were negotiated and signed each year: 2 Dassault Systèmes SE Dassault Data Services SAS Dassault Systèmes Provence SAS Netvibes SAS 3DVIA SAS Quintiq SAS Dassault Systèmes Biovia SARL Simpack France SAS Number of collective agreements in effect at 12/31/2015 Number of collective agreements signed during 2015* 41 4 25 7 14 5 3 1 2 1 0 0 0 0 0 0 * These agreements may cover several topics such as the Mandatory Annual Negotiations, equality and professional gender balance, organizing working time, contractual employee profit-sharing and regulatory profit-sharing, and the inclusion and employment of people with disabilities. Note: there are no agreement for Quintiq SAS, Dassault Systèmes Biovia SARL and Simpack France SAS. In Germany, collective agreements are negotiated and signed with the Group Council and the Workers’ Council of each Company site (Stuttgart, Hanover, Aix-la-Chapelle, Berlin and Simpack). At December 31, 2015, there were 9 agreements in effect in Stuttgart, 27 in Hanover, none still in effect at December 31, 2015 in Aix-la-Chapelle and Berlin, and 19 with the Group Council. In 2015, Dassault Systemes Deutschland GmbH signed 9 agreements at the level of the Group Council, several of which concern employee salaries and human resources management. Also, agreements were signed at a local level, including one in Stuttgart on similar topics. In the other main countries where the Group operates (the United Kingdom, the Netherlands, the United States, Canada, Japan, Malaysia, China, India and Australia), there is no personnel representation or trade union in Dassault Systèmes. In South Korea, as in all companies with over 30 people, an employee representative Committee is elected each year. Its role is to participate in organizing the Company’s social activities. Furthermore, the negotiations begun in October 2014 with the Special Negotiation Body (“SNB”), which was formed as part of the project to convert Dassault Systèmes SA into a European company, led to the signing of a unanimous agreement governing the terms and conditions for employee involvement within the European company. This new Committee for dialogue with its European employees (the European Works Council) will consist of 22 representatives from the 16 European countries in its jurisdiction. The body’s first plenary meeting is scheduled for the end of the first quarter of 2016. Health and safety In accordance with the provisions of its Code of Business Conduct, the Group undertakes to comply with all applicable laws and regulations on health and safety in the workplace. Coverage of healthcare costs its employees has The Group ensures that each of medical coverage in compliance with local practices in the countries where it has activities. Moreover, the Group offers supplementary health coverage, for example in France, the United Kingdom, the United States, Canada, South Korea, Japan and India. Health and medical checkup The Group applies the provisions laid down by the countries where it has activities. For example, in France, its employees undergo regular medical checkups. On the 3DS Paris Campus, a medical team composed of two physicians and four nurses looks after the health and well-being of all on-site employees. In certain other countries (the United States, Japan, China, and South Korea), individual medical checkups are offered. This service is included in the health coverage plan. Lastly, there are no specific provisions in Germany, the United Kingdom, Canada, Malaysia, or Australia. DASSAULT SYSTÈMES ANNUAL REPORT 2015 53 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility Work accidents Given the nature of Dassault Systèmes’ activity, few work accidents are recorded. In France, in 2015, ten work or travel accidents resulted in absence from work for more than one day. There were six in Germany, four in the United States, one in Japan, one in China and none in the United Kingdom, the Netherlands, Canada, Malaysia, South Korea, India, and Australia. Health, Safety and Working Conditions Committee and speciﬁ c actions In France, three Group companies have a Health, Safety and Working Conditions Committee (CHSCT in French), which meets several times during the year in each entity. Since 2009, Dassault Systèmes SE has launched a series of initiatives to promote well-being in the workplace for all of its employees. To remind them of the information and documents available on this topic (specific processes, training for the prevention of stressful situations, consultation with a psychologist or social worker, etc.), an announcement was sent to all employees at the beginning of the year so that everyone is aware of the tools made available to them by the Company. At Dassault Systèmes Provence SAS, the actions implemented in 2014 through four working groups continued in 2015 for the following themes: “Objectives, planning and reporting”, “Helping each other, support and sharing expertise”, “Value recognition, career and skills development”, and “Planning and organizing techniques”. Recommendations were prepared by each of the groups. These resulted in action plans submitted to and monitored by the CHSCT. In addition, in certain countries (such as Canada and Germany), employee representatives are responsible for communicating with the management of the relevant legal entities on employee health and safety. 2.1.6 Methodology for Employee Reporting Scope In general, employee reporting covers all Dassault Systèmes companies at year end. Nevertheless, as indicated below, the scope covered for certain indicators may be more limited. Key employee indicators For its employee reporting requirements, the Group chose key indicators set out in paragraphs 2.1.1 “Group Organization and Employees” and 2.1.7 “Appendices regarding the Group’s Employee Headcount”. They were chosen on the basis of the indicators in article R. 225-105-1 of the French Commercial Code and the specific indicators in the Group’s Human Resources policy. In this respect, Dassault Systèmes has defined the following concepts: (cid:125) “Employee Headcount”, which means employees of Dassault Systèmes SE and subsidiaries in which it has at least a 50% shareholding; and (cid:125) “Total Workforce” which includes the Employee Headcount, employees of companies in which it has less than a 50% shareholding and outside service providers who have worked more than a full month at period end. At December 31, 2015, the Employee Headcounts for companies in which it has less than a 50% shareholding include the employees of 3D PLM Software Solutions Ltd and 3DPLM Global Services Private Ltd. 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. Hiring and departure data are also determined using this rule for 2015. The 2014 data in relation to these indicators, which were originally denominated in number of work agreements, were recalculated using the same methodology. 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, as the notions generally used in France to define socio-professional categories (cadre and non-cadre) are not used outside France, and over two-thirds of the Dassault Systèmes employees work abroad, the Group has decided to use the following categories: “Managers” who are in charge of the teams, and the “Non-Managers” who do not manage a team and are specialists in a specific field. 54 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 2 Due to these local differences, the Company is not able to provide consolidated data for overtime, the severity of work accidents and occupational illnesses. Gathering and consolidating employee data T he following points should be taken into consideration: (cid:125) the data pertaining to employees and movements are taken from human resources and financial management software, both of which are deployed across all the companies and represent 100% of the reporting scope; (cid:125) the information pertaining to the compensation policy relates to Employee Headcount. The data relating to the total payroll and payroll taxes is provided by the Dassault Systèmes Finance department and covers the Employee Headcount and the employees of companies in which the Group has a shareholding below 50%, including employees at 3D PLM Software and 3DPLM Global Services Private Ltd; (cid:125) the data relating to employees and the amount of the payments made to outside service providers is provided by the Finance department. It concerns services referred to as “Times and Material”, supporting a Dassault Systèmes activity corresponding to its core business and in respect of which the employees are present for at least one month, paid on an hourly, daily or monthly basis; (cid:125) the information pertaining to policies on business ethics, fighting corruption, the Company’s social responsibility principles and commitments ensuring basic rights and the impacts of products and services on the health and safety of the Group’s customers is provided by the ethics and Compliance department and covers 100% of the reporting scope; (cid:125) the data relating to the main policies concerning industrial relations, health and safety, anti-discrimination initiatives, employee and regulatory profit-sharing and other reward systems, working time, absenteeism, fostering diversity and gender balance, and social projects result from additional discussions held with the Human Resources managers in Dassault Systèmes’ major countries with over 150 employees (excluding companies acquired in 2015), namely France, Germany, the United Kingdom, the Netherlands, the United States, Canada, Japan, Malaysia, China, South Korea, India, and Australia. These countries represent 91% of the Group’s Employee Headcount in 2015. Absenteeism data includes sick leave, maternity and paternity leave, as well as work-related accidents. Employees absent for a period exceeding two years are no longer included in the absenteeism ratio. It should be noted that this data is strongly influenced by local regulations; in certain countries, sick leave is counted as paid holiday leave. As such, absenteeism should be considered on a country- by-country basis as it cannot be disclosed on a consolidated basis; (cid:125) the data relating to training for the countries with over 150 employees mentioned above is extracted from the “3DEXPERIENCE University” solution, excluding companies acquired in 2015, covers 90% of the Group’s Employee Headcount. Data recorded through the on-line training platform is also taken into account for the same companies. The data for companies acquired in 2014 and belonging to the BIOVIA and QUINTIQ brands are derived from their respective information systems and were consolidated with data from the 3DEXPERIENCE University; (cid:125) lastly, the scope is specified in the body of the text for the other data not previously disclosed: Company relations with secondary and post-secondary education, Company commitment to non-profit organizations, 3DS INNOVATION Forwards, initiatives to reward work and improve the lives of employees. DASSAULT SYSTÈMES ANNUAL REPORT 2015 55 2 Social, Societal and Environmental Responsibility Social and Societal Responsibility 2.1.7 Appendices regarding the Group’s Employee Headcount DISTRIBUTION BY AGE Year ended December 31 < 30 years old 31 to 40 years old 41 to 50 years old > 51 years old TOTAL Europe Americas Asia Total Total Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % 1,203 1,988 1,745 1,051 5,987 20% 33% 29% 18% 100% 423 945 1,086 1,070 3,524 12% 27% 31% 30% 342 854 531 184 17% 45% 28% 10% 1,968 3,787 3,362 2,305 17% 33% 30% 20% 1,923 3,809 3,229 2,052 100% 1,911 100% 11,422* 100% 11,013 100% % 17% 35% 29% 19% * Indicator verified by the independent verifier. EMPLOYEE TENURE Year ended December 31 Temporary contract Less than 5 years 6 to 15 years More than 16 years TOTAL Europe Americas Asia Total Total Employees 2015 158 2,818 1,877 1,134 5,987 Employees 2015 8 1,606 1,312 598 % 3% 47% 31% 19% Employees 2015 12 1,278 532 89 % 0% 46% 37% 17% Employees 2015 178 5,702 3,721 1,821 % 1% 66% 28% 5% Employees 2014 178 5,372 3,900 1,563 % 2% 50% 32% 16% % 2% 49% 35% 14% 100% 3,524 100% 1,911 100% 11,422* 100% 11,013 100% * Indicator verified by the independent verifier. DISTRIBUTION BY SOCIO-PROFESSIONAL CATEGORY Year ended December 31 Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % Europe Americas Asia Total Total 10% 90% 100% 18% 82% 100% 16% 84% 376 2,335 2,711 1,780 6,931 8,711 2,156 9,266 14% 86% 100% 20% 80% 100% 19% 81% 374 2,212 2,586 1,771 6,656 8,427 2,145 8,868 100% 11,422* 100% 11,013 100% % 14% 86% 100% 21% 79% 100% 19% 81% Women Managers Non-Managers TOTAL WOMEN Men Managers Non-Managers TOTAL MEN Socio-professional category Managers Non-Managers TOTAL 184 1,188 1,372 960 3,655 4,615 1,144 4,843 5,987 13% 87% 100% 21% 79% 100% 19% 81% 100% 144 732 876 553 2,095 2,648 697 2,827 3,524 16% 84% 100% 21% 79% 100% 20% 80% 100% 48 415 463 267 1,181 1,448 315 1,596 1,911 * Indicator verified by the independent verifier. 56 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Social and Societal Responsibility 2 FULL-TIME AND PART-TIME Year ended December 31 Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % Europe Americas Asia Total Total Full-time Part-time TOTAL Women Full-time Part-time TOTAL WOMEN Men Full-time Part-time TOTAL MEN TOTAL % 98% 2% 2 5,726 261 96% 4% 3,507 100% 1,903 100% 11,136 17 0% 8 0% 286 97% 3% 10,766 247 5,987 100% 3,524 100% 1,911 100% 11,422* 100% 11,013* 100% 1,211 161 88% 12% 1,372 100% 863 13 876 99% 1% 100% 458 5 99% 1% 2,532 179 93% 7% 2,420 166 94% 6% 463 100% 2,711 100% 2,586 100% 98% 2% 100% 4,515 100 4,615 5,987 0% 100% 5 2,648 3,524 2,643 100% 1,446 100% 2 0% 8,604 107 99% 1% 8,346 81 99% 1% 1,448 1,911 100% 8,711 100% 8,427 100% 11,422* 11,013 * Indicator verified by the independent verifier. AGE DISTRIBUTION OF NEW ARRIVALS Year ended December 31 < 30 years old 31 to 40 years old 41 to 50 years old > 51 years old TOTAL Europe Americas Asia Total Total Employees 2015 Employees 2015 % Employees 2015 % Employees 2015 % Employees 2014 % 425 237 94 22 55% 30% 12% 3% 778 100% 175 115 104 56 450 39% 26% 23% 12% 152 137 34 10 46% 41% 10% 3% 752 489 232 88 48% 1,192** 31% 1,324** 15% 6% 743** 264** 100% 333 100% 1,561* 100% 3,523 ** 100% % 34% 38% 21% 7% Indicator verified by the independent verifier. * ** The figures reported for 2014 are based on the new methodology adopted for the year 2015 for this indicator (see paragraph 2.1.6. “Methodology for Employee Reporting”). DASSAULT SYSTÈMES ANNUAL REPORT 2015 57 2 Social, Societal and Environmental Responsibility Environmental Responsibility 2.2 Environmental Responsibility Since 2010, the Dassault Systèmes environmental responsibility strategy has been structured in stages around the following main areas of focus: (cid:125) establishment of a global measurement process and collection of environmental information; (cid:125) establishment of a collaborative approach involving employees called Sustainability Leaders or the Green Team who participate in initiatives aimed at limiting the impact of operations; (cid:125) implementation of projects and industrial partnerships to assess among customers the benefits of its applications on the environment. Systèmes’ Dassault is characterized by indirect positive and negative impacts on its customers and by direct negative impact of its activities on the environment: environmental responsibility (cid:125) Dassault Systèmes’ software solutions allow its customers to reduce the environmental impact of their products from the design stage. They can help reduce the consumption of raw materials through digital modeling, optimize energy consumption and working processes and manage the compliance of products with environmental standards. This is the positive impact of Dassault Systèmes’ products on the environment; (cid:125) the use of the Group’s software by its customers generates indirect energy consumption for Dassault Systèmes. This consumption is the potentially indirect negative impact of Dassault Systèmes’ products on the environment; (cid:125) all of Dassault Systèmes’ operations are located in offices (see paragraph 2.2.2 “Responsible Company”) and in data centers. For its activities, the Group uses computer hardware and employees are required to travel regularly to the Group’s sites, and to visit customers and partners. The Group’s environmental impact is therefore mainly generated by the energy consumption of its buildings and data centers; the greenhouse gas emissions produced by employee travel; and the electrical and electronic waste. In the light of these various contributions, Dassault Systèmes is working on the development of a model to define its overall net positive impact on the environment as defined by the SHINE Project described in paragraph 2.2.2.2 “Industry Collaborations on sustainability”. In 2015, the Group deepened its strategy to integrate the environment into its operations and structured its initiative around the responsibilities of the Company and employees and partners. 2.2.1 The Group’s vision for environmental responsibility 2.2.1.1 An environmental strategy built on 3 pillars In 2015, Dassault Systèmes defined the environmental strategy for its operations for the coming three years. It is based on the following three concepts: (cid:125) Responsible Company: Dassault Systèmes helps its customers reduce their environmental impact through its applications while impact, see limiting paragraph 2.2.2 “Responsible Company”; its own (cid:125) Responsible Employee: Dassault Systèmes involves its employees in its environmental strategy through awareness- raising efforts at all of its sites, see paragraph 2.2.3 “Responsible Employee”; 58 ANNUAL REPORT 2015 DASSAULT SYSTÈMES (cid:125) Responsible Partner: the Group strives to choose responsible suppliers through the integration of corporate and environmental commitments, and it is trying to increase recycling and local actions, see paragraph 2.2.4 “Responsible Partner”. 2.2.1.2 Environmental Management: Integration of environmental responsibility into the Group’s real estate strategy light of In this new vision, environmental strategy management and the annual reporting thereof was entrusted to the Group’s Real Estate and Facilities department in 2015, in conjunction with the Public Affairs and Sustainable Development department, which continues to oversee partnership development-related tasks to assess the positive net impact of Dassault Systèmes on the environment through its applications. Social, Societal and Environmental Responsibility Environmental Responsibility 2 2 2.2.2 Responsible Company 2.2.2.1 3DEXPERIENCE platform for Sustainability: Apps and Solutions for sustainable development Dassault Systèmes’ corporate purpose is to provide businesses and people with 3DEXPERIENCE universes to imagine sustainable innovations capable of harmonizing product, nature and life (see paragraph 1.2.1.3 “Dassault Systèmes’ Purpose and Strategy”). Companies today face a series of challenges that are both technological and ecological. Dassault Systèmes 3DEXPERIENCE platform helps its customers achieve their combined sustainability and business goals through a portfolio of sustainability Applications enriching several of its Industry Solutions Experiences, based on: 3D Modeling Technologies The Company’s portfolio of modeling technologies makes it possible to create scientifically accurate representations of the environmental impacts of product. These technologies also offer techniques to reduce these impacts, such as eco-design for predictive environmental assessment and virtual prototyping, which improve the carbon footprint, energy consumption, human health impacts, and overall sustainability of products and systems. For example, SOLIDWORKS Sustainability features an integrated Life Cycle Assessment (LCA) dashboard that estimates the environmental implications of each design decision using several environmental indicators. One of the Company’s clients, the global leader in door-opening solutions, used SOLIDWORKS Sustainability to reduce product environmental impact and material usage while cutting their product material and energy costs by 15%. Virtual+Real Technologies Technologies that enable real-time realistic simulation can help optimize the physical world in virtual universes, leading to reduced environmental impacts. For complex products, the Company’s simulation technologies aid in performance testing and light weighting that allows engineers to verify functionality and conformity while optimizing material usage. Factory and production systems can be executed with minimal material and energy expenditure to enable “green” manufacturing. Ultimately, end consumer usage can be simulated to examine and reduce environmental impacts across the entire life cycle. For example, a leading packaging designer used SIMULIA to simulate complex design interactions, resulting in a 27% reduction of carbon footprint and plastic resin usage while maintaining product integrity. Intelligent Information Technologies The searching, sorting, filtering, navigating, real-time analysis and understanding of large amounts of environmental data are central to the achievement of sustainable innovation. With the scope of data requirements expanded from the enterprise to the entire value chain, so-called extended producer responsibility demands both sophisticated and scalable access to these big data, allowing information intelligence impacts applications that can dashboard environmental across the extended enterprise. For example, the EXALEAD search-based infrastructure enables the management of structured and unstructured environmental data, providing decision support to execute corporate sustainability and impact-reduction strategies. Central to the success of these sustainability strategies is social listening: NETVIBES enables customers to gauge public sentiment about sustainability trends and campaigns. Connectivity Technologies Connecting data and people by breaking down silos in strategies. contributes organizations sustainability to Connectivity to build technologies allow companies internal and external communities to manage sustainability efficiently. They also make it possible to connect product data with governmental data to proactively manage adherence to government and industry environmental regulations and standards, such as the Restriction of Hazardous Substances (RoHS) directive and the management of conflict minerals. Dassault Systèmes’ solution for environmental compliance and materials intelligence help maintain a proactive risk minimization strategy, and make it possible to engage the people and communities that are critical to the success of sustainability strategies. For example, one of the Group’s customers, a leader in test and measurement systems in electronics and bio-analytic instruments, uses ENOVIA Materials Compliance Management (MCM), an automated, enterprise-wide materials compliance data tracking system, to demonstrate compliance with stringent environmental regulations for more than 1,800 products and 160,000 parts from more than 7,000 suppliers. Dassault Systèmes is a forerunner in creating 3DEXPERIENCE for sustainable innovation to help customers achieve a positive environmental impact on the planet and grow their businesses DASSAULT SYSTÈMES ANNUAL REPORT 2015 59 2 Social, Societal and Environmental Responsibility Environmental Responsibility sustainably. The 3DEXPERIENCE platform lets innovators truly understand the impact of their ideas and processes on people and the environment, to achieve the vision of a more sustainable world. 2.2.2.2 Industry Collaborations on sustainability In addition to aiding its customers directly, the Company engages in several industry collaborations to leverage its expertise and leadership for the furthering of sustainable collaboration: (cid:125) International Aerospace Environmental Group (IAEGTM). The IAEGTM is a self-governed trade association that represents most of the global commercial aerospace industry, such as Boeing and Airbus, as well as the global defense aerospace industry, such as Lockheed Martin, Northrop Grumman and Safran group. Dassault Systèmes is working with the IAEGTM to aid in the development of chemical material declaration and reporting systems, supplier sustainability surveys, and the aerospace sector’s official guidance for the measurement of greenhouse gases (GHGs) under the World Resources Institute’s GHG Protocol; (cid:125) Sustainable Apparel Coalition (SAC). The SAC is a trade organization comprised of brands, retailers, manufacturers, government, and non-governmental organizations and academic experts, representing more than a third of the global apparel and footwear market, and is working to reduce the environmental and social impacts of apparel and footwear products around the world. Dassault Systèmes is engaged with the SAC to provide its leadership in life cycle assessment (LCA)-based design and footprinting methodologies, and to advise and assist its customers in challenges involved with a proactive adoption of the SAC’s Higg Index. This index is a series of assessment tools that standardizes the measurement of the environmental and social impacts of apparel and footwear products across the product lifecycle and throughout the value chain; (cid:125) Sustainability and Health Initiative for NetPositive Enterprise (SHINE). SHINE consists of a consortium of sustainability-focused companies, including Owens Corning, Eaton Corporation, Abbott Laboratories, Johnson & Johnson and Dassault Systèmes, and is led by the Center for Health and the Global Environment, part of the T.H. Chan School of Public Health at Harvard. The goal of SHINE is to revolutionize corporate sustainability strategy by managing Handprints, or positive impacts, in addition to Footprints (negative impacts). When a compagny's Handprint is larged than its Footprint, it is called Net Positive. Dassault Systèmes is contributing significant support and thought leadership to aid in the development of a new accounting standard and management methodology for environmental Handprinting. The Company recently co-authored, along with Professor Greg Norris of Harvard, a SHINE case study detailing the handprints created in the automotive industry with the application of 3D 60 ANNUAL REPORT 2015 DASSAULT SYSTÈMES technology. Dr. Norris found that the widespread application of 3D technology can result in 300-600 million Metric Tons of CO2 reduction in the automotive industry alone by 2020. Dr. Norris concluded that “by pursuing measures such as advanced training in eco-design and increased accessibility and power of eco-design functions within its design tools, the Company can enable sectors such as the global automotive sector to create handprints which are on the order of 10,000 times greater than its own footprint.” The full case study is available on the Harvard SHINE website, hosted by the Center for Health and the Global Environment. 2.2.2.3 Inclusion of environmental considerations in the Company’s operational locations Dassault Systèmes chooses its site locations based on the objectives of supporting growth in the Company’s business and controlling costs while integrating sustainable development strategies such as encouraging synergies and collaboration, reducing the environmental footprint of activities, and improving employee working conditions. The Company also 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 Systèmes. The rationalization of the Company’s facilities is designed to foster collaboration among both its employees and its partners and customers by grouping together sites, subsidiaries and operations throughout a single region or country. This process has, in particular, led to an audit of the facilities and their usage conditions, during external growth transactions, in order to determine steps to be taken in connection with the Group’s strategy (maintaining the lease, facilities rehabilitation or consolidation). Since 2008, the Group has implemented a policy of setting up its activities in offices certified by the local environmental standard such as Haute Qualité Environnementale (High Environmental Quality) in France and LEED in the United States, or on sites that applied an environmental management system such as ISO 14001. In 2015, 62% of the Employee Headcount worked in certified offices compared to 57% in 2014 (this increase comes from offices in companies acquired in 2014). Principal Sites With the exception of facilities totaling 21,000 square meters belonging to 3D PLM Software Solutions Limited (“3DPLM Ltd”) located in Pune, India, the Company does not own the offices it occupies and 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). At December 31, 2015, the principal sites occupied by Group companies (except 3DPLM Ltd) in its three geographic regions are as set forth in the table below (sites > 4,500 sq.m.). Social, Societal and Environmental Responsibility Environmental Responsibility 2 Geographic region Principal Sites Europe 3DS Paris Campus Vélizy-Villacoublay, France(1) 3DS Munich Rosenheimer, Germany 3DS Bois-le-Duc, the Netherlands Area (in m2) 70,000 7,800 6,600 Activities on the site Headquarters, R&D, Marketing and sales R&D, Marketing and sales R&D, Marketing and sales Americas 3DS Boston Campus Waltham, Massachusetts, United States(2) 25,000 R&D, Marketing and sales 3DS Providence, Rhode Island, United States 3DS San Diego, California, United States 3DS Montreal, Canada 3DS Auburn Hills, Michigan, United States Asia 3DS Tokyo, Japan 3DS Selangor, Malaysia 8,800 5,700 5,200 4,600 6,000 4,700 R&D, Marketing and sales R&D, Marketing and sales R&D, Marketing and sales R&D, Marketing and sales Marketing and sales R&D, Marketing and sales (1) Dassault Systèmes occupies in Vélizy-Villacoublay a facility covering 60,000 square meters built in 2008 in accordance with the Group’s specifications. Since 2011, Dassault Systèmes has rented 10,000 additional square meters in a nearby building. 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). (2) The Company has options to lease additional space as necessary at its 3DS Boston Campus. 2 Dassault Systèmes’ world headquarters located at the 3DS Paris Campus in Vélizy-Villacoublay (France) are certified as NF Service Sector Buildings – HQE under the HQE (High Environmental Quality) system. The Group has implemented real-time monitoring of operation and maintenance incidents related to the energy consumption of the 3DS Paris Campus buildings. Construction of the 3DS Paris Campus extension began in 2015. The Group wishes to apply the same strategy and obtain NF Service Sector Buildings – HQE certification under the HQE (High Environmental Quality) system. The exterior of the 3DS Boston Campus is certified LEED Gold, and in 2014 the campus received LEED Platinum certification for its interior. LEED is an American certification awarded to buildings designed with the goal of optimizing environmental performance. To optimize its energy consumption, the 3DS Boston Campus is equipped with condensation boilers and high-yield air conditioning. In the rest of the world, buildings in Vancouver and Montreal (Canada), Singapore, Shanghai (China), Tokyo (Japan), Auburn Hills (United States), and Stuttgart (Germany) are certified according to local or international environmental standards. The Providence site in the United States is currently being LEED Gold-certified. 2.2.2.4 Dassault Systèmes solutions for its environmental strategy COP21: the 3DEXPERIENCity project In 2015, France hosted the COP 21 or the 21st Conference of the Parties, which brought together heads of state from around the world to reach an international agreement against climate change. During this event, Dassault Systèmes presented its applications for sustainable cities, the 3DEXPERIENCity project, which enables the visualization of the Group’s environmental impact. The 3DEXPERIENCity team also presented a 3D digital model of the city of Rennes. Cities are currently facing rapid growth, which makes managing them more complex. This model allows future projects and services to be visualized to better meet their environmental and social challenges. Application technology: Use of Workplace 3D to optimize workspace 3D modeling technologies can be used in specialized interior design application fields. The solution developed by Dassault Systèmes, HomeByMe, is a free application for the general public that can position objects such as furniture in a room of a house. The HomeByMe solution, with its Workplace 3D application, can also be used in a professional context to place offices in workspaces and assign offices to employees in a 3D environment. As a result, paper-based processes are replaced by digital processes, thus avoiding manual re-keying and optimizing resources. Employees can also visualize their workspace and propose improvements in terms of comfort. Finally, and ultimately, the application will be able to integrate all of the elements of facilities management related to workspaces, namely air conditioning and energy, to visualize energy consumption of offices based on the computer equipment installed. 2.2.2.5 Monitoring and control of the Group’s environmental impacts The Group carried out a project to analyze the material nature of its indicators, focusing, in particular, on the key “primary” indicators related to its activity. The Dassault Systèmes primary indicators are electricity consumption, greenhouse gas emissions and electronic and electrical equipment waste (WEEE). The remaining indicators are deemed “secondary” and relate to paper consumption, water consumption and general waste. (See paragraph 2.2.5 “Methodology for Environmental Reporting”). DASSAULT SYSTÈMES ANNUAL REPORT 2015 61 2 Social, Societal and Environmental Responsibility Environmental Responsibility In 2015, the Group implemented new actions to control so-called “primary” indicators (implementation of energy management software, conducting of energy audits, etc.). in the environmental Data presented report covers Dassault Systèmes SE and all companies in respect of which it has a shareholding exceeding 50%. Globally, all consumptions including power and water and paper consumptions, as well as greenhouse gas emissions from the Group grew between 2015 and 2014 driven by the Group acquisitions made in 2014 and integrated in 2015. See paragraph 2.2.5 “Methodology for Environmental Reporting”. Electricity consumption (in mWh) Europe of which 3DS Paris Campus Americas Asia TOTAL * Indicator verified by the independent verifier. Energy The information below concerns electricity and natural gas consumption on Dassault Systèmes sites and in its data centers. Natural gas consumption represents 4.6% of total energy consumption. The Company does not use renewable energy on its sites, but has included in some of its energy contracts the purchase of electricity produced by renewable resources for certain sites (3DS Paris Campus in France in 2015, 3DS Stuttgart and 3DS Munich J Wild in Germany). As a result, consumption of electricity from renewable energy represents 41% of total electricity consumption. 2015 34,725 20,247 19,535 2,430 2014 31,380 21,000 21,260 2,000 56,690* 54,640* Electricity consumption of the 3DS Paris Campus fell by 3.6% between 2015 and 2014. This decrease is attributable to the implementation of (i) measures to improve the energy performance of the Campus and of (ii) an energy management system connected to the technical management of the building since November 2014. This system allows malfunctioning equipment to be identified, thus limiting excess consumption. above. In 2010, the Group launched a process to virtualize its servers. 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. Dassault Systèmes is far ahead in this area with more than 90% of the servers at its principal data center already virtualized. Electricity consumption grew between 2015 and 2014 in Europe and Asia as a consequence of the Group acquisitions made in 2014 and to the Company’s organic growth in those regions. In Americas, energy consumption decreased thanks to mild winter temperatures and to the move from the old and energy-consuming site of Providence to a new LEED Gold- certified site which enabled to save 85% energy consumption versus the previous location. In 2015, pursuant to the EU Energy Efficiency Directive (2012/27/EU), audits were conducted on 3DS Paris Campus and Aix en Provence sites in France and on the Bois-le-Duc site in the Netherlands. To improve energy performance throughout its real estate facilities, the Group also decided to deploy additional energy audits across all geographic regions, auditing, for example, its Meudon-la-Forêt site as early as 2015. Dassault Systèmes has located part of its servers at several data centers throughout the world. Energy consumption in these centers is included in the total electricity consumption Greenhouse Gas Emissions Group transportation optimization policy Since the Company’s business is publishing software, transportation is the principal source of its greenhouse gas emissions. Dassault Systèmes’ 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, use train travel rather than air travel for trips under three hours in length, and use economy class for air travel (the carbon footprint of business class being substantially greater than for economy class). Greenhouse gas emissions To analyze its carbon footprint on a global basis, Dassault Systèmes uses the “GHG Protocol” (Greenhouse Gas Protocol: www.ghgprotocol.org). 62 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Environmental Responsibility 2 SCOPE 1 Emissions due to on-site natural gas 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) * Indicator verified by the independent verifier. 2 2015 Metric Tons CO2 emissions 2014 Metric Tons CO2 emissions 485 3,990 3,865 – 125 315 670 2,340 2,100 – 240 870 4,790 3,880 11,810 10,090 4,275 6,000 1,535 3,230 5,655 1,205 11,810 10,090 32,630 12,165 12,825 7,640 1,680 180 – 1,500 2,185 640 1,105 440 21,870 8,020 9,210 4,640 1,446 235 1 1,210 2,045 525 1,040 480 36,495 53,095* 25,361 39,331* Greenhouse gas emissions grew by 35% between 2014 and 2015 and were mainly driven by rising Group’s activities linked to acquisitions made in 2014 and to the Group organic growth, which led notably to an increase in business travels. In terms of carbon intensity by employee, greenhouse gas emissions increased from 5.2 t CO2 per employee in 2014 to 5.9 t CO2 per employee in 2015. DASSAULT SYSTÈMES ANNUAL REPORT 2015 63 2 Social, Societal and Environmental Responsibility Environmental Responsibility Water consumption Water consumption (in cubic meters) Europe of which 3DS Paris Campus Americas Asia TOTAL 2015 39,235 26,894 40,460 4,510 84,205 2014 29,980 20,624 31,910 4,870 66,760 The data related to water consumption presented above is mainly based on estimates and as such may differ from actual water consumption (see paragraph 2.2.5 “Methodology for Environmental Reporting – Limitations on environmental reporting”). General waste treatment In light of the nature of its business, Dassault Systèmes generates primarily ordinary waste such as paper, cardboard and plastic. The table below indicates the percentage of employees with access to recycling facilities by geographic region: Percentage of employees with access to recycling facilities at their work location Europe of which 3DS Paris Campus Americas Asia % OF EMPLOYEES WITH ACCESS TO RECYCLING FACILITIES AT THEIR WORK LOCATION In 2015, the Krakow site in Poland introduced recycling in offices. Paper and packaging Paper consumption (in metric tons) Europe of which 3DS Paris Campus Americas Asia TOTAL 2015 94% 100% 100% 100% 97% 2014 89% 100% 100% 100% 94% 2015 2014 26 14 15 11 52 28 18 13 8 49 On the 3DS Paris Campus, total paper consumption amounted to 14 metric tons in 2015 compared with 18 metric tons in 2014. On a per-employee basis, this consumption fell from 7.8kg per employee in 2014 to 6.1kg per employee in 2015, representing a 22 % decrease. This decrease was mainly due to the ongoing digitalization of data at the 3DS Paris Campus and the efficient management of paper consumption by employees. 64 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Environmental Responsibility 2 2.2.3 Responsible Employee 2 Awareness-raising actions Dassault Systèmes pursues an ongoing policy of employee awareness by involving them in steps taken to save water and energy through presentations on environmentally-friendly gestures and technologies that can reduce the environmental impact of the Company’s activities. The process was enhanced across all geographical regions with the implementation of local initiatives to raise employee awareness of environmentally-friendly gestures. For example, on the 3DS Boston Campus, the North American Green Team organized the Spring Green Week. During this event, employees were taught about energy efficiency and the recycling of electrical and electronic waste. On the Providence site and the 3DS Boston Campus, the employees were also made aware of the impact of transport, and have been encouraged to ride their bike to work. In April and November 2015, for National Disabled Employment Week and for a one-month period, a “Collecte Solidaire – Agissons Ensemble” event was held once again on the 3DS Paris Campus under the joint sponsorship of the Dassault Systèmes SE Disability Taskforce and the Real Estate, General Resources, and Environment department. Employees were asked to bring their own obsolete electrical and electronic equipment and appliances no longer in working order. The collected equipment was sent for recycling by a company in the protected worker sector in the French department of Les Yvelines and 837kg of equipment was recycled by disabled employees. A desk-cleaning was also organized on the 3DS Paris Campus in December 2015. During this event, employees were invited to recycle their old paper archives and used supplies and cardboard at dedicated collection spaces. As a result, 3.8 metric tons of equipment were recycled over one and a half days by persons with disabilities. In the Asia Pacific region, a recycling week took place in China, on the Shanghai and Beijing sites, during which employees were asked to recycle their computer hardware. Training By 2015, Dassault Systèmes defined an employee training program to raise awareness of the challenges of sustainable development upon their arrival in the Group. The Company plans to launch this training program starting in 2016 on its major sites. 2.2.4 Responsible Partner Group commitments in favor of circular economy In 2015, 3DS showed a continued willingness to promote local actions. For example, during events organized on the Paris 3DS Campus to raise employee awareness, the Group shined the spotlight on partners that also integrated social and ethical commitments in the recycling of its electrical and electronic waste in Europe. Therefore, socially conscious and solidarity- based companies are given preference wherever possible. In order to create a positive impact at every Group location, local contributions that integrate an ethical and/or socially responsible approach are promoted as soon as possible. In addition, the Group tends to promote recycling activities throughout the world and focus on the purchase of materials and furniture that has been recycled or certified as environmentally friendly. Speciﬁ c waste treatment Dassault Systèmes places significant importance on managing its computer equipment both in terms of usage and recycling. The Company’s computer equipment includes desktop computers, 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”. For example, Dassault Systèmes has entrusted the refurbishing or recycling of computer equipment for the Europe region to two socially conscious and solidarity-based companies that employ people with disabilities near its registered office in Vélizy-Villacoublay. One of them recycles plastic materials to produce urban furniture. Dassault Systèmes purchased some of this urban furniture for its green spaces in 2015, and it plans to exchange all of its waste baskets for these items made from recycled material. DASSAULT SYSTÈMES ANNUAL REPORT 2015 65 2 Social, Societal and Environmental Responsibility Environmental Responsibility Speciﬁ c waste % of specific waste recycled according to environmental standards Quantity of WEEE(1) recycled according to environmental standards (in kg) Europe of which 3DS Paris Campus Americas Asia TOTAL * Indicator verified by the independent verifier. (1) WEEE: Waste Electronic and Electrical Equipment. 2015 100 9,250 6,083 6,307 1,442 2014 100 9,420 8,325 3,020 510 16,999* 12,950* In 2014 and 2015, all WEEE were recycled according to environmental standards. 2.2.5 Methodology for Environmental Reporting Methodology and scope of environmental reporting The Dassault Systèmes Methodology for Environmental Reporting is summarized in the “Environmental reporting protocol”. The protocol defines: (cid:125) the distinction between primary environmental indicators and secondary indicators; (cid:125) the methodology for collecting and consolidating environmental information; (cid:125) the scope for collecting environmental data. In application of the provisions of Article 225 of the law referred to as “Grenelle II”, the environmental reporting target scope includes Dassault Systèmes SE and all the companies in respect of which it has a shareholding exceeding 50%. The environmental reporting scope fits to the published indicators and covers the following aspects: (cid:125) the environmental reporting scope currently comprises the Group’s main sites for the following indicators: energy consumption, total greenhouse gas emissions scope 1 and 2, water consumption, general waste treatment, paper and packaging, and specific waste. In 2014, the environmental reporting scope covered the sites with over 35 employees, representing 86% of the target scope described above. Following the 2015 inclusion of new sites, related to 2014 acquisitions (Accelrys, Quintiq and RTT), the Group decided to focus on sites over 50 employees, representing 78% of the target scope. (cid:125) the environmental reporting scope currently comprises the Group’s main entities for the total greenhouse gas emissions scope 3. In 2014, the environmental reporting scope covered every entity with one site over 35 employees, representing 74 % of the target scope described above. In 2015, the environmental reporting scope covers the entities with one site over 50 employees, representing 93% of the target scope. Variations related to the locations and to the legal structures included in the environmental reporting scope, as shown above, have no significant impact on the primary environmental indicators; as a consequence, the 2014 opening data were not restated. The environmental indicators thus determined for 2015 are presented in paragraphs 2.2.2 “Responsible Company” and 2.2.4 “Responsible Partner”. The Company’s environmental reporting may evolve as part of the ongoing process of improvement undertaken by the Company, or to take changes in applicable regulations into account. Collecting and consolidating environmental data Environmental data was collected by the Sustainability Leaders and consolidated by the Dassault Systèmes Real Estate and General Resources Management based on the environmental reporting protocol. For selected questions, such as business travel and data concerning electronic waste, external service providers were also consulted. To simplify the consolidation of environmental data, a dedicated software application was rolled out. This new solution facilitates the structuring and standardization of environmental data (regarding all parameters but scope 3 data 66 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Social, Societal and Environmental Responsibility Environmental Responsibility 2 related to greenhouse gas emissions), like-for-like comparisons and an increase in the frequency of information collection from annual to quarterly. The deployment of this application was finalized in 2014 and has strengthened the management of environmental performance on a global scale. Primary indicators are collected on a quarterly basis by the Sustainability Leaders and are reviewed and published in a quarterly report issued by the Dassault Systèmes Real Estate and General Resources department. These indicators are presented in detail in this report. They are also checked by the independent verifier and are subject to limited assurance. Secondary indicators are collected on a yearly basis by the Sustainability Leaders. Limitations on environmental reporting In certain cases, information cannot be provided on the bases of actual consumption, e.g., for the sites with service charges related to water consumption and recharging the refrigerant to use the air-conditioning system which are included in the rent. For some foreign subsidiaries representing a small contribution in the ratio, the data related to travel is not available on the basis of the same format as the rest of the scope. In these cases, the Environmental Reporting Protocol specifies the procedure to follow in order to make the estimations required (e.g., an estimation of water consumption is made on the basis of the averages recorded on the other sites in the geographic region based on the number of employees or square meters taken up). As a result, actual consumption may be different from estimates. Regarding waste treatment, waste treatment and collection are handled for most subsidiaries by local government, which does not furnish any information on collected waste. It is therefore not possible to provide any information on the amount of waste generated. Dassault Systèmes has nevertheless inquired of all subsidiaries included in the 2015 reporting scope as to whether recycling was put in place. Consequently, the Group produces information on the percentage of sites adopting waste recycling rather than on the quantity of waste treated (see paragraph 2.2.2 “Responsible Company”). 2 2.2.6 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: 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. (cid:125) a significant portion of its assets are intangible; (cid:125) 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 meets criteria set forth under the European SEVESO directive regarding sites at risk due to hazardous substances, or is classified under ICPE (Classified Installation for the Protection of the Environment ); (cid:125) the Company does not believe that it is directly exposed to climate change issues in the short or medium-term; (cid:125) Dassault Systèmes’ business does not have any known negative impact on biodiversity, nor does it create noise or odors that may create a nuisance locally. In addition, the Company is not involved with soil usage matters. The only aspect for which the Group believes there exists a minor environmental risk, which would not have a significant 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 representing investments and expenses in the consolidated financial statements. In 2015, no provisions or guarantees for environmental risks were recorded in the Group’s consolidated financial statements. In addition, no expense was recognized in the financial statements related to a court judgment regarding environmental issues or actions taken to remediate any environmental-damage. To anticipate any regulatory risks related to environmental matters, Dassault Systèmes’ Legal department and General Resources and Sustainable Development department closely follow environmental regulations that may have an effect on its business. DASSAULT SYSTÈMES ANNUAL REPORT 2015 67 2 Social, Societal and Environmental Responsibility Independent Veriﬁ er’s Attestation and Assurance Report on Social, Societal and Environmental Information 2.3 Independent Veriﬁ er’s Attestation and Assurance Report on Social, Societal and Environmental 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 Shareholders, In our quality as an independent verifier accredited by the COFRAC(1) under the number n° 3-1050, and as a member of the network of one of the Statutory Auditors of the company Dassault Systèmes, we present our report on the consolidated social, environmental and societal information established for the year ended on December 31, 2015, presented in chapter 2 of the management report, hereafter referred to as the “CSR Information,” pursuant to the provisions of the article L. 225-102-1 of the French Commercial Code (Code de commerce). Responsibility of the Company It is the responsibility of the Board of Directors to establish a management report including CSR Information referred to in the article R. 225-105-1 of the French Commercial Code (Code de commerce), in accordance with the protocols used by the Company, consisting in HR reporting instructions and an environmental reporting protocol in their versions both dated November 2015 (hereafter referred to as the “Criteria”), and of which a summary is included in section 2.1.6 (social reporting) and in section 2.2.5 (environmental reporting) of the management report, as well as available at the Company’s headquarters. Independence and quality control Our independence is defined by regulatory requirements, the Code of Ethics of our profession as well as the provisions in the article L. 822-11 of the French Commercial Code (Code de commerce). In addition, we have implemented a quality control system, including documented policies and procedures to ensure compliance with ethical standards, professional standards and applicable laws and regulations. Responsibility of the independent veriﬁ er It is our role, based on our work: (cid:125) to attest whether the required CSR Information is present in the management report or, in the case of its omission, that an appropriate explanation has been provided, in accordance with the third paragraph of R. 225-105 of the French Commercial Code (Code de commerce) (Attestation of presence of CSR Information); (cid:125) to express a limited assurance conclusion, that the CSR Information, overall, is fairly presented, in all material aspects, in according with the Criteria (Limited assurance on CSR Information). Our verification work was undertaken by a team of five people between October 2015 and March 2016 for an estimated duration of seven weeks. We conducted the work described below in accordance with the professional standards applicable in France and the Order of May 13,2013 determining the conditions under which an independent third-party verifier conducts its mission, and in relation to the opinion of fairness and the reasonable assurance report, in accordance with the international standard ISAE 3000(2). (1) Scope available at www.cofrac.fr (2) ISAE 3000 – Assurance engagements other than audits or reviews of historical information. 68 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 2 2 Social, Societal and Environmental Responsibility Independent Veriﬁ er’s Attestation and Assurance Report on Social, Societal and Environmental Information 1. Attestation of presence of CSR Information We obtained an understanding of the Company’s CSR issues, based on interviews with the management of relevant departments, a presentation of the Company’s strategy on sustainable development based on the social and environmental consequences linked to the activities of the Company and its societal commitments, as well as, where appropriate, resulting actions or programmes. We have compared the information presented in the management report with the list as provided for in the article R. 225-105-1 of the French Commercial Code (Code de commerce). In the absence of certain consolidated information, we have verified that the explanations were provided in accordance with the provisions in article R. 225-105-1, paragraph 3, of the French Commercial Code (Code de commerce). We verified that the information covers the consolidated perimeter, namely the entity and its subsidiaries, as aligned with the meaning of the article L. 233-1 and the entities which it controls, as aligned with the meaning of the article L. 233-3 of the French Commercial Code (Code de commerce) with the limitations specified in the Methodological Note in sections 2.1.6 and 2.2.5 of chapter 2 of the management report. Based on this work, and given the limitations mentioned above, we confirm the presence in the management report of the required CSR information. 2. Limited assurance on CSR Information Nature and scope of the work We undertook a dozen interviews with the people responsible for the preparation of the CSR Information in the different departments, including people in the Human Resources, Facilities, Purchasing, Innovation, who are in charge of the data collection process and, if applicable, the people responsible for internal control processes and risk management, in order to: (cid:125) assess the suitability of the Criteria for reporting, in relation to their relevance, completeness, reliability, neutrality, and understandability, taking into consideration, if relevant, industry standards; (cid:125) verify the implementation of the process for the collection, compilation, processing and control for completeness and consistency of the CSR Information and identify the procedures for internal control and risk management related to the preparation of the CSR Information. We determined the nature and extent of our tests and inspections based on the nature and importance of the CSR Information, in relation to the characteristics of the Company, its social and environmental issues, its strategy in relation to sustainable development and industry best practices. DASSAULT SYSTÈMES ANNUAL REPORT 2015 69 2 Social, Societal and Environmental Responsibility Independent Veriﬁ er’s Attestation and Assurance Report on Social, Societal and Environmental Information For the CSR Information which we considered the most important(1): (cid:125) at the level of the consolidated entity, we consulted documentary sources and conducted interviews to corroborate the qualitative information (organisation, policies, actions, etc.), we implemented analytical procedures on the quantitative information and verified, on a test basis, the calculations and the compilation of the information, and also verified their coherence and consistency with the other information presented in the management report; (cid:125) at the level of the representative sample of entities that we selected(2) based on their activity, their contribution to the consolidated indicators, their location and a risk analysis, we undertook interviews to verify the correct application of the procedures and undertook detailed tests on the basis of samples, consisting in verifying the calculations made and linking them with supporting documentation. The sample reviewed therefore represented on average 31 % of the workforce and between 10% and 46% for quantitative environmental information(3). For the other consolidated CSR information, we assessed their consistency in relation to our knowledge of the Company. Finally, we assessed the relevance of the explanations provided, if appropriate, in the partial or total absence of certain information. We consider that the sample methods and sizes of the samples that we considered by exercising our professional judgment allow us to express a limited assurance conclusion; an assurance of a higher level would have required more extensive verification work. Due to the necessary use of sampling techniques and other limitations inherent in the functioning of any information and internal control system, the risk of non-detection of a significant anomaly in the CSR Information cannot be entirely eliminated. Conclusion Based on our work, we have not identified any significant misstatement that causes us to believe that the CSR Information, taken together, has not been fairly presented, in compliance with the Criteria. Paris-La Défense, on March 18, 2016 French original signed by: Independent Verifier ERNST & YOUNG et Associés Eric Mugnier Partner, sustainable development Bruno Perrin Partner (1) Environmental and societal information: Indicators (quantitative information): energy consumption (in MWh), greenhouse gas emissions (in tonnes of CO2 equivalent), quantity of waste electrical and electronic equipment recycled according to environmental norms (in kg). Qualitative information: general environmental policy (organisation, evaluation or certification procedures), measures for preventing, recycling and eliminating waste, sustainable use of resources and climate change (energy consumption, measures taken to improve energy efficiency and the use of renewable energy), importance of sub-contracting and the consideration of environmental and social issues in purchasing policies and relations with suppliers and subcontractors, business ethics (actions undertaken to prevent bribery and corruption), territorial, economic and social impact (impact on neighbouring or local populations). Social information: Indicators (quantitative information): workforce size and breakdown by geography, age, gender, type of contract (long/short term), percentage of female managers, absenteeism, hiring and terminations, turnover rate, total number of training hours and breakdown by type of training, by category, by gender, and the ratio of hours of training per employee. Qualitative information: employment (total headcount and breakdown, hiring and terminations, remunerations and their evolution), the organisation of working time, absenteeism, social relationships (the organisation of social dialogue, collective bargaining agreements), health and safety conditions at work, training policies, diversity and equality of treatment and opportunities (measures undertaken for gender equality, the employment and inclusion of people with disabilities, anti-discrimination policies and actions). (2) The entities Dassault Systèmes S.E. and Dassault Data Service (DS Paris Campus and Terre Europa sites in Vélizy, France); the entities Dassault Systèmes Canada Inc. and DS Canada Software Inc. (Montreal, Canadian site). (3) The coverage rate of our work is 31 % of the workforce for the social data, 46% for the quantities of computers and servers recycled, 42% for energy consumption, and 18% for greenhouse gas emissions. 70 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 3 FINANCIAL REVIEW AND PROSPECTS CONTENTS 3.1 Operating and Financial Review 3.1.1 General 72 72 3.2 2016 Financial Objectives and Multi-Year Growth Plan 3.1.2 Consolidated Information: 2015 Compared to 2014 78 3.1.3 Trends in Quarterly Results 3.1.4 Capital Resources 82 83 3.3 Interim and Other Financial Information 83 84 DASSAULT SYSTÈMES ANNUAL REPORT 2015 71 3 Financial Review and prospects Operating and Financial Review 3.1 Operating and Financial Review 3.1.1 General The executive overview in paragraph 3.1.1.1 “Executive Overview for 2015” highlights selected aspects of the Company’s financial results for 2015. 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: (i) non-IFRS revenue data excludes the effect of adjusting the carrying value of acquired companies’ deferred revenue; and non-IFRS expense data excludes, (ii) the amortization of acquired intangibles, (iii) share-based compensation expense and related social charges, (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. Specifically, the Company’s constant currency revenue data calculations take into account the estimated impact of changes in the currency exchange rates compared 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 2015 (all revenue growth comparisons are in constant currencies) Summary Overview 2015 represented the first year of Dassault Systèmes five- year growth plan to double non-IFRS earnings per share. This goal is based upon an expansion of the Company’s addressable market powered by internal and external investments and reflects the opportunities the Company envisions reflecting its expanded purpose, 3DEXPERIENCE addressable market opportunity and the 3DEXPERIENCE industry solutions strategy. the Company set a good During 2015 foundation, performing well from multiple aspects and achieving all of its key objectives. The expansion of its addressable market is translating into a more dynamic set of growth drivers which animated its financial performance. (cid:125) The Company’s revenue growth in 2015 reflected strong overall growth in its core industries and in terms of progression of its diversification industries. During 2015 Core Industries software revenue increased approximately 9% in total in constant currencies, with strong growth in Transportation & Mobility, Industrial Equipment and Aerospace & Defense. Core Industries represented 70% of total software revenue in 2015. Diversification Industries represented 30% of total software revenue up two percentage points from 2014 with the contribution mix well aligned with the Company’s mid-term target of 30%. In addition to expanding in Life Sciences with BIOVIA, industries with strong growth in 2015 included Energy, Process & Utilities, Consumer Packaged Goods & Retail, and Natural Resources; (cid:125) 3DEXPERIENCE was an important driver with clients around the globe. In terms of acceleration, 3DEXPERIENCE sales represented 29% of related new licenses revenue for 2015, up 5 percentage points from 2014; 72 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Review and prospects Operating and Financial Review 3 3 (cid:125) The Company benefited from its geographic reach which continues to expand thanks to its global/local orientation. In total, software revenue growth in constant currencies was well balanced across the Company’s three reporting regions, Europe, Americas and Asia. Moreover, within regions the number of geos driving growth and becoming meaningful absolute contributors to the Company’s revenue base is expanding; (cid:125) From a channel performance perspective, software revenue growth during 2015 was led by the Company’s direct sales channel with new licenses revenue growth of 19% in constant currencies, well supported by its two indirect sales channels. Complementing new business activity with current customers, Dassault Systèmes added 22,000 new clients in 2015, thanks to its sales channels in particular its Professional Channel reaching the volume market. In total, the Company continues to benefit from a balanced distribution mix of direct and indirect sales, with direct sales representing 59% of total revenue and indirect sales accounting for 41% of total revenue in 2015; (cid:125) At the outset of 2015 the Company outlined two key financial goals: to deliver organic double-digits non-IFRS new licenses revenue growth and to generate an increase in its organic non-IFRS operating margin of approximately 100 basis points – both targets excluding any currency benefits. These goals were well reflected in Dassault Systèmes’ performance during 2015: (cid:125) the Company achieved organic double-digits non-IFRS new licenses revenue growth in constant currencies, increasing 11% for 2015. This was on top of an organic growth of 10% during 2014, (cid:125) the Company continues to focus on improving its operating efficiency and this is demonstrated by the organic non- IFRS operating margin progression which increased 120 basis points in 2015, exclusive of any currency benefits; (cid:125) Dassault Systèmes benefits from a high level of recurring software revenue, at the core of its financial model. Recurring software revenue represented 70% of non-IFRS total software revenue in 2015, and grew 10% in constant currencies, of which 7% was organic; (cid:125) And thanks to revenue growth, favourable currency, and operating margin expansion, non-IFRS earnings per share grew 24% in 2015; (cid:125) The Company had a very good evolution of operating cash flow in 2015, increasing 27% to €633.3 million for the full year. And from a balance sheet perspective, unearned revenue increased 13% excluding currency impacts at December 31, 2015 compared to December 31, 2014; (cid:125) Finally, from a strategic perspective, the Company believes that its purpose, strategy and investments are well aligned with the issues at the heart of its clients’ businesses, with its financial performance demonstrating that its investments in research and development, complemented by the appropriate acquisitions, well serve the industries and clients the Company addresses, as well as its shareholders. Summary Financial Highlights (all revenue growth comparisons are in constant currencies) Total Revenue: For the year ended December 31, 2015, IFRS total revenue increased 13%. Software revenue represented 88% of total revenue and increased 13% with services and other revenue growing 20%. Non-IFRS total revenue increased 12% with software revenue growth of 12% and services and other revenue growth of 17%. Financial results for 2015 and 2014 include the acquisitions of Accelrys (acquired late April 2014) and Quintiq (acquired September 2014). Revenue by Region: The Company continues to expand its presence with clients in its three principal regions, strengthening and expanding its sales channels and local presence. For 2015, Europe represented 44% of total revenues, the Americas 31% and Asia 25%. By region, software revenue growth was well balanced across the Company’s three regions. Growth in Asia was led by most notably Japan, South Korea and India. In the Americas growth was driven by North America, with weaker results for Latin America. In Europe, growth was led by the United Kingdom, France and Southern Europe. Software Revenue by Type: Non-IFRS software revenue increased 12% in total for 2015. New licenses revenue rose 15% on double-digit organic new licenses revenue growth. Non-IFRS periodic license, maintenance and other software- related revenue increased 10% on growth of maintenance revenue and rental revenue. Excluding acquisitions, non- IFRS software revenue increased 8% in 2015, with non-IFRS new licenses software revenue growth of 11% and periodic, maintenance and other software revenue growth of 7%. DASSAULT SYSTÈMES ANNUAL REPORT 2015 73 3 Financial Review and prospects Operating and Financial Review Software Revenue by Product Line: By product line, non- IFRS software revenue increased 5% for CATIA, 12% for SOLIDWORKS, 5% for ENOVIA, and Other Software, which included the 2014 acquisitions of Quintiq and BIOVIA (Accelrys), increased 26%. On an organic basis, Other Software increased 11% led by SIMULIA, DELMIA and EXALEAD. Recurring Software Revenue: Since inception in 1981 the Company has had a long-term focus on maintaining a highly recurrent software revenue model. Non IFRS recurring software revenue represented 70% and 71% of total software revenue for 2015 and 2014, respectively. Recurring software revenue is comprised of maintenance and rental subscriptions. IFRS operating Income and Margin: Operating income increased 47% and non-IFRS operating income increased 27% to €884.9 million for 2015 on revenue growth, favorable currency evolution and organic operating margin improvement. The non-IFRS operating margin increased to 30.8%, compared to 29.8% in 2014. On an organic basis, the non-IFRS operating margin increased an estimated 120 basis points for 2015 offsetting acquisition dilution of a similar level. Earnings per Share: The Company’s earnings per share were sharply higher in 2015 driven principally by growth in revenue, a strong benefit from favorable currency effects and operating margin growth. IFRS diluted net income per share increased 38% and non-IFRS net income per share increased 24% to €2.25 per diluted share, compared to €1.82 per diluted share for 2014. On a non-IFRS basis, currency had a net favorable impact of approximately 13 percentage points. Average diluted shares outstanding were 256.6 million and 255.3 million for 2015 and 2014, respectively. results financial Acquisitions: The 2015 the incorporation of several acquisitions, the most significant of which were Accelrys in April 2014 and Quintiq in September 2014. Based upon the size of these companies they had an important impact on the revenue growth of the Company in 2015. reflect Currency: During 2015 currency exchange rate evolution had a material, net positive impact on the Company’s reported revenue growth rates and was an important contributor to operating income and earnings per share growth. In 2014 currency had a net negative impact on reported growth rates, operating income and earnings per share growth. 2016 Business Outlook: For a discussion of the Company’s 2016 business outlook, see paragraph 3.2 “2016 Financial Objectives and Multi-Year Growth Plan”. For further information regarding risks facing the Company, see paragraph 1.6.1 “Risks Related to the Company’s Business”. 74 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Cash Flow: Net operating cash flow was €633.3 million for the year ended December 31, 2015, compared to €499.5 million in 2014. In 2015 and 2014 changes in working capital included the net payment of €57.7 million and €22.2 million, respectively, in connection with ongoing tax proceedings. During 2015, the Company uses of cash were principally for cash dividends of €98.4 million, capital expenditures of €43.6 million, share repurchases of €28.3 million and payment for acquisitions of €20.2 million, net of cash acquired. The Company received cash of €650 million in conjunction with a new credit facility entered into in October 2015 and fully drawn down at the time and for stock options exercised of €35.9 million. Other Financial Highlights: At December 31, 2015, cash, cash equivalents and short-term investments totaled €2.35 billion and long-term debt was €1.0 billion compared to €1.18 billion and €350.0 million, respectively at December 31, 2014. 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 and related social charges, other operating income and expense, net, certain one- time items included in financial revenue 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. Financial Review and prospects Operating and Financial Review 3 3 The Company’s management uses the supplemental non- IFRS financial information, together with its IFRS financial information, for financial planning and analysis, evaluation of its operating performance, mergers and acquisition analysis and valuation, operational decision-making and for setting financial objectives for future periods. Compensation of its senior management 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:125) 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 obligations assumed under 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 Systèmes 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:125) 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:125) share-based compensation expense and related social charges: 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 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 the Company’s operating expense when performance, since share-based compensation expenses can fluctuate due to factors other than the level of its business activity or operating performance. reviewing 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; DASSAULT SYSTÈMES ANNUAL REPORT 2015 75 3 Financial Review and prospects Operating and Financial Review (cid:125) 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, 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:125) certain one-time items included in financial revenue and other, net: under IFRS, the Company has recognized certain one-time items in financial revenue and other, net comprised of gains and losses on disposals of non-consolidated equity 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 revenue 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 revenue 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:125) certain one-time tax effects: the Company restructured certain activities which resulted in immediate adjustment of the income tax provision. The Company’s IFRS financial statements reflect the impact of these one-time tax effects. In its supplemental non-IFRS financial information, 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 or overstates the Company’s income tax expense. These one- time tax effects are not a recurring expense. 76 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Review and prospects Operating and Financial Review 3 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) Total Revenue Total revenue by activity Software revenue Services and other revenue Total revenue by geography Americas Europe Asia Total software revenue by product line CATIA software revenue ENOVIA software revenue SOLIDWORKS software revenue Other software revenue Total Operating Expenses Share-based compensation expense Amortization of acquired intangibles Other operating income and expense, net Operating Income Operating Margin Financial revenue and other, net Income before Income Taxes Income tax expense (of which certain one-time tax restructuring effects) Non-controlling interest Net Income attributable to shareholders Diluted Net Income per Share(3) Year ended December 31, % Change 2015 IFRS €2,839.5 Adjust- ment (1) 2015 non-IFRS 2014 IFRS Adjust- ment (1) 2014 non-IFRS IFRS non-IFRS (2) €37.2 €2,876.7 €2,294.3 €52.4 €2,346.7 24% 23% 2,502.8 336.7 889.5 1,226.5 723.5 938.5 301.9 569.8 692.6 35.1 2.1 20.0 11.6 5.6 0.4 – – 34.7 2,537.9 2,035.0 338.8 259.3 909.5 659.1 1,238.1 1,052.8 729.1 582.4 938.9 301.9 569.8 727.3 838.6 262.8 447.7 485.9 43.6 8.8 18.3 22.7 11.4 – – – 43.6 2,078.6 268.1 677.4 1,075.5 593.8 838.6 262.8 447.7 529.5 2,206.3 (214.5) 1,991.8 1,863.5 (216.0) 1,647.5 (42.5) (159.6) (12.4) 633.2 22.3% (0.1) 633.1 (227.1) 42.5 159.6 12.4 251.7 – 251.7 (77.3) – – (43.3) (133.4) – 884.9 30.8% (0.1) 884.8 (39.3) 430.8 18.8% 15.0 445.8 (304.4) (153.3) (6.7) (3.8) 6.7 – – (3.8) 2.1 (1.2) 43.3 133.4 39.3 268.4 (1.8) 266.6 (91.9) (2.1) (0.5) – – – 699.2 29.8% 13.2 712.4 (245.2) – (1.7) 23% 30% 35% 16% 24% 12% 15% 27% 43% 18% 22% 26% 34% 15% 23% 12% 37% 21% 47% 27% 42% 48% 24% 24% €402.2 €1.57 €174.4 €0.68 €576.6 €2.25 €291.3 €1.14 €174.2 €0.68 €465.5 €1.82 38% 38% 24% 24% (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 revenue and other, net reflect the exclusion of certain one-time items included in financial revenue 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 millions) Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense Year ended December 31, 2015 IFRS Adjustment 2015 non-IFRS 2014 IFRS Adjustment €437.9 492.5 892.2 211.7 €(1.3) (17.7) (15.4) (8.1) (42.5) €436.6 €343.2 474.8 876.8 203.6 409.7 748.5 189.4 €(1.1) (16.9) (13.9) (11.4) (43.3) 2014 non-IFRS €342.1 392.8 734.6 178.0 (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 256.6 million diluted shares for 2015 and 255.3 million diluted shares for 2014. DASSAULT SYSTÈMES ANNUAL REPORT 2015 77 3 Financial Review and prospects Operating and Financial Review 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 estimates. 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 assumptions and estimates used in the preparation of its consolidated financial statements: revenue recognition, share-based payments, purchase price allocation for business combinations, goodwill and other intangible assets, income taxes and reasonable estimates about the ultimate resolution of the Company’s tax uncertainties. See Note 2 to the consolidated financial statements for a description of these accounting policies. 3.1.2 Consolidated Information: 2015 Compared to 2014 Revenue The Company’s total revenue is comprised of (i) software revenue, which is its primary source of revenue, representing 88% of total revenue in 2015, and (ii) services and other revenue, which represented 12% of total revenue in 2015. (in millions, except percentages) Total Revenue Total revenue by activity Software revenue Services and other revenue Total revenue by geographic region* Americas Europe Asia Year ended December 31, 2015 €2,839.5 2,502.8 336.7 889.5 1,226.5 723.5 % change 24% 23% 30% 35% 16% 24% % change in constant currencies Year ended December 31, 2014 13% €2,294.3 13% 20% 14% 13% 14% 2,035.0 259.3 659.1 1,052.8 582.4 * The Company’s largest national markets as measured by total revenue are the United States, Germany, Japan, France and the United Kingdom. See Note 3 to the consolidated financial statements. IFRS total revenue increased 13% in constant currencies. Non-IFRS total revenue increased 12%, on software revenue growth of 12% and services and other revenue growth of 17% in constant currencies. Excluding acquisitions and in constant currencies, non-IFRS software revenue increased 8% in 2015, with new licenses revenue growth of 11% and with recurring (periodic and maintenance subscriptions) and other software revenue growth of 7%. Software revenue growth was well balanced across the Company’s three regions. Growth in Asia was led by most notably Japan, South Korea and India. In the Americas growth was driven by North America, with weaker results for Latin America. In Europe, growth was led by the United Kingdom, France and Southern Europe. Software Revenue Software revenue is primarily comprised of new licenses revenue and periodic licenses, maintenance and other software-related revenue. Periodic licenses subscription and maintenance subscription 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 subscription or cloud subscription) licenses, for which the customer pays periodic fees to keep the license active. Access to maintenance and unspecified product updates or upgrades requires payment of a fee, which is recorded as maintenance revenue. Periodic (rental 78 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Review and prospects Operating and Financial Review 3 or subscription) 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. Other software-related revenue is comprised of the Company’s product development revenue relating to the development of additional functionalities of standard products requested by customers. Non-IFRS recurring software revenue represented 70% and 71% of total software revenue for 2015 and 2014, respectively. Other software revenue totaled €20.4 million for 2015 compared to €11.3 million for 2014 and was comprised of revenue related to the development of additional functionalities of standard products requested by clients. (in millions, except percentages) 2015 2014 Year ended December 31, Software revenue New licenses revenue Periodic licenses, maintenance and other software-related revenue Total software revenue (as % of total revenue) €716.5 €579.4 1,786.3 €2,502.8 88.1% 1,455.6 €2,035.0 88.7% For 2015, IFRS software revenue increased 23.0% and increased 13% in constant currencies. Similarly, non-IFRS software revenue increased 22.1% and 12% excluding currency effects and totaled €2.54 billion compared to €2.08 billion for 2014. Excluding acquisitions and currency impacts non-IFRS software revenue increased 8% in 2015. IFRS new licenses revenue increased 23.7% and 12% in constant currencies in 2015. Non-IFRS new licenses revenue of €735.6 million increased 26.5% and 15% in constant currencies, benefiting from organic growth estimated at 11% in constant currencies and 2014 acquisitions. New licenses revenue represented 28.6% and 28.5% of total software revenue for 2015 and 2014, respectively. IFRS recurring software revenue, comprised of periodic licenses and maintenance subscriptions, increased 22.3% and 12% in constant currencies and totaled €1,765.9 million for 2015, compared to €1,444.3 million for 2014. Non-IFRS recurring software revenue increased 19.9% and 10% in constant currencies and totaled €1,781.9 million for 2015 compared to €1,485.8 million in 2014. Excluding currency effects, recurring software revenue growth reflected strong results across the Company’s three regions, and continued to reflect high maintenance attachment rates and renewal rates. Rental revenue increased in total while reflecting mixed results on an organic basis. Services and Other Revenue Services and other revenue have historically been comprised of revenue from consulting services in methodology for design, deployment and support, training services and engineering services. With the Company’s new brand, 3DEXCITE (renaming of RTT following its acquisition in 2014), services and other revenue also include content-related digital production for use in 3D visualization, advertising, sales and marketing. 3 (in millions, except percentages) Services and other revenue (as % of total revenue) Year ended December 31, 2015 €336.7 11.9% 2014 €259.3 11.3% Services and other revenue growth was 29.8% and excluding currency impacts increased about 20%, reflecting the full year impact of the 2014 acquisitions. On an organic basis, Services and other revenue grew 1% consistent with the Company’s focus on increasing engagements with system integrators. Operating expenses (in millions) Operating expenses Adjustments* Non-IFRS operating expenses* Year ended December 31, 2015 €2,206.3 (214.5) €1,991.8 2014 €1,863.5 (216.0) €1,647.5 * 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 of €159.6 million and €133.4 million for 2015 and 2014, respectively, (ii) share-based compensation expense and related social charges of €42.5 million and €43.3 million for 2015 and 2014, respectively, and (iii) other operating income and expense, net of €12.4 million and €39.3 million for 2015 and 2014, respectively. 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”. DASSAULT SYSTÈMES ANNUAL REPORT 2015 79 3 Financial Review and prospects Operating and Financial Review Cost of Software Revenue (excluding amortization of acquired intangibles) The cost of software revenue includes principally software personnel costs, licensing fees paid for third-party components integrated into the Company’s own products, preparation costs for user manuals and delivery costs. (in millions, except percentages) 2015 2014 Year ended December 31, Cost of software revenue (excluding amortization of acquired intangibles) (as % of total revenue) €143.2 5.0% €117.3 5.1% IFRS cost of software revenue (excluding amortization of acquired intangibles) increased 22.1% and primarily reflected both the addition of acquisitions and negative currency effects. Excluding a net negative currency impact of approximately 12 percentage points cost of software revenue (excluding amortization of acquired intangibles) increased 10% due to the addition of acquisitions and to a lesser extent from organic costs, including higher royalty and Cloud costs. On a non-IFRS basis and excluding unfavourable currency effects, cost of software revenue (excluding amortization of acquired intangibles) similarly increased 10% in total of which 7 percentage points came from scope increase with the acquisitions and 3 percentage points of organic expense growth. Cost of Services and Other Revenue The cost of services and other revenue includes principally personnel and other costs related to organizing and providing consulting, deployment services, content creation and educational services less the technical support provided to sales operations. (in millions, except percentages) 2015 2014 Year ended December 31, Cost of services and other revenue (as % of total revenue) €294.7 10.4% €225.9 9.8% Cost of services and other revenue increased 30.5% and on a non-IFRS basis increased 30.3%, principally due to the addition of acquisitions and to currency effects. Excluding a net currency impact of approximately 8 percentage points, cost of services and other revenue increased 22%, largely reflecting growth in personnel and related costs from acquisitions and in part to underlying organic expense increase. Research and Development Expenses its ongoing significant The Company believes that investment in R&D is one of the most important elements of its success. The Company conducts its research primarily in France, the United States and Germany, as well as in India, Malaysia, the United Kingdom, Netherlands, Poland, 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 recognized 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) Year ended December 31, 2015 2014 €492.5 17.3% €409.7 17.9% The Company continues to benefit from a strong focus on investments in research and development, with underlying organic investments and the acquisitions of Accelrys, a leading provider of scientific innovation lifecycle management software for the chemistry, biology and materials sciences industries in April 2014 (BIOVIA brand) and Quintiq extending the Company’s 3DEXPERIENCE offering to global business operations planning. IFRS research and development expenses increased 20.2% and on a non-IFRS basis increased 20.9%. Excluding a net negative impact of approximately 8 percentage points, currency growth in research and development reflected both organic investments as well as the addition of the 2014 acquisitions. 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 80 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Review and prospects Operating and Financial Review 3 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 Year ended December 31, 2015 2014 €(12.4) €(39.3) income and expense , net, decreased Other operating €26.9 million in 2015 principally reflecting lower acquisition- related third-party professional fees of €(14.8) million as well as lower restructuring costs of €(8.7) million. See Note 8 to the consolidated financial statements. 3 Operating income (in millions) Operating income Year ended December 31, 2015 €633.2 2014 €430.8 IFRS operating income growth of 47.0% in 2015 was due to revenue growth of 23.8% and to a 3.5 percentage point increase in the operating margin to 22.3% for 2015 compared to 18.8% for 2014. On a non-IFRS basis, operating income increased 26.6% to €884.9 million for 2015, compared to €699.2 million for 2014. The non-IFRS operating margin increased to 30.8% for 2015 compared to 29.8% for 2014, reflecting approximately 120 basis points of organic improvement fully offsetting acquisition dilution, and a favourable impact from currencies of 100 basis points. Financial revenue and other, net Financial revenue 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 foreign currencies; and (iii) one-time items, net principally composed of net gains or losses on sales of investments. infrastructure costs, such as information technology resources used for marketing. (in millions, except percentages) Marketing and sales expenses (as % of total revenue) Year ended December 31, 2015 €892.2 31.4% 2014 €748.5 32.6% IFRS marketing and sales expenses increased 19.2% and on a non-IFRS basis increased 19.4% and included a net negative impact of approximately 8 percentage points. currency Excluding currency effects, sales expenses increased reflecting the combined impact of acquisitions as well as underlying sales expense growth, while marketing expenses increased solely due to change in scope with the 2014 acquisitions. General and Administrative Expenses General and administrative expenses consist primarily of personnel costs of the finance, human resources and other departments, including legal; third-party professional fees (excluding acquisition-related fees) and other expenses; travel expenses; related infrastructure costs, including information technology resources as well as other expenses. (in millions, except percentages) General and administrative expenses (as % of total revenue) Year ended December 31, 2015 2014 €211.7 7.5% €189.4 8.3% IFRS general and administrative expenses increased 11.8% and on a non-IFRS basis, general and administrative expenses increased 14.4%. Excluding an estimated net negative currency impact of 6 percentage points, the growth of general and administrative expenses was due largely to the addition of acquisitions. On an organic basis and excluding currency effects, non-IFRS general and administrative expenses increased 2%. Amortization of Acquired Intangibles Amortization of acquired includes mainly amortization of acquired technology and acquired customer relationships. intangibles Year ended December 31, (in millions) 2015 2014 Financial revenue and other, net Year ended December 31, 2015 €(0.1) 2014 €15.0 (in millions) Amortization of acquired intangibles €159.6 €133.4 Amortization of acquired intangibles increased €26.2 million or 19.6%, reflecting principally the 2014 acquisitions of Accelrys in April and Quintiq in September, respectively. 2015 financial revenue and other, net was mainly comprised of net financial interest income of €11.2 million (2014: €17.1 million) and exchange losses of €(12.0) million (2014: €(4.1) million). See Note 9 to the consolidated financial statements. DASSAULT SYSTÈMES ANNUAL REPORT 2015 81 3 Financial Review and prospects Operating and Financial Review IFRS financial revenue and other, net decreased €15.1 million in 2015 principally due to higher exchange losses of €7.9 million related to the high volatility of currencies and lower net financial interest income of €5.9 million due to lower interest rates. On a non-IFRS basis, financial revenue and other, net decreased €13.3 million to €(0.1) million for 2015 compared to €13.2 million in 2014, reflecting higher exchange losses of €8.2 million in 2015 compared to 2014 as well as lower net financial interest income of €5.7 million. Income tax expense (in millions, except percentages) Income tax expense Effective consolidated tax rate Year ended December 31, 2015 €227.1 35.9% 2014 €153.3 34.4% IFRS income tax expense increased €73.8 million in total in 2015 compared to 2014, of which €64.4 million of the change was due to higher pre-tax income in 2015. The effective consolidated tax rate increase was mainly due to the one- time tax impact of the transfer of certain contracts in Asia. See Note 10 to the consolidated financial statements for an explanation of the differences between the effective tax rates and the taxes computed at the statutory French tax rate of 38% for 2015 and 2014. On a non-IFRS basis, income tax expense increased 24.1% to €304.4 million for 2015, compared to €245.2 million for 2014, due to growth of non-IFRS pre-tax income to €884.8 million compared to €712.4 million for 2014. On a non-IFRS basis, the effective tax rate was 34.4% for 2015 and 2014. Net income and diluted net income per share Year ended December 31, (in millions, except per share data) 2015 2014 Net income attributable to shareholders Diluted net income per share Diluted weighted average number of shares outstanding €402.2 €1.57 €291.3 €1.14 256.6 255.3 IFRS and non-IFRS net income per diluted share growth principally benefited from strong revenue growth, the positive influence from currencies and organic operating margin expansion. IFRS diluted net income per share increased 37.7% compared to 2014. Non-IFRS net income per diluted share increased 23.6% to €2.25 per diluted share in 2015, compared to €1.82 per diluted share in 2014. On a non-IFRS basis, currency had a estimated net favourable impact of about 13 percentage points. 3.1.3 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 the Company’s business seasonality and clients’ decision process. Service and other revenue activity can also vary by quarter. The Company’s total software revenue is, however, less sensitive to quarterly variation due to its significant level of recurring software revenue, which is comprised of maintenance revenue and on-premise software subscriptions as well as initial cloud subscriptions. In combination, maintenance and periodic licenses revenue represented 71% of total IFRS software revenue in 2015 and 2014. This significant level of recurring software revenue has served and continues to serve as a stabilizing factor when new licensing activity is impacting revenue and net income. Acquisitions and divestitures can also cause the different elements of revenue to vary from quarter to quarter. A significant portion of new license sales typically occurs in the last month of each quarter, and the Company normally experiences its highest new licenses sales for the year in its fiscal fourth quarter ended December 31st. Software revenue, total revenue, operating income, operating margin and net income have generally been highest in the fourth quarter of each year. In 2015, total revenue for the fourth, third, second and first quarters represented, respectively, 28.1% (29.3% in 2014), 23.8% (24.5% in 2014), 25.2% (24.3% in 2014) and 22.9% (21.9% in 2014) of the Company’s total revenue for the year, with the mix of revenues by quarter reflecting both seasonality as described above and the carryover impact of acquisitions completed during 2014. 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 1.6.1.14 “Variability in Quarterly Operating Results”. 82 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Review and prospects 2016 Financial Objectives and Multi-Year Growth Plan 3 3.1.4 Capital Resources Cash and cash equivalents and short-term investments amounted to €2.35 billion as of December 31, 2015 compared to €1.18 billion as of December 31, 2014. The Company’s net financial position was €1.35 billion at December 31, 2015, compared to €825.5 million at December 31, 2014, and was comprised of cash, cash equivalents and short-term investments, less long-term debt. In 2015 the Company’s principal sources of liquidity were cash from operations of €633.3 million, and proceeds from the new five-year credit facility of €650.0 million, as well as proceeds from the exercise of stock options amounting to €35.9 million. During 2015 cash obtained from operations was used principally to distribute cash dividends aggregating €98.4 million (based upon the shareholders electing to receive cash), to make additions to property, equipment and intangibles of €43.6 million, to repurchase shares in the amount of €28.3 million and to fund acquisitions of €20.2 million net. In 2014 the Company’s principal sources of liquidity were cash from operations amounting to €499.5 million and proceeds from exercise of stock options amounting to €57.9 million. During 2014, the Company uses of cash were principally for acquisitions in the amount of €952.9 million net, repurchase of Company shares in the amount of €171.7 million and distribution of cash dividends aggregating €35.8 million (based upon the shareholders electing to receive cash). In addition, the Company made additions to property, equipment and intangibles of €45.4 million, and repaid borrowings in the amount of €20.6 million. See also the Consolidated Statements of Cash Flows in paragraph 4.1.1 “Consolidated Financial Statements”. Exchange rate fluctuations had a positive translation effect, on cash and cash equivalent balances, of €55.2 million as of December 31, 2015, and of €38.0 million as of December 31, 2014. 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 Systèmes SE. 3 3.2 2016 Financial Objectives and Multi-Year Growth Plan The Company confirms its initial 2016 non-IFRS financial objectives which were announced on February 4, 2016, when the preliminary, unaudited annual results for 2015 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 2016. The Company’s initial 2016 non-IFRS financial objectives are as follows: (cid:125) 2016 non-IFRS revenue growth objective range of about 6% to 7% in constant currencies (€2.98 billion to €3.01 billion based upon the 2016 currency exchange rate assumptions outlined below for its principal currencies); (cid:125) 2016 non-IFRS operating margin of about 31%, compared to 30.8% for 2015; (cid:125) 2016 non-IFRS earnings per share of about €2.40, representing a growth objective of about 7%, embedding about 3 percentage points of assumed currency headwinds; (cid:125) These financial objectives are based upon exchange rate assumptions of U.S. dollar 1.14 per euro and Japanese yen 130.00 per euro for 2016. In addition to the 2016 objectives stated above, the Company has outlined two goals for 2016. First, while the Company sees a somewhat more volatile macro-environment in 2016 compared to 2015, based upon an increase in 3DEXPERIENCE activity it has set a goal of organic double-digits new licenses revenue growth in constant currencies for 2016. Second, while it anticipates selective increases in investments in R&D and Sales resources in 2016 compared to 2015, the Company has, at the same time, set a goal targeting an increase in the organic operating margin of about 50 basis points in constant currencies for 2016. DASSAULT SYSTÈMES ANNUAL REPORT 2015 83 3 Financial Review and prospects Interim and Other Financial Information The Company’s objectives are prepared and communicated only on a non-IFRS basis. The 2016 annual non-IFRS objectives set forth above do not take into account the following accounting elements and are based upon the 2016 currency exchange rate assumptions above: deferred revenue write-downs currently estimated at approximately €2 million for 2016; share-based compensation expense, including related social charges, currently estimated at approximately €62 million for 2016 and amortization expense for acquired intangibles currently estimated at approximately €147 million for 2016. These objectives do not include any impact from other operating income and expense, net principally comprised of acquisition, integration and restructuring expenses. These estimates do not include any new stock option or share grants, or any new acquisitions or restructurings completed after February 4, 2016. On June 13, 2014 in conjunction with its 2014 Capital Markets Day, Dassault Systèmes unveiled its 2014-2019 multi-year growth plan with the initiation of a 2019 non-IFRS EPS goal of about €3.50 (on a split-adjusted basis), commenting that this goal represents about a 15% compound annual growth rate and is principally top-line driven with multiple key revenue growth drivers. The EPS goal assumes a relatively stable share count over the five-year period, and is based upon exchange rates for the U.S. dollar of $1.37 and Japanese yen of JPY140 in comparison to the euro. are based statements forward-looking The information above includes statements that express objectives for the Company’s future financial performance. Such on Dassault Systèmes 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 “Risk factors”. 3.3 Interim and Other Financial Information Dassault Systèmes has not published any quarterly or half-year financial information since the date of its last audited financial statements. 84 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 4 FINANCIAL STATEMENTS 4.1 Consolidated Financial Statements 86 4.3 Legal and Arbitration Proceedings 150 CONTENTS 4.1.1 Consolidated Financial Statements 4.1.2 Statutory Auditors' Report on the Consolidated Financial Statements 4.2 Parent Company Financial Statements 86 122 124 4.2.1 Parent Company Financial Statements and Notes 124 4.2.2 Selected financial and other information for Dassault Systèmes SE over the last five years 145 4.2.3 Statutory Auditors' Report on the Parent Company Financial Statements 4.2.4 Statutory Auditors' Report on Related Party Agreements and Commitments 146 148 DASSAULT SYSTÈMES ANNUAL REPORT 2015 85 4 Financial Statements Consolidated Financial Statements The consolidated and parent company ﬁ nancial statements below will be submitted for approval at the General Meeting of Shareholders of Dassault Systèmes scheduled for May 26, 2016. 4.1 Consolidated Financial Statements In compliance with article 28 of the European Regulation no. 809/2004 of the European Commission, the consolidated ﬁ nancial statements for 2013 and 2014 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 other software 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 ﬁ nancial income and expense, net 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 Year ended December 31, Notes 2015 2014 €716,539 €579,360 1,786,240 1,455,625 4 2,502,779 2,034,985 336,676 259,295 2,839,455 2,294,280 (143,183) (294,737) (492,494) (892,182) (211,731) (159,561) (12,360) 633,207 11,172 (11,292) 633,087 (227,136) €405,951 (117,332) (225,919) (409,660) (748,428) (189,440) (133,376) (39,309) 430,816 17,131 (2,195) 445,752 (153,302) €292,450 €402,178 €291,241 €3,773 €1,209 €1.59 €1.57 €1.16 €1.14 8 9 9 10 11 11 The accompanying notes are an integral part of these consolidated ﬁ nancial statements. 86 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Consolidated Statements of Comprehensive Income (in thousands) NET INCOME Losses on cash ﬂ ow hedges Foreign currency translation adjustment Income tax on items to be reclassiﬁ ed Other comprehensive income to be reclassiﬁ ed to proﬁ t or loss in subsequent periods, net of tax Remeasurements of deﬁ ned beneﬁ t pension plans Income tax on items not being reclassiﬁ ed Other comprehensive income not being reclassiﬁ ed to proﬁ t or loss in subsequent periods, net of tax 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 ﬁ nancial statements. Year ended December 31, Notes 2015 2014 €405,951 €292,450 23 22 (7,137) 173,658 2,549 169,070 1,331 (582) 749 169,819 (1,508) 187,036 575 186,103 (30,870) 9,712 (21,158) 164,945 €575,770 €457,395 €571,530 €451,510 €4,240 €5,885 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 87 4 Financial Statements Consolidated Financial Statements 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 Non-current ﬁ nancial assets Deferred tax assets Intangible assets, net Goodwill TOTAL NON-CURRENT ASSETS TOTAL ASSETS (in thousands) Liabilities and equity Trade accounts payable Accrued compensation and other personnel costs Unearned revenue Income tax payable 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 Year ended December 31, Notes 2015 2014* 12 12 13 13 14 15 10 17 18 19 10 20 19 €2,280,534 €1,104,206 70,752 739,141 48,367 102,386 71,286 627,662 78,160 99,198 3,241,180 1,980,512 135,326 132,498 115,284 136,737 69,526 86,345 1,024,809 1,125,995 1,662,333 1,563,269 3,070,250 2,981,872 €6,311,430 €4,962,384 €119,802 €130,327 274,933 778,036 47,570 91,525 246,623 636,750 16,870 104,307 1,311,866 1,134,877 213,854 1,000,000 298,012 1,511,866 128,357 454,448 222,393 350,000 295,610 868,003 128,182 484,208 (108,921) (187,085) 2,797,556 2,489,667 197,091 28,488 3,468,531 2,943,460 19,167 16,044 23 3,487,698 2,959,504 €6,311,430 €4,962,384 * The consolidated balance sheet as of December 31, 2014 has been restated to reflect the finalized purchase price allocation for prior year business combinations (see Note 16 Business Combinations). The accompanying notes are an integral part of these consolidated ﬁ nancial statements. 88 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 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 treasury stock Borrowings Repayment of borrowings Net cash provided by (used in) ﬁ nancing activities Effect of exchange rate changes on cash and cash equivalents INCREASE (DECREASE) 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 ﬁ nancial statements. Financial Statements Consolidated Financial Statements 4 Year ended December 31, Notes 2015 2014 €405,951 €292,450 24 24 14, 17 16 23 23 20 20 203,530 23,780 633,261 (43,579) (93,283) 99,087 (20,209) (2,538) 187,748 19,255 499,453 (45,393) (95,141) 94,783 (952,913) (2,197) (60,522) (1,000,861) 35,927 (98,418) (28,295) 650,000 (10,796) 548,418 55,171 57,893 (35,764) (171,660) - (20,685) (170,216) 37,970 1,176,328 (633,654) 1,104,206 1,737,860 €2,280,534 €1,104,206 €209,276 €189,434 €6,354 €5,205 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 89 4 Financial Statements Consolidated Financial Statements Consolidated Statements of Shareholders’ Equity (in thousands) Common stock Share premium Treasury stock Other items Retained earnings and other reserves Foreign currency translation adjustment Cash ﬂ ow hedges Parent shareholders’ equity Non- controlling interest Total Equity JANUARY 1, 2014 €126,933 €425,972 €(105,732) €2,316,293 €(2,953) €(149,986) €2,610,527 €13,624 €2,624,151 291,241 − − 291,241 1,209 292,450 (21,158) (3,475) 184,902 160,269 4,676 164,945 Net income Other comprehensive income, net of tax COMPREHENSIVE INCOME, NET OF TAX Dividends Exercise of stock options Treasury stock transactions Share-based payments Other changes DECEMBER 31, 2014 Net income Other comprehensive income, net of tax COMPREHENSIVE INCOME, NET OF TAX Dividends Exercise of stock options Treasury stock transactions Share-based payments Other changes DECEMBER 31, 2015 − − − − − − 802 70,330 1,188 49,457 − − − − − 270,083 (3,475) 184,902 (103,431) − − − − − − − − − − − 451,510 (32,299) 5,885 457,395 (3,465) (35,764) 50,645 (171,660) 29,950 4,787 − − − − 50,645 (171,660) 29,950 4,787 (741) (61,551) (81,353) (28,015) − − − − − − 29,950 4,787 €128,182 €484,208 €(187,085) €2,489,667 €(6,428) €34,916 €2,943,460 €16,044 €2,959,504 402,178 − − 402,178 3,773 405,951 749 (4,223) 172,826 169,352 467 169,819 402,927 (4,223) 172,826 (108,535) − − − − − − − − − − − 571,530 (95,641) 4,240 575,770 (2,777) (98,418) 35,224 (28,295) 40,194 2,059 − − − 1,660 35,224 (28,295) 40,194 3,719 (802) (76,901) 78,164 (28,756) − − − − − − 40,194 2,059 €128,357 €454,448 €(108,921) €2,797,556 €(10,651) €207,742 €3,468,531 €19,167 €3,487,698 − − − 93 − − − 12,801 884 34,340 − − − − − The accompanying notes are an integral part of these consolidated ﬁ nancial statements. 90 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Notes to the Consolidated Financial Statements for Years Ended December 31, 2015 and 2014 CONTENTS Note 1 Description of Business 92 Note 13 Trade Accounts Receivable, Note 2 Summary of Signiﬁ cant Accounting Policies Net and Other Current Assets 92 Note 14 Property and Equipment Note 3 Segment and Geographic Information 96 Note 15 Non-Current Financial Assets Note 4 Software Revenue Note 5 Government Grants Note 6 Personnel Costs Note 7 Share-based Payments Note 8 Other Operating Income and Expense, Net Note 9 Interest Income and Expense, Net and Other Financial Income and Expense, Net Note 10 Income Taxes Note 11 Earnings per Share Note 12 Cash and Cash Equivalents and Short-term Investments 98 99 99 99 102 102 103 104 105 106 107 108 108 110 111 112 113 4 Note 16 Business Combinations Note 17 Intangible Assets Note 18 Goodwill Note 19 Other Liabilities Note 20 Borrowings Note 21 Derivatives and Currency and Interest Rate Risk Management 113 Note 22 Post-employment Beneﬁ ts Note 23 Shareholders’ Equity Note 24 Consolidated Statements of Cash Flows Note 25 Commitments and Contingencies Note 26 Related-Party Transactions Note 27 Principal Dassault Systèmes Companies 115 117 119 119 120 121 DASSAULT SYSTÈMES ANNUAL REPORT 2015 91 4 Financial Statements Consolidated Financial Statements Note 1 Description of Business refers The “Company” or to Dassault the “Group” Systèmes SE and its subsidiaries. The Company provides end- to-end software solutions and services, designed to support companies’ innovation processes, from speciﬁ cation and design of a new product, to its manufacturing, supply and sale to the customer, through all stages of digital mock-up, simulation, and realistic 3D virtual experiences representing the end-user experience. The Company’s global customer base includes companies 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. To serve its customers, the Company has developed a broad software applications portfolio, comprised of 3D modeling applications, simulation applications, social and collaborative applications, and information intelligence applications, all powered by its 3DEXPERIENCE platform. Dassault Systèmes SE is a European company (Societas Europaea), incorporated under the laws of France. The Company’s registered ofﬁ ce is located at 10, rue Marcel Dassault, in Vélizy-Villacoublay, France. The Dassault Systèmes SE shares are listed in France on Euronext Paris. These consolidated ﬁ nancial statements were established under the responsibility of the Board of Directors on March 17, 2016. Note 2 Summary of Signiﬁ cant Accounting Policies The Company undertakes no early application of any standard or interpretation or associated amendments which were already published in the Ofﬁ cial Journal of the European Union at December 31, 2015. In addition, the Company’s consolidated ﬁ nancial statements do not take into account new standards, interpretations and amendments not yet approved by the European Union at December 31, 2015, notably IFRS 15 “Revenue from contracts with customers”, expected to be effective as of January 1, 2018, with early adoption permitted. The Company is currently assessing the impact of IFRS 15 on its consolidated ﬁ nancial statements and plans to adopt the new standard on the required effective date. Summary of significant accounting policies Use of estimates The preparation of ﬁ nancial 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 ﬁ nancial statements. Areas involving the use of signiﬁ cant estimates and assumptions mainly identifying the different elements comprising a software arrangement, including the distinction between upgrades/enhancements include: assessing product lifecycles; Basis of preparation and consolidation The accompanying consolidated ﬁ nancial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted in the European Union. The consolidated ﬁ nancial statements are presented in thousands of euros except where otherwise indicated. The consolidated ﬁ nancial statements include the accounts of Dassault Systèmes SE and its subsidiaries. Companies over which the Company has control are fully consolidated. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Companies over which the Company exercises signiﬁ cant inﬂ uence are accounted for under the equity method. Intercompany transactions and balances are eliminated. Impact of recently issued accounting standards The following interpretation which was published in the Ofﬁ cial Journal of the European Union at December 31, 2015 was applied for the ﬁ rst time in 2015: (cid:125) IFRIC 21 “Levies”, mandatory for ﬁ nancial years beginning on or after June 17, 2014. The interpretation addresses when an entity should recognize a liability to pay a government levy. The adoption of IFRIC 21 had no material impact on the Company’s consolidated ﬁ nancial statements. 92 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 4 and new products; determining when technological feasibility is achieved for its products; estimating the recoverable amount of goodwill; determining the nature, fair value and useful life of acquired intangible assets in a business combination; determining assumptions to estimate the fair value of share- based payments; assessing the recognition of deferred tax assets; and making reasonable estimates about the ultimate resolution of the Company’s tax uncertainties based on current tax laws and the Company’s interpretation thereof. 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 ﬂ ows 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 ﬂ ows 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 other software revenue, 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. New Software Licenses, Periodic Licenses, Maintenance and Other Software 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 beneﬁ ts associated with the transaction will ﬂ ow 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 unspeciﬁ ed 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. Other software revenue mainly 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 licenses, maintenance and other software 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. Services and Other Revenue Services and other revenue consists primarily of fees from consulting services in methodology for design, deployment and support, and training services. Services generally do not require signiﬁ cant modiﬁ cation 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 ﬁ xed 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. DASSAULT SYSTÈMES ANNUAL REPORT 2015 93 4 Financial Statements Consolidated Financial Statements 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. Stock options are measured at fair value 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. Performance shares are measured at fair value based on the quoted price of the Company’s common stock on the date of grant. The fair value may also include the impact of a market condition based on an option-pricing model. Non- market vesting conditions are excluded from the fair value measurement but are taken into account to estimate the number of shares that will eventually vest. At the end of each reporting period, the Group reviews this estimate and records the impact of changes to original estimate, if any, in the statement of income. For performance share plans that allow the beneﬁ ciaries to acquire shares either upon satisfaction of a market condition or a non-market vesting condition, the Group estimates the fair value of the equity instrument at grant date for each possible outcome, and accounts for the share-based payment based on the most likely outcome at the end of each reporting period. Cost of software revenue Cost of software revenue primarily includes software license expense for software products included in the Company’s software, maintenance costs and delivery expense. Research and development Research costs are expensed as incurred. 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. Due to speciﬁ cities 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 difﬁ cult 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 ﬁ nance 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 insufﬁ cient 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, costs directly related to acquisitions, and costs related to site closings or moving from one site to another. Other financial income and expense, net Other ﬁ nancial income and expense primarily includes the impact of remeasuring ﬁ nancial 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 ﬁ nancial instruments not qualiﬁ ed 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 ﬁ nancial 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 proﬁ t 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 proﬁ t 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 94 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 4 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 reﬂ ects 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 and forward contracts, which are designated and serve as hedges, are recorded at their fair market value. Fair value is measured based on the following fair value hierarchy: 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 insigniﬁ cant 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 classiﬁ ed as trading securities with changes in fair value recorded in interest income and expense, net. Non-Current Financial Assets – Non-current ﬁ nancial assets include, principally, available-for-sale equity securities at fair value, loans, deposits and other non-current receivables at amortized cost and equity method investments. For available- for-sale equity securities, any unrealized holding gains and losses excluded from operating results are recognized in the income until consolidated statements of comprehensive 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, speciﬁ c industry and individual company data, the length of time and the extent to which the market value has been less than cost, the ﬁ nancial 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 speciﬁ c hedge accounting criteria are met. Changes in the fair value of derivatives designated as cash-ﬂ ow 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 ﬁ ve years; ofﬁ ce furniture and equipment, ﬁ ve 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. Intangible assets Intangible assets primarily include acquired technology, contractual customer relationships and computer software. Costs related to intangible assets are capitalized and amortized using the straight-line method over their estimated useful lives, which range from two to 16 years. No intangible assets have been identiﬁ ed with an indeﬁ nite 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. Identiﬁ able 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 identiﬁ able 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 beneﬁ t from the synergies of the combination, DASSAULT SYSTÈMES ANNUAL REPORT 2015 95 4 Financial Statements Consolidated Financial Statements 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 ﬂ ows 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 outﬂ ows 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 outﬂ ow 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 outﬂ ow 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 deﬁ ned contribution plans are recorded as expenses for the relevant period. For deﬁ ned beneﬁ t plans concerning post-employment beneﬁ ts, the Company uses the projected unit credit method to determine the present value of its obligations. Under this method, beneﬁ ts are attributed to periods of service according to the plan’s beneﬁ t formula. However, if an employee’s service in later years will earn a materially higher level of beneﬁ t than in earlier years, beneﬁ ts are attributed to periods of service on a straight-line basis. Actuarial gains and losses are charged or credited to equity in other comprehensive income in the period in which they arise. The future payments for employee beneﬁ ts 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 beneﬁ t plan concerned. The net expense for the year, corresponding to the sum of the current service costs, past service costs and net interest expense or income, is charged in full to operating income. Note 3 Segment and Geographic Information Operating segments are components of the Company for which discrete ﬁ nancial information is available and whose operating results are regularly reviewed by management to assess performance and allocate resources. The Company operates in a single operating segment, the sale of software solutions, whose aim is to offer customers an integrated innovation process, from the development of a new concept to the realistic experience of the resultant product, through all stages of detailed design, scientiﬁ c simulation and manufacturing, thanks to the 3DEXPERIENCE platform. The assessment of the operating segment’s performance is based on the Group’s supplemental non-IFRS ﬁ nancial information (see paragraph 3.1.1.2 “Supplemental Non- IFRS Financial Information”). The accounting policies used differ from those described in Note 2 Summary of Signiﬁ cant Accounting Policies as follows: (cid:125) the measure of operating segment revenue and income includes the whole revenue that would have been recognized by acquired companies had they remained stand-alone entities but which is partially excluded from Group revenue to reﬂ ect the fair value of obligations assumed; (cid:125) the measure of operating segment income excludes share- based compensation expense and associated payroll taxes (see Note 6 Personnel Costs and Note 7 Share-based Payments), amortization of acquired intangibles, and other operating income and expense, net (see Note 8 Other Operating Income and Expense, Net). 96 ANNUAL REPORT 2015 DASSAULT SYSTÈMES (in thousands) TOTAL REVENUE FOR OPERATING SEGMENT Adjustment for unearned revenue of acquired companies TOTAL REVENUE (in thousands) INCOME FOR OPERATING SEGMENT Adjustment for unearned revenue of acquired companies Share-based compensation expense and related payroll taxes Amortization of acquired intangibles Other operating income and expense, net OPERATING INCOME Financial Statements Consolidated Financial Statements 4 Year ended December 31, 2015 2014 €2,876,652 €2,346,660 (37,197) (52,380) €2,839,455 €2,294,280 Year ended December 31, 2015 2014 €884,834 €699,174 (37,197) (42,509) (52,380) (43,293) (159,561) (133,376) (12,360) (39,309) €633,207 €430,816 4 Data by geographic operations of the Company is established according to geographical location of the consolidated companies and is as follows: (in thousands) 2015 Europe of which France of which Germany Americas of which the United States Asia of which Japan TOTAL 2014 Europe of which France of which Germany Americas of which the United States Asia of which Japan TOTAL Total revenue Total assets* Additions to property, equipment and intangibles €984,154 €3,656,664 463,345 214,496 2,612,147 442,781 1,206,888 2,150,243 1,154,515 1,954,114 648,413 357,888 504,523 136,901 €22,447 18,134 891 12,370 11,580 8,762 1,207 €2,839,455 €6,311,430 €43,579 €864,599 €2,541,800 €17,371 439,108 211,131 903,602 850,581 526,079 373,838 1,524,100 450,348 1,996,773 1,779,693 423,811 175,173 14,405 1,030 23,151 22,525 8,371 2,727 €2,294,280 €4,962,384 €48,893 * 2014 figures have been restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €(5.7) million (see Note 16 Business Combinations). DASSAULT SYSTÈMES ANNUAL REPORT 2015 97 4 Financial Statements Consolidated Financial Statements The Company also receives data that identiﬁ es 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 Asia of which Japan TOTAL REVENUE Note 4 Software Revenue Software revenue is comprised of the following: (in thousands) New licenses revenue Periodic licenses and maintenance revenue Other software revenue SOFTWARE REVENUE Breakdown of software revenue by main product line is as follows: (in thousands) CATIA software revenue SOLIDWORKS software revenue ENOVIA software revenue Other SOFTWARE REVENUE Year ended December 31, 2015 2014 €1,226,426 €1,052,804 246,439 357,021 889,504 755,552 723,525 347,837 229,522 340,223 659,022 574,994 582,454 293,065 €2,839,455 €2,294,280 Year ended December 31, 2015 2014 €716,539 €579,360 1,765,873 1,444,327 20,367 11,298 €2,502,779 €2,034,985 Year ended December 31, 2015 2014 €938,484 €838,527 569,827 301,878 692,590 447,683 262,849 485,926 €2,502,779 €2,034,985 98 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Note 5 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 Note 6 Personnel Costs Personnel costs Personnel payments (€40.2 million in 2015 and €30.3 million in 2014, see Note 7 Share-based Payments) and associated payroll taxes share-based excluding costs, (in thousands) Personnel costs Social security costs TOTAL Note 7 Share-based Payments Year ended December 31, 2015 €34,780 1,308 €36,088 2014 €43,099 - €43,099 4 (€2.3 million in 2015 and €13.0 in 2014), are presented in the following table: Year ended December 31, 2015 2014 €(1,102,733) €(882,120) (252,212) (215,836) €(1,354,945) €(1,097,956) 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 revenue TOTAL COMPENSATION EXPENSE RELATED TO SHARE-BASED PAYMENTS Year ended December 31, 2015 2014 €(16,968) €(12,500) (14,799) (11,077) (7,062) (1,365) (5,828) (850) €(40,194) €(30,255) DASSAULT SYSTÈMES ANNUAL REPORT 2015 99 4 Financial Statements Consolidated Financial Statements Changes during 2015 and 2014 of unvested options and performance shares were as follows: UNVESTED AT JANUARY 1, 2014 Granted Vested Forfeited UNVESTED AT DECEMBER 31, 2014 Granted Vested Forfeited UNVESTED AT DECEMBER 31, 2015 Number of awards Performance shares Stock options Total 2,088,510 2,312,000 4,400,510 1,359,880 624,450 1,984,330 (888,750) (2,272,000) (3,160,750) (70,800) 2,488,840 (54,600) 609,850 (125,400) 3,098,690 1,034,600 1,965,555 3,000,155 (773,550) - (76,500) (170,150) (773,550) (246,650) 2,673,390 2,405,255 5,078,645 As of December 31, 2015, total compensation cost related to unvested awards expected to vest but not yet recognized was €95.6 million, and the Company expects to recognize this expense over a weighted average period of 2 years, no later than September 4, 2018. Performance shares A summary of the Company’s performance shares plans is as follows: Plans 2010-02 2010-04 2010-05 2014-A 2014-B 2015-A 2015-B Date of General Meeting of Shareholders 05/27/2010 05/27/2010 05/27/2010 05/30/2013 05/30/2013 09/04/2015 09/04/2015 Date of grant by Board of Directors 09/29/2011 09/07/2012 09/07/2012 02/21/2014 02/21/2014 09/04/2015 09/04/2015 Total number of shares granted 406,400 539,230 150,000 529,940 150,000 734,600 300,000 Restated total number of shares granted(1) Acquisition period (in years)(3) 812,800(2) 1,078,460(2) 300,000 1,059,880 300,000 734,600 300,000 Three or four(4) Three or four(4) Two Four Four Two Two Performance conditions See Note(5) See Note(5) See Note(6) See Note(7) See Note(7) See Note(7) See Note(7) Performance conditions is reached at December 31, 2015 Yes Yes Yes N/A N/A N/A N/A (1) For shares granted before July 17, 2014, total number of shares granted has been restated to reflect the two-for-one stock split effected on July 17, 2014 (see Note 23 Shareholders’ Equity). (2) Including 28,000 shares granted to the Chief Executive Officer (“CEO”), subject to an additional performance condition related to the CEO’s variable compensation. (3) Subject to the condition that the beneficiary be an employee or a director of the Company at the acquisition date. (4) Three years in France and four years outside of France. (5) Non-market performance conditions based on actually realized non-IFRS diluted earnings per share of the Group compared to the upper limit of the non-IFRS diluted earnings per share objective during three years (2011, 2012 and 2013 for 2010-02 Shares and 2012, 2013 and 2014 for 2010-04 Shares). The shares granted to the CEO are also subject to an additional performance condition related to variable compensation dependent on achieving performance criteria previously established by the Board. (6) Performance condition related to the CEO’s variable compensation dependent on achieving performance criteria previously established by the Board. (7) Performance condition measured based on two alternative criteria, the growth of the non-IFRS diluted earnings per share of the Group or the outperformance of the price of the Dassault Systèmes share compared to the performance of the CAC 40 index (market condition) for each of the years 2015, 2016 and 2017 for 2014-A and 2014-B Shares, and for the year 2016 for 2015-A and 2015-B Shares, compared to the year 2014. Such growth or difference must be at least equal to a threshold established by the Board. The 2015- B Shares granted to the CEO are also subject to an additional performance condition related to variable compensation dependent on achieving performance criteria previously established by the Board. Performance shares granted in 2015 are measured at fair value based on the quoted price of the Company’s common stock on the date of grant. 100 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Stock option The main features of the Group stock option plans are as follows: Options vest over various periods ranging from one to four years, subject to continued employment, options expire eight to ten years from grant date, or after termination of employment, whichever is earlier, options have generally been granted at an exercise price equal to or greater than the grant- date market value of the Company’s share. Pursuant to an authorization granted by the shareholders at the General Meeting of Shareholders held on May 30, 2013, the Board of Directors decided to grant 1,965,555 options to subscribe to Dassault Systèmes shares to certain employees on September 4, 2015, at an exercise price of €62. Such options shall be vested at the end of an acquisition period of one to three years, subject to the condition that the beneﬁ ciary be an employee of the Company at the acquisition date and to the achievement of certain non-market performance objectives. The options expire ten years from grant date or after termination of employment, whichever is earlier. The weighted average grant-date fair value of options granted in 2015 was €11.44. It was estimated on the date of grant using a Black-Scholes option pricing model. Assumptions used are as follows: weighted-average expected life of 6 years, expected volatility rate of 22%, expected dividend yield of 0.70% and average risk-free interest rate of 0.41%. The expected volatility was determined using a combination of the historical volatility of the Company’s stock and the implied volatility of the Company’s exchange-traded options adjusted for other factors, such as a comparison to the Company’s peer group. A summary of the Company’s stock option activity is as follows: 4 OUTSTANDING AS OF JANUARY 1, Granted Exercised Forfeited OUTSTANDING AS OF DECEMBER 31, Exercisable 2015 2014 Number of shares 5,287,411 1,965,555 (1,769,020) (171,850) 5,312,096 2,906,841 Weighted average exercise price €23.73 €62.00 €19.91 €47.57 €38.40 €21.50 Number of shares 7,094,974 624,450 (2,375,837) (56,176) 5,287,411 4,677,561 Weighted average exercise price €21.06 €45.50 €21.32 €29.22 €23.73 €20.90 A summary of the remaining contractual life and the exercise price of options outstanding as of December 31, 2015 is presented below: Stock option plan 2008-02 2010-01 2014-01 2015-01 OUTSTANDING AS OF DECEMBER 31, 2015 Number of shares Remaining life (years) Exercise price 1,455,264 1,451,577 463,850 1,941,405 5,312,096 1.91 2.40 6.40 9.68 5.28 €19.50 €23.50 €45.50 €62.00 €38.40 DASSAULT SYSTÈMES ANNUAL REPORT 2015 101 4 Financial Statements Consolidated Financial Statements Note 8 Other Operating Income and Expense, Net Other operating income and expense, net are comprised of the following: (in thousands) Acquisition costs (1) Costs incurred in connection with relocation activities (2) Restructuring costs (3) Other OTHER OPERATING INCOME AND EXPENSE, NET Year ended December 31, 2015 2014 €(5,552) €(20,312) (5,085) (1,556) (167) (6,438) (10,286) (2,273) €(12,360) €(39,309) (1) In 2014, transaction costs primarily relating to the acquisition of Realtime Technology AG (renamed “Dassault Systemes 3DExcite GmbH”), Accelrys (renamed “Dassault Systemes Biovia Corp.”) and Quintiq. (2) In 2015 and 2014, primarily composed of expenses related to the reorganization of the Group’s premises in North America. (3) In 2014, primarily composed of severance costs relating to the termination of employees following the Company’s decision to rationalize its sales organization principally in Europe, as well as severance costs related to the closure of offices in the Unites States. Note 9 Interest Income and Expense, Net and Other Financial Income and Expense, Net Interest income and expense, net and other ﬁ nancial income and expense, net for the years ended December 31, 2015 and 2014 are as follows: (in thousands) Interest income (1) Interest expense (2) INTEREST INCOME AND EXPENSE, NET Foreign exchange losses, net (3) Other, net OTHER FINANCIAL INCOME AND EXPENSE, NET Year ended December 31 2015 2014 €18,576 €22,869 (7,404) 11,172 (11,963) 671 (5,738) 17,131 (4,060) 1,865 €(11,292) €(2,195) (1) Interest income is primarily composed of interests on cash, cash equivalents and short-term investments. (2) In 2015, mainly includes interest expense of €6.3 million due pursuant to two term loan facility agreements entered into in October 2015 and June 2013, respectively, for €650 and €350 million, respectively. In 2014, mainly include interest expense of €4.4 million due pursuant to a term loan facility agreement entered into in June 2013 for €350 million (see Note 20. Borrowings). (3) Foreign exchange losses, net are primarily composed of realized and unrealized exchange gains and losses on receivables and loans denominated in U.S. dollars, Australian dollar and Canadian dollar in 2015 and U.S. dollars and Japanese yen in 2014. 102 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Note 10 Income Taxes Deferred tax assets and liabilities are as follows: (in thousands) Deferred tax assets: Accelerated depreciation and amortization for ﬁ nancial statement purposes Proﬁ t-sharing and pension accruals Provisions and other expenses Net tax loss and tax credit carryforward assets TOTAL DEFERRED TAX ASSETS Deferred tax liabilities: Amortization of acquired intangibles Accelerated depreciation and amortization for tax purposes Other TOTAL DEFERRED TAX LIABILITIES NET DEFERRED TAX LIABILITY Financial Statements Consolidated Financial Statements 4 Year ended December 31, 2015 2014* €49,072 €44,118 53,686 80,449 44,418 42,551 88,813 53,358 227,625 228,840 (288,605) (300,143) (22,568) (15,022) (48,948) (15,797) (326,195) (364,888) €(98,570) €(136,048) 4 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €3.0 million (see Note 16 Business Combinations). 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 Year ended December 31, 2015 €76,425 38,859 115,284 (11,383) (202,471) (213,854) 2014* €60,712 25,633 86,345 (12,824) (209,569) (222,393) €(98,570) €(136,048) * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €3.0 million (see Note 16 Business Combinations). Non-current deferred tax liabilities mainly include the tax effect of intangible assets created through business combinations (primarily Accelrys, Quintiq and Apriso). Change in deferred taxes can be summarized as follows: (in thousands) NET DEFERRED TAX LIABILITY AS OF JANUARY 1, Changes included in the income statement Business combinations Other changes included in shareholders’ equity Currency translation adjustments NET DEFERRED TAX LIABILITY AS OF DECEMBER 31, Year ended December 31, 2015 2014* €(136,048) €(15,243) 42,461 (1,398) 5,540 (9,125) 39,887 (158,905) 9,352 (11,139) €(98,570) €(136,048) * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €3.0 million (see Note 16 Business Combinations). DASSAULT SYSTÈMES ANNUAL REPORT 2015 103 4 Financial Statements Consolidated Financial Statements The components of income before income taxes are as follows: (in thousands) France Foreign INCOME BEFORE INCOME TAXES The components of income tax expense are as follows: (in thousands) France Foreign CURRENT TAXES Change in deferred taxes INCOME TAX EXPENSE Year ended December 31, 2015 2014 €298,189 €243,410 334,898 202,342 €633,087 €445,752 Year ended December 31, 2015 €(116,418) (153,179) (269,597) 42,461 2014 €(90,613) (102,576) (193,189) 39,887 €(227,136) €(153,302) 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 38% Foreign tax rate differentials R&D tax credit and other tax credits(1) Tax exempt income Adjustments of prior income tax provision Other, net(2) INCOME TAX EXPENSE Effective tax rate Year ended December 31, 2015 2014 €(240,573) €(169,386) 6,852 17,374 6,218 518 (17,525) 3,233 15,831 4,634 (1,754) (5,860) €(227,136) €(153,302) 35.9% 34.4% (1) R&D tax credit and other tax credits derived mainly from research tax credits in France and in the United States. (2) In 2015, includes mainly tax impact in connection with transfer of certain contracts in Asia, and French cotisation sur la valeur ajoutée des entreprises (“CVAE”). In 2014, included mainly tax impact in connection with French CVAE. At December 31, 2015, there were unrecognized tax losses and tax credit carried forward of €61.3 million, which are scheduled to expire after 2021. 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. 104 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 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 Financial Statements Consolidated Financial Statements 4 Year ended December 31, 2015 2014 €402,178 €291,241 252,480,762 250,855,961 4,111,621 4,430,104 256,592,383 255,286,065 €1.59 €1.57 €1.16 €1.14 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 4 Year ended December 31, 2015 2014 €88,716 €71,864 2,191,818 1,032,342 €2,280,534 €1,104,206 At December 31, 2015 and 2014, approximately 26% and 35% of cash and cash equivalents was denominated in U.S. dollars, respectively. Short-term investments of €70.8 and €71.3 million at December 31, 2015 and 2014, respectively, were primarily comprised of bank certiﬁ cates of deposit, mutual funds and ﬁ xed term deposits. At December 31, 2015 and 2014, short- term investments included approximately 59% and 53% of investments denominated in U.S. dollars, respectively. Cash, cash equivalents and short-term investments are maintained on deposit with high credit-quality ﬁ nancial 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 Systèmes SE. The Company has adopted policies regarding ﬁ nancial ratings and the spread of maturity dates in order to ensure the security and liquidity of its ﬁ nancial 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 ﬁ nancial 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. The Group has a central cash management operated by a banking institution. In this context, the parent company of the bank offered a guarantee to the Group in the amount of €459 million, and at the same time the Group offered a guarantee to the bank for the same amount. DASSAULT SYSTÈMES ANNUAL REPORT 2015 105 4 Financial Statements Consolidated Financial Statements Note 13 Trade Accounts Receivable, Net and Other Current Assets Trade accounts receivable and other current assets are receivables measured at amortized cost. 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 Year ended December 31, 2015 2014 €759,609 €648,732 (20,468) (21,070) €739,141 €627,662 Year ended December 31, 2015 2014 €77,814 €96,694 12,970 8,065 98,849 640,292 11,756 9,593 118,043 509,619 €739,141 €627,662 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 2015 and 2014. Other current assets Other current assets consist of the following: (in thousands) Prepaid expenses Value added tax Derivatives, current (1) Other current assets(2) TOTAL OTHER CURRENT ASSETS Year ended December 31, 2015 2014 €42,964 €39,097 40,248 2,272 16,902 35,302 4,931 19,868 €102,386 €99,198 (1) See Note 21. Derivatives and Currency and Interest Rate Risk Management. (2) 2014 figures have been restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €1.4 million (see Note 16 Business Combinations). 106 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Note 14 Property and Equipment Property and equipment consist of the following: (in thousands) Computer equipment Ofﬁ ce furniture and equipment Leasehold improvements Buildings TOTAL Year ended December 31, 2015 Year ended December 31, 2014 Gross Accumulated depreciation Net Gross Accumulated depreciation Net €172,640 €(123,572) €49,068 €151,990 €(104,034) €47,956 55,790 100,682 7,057 (35,806) (40,177) (1,288) 19,984 60,505 5,769 50,471 92,328 6,347 (28,676) (30,714) (975) 21,795 61,614 5,372 €336,169 €(200,843) €135,326 €301,136 €(164,399) €136,737 The change in the carrying amount of property and equipment as of December 31, 2015 is as follows: (in thousands) NET PROPERTY AND EQUIPMENT AS OF JANUARY 1, 2015 Additions Other changes Depreciation for the period Exchange differences NET PROPERTY AND EQUIPMENT AS OF DECEMBER 31, 2015 Computer equipment Ofﬁ ce furniture and equipment Leasehold improvements Buildings Total €47,956 €21,795 €61,614 €5,372 €136,737 26,415 (1,338) (25,912) 1,947 3,756 (414) (6,431) 1,278 4,164 120 (9,796) 4,403 298 - (251) 350 34,633 (1,632) (42,390) 7,978 €49,068 €19,984 €60,505 €5,769 €135,326 The change in the carrying amount of property and equipment as of December 31, 2014 is as follows: (in thousands) NET PROPERTY AND EQUIPMENT AS OF JANUARY 1, 2014 Additions Business combinations Other changes Depreciation for the period Exchange differences NET PROPERTY AND EQUIPMENT AS OF DECEMBER 31, 2014 Computer equipment Ofﬁ ce furniture and equipment Leasehold improvements Buildings Total €35,391 €15,724 23,307 10,487 225 (23,480) 2,026 7,348 3,885 (1,130) (5,401) 1,369 €44,301 14,862 6,957 (704) (7,913) 4,111 €5,032 €100,448 - - - (216) 556 45,517 21,329 (1,609) (37,010) 8,062 €47,956 €21,795 €61,614 €5,372 €136,737 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 107 4 Financial Statements Consolidated Financial Statements Note 15 Non-Current Financial Assets Non-current ﬁ nancial assets consist of the following: (in thousands) Tax receivable(1) Loans receivable, non-current Investments Derivatives, non-current(2) Deposits and other non-current ﬁ nancial assets NON-CURRENT FINANCIAL ASSETS Year ended December 31, 2015 2014 €79,860 €22,194 15,169 11,194 8,643 17,632 14,487 12,422 4,663 15,760 €132,498 €69,526 (1) In 2015 and 2014, tax payments following tax reassessments which are disputed by the Group with the relevant authorities (see Note 25 Commitments and Contingencies). (2) See Note 21 Derivatives and Currency and Interest Rate Risk Management. Note 16 Business Combinations The estimated fair values of assets acquired and liabilities assumed in connection with the Accelrys, Quintiq and SIMPACK acquisitions presented in the Group’s consolidated ﬁ nancial statements as of December 31, 2014 were provisional and have been ﬁ nalized in 2015. Realtime Technology AG (renamed “Dassault Systemes 3DExcite GmbH”) On January 13, 2014, the Company acquired 84% of Realtime Technology AG (“RTT”), and further increased its share to 100% as of December 31, 2014, for total cash consideration of approximately €190.8 million. Headquartered in Munich, Germany, RTT is a leading provider of professional high-end 3D visualization software, marketing solutions and computer generated imagery services. The allocation of the purchase price resulted in €113.1 million of goodwill primarily composed of the synergies between RTT and the Company’s activities, with the introduction of a new brand, 3DEXCITE, extending the Company’s offerings to address marketing professionals in its core and target industries. States, Accelrys is a leading provider of scientiﬁ c innovation lifecycle management software for chemistry, biology and materials sciences industries. The allocation of the purchase price resulted in €325.1 million of goodwill. The primary items that generated goodwill include mainly the value of the synergies between Accelrys and the Company’s activities, with the creation of the BIOVIA brand, addressing science-based industries. Quintiq Holding B.V. its On September 8, 2014, the Company completed acquisition of 100% of Quintiq Holding B.V. (“Quintiq”), for cash consideration of approximately €256.5 million, including a contingent consideration of approximately €6.7 million paid in 2015 in connection with sales performance achieved in 2014. Based in Bois-Le-Duc, the Netherlands, Quintiq is a global leader in operations management and optimization. The allocation of the purchase price resulted in €119.5 million of goodwill. The primary items that generated goodwill include mainly the value of the synergies between Quintiq and the Company’s activities. Accelrys Inc. (renamed “Dassault Systemes Biovia Corp.”) On April 29, 2014, the Company completed its acquisition of 100% of Accelrys Inc. (“Accelrys”), for cash consideration of approximately €541.5 million. Based in San Diego, United Other acquisitions In July 2014, the Company completed its acquisition of 100% of SIMPACK and Sobios SAS for total cash consideration of approximately €46.9 million. These transactions resulted in €20.0 million of goodwill. 108 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Purchase price allocation The ﬁ nal allocation of RTT, Accelrys, Quintiq and other acquisitions’ purchase prices to identiﬁ able assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition is as follows: (in thousands) Cash and cash equivalents Trade accounts receivable Other assets Intangible assets acquired(1) Unearned revenue(2) Other liabilities Deferred taxes, net TOTAL IDENTIFIABLE NET ASSETS Goodwill TOTAL PURCHASE PRICE RTT €13,176 22,050 8,727 73,506 (985) (13,582) (25,205) €77,687 113,143 Accelrys €46,762 22,046 16,521 243,432 (12,669) (24,048) (75,661) Quintiq €7,148 18,082 10,326 180,219 (4,679) (25,133) (48,980) €216,383 €136,983 325,106 119,495 Other acquisitions €6,518 1,669 2,451 40,447 (2,169) (13,025) (9,059) €26,832 20,036 Total €73,604 63,847 38,025 537,604 (20,502) (75,788) (158,905) €457,885 577,780 €190,830 €541,489 €256,478 €46,868 €1,035,665 4 (1) Intangible assets acquired are subject to amortization and include the following: (in thousands) Software Customer relationships Other RTT €49,506 20,000 4,000 Accelrys €58,595 184,115 722 Quintiq Other acquisitions €167,013 13,206 - €25,647 14,800 - Total €300,761 232,121 4,722 TOTAL INTANGIBLE ASSETS ACQUIRED €73,506 €243,432 €180,219 €40,447 €537,604 (2) The carrying values of unearned revenue were reduced to reflect the fair value of obligations assumed. As a result, approximately €82.1 million of revenues that would have otherwise been recorded by these entities had they not been acquired by the Company will not be recognized in the Company’s consolidated statements of income. DASSAULT SYSTÈMES ANNUAL REPORT 2015 109 4 Financial Statements Consolidated Financial Statements Note 17 Intangible Assets Intangible assets consist of the following: (in thousands) Software Customer relationships Other intangible assets Year ended December 31, 2015 Year ended December 31, 2014* Gross Accumulated amortization Net Gross Accumulated amortization Net €1,030,711 €(503,038) €527,673 €981,032 €(399,873) €581,159 972,529 27,796 (482,146) (21,043) 490,383 6,753 903,952 26,781 (366,521) (19,376) 537,431 7,405 TOTAL INTANGIBLE ASSETS €2,031,036 €(1,006,227) €1,024,809 €1,911,765 €(785,770) €1,125,995 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €(44.6) million (see Note 16 Business Combinations). The change in the carrying amount of intangible assets as of December 31, 2015 is as follows: (in thousands) Software Customer relationships Other intangible assets Total intangible assets NET INTANGIBLE ASSETS AS OF JANUARY 1, 2015* €581,159 €537,431 €7,405 €1,125,995 Business combinations Other additions Amortization for the period Exchange differences 4,661 8,879 (83,054) 16,028 - - - 67 4,661 8,946 (84,720) 37,672 (1,229) (169,003) 510 54,210 NET INTANGIBLE ASSETS AS OF DECEMBER 31, 2015 €527,673 €490,383 €6,753 €1,024,809 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €(44.6) million (see Note 16 Business Combinations). The change in the carrying amount of intangible assets as of December 31, 2014 is as follows: (in thousands) Software Customer relationships Other intangible assets Total intangible assets NET INTANGIBLE ASSETS AS OF JANUARY 1, 2014 €324,340 €331,052 Business combinations* Other additions Amortization for the period Exchange differences 300,761 3,077 (69,299) 22,280 232,121 253 (68,930) 42,935 €3,396 4,722 46 €658,788 537,604 3,376 (1,103) (139,332) 344 65,559 NET INTANGIBLE ASSETS AS OF DECEMBER 31, 2014* €581,159 €537,431 €7,405 €1,125,995 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €(44.6) million (see Note 16 Business Combinations). intangible amortization expense was €169.0 and Total €139.3 million for the years ended December 31, 2015, and 2014, respectively. The future amortization expense relating to all intangible assets that are currently recorded on the consolidated balance sheet at December 31, 2015 is estimated to be the following: (in thousands) 2016 2017 2018 2019 2020 and thereafter Estimated intangible assets’ amortization expense €159,768 146,108 135,998 128,424 454,511 110 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Note 18 Goodwill The change in the carrying amount of goodwill as of December 31, 2015 and 2014 is as follows: (in thousands) GOODWILL AS OF JANUARY 1, Business combinations Exchange differences and other changes GOODWILL AS OF DECEMBER 31, Financial Statements Consolidated Financial Statements 4 Year ended December 31, 2015 2014* €1,563,269 €872,952 4,401 94,663 577,780 112,537 €1,662,333 €1,563,269 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €31.2 million (see Note 16 Business Combinations). The Company performed annual impairment tests in the fourth quarter of 2015 and 2014; no impairment of goodwill was identiﬁ ed as a result of these tests. For the purpose of the impairment test, the Company identiﬁ ed 12 cash-generating units (“CGUs”) or groups of CGUs as of December 31, 2015, 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 beneﬁ t from the synergies of the combination. 4 Goodwill allocated to each CGU or groups of CGUs is as follows: (in thousands) December 31, 2014* Acquisitions and other changes December 31, 2015 Exchange differences BIOVIA SIMULIA CATIA ENOVIA DELMIA GEOVIA QUINTIQ 3DEXCITE Other TOTAL €372,394 226,207 217,553 149,823 132,500 124,011 119,495 113,143 108,143 - - 4,401 - - - - - - €1,563,269 €4,401 €42,565 €414,959 21,724 8,469 15,087 12,341 (8,449) - - 2,926 €94,663 247,931 230,423 164,910 144,841 115,562 119,495 113,143 111,069 €1,662,333 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €31.2 million (see Note 16 Business Combinations). The recoverable amount of each CGU or groups of CGUs has been determined based on a value in use calculation. This calculation uses cash ﬂ ow projections based on ﬁ nancial budgets covering a ﬁ ve- to ten-year period. The ten-year period projections are used for activities that have longer development cycles, representing approximately 62% of the Group’s total goodwill as of December 31, 2015. 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 pre-tax discount rates are between 10.2% and 13.0%. Cash ﬂ ows beyond that ﬁ ve- to ten-year period have been extrapolated using a steady growth rate comprised between 2% and 3%, reﬂ ecting long-term growth rates in the software industry. At December 31, 2015, based on management estimates, the Company concluded that the value in use of each CGU or groups of CGUs exceeded its carrying value. Management believes that any reasonable possible change in key assumptions described above on which recoverable amount is based would not cause each CGU or groups of CGUs’ carrying amount to signiﬁ cantly exceed its recoverable amount. In particular, an increase of 150 basis points in the pre-tax discount rate or a decrease of 100 basis points in the long-term growth rates would not cause each CGU or groups of CGUs’ carrying amount to signiﬁ cantly exceed its recoverable amount, except GEOVIA for which an increase of 30 basis points in the pre-tax discount rate or a decrease of 40 basis points in the long-term growth rate would cause the recoverable amount to equal carrying amount. DASSAULT SYSTÈMES ANNUAL REPORT 2015 111 4 Financial Statements Consolidated Financial Statements Note 19 Other Liabilities Other liabilities are comprised of the following: (in thousands) Value added tax and other taxes Provisions, current (1) Borrowings, current (2) Derivatives, current (3) Other current liabilities (4) TOTAL OTHER CURRENT LIABILITIES Post-employment beneﬁ ts (5) Provisions, non-current (1) Accrual for deferred lease incentives Employee proﬁ t sharing, non-current Derivatives, non-current (3) Other non-current liabilities TOTAL OTHER NON-CURRENT LIABILITIES Year ended December 31, 2015 €75,377 7,555 - 1,129 7,464 2014 €62,880 12,408 9,984 298 18,737 €91,525 €116,838 €104,307 €114,915 77,610 46,256 27,467 13,843 15,998 75,325 46,090 25,774 12,163 21,343 €298,012 €295,610 (1) See reconciliation of provisions below. (2) See Note 20 Borrowings. (3) See Note 21 Derivatives and Currency and Interest Rate Risk Management. (4) 2014 figures have been restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €(4.3) million (see Note 16 Business Combinations). (5) See Note 22 Post-employment Benefits. The change in the carrying value of provisions as of December 31, 2015 is as follows: (in thousands) PROVISIONS AS OF JANUARY 1, 2015* Additions Utilization Reversal of unused amounts Exchange differences and oher PROVISIONS AS OF DECEMBER 31, 2015 Tax risks €60,107 20,631 (329) (19,653) 1,557 €62,313 Claims, litigation and other €15,478 2,849 (6,279) (1,078) 424 Restructuring Total provisions €12,148 6,680 (6,925) (1,072) 627 €87,733 30,160 (13,533) (21,803) 2,608 €85,165 €11,394 €11,458 * Restated to reflect the finalized purchase price allocation for prior year business combinations for a total amount of €(5.1) million (see Note 16 Business Combinations). 112 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Note 20 Borrowings In October 2015, the Company entered into a new ﬁ ve-year term loan facility agreement, which maturity can be extended by two additional years , for €650 million. The facility was immediately fully drawn down and bears interest at Euribor 1 month plus 0.50% per annum. In June 2013, the Company entered into a term loan facility agreement for €350 million, which was immediately fully drawn down. The facility provides credit for a period of 6 years and bears interest at Euribor 1 month plus 0.55% per annum. In April 2010, the Company entered into a term loan facility in Japan for JPY14,500 million (the equivalent of €115.0 million as of the draw date) in order to ﬁ nance a portion of the IBM PLM acquisition. The facility bore interest at Japanese yen Libor 1 month plus 0.60% per annum and was scheduled to be repaid in ten equal semi-annual installments. The Company repaid the last installment in June 2015. The table below provides a breakdown of total borrowings by contractual maturity date as of December 31, 2015: (in thousands) Term loan facilities in euros Payments due by period Total €1,000,000 Less than 1 year €– 1-3 years 3-5 years €– €1,000,000 4 Note 21 Derivatives and Currency and Interest Rate Risk Management The fair market values of derivative instruments were determined by ﬁ nancial institutions using option pricing models. All ﬁ nancial instruments related to the foreign currency hedging strategy of the Company have maturity dates of less than 3 years when the maturity of interest rate swap instruments is less than 5 years. Management believes counter-party risk on ﬁ nancial instruments is minimal since the Company deals with major banks and ﬁ nancial institutions. A description of market risks the Company is exposed to is provided in paragraph 1.6.2 “Financial and Market Risks”. Foreign currency risk The Company transacts in various foreign currencies, primarily U.S. dollars and Japanese yen. In 2015, revenue denominated in U.S. dollars represented 36.8% of total revenue, compared with 33.5% in 2014. The Company’s operating expenses denominated in U.S. dollars represented 36.3% of total operating expenses in 2015, compared with 33.7% in 2014. As a result, the Company’s net operating exposure to U.S. dollars amounted to €245.0 million in 2015 (8.6% of the Company’s total revenue). The average value of the U.S. dollar increased by 20% against the euro in 2015 following a ﬂ at year in 2014, resulting in a positive impact on the Company’s revenue and operating income in 2015, and a neutral impact in 2014. In 2015, revenue denominated in Japanese yen represented 11.8% of total revenue, ﬂ at compared with 2014. The Company’s operating expenses denominated in Japanese yen represented 4.3% of total operating expenses in 2015 and 4.6% in 2014. As a result, the Company’s net operating exposure to Japanese yen amounted to €239.2 million in 2015 (8.4% of the Company’s total revenue), and this exposure was in part hedged through market instruments at a level of €104.8 million, as further described below. The average value of the Japanese yen increased by approximately 4% against the euro in 2015, after a decrease in value of approximately 8% in 2014, resulting in a favourable impact on the Company’s revenue and operating income in 2015 and negative impact 2014. 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 speciﬁ c transactions, such as acquisitions paid for in foreign currencies. Hedging activities are generally carried out and managed by Dassault Systèmes SE 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. DASSAULT SYSTÈMES ANNUAL REPORT 2015 113 4 Financial Statements Consolidated Financial Statements The table below sets forth, for the year ended December 31, 2015, 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 Year ended December 31, 2015 U.S. dollars Japanese yen Euro and other currencies Total €1,045,931 €334,958 €1,458,566 €2,839,455 (800,892) €245,039 (95,757) (1,309,599) (2,206,248) €239,201 €148,967 €633,207 - 104,815 - 104,815 €245,039 €134,386 €148,967 €528,392 With all other variables held constant, movements in euro/ U.S. dollar exchange rates by +10% or -10% would have had an impact of €(22.3) and €27.2 million on operating income, respectively. In addition, with all other variables held constant, movements in euro/Japanese yen exchange rates by +10% or -10% would have had an impact of €(21.7) and €26.6 million on operating income, respectively. To manage currency exposure, the Company generally uses foreign exchange forward contracts. 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 2015 and 2014, the portion of gains or losses from hedging instruments excluded from the assessment of effectiveness and the ineffective portions of hedges was nil. At December 31, 2015 and 2014, the fair value of instruments used to manage the currency exposure was as follows: (in thousands) Forward exchange contract Japanese yen/euros – sale (1) Forward exchange contract euros/Indian rupees – sale (1) Forward exchange contract euros/ U.S. dollars – sale (1) Forward exchange contract U.S. dollars/Indian rupees – sale (1) Forward exchange contract Japanese yen/U.S. dollars – sale (1) Cross currency swaps Canadian dollars/euros (2) Cross currency swaps Australian dollars/euros (2) Other instruments (2) 2015 Nominal amount €133,832 27,189 36,741 20,467 - 61,683 71,735 51,906 Year ended December 31, 2014 Fair value €(792) 1,865 (666) 471 - 6,449 2,082 (40) Nominal amount €38,163 28,901 - 27,977 5,507 73,412 72,064 37,861 Fair value €2,438 2,320 - 472 946 1,863 1,548 (294) (1) Instruments entered into by the Company to hedge the foreign currency exchange risk of forecasted sales. (2) 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. These instruments mainly relate to the acquisition of Gemcom. Interest rate risk Except for their impact on the general economic environment, which is difﬁ cult to quantify, the Company believes that changes in interest rates in 2015 did not materially affect its revenue and earnings before ﬁ nancial 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 ﬁ nancial revenue. In October 2015, the Company entered into interest rate swap agreements for a total amount of €650 million that have the economic effect of modifying forecasted interest obligations relating to the €650 million new French term loan facility (see Note 20 Borrowings) so that the interest payable effectively becomes ﬁ xed at 0.72% from October 2015 until October 2020. In July 2013 and October 2014, the Company entered into interest rate swap agreements for a total amount of €350 million that have the economic effect of modifying forecasted interest obligations relating to the €350 million French term loan facility (see Note 20 Borrowings) so that the interest payable effectively becomes ﬁ xed at 1.48% from June 2014 until June 2018 and 1.04% from June 2018 until July 2019. In June 2010, the Company entered into interest rate swap agreements for a total amount of JPY14,500 million that had the economic effect of modifying forecasted interest 114 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 obligations relating to the term loan facility in Japan (see Note 20 Borrowings) so that the interest payable effectively became ﬁ xed at 0.41% until June 2015. In June 2015, the Company made the last term loan facility repayment and the related interest rate swap instruments also matured. The effectiveness of interest rate swap agreements is measured using forward interest rates. In 2015 and 2014, the portion of gains or losses from hedging instruments excluded from the assessment of effectiveness and the ineffective portions of hedges was nil. Financial revenue, which is composed of interest income from cash, cash equivalents and short-term investments, is sensitive to ﬂ uctuations in interest rates. As of December 31, 2015, cash and cash equivalents and short-term investments totaled €2,351.3 million, including €713.0 million sensitive to ﬂ uctuations 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 2015 of €7.5 million on ﬁ nancial income and a decrease in interest rates of 100 basis points would have had a negative impact of €8.7 million. At December 31, 2015 and 2014, the fair value of instruments used to manage the interest rate risk was as follows: (in thousands) Interest rate swaps in euros Interest rate swaps in Japanese yen Note 22 Post-employment Beneﬁ ts Year ended December 31, 2015 Nominal amount Fair value 2014 Nominal amount Fair value 4 €1,000,000 €(13,426) €350,000 €(12,145) - - 9,984 (15) Contributions made to deﬁ ned contribution plans were €21.5 million and €16.2 million in 2015 and 2014 respectively. Retirement indemnity beneﬁ ts vest and are settled as a lump sum paid to the employee upon the employee’s retirement. The Company provides deﬁ ned beneﬁ t retirement indemnities to the employees of its French operations, and sponsors deﬁ ned beneﬁ t pension plans for certain employees in the United States. The Company also has certain deﬁ ned beneﬁ t plans in other countries, mainly in Germany and in Japan. In France, deﬁ ned employee beneﬁ ts include certain gratiﬁ cations paid upon anniversary of employment and retirement indemnities that are based upon an individual’s years of credited service and annualized salary at retirement. In the United States, pension beneﬁ ts are based upon years of credited service and the employee’s average ﬁ nal salary. Retirement beneﬁ ts are funded by the Company’s contributions to segregated pension plan assets, in an amount that is sufﬁ cient 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 deﬁ ned-beneﬁ t pension plan, and in 2015, certain American participants received a lump sum distribution of their beneﬁ t from the plan. The projected beneﬁ t obligation was determined using the prospective method, based on the following assumptions: Assumptions Assumptions used to determine the beneﬁ t obligation: Discount rate Europe 2.10% Average rate of compensation increase 2.50% – 2.80% Americas 4.40% N/A Asia 0.90% 2.60% Europe 2.10% 2.50% – 2.80% Americas 4.05% N/A Asia 0.80% 2.60% Year ended December 31, 2015 Year ended December 31, 2014 Assumptions used to determine the net periodic beneﬁ t cost: Discount rate Europe 2.10% Average rate of compensation increase 2.50% – 2.80% Americas 4.05% N/A Asia 0.80% 2.60% Europe 3.50% 2.50% – 3.00% Americas 4.90% N/A Asia 1.20% 2.60% Year ended December 31, 2015 Year ended December 31, 2014 DASSAULT SYSTÈMES ANNUAL REPORT 2015 115 4 Financial Statements Consolidated Financial Statements Components of net periodic benefit cost The components of net periodic beneﬁ t cost were as follows: (in thousands) Current service cost Interest cost on beneﬁ t obligations Interest income on plan assets Other NET PERIODIC BENEFIT COST Obligations and funded status Changes in beneﬁ t obligations and plan assets as of December 31, 2015 and 2014 are as follows: (in thousands) Beneﬁ t obligations at beginning of year Current service cost Interest cost on beneﬁ t obligations Remeasurement (gains) losses* Change in scope Beneﬁ ts paid Settlement Exchange rate differences and other changes BENEFIT OBLIGATIONS AT END OF YEAR Fair value of plan assets at beginning of year Employer contribution Interest income on plan assets Beneﬁ ts paid Remeasurement (losses) Settlement Exchange rate differences and other changes FAIR VALUE OF PLAN ASSETS AT END OF YEAR NET DEFINED BENEFIT LIABILITY Year ended December 31, 2015 €(7,961) (4,942) 2,326 698 2014 €(6,405) (5,185) 2,626 (549) €(9,879) €(9,513) Year ended December 31, 2015 2014 €185,245 €139,304 7,961 4,942 (3,845) - (3,578) (6,557) 6,815 6,405 5,185 30,558 1,042 (3,026) - 5,777 €190,983 €185,245 €70,330 €62,262 7,109 2,326 (1,415) (2,461) (5,990) 4,246 €74,145 3,154 2,626 (1,245) (841) - 4,374 €70,330 €(116,838) €(114,915) * Remeasurement gains and losses mainly arise from changes in financial assumptions. A decrease of 150 basis points in the discount rates would increase the obligation by €50.6 million. The beneﬁ t obligation by geographical location is as follows: Europe Americas Asia TOTAL BENEFIT OBLIGATIONS The fair value of plan assets by geographical location is as follows: Europe Americas TOTAL FAIR VALUE OF PLAN ASSETS 116 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Year ended December 31, 2015 67% 23% 10% 100% 2014 66% 26% 8% 100% Year ended December 31, 2015 49% 51% 100% 2014 47% 53% 100% Plan assets The weighted average asset allocations are as follows: Debt instruments Equity instruments TOTAL Financial Statements Consolidated Financial Statements 4 Year ended December 31, 2015 73% 27% 100% 2014 76% 24% 100% Cash flows The Company does not expect to make any additional contributions to its pension plans in 2016. The following beneﬁ t payments, which reﬂ ect expected future service, as appropriate, are expected to be paid: (in thousands) 2016 2017 2018 2019 2020 2021-2025 4 Total €(3,781) (4,522) (5,167) (6,526) (6,827) (55,247) Note 23 Shareholders’ Equity Shareholders’ equity activity As of December 31, 2015, Dassault Systèmes SE had 256,714,186 common shares issued with a nominal value of €0.50 per share. The General Meeting of Shareholders of May 26, 2014 decided to split the par value of the Dassault Systèmes share in two. Consequently, the Board of Directors meeting held on the same day decided to deﬁ ne July 17, 2014 as the effective date of this split. Thus, for all former shares of €1 of nominal value held as of July 17, 2014, shareholders received two new shares of par value €0.50 each. Changes in shares outstanding as of December 31, 2015 and 2014 are as follows: (in number of shares) SHARES ISSUED AS OF JANUARY 1, Dividend paid in shares Exercise of stock options Cancellation of treasury stock SHARES ISSUED AS OF DECEMBER 31, Treasury stock as of December 31, SHARES OUTSTANDING AS OF DECEMBER 31, Year ended December 31, 2015 2014 256,364,077 253,865,970 185,709 1,604,620 1,769,020 2,375,837 (1,604,620) (1,482,350) 256,714,186 256,364,077 (2,863,505) (4,770,624) 253,850,681 251,593,453 DASSAULT SYSTÈMES ANNUAL REPORT 2015 117 4 Financial Statements Consolidated Financial Statements 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 proﬁ tability 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, 2015 and 2014. Dividend rights Dassault Systèmes SE 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 €12.8 and €12.7 million as of December 31, 2015 and 2014, respectively, and represents a component of retained earnings in the consolidated balance sheet. The legal reserve is distributable only upon the liquidation of Dassault Systèmes SE. Distributable proﬁ t, 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 proﬁ t is subject to approval by the General Meeting of Shareholders following recommendations by the Board of Directors. In 2015 and 2014, the Shareholders’ Meeting approved the distribution of a dividend of €108.5 and €103.4 million for 2014 and 2013 respectively, and offered shareholders the Components of other comprehensive income option to receive payment of their dividend in the form of new Dassault Systèmes shares. Shareholders who opted to receive payment of the 2014 and 2013 dividend in the form of new Dassault Systèmes SE shares represented approximately 12% and 68% of Dassault Systèmes’ shares, respectively, resulting in the issuance of 185,709 and 802,310 (1,604,620 after the two-for-one stock split) new ordinary shares in 2015 and 2014, respectively. The cash dividend was paid in 2015 and 2014 in an aggregate amount of €95.6 million and €32.3 million, respectively. Dividends per share were €0.43 and €0.42 (after the two-for- one stock split) as of December 31, 2014 and December 31, 2013, respectively. A dividend of €2.8 and €3.5 million was paid to non-controlling interest in 2015 and 2014 respectively. Stock repurchase programs The General Meeting of Shareholders authorized the Board of Directors 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 €90 per share or above a maximum annual aggregate amount of €500 million. Furthermore, the Group signed a liquidity agreement for an initial period until December 31, 2015, automatically renewable for subsequent 12-month terms. On December 31, 2015, 2,625,732 shares were purchased, at an average price of €64.95, and 2,574,744 shares were sold, at an average price of €65.42. (in thousands) Cash flow hedges: (Losses) arising during the year Less: reclassiﬁ cation adjustments for gains or losses included in the income statement Year ended December 31, 2015 2014 €(5,655) 1,482 €(2,290) (782) €(7,137) €(1,508) 118 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 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 Deferred taxes Other ADJUSTMENTS FOR NON-CASH ITEMS Changes in operating assets and liabilities consist of the following: (in thousands) (Increase) in trade accounts receivable (Decrease) Increase in accounts payable Increase in accrued compensation (Decrease) in income tax payable Increase in unearned revenue Changes in other assets and liabilities CHANGES IN OPERATING ASSETS AND LIABILITIES Financial Statements Consolidated Financial Statements 4 Notes 14 17 7 10 Year ended December 31, 2015 €42,390 169,003 40,194 (42,461) (5,596) 2014 €37,010 139,332 29,950 (39,887) 21,343 €203,530 €187,748 Year ended December 31, 2015 2014 €(71,581) €(56,170) (16,905) 27,260 (52) 85,475 (417) 23,543 418 (50,567) 86,712 15,319 €23,780 €19,255 4 Note 25 Commitments and Contingencies Leases The Company leases computer equipment, premises and ofﬁ ce equipment under operating leases. Rent expense under operating leases was €74.9 million for the year ended December 31, 2015 and €61.9 million for the year ended December 31, 2014. At December 31, 2015, future minimum annual rental commitments under non-cancelable lease obligations were as follows: (in thousands) 2016 2017 2018 2019 2020 2021 and thereafter TOTAL FUTURE MINIMUM LEASE PAYMENTS Operating leases €77,353 70,045 65,645 58,219 53,112 220,489 €544,863 3DS Paris Campus (Headquarters facilities in Vélizy- Villacoublay) The Company has leased approximately 60,000 square meters of ofﬁ ce space for its headquarters facilities located in Vélizy-Villacoublay, outside Paris, France since June 30, 2008. In February 2013, the Company entered into a new lease agreement for its headquarters facilities for a non-cancelable initial term of 10 years beginning with the delivery of an additional 13,000 square meters of ofﬁ ce space expected by year end 2016. Future minimum rental payments until the end of the lease amount to approximately €253.2 million in the aggregate and have been included in the table presented above. DASSAULT SYSTÈMES ANNUAL REPORT 2015 119 4 Financial Statements Consolidated Financial Statements 3DS Boston Campus The Company has leased approximately 25,000 square meters of ofﬁ ce space for its campus located in United States since June 1, 2011, regrouping the primary operating facilities of the Company’s main American activities. The total rented space will progressively increase, reaching 30,000 square meters in 2017. Future minimum rental payments amount to approximately €105.2 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. The Company is subject to ongoing tax audits and tax reassessments in jurisdictions in which the Company has or had operations. Certain of these reassessments, in particular those related to acquisition ﬁ nancing, are being challenged by the Company which is strongly conﬁ dent in the technical merits of its positions and will continue to defend them with the relevant tax authorities. In this context, the Company made payments to the French tax authorities for €57.7 million and €22.2 million in 2015 and 2014 respectively, but disputed them with the relevant authorities. It is not possible to determine with certainty the outcome of the dispute in these matters. However, in the opinion of management, after consultation with legal and tax counsel, the resolution of such litigation and proceedings should not have a material effect on the consolidated ﬁ nancial statements of the Company. Note 26 Related-Party Transactions Compensation of key management personnel The table below summarizes compensation granted to the members of the Group Executive Committee and to the Chairman of the Board of Directors as of December 31, 2015 and 2014: (in thousands) Short-term beneﬁ ts (1) Share-based compensation (2) COMPENSATION OF KEY MANAGEMENT PERSONNEL (1) Including gross salaries, bonus, incentives, profit-sharing, directors’ fees and fringe benefits. (2) Expense recorded in the income statement for share-based payments (stock options and performance shares). Year ended December 31, 2015 €9,368 15,052 2014 €8,311 12,442 €24,420 €20,753 In certain circumstances, the Group Chief Executive Ofﬁ cer is entitled to an indemnity payment upon the termination of his functions as Chief Executive Ofﬁ cer. The amount of the indemnity due would be equivalent to a maximum of two years of compensation as Chief Executive Ofﬁ cer 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 Systèmes SE is also the Chief Executive Ofﬁ cer of the Industrial Group Marcel Dassault which controls Dassault Aviation. 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 €16.8 and €14.1 million of software revenue for the years ended December 31, 2015 and 2014, respectively. The Company also provides service and support to Dassault Aviation. Such activity generated service revenues of €6.8 and €8.0 million in the years ended December 31, 2015 and 2014, respectively. The balances of trade accounts receivable with Dassault Aviation were €7.1 million, and €8.0 million at December 31, 2015 and 2014, respectively. 120 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 Note 27 Principal Dassault Systèmes Companies The principal Dassault Systèmes SE subsidiaries included in the scope of consolidation as at December 31, 2015 are as follows: Country France Germany Germany Consolidated companies Dassault Data Services SAS Dassault Systemes Deutschland GmbH Dassault Systemes 3DExcite GmbH Netherlands Quintiq Applications B.V. Italy Sweden United Kingdom United Kingdom Canada Canada United States United States United States United States United States United States United States United States United States China India India Dassault Systemes Italia Srl Dassault Systemes AB Dassault Systemes UK Limited Dassault Systemes Biovia Limited Dassault Systèmes Canada Inc. Dassault Systemes Canada Software Inc. Dassault Systemes Americas Corp. Dassault Systemes Corp. Dassault Systemes Simulia Corp. Dassault Systemes Services, LLC Dassault Systemes SolidWorks Corporation Dassault Systemes 3DExcite Corp. (formerly “RTT USA, Inc.”) Dassault Systemes Biovia Corp. Quintiq, Inc. Spatial Corp. Dassault Systèmes (Shanghai) Information Technology Co., Ltd 3D PLM Software Solutions Limited Dassault Systemes India Private Limited South Korea Dassault Systemes Korea Corp. Japan Japan Australia Malaysia Dassault Systemes K.K. SolidWorks Japan K.K. Dassault Systemes Geovia Australia Pty Ltd Quintiq Sdn Bhd * The Company determined that it has control over 3DPLM. As a result, 3DPLM is fully consolidated in the Company’s consolidated financial statements. 4 % 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% 100% 100% DASSAULT SYSTÈMES ANNUAL REPORT 2015 121 4 Financial Statements Consolidated Financial Statements 4.1.2 Statutory Auditors' Report 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 readers . The Statutory Auditors’ report includes information speciﬁ cally required by French law in such reports, whether modiﬁ ed or not. This information is presented below the opinion on the consolidated ﬁ nancial statements and includes an explanatory paragraph discussing the Auditors’ assessments of certain signiﬁ cant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated ﬁ nancial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated ﬁ nancial statements. 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 of Shareholders, we hereby report to you, for the year ended December 31, 2015, on: (cid:125) the audit of the accompanying consolidated ﬁ nancial statements of Dassault Systèmes; (cid:125) the justiﬁ cation of our assessments; (cid:125) the speciﬁ c veriﬁ cation required by law. These consolidated ﬁ nancial statements have been approved by the Board of Directors. Our role is to express an opinion on these consolidated ﬁ nancial statements based on our audit. I. Opinion on the consolidated ﬁ nancial statements We conducted our audit in accordance with professional standards applicable in France. T hose standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated ﬁ nancial statements give a true and fair view of the assets and liabilities and of the ﬁ nancial position of the Group as at December 31, 2015 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. Justiﬁ cation of our assessments In accordance with the requirements of A rticle L. 823-9 of the French Commercial Code (Code de commerce) relating to the justiﬁ cation of our assessments, we bring to your attention the following matters: (cid:125) the paragraph “Revenue recognition” of the Note 2 to the consolidated ﬁ nancial statements sets out the accounting principles and methods used to account for revenue including ﬁ rstly new software licenses along with related maintenance, and secondly services and other revenue; (cid:125) the paragraph “Business combinations and goodwill” of the Note 2 to the consolidated ﬁ nancial 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 signiﬁ cant assumptions and estimates made by management; (cid:125) the paragraph “Share-based payment” of the Note 2 to the consolidated ﬁ nancial statements sets out the accounting principles and methods used to determine the fair value of the share-based payment awards granted to the certain employees and executives, which is based on signiﬁ cant assumptions and estimates made by management. As part of our work, we veriﬁ ed the correct application of the above-mentioned accounting principles and methods, examined the assumptions used and their application, and veriﬁ ed that the information provided in the Notes 4, 7, 16, and 18 was appropriate. These assessments were made as part of our audit of the consolidated ﬁ nancial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the ﬁ rst part of this report. 122 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Consolidated Financial Statements 4 III. Speciﬁ c veriﬁ cation As required by law, and in accordance with professional standards applicable in France, we have also veriﬁ ed 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 ﬁ nancial statements. Neuilly-sur-Seine and Paris-La Défense, on March 18 , 2016 The Statutory Auditors PricewaterhouseCoopers Audit French original signed by: Pierre Marty ERNST & YOUNG et A utres French original signed by: Pierre-Antoine Duffaud 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 123 4 Financial Statements Parent Company Financial Statements 4.2 Parent Company Financial Statements 4.2.1 Parent Company Financial Statements and Notes The 2015 ﬁ nancial statements presented below are the individual parent company ﬁ nancial statements of Dassault Systèmes SE. Presentation of the parent company ﬁ nancial statements and the valuation methods used The ﬁ nancial statements for the year ended December 31, 2015 have been prepared in accordance with the 2014 French General Chart of Accounts (Plan comptable général), 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 Systèmes SE In 2015, operating revenue increased 12.7% to €1,281.4 million from €1,137.2 million in 2014. The portion of revenue earned from export sales amounted to €1,064.7 million, or 84.4% of net sales. Software revenue increased 13.1% to €1,002.6 million in 2015 from €886.4 million in 2014. Operating expenses increased 10.3% to €971.8 million in 2015, from €880.6 million in 2014. The main drivers of this change were: (cid:125) a 12.1% increase in personnel costs resulting from the increase in headcount, linked to the transfer of employees principally from Archividéo SA and Sobios SAS as part of the merger operations (transmissions universelles de patrimoine or TUP), from the full year impact of the 2014 TUP and from salary increases and hiring; (cid:125) a 9.3% increase in other purchases and external expenses, mainly due to an increase in fees relating to the Group anti piracy program, and in expenses relating to IT services principally for on-line service activities; (cid:125) a 15.2% decrease in depreciation and reserves, mainly resulting from a lower risk of non-collectability in Europe; (cid:125) a 15.2% growth in other expenses, principally due to an increase in royalties owed on Group products that are distributed. Operating income increased 20.7% to €309.6 million in 2015 compared to €256.6 million in 2014. Financial income for 2015 amounted to €74.9 million, compared with €30.2 million for the preceding year, showing an increase of €44.7 million. This change was principally due to additional dividends received from subsidiaries in 2015. Exceptional income and loss amounted to an income of €33.4 million in 2015 compared to a loss of €22.8 million in 2014. This is principally explained by a capital gain of €43.2 million on a sale of a shareholding. In 2015, income tax expense amounted to €76.1 million as compared to €45.2 million in 2014. The effective income tax rate increased slightly to 20.3% in 2015 compared to 19.8% in 2014. Net income increased to €299.5 million in 2015 compared with €183.0 million in 2014. At December 31, 2015, cash and short-term investments stood at €2,035.2 million, compared with €954.9 million at December 31, 2014. This increase was principally due to the new €650 million loan facility, and to the cash generated from the Group’s operations in the absence of signiﬁ cant acquisition. 124 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Statement of income (in thousands of euros) OPERATING REVENUE Revenue Of which exports Other revenue OPERATING EXPENSE Other purchases and external expenses Taxes, duties and similar payments Personnel Costs Depreciation, amortization and provisions Other operating expense OPERATING INCOME FINANCIAL INCOME AND EXPENSE, NET CURRENT INCOME EXCEPTIONAL INCOME/(LOSS) REGULATED AND OPTIONAL EMPLOYEE PROFIT-SHARING Contractual employee proﬁ t-sharing (intéressement) Mandatory employee proﬁ t-sharing INCOME TAX EXPENSE NET INCOME Financial Statements Parent Company Financial Statements 4 Year ended December 31, Notes 2015 2014 1,281,356 1,137,227 3 1,260,846 1,125,687 1,064,663 20,510 942,156 11,540 (971,754) (880,631) (387,266) (354,382) (21,874) (20,095) 4 (340,468) (303,616) (31,219) (36,812) (190,927) (165,726) 5 6 7 309,602 74,880 384,482 33,446 (42,323) (21,160) (21,163) (76,133) 299,472 256,596 30,167 286,763 (22,752) (35,842) (17,921) (17,921) (45,164) 183,005 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 125 4 Financial Statements Parent Company Financial Statements Balance sheet (in thousands of euros) Assets NON-CURRENT ASSETS Intangible Assets Property and Equipment Non-current Financial Assets CURRENT ASSETS Receivables Marketable Securities Treasury Shares Cash and cash equivalents PREPAID EXPENSES FOREIGN CURRENCY TRANSLATION ADJUSTMENT TOTAL ASSETS (in thousands of euros) Liabilities SHAREHOLDERS’ EQUITY Capital Share and contribution premiums Legal reserve Retained earnings Income (loss) for the ﬁ scal year Regulated provisions PROVISIONS FOR CONTINGENCIES AND LOSSES FINANCIAL LIABILITIES TRADE PAYABLES UNEARNED REVENUE FOREIGN CURRENCY TRANSLATION ADJUSTMENT TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 126 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Year ended December 31, Notes 2015 Net 2014 Net 10 11 12 13 14 14 2,412,937 2,552,145 317,845 35,794 312,474 37,612 2,059,298 2,202,059 2,602,789 1,356,173 460,799 2,029,351 106,822 5,817 23,095 25,633 291,924 947,409 109,382 7,458 19,975 20,430 5,064,454 3,948,723 Year ended December 31, Notes 2015 2014 15 2,954,719 2,802,674 128,357 726,039 12,818 128,182 755,799 12,693 1,784,847 1,710,502 299,472 183,005 16 17 19 20 3,186 80,898 1,027,661 955,437 42,874 2,865 12,493 78,119 376,962 648,450 40,418 2,100 5,064,454 3,948,723 Financial Statements Parent Company Financial Statements 4 Notes to the Annual Financial Statements for Years Ended December 31, 2015 and 2014 CONTENTS Note 1 Description of Business and Key Events of the Year Note 2 Summary of Signiﬁ cant Accounting Policies Note 3 Revenue Breakdown Note 4 Personnel Costs Note 5 Financial Income and Expense, Net Note 6 Exceptional Income/Loss Note 7 Income Tax Note 8 Performance Shares Note 9 Additional Information Note 10 Intangible Assets Note 11 Property and Equipment Note 12 Non-Current Financial Assets Note 13 Receivables 128 128 131 131 132 133 133 134 134 135 135 136 136 Note 14 Treasury Note 15 Shareholders’ Equity Note 16 Provisions for Contingencies and Losses Note 17 Financial Liabilities Note 18 Elements Concerning Related Companies Note 19 Trade Payables Note 20 Unearned Revenue Note 21 Financial Commitments Note 22 Other Commitments and Contingencies Note 23 Additional Information Note 24 Information Relating to Subsidiaries and Shareholdings 137 137 139 140 140 141 141 142 143 143 144 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 127 4 Financial Statements Parent Company Financial Statements Note 1 Description of Business and Key Events of the Year Description of business Dassault Systèmes SE provides end-to-end software solutions and services, designed to support companies’ innovation processes, from speciﬁ cation and design of a new product, to its manufacturing, supply and sale to the customer, through all stages of digital mock-up, simulation, and realistic 3D virtual experiences representing user experience. Dassault Systèmes SE also operates as both a holding company and a provider of services for the Dassault Systèmes Group. The Company’s global customer base includes companies 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 and Business Services; and Natural Resources. To serve its customers, Dassault Systèmes SE has developed a broad software applications portfolio, comprised of 3D modeling applications, simulation applications, social and collaborative applications, and information intelligence applications, all powered by its 3DEXPERIENCE platform. Dassault Systèmes SE is a European company (Societas Europaea) incorporated under the laws of France. The Company’s registered ofﬁ ce is located at 10, rue Marcel Dassault, in Vélizy- Villacoublay, France. The Dassault Systèmes SE shares are listed in France on Euronext Paris. These ﬁ nancial statements were established under the responsibility of the Board of Directors on March 17, 2016. Key Events of the Year As part of its program to simplify the organization of its legal entities throughout the world, Dassault Systèmes SE carried out three merger operations (transmissions universelles de patrimoine) during the year: (cid:125) January 1, 2015, Archividéo SA and Simpoe SAS; (cid:125) April 1, 2015, Sobios SAS. Since June 15, 2015, Dassault Systèmes has been a European company (Societas Europaea, SE) incorporated under French law. The decision to adopt this new status reﬂ ects the international dimension of the Group and its growing presence in Europe. In October 2015, Dassault Systèmes SE entered into a new ﬁ ve year term loan facility agreement, which maturity can be extended by two additional years , for €650 million. The facility was immediately drawn down and bears interest at Euribor 1-month plus 0.50% per annum (see Note 17 Financial Liabilities). The Company has entered into interest rate swap agreements to ﬁ x interest payable (see Note 21 Financial Commitments). Note 2 Summary of Signiﬁ cant Accounting Policies The ﬁ nancial year lasts for 12 months from January 1 through December 31. The annual ﬁ nancial statements for the ﬁ scal year ended December 31, 2015 have been prepared and are presented in accordance with the French General Chart of Accounts 2014. 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 ﬁ nancial years, and the assumption that the business is a going concern. Assets and liabilities are initially recorded at historical cost. Signiﬁ cant accounting polices applied are as follows: Revenue (1) new software Dassault Systèmes SE derives revenue from three primary licenses, sources: maintenance and other software revenue, which includes software the development of additional functionalities of standard products technical support and licenses, periodic license updates, requested by clients; (2) consulting and training services and other revenue; and (3) royalties from distribution agreements signed primarily with the Group’s subsidiaries. Revenues are disclosed net of taxes collected from customers and remitted to governmental authorities. New Software Licenses, Periodic Licenses, Maintenance and Other Software 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 Dassault Systèmes SE 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 beneﬁ ts associated with the transaction will ﬂ ow to the Company. In instances when any of the four criteria are not met, Dassault Systèmes SE defers recognition of software license revenue until all criteria are met. Revenue 128 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 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 unspeciﬁ ed 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. Other software revenue mainly 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, maintenance and other software revenue are reported within software revenue; see Note 3 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. Services and Other Revenue – Services and other revenue consists primarily of fees from consulting services in methodology for design, deployment and support, and The useful life of property and equipment is presented below: training services. Services generally do not require signiﬁ cant modiﬁ cation 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 ﬁ xed 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. Research and development Research costs are expensed as incurred. T echnological feasibility is not demonstrated before a working prototype has been completed. Technological feasibility is generally demonstrated shortly before the commercial release of software products. As a consequence, costs incurred after technological feasibility is established and that could potentially be capitalized are not material. Intangible assets, property and equipment Intangible assets, property and equipment are recognized at cost, including ancillary expenses, when they are purchased, at their production cost when they are produced internally, and at their integration value when they are transferred. resulting Technical deﬁ cits from merger operations (transmissions universelles de patrimoine) are recorded as goodwill. Technical deﬁ cits are considered as not depreciable items. However, these items undergo impairment testing when there is an evidence of risk and can be depreciated. Intangible assets are amortized using the straight-line method over their expected useful life (three to ﬁ ve years for software and ﬁ ve to ten years for intellectual property). 4 Computer equipment Fixtures and ﬁ ttings Ofﬁ ce furniture Transportation equipment Depreciation period 3 to 5 years Over the term of the lease 10 years old 4 years Depreciation, whether calculated using the straight-line or declining balance method, is calculated over the useful life of the asset. DASSAULT SYSTÈMES ANNUAL REPORT 2015 129 4 Financial Statements Parent Company Financial Statements Non-current Financial Assets Provisions for Contingencies and losses Investments in subsidiaries are recognized at cost without revaluation of the transaction currencies. Expenses directly related to the acquisition of equity securities are included in the acquisition cost of these securities. Loans and advances to subsidiaries are valued at their net realizable value. Provisions for contingencies and losses are recognized as liabilities to cover probable outﬂ ows of resources resulting from a present obligation. These provisions are estimated taking in account the most probable hypothesis at the closing date. Periodically and at a minimum at the annual closing period, Dassault Systèmes SE 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 proﬁ tability and strategic factors. An impairment loss is recognized if the net realizable value is less than the carrying value for a long period of time. Marketable Securities Marketable securities are initially recorded at cost and are depreciated, when applicable, by referring to their quoted price in an active market at year end. Receivables and payables Trade receivables are reported at their net receivable value and trade payables are reported at their nominal value. For trade receivables, an allowance is recorded when the net realizable value is lower than the carrying value taking into account, in particular, aging and risk of non-collectability. Foreign currency transactions Transactions in foreign currencies are recorded in euros in the income statement at the monthly average exchange rate. Receivables, payables and cash in foreign currencies are converted to 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 current accounts used for the Group cash pooling and the cash and cash equivalents (except for marketable securities) are reevaluated at the closing rate and generate exchange gains or income losses recorded (expense), net. This impact is shown in foreign exchange gains or losses, net. in ﬁ nancial Derivatives Dassault Systèmes SE can manage exposure to foreign currency and interest rates with regards to revenue and cost generated by its ongoing and predictable activity. Dassault Systèmes SE can also mitigate a given foreign currency exposure linked to speciﬁ c operations, such as an acquisition in foreign currency. In order to mitigate foreign currency exposure, Dassault Systèmes SE uses, as needed, only foreign exchange contracts or ﬁ nancial instruments for which total maximum losses are known from the outset. Interest rate derivatives: Financial income and expense resulting from the use of derivatives are 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 accounted for as follows: (cid:125) net unrealized losses are fully reserved; (cid:125) net gains are recognized in the income statement upon settlement. Exchange rate derivatives: Exchange rate derivatives are included in Dassault Systèmes SE’s currency position. Unrealized losses on these derivatives are taken into account in determining the provision for unrealized exchange losses. Tax credit in favor of competitiveness and employment (CICE) Dassault Systèmes SE recognizes the tax credit in favor of competitiveness and employment (the Crédit d’impôt pour la compétitivité et l’emploi, or CICE) as an offset to personnel costs. 130 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Notes on the Income Statement Note 3 Revenue Breakdown (in thousands of euros) New licenses revenue Periodic licenses and maintenance revenue Royalties TOTAL SOFTWARE REVENUE Services Other revenue TOTAL REVENUE The breakdown of software revenue by geographic area is as follows: (in thousands of euros) Europe Asia Americas TOTAL SOFTWARE REVENUE Note 4 Personnel Costs Personnel costs are comprised of the following: (in thousands of euros) Salaries and wages Social security costs TOTAL PERSONNEL COSTS Average Headcount by Category Salaried employees by category Managers Supervisors and technicians Employees TOTAL AVERAGE HEADCOUNT (IN FULL TIME EQUIVALENTS) Financial Statements Parent Company Financial Statements 4 4 12/31/2015 12/31/2014 100,889 307,068 594,639 1,002,596 22,399 235,851 92,639 286,229 507,501 886,369 23,106 216,212 1,260,846 1,125,687 12/31/2015 12/31/2014 559,778 271,388 171,430 1,002,596 531,520 228,404 126,445 886,369 12/31/2015 12/31/2014 229,016 111,452 340,468 203,667 99,949 303,616 12/31/2015 12/31/2014 2,716 107 202 3,025 2,478 94 176 2,748 The merger operations (transmissions universelles de patrimoine) carried out in 2015 increased the headcount of Dassault Systèmes SE by 37 employees. DASSAULT SYSTÈMES ANNUAL REPORT 2015 131 4 Financial Statements Parent Company Financial Statements Tax credit in favor of competitiveness and employment (CICE) The tax credit in favor of competitiveness and employment (the Crédit d’impôt pour la compétitivité et l’emploi, or CICE) is based on total compensation due for the current period. In 2015, an amount of €1.7 million of CICE was recognized (compared to €1.6 million in 2014), and was allocated to funding working capital requirements. Compensation of Executives The total gross compensation paid to executive ofﬁ cers by Dassault Systèmes SE during 2015 was as follows: (in thousands of euros) Salaries Beneﬁ ts Directors’ fees* TOTAL COMPENSATION OF EXECUTIVES * Compensation is based on payments made. 2015 directors’ fees represent €71,000 paid in 2016. 12/31/2015 12/31/2014 4,308 3,909 21 69 21 57 4,398 3,987 Note 5 Financial Income and Expense, Net Net ﬁ nancial income and expense is as follows: (in thousands of euros) Interest income Interest expense INTEREST INCOME AND EXPENSE, NET REVENUE FROM DISPOSALS OF INVESTMENT SECURITIES NET FOREIGN EXCHANGE INCOME (EXPENSE), NET PROVISIONS FOR IMPAIRMENT FINANCIAL INCOME AND EXPENSE, NET 12/31/2015 12/31/2014 63,105 (8,457) 54,648 16,821 3,411 74,880 30,415 (6,444) 23,971 19,972 (13,776) 30,167 Interest income is comprised primarily of dividends paid by Group subsidiaries for an amount of €48.9 million in 2015 compared to €19.3 million in 2014 as well as from income from treasury investments. 132 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 Note 6 Exceptional Income/Loss Exceptional income for the year ended December 31, 2015 was €33.4 million compared to a loss of €22.8 million for the year ended December 31, 2014. The change was primarily due to the recognition of a net capital gain on the sale of previously held investments. Note 7 Income Tax The tax group included 11 entities at the end of December 2015. Under the tax integration agreement, it is agreed that the income tax expense of tax-integrated companies will be the same as it would have been if each subsidiary had not been a member of the Group. Without the tax integration agreements, the income tax expense of Dassault Systèmes SE, the head of the tax group, would have been €80.6 million in 2015. The breakdown of income tax between current income and exceptional income for the year ended December 31, 2015, was as follows: 4 (in thousands of euros) Current income Exceptional income TOTAL Income before tax Tax (expense) credit Income after income tax 384,482 (8,877) 375,605 (93,954) 17,821 (76,133) 290,528 8,944 299,472 The effective income tax rate for the year ended December 31, 2015 was 20.3% against 19.8% in 2014. DASSAULT SYSTÈMES ANNUAL REPORT 2015 133 4 Financial Statements Parent Company Financial Statements Note 8 Performance Shares Pursuant to an authorization granted by the Extraordinary General Meeting held on September 4, 2015, the Board of Directors of Dassault Systèmes SE, meeting on the same day, decided to grant 734,600 performance shares to certain employees and executives and 300,000 shares to the Chief Executive Ofﬁ cer in respect of the gradual process of associating the Chief Executive Ofﬁ cer with the Company share capital. The main characteristics of the performance share plans impacting 2014 and 2015 accounts are shown in the table below: Plan 2010-02 2010-04 2010-05 2014-A 2014-B 2015-A 2015-B Date of General Meeting 05/27/2010 05/27/2010 05/27/2010 05/30/2013 05/30/2013 09/04/2015 09/04/2015 Date granted by the Board of Directors Total number of shares granted Restated total number of shares granted(1) Vesting period (in years)(3) 09/29/2011 09/07/2012 09/07/2012 02/21/2014 02/21/2014 09/04/2015 09/04/2015 406,400 539,230 150,000 529,940 150,000 734,600 300,000 812,800(2) 1,078,460(2) 300,000 1,059,880 300,000 734,600 300,000 Three or four (4) Three or four (4) Two Four Four Two Two Performance conditions See note(5) See note(5) See note(6) See note(7) See note(7) See note(7) See note(7) Performance conditions is reached at December 31 , 2015 Yes Yes Yes N/A N/A N/A N/A (1) For shares granted before July 17, 2014, total number of shares granted has been restated to reflect the two-for-one stock split effected on July 17, 2014. (2) Including 28,000 shares granted to the Chief Executive Officer (“CEO”), subject to an additional performance condition related to the CEO’s variable compensation. (3 ) The shares will be fully vested provided that the beneficiary is still in the Company’s employment or a Director on the vesting date. (4 ) Three years in France and four years abroad. (5 ) Non-market performance conditions based on non-IFRS diluted earnings per share of the Group realized compared to the upper limit of the non-IFRS diluted earnings per share objective during three years (2011, 2012 and 2013 for 2010-02 Shares, and 2012, 2013 and 2014 for 2010-04 Shares). The shares granted to the CEO are also subject to an additional performance condition related to variable compensation dependent on achieving performance criteria previously established by the Board of Directors. (6 ) Performance condition related to the CEO’s variable compensation dependent on achieving performance criteria previously established by the Board of Directors. (7 ) Performance condition measured based on two alternative criteria, the growth of the non-IFRS diluted earnings per share of the Group or the outperformance of the price of the Dassault Systèmes share compared to the performance of the CAC 40 index (market condition) for each of the years 2015, 2016 and 2017 for 2014-A and 2014-B Shares, and for the year 2016 for 2015-A and 2015-B Shares, compared to the year 2014. Such growth or difference must be at least equal to a threshold established by the Board of Directors. The 2015-B Shares granted to the CEO are also subject to an additional performance condition related to variable compensation dependent on achieving performance criteria previously established by the Board of Directors. The expense related to performance shares plans, for personnel of subsidiaries of Dassault Systèmes SE is recharged when the shares are deﬁ nitively attributed to beneﬁ ciaries. During the vesting period, Dassault Systèmes SE accrues only for the costs related to the performance shares attributed to employees contributing directly to its activity. Note 9 Additional Information Research and Development Expenses In 2015, Dassault Systèmes SE recorded a total of €225.8 million of research and development expenses, which corresponds to 22.5% of software revenue. 134 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 Statutory Auditors’ Fees The amount of Statutory Auditors’ fees recorded in the income statement for the year is as follows: (in thousands of euros) Certiﬁ cation of the individual and consolidated ﬁ nancial statements Other services TOTAL STATUTORY AUDITORS’ FEES 12/31/2015 12/31/2014 1,242 54 1,296 1,293 561 1,854 Notes to the Balance Sheet Note 10 Intangible Assets (in thousands of euros) Goodwill Patents, licenses and trademarks TOTAL GROSS VALUE Goodwill Patents, licenses and trademarks TOTAL AMORTIZATION AND PROVISIONS Goodwill Patents, licenses and trademarks TOTAL NET VALUE 4 12/31/2014 2015 additions 2015 disposals 12/31/2015 302,484 102,234 404,718 (20,227) (72,017) (92,244) 282,257 30,217 312,474 25,003 8,064 33,067 (16,961) (10,735) (27,696) 8,042 (2,671) 5,371 – – – – – – – – – 327,487 110,298 437,785 (37,188) (82,752) (119,940) 290,299 27,546 317,845 The increase in goodwill derives from merger operations (transmissions universelles de patrimoine) in 2015 (see Note 1 Description of Business and Key Events of the Year). Note 11 Property and Equipment (in thousands of euros) Machinery and equipment Fixtures and ﬁ ttings Ofﬁ ce furniture and equipment TOTAL GROSS VALUE Machinery and equipment Fixtures and ﬁ ttings Ofﬁ ce furniture and equipment TOTAL DEPRECIATION Machinery and equipment Fixtures and ﬁ ttings Ofﬁ ce furniture and equipment TOTAL NET VALUE 12/31/2014 2015 additions 2015 disposals 12/31/2015 68,304 26,823 16,156 111,283 (52,327) (11,461) (9,883) (73,671) 15,977 15,362 6,273 37,612 10,840 (4,191) 501 473 11,814 (9,779) (1,937) (997) (12,713) 1,061 (1,436) (524) (899) (104) (915) (5,210) 4,141 63 87 4,291 (50) (41) (828) (919) 74,953 27,220 15,714 117,887 (57,965) (13,335) (10,793) (82,093) 16,988 13,885 4,921 35,794 DASSAULT SYSTÈMES ANNUAL REPORT 2015 135 4 Financial Statements Parent Company Financial Statements Note 12 Non-Current Financial Assets (in thousands of euros) Investments in subsidiaries Loans and advances to subsidiaries Treasury Shares TOTAL GROSS VALUE Provision for impairment TOTAL PROVISION FOR IMPAIRMENT Investments in subsidiaries Loans and advances to subsidiaries Treasury Shares TOTAL NET VALUE 12/31/2014 2015 additions 2015 disposals 12/31/2015 1,725,797 402,412 516,194 77,703 2,319,694 (117,635) (117,635) 1,608,162 516,194 77,703 43,128 3,758 449,298 (34,500) (34,500) 367,912 43,128 3,758 (254,959) (268,597) (77,703) 1,873,250 290,725 3,758 (601,259) 2,167,733 43,700 43,700 (211,259) (268,597) (77,703) (108,435) (108,435) 1,764,815 290,725 3,758 2,202,059 414,798 (557,559) 2,059,298 The increase in investments in subsidiaries mainly relates to the recapitalization of Dassault Systemes UK Limited and the acquisition of the securities of French subsidiaries of the Group. Moreover, the decrease in investments in subsidiaries reﬂ ects the sale of securities as well as the cancellation of the securities of the merged companies (see Note 1 Description of Business and Key Events of the Year). Note 13 Receivables Receivables are as follows: (in thousands of euros) TRADE ACCOUNTS RECEIVABLE, NET Trade accounts receivable and related items Allowance for trade accounts receivable OTHER CURRENT ASSETS Current accounts receivable* Income tax receivable Intercompany credit notes Value added tax Foreign currency hedges Capital transactions Other TOTAL RECEIVABLES * See Note 18 Elements Concerning Related Companies. Less than 1 year Due dates over one year 12/31/2015 12/31/2014 116,295 137,383 (21,088) 335,972 231,479 92,080 84 10,346 – 134 1,849 452,267 – – – 8,532 – – – – 8,532 – – 116,295 137,383 (21,088) 344,504 231,479 92,080 84 10,346 8,532 134 1,849 116,453 138,723 (22,270) 175,471 83,321 69,595 84 13,168 3,939 531 4,833 8,532 460,799 291,924 The €168.9 million increase in receivable mainly results from the increase of the current accounts receivable, in line with the Group activity. 136 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 The increase in marketable securities is principally attributable to the new loan facility (see Note 17 Financial liabilities), as well as the cash generated by the operations of the Group. An amount of €2,028.4 million of marketable securities are held in monetary investments. 4 Number of shares authorized and issued 4,267,010 (773,550) 420,063 50,988 (1,604,620) 2,359,891 Average price (in euros) Total (in thousands of euros) 43.84 37.17 62.36 73.70 48.42 46.86 187,085 (28,756) 26,196 3,758 (77,703) 110,580 Note 14 Treasury Marketable Securities At December 31, 2015, marketable securities amounted to €2,029.4 million compared with €947.4 million at December 31, 2014. Marketable securities, invested in Euros, are also sourced by the Group multiple currency central cash pool for which the American dollars represented 22.5% at December 31, 2015. Treasury Shares Share repurchases are analyzed below in 2015: TREASURY SHARES AS OF JANUARY 1, 2015 Vesting of shares Repurchase of treasury shares (1) Repurchase of treasury shares through liquidity agreement Cancellation of shares (2) TREASURY SHARES AS OF DECEMBER 31, 2015 (1) The Combined General Meetings of Shareholders authorized the Board of Directors to implement a share repurchase program not to exceed 10% of Dassault Systèmes SE’s share capital. In addition, Dassault Systèmes SE is authorized to purchase shares at a price not exceeding €90 per share and that the aggregate amount may not exceed €500 million. (2) Decision by General Shareholder Meeting on March 20, 2015. Note 15 Shareholders’ Equity Share Capital Changes in share capital during the year ended December 31, 2015 were as follows: SHARES AS OF JANUARY 1, 2015 Shares issued pursuant to exercise of share subscription options Capital increase (1) Capital reduction(2) SHARES AS OF DECEMBER 31, 2015 (1) See “Dividend rights” below. (2) Capital reduction due to the cancellation of securities as decided by the Board of Directors held on March 20, 2015. Number of shares authorized and issued 256,364,077 1,769,020 185,709 (1,604,620) 256,714,186 Par value (in euros) Capital (in euros) 0.50 0.50 0.50 0.50 0.50 128,182,039 884,510 92,854 (802,310) 128,357,093 DASSAULT SYSTÈMES ANNUAL REPORT 2015 137 4 Financial Statements Parent Company Financial Statements Shareholder base On December 31, the share capital of Dassault Systèmes SE was held by: (%) Public Groupe Industriel Marcel Dassault Charles Edelstenne and beneﬁ ciaries (1) Bernard Charlès Treasury shares(3) TOTAL On December 31, the voting rights in Dassault Systèmes SE were held by: (in % of exercisable voting rights) (2) Groupe Industriel Marcel Dassault Public Charles Edelstenne and beneﬁ ciaries (1) Bernard Charlès TOTAL 2015 50.5 41.2 6.1 1.1 1.1 100 2015 55.5 34.9 8.2 1.4 100 2014 49.8 41.1 6.1 1.1 1.9 100 2014 55.7 34.7 8.3 1.3 100 (1) At December 31, 2015, Mr. Edelstenne held 4,001,806 shares with all ownership rights and 3,318 shares through two family companies which he manages, representing a total of 1.56% of the capital and 2.08% of the exercisable voting rights, as well as 11,613 ,3 82 shares with “usage” rights (usufruit). For the usage rights with respect to these 11,613 ,3 82 shares, representing 6.12% of the exercisable voting rights, Mr. Edelstenne can only exercise the right to vote on decisions of the General Meeting concerning the allocation of profits; the holders of the bare property rights (nue-propriété) exercise the right to vote for other resolutions in compliance with Article 11 of the by-laws. (2) 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 General Meeting. (3) Including 50,988 shares held through the liquidity contract. Stock Option Plans A summary of stock option activity is as follows: (in euros) OUTSTANDING AS OF JANUARY 1, Number of options granted Exercised Forfeited OUTSTANDING AS OF DECEMBER 31, Exercisable 2015 2014 Number of shares authorized and issued 5,287,411 1,965,555 (1,769,020) (171,850) 5,312,096 2,906,841 Average price 23.73 62.00 19.91 47.57 38.40 21.50 Number of shares authorized and issued 7,094,974 624,450 (2,375,837) (56,176) 5,287,411 4,677,561 Average price 21.06 45.50 21.32 29.22 23.73 20.90 A summary of the remaining contractual life and the exercise price of options outstanding as of December 31, 2015 is presented below: SOP plan 2008-02 2010-01 2014 -01 2015 -01 OUTSTANDING AS OF DECEMBER 31, 2015 138 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Total of shares Remaining life (years) Exercise price 1,455,264 1,451,577 463,850 1,941,405 5,312,096 1.91 2.40 6.40 9.68 5.28 19.50 23.50 45.50 62.00 38.40 Financial Statements Parent Company Financial Statements 4 Movements in Shareholders’ Equity Movements in shareholders’ equity for the year ended December 31, 2015 were as follows: (in thousands of euros) Share Capital Share and contribution premiums Legal reserve Retained earnings Income (loss) for the ﬁ scal year Regulated provisions 12/31/2014 Appropriation of 2014 earnings 128,182 755,799 12,693 1,710,502 183,005 12,493 93 12,801 125 74,345 (183,005) - Effect of exercising options 884 34,340 - - - - Net income for 2015 ﬁ scal year - - - - 299,472 Other (802) (76,901) - - - - (9,307) 12/31/2015 128,357 726,039 12,818 1,784,847 299,472 3,186 SHAREHOLDERS’ EQUITY 2,802,674 (95,641) 35,224 299,472 (87,010) 2,954,719 Dividend rights The Combined General Meeting of Shareholders held on May 28, 2015 approved a dividend of €108.5 million, based on the existing shares as at February 28, 2015. The General Meeting approved offering shareholders the option to receive payment of their dividend for 2014 in the form of new Dassault Systèmes SE shares. As a result, 185,709 new ordinary shares were created. The cash dividend was paid in the total amount of €95.6 million. 4 Note 16 Provisions for Contingencies and Losses Movements of provisions for contingencies and losses were as follows: (in thousands of euros) Provisions for performance shares Provisions for exchange losses Provisions for post-employment beneﬁ ts Other provisions for contingencies and losses Provisions for jubilee awards TOTAL PROVISIONS 12/31/2014 Additions Utilization Reversal of unused amounts 12/31/2015 30,919 20,427 18,152 3,767 4,854 78,119 24,514 25,633 3,535 1,717 393 (26,450) (20,430) – (2,689) (10) – – (2,994) (440) – 55,792 (49,579) (3,434) 28,983 25,630 18,693 2,355 5,237 80,898 Changes in provisions for contingencies and losses impacted captions of the income statement as follows: (in thousands of euros) Operating income Financial income and expense, net Exceptional income/(loss) TOTAL Additions Utilization 24,340 25,633 5,819 55,792 (28,686) (20,430) (463) (49,579) Reversal of unused amounts (3,434) – – (3,434) Provisions for Post-employment Benefits Dassault Systèmes SE’s commitment in terms of post- employment beneﬁ ts was evaluated and recognized using the prospective actuarial future rights pro-rata method with the use of a corridor. This method 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 employees when they retire as a ﬁ xed amount. DASSAULT SYSTÈMES ANNUAL REPORT 2015 139 4 Financial Statements Parent Company Financial Statements The projected beneﬁ t obligation at December 31, 2015 was determined based on the following assumptions: retirement between 60 and 65 years of age, discount rate of 2.10%, average increase in salaries of 2.80% and a 2.10% expected return on plan. Dassault Systèmes SE has an insurance policy with Sogecap, a life insurance company afﬁ liated with the Société Générale, intended to cover the retirement payment commitments. Pursuant to this policy, Dassault Systèmes SE has invested a total of €11.1 million, including €3.0 million paid in 2015. Actuarial gains and losses and the cost of past service is spread in proﬁ t using the corridor method. They totaled €10.7 million to be spread over an average residual employee service of 22 years. Note 17 Financial Liabilities Financial liabilities are as follows: (in thousands of euros) Bank loans and borrowings Mandatory employee proﬁ t-sharing scheme Other ﬁ nancial liabilities TOTAL FINANCIAL LIABILITIES Less than 1 year 1,321 3,135 19 1 to 5 years 12/31/2015 12/31/2014 1,000,000 1,001,321 351,888 15,357 7,829 18,492 7,848 20,339 4,735 4,475 1,023,186 1,027,661 376,962 In October 2015, Dassault Systèmes SE entered into a new term loan facility agreement for €650 million (See Note 1 Description of Business and Key Events of the Year). Note 18 Elements Concerning Related Companies (in thousands of euros) Loans receivable Trade accounts receivable and related items Current accounts receivable Accounts payable and related items Other operating liabilities Current accounts with credit balances Finance income: dividends collected and net interest received 12/31/2015 12/31/2014 290,315 41,634 231,479 1,603 – 757,806 61,324 514,616 30,581 83,322 2,231 – 453,637 30,384 140 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 Less than 1 year 58,507 1,603 56,904 125,842 23,177 40,068 53,175 9,422 760,506 757,806 2,700 944,855 1 to 5 years – – – 10,582 10,582 – – – – – – 10,582 12/31/2015 12/31/2014 58,507 1,603 56,904 69,606 2,231 67,375 136,424 118,984 33,759 40,068 53,175 9,422 760,506 757,806 2,700 955,437 27,696 36,826 44,970 9,492 459,860 453,637 6,223 648,450 4 Note 19 Trade Payables Trade payables are as follows: (in thousands of euros) ACCOUNTS PAYABLE AND RELATED ITEMS Group trade payables Third-party trade payables TAX AND SOCIAL SECURITY PAYABLES Mandatory and contractual proﬁ t-sharing Accrued vacation Other employee expenses Value added tax and other taxes and duties OTHER OPERATING LIABILITIES Current accounts payable* Other liabilities TOTAL PAYABLES * See Note 18 Elements Concerning Related Companies. In accordance with articles L. 441-6 and D. 441-4 of the French Commercial Code related to information regarding payment due dates, at December 31, 2015, the balance of Dassault Systèmes SE’s trade payables to its suppliers amounted to €11.6 million (2014: €19.3 million). Due dates are as follows: Due within 30 days Due in more than 30 days TOTAL Note 20 Unearned Revenue 12/31/2015 12/31/2014 58.5% 41.5% 100.0% 49.9% 50 .1% 100.0% Unearned revenue is composed primarily of deferred software, maintenance and support revenue relating to periods subsequent to year end. Unearned revenue amounted to €42.9 million in 2015 compared to €40.4 million in 2014. DASSAULT SYSTÈMES ANNUAL REPORT 2015 141 4 Financial Statements Parent Company Financial Statements Note 21 Financial Commitments Financial Instruments At December 31, 2015 and 2014, the fair value of instruments used to manage currency and interest rate exposure was as follows: (in thousands of euros) Interest rate swaps in euros(1) Interest rate swaps in Japanese yen(2) Interest rate swaps in Japanese yen(2) Forward exchange contract Japanese yen/euros – sale(3) Cross currency swaps Canadian dollars/euros(4) Cross currency swaps Australian dollars/euros(4) Forward exchange contract euros/U.S. dollars – sale(2) Forward exchange contract euros/U.S. dollars – sale(2) Forward exchange contract Japanese yen/U.S. dollars – sale(2) Forward exchange contract Japanese yen/U.S. dollars – sale(2) Other instruments(5) Year ended December 31, 2015 Nominal amount Fair value 1,000,000 (13,426) – – 133,832 61,683 71,735 36,741 36,741 – – 21,853 – – (792) 6,449 2,082 (666) 666 – – (73) 2014 Nominal amount 350,000 9,984 9,984 38,163 73,412 72,064 – – 5,507 5,507 37,789 Fair value (12,145) (15) 15 2,438 1,863 1,548 – – 946 (946) (297) (1) Term loan facilities obtained by Dassault Systèmes SE in June 2013 and October 2015 respectively for €350 million and €650 million (see Note 1 Description of Business and Key Events of the Year and Note 17 Financial liabilities) (2) Dassault Systèmes SE has entered into hedging agreements for its subsidiaries. (3) Instruments entered into by the Company to hedge the foreign currency exchange risk of forecasted sales. (4) Hedging contracts with regards to loans made to subsidiaries to finance acquisitions; these instruments are not designated as hedging instruments. (5) Derivatives not designated as hedging instruments. The fair market values of derivative instruments were determined by ﬁ nancial institutions using option pricing models. At the end of 2015, foreign exchange contracts have maturity dates of less than 12 months. Swaps of cross currency and interest rates have respectively a maturity less than three and ﬁ ve years. 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. (in thousands of euros) Nature of temporary differences SHORT TERM Provision for mandatory proﬁ t-sharing Depreciation of receivables Provisions for Contingencies and losses Other LONG TERM (34.43% TAX RATE) Provision for post-employment beneﬁ ts TOTAL TEMPORARY DIFFERENCES Net reduction of the future corporate tax debt (38.00% tax rate) (34.43% tax rate) 142 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 12/31/2015 12/31/2014 42,553 21,163 21,088 – 302 18,692 18,692 61,245 – 21,087 43,030 17,921 22,270 2,537 302 18,151 18,151 61,181 16,351 6,249 Financial Statements Parent Company Financial Statements 4 Note 22 Other Commitments and Contingencies Leases On December 31, 2015, commitments stood at €272.6 million for real estate and equipment rentals including: €253.2 million relating to the lease for the headquarters in Vélizy-Villacoublay (compared with €273.1 million as of December 31, 2014); and €8.6 million (compared with €10.9 million as of December 31, 2014) related to the lease of the “Terre Europa” site, next to the headquarters, effective as from July 2011. In February 2013, Dassault Systèmes SE committed to lease an additional 13,000 square meters of ofﬁ ce 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 when construction is completed that is expected end of 2016. Litigation and other proceedings Dassault Systèmes SE is involved in litigation and other proceedings, such as civil, commercial and tax proceedings, incidental to normal operations. Dassault Systèmes SE is subject to ongoing tax audits and tax reassessments. Certain of these reassessments, in particular those related to acquisition ﬁ nancing, are being challenged by Dassault Systèmes SE, which is strongly conﬁ dent in the technical merits of its positions and will continue to defend them with the relevant tax authorities. In this context, Dassault Systèmes SE made payments to the French tax authorities for €57.7 million and €22.2 million in 2015 and 2014 respectively but disputed them with the relevant authorities. It is not possible to determine with certainty the outcome of the dispute in these matters. However, in the opinion of management, after consultation with legal and tax counsel, the resolution of such litigation and proceedings should not have a material effect on the ﬁ nancial statements of Dassault Systèmes SE. Guarantee pledged The Group has a central cash management operated by a banking institution. In this context, the parent company of the bank offered a guarantee to the Group in the amount of €459 million, and at the same time Dassault Systèmes SE offered a guarantee to the bank for the same amount. 4 Note 23 Additional Information Events after the reporting period Identity of the Consolidating Company None. Dassault Systèmes SE’s business is included in the consolidated ﬁ nancial statements of Groupe Industriel Marcel Dassault SAS, whose registered ofﬁ ce is located at 9, Rond-Point des Champs-Élysées – Marcel Dassault, 75008 Paris, France. DASSAULT SYSTÈMES ANNUAL REPORT 2015 143 4 Financial Statements Parent Company Financial Statements Note 24 Information Relating to Subsidiaries and Shareholdings (in thousands of euros)(1) Location of Headquarters Dassault Systemes Corp.(2) Waltham – USA Dassault Systemes UK Limited Coventry – UK Dassault Systemes Deutschland GmbH Dassault Systèmes International SAS Stuttgart – Germany Vélizy- Villacoublay – France Dassault Systèmes Israel Ltd Kfar Saba – Israel Dassault Systemes K.K. Tokyo – Japan Dassault Systèmes Canada Inc. Montreal – Canada Dassault Systèmes Provence SAS Netvibes France SAS 3DVIA SAS Aix en Provence – France Paris – France Paris – France Dassault Systemes AB Goteborg – Sweden Dassault Systemes India Pvt Limited Gurgaon – India Dassault Systèmes Biovia SARL Quintic SAS Dassault Data Services SAS Vélizy- Villacoublay – France Paris – France Vélizy- Villacoublay – France Dassault Systemes Italia Srl Lainate – Italy Simpack France SAS Lyon – France Other foreign subsidiaries TOTAL Gross book value of shares Net book value of shares % of interest Share capital and share premiums Reserves and retained earnings Net proﬁ t or loss Revenue Dividend rights received Loans and advances Guarantees and sureties 788,462 788,462 100 1,514,004 252,357 (42,077) – 416,533 416,533 100 420,400 5,688 (7,699) 71,234 226,354 179,300 100 10,601 165,614 (34,637) 188,819 183,041 137,041 100 128,943 (224) 801 – 64,883 49,502 100 32,249 (24,918) 8,011 30,759 43,742 43,742 100 33,188 4,848 16,216 325,888 36,673 36,673 100 33,406 7,925 3,624 27,794 – – – – – – – – 15,308 – 137,481 – – 61,682 32,248 32,248 100 32,394 16,754 17,110 39,751 25,400 31,258 31,258 13,350 13,350 9,540 9,540 8,823 8,823 6,240 6,240 4,000 4,000 2,576 2,576 1,949 1,949 1,600 1,600 1,978 1,978 100 100 100 100 100 100 100 100 100 3,235 – (3,117) 2,010 873 (1,820) (6,865) 2,217 11 5,247 894 46,334 4,398 7,115 1,623 45,348 152 1,624 35 4,816 1 – (852) 5,979 – – – – – – 3,000 2,300 3,405 52,166 5,200 20 37 886 499 172 35,491 13 694 Not disclosed – – 1,378 – – – – – – – – – – – 1,873,250 1,764,815 2,216,912 443,895 (43,343) 879,300 31,978 214,471 – – – – – – – – – – – – – – – – – – – (1) The earnings of foreign subsidiaries are in general presented in local GAAP for the year 2014. The results and revenue have been converted using the 2015 average annual exchange rates for the relevant currencies, while the shareholders’ equity of foreign subsidiaries have been converted using the closing rates in effect at year-end 2015. (2) American holding company owning 100% of Dassault Systemes SolidWorks Corp., and Dassault Systemes Holding LLC, the latter itself holding principally 100% of Dassault Systemes Simulia Corp. and Dassault Systemes Americas Corp. 144 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 4.2.2 Selected ﬁ nancial and other information for Dassault Systèmes SE over the last ﬁ ve years (in euros) Share capital Share Capital 2011 2012 2013 2014 2015 123,092,729 125,096,778 126,932,985 128,182,039 128,357,093 Number of shares authorized and issued (2) 123,092,729 125,096,778 126,932,985 256,364,077 256,714,186 Statement of income data Revenue Result before income tax, proﬁ t sharing, amortization and provisions Result before income tax, proﬁ t sharing, amortization and provisions and reversals of provisions Income tax Regulated employee proﬁ t-sharing Optional employee proﬁ t-sharing Net income Data per share Result after income tax and proﬁ t sharing and before amortization and provisions Basic net income per share Dividend per share (2) Personnel Average headcount 850,023,294 990,705,543 1,064,558,462 1,125,687,175 1,260,845,593 415,780,289 386,581,931 435,033,094 359,636,561 533,131,911 341,652,678 367,577,134 413,314,821 304,131,981 447,874,625 46,812,886 52,457,635 68,216,039 45,164,304 76,133,045 13,192,985 16,266,653 15,512,132 17,921,044 21,163,228 14,165,501 13,601,995 18,421,890 17,921,044 21,163,228 264,795,422 254,846,867 263,440,594 183,005,154 299,471,749 4 2.17 2.15 0.70 2.28 2.04 0.80 2.45 2.08 0.83 0.87 0.71 0.43 1.28 1.17 0.47(1) 2,141 2,372 2,541 2,748 3,025 Personnel costs paid during the year 140,056,445 164,250,610 180,114,271 203,666,853 229,015,587 Social security contributions paid during the year 70,506,943 88,239,898 86,640,481 99,949,422 111,452,364 (1) To be proposed for approval at the General Meeting scheduled for May 26, 2016. (2) Historical data prior to 2014 does not reflect the two-for-one stock split of Dassault Systèmes SE shares carried out on July 17, 2014. DASSAULT SYSTÈMES ANNUAL REPORT 2015 145 4 Financial Statements Parent Company Financial Statements 4.2.3 Statutory Auditors' Report on the Parent Company Financial Statements This is a free translation into English of the Statutory Auditors’ report on the ﬁ nancial statements issued in French and it is provided solely for the convenience of English-speaking users. The Statutory Auditors’ report includes information speciﬁ cally required by French law in such reports, whether modiﬁ ed or not. This information is presented below the audit opinion on the ﬁ nancial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain signiﬁ cant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the ﬁ nancial 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 speciﬁ c veriﬁ cation 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 December 31, 2015, on: (cid:125) the audit of the accompanying ﬁ nancial statements of Dassault Systèmes; (cid:125) the justiﬁ cation of our assessments; (cid:125) the speciﬁ c veriﬁ cations and information required by law. These ﬁ nancial statements have been approved by the Board of Directors. Our role is to express an opinion on these ﬁ nancial statements based on our audit. I. Opinion on the ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. In our opinion, the ﬁ nancial statements give a true and fair view of the assets and liabilities and of the ﬁ nancial position of the Company as at December 31, 2015 and of the results of its operations for the year then ended in accordance with French accounting principles. II. Justiﬁ cation of our assessments In accordance with the requirements of A rticle L. 823-9 of the French Commercial Code (Code de commerce) relating to the justiﬁ cation of our assessments, we bring to your attention the following matters: (cid:125) The paragraph "Revenue" of the Note 2 to the ﬁ nancial statements sets out the accounting principles and methods used to account for revenue including ﬁ rstly new software licenses along with the related maintenance, and secondly services and other revenue. We veriﬁ ed the appropriateness of the retained accounting principles and methods, their application and the information disclosed in the notes; (cid:125) The paragraph "Intangible Assets, Property and Equipment" of the Note 2 to the ﬁ nancial statements summarizes the methods of recognition and valuation of intangible assets. We veriﬁ ed that the values in use of the business assets (" fonds de commerce") were consistent with their carrying value; (cid:125) The paragraph "Non-current Financial Assets" of the Note 2 to the ﬁ nancial statements summarizes the methods of recognition and valuation of ﬁ nancial ﬁ xed assets. We veriﬁ ed that the values in use of the long-term equity interests were consistent with their carrying values. These assessments were made as part of our audit of the ﬁ nancial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the ﬁ rst part of this report. 146 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 III. Speciﬁ c veriﬁ cations and information We have also performed, in accordance with professional standards applicable in France, the speciﬁ c veriﬁ cations required by French law. We have no matters to report as to the fair presentation and the consistency with the ﬁ nancial 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 ﬁ nancial position and the ﬁ nancial 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 beneﬁ ts received by the directors and any other commitments made in their favour, we have veriﬁ ed its consistency with the ﬁ nancial statements, or with the underlying information used to prepare these ﬁ nancial 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 veriﬁ ed that the required information concerning the purchase of investments and controlling interests and the identity of the shareholders and holders of voting rights has been properly disclosed in the management report. Neuilly-sur-Seine and Paris-La Défense, on March 18 , 2016 The Statutory Auditors P ricewaterhouseC oopers A udit French original signed by: Pierre Marty ERNST & YOUNG et A utres French original signed by: Pierre-Antoine Duffaud 4 DASSAULT SYSTÈMES ANNUAL REPORT 2015 147 4 Financial Statements Parent Company Financial Statements 4.2.4 Statutory Auditors' Report on Related Party Agreements and Commitments This is a free translation into English of a report issued in French 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 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 identiﬁ ed in the performance of our engagement. We are not required to comment as to whether they are beneﬁ cial 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 beneﬁ ts 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 ﬁ nancial 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. Agreements and commitments submitted for approval by the General Meeting of Shareholders We hereby inform you that we have not been advised of any 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.225-38 of the French commercial code (Code de Commerce). Agreements and commitments approved in prior years We hereby inform you that we have not been advised of any agreements or commitments already approved by the General Meeting of Shareholders, whose implementation continued during the year. In addition, we have been advised that the following agreements and commitments which were approved by the General Meeting of Shareholders in prior years were not implemented during the year. 1. With Mr Bernard Charlès, directeur général Nature and purpose Indemnity in the event of the removal of Mr Bernard Charlès from corporate ofﬁ ce Conditions At its meeting on 26 May 2014, on the occasion of the renewal of Mr Bernard Charlès’ term of ofﬁ ce as directeur général, the Board of Directors authorized, upon the proposal of the Remuneration and Selection Committee, the renewal of the agreement granting Mr Bernard Charlès a compensation in case of the termination of his functions as directeur general according to the terms adopted by the Board of Directors at its meetings on27 May 2010, 28 March 2008 and 27 March 2009. At its meeting on 26 May 2014, the Board of Directors decided to make no change to the conditions, as deﬁ ned by the Board of Directors at its meeting 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 consolidé) of December 2008. The amount of the indemnity due would be equivalent to a maximum of two years of remuneration of the directeur général 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. 148 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Financial Statements Parent Company Financial Statements 4 4 Thus, the amount due would be calculated according to the following formula: (cid:125) total gross remuneration (including variable remuneration but excluding beneﬁ ts in kind and directors’ fees) due in respect of his corporate ofﬁ ce for the two years ended prior to the date of departure, (cid:125) multiplied by the ﬁ gure resulting from the division i) of the amount of the variable remuneration paid to the directeur général during the three 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 ﬁ xed 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 général; 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 général 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 group’s image or income and have a signiﬁ cant 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 ofﬁ ce as directeur général, the Board of Directors may establish that the indemnity will not be due. 2. With the board members of your company, in connection with the insurance policy " Civil liability of the directors and the corporate ofﬁ cers " signed with the company Insurance Allianz 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 (Allianz), would not cover these advances and ﬁ nancial consequences. b. Nature and purpose Payment of the possible legal defense expenses of Board Members taking place in the United Sates. 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. 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 Défense, March 18th 2016 The Statutory Auditors PricewaterhouseCoopers Audit French original signed by: Pierre Marty ERNST & YOUNG et Autres French original signed by: Pierre-Antoine Duffaud DASSAULT SYSTÈMES ANNUAL REPORT 2015 149 4 Financial Statements Legal and Arbitration Proceedings 4.3 Legal and Arbitration Proceedings In the ordinary course of business, the Company is involved from time to time in litigation, tax audits or regulatory inquiries. The Company is subject to ongoing tax audits and tax reassessments in jurisdictions in which it has or had operations. Certain reassessments have been contested and the Company is under discussion with the relevant tax authorities. To the Company’s knowledge, there is no outstanding, suspended or pending government proceeding, litigation or arbitration, which has had during the last twelve months preceding the publication of this 2015 Annual Report (Document de référence), or is likely to have, a signiﬁ cant impact on the Company’s ﬁ nancial position or results of operations. 150 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 5 CORPORATE GOVERNANCE 5.1 Report of the Chairman on Corporate Governance and Internal Control 5.2 Report of the Statutory Auditors on Corporate Governance and Internal Control 152 CONTENTS 5.1.1 Composition and Practices of the Board of Directors 152 5.1.2 The Executive Committee 5.1.3 Declarations Regarding the Administrative Bodies and Senior Management 5.1.4 Principles Established by the Board of Directors pertaining to Compensation of the Executive Ofﬁ cers and Directors 5.1.5 Application of the AFEP-MEDEF Code 162 163 163 166 5.1.6 Internal Control Procedures and Risk Management 167 5.1.7 Other information required by Article L. 225-37 of the French Commercial Code 170 5.3 Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5.3.1 Compensation of the Company’s Corporate Ofﬁ cers (mandataires sociaux) 5.3.2 Interests of Executive Management and Employees in the Share Capital of Dassault Systèmes SE 5.4 Transactions in the Company’s Shares by the Management of the Company 5.5 Statutory Auditors 171 172 172 176 181 184 DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 151 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5.1 Report of the Chairman on Corporate Governance and Internal Control Report of the Chairman of the Board of Directors to the Combined General Meeting of May 26, 2016 To the Shareholders of Dassault Systèmes, The purpose of this report is to describe the composition and practices of the Board of Directors of Dassault Systèmes SE, the application thereto of the principle of balanced representation of men and women, and the internal control and risk management procedures established by the Company. This report was drawn up in accordance with the French Commercial Code and the regulations of the Financial Markets Authority (AMF), based on work carried out by the finance, legal and internal audit departments of Dassault Systèmes. It has been reviewed by the Audit Committee and approved by the Board of Directors on March 17, 2016. Since its IPO in 1996, Dassault Systèmes has sought to implement the best international standards of corporate governance. Dassault Systèmes currently adheres to most of the recommendations of the AFEP-MEDEF Code (available on the MEDEF website: www.medef.fr) and therefore summarizes in a table the reasons why it does not apply certain of these recommendations (see paragraph 5.1.5 “Application of the AFEP-MEDEF Code”). 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 Systèmes SE has nine members, who are elected for a term of office of four years: (cid:125) Charles Edelstenne (Chairman); (cid:125) Bernard Charlès; (cid:125) Jean-Pierre Chahid-Nouraï; (cid:125) Nicole Dassault; (cid:125) Arnoud De Meyer; (cid:125) Odile Desforges; (cid:125) Marie-Hélène Habert; (cid:125) Toshiko Mori; and (cid:125) Thibault de Tersant. With regard to the composition of its Board of Directors, Dassault Systèmes SE pays particular attention to independence, diversity of background and the representation of women. At present, 44% of the directors of Dassault Systèmes SE are independent: Odile Desforges, Toshiko Mori, Jean-Pierre Chahid-Nouraï and Arnoud De Meyer. This proportion exceeds the recommendation of the AFEP-MEDEF Code for controlled companies. Dassault Systèmes SE has incorporated the definition of independence contained in the AFEP-MEDEF Code into the internal regulation of the Board of Directors, whereby a director is independent when he or she has no relationship whatsoever with Dassault Systèmes SE, the Group, the Company or its management which might compromise his/ her free judgment. At its meeting on March 17, 2016, the Board of Directors reviewed, as it does each year, the independence criteria for these directors. This decision by the Board is based on the recommendations of the Compensation and Nomination Committee, after a review of the responses of each director to a questionnaire, with regard to each of the independence criteria recommended by the AFEP-MEDEF Code, particularly with regard to the absence of a business relationship. As none of the independent directors have a business relationship with the Group, the Board of Directors had to express an opinion, as at present, neither on the materiality of any such relationship nor on the criteria used to assess it. Dassault Systèmes SE also makes every effort to ensure that the Board has a significant number of women members. As 44% of its directors are women, Dassault Systèmes SE currently exceeds the thresholds of 40% enshrined in law and recommended by the AFEP-MEDEF Code. 152 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 The Board does also have an international dimension, with a Belgian and a Japanese director accounting for 22% of the members. The average age of the directors was 66 at the date of this Annual Report (Document de référence). The above information is summarized in the table below. COMPOSITION OF THE BOARD OF DIRECTORS OF DASSAULT SYSTÈMES SE Director Charles Edelstenne Bernard Charlès Thibault de Tersant Jean-Pierre Chahid-Nouraï Nicole Dassault Arnoud De Meyer Odile Desforges Marie-Hélène Habert(1) Toshiko Mori Independence Start of first term of office Term expires in Changes in 2015 Contribution to the diversity of the Board’s composition 04/08/1993 04/08/1993 04/08/1993 04/15/2005 05/26/2011 2018 2018 2018 2019 2019 Re-appointment Re-appointment 04/15/2005 2019 Re-appointment 05/30/2013 2017 07/23/2014 2016 Ratification(2) 05/26/2011 2019 Re-appointment X X X X Enhanced female representation Enhanced international representation Enhanced female representation Enhanced female representation Enhanced female and international representation 5 (1) The renewal of the term of office of this director is to be proposed to the General Meeting of May 26, 2016. (2) The appointment of Marie-Hélène Habert, who was co-opted in 2014, was ratified by the General Meeting of May 28, 2015. A resolution will be submitted to the General Meeting of May 26, 2016 to appoint a new director, Mrs.Laurence Lescourret and to amend the by-laws to allow the appointment of a director representing the employees, the term of whom is scheduled to begin during 2016. For more information, see paragraph 7.1 “Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016”. DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 153 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control The roles and duties performed by the Dassault Systèmes SE corporate officers (mandataires sociaux) in 2015 are indicated in the table below. CHARLES EDELSTENNE – CHAIRMAN OF THE BOARD Biography: Charles Edelstenne qualified as a Chartered Accountant. He has spent his whole career with Dassault Aviation, where he started working in 1960 as Head of the Financial Studies department. In 1975 he became General Secretary then Vice-Chairman responsible for economic and financial affairs in 1986. From 2000 to 2013, he was Dassault Aviation Chairman- Chief Executive Officer. In January 2013, Charles Edelstenne was appointed Chief Executive Officer of Groupe Industriel Marcel Dassault. He was founder, Manager then President and Chief Executive Officer of Dassault Systèmes and is currently Chairman of its Board of Directors. End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2017. Date of first appointment: 04/08/1993 Dassault Systèmes shares owned at December 31, 2015: 15,618,506 (including a majority of beneficial ownership shares) Age: 78 Nationality: French Professional address: Groupe Industriel Marcel Dassault – 9 Rond-point des Champs Élysées – Marcel Dassault, 75008 Paris – France Other current positions and Directorships: Inside Dassault Group, in France: Chief Executive Officer and member of the Supervisory Board of Groupe Industriel Marcel Dassault SAS (GIMD)(1), Honorary Chairman and Director of Dassault Aviation SA (listed company, subsidiary of GIMD), Director of Sogitec Industries SA Inside Dassault Group, outside France: Director of SABCA (listed company, subsidiary of GIMD) (Belgium), Director of Dassault Falcon Jet Corporation (United States) Outside Dassault Group: Director of Thales and Carrefour (listed companies), Honorary Chairman of Gifas(2), Manager of the partnerships Arie, Arie 2, Nili and Nili 2 Other positions held during the past five years: Chairman of Gifas and Cidef(3) Chairman and CEO of Dassault Aviation SA (listed company, subsidiary of GIMD), Chairman of the Board of Dassault Falcon Jet Corporation and Chairman of Dassault International, Inc. (1) GIMD is the main shareholder of Dassault Systèmes SE (See paragraph 6.3.2 “Controlling Shareholder”). (2) Groupement des Industries Françaises Aéronautiques et Spatiales. (3) Conseil des Industries de Défense Françaises. 154 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 BERNARD CHARLÈS – PRESIDENT AND CHIEF EXECUTIVE OFFICER Biography: Bernard Charlès has been Chief Executive Officer (Directeur Général) of Dassault Systèmes since 2002 when Mr. Edelstenne became solely the Chairman of the Company’s Board. Since 1995, Mr. Charlès has had executive functions which he shared with Mr. Edelstenne. Prior to holding this position, Mr. Charlès served as Director of the New Technology, Research and Development and Strategy department from 1986 to 1988 and as Director of Strategy, Research & Development from 1988 to 1995. Age: 58 Nationality: French Professional address: Dassault Systèmes – 10 rue Marcel Dassault, 78140 Vélizy-Villacoublay – France Principal responsibility: President and Chief Executive Officer of Dassault Systèmes SE End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2017. Main other current positions and Directorships (inside the Dassault Systèmes Group, outside France): Date of first appointment: 04/08/1993 Dassault Systèmes shares owned at December 31, 2015: 2,890,441 Chairman of the Board of Directors of Dassault Systemes Corp., Dassault Systemes SolidWorks Corp., Dassault Systemes Simulia Corp., Dassault Systemes Biovia Corp. (United States), and Dassault Systemes Canada Software Inc. (Canada); Chairman of the Advisory Board (corporate body) of Dassault Systemes 3DExcite GmbH (Germany) Other positions held during the past five years (all inside the Group, outside France): Chairman of the Board of Directors of Dassault Systemes Delmia Corp., Dassault Systemes Enovia Corp., and Chairman of the Supervisory Board of RealTime Technology AG (Germany) 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 Systèmes since 2003. He joined Dassault Systèmes in 1988 as Executive Vice- President and Chief Financial Officer. Prior to joining Dassault Systèmes, Mr de Tersant served as a finance executive at Dassault International. End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2017. Date of first appointment: 04/08/1993 Age: 58 Nationality: French Professional address: Dassault Systèmes – 10 rue Marcel Dassault, 78140 Vélizy-Villacoublay – France Main position: Senior Executive Vice-President Chief Financial Officer Main other current positions and Directorships: Inside Dassault Systèmes Group, in France: Chairman of Dassault Systèmes International SAS Dassault Systèmes shares owned at December 31, 2015: 127,051 Chairman of the Board of the Dassault Systèmes Endowment Fund Inside Dassault Systèmes Group, outside France: Chairman of the Board of Directors of Spatial Corp., Director of Dassault Systemes Corp., Dassault Systemes SolidWorks Corp., Dassault Systemes Simulia Corp., Dassault Systemes Biovia Corp. United States; member of the Advisory Board (corporate body) of Dassault Systemes 3DExcite GmbH (Germany) Outside Dassault Systèmes Group: Director of Temenos (listed company) (Switzerland); Director of the DFCG (the French National Association of Chief Financial Officers and Financial Controllers) Other positions held during the past five years (all inside the Group, outside France): Manager of Elsys SPRL, Director of Dassault Systemes Delmia Corp., and Dassault Systemes Enovia Corp. (United States) DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 155 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control JEAN-PIERRE CHAHID-NOURAÏ – INDEPENDENT DIRECTOR Chairman of the Audit Committee Chairman of the Compensation and Nomination Committee Age: 77 Nationality: French is an Jean-Pierre Chahid-Nouraï Biography: independent consultant. He was a managing director (administrateur délégué) of Finanval Conseil from 1992 to 2007. Former member of the Michelin management and Financial Manager, Mr. Chahid-Nouraï was also an investment banker at MM. Lazard Frères et Cie, Banque Veuve Morin-Pons, Financière Indosuez and S.G. Warburg, as well as a consultant with McKinsey & Co. He has also contemporaneously taught finance at ESSEC, the Centre de Formation à l'Analyse Financière, INSEAD and CEDEP (Centre Européen d'Éducation Permanente). Professional address: 56 rue de Boulainvilliers, 75016 Paris – France Main position: director End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2018. Other current positions and Directorships: None Date of first appointment: 4/15/2005 Dassault Systèmes shares owned at December 31, 2015: 2,054 Other positions held during the past five years: Director of the Fondation Stanislas pour l’Éducation NICOLE DASSAULT – DIRECTOR Age: 85 Nationality: French Professional address: Groupe Industriel Marcel Dassault – 9 Rond-point des Champs Élysées – Marcel Dassault, 75008 Paris – France Main position: member of the Supervisory Board (Conseil de surveillance) of GIMD Other current positions and Directorships: Inside Dassault Group: Vice-Chairman and member of the Supervisory Board (Conseil de surveillance) of Immobilière Dassault SA, Chief Executive Officer (Directeur Général Délégué) of Rond-Point Immobilier SAS, Director of Dassault Aviation (a listed company), Dassault Medias SA, groupe Figaro SAS and Artcurial SA and founding member of the Serge Dassault Foundation Outside Dassault Group: Director of Société des Amis du Louvre and Société des Amis du Musée d’Orsay End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2018. Date of first appointment: 05/26/2011 Dassault Systèmes shares owned at December 31, 2015: 0* * Nicole Dassault is a shareholder of GIMD. 156 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES ARNOUD DE MEYER – INDEPENDENT DIRECTOR Chairman of the Scientific Committee Member of the Compensation and Nomination Committee 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 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. End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2018. Date of first appointment: 4/15/2005 Dassault Systèmes shares owned at December 31, 2015: 1,161 ODILE DESFORGES – INDEPENDENT DIRECTOR Member of the Audit Committee Biography: Odile Desforges graduated from the École 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-Vice-President of Renault-VI Mack Group, before becoming in 2001 President of Volvo Group’s 3P Business Unit. In 2003, she was appointed Senior Vice-President, Purchasing, and Chairwoman and Managing Director of Renault Nissan Purchasing Organization (RNPO). Between March 1, 2009 and July 1, 2012, she was Executive Vice-President, Engineering and Quality, and a member of the Group Executive Committee. End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2016. Date of first appointment: 05/30/2013 Dassault Systèmes shares owned at December 31, 2015: 300 Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 Age: 61 Nationality: Belgian Professional address: Singapore Management University – 81 Victoria Street, Singapore 188065 – Singapore Main position: President of the Singapore Management University Other current positions and Directorships: Outside France: Director of Temasek Management Services Pte. Ltd, Singapore International Chamber of Commerce, SMU Ventures Pte. Ltd, member of the Board of Directors of Singapore National Research Foundation, Director of the Singapore Symphony Orchestra Other positions held during the past five years: Director of Kylian Technology Management Pte. Ltd. 5 Age: 66 Nationality: French Professional address: 3 rue Henri Heine, 75016 Paris – France Main position: director Other current positions and Directorships: In France: Director of Safran and Sequana (listed companies) Outside France: Director of Johnson Matthey Plc (United Kingdom) Other positions held during the past five years: Director of RNBV, RNTBCI and Renault Espana SA DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 157 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control MARIE-HÉLÈNE HABERT – DIRECTOR Biography: After a Master’s degree in Business Law and Taxation, a business law practitioner diploma (Assas, 1988) and a Master’s in Strategy and Marketing (Sciences Po, 1989), Marie-Hélène Habert began her career at DDB Publicité in London as a media planning consultant. She joined the Dassault Group in 1991 as Deputy Director of Communications. Since 1998, she has been Group Director of Communication and Patronage. End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2015. A resolution for her re-appointment will be submitted for approval at the General Meeting of May 26, 2016. Date of first appointment: 07/23/2014 Dassault Systèmes shares owned at December 31, 2015: 500* * Marie-Hélène Habert is a shareholder of GIMD. TOSHIKO MORI – INDEPENDENT DIRECTOR Member of the Scientific Committee 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 dialogue for a 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 The Future of Cities, member of the G1 Summit (Japan), Master Jury Member of the Aga Khan Prize and Master Jury Member of the Holcim Award 2014 for North America. Lastly she is a partner of Paracoustica, a non-for-profit organization which builds portable concert halls for the benefit of disadvantaged populations to foster an appreciation of music. End of current term: General Meeting called to approve the financial statements for the year ended December 31, 2018. Date of first appointment: 05/26/2011 Dassault Systèmes shares owned at December 31, 2015: 600 Age: 50 Nationality: French Professional address: Groupe Industriel Marcel Dassault – 9 Rond-point des Champs Élysées – Marcel Dassault, 75008 Paris – France Main position: Director of Communication and Patronage, Dassault Group Other current positions and Directorships: Inside Dassault Group: member of the Supervisory Board of GIMD, permanent representative of GIMD on the Supervisory Board of Immobilière Dassault, member of the Board of Directors of Dassault Aviation (a listed company), member of the Strategy Committee of Dassault Développement, Director of the Serge Dassault Foundation, Director of Artcurial Outside Dassault Group: Director of Biomérieux (a listed company), General Manager of H Investissements, General Manager of HDH and member of the Strategy Committee of HDF Age: 64 Nationality: Japanese Professional address: Toshiko Mori Architect, 199 Lafayette Street, New York NY 10012 – USA Main position: Partner of Toshiko Mori Architect PLLC Other current positions and Directorships: Outside France: Robert P. Hubbard Professor in Harvard Graduate School of Design, member of the American Institute of Architects College of Fellows, member of the World Economic Forum Global Agenda Council on Future of Cities, member of the Supervisory Board of A + U Magazine, member of the G1 Summit (Japan), Master Jury Member in Aga Khan Prize and member of the Sydney Modern jury Other positions held during the past five years: President of World Economic Forum Global Agenda Council on Design Member of the Board of Directors of Architecture for Humanity, member of the World Economic Forum Global Agenda Council on Design & Innovation 158 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES 5.1.1.2 Practices of the Board of Directors Separation of the ofﬁ ces of Chairman and Chief Executive Ofﬁ cer Dassault Systèmes separated the offices of Chairman of the Board of Directors (Mr. Edelstenne) and Chief Executive Officer (Mr. Charlès). In addition to the balance of powers that this offers, it enables the Chairman and the Chief Executive Officer to concentrate on their specific remits (described below) within an experienced and harmonious management team (Mr. Edelstenne previously held both roles as Chairman and Chief Executive Officer of Dassault Systèmes SE). The Chairman of the Board organizes and supervises the work of the Board and reports thereon at the General Shareholders Meeting. He ensures the proper functioning of the Board and the committees of Dassault Systèmes SE and their compliance with the best practices of good corporate governance, for example, by making sure that the directors are capable of fulfilling their duties. The Chief Executive Officer keeps him regularly informed 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 is vested by law with the most comprehensive powers to represent Dassault Systèmes SE, subject to the in paragraph 5.1.1.4 “Powers of the Chief Executive Officer” below. He represents Dassault Systèmes SE in its dealings with third parties. limitations of powers indicated The Board of Directors has set up a number of special committees to help it perform its tasks: the Audit Committee (established in 1996), the Compensation and Nomination Committee and the Scientific Committee (established in 2005). The committees report regularly to the Board as to the performance of their missions. The composition of these committees and their practices are described in paragraph 5.1.1.3 “Composition, Practices and Activities of the Board Committees”. Main provisions of the Board’s internal regulation The Board of Directors established its internal regulation (amended on December 4, 2015) to reflect the conversion of Dassault Systèmes SA into a European company. It defines the objectives, and the rules governing the composition and operation of the Board and its committees, and their interactions. The Audit Committee has its own charter, which was updated in March 2015. Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 The internal regulation stipulates the frequency of the Board meetings take place and how Board members may participate in them. It also provides rules on the information and disclosure provided to the Board members on a regular basis (e.g. information on off-balance sheet commitments and the cash position) and on when an event occurs that might have a material impact on the Company’s prospects, outlook or on the implementation of the Company’s strategy. The internal regulation requires that, each year: (cid:125) the Board reviews the independence of the directors; (cid:125) the non-executive directors meet on one occasion without the other directors to have a general discussion on the practices of the Board of Directors, and if applicable, debate specific subjects; and (cid:125) the Board discusses its practices. Every three years, the Board conducts a formal review. With regard to the obligations applicable to directors, the internal regulation provides a reminder of the legal confidentiality requirements and reflects the ethical rules set out in the AFEP-MEDEF Code, particularly in the area of conflicts of interest. In terms of the number of positions held in other companies, each director is required to inform the Board of any other position held in another French or foreign company, including in their committees. Moreover, the executive officers (dirigeants mandataires sociaux) must first obtain the approval from the Board prior to accepting a new term of office in a listed company. The internal regulation also requires them to hold, directly or indirectly, a relatively significant number of Dassault Systèmes SE shares, and to comply with the Group’s rules on the prevention of insider trading. These rules prohibit directors from trading in any securities issued by Dassault Systèmes if they are aware of any insider information and during the trading blackout periods defined by the said rules. Even outside of these blackout periods, directors must obtain the Insider Committee’s prior approval for any transactions involving Dassault Systèmes’ shares. The Board of Directors’ activities in 2015 The Board of Directors met nine times in 2015, with an attendance rate of 92%. In addition to the deliberations on its agenda pursuant to the law (notice of the General Meeting and approval of the annual management report), the Board also discussed principally the following issues: (cid:125) the Company’s strategy (definition and review of strategic directions, review of partnership, acquisition, financing and guarantee transactions); 5 DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 159 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control (cid:125) the accounts and the budget (approval of the 2014 annual financial statements and consolidated financial statements, the consolidated financial statements for the first half of 2015, the 2015 forward accounts and the review of the 2015 quarterly results); the Board is kept informed as to the Group’s financial position by reports from the Audit Committee and presentations made at each meeting by the Senior Executive Vice-President and Chief Financial Officer; (cid:125) it holds a debate at least once a year on its practices, and conducts a formal review every three years, in accordance with its internal regulation and the AFEP-MEDEF Code. During the evaluation conducted in 2015, the members of the Audit Committee said that they wished to be assisted by a third director, which has been welcomed by the Board and the management and is the subject-purpose of a proposition to appoint a new director (see Chapter 7 "General Meeting"). 5.1.1.3 Composition, Practices and Activities of the Board committees Audit Committee The Audit Committee consists solely of independent directors: Odile Desforges and Jean-Pierre Chahid-Nouraï (Chairman of this Committee). Both of them have been Company directors and have financial or accounting expertise. It is the task of the Audit Committee to oversee: (cid:125) matters related to the preparation and the auditing of accounting and financial information, in compliance with the applicable regulations and its Charter; (cid:125) the preparation process for financial information, the effectiveness of the internal control and risk management systems, the audit by the Statutory Auditors of the annual financial statements and consolidated financial statements and the independence of the Statutory Auditors and; (cid:125) the relationship between Dassault Systèmes SE and its Statutory Auditors. In this regard, the Audit Committee is involved in appointing and reappointing the Statutory Auditors and in appointing them for non-audit related missions. On all recommendations to the Board of Directors. these matters, this Committee reports its Lastly, it approves the annual plan for internal audits and gives its opinion on the department’s organization. In the performance of its missions, the Audit Committee is given presentations by the Group’s financial management, particularly regarding risks and, as the case may be, off-balance sheet commitments, and during the audit of the financial statements, a presentation from the Statutory Auditor on the results of the statutory audit and the accounting options selected. With regard to the efficiency of the internal control and risk management systems, the Statutory Auditors informs the Audit Committee of their main findings and the Internal Audit Director reports to the Audit Committee the conclusions of his work. In addition, the Committee may call on external experts, having assessed their expertise and independence. (cid:125) the review of the assessment of the internal control system; (cid:125) the amendment of the Board’s internal regulation and the Audit Committee’s charter; (cid:125) the compensation of directors and allocation of shares and share subscription options; (cid:125) the composition and the functioning of the Board (review of directors identified as independent, examination of materiality of any business relationships with the Group); (cid:125) the compliance of Dassault Systèmes SE with the rules and recommendations on corporate governance; (cid:125) the creation of a foundation in the form of an endowment fund; (cid:125) the conversion of Dassault Systèmes into a European company. Directors’ training In accordance with the AFEP-MEDEF Code, each director may request, if he or she considers it necessary, additional training relating to Dassault Systèmes’ specific features, businesses and markets. In addition, in 2015 an information day has been organised for the independant directors. This information day will be extended in 2016 to all the directors. In addition, the members of the Audit Committee receive, upon appointment, information on the specific accounting, financial and operational aspects of the Group. Finally, the director who represents the employees may, upon his or her appointment, receive training appropriate to the exercise of his or her term of office. The Board’s review of its practices and performance The Board of Directors is constantly seeking to improve its practices. It has two ways of doing this: (cid:125) it asks the non-executive directors for their comments on the subject. The non-executive directors meet every year to discuss the Board’s practices. In 2015, a presentation was made to them on this topic, after which they were able to have a discussion without the presence of the Dassault Systèmes teams, before reporting on their discussion to the Board; 160 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 For reasons of organizational efficiency, meetings of the Audit Committee take place on the same day as Board meetings. However, as the documentation relating to the consolidated and annual financial statements is sent out at least five days before the Board approves the accounts, the members of the Audit Committee have enough time to review the documentation and to discuss it, if necessary, before the Board meeting. In 2015, the Audit Committee met eight times, including three meetings at head office, which were attended by the Senior Executive Vice-President and Chief Financial Officer, the Company Finance Vice-President, the Group Controller, the Financial Reporting Director, the Internal Audit Director, the General Counsel and the Statutory Auditors of the Company, with which regular discussions were held without the management in attendance. The meetings preceding the disclosure of the quarterly results took place by conference call. The attendance rate for meetings of the Audit Committee in 2015 was 100%. During 2015, the Audit Committee had the opportunity to express an opinion on the following various topics: (cid:125) evolution of IFRS 15 relating to revenue recognition; (cid:125) presentation of the OCDE recommendation relating to the Base Erosion and Profit Shifting (BEPS); (cid:125) Group’s IT security program; (cid:125) Business Ethics & Compliance program; (cid:125) to propose to the Board the nomination or renewal of directors and examine the independence of those who are so identified, based on criteria set out in the AFEP-MEDEF Code; (cid:125) to examine the Company’s policy for nominating, and to be informed of the compensation policy for the managers, including non-executive officers; (cid:125) to discuss the employee profit-sharing and incentive plan comprised of grants of performance shares and share subscription options; and (cid:125) 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. When the Compensation and Nomination Committee carries out its nomination work, it liaises with the Chief Executive Officer and the Chairman. In relation to its duties, the Committee met two times in 2015, with an attendance rate of 100%. During these meetings, the Committee made recommendations to the Board on the following subjects: (cid:125) the independence of directors, which was in reviewed in relation to the responses of each director to a questionnaire; (cid:125) the amount and allocation of the fees allocated to directors; (cid:125) the renewal and the ratification of directors; (cid:125) the compensation of executive officers (dirigeants (cid:125) setting up of a term loan facility agreement; and mandataires sociaux); (cid:125) possible acquisitions of target companies, as well as Group’s (cid:125) the share plans and share subscription option plans for corporate simplification scheme. Group directors and employees. Compensation and Nomination Committee The Compensation and Nomination Committee is comprised solely of independent directors: Mr. Chahid-Nouraï (Chairman) and Mr. De Meyer. The main duties of this Committee are: (cid:125) to propose to the Board of Directors the amounts for compensation and benefits of the executive officers (dirigeants mandataires sociaux), including the formulas and the rules to apply for determining variable compensation, and to verify the application of these rules; (cid:125) to evaluate the overall amount and the allocation of the directors’ fees; On a general and ongoing basis, the Compensation and Nomination Committee monitors the compliance of Dassault Systèmes with the law and best practice in the area of corporate governance, particularly with regard to the composition of the Board. Scientiﬁ c Committee Like the other Board committees, the Scientific Committee is comprised solely of independent directors: Ms. Toshiko Mori and Mr. Arnoud De Meyer (Chairman of this Committee). It meets at least once a year. The Committee reviews the main directions of research and development, as well as the Company’s technological achievements and makes recommendations on these matters. The persons with principal responsibility for these matters within Dassault Systèmes are invited to the Committee’s meetings. 5 DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 161 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control The Scientific Committee met three times in 2015, with an attendance rate of 83%. At these meetings, it reviewed a number of topics central to Dassault Systèmes strategy and in particular: (cid:125) the actions and services relating to the Cloud carried out by the Group with respect to the Biosphere for life sciences and the Geosphere for the virtual planet and urban systems; and (cid:125) the 3DEXPERIENCE platform which allows to connect various elements within the value chain and the crowd innovation. In this context, it has focused on opportunities offered by the world of Makers and by the creation of the 3DEXPERIENCE Lab, the purpose of which is to catalyse the innovation of young companies on the collaborative capabilities of the Dassault Systèmes platform. 5.1.1.4 Powers of the Chief Executive Ofﬁ cer Pursuant to French law, the Chief Executive Officer represents Dassault Systèmes SE in dealings with third parties within the 5.1.2 The Executive Committee limits set by the corporate purpose of the Company and by the powers reserved by law to the shareholders or the Board of Directors. However, under the Dassault Systèmes SE’s by-laws, certain decisions of the Chief Executive Officer are submitted to the prior approval of the Board. This concerns, in particular, acquisitions or the disposal of an entity, shareholding or asset (excluding internal transactions) or the use of external funding (bank loan or capital market issue), if the amount of the transaction exceeds a threshold set each year by the Board. This threshold, which was set by the Board on March 17, 2016, is € 500 million. On March 17, 2016, the Board also renewed its authorization to the Chief Executive Officer to grant guarantees, endorsements or securities in the name of Dassault Systèmes SE up to an aggregate amount of €500 million. The Executive Committee assists the Chief Executive Officer. The Committee comprises the heads of the main business areas and functions of Dassault Systèmes: Bernard Charlès (1) Dominique Florack Thibault de Tersant (2) Bruno Latchague Monica Menghini Pascal Daloz Sylvain Laurent Laurent Blanchard Laurence Barthès Philippe Forestier Chief Executive Officer Senior Executive Vice-President, R esearch and D evelopment Senior Executive Vice-President, Chief Financial Officer Senior Executive Vice-President, Global Field Operations (Americas), Industry solutions and Indirect channels Executive Vice-President, Chief Strategy Officer Executive Vice-President, Brands and Corporate Development Executive Vice-President, Global Field Operations (Asia-Oceania), Worldwide Business Transformation Executive Vice-President, Global Field Operations (EMEAR)(3), Worldwide Alliances and Services Executive Vice-President, Chief People and Information Officer Executive Vice-President, Global Affairs and Communities (1) Mr. Bernard Charlès is also a director of Dassault Systèmes SE and an executive officer (dirigeant mandataire social) as defined by the AFEP-MEDEF Code. (2) Mr. Thibault de Tersant is also a director of Dassault Systèmes SE. (3) Europe Middle-East Africa Russia. 162 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 5.1.3 Declarations Regarding the Administrative Bodies and Senior Management To Dassault Systèmes SE’s knowledge: (cid:125) there is no family relationship between the Company’s directors, or between a director and a member of the Executive Committee (see paragraph 5.1.2 above for the list of members), with the exception of Ms. Nicole Dassault and her daughter Ms. Marie-Hélène Habert; (cid:125) in the past five years, none of the directors or members of the Group’s Executive Committee 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:125) 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 the Group’s Executive Committee 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:125) no director or member of the Group’s Executive Committee is party to a service contract with Dassault Systèmes SE, or one of its subsidiaries, which provides him or her with a personal benefit; and (cid:125) no loans or guaranties have been granted or established on behalf of the directors or members of the Group’s Executive Committee, and there are no assets used by the Company which belong directly or indirectly to the directors, members of the Group’s Executive Committee or their families. 5 5.1.4 Principles Established by the Board of Directors pertaining to Compensation of the Executive Ofﬁ cers and Directors Dassault Systèmes SE’s compensation policy is designed to attract, motivate and retain highly qualified individuals, with the aim of ensuring the success of Dassault Systèmes. This success depends on the achievement of its objectives, in particular, strategic, business and financial objectives, over the medium and long term. In setting criteria for determining compensation, Dassault Systèmes seeks to strike a balance between short-, medium- and long-term financial objectives, in order to take into account the creation of stockholder value and recognize individual performance. Since 2013, the AFEP-MEDEF Code has recommended submitting the elements of the compensation due or allocated to each executive officer during the year to the vote of shareholders. The shareholders of Dassault Systèmes SE were therefore invited to vote at the 2015 General Meeting on the compensation with respect to the 2014 financial year of the Chairman of the Board (7th resolution) and the Chief Executive Officer (8th resolution). These resolutions were approved by 98.02% and 96.20%, respectively. The shareholders will be consulted again on the elements of compensation for fiscal year 2015 (see paragraph 7.1 “Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016”). The annual compensation of the Chairman of the Board is a fixed amount. The compensation of each member of the Executive Committee is comprised of a fixed portion and a variable portion. The variable portion may represent a significant part of the total compensation if the annual targets are achieved or outperformed. The targets are reviewed every year in order to be consistent with the Company’s strategic orientations and include individual management targets. Members of the Executive Committee within the French scope, except for the Chief Executive Officer, are also eligible for profit- sharing payments in the same manner as other employees of Dassault Systèmes SE, as described in paragraph 5.1.4.5 “Employee Profit-sharing”. Grants of share subscription options and performance shares generally occur during identical periods. However, there may be rare exceptions to this rule, depending on the knowledge of inside information or the complex planning of the grants given the numerous changes in the tax and legal frameworks. DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 163 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5.1.4.1 Compensation of Executive Ofﬁ cers Each year the Board of Directors sets the amount of the Chairman’s compensation (fixed only). At its meeting on March 17, 2016, the Board of Directors set the amount of the Chairman’s 2016 compensation at €982,000. The Chairman’s compensation has therefore remained the same since 2014. As regards the Chief Executive Officer, his annual target compensation with objectives achieved for is comprised of a fixed portion for 50%, paid monthly, and a variable portion for 50%, paid annually in relation to 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%. Each year the Board of Directors sets the annual target compensation with objectives achieved for the Chief Executive Officer. Any significant change in his fixed compensation is made over the long term and relates to the increase in the Group’s scope and market footprint. In 2015, the Board of Directors therefore significantly revised the Chief Executive Officer’s base compensation, including the fixed part, to account for the Group’s increased scope arising from the multiple acquisitions made since 2005, the last time his compensation was significantly revised. The Board of Directors has decided for 2016 that the Chief Executive Officer’s fixed annual compensation will remain the same as in 2015. In addition, the Chief Executive Officer receives benefits in-kind, as indicated in paragraph 5.3 “Summary of Compensation and Benefits Due to Directors”, which contains all the information with respect to compensation of the executive officers. The amount of the variable compensation due to the Chief Executive Officer for 2015, paid in 2016, was fixed at €1,523,750 by the Board of Directors during its meeting held on March 17, 2016, after review of the achievement of the performance criteria set in 2015. These criteria are set forth in the following table with an indication of their weighting: Performance criteria categories Diluted net profit per share on a non-IFRS consolidated basis (hereinafter referred to as the “EPS”) for 2015 as announced by the Company Company’s efficiency processes Dassault Système’s competitive position Composition of product portfolio Implementation of the Group’s short-, medium- and long-term strategy Type Weighting Quantitative Quantitative Quantitative Qualitative Qualitative 20% 20% 20% 20% 20% During its meeting held on March 17, 2016, the Board of Directors also set the foregoing performance criteria categories to assess the payment of the CEO’s variable compensation for 2016. Therefore, those performance criteria categories show, for 2016, a limit of 40% to the purely qualitative part of this variable compensation . In order to protect the Company’s competitive position, the Board of Directors considered that it was not appropriate to disclose further details of the performance criteria. These criteria, which are discussed by the Compensation and Nomination Committee and the Board, are both internal and external in nature and depend on the Group’s annual performance or its multi-year strategy (medium- and long-term). In addition, they include a strong “Social and Environmental Responsibility” dimension in relation with the Group’s business, each of Dassault Systèmes’ brands containing a promise of sustainable (see paragraphs 2.2.2.1 “3DEXPERIENCE development platform for sustainability: apps and solutions for sustainable development”, 2.1.4 “Rewarding performance and recognizing employees” and 2.1.2.3 “Developing relations with the social, regional and community environment”). At its meeting of March 17, 2016, the Board of Directors set for 2016 the annual target compensation with objectives achieved for the Chief Executive Officer at €2,650,000 , half of which will vary in relation to the achievement of the objectives. This amount is the same to the amount for 2015 set forth by the Board of Directors on March, 20, 2015. The Chairman of the Board and the Chief Executive Officer are not beneficiaries of an additional retirement plan, nor are they entitled to any indemnities under a non-competition clause. The Chairman and Chief Executive Officer also receive director’s fees (see paragraph 5.3 “Summary of Compensation and Benefits Due to Directors”). 5.1.4.2 Indemnities Due in the Event of the Imposed Departure (départ contraint) of the Chief Executive Ofﬁ cer In accordance with the French Commercial Code and 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 duly acknowledged by the Board of Directors, which results in an imposed departure (départ 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. 164 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 However, 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 receive retirement benefits 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 séparable de ses fonctions) and incompatible with the normal performance of his mandate, the Board may decide that the indemnity payment is not due. 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 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:125) the aggregate gross compensation (including variable compensation but excluding compensation in kind and directors’ fees) due in connection with his position for the two years completed prior to the date of departure; (cid:125) 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 regard to their respective years of reference (numerator), 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 (denominator). 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 members of the Group’s Executive Committee are given long-term incentives notably through grants of Dassault Systèmes performance shares or share subscription options to associate them with the development and performance of the Company. In general, performance shares or share subscription options may be granted to key employees of the Company, and the number granted to each of them is dependent on performance and level of responsibility. T he General Meeting of September 4, 2015 set the maximum number of shares which could be granted to the executive officers (dirigeants mandataires sociaux) at 35% of the overall amount approved (1,793,169 shares). Officer (“2015-B Shares”) as part of the gradual process of associating Mr. Charlès with the Company’s capital that began several years ago, with the aim of recognizing his entrepreneurial role during more than 30 years with the Company and providing him with an equity interest comparable to that of founders of companies in the same sector or more generally his peers in technology companies around the world. These 300,000 2015-B shares represent 5.86% of the overall amount approved by the General Meeting of September 4, 2015. The vesting of these shares to the Chief Executive Officer is subject to his remaining in office and two cumulative performance conditions: (cid:125) the first performance condition is identical to that of the 2015-A performance shares plan decided by the Board held on September 4, 2015, for the benefit of certain employees of the Group. This performance condition is based on the two following alternative criteria: (i) intrinsic performance of the Group measured by the increase of the EPS for 2016 compared to the EPS for 2014, it being specified the objective of such increase must be at least equal to a minimum (in percentage) set by the Board of September 4, 2015, or (ii) the performance of the Dassault Systèmes stock price measured by reference to the difference between the evolution of the stock price as at closing of the last trading day for the years 2014 and 2016, with the value of the CAC 40 index as at closing of trading day at the same dates, this performance must be at least equal to a minimum annual threshold (in percentage points) set by the same Board; and (cid:125) the additional performance condition, only applicable to the Chief Executive Officer, relates to its variable remuneration for the 2015 and 2016 years, actually paid in 2016 and 2017, the amount of which is depending upon the level of achievement of performance criteria set by the Board. In accordance with the AFEP-MEDEF Code and AMF recommendations, the Board dated September 4, 2015 has also set forth the commitment of the CEO to maintain in a registered form at least 15% of the total amount of shares he acquires as a consequence of the 2015-B grant, such percentage being calculated after deduction of the number of shares which would be necessary to sell to pay taxes, social charges and expenses related to the sale of the total number of shares vested. The Chief Executive Officer also has formally agreed not to use foward contrats in order to secure a capital gain in connection with the acquisition of the sale or the exercise of share subscriptions options, until the expiry of the legal lock-up period. The Dassault Systèmes’ Insider Trading Rules already imposed such restriction. Further information concerning share subscription options and performance shares is provided in paragraph 5.3 “Summary of Compensation and Benefits Due to Directors”. Within the framework of this authorisation, the Board of Directors (which met on the same day) decided, on the recommendation of the Compensation and Nomination Committee, to grant 300,000 shares to the Chief Executive Furthermore, on September 7, 2015, the Chief Executive Officer acquired the 28,000 2010-04 performance shares that were granted to him on September 7, 2012 (the 14,000 shares initially granted have been increased to 28,000 further 5 DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 165 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control to the two-for-one split of the Dassault Systèmes share on July 17, 2014), after the Board of Directors determined that the applicable performance conditions had been met. Aside from Dassault Systèmes SE, no other Group company has granted shares or options to corporate officers (mandataires sociaux) in 2015. 5.1.4.4 Directors’ Fees Since the General Meeting of May 26, 2014, the maximum annual amount of directors’ fees is set at €350,000. For 2015, the amount of the directors’ fees actually granted to the Dassault Systèmes SE directors was €314,000, of which €154,000 was for their positions (fixed portion) and €160,000 was for attendance of meetings of the Board of Directors and its committees (variable portion). In accordance with the AFEP-MEDEF Code, the variable portion of the directors’ fees is greater. The distribution of the fees among the directors for 2015 is based on the following principles, which were set by the Board of Directors in its meeting on May 28, 2015 and are identical to those used for 2014: €15,000 per director, an additional €15,000 for the Chairman of the Board of Directors and an extra €4,000 for the Chairman of the Audit Committee (these amounts are prorated for the actual period served in the positions during the year); €2,000 per director for physically attending a Board meeting; €4,000 per member of the Audit Committee for physically attending a meeting of that Committee; €2,000 per member of the Compensation and Nomination Committee or Scientific Committee for each meeting of these committees they physically attend; and €1,000 each per conference call or videoconference in relation to a meeting of the Board of Directors or one of these committees. 5.1.4.5 Employee proﬁ t-sharing Finally Dassault Systèmes SE has profit-sharing plans for all employees. The results of the year ended December 31, 2015, which are subject to approval by the General Meeting on May 26, 2016, should thus enable the distribution of an amount €42,326,455.75 in profit-sharing (intéressement et participation). More than 90% of the employees of the French subsidiaries held directly by Dassault Systèmes SE also benefit from profit-sharing agreements. For more information on these agreements, see paragraph 2.1.4 “Rewarding performance and recognizing employees”. 5.1.5 Application of the AFEP-MEDEF Code Dassault Systèmes refers to the recommendations of the AFEP-MEDEF Code and reviews its corporate governance practices on a regular basis in order to achieve continual improvement in this area. As permitted by such Code and the law, Dassault Systèmes SE has not adopted all of the Code’s provisions, or has adopted certain provisions in modified form, in view of its particular situation or due to its compliance with other provisions of the Code. These are summarized in the table below, together with the reasons for their exclusion/modification. 166 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 Recommendations of the AFEP-MEDEF Code Explanation Time period between the review of the financial statements by the Audit Committee and the approval by the Board of Directors (Article 16.2.1) Proportion of performance shares in executive officer compensation (Article 23.2.4) Acquisition of shares by the executive officers (dirigeants mandataires sociaux) benefitting from grants of performance shares (Article 23.2.4) 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 strategy (Article 23.2.5) For reasons of organizational efficiency, meetings of the Audit Committee take place on the same day as Board meetings. However, as the documentation relating to the consolidated and annual financial statements is sent out at least five days before the Board approves the accounts, the members of the Audit Committee have enough time to review the documentation and to discuss it, if necessary, before the Board meeting. 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 30 years with the Company and to provide him an equity interest comparable to that of founders of companies in the same sector, and more generally, of his peers in technology companies around the world. Dassault Systèmes SE considers that the lock-up commitment of the Chief Executive Officer of 15% of the shares which may be acquired 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 officers to the purchase of a fixed number of shares once such performance shares become available. Dassault Systèmes SE respects the principles 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 Chief Executive Officer. It nevertheless retains three cases for payment, one of which is not explicitly provided for by such Code, in light of Dassault Systèmes SE’s shareholder base and the long term of service of Bernard Charlès in the Company. It applies in the event of an imposed departure (départ 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. 5 5.1.6 Internal Control Procedures and Risk Management Because Dassault Systèmes was listed on the stock market in the United States until the end of 2008, Dassault Systèmes defined and implemented an internal control procedure based mainly on the COSO (Committee of Sponsoring Organizations of the Treadway Commission) framework, as well as on the AMF’s suggested reference framework regarding internal control updated on July 22, 2010. This Chairman’s report on internal control procedures applies to Dassault Systèmes SE and its consolidated subsidiaries. 5.1.6.1 Deﬁ nition and objectives of internal control According to the COSO accounting basis, internal control is a process implemented by the Board of Directors, managers and employees, aimed at providing a reasonable guarantee with regard to achieving the following objectives: performing and optimizing operations, the reliability of financial and accounting information, and compliance with the laws and regulations in force. The internal control procedures within the Company, whether at the level of Dassault Systèmes SE or its subsidiaries, are designed to: (cid:125) improve the performance and efficiency of operations through optimized use of available resources (an objective inspired by the COSO framework); (cid:125) ensure the reliability, quality and availability of financial data (an objective inspired by the COSO and AMF frameworks); (cid:125) ensure that operations comply with legislation in effect and the Company’s internal procedures (an objective inspired by the COSO and AMF frameworks); (cid:125) 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:125) prevent risks of error or fraud (an objective inspired by the COSO and AMF frameworks). 5.1.6.2 Internal Control Participants and Organization All corporate governance bodies participate implementation of the internal control processes. in the 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”). DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 167 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control In parallel, the Company’s management has established the following bodies: 5.1.6.3 Internal Control and Risk Management Procedures (cid:125) an Insider Committee responsible for setting and applying the rules aimed at preventing insider trading. In particular, this Committee informs all interested parties (employees, directors, consultants, etc.) of the periods in which they are prohibited from buying or selling Dassault Systèmes securities. These blackout periods are longer than those recommended by the AMF. In addition, as they have regular access to privileged and insider information in relation to their roles, the Group managers must obtain the Insider Committee’s prior approval for any transactions involving the Company’s securities (as defined in the Group’s Insider Trading Rules). The Company applies the rules and recommendations of the AMF regarding the prevention of insider trading on a general basis; (cid:125) an Internal Audit department reporting to the Senior Executive Vice-President and Chief Financial Officer and to the Audit Committee, one of its main missions is to evaluate the relevance of Dassault Systèmes’ 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. The Internal Audit department also has the responsibility for the annual assessment, on behalf of the management, of the internal control mechanisms related to financial reporting; (cid:125) an “Ethics & Compliance” department reporting to the Chief Executive Officer, responsible for ensuring the implementation and respect of the Code of Business Conduct, as well as the Company’s specific policies, recommendations and procedures regarding ethics and compliance. This department is supported by an Ethics Committee which meets every month and investigates any alleged non-conformities brought to its knowledge. The internal control 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, such delegations having specific fields of application. 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 financial statements, and the annual financial statements and management 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 located particularly in Japan, 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. The internal control mechanisms developed by the Company promote internal control in the following areas: (cid:125) control report: The professional ethics of the Company are set forth in the Code of Business Conduct, which describes the manner in which Dassault Systèmes expects its business to be conducted and which may serve as a reference tool for all Group employees to help guide their behavior and their interactions in their professional work. The Code of Business Conduct, which applies to all employees of Dassault Systèmes and is available on the Group’s internet site and online community platform, 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. The distribution of the Code of Conduct is accompanied by training, which is specifically provided to any new employee and to employees joining the Group as part of the integration process for such acquisitions; (cid:125) 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 “Risks Related to the Company’s Business”. This paragraph specifies the measures taken by the Group to manage or limit these risks whenever possible. Operational risks are essentially managed by subsidiaries. Risks in the area of IP protection, ethics and financial risks are specifically monitored by Dassault Systèmes SE as well as locally monitored; (cid:125) protection and monitoring activities: 1) protecting its intellectual property is an on-going concern for the Group. 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 also protects 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. The Group is continuing to actively develop its program designed to fight against infringement concerning its products, its 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 information system security of servers and other facilities, 168 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5 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 the budget targets of the current year and compared to the same quarter for the previous year. Budget projections are reviewed, analyzed and updated each quarter by the teams of the Financial department 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:125) improve the reliability of its consolidation tools and in order to establish and publish required processes financial information every quarter as soon as possible. The consolidation procedure as defined by Dassault Systèmes SE 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 Systèmes SE and to provide detailed business reviews and analyses before the accounts are consolidated, 2) the use of consolidation tools that make data transmission and processing secure and allow the elimination of intra-group transactions, 3) standardization of processes and information systems, particularly with respect to centralizing and recording most of the transactions at shared services centers, 4) the implementation of an annual process to monitor off- balance sheet commitments, related-party agreements (conventions réglementées), 5) a detailed review by the Group’s financial division of the quarterly accounts of Dassault Systèmes SE and its subsidiaries, 6) the detailed analysis by the Company’s accounting department of all the material software license and/or services transactions in order to validate their correct accounting recording; (cid:125) systematize the processes by which the Audit Committee and the Board of Directors review financial information prior to publication; 5 (cid:125) structure its financial communications to ensure simultaneous and equivalent publication of information on its principal markets of financial results or any other information that could have an impact on the price of its shares. 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 Systèmes SE 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, 6) the operational entities implement action plans with the goal of continuous improvement; (cid:125) monitoring: The Company has deployed processes to monitor, review and analyze on a regular basis its performance at the level of its main entities, brands, distribution channels and geographical areas (governance, budget reviews, activity reviews). In addition, quarterly communication meetings are also held to ensure a better dissemination of the Group’s strategy to all its managers and discussions facilitating its implementation; (cid:125) audit missions: In 2015, 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. 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. 5.1.6.4 Internal Control Procedures Relating to the Preparation and Treatment of Financial and Accounting Information With respect to the internal control processes related to the preparation of financial and accounting information, the Company’s focus has been to: (cid:125) implement a quarterly control system to update budget objectives and identify and analyze any variation from the DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 169 5 Corporate governance Report of the Chairman on Corporate Governance and Internal Control 5.1.6.5 Evaluation of Internal Control Since its voluntary delisting from the NASDAQ in October 2008, Dassault Systèmes SE 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 therefore evaluates the internal control procedures applicable to its in accordance with principal processes and subsidiaries European Regulations. As the Company management aims to maintain a high level of internal control within the Company, detailed assessment work was again performed in 2015, as part of the process of achieving continuous improvement and for the purpose of preparing targeted action plans and audits. In this respect, the scope of Group entities subjected to internal control evaluations, in the form of self-evaluation questionnaires and internal control reviews conducted in the months immediately following acquisition continues to expand to entities that had previously been considered immaterial and to newly acquired companies. The results of the evaluation of the internal control are presented to the Audit Committee. In addition, Internal Control’s efficiency is assessed by the Statutory Auditors. 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 the exercise of individual judgments, or dysfunctions which may occur as a result of human failure or simple error or in the external environment. 5.1.7 Other information required by Article L. 225-37 of the French Commercial Code 5.1.7.1 Speciﬁ c Modalities Related to Shareholders’ Participation in the General Meeting Shareholders participate in the General Meetings of the Company according to provisions specified by law and by the Company’s by-laws (Articles 24 to 33). Thus, every shareholder has the right to participate in General Meetings 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 Systèmes (see paragraph 6.1.2 “Memorandum and Specific By-Laws Provisions”). In the case of the separation of the ownership of the shares, the voting right belongs to the bare owner (nu-propriétaire), except for decisions relating to the allocation of profits, where it belongs to the beneficial owner (usufruitier). 5.1.7.2 Mention of the publication of information provided for by Article L. 225-100-3 of the French Commercial Code The information required by Article L. 225-100-3 of the French Commercial Code is indicated in paragraphs 6.3 “Information about the Shareholders” (concerning control of GIMD), 6.2.4 “Delegations and Authorizations Granted to the Board of Directors by the General Meeting” (concerning share issues), 6.2.5 “Stock Repurchase Programs” (concerning acquisition by Dassault Systèmes SE of its treasury shares), 6.1.2.2 “General Meetings” (concerning the conditions for exercising voting rights) and 5.1.4.2 “Indemnity Due in the Imposed Departure (départ contraint) of the Chief Executive Officer” in this 2015 Annual Report (Document de référence) which is also a part of the annual management report issued by the Board of Directors. The Annual Report (Document de référence) is available on the AMF website (www.-amf-france.org) and on the Dassault Systèmes website (www.3ds.com). A press release is issued to announce when the Annual Report (Document de référence) becomes available. Charles Edelstenne Chairman of the Board 170 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Report of the Statutory Auditors on Corporate Governance and Internal Control 5 5.2 Report of the Statutory Auditors on Corporate Governance and Internal Control 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. To the Shareholders, In our capacity as Statutory Auditors of Dassault Systèmes SE , 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, 2015 . 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:125) 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 5 (cid:125) 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 ﬁ nancial 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:125) 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:125) obtaining an understanding of the work performed to support the information given in the report and of the existing documentation; (cid:125) 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 Défense, on March 18 , 2016 The Statutory Auditors PricewaterhouseCoopers Audit French original signed by: Pierre Marty ERNST & YOUNG et A utres French original signed by: Pierre-Antoine Duffaud DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 171 5 Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5.3 Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5.3.1 Compensation of the Company’s Corporate Ofﬁ cers (mandataires sociaux) The tables below provide a summary, in accordance with the recommendations of the AMF and the AFEP-MEDEF Code, of the compensation and benefits paid to the corporate officers of Dassault Systèmes SE, pursuant to Article L. 225-102-1 of the French Commercial Code (see also paragraphs 5.1.4 “Principles established by the Board of Directors pertaining to compensation of the Executive Officers and directors”, 5.3.2.1. “Dassault Systèmes Share Subscription Options” and 5.3.2.2. “Performance Shares”). TABLE 1: SUMMARY OF THE COMPENSATION, OPTIONS AND SHARES AWARDED TO EACH EXECUTIVE OFFICER (in euros) Charles Edelstenne, Chairman of the Board Compensation due for the year (detailed in Table 2) Value of the variable multi-year compensation granted during the year Value of the stock options granted during the year (detailed in Table 4) Value of the performance share granted during the year (detailed in Table 6) Bernard Charlès, Chief Executive Officer Compensation due for the year (detailed in Table 2) Value of the variable multi-year compensation granted during the year Value of the stock options granted during the year (detailed in Table 4) Value of the performance share granted during the year (detailed in Table 6) 2015 2014 1,025,000 1,024,000 N/A N/A N/A N/A N/A N/A 2,887,684(1) 2,365,534 N/A N/A N/A N/A N/A N/A (1) As disclosed on March 24, 2015 in the 2014 Annual Report, the Board of Directors set, at its meeting on March 20, 2015, the total amount of the 2015 annual target compensation with objectives achieved for the Chief Executive Officer to €2,650,000, half of which will vary in relation to the achievement of the objectives. This revision in the Chief Executive Officer‘s base compensation was decided in 2015 to take into account the change in the Group’s scope resulting from the multiple acquisitions completed since 2005, the date of the previous significant revision. VALUE OF THE SHARES GRANTED TO THE CHIEF EXECUTIVE OFFICER AS PART OF THE PLAN TO PROGRESSIVELY ASSOCIATE HIM WITH THE COMPANY’S CAPITAL Such shares are granted to the Chief Executive Officer as part of the gradual process of associating him with the Company’s capital that began several years ago, with the aim of recognizing his entrepreneurial role during more than thirty years with the Company and providing him with an equity interest comparable to that of founders of companies in the same sector, and more generally, of his peers in technology companies around the world. (in euros) Bernard Charlès, Chief Executive Officer Value of the shares granted during the year (see Table 6) (1) 2015 2014 11,653,530(2) 5,620,500(3) (1) Value based on the method chosen for the consolidated financial statements, before the spreading of the expense and taking into account the performance criteria. (2) i.e., 300,000 2015-B Shares granted in 2015. (3) i.e., 300,000 2014-B Shares the 150,000 shares initially granted have been multiplied by 2 following the two-for-one stock split on July 17, 2014 granted in 2014. 172 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5 TABLE 2: SUMMARY OF THE COMPENSATION OF EACH EXECUTIVE OFFICER Gross compensation before tax of the executive officers (dirigeants mandataires sociaux) is set forth in the table below. (in euros) Charles Edelstenne, Chairman of the Board Fixed compensation(1) Annual variable compensation Multi-year variable compensation Extraordinary compensation Directors’ fees(2) Benefits(3) TOTAL Bernard Charlès, Chief Executive Officer Fixed compensation Annual variable compensation(5) Multi-year variable compensation Extraordinary compensation Directors’ fees Benefits(9) TOTAL 2015 2014 Amount due in respect of year Amount paid in 2015 Amount due in respect of year Amount paid in 2014 982,000 982,000 982,000 982,000 N/A N/A N/A 43,000 N/A N/A N/A N/A 42,000 N/A N/A N/A N/A 42,000 N/A N/A N/A N/A 36,000 N/A 1,025,000 1,024,000 1,024,000 1,018,000 1,325,000(4) 1,523,750(6) 1,325,000(4) 1,269,600(7) 1,058,000 1,058,000 1,269,600(7) 1,178,750(8) N/A N/A 28,000 10,934 N/A N/A 27,000 10,934 N/A N/A 27,000 10,934 N/A N/A 21,000 10,934 2,887,684 2,632,534 2,365,534 2,268,684 5 (1) GIMD paid Mr. Charles Edelstenne, as GIMD’s Chief Executive Officer, gross fixed compensation of €800,000 in 2015 and in 2014. (2) GIMD paid Mr. Charles Edelstenne, for his term as a member of GIMD’s Supervisory Board, directors’ fees of €27,222 in 2015 and €22,719 in 2014. (3) GIMD granted benefits in kind related to the use of a car for Mr. Charles Edelstenne in an amount of €10,440 in 2015 and €10,063 in 2014. (4) As disclosed on March 24, 2015 in the 2014 Annual Report, the Board of Directors set, at its meeting on March 20, 2015, the total amount of the 2015 annual target compensation with objectives achieved for the Chief Executive Officer to €2,650,000, half of which will vary in relation to the achievement of the objectives. This revision in the Chief Executive Officer‘s base compensation was decided in 2015 to take into account the change in the Group’s scope resulting from the multiple acquisitions completed since 2005, the date of the previous significant revision. Consequently, in 2015, the fix compensation of the Chief Executive Officer has been raised to 1,325,000 euros, which represent a 25.2% increase compared to 2014. (5) The rules governing the determination of variable compensation of the Chief Executive Officer are described in paragraph 5.1.4 “Principles Established by the Board of Directors to Determine the Compensation of the Company’s Executive Officers and members of the Group’s Executive Committee”. (6) Variable portion of the compensation due for 2015 and paid in 2016, it being emphasized that the Board of Directors set, at its meeting on March 20, 2015, the total amount of the 2015 annual target compensation with objectives achieved for the Chief Executive Officer to €2,650,000, half of which will vary in relation to the achievement of the objectives. This revision in the Chief Executive Officer‘s base compensation was decided in 2015 to take into account the change in the Group’s scope resulting from the multiple acquisitions completed since 2005, the date of the previous significant revision. (7) Variable portion due for 2014 and paid in 2015. (8) Variable portion due for 2013 and paid in 2014. (9) These benefits are related to the use of a car provided by Dassault Systèmes SE. DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 173 5 Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) TABLE 3: DIRECTORS’ FEES AND OTHER COMPENSATION RECEIVED BY THE NON-EXECUTIVE DIRECTORS The directors do not receive any compensation other than the fees set forth in the table below, except for Charles Edelstenne and Bernard Charlès, 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 1 to the table below. (in euros) NON-EXECUTIVE DIRECTORS (MANDATAIRES SOCIAUX NON-DIRIGEANTS) Directors’ fees paid in 2015 for 2014 Directors’ fees paid in 2014 for 2013 Thibault de Tersant(1) Jean-Pierre Chahid-Nouraï Nicole Dassault(2) Serge Dassault (director until May 27, 2014)(3) Arnoud De Meyer Odile Desforges Bernard Dufau(5) Marie-Hélène Habert (director since July 23, 2014)(4) André Kudelski(5) Toshiko Mori TOTAL (1) The overall compensation received by Thibault de Tersant in 2015 and 2014 is set out below: Thibault de Tersant, director, Senior Executive Vice-President and Chief Financial Officer Fixed Compensation Annual variable compensation Multi-year variable compensation Extraordinary compensation Directors’ fees Benefits(c) TOTAL 27,000 53,000 22,000 10,000 38,000 42,000 – 9,657 – 28,000 229,657 21,000 32,956 16,200 18,600 24,600 14,835 17,408 – 15,164 24,600 185,363 Compensation paid in 2015 Compensation paid in 2014 480,000 250,000(a) – 1,056 27,000 9,865 767,921 450,000 240,000(b) – 281 21,000 9,838 721,119 (a) Variable portion due for 2014. In 2015, Thibault de Tersant also received €34,582.91 under the Company’s French profit sharing plans. (b) Variable portion due for 2013. In 2014, Thibault de Tersant also received €33,606 under the Company’s French profit sharing plans. (c) These benefits are related to the use of a car provided by Dassault Systèmes SE. (2) GIMD paid Nicole Dassault €14,778 in directors’ fees in 2015 and €19,035 in 2014, in connection with her role as a member of the Supervisory Board of GIMD. (3) GIMD paid Serge Dassault directors’ fees of €27,222 in 2015 and €26,403 in 2014, in connection with his role as a member of the Supervisory Board of GIMD, €630,000 in 2015 and €600,000 in 2014 in connection with his role as President of GIMD. GIMD also granted benefits in kind related to the use of a car to Mr. Dassault in an amount of €14,448 in 2015 and €16,024 in 2014. (4) GIMD paid Marie-Hélène Habert directors’ fees of €25,325 in 2015 and €26,403 in 2014, in connection with her role as a member of the Supervisory Board of GIMD, €338,534 in 2015 and €334,584 in 2014 in connection with her role as Director of Communication and Patronage, Dassault Group. GIMD also granted her a bonus in an amount of €5,000 in 2015 and €5,140 in 2014 and benefits in kind related to the use of a car in an amount of €3,550 in 2015 and €3,803 in 2014. (5) The term of office as directors of Bernard Dufau and André Kudelski ended at the General Meeting of May 30, 2013. Other elements relating to the compensation of the directors are described in paragraph 5.1.4.4 “Directors’ Fees”. TABLE 4: SUBSCRIPTION OR PURCHASE OPTIONS GRANTED IN 2015 TO EACH EXECUTIVE OFFICER BY THE ISSUER AND BY ANY OF THE GROUP COMPANIES (in euros) Charles Edelstenne TOTAL Bernard Charlès TOTAL Plan number and date Type of options (purchase or subscription) Value of the options Number of options granted in 2015 Exercise price Exercise period – – – – – – – – – – – – None None – – – – – – – – 174 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5 TABLE 5: SUBSCRIPTION OR PURCHASE OPTIONS EXERCISED DURING 2015 BY EACH EXECUTIVE OFFICER (in euros) Charles Edelstenne Bernard Charlès TOTAL Plan number and date – 2008-01 – 9/25/2008 Number of options exercised in 2015* – 100,000 100,000 Exercise price* – €19.075 * Since the options exercised during 2015 were issued prior to the two-for-one stock split of the Dassault Systèmes share on July 17, 2014, the numbers listed in these columns take into account the correlative multiplication of the number of shares subscribed and the division in half of the exercise price. Mr. Bernard Charlès generally reinvests the gains realized through the exercise of subscription stock options in shares of Dassault Systèmes SE, after accounting for taxes, social charges and transaction fees. In 2015, Mr. Bernard Charlès did not sell any Dassault Systèmes shares. TABLE 6: SHARES GRANTED IN 2015 TO EACH EXECUTIVE OFFICER BY THE ISSUER AND BY ANY OF THE GROUP COMPANIES Charles Edelstenne Bernard Charlès TOTAL Number of shares authorized and issued performance shares granted in 2015 Value of the shares (in euros) (1) Date of acquisition Date of availability Performance conditions None – – – 300,000(2) €11,653,530 9/4/2017 9/4/2017 – Yes 5 Plan number and date – 2015-B 9/4/2015 300,000 (1) Value based on the method chosen for the consolidated financial statements before the spreading of the expense and taking into account the performance criteria. (2) Such shares are granted to the Chief Executive Officer as part of the gradual process of associating him with the Company’s capital that began several years ago, with the aim of recognizing his entrepreneurial role during more than thirty years with the Company and providing him with an equity interest comparable to that of founders of companies in the same sector, and more generally, of his peers in technology companies around the world. TABLE 7: SHARES THAT HAVE BECOME AVAILABLE DURING 2015 FOR EACH EXECUTIVE OFFICER Charles Edelstenne Bernard Charlès TOTAL Plan number and date No. 2010-03 9/29/2011 Number of shares authorized and issued that became available in 2015 – 300,000(2) 300,000 Vesting conditions(1) (1) The Board of Directors did not set any quantity of shares to be vested at the date of the availability of the shares granted. See also explanation in paragraph 5.1.5 “Application of the AFEP-MEDEF Code”. (2) Such shares are granted to the Chief Executive Officer as part of the gradual process of associating him with the Company’s capital that began several years ago, with the aim of recognizing his entrepreneurial role during more than thirty years with the Company and providing him with an equity interest comparable to that of founders of companies in the same sector, and more generally, of his peers in technology companies around the world. In accordance with the law, a part of these shares is subject to a holding period (see paragraph 5.1.4.3 “Performance Shares and Share Subscription Options”). Such 300,000 shares reflect the two-for-one split of the Dassault Systèmes share effective on July 17, 2014 and the correlative multiplication of the number of shares that became available. TABLE 8: GRANTS OF SHARE SUBSCRIPTION OR PURCHASE OPTIONS See paragraph 5.3.2.1 “Dassault Systèmes Subscription Options” below. TABLE 9: SHARE SUBSCRIPTION OPTIONS GRANTED TO THE TOP 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 Systèmes Subscription Options” below. TABLE 10: HISTORY OF THE PERFORMANCE SHARES GRANTED See paragraphs 5.3.2.2 “Performance shares” below. DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 175 5 Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) TABLE 11: FOLLOW-UP OF THE AFEP-MEDEF’S RECOMMENDATIONS As indicated in the table below, Dassault Systèmes SE complies with the main recommendations of the AFEP-MEDEF Code regarding compensation and benefits granted to executive officers (dirigeants mandataires sociaux). 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 Executive officers Charles Edelstenne Chairman of the Board Director since (1st appointment): 04/08/1993 Term: until the annual General Meeting to be held in 2018 Bernard Charlès Chief Executive Officer Director since (1st appointment): 04/08/1993 Term: until the annual General Meeting to be held in 2018 Yes No X X Yes No X Yes Yes No X X X* No X X * The conditions for payment and the amount of the indemnities owed are described in paragraph 5.1.4.2 “Indemnities Due in the Event of the Imposed Departure (départ contraint) of the Chief Executive Officer”. There is no specific additional retirement plan (régime complémentaire de retraite) for the executive officers. The companies controlled by Dassault Systèmes SE have not paid any compensation or granted any other benefits to the executive officers (dirigeants mandataires sociaux) mentioned above. 5.3.2 Interests of Executive Management and Employees in the Share Capital of Dassault Systèmes SE 5.3.2.1 Dassault Systèmes Share Subscription Options As of December 31, 2015, there were four active shares subscription options plans for the benefit of certain Company managers and employees. One share subscription options plan expired during 2015. The exercise price of share subscription options granted pursuant to all the plans was fixed without a discount compared to the most recent price of the Dassault Systèmes share on the date of grant of the options. The General Meeting on May 30, 2013 authorized the Board of Directors to grant 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 5% of Dassault Systèmes SE’s share capital. At its meeting on September 4, 2015, the Board of Directors used this authorization to grant to 600 beneficiaries 1,965,555 share subscription options (the “2015-01 Options”), the exercise of which is subject to a performance condition. The new shares created by the exercise of options between January 1 and the date of the Annual General Meeting 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. As a result, the new shares are traded on the same line as the previously existing shares. However, the new shares created as from the day after this A nnual General Meeting 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 Systèmes shares). The following table provides certain information on the stock options plans in effect during 2015. 176 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5 GRANTS OF SUBSCRIPTION OR PURCHASE OPTIONS (Corresponding to Table 8 of the AMF Position-Recommendation No. 2009-16) For all the grants prior July 17, 2014, the figures in this table (options, shares and exercise price) reflect the two-for-one split of the Dassault Systèmes share effective on July 17, 2014 and the correlative multiplication of the number of shares that may be exercised. Stock option plan General Meeting Board of Directors Total Number of shares to be subscribed pursuant to options exercise (cid:125) by corporate officers (mandataires sociaux) Charles Edelstenne Bernard Charlès Thibault de Tersant Starting point for exercising the options Expiry date Exercise price (in euros) Modalities of exercise Number of shares subscribed pursuant to options exercised as of 12/31/2015 Cumulative number of options canceled or null and void as of 12/31/2015 Number of options outstanding as of 12/31/2015 Number of shares subscribed pursuant to options exercised between 01/01/2016 and 02/29/2016 Number of options canceled or null and void between 01/01/16 and 02/29/2016 Number of options outstanding as of 2/29/2016 Number of shares subscribed pursuant to options exercised as of 02/29/2016 2008-01 2008-02 2010-01 2014-01 2015-01 Total 05/22/2008 05/22/2008 05/27/2010 05/30/2013 05/30/2013 09/25/2008 11/27/2009 05/27/2010 05/26/2014 09/4/2015 2,873,200 3,703,000 2,480,000 624,450 1,965,555 11,646,205 300,000 340,000 220,000 N/A 100,000 200,000 N/A N/A 100,000(1) 100,000(1) 240,000 120,000 – N/A N/A – – N/A N/A N/A 860,000 N/A 300,000 560,000 09/25/2009 11/27/2013 05/27/2014 02/21/2016 09/4/2016 09/24/2015 11/26/2017 05/26/2018 05/25/2022 09/3/2025 19.075 19.50 23.50 45.50 62.00 See note(2) See note(3) 5 2,596,836 1,937,736 821,723 - - 5,356,295 276,364 310,000 206,700 160,600 24,150 977,814 - - - - 1,455,264 1,451,577 463,850 1,941,405 5,312,096 52,702 78,430 5,030 - 136,162 - - 64,390 46,550 110,940 1,402,562 1,373,147 394,430 1,894,855 5,064,994 2,596,836 1,990,438 900,153 5,030 - 5,492,457 (1) The options granted to the Chief Executive Officer are subject to performance conditions related to his variable compensation actually paid out over three years, the amount of which is itself dependant upon the satisfaction of the performance criteria defined by the Board of Diretors of Dassault Systèmes SE. (2) The 2014-01 options are exercisable by one-third tranches as from February 21, 2016, February 21, 2017 and February 21, 2018, respectively, provided that the beneficiary remains with the Company and fulfills the performance conditions related to the target for his or her respective brand. (3) The 2015-01 options are exercisable by one-third tranches as from September 4, 2016, September 2017 and September 2018, respectively, provided that the beneficiary remains with the Company and fulfills the performance condition relating to the diluted net profit per share on a non-IFRS consolidated basis (hereinafter referred to as the “EPS”), and/or the achievement of the target for his or her respective brand. For information regarding the dilutive effect on share capital by the exercise of options, see also paragraph 6.2.1 “Share Capital at February 29, 2016”. At December 31, 2015, the only corporate officers (mandataires sociaux) owning such share subscription options were Bernard Charlès and Thibault de Tersant. For information regarding the equity interests in Dassault Systèmes SE of the corporate officers (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 (Document de référence). DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 177 5 Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) SUBSCRIPTION AND PURCHASE OPTIONS OF THE TOP TEN EMPLOYEES WHO ARE NOT EXECUTIVE OFFICERS AND THE OPTIONS THEY EXERCISED DURING 2015 (Corresponding to Table 9 of the AMF Position-Recommendation No. 2009-16) 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 Dassault Systèmes SE stock options during 2015 and who are not corporate officers (mandataires sociaux) of the Dassault Systèmes SE. Stock options granted in 2015 to the ten employees who received the largest number of stock options Stock options exercised in 2015 by the ten employees who exercised the largest number of stock options* Total of options Average weighted price per option Plan. 2008-01 Plan. 2008-02 Plan. 2010-01 Plan. 2014-01 Plan. 2015-01 326,500 €62.00 – – – 381,695 €40.20 199,900 103,300 78,495 – – 326,500 – * For all the grants prior July 17, 2014, the figures in this table (options and exercise price) reflect the two-for-one split of the Dassault Systèmes share effective on July 17, 2014 and the correlative multiplication of the number of shares that may be exercised. 5.3.2.2 Performance shares The General Meeting of September 4, 2015 authorized the Board of Directors to grant Dassault Systèmes shares, representing up to 2% of Dassault Systèmes SE’s capital at the date the Board of Directors granted them (i.e., 5,123,341 shares), this authorization being valid during a 38-month period. The Board meeting of September 4, 2015 used this authorization to grant 734,600 “2015-A” performance shares to 570 beneficiaries, and 300,000 “2015-B” shares to the Chief Executive Officer (see paragraph 5.1.4.3 “Performance Shares and Share Subscription Options”). This second grant is compliant with the resolution of the General Meeting, which limited the portion of shares that could be granted to the Chief Executive Officer to 35% of the overall amount of shares as of the date of the grant, i.e., 1,793,169 shares. 178 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) 5 HISTORY OF PERFORMANCE SHARES GRANTED (Corresponding to Table 10 of the AMF Position-Recommendation No. 2009-16) For all the grants prior July 17, 2014, the figures in this table reflect the two-for-one split of the Dassault Systèmes share effective on July 17, 2014 and the correlative multiplication of the number of shares. Plan Number General Meeting 2010-02 – France Plan 2010-02 – International Plan 2010-04 – France Plan 2010-04 – International Plan 2014-A 2015-A Total 05/27/2010 05/27/2010 05/27/2010 05/27/2010 05/30/2013 09/04/2015 Date of the Board meeting 09/29/2011 09/29/2011 09/07/2012 09/07/2012 02/21/2014 09/04/2015 Total number of shares granted, including the number granted to: (cid:125) to corporate officers (mandataires sociaux) Charles Edelstenne Bernard Charlès Thibault de Tersant 621,000(1) 191,800(1) 661,600(1) 416,860(1) 1,059,880 734,600 3,685,740 62,000 – 28,000(2) 34,000 – – – 62,000 – 28,000(2) 34,000 – – – – 40,000 40,000 204,000 – – – – 40,000 40,000 – 56,000(2) 148,000 Vesting date of shares 09/29/2014 09/29/2015 09/07/2015 09/07/2016 02/21/2018 09/04/2017 Date of end of holding period 09/29/2016 none 09/07/2017 Yes(3) Yes(3) Yes(4) 588,000 152,300 622,000 none Yes(4) – none Yes(5) – none Yes(6) 5 – 1,362,300 33,000 39,500 39,600 76,300 60,750 900 250,050 - - - 340,560 999,130 733,700 2,073,390 (1) In the event of international mobility, the beneficiaries of the France Plan may be transferred under certain conditions to the International Plan and vice versa during the vesting period. Therefore, the total number of vested shares under the France or International Plans may differ from the number of shares originally granted under these plans. (2) The shares granted to the Chief Executive Officer are subject to an additional performance condition in relation to his variable compensation actually paid with respect to three financial years set forth in the regulations of the plan in question, the amount of which is itself dependent on achieving performance criteria previously established by the Board of Directors of Dassault Systèmes SE. (3) The 2010-02 Shares will be fully vested at the end of the vesting period applicable to the beneficiary, provided the beneficiary remains with the Company and satisfies a performance condition, which is measured according to the EPS actually realized compared to the high end of the range EPS as published for each of the 2011, 2012 and 2013 financial years. (4) 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 satisfies a performance condition, which is measured according to the EPS actually realized compared to the high end of the range EPS as published for each of the 2012, 2013 and 2014 financial years. (5) The 2014-A Shares will be fully vested at the end of the vesting period, provided the beneficiary remains with the Company and fulfils each year over a three-year period at least one of the following performance conditions: growth in the EPS compared to 2014, and such growth must be at least equal to a threshold (expressed as a percentage) established at the Board meeting at which the shares were granted, or outperformance of the Dassault Systèmes share compared to the performance of the CAC 40 index; and this difference must be at least equal to a threshold (expressed as a percentage) established at the same Board meeting. (6) The 2015-A Shares will be fully vested at the end of the vesting period, provided that the beneficiary remains with the Company and fulfills at least one of the following performance conditions whose achievement will be measured in 2017: growth in the EPS compared to 2014, and such growth must be at least equal to a threshold (expressed as a percentage) established at the Board meeting at which the shares were granted, or outperformance of the Dassault Systèmes share compared to the performance of the CAC 40 index; and this difference must be at least equal to a threshold (expressed as a percentage) established at the same Board meeting. DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 179 Performance conditions Number of shares vested as at 02/29/2016 Total number of shares cancelled or lapsed as at 12/31/2015 Performance shares remaining at the end of financial year 5 Corporate governance Summary of the Compensation and Beneﬁ ts Due to Corporate Ofﬁ cers (mandataires sociaux) HISTORY OF THE SHARES GRANTS TO THE CHIEF EXECUTIVE OFFICER IN RESPECT OF THE GRADUAL PROCESS OF ASSOCIATING THE CHIEF EXECUTIVE OFFICER WITH THE COMPANY SHARE CAPITAL (See also paragraph 5.1.4.3 “Performance Shares and Share Subscription Options”) The figures in this table reflect the two-for-one split of the Dassault Systèmes share effective on July 17, 2014 and the correlative multiplication of the number of shares . Plan Details General Meeting Board of Directors 2009 2010 2010-03 2010-05 2014-B 2015-B 06/06/2007 05/27/2010 05/27/2010 05/27/2010 05/30/2013 09/04/2015 11/27/2009 05/27/2010 09/29/2011 09/07/2012 02/21/2014 09/04/2015 Total number of shares granted to Bernard Charlès 300,000 300,000 300,000 300,000 300,000 300,000 Vesting date of shares 11/27/2011 05/27/2012 09/29/2013 09/07/2014 02/21/2018 09/04/2017 Date of end of holding period (1) 11/27/2013 05/27/2014 09/29/2015 09/07/2016 02/21/2018 09/04/2017 Performance conditions See note (2) See note (3) See note (4) See note (5) See note (6) See note (7) Number of shares vested as at 3/20/2016 300,000 300,000 300,000 300,000 – – (1) Non applicable to the shares subject to the legal lock-up commitment set by the Board of Directors (see paragraph 5.1.4.3 “Performance Shares and Shares Subscription Options”). (2) Performance condition related to variable compensation actually paid to the Chief Executive Officer with respect to the 2009 and 2010 financial years, the amount of which is itself dependent on achieving performance criteria previously established by the Board. (3) Performance condition related to variable compensation actually paid to the Chief Executive Officer with respect to the 2010 and 2011 financial years, the amount of which is itself dependent on achieving performance criteria previously established by the Board. (4) Performance condition related to variable compensation actually paid to the Chief Executive Officer with respect to the 2011 and 2012 financial years, the amount of which is itself dependent on achieving performance criteria previously established by the Board. (5) Performance condition related to variable compensation actually paid to the Chief Executive Officer with respect to the 2012 and 2013 financial years, the amount of which is itself dependent on achieving performance criteria previously established by the Board. (6) The same performance condition as that stipulated for the 2014-A performance shares granted by the Board on the same day to certain employees of the Group. (7) Performance condition (i) identical to the one stipulated for the 2015-A performance shares and (ii) an additional condition tied to the variable compensation of the Chief Executive Officer actually paid over the life of the plan, the amount of which is itself dependent on the achievement of performance criteria previously established by the Board meeting that set his compensation (see paragraph 5.1.4.3 “Performance Shares and Share Subscription Options”). 180 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Corporate governance Transactions in the Company’s Shares by the Management of the Company 5 5.4 Transactions in the Company’s Shares by the Management of the Company Pursuant to Article 223-26 of the AMF’s General Regulations, the table below shows transactions involving securities issued by Dassault Systèmes SE carried out in 2015 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), on the basis of the declarations made by the relevent parties to the AMF, available on www.amf-france.org. Date and place Directors and Executive Officers Nature of the transaction Unit price (in euros) Gross amount (in euros) 02/10/15 Euronext Paris Philippe Forestier 02/10/15 Euronext Paris Philippe Forestier 02/10/15 Euronext Paris Thibault de Tersant 02/10/15 Euronext Paris Thibault de Tersant 02/10/15 Euronext Paris Thibault de Tersant 02/10/15 Euronext Paris Thibault de Tersant 02/26/15 Euronext Paris Bruno Latchague 02/26/15 Euronext Paris Bruno Latchague 04/28/15 Euronext Paris Thibault de Tersant 04/28/15 Euronext Paris Thibault de Tersant 05/04/15 Euronext Paris Bruno Latchague 05/04/15 Euronext Paris Bruno Latchague 05/05/15 Euronext Paris Bruno Latchague 05/05/15 Euronext Paris Bruno Latchague 05/19/15 Euronext Paris Philippe Forestier 05/19/15 Euronext Paris Philippe Forestier 06/01/15 Euronext Paris Pascal Daloz 06/01/15 Euronext Paris Monica Menghini 06/01/15 Euronext Paris Monica Menghini 06/01/15 Euronext Paris Monica Menghini 06/01/15 Euronext Paris Monica Menghini Exercise of share subscription options 19.08 190,750.00 Sale of shares 57.68 576,782.40 Exercise of share subscription options 19.08 45,780.00 Exercise of share subscription options 19.50 928,200.00 5 Sale of shares Sale of shares 57.57 138,171.58 57.54 2,738,791.68 Exercise of share subscription options 23.50 940,000.00 Sale of shares 62.16 2,486,367.89 Exercise of share subscription options 19.50 1,170,000.00 Sale of shares 69.92 4,195,199.35 Exercise of share subscription options 23.50 785,910.50 Sale of shares 69.77 2,333,203.82 Exercise of share subscription options 23.50 118,722.00 Sale of shares 69.72 352,204.43 Exercise of share subscription options 19.50 195,000.00 Sale of shares 70.29 702,942.00 Exercise of share subscription options 19.08 138,770.63 Exercise of share subscription options 19.50 156,000.00 Exercise of share subscription options 23.50 188,000.00 Sale of shares Sale of shares 70.40 563,200.00 70,40 563,200.00 DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 181 5 Corporate governance Transactions in the Company’s Shares by the Management of the Company Date and place Directors and Executive Officers Nature of the transaction Unit price (in euros) Gross amount (in euros) 06/04/15 Euronext Paris Pascal Daloz 06/04/15 Euronext Paris Pascal Daloz 06/17/15 Euronext Paris Thibault de Tersant 06/25/15 Euronext Paris Bernard Charlès 06/25/15 Euronext Paris Pascal Daloz 06/25/15 Euronext Paris Thibault de Tersant 06/25/15 Euronext Paris Jean-Pierre Chahid-Nouraï 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext 06/25/15 Euronext Charles Edelstenne Physical person associated with Charles Edelstenne Legal person associated with Charles Edelstenne Legal person associated with Charles Edelstenne Bernard Charlès Bernard Charlès Bernard Charlès Bernard Charlès Bernard Charlès Bernard Charlès Physical person associated with Bernard Charlès Physical person associated with Bernard Charlès 07/30/15 Euronext Paris Thibault de Tersant 07/30/15 Euronext Paris Thibault de Tersant 08/26/15 Euronext 08/28/15 Euronext 09/02/15 Euronext 09/04/15 Euronext Physical person associated with Nicole Dassault Physical person associated with Nicole Dassault Physical person associated with Nicole Dassault Physical person associated with Nicole Dassault 09/16/15 Euronext Paris Bernard Charlès 182 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES Exercise of share subscription options 19.08 1,386,752.50 Exercise of share subscription options 19.08 476.88 Exercise of share subscription options 19.50 214,500.00 Reinvestment of dividends in shares 69.43 508,852.47 Reinvestment of dividends in shares 69.43 9,303.62 Reinvestment of dividends in shares 69.43 22,287.03 Reinvestment of dividends in shares 69.43 555.44 Reinvestment of dividends in shares 69.43 1,364,021.78 Reinvestment of dividends in shares 69.43 2,492,120.42 Reinvestment of dividends in shares 69.43 763.73 Reinvestment of dividends in shares 69.43 763.73 Reinvestment of dividends in shares 69.43 75,817.56 Reinvestment of dividends in shares 69.43 14,649.73 Reinvestment of dividends in shares 69.43 1,666.32 Reinvestment of dividends in shares 69.43 81,857.97 Reinvestment of dividends in shares 69.43 69.43 Reinvestment of dividends in shares 69.43 67,694.25 Reinvestment of dividends in shares 69.43 62,278.71 Reinvestment of dividends in shares 69.43 347.15 Exercise of share subscription options 19.50 1,170,000.00 Sale of shares Acquisition of shares Acquisition of shares Acquisition of shares Acquisition of shares 68.95 4,137,067.03 61.31 6,130,570.00 61.87 4,083,347.40 61.16 6,054,998.40 61.05 3,968,211.00 Exercise of share subscription options 19.08 1,907,500.00 Bernard Charlès Reinvestment of dividends in shares 69.43 416.58 Corporate governance Transactions in the Company’s Shares by the Management of the Company 5 Date and place Directors and Executive Officers Nature of the transaction Unit price (in euros) Gross amount (in euros) 09/23/15 Euronext Paris Dominique Florack 09/29/15 Euronext Paris Bruno Latchague 10/28/15 Euronext Paris Thibault de Tersant 10/28/15 Euronext Paris Thibault de Tersant Exercise of share subscription options 19.08 4,394,727.40 Sale of shares 64.61 1,938,225.00 Exercise of share subscription options 19.50 1,170,000.00 Sale of shares 69.69 4,181,283.84 5 DASSAULT SYSTÈMES DOCUMENT DE RÉFÉRENCE 2015 183 5 Corporate governance Statutory Auditors 5.5 Statutory Auditors Principal Statutory Auditors PricewaterhouseCoopers Audit, member of the Compagnie Régionale 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 Régionale des Commissaires aux Comptes de Versailles, 1/2, place des Saisons – 92400 Courbevoie – Paris-La Défense 1, represented by Pierre-Antoine Duffaud, 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. It will be proposed to the General Meeting of May 26, 2016 to renew Ernst & Young et Autres’ mandate, for a six fiscal year period. This mandate will expire at the General Meeting approving the financial statements for the year ending on December 31, 2021. 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 Défense 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. It will be proposed to the General Meeting of May 26, 2016 to renew Auditex mandate, for a six fiscal year period. This mandate will expire at the General Meeting approving the financial statements for the year ending on December 31, 2021. Principal Auditors’ fees and services The following table presents the amount of fees paid to each of the Company’s principal Statutory Auditors in 2015 and 2014: (in thousands, excluding VAT) 2015 2014 2015 2014 2015 2014 2015 2014 PricewaterhouseCoopers Audit Ernst & Young et Autres Amount % Amount % Audit Audit opinion, review of statutory and consolidated financial statements (1): (cid:125) issuer (cid:125) other consolidated subsidiaries Other audit-related services (2): (cid:125) issuer (cid:125) other consolidated subsidiaries SUBTOTAL Other services(3) Legal, tax, social SUBTOTAL TOTAL €1,013 €1,065 1,636 1,390 - 339 2,988 139 139 512 167 3,134 136 136 32% 53% 0% 11% 96% 4% 4% 33% 42% 16% 5% 96% 4% 4% €229 474 €228 342 54 227 984 901 901 49 1 620 717 717 12 % 25 % 3 % 12 % 52 % 48 % 48 % 17% 25% 4% 0% 46% 54% 54% €3,127 €3,270 100% 100% €1,885 €1,337 100% 100% (1) Audit fees consist of fees billed for the annual audit services engagement and other audit services for the years ended December 31, 2015 and 2014, 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 2015 and 2014, they primarily included fees related to certain acquisitions. (3) Fees billed by members of the Statutory Auditors’ respective networks to consolidated subsidiaries are related to the support in the execution of software licensing reviews and 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. 184 DOCUMENT DE RÉFÉRENCE 2015 DASSAULT SYSTÈMES 6 INFORMATION ABOUT DASSAULT SYSTÈMES SE, THE SHARE CAPITAL AND THE OWNERSHIP STRUCTURE CONTENTS 6.1 Information about Dassault 6.3 Information about the Shareholders 194 Systèmes SE 6.1.1 General Information 6.1.2 Memorandum and Specific By-Laws Provisions 186 186 187 6.3.1 Shareholder Base and Double Voting Rights 6.3.2 Controlling Shareholder 6.3.3 Shareholder Agreements 194 196 197 6.2 Information about the Share Capital 189 6.4 Stock Market Information 199 6.2.1 Share Capital at February 29, 2016 6.2.2 Potential Share Capital 6.2.3 Changes in Dassault Systèmes SE Share Capital over the Past Three Years 6.2.4 Delegations and Authorizations Granted to the Board of Directors by the General Meeting 6.2.5 Stock Repurchase Programs 189 189 190 191 193 DASSAULT SYSTÈMES ANNUAL REPORT 2015 185 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about Dassault Systèmes SE 6.1 Information about Dassault Systèmes SE 6.1.1 General Information 6.1.1.1 Commercial Name and Registered Ofﬁ ce Dassault Systèmes 10, rue Marcel Dassault – 78140 Vélizy-Villacoublay, France Telephone: +33 (0)1 61 62 61 62 6.1.1.2 Legal form – Applicable Law – Place of Registration and Registration Number – APE code Dassault Systèmes SE is a European company (Societas Europaea) incorporated and registered under French law, governed by the provisions of Council Regulation (EC) no. 2157/2001 as well as by French provisions in force at any time (hereinafter the “Law”). The Company is registered with the Versailles trade and companies registry under number 322 306 440. The Company’s APE code is 5829 C. The conversion of Dassault Systèmes SA into a European company was approved by the General Meeting on May 28, 2015 and became effective on June 15, 2015, the date on which Dassault Systèmes SE was registered with the Versailles trade and companies registry. Dassault Systèmes SE is governed by a Board of Directors. 6.1.1.3 Date of Incorporation and Term Dassault Systèmes SE was incorporated as a limited liability company (société à responsabilité limitée) on June 9, 1981 for a 99-year term starting on the date of its registration (until August 4, 2080). The Company was transformed into a public limited liability company (société anonyme) on April 8, 1993 and then into a European company (Societas Europaea) on June 15, 2015. 6.1.1.4 Corporate Purpose Pursuant to Article 2 of the Company’s by-laws, as amended by the Extraordinary General Meeting on September 4, 2015, Dassault Systèmes SE’s corporate purpose, in France and abroad, is: (cid:125) the conception, development, production, marketing, purchase, sale, brokerage, rental, maintenance and the provision of after-sale services of software, digital content and/or computer hardware; (cid:125) the supply and providing of services of data centers, including the supply of online software services as a service and the operation and supply of the corresponding infrastructures; 186 ANNUAL REPORT 2015 DASSAULT SYSTÈMES (cid:125) the supply and providing of services to users notably in the area of training, demonstration, methodology, display and utilization; and (cid:125) the supply and sale of computer resources, together or separate from the supply or sale of software or services, notably in the areas of 3D design, solutions, modeling, simulation, manufacturing, operations planning, collaboration, lifecycle management, business intelligence, marketing or 3D for public at large in the domains of products, nature and life. The purpose of the Company shall also be: (cid:125) the creation, acquisition, rental and management- lease of any on-going business, signing leases, and the establishment and operation of any facilities; (cid:125) the acquisition, operation or sale of any industrial or intellectual property rights as well as any knowhow in the field of computers; and (cid:125) more generally, taking an interest in any business or company created or to be created as well as in any legal, economic, financial, industrial, civil commercial, personal or real property enterprise connected directly or indirectly, in whole or in part, with the purposes above or any similar or related purposes. 6.1.1.5 Fiscal Year The 12-month fiscal year covers the period from January 1st to December 31st of each year. 6.1.1.6 Documents on Display Dassault Systèmes SE’s by-laws, minutes of the General Meetings and Board of Directors’ reports to the General Meetings, reports of the Statutory Auditors, financial statements for the last three years and, more generally, all documents provided or made available to shareholders pursuant to the L aw may be viewed at Dassault Systèmes SE’s registered office. Some of these documents are also available on the Group’s website (www.3ds.com/investors/regulated-information). Information about Dassault Systèmes SE, the share capital and the ownership structure Information about Dassault Systèmes SE 6 6.1.2 Memorandum and Speciﬁ c By-Laws Provisions Dassault Systèmes SE’s by-laws were modified twice during the financial year ended December 31, 2015. 6.1.2.2 General Meetings The first amendment was introduced following the approval of the conversion of Dassault Systèmes SA into a European company by the General Meeting on May 28, 2015. The second amendment related to the modification of Dassault Systèmes SE’s corporate purpose (Article 2), which was approved by the Extraordinary General Meeting on September 4, 2015. 6.1.2.1 Allocation of Proﬁ ts (Article 36 of the Company’s By-Laws) The profits for each year, less any losses from prior periods, where appropriate, are first allocated to the reserves as required by Law. A sum of 5% is deducted to form the legal reserve fund. This deduction ceases to be compulsory when said fund reaches one-tenth of share capital; it becomes compulsory once again when the legal reserve falls below this amount. The distributable profit is composed of the profit from the year less any losses from prior periods as well as the amounts allocated to reserves as required by Law or the Company’s by- laws, and increased by retained profits. The General Meeting then deducts from this distributable profit the amounts deemed appropriate to allocate to any optional, ordinary or special reserves or to the retained earnings account. As appropriate, any remaining balance is distributed to all shares proportionately to the unredeemed paid-up value. However, except in the event of a share capital reduction, no distribution can be made to shareholders if the equity is, or would be as a result of the distribution, less than the amount of the share capital plus the reserves that cannot be distributed under the law or the by-laws. The General Meeting may decide to distribute amounts taken from available reserves, either to pay or increase a dividend, or distribute a special dividend. In this case, the resolution explicitly identifies from which reserves these amounts are to be withdrawn. Nevertheless, the dividends are distributed in order of priority starting with the distributable profit of the year. After the approval of the financial statements by the General Meeting, any losses are recorded in a special account and carried forward against the profits of future years, until they have been eliminated. In case of stripping of the ownership of the shares, Article 11 of the by-laws reserves for beneficial owners the right to vote on decisions relating to the allocation of profits (see paragraph 6.1.2.3 “Shares and Voting Rights” below). Notice and agenda of meeting (Articles 25 and 26 of the Company’s by-laws) General Meetings are convened by the Board of Directors or, if the Board of Directors fails to convene a General Meeting, by the Statutory Auditor(s). One or more shareholders who together hold at least 10% of the subscribed capital may also (i) request the Board of Directors to call and (ii) set the agenda of such General Meetings. The request to convene the meeting shall set out the items to be put on the agenda. Notice of the meeting is made through an announcement placed in a journal of legal notices in the department of the registered office, and in the French Bulletin of required legal notices (Bulletin des Annonces Légales Obligatoires – BALO). Shareholders holding registered shares for at least one month from the date of the announcement are also notified of all General Meetings by letter sent by standard mail or, at their request and expense, by registered letter. The General Meeting 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 capital, also have the possibility of requesting that items and proposed resolutions be added to the agenda in accordance with the Law. Conditions for admission (Article 27 of the Company’s by-laws) Every shareholder has the right to participate in General Meetings either in person or by proxy, provided his/her shares are fully paid-up and: (cid:125) for holders of registered shares, that they are held in a registered account (directly or through a financial intermediary) at 0:00 a.m. (Paris time) on the second business day preceding the meeting; (cid:125) for holders of shares in bearer form, that they are recorded in a bearer securities account maintained by the accredited intermediary at 0:00 a.m. (Paris time) on the second business day preceding the meeting. The registration of shares in a bearer securities account maintained by the accredited intermediary shall be validated by a shareholding certificate (attestation de participation) issued by the accredited intermediary to the holder of the shares. This certificate must be attached to the voting or proxy form or to the request for an admission card issued in the shareholder’s name. A certificate can also be issued to a shareholder who wishes to attend in person the General Meeting and who has not received an admission card by the second business day preceding the meeting. 6 DASSAULT SYSTÈMES ANNUAL REPORT 2015 187 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about Dassault Systèmes SE Shareholders may vote by mail using a form that will be sent to them under the conditions indicated by the notice of meeting. The form, duly completed and accompanied, as the case may be, by a shareholding certificate (attestation de participation), must be received by Dassault Systèmes SE at least three days before the date of the General Meeting, or it will not be taken into consideration. A shareholder may be represented by his/her spouse or by any other natural or legal person who has been appointed as proxy, under conditions provided by the Law. The shareholders who are legal entities are represented by the natural persons duly authorized to represent them with respect to third parties or by any person to whom the power of proxy has been transferred. A shareholder, who is a non-French resident as defined in Article 102 of the French Civil Code, may be represented at General Meetings by an accredited intermediary registered according to the provisions of the Law. Such shareholder will be considered present in calculating the quorum and the results of voting. If the Board of Directors so decides when convening the General Meeting, any shareholder may also participate and vote at the meeting by video-conference or by any other means of telecommunications permitting him/her to be identified and to participate effectively. Such participation must comply with the conditions and means set forth in the provisions of the Law. Such shareholder will be accounted for in calculating the quorum and the results of voting. Actions needed to amend shareholders’ rights (Articles 13, 31 and 32 of the Company’s by-laws) Only an Extraordinary General Meeting can amend shareholders’ rights in compliance with the provisions of the Law. Except as may be otherwise provided for under the provisions of the 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, only an Extraordinary General Meeting and a Special Meeting of Shareholders of the specific class of shares may approve any amendment to the rights of these classes of shares. 6.1.2.3 Shares and Voting Rights Rights, privileges and restrictions attached to each class of shares (Articles 13 and 39 of the Company’s by-laws) All the shares are of the same class and are entitled to, under the Company’s by-laws, the same rights to the allocation of profits and any 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). Conditions for exercising voting rights (Articles 11 and 29 of the Company’s by-laws) The right to vote attached to shares or dividend-right shares is proportional to the portion of capital they represent. Voting is carried out by show of hands, by roll call or secret ballot, as decided by the secretariat of the meeting or the shareholders. Shareholders may also vote by mail, by video- conference or by any other means of communication, as indicated in the preceding paragraph. For the calculation of the majority, the votes cast shall not include votes attaching to shares in respect of which the shareholder has not taken part in the vote or has returned a blank or spoilt ballot paper. In case of stripping of the ownership of the shares, the voting right attached to the share belongs to the bare owner (nu- propriétaire), 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 has been 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 or premiums, this double voting right will be attached on the date of their issuance to free registered new shares allotted to a shareholder in consideration for his or her 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 except in the case of a transfer from a registered account to another registered account at inheritance or 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 General Meeting, provided the approval of the Special Meeting of Shareholders having a double voting right. Limitations on voting rights The by-laws contain no restrictions on the exercise of voting rights attached to Dassault Systèmes SE shares except in the event of stripping of the ownership of the shares (see paragraph “Conditions for exercising voting rights (Articles 11 and 29 of the Company’s by-laws)” above). 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 Systèmes SE and the Financial Markets Authority (AMF) in the event a shareholder’s interest passes the thresholds set out in 188 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Share Capital 6 Article L. 233-7 of the French Commercial Code, any natural or legal person, acting alone or in concert with others, who acquires directly or indirectly shares representing at least 2.5% of Dassault Systèmes SE’s share capital or voting rights, or a multiple thereof, must inform Dassault Systèmes SE of the total number of shares or voting rights which it holds. This information must be sent to Dassault Systèmes SE by registered letter with return receipt requested, within four trading days following the date of acquisition. This declaration must be made each time the number of shares held exceeds this threshold of 2.5% (or one of its multiples), up to 50% (inclusive) of the total number of Dassault Systèmes SE shares or voting rights, or falls below it. The shareholder must certify in each declaration that it 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 of non-compliance of this requirement, 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 General Meeting of one or more shareholders holding a portion of Dassault Systèmes SE 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 General Meetings 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 Delay, Postpone or Prevent a Change in Control Other than the aforementioned double voting right (see paragraph 6.1.2.3 “Shares and Voting Rights”) and the reporting obligation when holdings exceed 2.5% (see paragraph 6.1.2.4 “Declarations Concerning Crossing of the Ownership Thresholds (Article 13 of the By-Laws)”), Article 10 of the by-laws provides that Dassault Systèmes SE may, at any time and in compliance with the provisions of the Law, request that a central depositary maintaining the Company’s share register, communicate to it the name (or corporate name for legal entities), the nationality, the year of birth or the year of incorporation and the postal and, where applicable, e-mail address of holders of Dassault Systèmes SE shares in bearer form which grant, immediately or over time, the right to vote at General Meetings, as well as the number of shares held by each of these shareholders and, where appropriate, any restrictions applicable to such shares. 6.1.2.6 Terms in the Company’s By-Laws Concerning Modiﬁ cations in Share Capital Which Are More Restrictive than the Law The by-laws of Dassault Systèmes SE do not contain any provisions concerning modifications of share capital which are more restrictive than those provided under the Law. 6 6.2 Information about the Share Capital 6.2.1 Share Capital at February 29, 2016 At February 29, 2016, the Company’s share capital was comprised of 256,850,348 fully paid-up shares with a nominal value of €0.50 per share. At December 31, 2015, the Company’s share capital was €128,357,093, divided into 256,714,186 shares. 6.2.2 Potential Share Capital At February 29, 2016, outstanding share subscription options (whether or not exercisable) would, if all were exercised, result in the issuance of 5,064,994 new shares, representing 1.97% of the Company’s share capital at that date (on a diluted basis). On the basis of the closing price of the Company’s shares on February 29, 2016 (€69.89 per share), the exercise of all exercisable issued options, whose exercise price was less than that closing price, would have resulted in the issuance of 2,872,387 new shares, representing 1.12% of the Company’s DASSAULT SYSTÈMES ANNUAL REPORT 2015 189 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Share Capital share capital at that date (on a diluted basis). The dilutive effect per share at December 31, 2015 is also set forth in Note 11 to the consolidated financial statements. In connection with the acquisition of the SolidWorks company in 1997, Dassault Systèmes SE issued shares to the holders of shares subscription options and warrants issued by SolidWorks prior to this acquisition. These Dassault Systèmes shares have historically been held by the Group’s wholly-owned U.S. subsidiary, SW Securities LLC. No other SolidWorks share subscription options or warrants remain outstanding at this time. At December 31, 2015, as at February 29, 2016, SW Securities LLC held 503,614 shares, or approximately 0.20% on these dates, of the Company’s share capital. Similar to treasury stock, the shares held by SW Securities LLC do not have voting rights and 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 corporate officers” and paragraph 5.3.2 “Interests of Executive Management and Employees in the Share Capital of Dassault Systèmes SE”, there are no other securities giving a right to subscribe shares of Dassault Systèmes SE, and there is no agreement which could result in a capital increase. Dassault Systèmes SE 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 Systèmes shares in registered form and representing a significant portion of its share capital as of February 29, 2016. 6.2.3 Changes in Dassault Systèmes SE Share Capital over the Past Three Years Date Operation February 28, 2013 Capital increase resulting from the exercise of share subscription options Nominal amount of changes in share capital (in euros) Amount in share capital (in euros) Number of shares created or canceled Total number of shares 292,488 125,389,266 292,488 125,389,266 June 25, 2013 Capital increase by a dividend payment in shares 741,175 126,130,441 741,175 126,130,441 February 28, 2014 Capital increase resulting from the exercise of share subscription options March 21, 2014 Share capital reduction through cancellation of treasury stock 940,826 127,071,267 940,826 127,071,267 (741,175) 126,330,092 (741,175) 126,330,092 June 20, 2014 July 9, 2014 July 17, 2014 Capital increase by a dividend payment in shares 802,310 127,132,402 802,310 127,132,402 Capital increase resulting from the exercise of share subscription options 729,347 127,861,749 729,347 127,861,749 Split of the share nominal value by two -* 127,861,749 127,861,749* 255,723,498 February 28, 2015 Capital increase resulting from the exercise of share subscription options March 20, 2015 Share capital reduction through cancellation of treasury stock 555,900 128,417,649 1,111,800 256,835,298 (802,310) 127,615,339 (1,604,620) 255,230,678 June 22, 2015 Capital increase by a dividend payment in shares 92,854.50 127,708,193.50 185,709 255,416,387 February 29, 2016 Capital increase resulting from the exercise of share subscription options * The nominal value of the share was reduced from €1 to €0.50 on July 17, 2014. 716,980.50 128,425,174 1,433,961 256,850,348 The changes in equity resulting from the operations through December 31, 2015 set forth above are included in the “Consolidated Statements of Shareholders’ Equity” in the consolidated financial statements. 190 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Share Capital 6 6.2.4 Delegations and Authorizations Granted to the Board of Directors by the General Meeting The following table summarizes the delegations and authorizations granted by the General Meeting to the Board of Directors and with effect during the 2015 financial year and as of the date of this Annual Report (Document de référence). It includes authorizations to increase share capital and to repurchase and cancel the Company’s own shares. Resolutions and General Meetings (“GM”) Description of the delegation of authority granted to the Board of Directors Utilization in 2015 SHARES BUYBACK AND CANCELLATION OF SHARES 14th resolution GM of 05/28/2015 15th resolution GM of 05/28/2015 Authorization: buy back or purchase Dassault Systèmes SE shares. Duration: approximately 12 months (expiring at the GM approving the financial statements for the fiscal year ended on 12/31/2015). Cap: 10% of share capital within the limit of €500 million and a maximum price per share not exceeding €90. See paragraph 6.2.5 “Stock repurchase programs” Authorization: cancel shares purchased under the buyback program. Duration: approximately 12 months (expiring at the GM approving the financial statements for the fiscal year ended on 12/31/2015). Cap: 10% of share capital in a 24-month period. See paragraph 6.2.5 “Stock repurchase programs” ISSUANCE OF SECURITIES 16th resolution GM of 05/28/2015 17th resolution GM of 05/28/2015 18th resolution GM of 05/28/2015 19th resolution GM of 05/28/2015 20th resolution GM of 05/28/2015 Authorization: increase the share capital by issuance of shares or securities giving right to shares of Dassault Systèmes SE and issue securities giving right to debt securities, with preemptive right of shareholders. Duration: 26 months, i.e. until 07/28/2017. Cap: For a maximum nominal amount of €12 million for shares or securities – For a maximum nominal amount of €750 million for debt securities. Authorization: increase the share capital by issuance of shares or securities giving right to shares of Dassault Systèmes SE and issue securities giving right to debt securities, with waiver of preemptive right of shareholders, by public offering. Duration: 26 months, i.e. until 07/28/2017. Cap: For a maximum nominal amount of €12 million for shares or securities – For a maximum nominal amount of €750 million for debt securities (to be deducted from the aforementioned overall nominal limits). Authorization: increase the share capital and issue securities giving right to debt securities, without preemptive rights of shareholders, under the delegation referred to in the previous line, by a private placement, under section II of the Article L. 411-2 of the French Monetary and Financial Code. Duration: 26 months, i.e. until 07/28/2017. Cap: To be deducted from the aforementioned overall nominal limit of €12 million (16th resolution). Authorization: increase the share capital by incorporation of reserves, profits or premiums. Duration: 26 months, i.e. until 07/28/2017. Cap: Up to the aforementioned overall nominal limit of €12 million (16th resolution). Authorization: increase the share capital to remunerate contributions in kind of shares or equity-linked securities. Duration: 26 months, i.e. until 07/28/2017. Cap: 10% of share capital. None None None None None 6 DASSAULT SYSTÈMES ANNUAL REPORT 2015 191 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Share Capital Resolutions and General Meetings (“GM”) Description of the delegation of authority granted to the Board of Directors Utilization in 2015 ISSUANCE FOR THE BENEFIT OF EMPLOYEES AND EXECUTIVE OFFICERS Authorization: grant free shares, existing or to be issued, for the benefit of certain employees and/or corporate officers of Dassault Systèmes SE and its affiliated entities as defined in Article L. 225-197-2 of the French Commercial Code. Duration: 38 months, i.e. until 07/28/2018. Cap: 2% of share capital. This authorization has been cancelled and replaced by the authorization below None Authorization: grant free shares, existing or to be issued, for the benefit of certain employees and/or corporate officers of the Company and its affiliated entities as defined in Article L. 225-197-2 of the French Commercial Code. Duration: 38 months, i.e. until 11/04/2018. Cap: 2% of share capital. Described in paragraph 5.3.2.2 “Performance shares” Authorization: grant stock options giving right to subscribe to new shares or purchase existing shares for the benefit of certain employees and/or corporate officers of Dassault Systèmes SE and its affiliated entities as defined in Article L. 225-180 of the French Commercial Code. Duration: 38 months, i.e. until 07/30/2016. Cap: 5% of share capital. See paragraph 5.3.2.1 “Dassault Systèmes SE Share Subscription options” Authorization: increase the share capital for the benefit of members of a corporate savings plan of Dassault Systèmes SE and its affiliated entities. Duration: 26 months, i.e. until 07/28/2017. Cap: For a maximum nominal amount of €5 million to be deducted from the overall limit set forth by the 16th resolution of the General Meeting on May 28, 2015 . This authorization has been cancelled and replaced by the authorization below 2nd resolution EGM of 09/04/2015 Authorization: increase the share capital for the benefit of members of a corporate savings plan of Dassault Systèmes SE and its affiliated entities. Duration: 26 months, i.e. until 11/04/2017. Cap: For a maximum nominal amount of €5 million to be deducted from the limit set forth by the 16th resolution of the General Meeting on May 28, 2015 . None None 21st resolution GM of 05/28/2015 1st resolution EGM of 09/04/2015 16th resolution GM of 05/30/2013 22nd resolution GM of 05/28/2015 The authorizations to purchase the Company’s shares and to cancel these purchased shares expire at the end of the General Meeting to be held on May 26, 2016. It is thus proposed to this General Meeting to renew these authorizations (see paragraph 6.2.5.2 “Description of the Share Repurchase Program Proposed to the General Meeting on May 26, 2016”). It will also be proposed to renew the authorization allowing the Board of Directors to grant options giving right to subscribe to shares or purchase shares for corporate officers and/or employees of Dassault Systèmes and its affiliated companies and the authorization allowing the Board of Directors to increase the share capital for the benefit of members of a corporate savings plan of Dassault Systèmes, without pre-emptive rights (see paragraph 7.1 “Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016”). 192 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Share Capital 6 6.2.5 Stock Repurchase Programs 6.2.5.1 Transactions carried out by Dassault Systèmes SE in 2015 and early 2016 Transactions carried out by Dassault Systèmes SE in 2015 During 2015 financial year, Dassault Systèmes SE purchased, under the authorizations granted to the Board of Directors by the General Meetings of May 26, 2014 and May 28, 2015, 420,063 of its own shares. These shares were purchased at an average price of €62.36 per share, giving a total cost of €26,196,107.81 (excluding tax), given that there was no acquisition of blocks of shares on the over-the-counter market. The transaction costs paid by the Company in connection with these shares repurchased amounted to €9,430.56, all taxes included (plus the tax on financial transactions for an amount of €52,392.22). These 420,063 shares were entirely allocated for purposes of coverage of the Company’s obligations resulting from performance share grants. The shares repurchased before 2015 were used as follows: (cid:125) 1,604,620 shares were canceled by the Board of Directors of March 20, 2015; (cid:125) 773,550 shares, which had been allocated to cover the Company’s obligations resulting from share grants decided prior to 2015, were transferred to the beneficiaries (see paragraph 5.3.1 “Compensation of the Company’s corporate officers”). The Company directly held, on December 31, 2015, 2,359,891 (including 50,988 shares through the liquidity agreement) of its own shares of a nominal value of €0.50 each, which had been repurchased at an average price of €46.86, representing 0.92% of share capital at that date. Out of these 2,359,891 shares, 2,308,903 shares are at the disposal of Dassault Systèmes SE and are allocated to cover the Company’s obligations resulting from performance shares grants. Pursuant to the authorization granted in 2014, on January 5, 2015, Dassault Systèmes SE signed a liquidity agreement in accordance with the Code of Ethics of the AFEI (French association of investment firms) recognized by the Financial Markets Authority (AMF), with Oddo et Cie(1) for an annual amount of €50,000 implemented from January 7, 2015 for an initial period until December 31, 2015, automatically renewable for subsequent 12-month terms. During 2015, 2,625,732 shares have been purchased and 2,574,744 shares have been sold within the framework of this liquidity agreement. As at December 31, 2015, the following resources appeared on the liquidity account: (cid:125) 50,988 Dassault Systèmes shares; and (cid:125) €7,903,018.92 in cash. Transactions carried out by Dassault Systèmes SE in early 2016 Since the beginning of 2016, Dassault Systèmes SE has acquired 502,437 of its own shares. These shares were purchased at an average price of €65.14 per share, giving a total cost of €32,729,925.75 (excluding tax). The transaction costs paid by the Company in connection with these shares repurchased amounted to €11,782.76, all taxes included (plus the tax on financial transactions for an amount of €65,459.85). Under this liquidity agreement, since January 1, 2016 until February 29, 2016, 311,440 shares were purchased and 294,430 shares were sold. During 2015 and since the start of 2016, the Company has not performed any transactions on derivative securities linked to its shares and has not purchased or sold any of its shares by exercising them or through the maturity of such derivative securities. 6.2.5.2 Description of the Stock Repurchase Program Proposed to the General Meeting on May 26, 2016 Pursuant to Articles 241-2 et seq. of the General Regulations of the Financial Markets Authority (AMF) and L. 451-3 of the French Monetary and Financial Code, and in accordance with European Regulations, this description relates to the terms and objectives of the Company’s share repurchase program that will be submitted for approval at the General Meeting of May 26, 2016. Breakdown of treasury stock by purpose as of the date of this document On February 29, 2016, Dassault Systèmes SE held 2,877,820 of its own shares directly and 503,614 indirectly. These 2,877,820 shares were allocated to the following objectives: (cid:125) coverage of the Company’s obligations resulting from share grants decided in 2012, 2014 and 2015: 2,811,340 shares; (cid:125) liquidity agreement signed with Oddo et Cie (1) on January 5, 2015 and renewed for the financial year 2016: 66,480 shares. 6 (1) Agreement initially entered into with Corporate Finance transferred to Oddo et Cie by virtue of universal estate transfer with effect as at March 1, 2016. DASSAULT SYSTÈMES ANNUAL REPORT 2015 193 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Shareholders Purposes of the new repurchase program 1) Cancel shares in order to increase the return on equity and net income per share. 2) Provide securities (representing no more than 5% of the Company’s share capital) for payment, or for exchange, particularly in connection with external growth transactions. 3) Ensure that there is a market or liquidity for the shares of Dassault Systèmes under a liquidity agreement with an accredited financial service provider, in accordance with a Code of Ethics recognized by the Financial Markets Authority (AMF). 4) Meet obligations related to shares subscription options or other share grants to employees or corporate officers of Dassault Systèmes SE or of an affiliated company. 5) Meet the Company’s cash obligations based on an increase in the market price of Dassault Systèmes SE shares, as made to employees and corporate officers of the Company or of an affiliated company. 6) Provide shares in connection with the exercise of rights attached to securities providing access to the capital of Dassault Systèmes SE. 7) Carry out any market practice which may be authorized by the law or by the Financial Markets Authority (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/EC of January 28, 2003, and market practices accepted by the Financial Markets Authority (AMF). The General Meeting of May 26, 2016 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. Maximum proportion of share capital, maximum number, characteristics of the securities that the Company proposes to acquire, and maximum purchase price The Board of Directors may repurchase Dassault Systèmes shares representing up to 10% of the Company’s share capital at the date of the General Meeting authorizing the program, i.e. 25,685,034 shares at February 29, 2016, the most recent date for determining the capital as of the date of this description. The purchase price of the shares would be capped at €100 per share and subject to the limits stipulated by the applicable regulations. The maximum amount of the funds used for the purpose of buying back shares would be €500 million. Duration of the stock repurchase program The program would last about 12 months, starting on the General Meeting of May 26, 2016. This authorization should be valid until the Ordinary General Meeting approving the financial statements for the financial year ending December 31, 2016. 6.3 Information about the Shareholders 6.3.1 Shareholder Base and Double Voting Rights The table below sets forth certain information concerning Dassault Systèmes SE’s shareholder base over the last three fiscal years. Pursuant to the Financial Markets Authority (AMF) recommendation no. 2009-16, it specifies: (cid:125) the theoretical or “gross” voting rights, taking into account the voting rights attached to the shares without voting rights, in accordance with Article 223-11 of the General Regulations of the Financial Markets Authority (AMF) and used as a denominator by shareholders to calculate their percentage of shares held and voting rights for the purposes of regulatory declarations (in particular the declarations with regards to exceeding the threshold); and (cid:125) the voting rights that can be exercised at the General Meeting (“GM” in the table below) or “nets”, not taking into account shares without voting rights. Double voting rights are attributed to all fully paid-up shares held in registered form for at least two consecutive years in the name of the same holder. The major shareholders of Dassault Systèmes SE do not hold voting rights which are different from voting rights of other shareholders (such as double voting rights). 194 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Shareholders 6 Shareholders AT DECEMBER 31, 2015 Shares % of capital Theoretical voting rights % of theoretical voting rights Voting rights exercisable in the General Meeting % of voting rights exercisable in the General Meeting Groupe Industriel Marcel Dassault 105,716,646 41.18% 210,104,554 55.12% 210,104,554 55.53% Charles Edelstenne (1) and beneficiaries (2) Bernard Charlès Treasury stock (3) Indirect treasury stock (4) Directors and senior management (5) Public TOTAL AT DECEMBER 31, 2014 15,618,506 6.08 % 31,033,732 8.14% 31,033,732 2,890,441 2,359,891 503,614 867,821 128,757,267 256,714,186 1.13% (6) 0.92% 0.20% 0.34% 5,239,723 2,359,891 503,614 914,765 1.37% (6) 5,239,723 0.62% 0.13% 0.24% – – 914,765 50.15 % 131,042,738 34.38% 131,042,738 100% 381,199,017(7) 100% 378,335,512(7) 8.20% 1.38% (6) – – 0.24% 34.65% 100% Groupe Industriel Marcel Dassault 105,386,646 41.11% 208,709,314 55.04% 208,709,314 55.74% Charles Edelstenne (1) and beneficiaries (2) Bernard Charlès Treasury stock (3) Indirect treasury stock (4) Directors and senior management (5) Public TOTAL AT DECEMBER 31, 2013 15,562,944 2,751,624 4,267,010 503,614 348,474 6.07% 30,978,146 8.17% 30,978,146 1.07% (6) 1.66% 0.20% 0.14% 4,719,926 4,267,010 503,614 390,618 1.24% (6) 4,719,926 1.13% 0.13% 0.10% – – 390,618 127,543,765 49.75% 129,610,747 34.19% 129,610,747 256,364,077(7) 100% 379,178,925(7) 100% 374,408,301(7) 8.27% 1.26% (6) – – 0.11% 34.62% 100% 6 Groupe Industriel Marcel Dassault 52,193,954 41.12% 103,855,288 55.28% 103,855,288 55.78% Charles Edelstenne (1) and beneficiaries (2) Bernard Charlès Treasury stock Indirect treasury stock (4) Directors and senior management (4) Public TOTAL 7,739,539 1,174,641 1,413,229 251,807 24,986 64,134,829 126,932,985 6.10% 15,391,802 8.21% 15,391,802 0.93% (6) 1.11% 0.20% 0.02% 1,973,688 1,413,229 251,807 39,389 1.05% (6) 1,973,688 0.75% 0.13% 0.02% – – 39,389 50.52% 64,909,781 34.56% 64,909,781 100% 187,866,910 100% 186,201,874 8.28% 1.06% (6) – – 0.02% 34.88% 100% (1) Including shares held in trust for the benefit of his family and managed by Mr. Edelstenne. (2) At December 31, 2015, Mr. Edelstenne held 4,001,806 shares with all ownership rights and 3,318 shares through two family companies which he manages, representing a total of 1.56% of the capital and 2.08% of the exercisable voting rights, as well as 11,613,382 shares with “usage” rights (usufruit). For the usage rights with respect to these 11,613,382 shares, representing 6.12% of the exercisable voting rights, Mr. Edelstenne can only exercise the right to vote on decisions of the General Meeting concerning the allocation of profits; the holders of the bare property rights (nue-propriété) exercise the right to vote for other resolutions in compliance with Article 11 of the by-laws. (3) Including 50,988 shares through the liquidity agreement. (4) Shares held by SW Securities LLC. This company is a subsidiary of Dassault Systèmes SE, Dassault Systèmes’ shares held by it do not have voting rights. (5) Excluding Mr. Edelstenne and Mr. Charlès, “management” includes the officers listed in paragraph 5.1.2 “The Executive Committee” of this Annual Report (Document de référence). (6) For further information, see Table 5 of paragraph 5.3.1 “Compensation of the Company’s Corporate Officers (mandataires sociaux)”. (7) The number of shares and voting rights making up the share capital were doubled after the two-for-one stock split applied to Dassault Systèmes’ shares on July 17, 2014. DASSAULT SYSTÈMES ANNUAL REPORT 2015 195 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Shareholders rights amounted The overall number of voting to 381,199,017 as at December 31, 2015 (the number of exercisable voting rights was 378,335,512) and, as at February 29, 2016, 381,332,631 (with the number of exercisable voting rights amounting to 377,951,197). The difference between the number of theoretical and exercisable voting rights is explained by the treasury stock and shares controlled by the Company. Investment management MFS (MFS) notified Dassault Systèmes SE that as of September 17, 2015 the funds managed by companies within its group (i) held more than 2.5% of the share capital of Dassault Systèmes SE and (ii) crossed downward the 2.5% threshold of the voting rights of Dassault Systèmes SE. Based on shareholders’ obligations to declare if they exceed the threshold, there are no other shareholders (except as indicated above) who held 2.5% (threshold set forth in the Company’s by-laws), directly or indirectly, alone or in agreement with other shareholders or more than 5% of the Company’s share capital or voting rights at December 31, 2015. Although Dassault Systèmes SE voluntarily delisted its shares from NASDAQ in October 2008, it continues to maintain its ADR (“American Depositary Receipts”) program, which are still traded on the over-the-counter market (see paragraph 6.4 “Stock Market Information”). On February 29, 2016 there were 7,594,253 American Depositary Shares (“ADS”) outstanding and the number of recorded ADS holders, holding them either for themselves or for third parties amounted to 55. In January 2016, Dassault Systèmes SE commissioned a survey on the Company’s shares from an external specialized services provider. According to this survey, institutional investors holding more than 2,000 shares each numbered 474 and held 42.8% of the Dassault Systèmes SE share capital as at December 31, 2015. As at February 29, 2016, Dassault Systèmes SE held 66,480 shares within the framework of the liquidity agreement entered into with Oddo et Cie, and 2,811,340 treasury shares. Out of these 2,811,340 treasury shares, 922,500 shares have been bought during the buyback program adopted by the General Meeting of May 28, 2015 and the remaining , i.e. 1,888,840 shares within the framework of a program of earlier buybacks, which represents approximately 1.09% of the share capital as at February 29, 2016, with no voting rights or dividend rights being attached to these shares. At December 31, 2015, 131,303,888 Dassault Systèmes shares (i.e. approximately 51.15% of the capital) are held in registered form; they provide entitlement to 252,976,302 exercisable voting rights (i.e. approximately 66.36% of the gross voting rights). In accordance with Article L. 225-102 of the French Commercial Code, the number of Dassault Systèmes shares held by employees through the corporate savings plan (plan d'épargne entreprise) was 340,230 shares at December 31, 2015, or approximately 0.13% of the total number of shares at that date. 6.3.2 Controlling Shareholder GIMD (Groupe Industriel Marcel Dassault) is the principal shareholder of Dassault Systèmes SE with, as of December 31, 2015, 41.18% of the share capital and 55.53% of the exercisable voting rights (i.e. 55.12% of theoretical voting rights). With more than 50% of the voting rights of Dassault Systèmes SE, GIMD controls Dassault Systèmes. GIMD is wholly-owned by the members of the Dassault family. In order to ensure that the control of GIMD is not exercised in an “improper” manner under the meaning of the General Regulations of the Financial Markets Authority (AMF), the Board of Directors of Dassault Systèmes SE is made up of 44% of independent directors i.e. a proportion exceeding the requirement stipulated in the AFEP-MEDEF Code for controlled companies, and that all of the committees under the Board (Audit Committee, Compensation and Nomination Committee, Scientific Committee) are only made up of independent directors. As GIMD possesses more than one third but less than half of the shares and more than half of the voting rights in the Company, GIMD may not increase its stake by more than 1% of the total number of shares of the Company in a period of 12 consecutive months, unless it launches a public tender offer on all the equity securities issued by Dassault Systèmes, except for an exemption from the obligation to make an offer based on Article 234-9 (6°) of the General Regulations of the Financial Markets Authority (AMF), which the latter can grant at its discretion. 196 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Shareholders 6 6.3.3 Shareholder Agreements In 2011, 2013, 2014 and 2015, Dassault Systèmes was informed about collective undertakings concluded concerning the holding of shares whose characteristics are summarized in the tables hereafter in accordance with Financial Markets Authority (AMF) recommendation no. 2009-16. Collective undertakings concluded in 2015 System Date of signing Duration of collective undertakings At least two years December 17, 2015 December 17, 2015 At least two years Article 787 B of the General Taxation Code Article 787 B of the General Taxation Code Contractual duration of the agreement Permanent with cases of termination Permanent with cases of termination Conditions for renewal No specific conditions stipulated No specific conditions stipulated Capital and voting rights % concerned by the agreement (at the date of its execution) 24.85% of the share capital and 33.33% of the voting rights 24.66% of the share capital and 33.20% of the voting rights Names of the signatories having the capacity of executives (1) Mr. Charles Edelstenne Mr. Bernard Charlès Mr. Charles Edelstenne Mr. Bernard Charlès Name(s) of the signatorie(s) having close links with executives Names of the signatories holding at least 5% of the capital and/or voting rights of Dassault Systèmes SE Groupe Industriel Marcel Dassault Groupe Industriel Marcel Dassault Groupe Industriel Marcel Dassault Mr. Charles Edelstenne and beneficiaries (2) Groupe Industriel Marcel Dassault Mr. Charles Edelstenne and beneficiaries (2) (1) Pursuant to Article 885 O bis of the General Taxation Code. (2) See Note 2 under the table of paragraph 6.3.1 “Shareholder Base and Double Voting Rights”. 6 Collective undertakings concluded in 2014 System Date of signing Duration of collective undertakings At least two years February 27, 2014 Article 787 B of the General Taxation Code Article 787 B of the General Taxation Code December 16 and 17, 2014 At least two years Contractual duration of the agreement Permanent with cases of termination Permanent with cases of termination Conditions for renewal No specific conditions stipulated No specific conditions stipulated Capital and voting rights % concerned by the agreement (at the date of its execution) 25.0% of the share capital and 33.8% of the voting rights 24.7% of the share capital and 33.4% of the voting rights Names of the signatories having the capacity of executives(1) Mr. Charles Edelstenne Mr. Bernard Charlès Mr. Charles Edelstenne Mr. Bernard Charlès Name(s) of the signatorie(s) having close links with executives Names of the signatories holding at least 5% of the capital and/or voting rights of Dassault Systèmes SE Groupe Industriel Marcel Dassault Groupe Industriel Marcel Dassault Groupe Industriel Marcel Dassault Mr. Charles Edelstenne and beneficiaries (2) Groupe Industriel Marcel Dassault Mr. Charles Edelstenne and beneficiaries (2) (1) Pursuant to Article 885 O bis of the General Taxation Code. (2) See Note 2 under the table of paragraph 6.3.1 “Shareholder Base and Double Voting Rights”. DASSAULT SYSTÈMES ANNUAL REPORT 2015 197 6 Information about Dassault Systèmes SE, the share capital and the ownership structure Information about the Shareholders System Date of signing Duration of collective undertakings At least two years July 11, 2011 October 29, 2013 At least two years Collective undertakings concluded in 2011 still in force Collective undertaking concluded in 2013 Article 787 B of the French Tax Code Article 787 B of the French Tax Code Contractual duration of the agreement Permanent with cases of termination Permanent with cases of termination Conditions for renewal No specific conditions stipulated No specific conditions stipulated Capital and voting rights % concerned by the agreement (at its date of execution) 29.6% of the share capital and 41.8% of the voting rights 28.2% of the share capital and 41.7% of the voting rights Names of the signatories having the capacity of executives(1) Mr. Charles Edelstenne Mr. Bernard Charlès Mr. Charles Edelstenne Mr. Bernard Charlès Name(s) of the signatorie(s) having close links with executives Names of the signatories holding at least 5% of the capital and/or voting rights of Dassault Systèmes SE Groupe Industriel Marcel Dassault Groupe Industriel Marcel Dassault Groupe Industriel Marcel Dassault Mr. Charles Edelstenne and beneficiaries(2) Groupe Industriel Marcel Dassault Mr. Charles Edelstenne and beneficiaries(2) (1) Pursuant to Article 885 O bis of the French Tax Code. (2) See Note 2 under the table of paragraph 6.3.1 “Shareholder Base and Double Voting Rights”. The same shares can be subject to several joint lock-up agreements. 198 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Information about Dassault Systèmes SE, the share capital and the ownership structure Stock Market Information 6 6.4 Stock Market Information Stock Exchange Shares of Dassault Systèmes have been listed on Compartiment A of Euronext Paris (ISIN code FR0000130650) since June 28, 1996. Its shares were also listed on the NASDAQ in the form of ADS (American Depositary Shares) under the symbol DASTY until October 16, 2008. The ADS are still traded under this symbol on the U.S. over-the-counter market. One ADS represents one ordinary share (see paragraph 6.3.1 “Shareholding 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 on May 26, 2016”. Share price history and trading volumes of Dassault Systèmes shares from January 1, 2015 (in euros except for Volume of shares traded) Volume of shares traded Share price on last day of the month Highest share price during the month Lowest share price during the month January 2015 February 2015 March 2015 April 2015 May 2015 June 2015 July 2015 August 2015 September 2015 October 2015 November 2015 December 2015 January 2016 February 2016 5,006,706 7,599,064 7,102,507 8,694,220 6,573,144 7,210,403 6,975,163 6,491,880 8,966,921 6,486,389 5,360,353 5,010,962 6,224,855 7,085,498 54.92 62.53 63.14 68.80 71.17 65.22 68.77 61.89 66.00 71.84 75.33 73.77 71.19 69.89 55.31 63.48 64.23 71.43 73.00 71.75 72.90 70.33 66.95 72.66 75.59 76.97 73.42 71.90 48.85 53.17 60.04 61.03 66.86 65.17 63.70 58.92 59.84 65.73 71.22 70.93 64.11 63.50 6 Person Responsible for Financial Communications François-José Bordonado Vice-President, Investor Relations Indicative Timetable for the Publication of Financial Information for 2016 (cid:125) First quarter of 2016: April 21, 2016 To obtain all financial information and documents published by the Company, please contact: Investor Relations Service 10, rue Marcel Dassault – CS 40501 78946 Vélizy-Villacoublay Cedex – France Telephone: +33 (0)1 61 62 69 24 Fax: +33 (0)1 70 73 43 59 e-mail: investors@3ds.com (cid:125) Second quarter of 2016: July 21, 2016 (cid:125) Third quarter of 2016: October 21, 2016 (cid:125) Fourth quarter of 2016: February 2017 DASSAULT SYSTÈMES ANNUAL REPORT 2015 199 6 Information about Dassault Systèmes SE, the share capital and the ownership structure 200 ANNUAL REPORT 2015 DASSAULT SYSTÈMES 7 GENERAL MEETING CONTENTS 7.1 Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 202 7.2 Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 208 DASSAULT SYSTÈMES ANNUAL REPORT 2015 201 7 General Meeting Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7.1 Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 Annual ﬁ nancial statements and allocation of the results We invite you to approve the annual financial statements of Dassault Systèmes SE (or the “Company” for the purposes of the present Chapter 7 “General Meeting”) for the year ended December 31, 2015, prepared on the basis of French accounting principles, as they have been presented in paragraph 4.2 “Parent company financial statements”. Dassault Systèmes SE has paid dividends every year since 1986. The decision to distribute dividends and their amount depend on the profits and the financial position of Dassault Systèmes SE 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 (Document de référence), a profit of €299,471,748.73(1) has been realized for the year ended December 31, 2015, which we propose that you allocate as follows: (cid:125) to the legal reserve (cid:125) for distribution to the 256,850,348 shares making up the share capital as of February 29, 2016 of a dividend of (€0.47 euro × 256,850,348 shares)(2) (cid:125) to retained earnings which, increased by the retained earnings from prior years of €1,784,847,265.29, brings the amount of retained earnings to €17,505.45 €120,719,663.56 €178,734,579.72 €1,963,581,845.01 (1) After allocation to the legal reserve, this profit increased by the retained earnings from prior years of €1,784,847,265.29, results in a distributable profit of €2,084,301,508.57. (2) The aggregate amount of dividend will be increased, based on the number of new shares created between March 1, 2016 and the date of the General Meeting of May 26, 2016, 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 2,872,387, i.e., a maximum amount of a supplementary dividend of €1,350,021.89. Further new shares created by exercise of options until the date of the annual General Meeting deciding on the allocation of profit related to the preceding year will receive the dividend distributed with respect to that year (see paragraphs 5.3.2.1 “Dassault Systèmes Share Subscription Options” and 6.4 “Stock Market Information”). by SW Securities LLC, a company which is controlled by the Dassault Systèmes Group, as of the date of payment, shall be allocated to “retained earnings”, in accordance with the provisions of Article L. 225-210 of the French Commercial Code and the contractual provisions in force between SW Securities LLC and Dassault Systèmes SE. Therefore, we propose to the General Meeting of May 26, 2016 to approve for the year 2015 the distribution of (i) a dividend of €0.47 per share comprising the capital as of the date of this General Meeting, resulting – on the basis of the number of shares comprising the share capital as of February 29, 2016 – in an aggregate amount of €120,719,663.56 and (ii) where applicable, an additional aggregate maximum amount of €1,350,021.89, which corresponds to the maximum number of new shares which could be issued between March 1, 2016 and the date of the General Meeting (i.e., 2,872,387 shares). Shares will be traded ex-dividend as of June 2, 2016 and dividends made payable as from June 24, 2016. On the date of payment, the amount of the dividend corresponding to (i) the treasury shares of Dassault Systèmes SE and (ii) the treasury shares of Dassault Systèmes SE held 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 shares subscription options between March 1 and the date of the General Meeting on May 26, 2016. The amount required for payment of dividends for shares issued during this period shall be taken from “retained earnings”. The amount distributed in this way 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 quater of the French Tax Code). 202 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 Pursuant to Article 243 bis of the French Tax Code, it is noted that dividends per share paid over the last three years have been as follows: Dividend (in euros) Number of shares eligible for dividends 2014 0.43 2013 0.83 2012 0.80 255,644,058 126,746,027* 125,572,474* * The number of shares was given before the two-for-one stock split of the Dassault Systèmes SE share on July 17, 2014. 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 no non-deductible tax expenses and charges have been borne by the Company and consequently no taxation has been borne by the Company in this respect. Consolidated ﬁ nancial statements In addition to the 2015 parent company annual financial statements, it is also proposed to approve the Company’s consolidated financial statements for the year ended December 31, 2015, prepared in accordance with IFRS standards as described in paragraph 4.1.1 “Consolidated Financial Statements”. Option to receive payment of dividends in the form of shares It is proposed that each shareholder be granted the option to choose in whole or in part, 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, in whole or in part, the new shares will be issued at a price equal to the average of the closing prices quoted on Euronext Paris during the 20 stock exchange sessions preceding the date of the General Meeting less the amount of the dividend and rounded up to the next one hundredth of a euro. Shareholders may choose in whole or in part, for the payment of the dividend in new shares between June 2 and June 15, 2016, 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 its authorized representative (Société Générale, securities department, 32 rue du Champ de Tir, CS 30812, 44308 Nantes Cedex 3). Accordingly, shareholders who have not chosen payment of dividends in shares before the end of this period or who have chosen only partial payment, will receive the dividend in cash for the portion for which payment in shares was not chosen as from June 24, 2016. 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 option selected does not correspond to a whole number of shares, the shareholder may choose between receiving a number of shares rounded up to the next whole number, by paying the difference in cash on the day the option is selected, or receiving a number of shares rounded down to the next whole number, and the balance in cash. Related-party agreements (conventions réglementées) The following agreements, which were approved in accordance with Articles L. 225-38 et seq. of the French Commercial Code, were in effect during the year ended December 31, 2015: (cid:125) the following undertakings made by the Company in connection with its “Directors & Officers” liability insurance policy entered into with Allianz (ACS): (cid:125) to reimburse, under certain conditions, the cost of legal defense of directors in the event of their personal liability being sought, and indemnify the directors for the financial implications of such liability payment of the costs in relation with legal defense related thereto, to the extent they would not be covered by that insurance policy (approved by the Board of Directors’ meeting held on July 24, 1996), (cid:125) to assume, under certain conditions, the cost of legal defense 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:125) agreement regarding the Company’s undertakings to the benefit of Bernard Charlès, relating to indemnities which would be due upon the termination of his functions as Chief Executive Officer. These agreements were reviewed by the Board of Directors at its meeting on March 17, 2016, in accordance with the provisions of Article L. 225-40-1 of the French Commercial Code. The Statutory Auditors have prepared a special report pursuant to Articles L. 225-40 and L. 225-40-1 of the French Commercial Code, as set forth in paragraph 4.2.4 “Special Report of the Statutory Auditors on Related-party Agreements and Commitments”. The General Meeting has been asked to take note of this report which refers to no new agreements . 7 DASSAULT SYSTÈMES ANNUAL REPORT 2015 203 7 General Meeting Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 Advisory opinion on the compensation elements due or granted with respect to 2015 to Mr. Charles Edelstenne, Chairman of the Board of Directors, and Mr. Bernard Charlès, Chief Executive Ofﬁ cer In accordance with the recommendation of the AFEP-MEDEF Code, it is proposed that the General Meeting issue an advisory opinion on the compensation elements due or granted with respect to 2015 to each executive officer as defined by this Code, namely Mr. Charles Edelstenne, Chairman of the Board of Directors and Mr. Bernard Charlès, Chief Executive Officer, whose compensation elements are summarized in the tables below (See also paragraphs 5.1 “Report of the Chairman on Corporate Governance and Internal Control” and 5.3.1 “Compensation of the Company’s Directors (mandataires sociaux)”). COMPENSATION ELEMENTS DUE OR GRANTED WITH RESPECT TO 2015 TO MR. CHARLES EDELSTENNE, CHAIRMAN OF THE BOARD OF DIRECTORS Compensation element (in euros) Observations Amount Fixed compensation (1) 982,000 Gross fixed compensation for 2015 set by the Board of Directors on March 20, 2015, upon the proposal of the Compensation and Nomination Committee. Annual variable compensation N/A Mr. Charles Edelstenne receives no annual variable compensation. Deferred annual variable compensation Multi-year variable compensation Directors’ fees (2) N/A Mr. Charles Edelstenne receives no deferred annual variable compensation. N/A Mr. Charles Edelstenne receives no multi-year variable compensation. 43,000 Gross amount of directors’ fees due for 2015. Extraordinary compensation N/A Mr. Charles Edelstenne receives no extraordinary variable compensation. Granting of share subscription options and/or performance shares Indemnity upon start or termination of function N/A Mr. Charles Edelstenne does not hold any share subscription options and was not granted any performance shares. N/A Mr. Charles Edelstenne receives no indemnity upon start or termination of function. Non-competition indemnity N/A Mr. Charles Edelstenne receives no non-competition indemnity. Additional retirement plan N/A No additional retirement plan was implemented by Dassault Systèmes SE. Benefits (3) N/A Mr. Charles Edelstenne receives no benefits in kind. (1) See also paragraph 5.1.4.1 “Compensation of Executive Officers”. In 2015, GIMD paid Mr. Charles Edelstenne, as GIMD’s Chief Executive Officer, gross fixed compensation of €800,000. (2) GIMD paid Mr. Charles Edelstenne €27,222 in directors’ fees in 2015 in connection with his mandate as a member of the Supervisory Board of GIMD. See also paragraph 5.1.4.4 “Directors’ Fees” on the conditions for distributing the directors’ fees at Dassault Systèmes SE. (3) In 2015, GIMD granted benefits in kind related to the use of a car in an amount of €10,440 to Mr. Charles Edelstenne. 204 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 COMPENSATION ELEMENTS DUE OR GRANTED WITH RESPECT TO 2015 TO MR. BERNARD CHARLÈS, CHIEF EXECUTIVE OFFICER Compensation elements Amount (in euros) Observations Fixed Compensation 1,325,000 Fixed gross compensation with respect to 2015 set by the Board of Directors on March 20, 2015 (1). Annual variable compensation 1,523,750 Variable gross compensation with respect to the 2015 actually paid and decided by the Deferred annual variable compensation Multi-year variable compensation Directors’ fees (2) Board of Directors on March 17, 2016 (1). N/A Mr. Bernard Charlès receives no deferred annual variable compensation. N/A Mr. Bernard Charlès receives no multi year annual variable compensation. 28,000 Gross amount of directors’ fees due for 2015. Extraordinary compensation N/A Mr. Bernard Charlès receives no extraordinary compensation. Granting of share subscription options and/or performance shares Indemnity upon start or termination of function 11,653,530 (3) Mr. Bernard Charlès was granted 300,000 2015-B shares by the Board of Directors on September 4, 2015 (4) (5). N/A Mr. Bernard Charlès receives under certain conditions an indemnity upon the termination of his functions, the amount of which 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. In accordance with Article L. 225-40-1 and L. 225-42-1 of the French Commercial Code, this commitment on the part of Dassault Systèmes SE was authorized by the Board of Directors on May 26, 2014 and approved by the General Meetings on May 28, 2015. The Board of Directors reviewed this commitment on March 17, 2016 as it remained in effect during 2015 (5 ). Non-competition-indemnity N/A Mr. Bernard Charlès receives no non-competition indemnity. Additional retirement plan N/A No additional retirement plan was implemented. Benefits 10,934 These benefits are related to the use of a car provided by Dassault Systèmes SE. (1) See also paragraph 5.1.4.1 “Compensation of Executive Officers”, and 5.3.1 Table 2 "Summary of the compensation of each Executive Officer". (2) See also paragraph 5.1.4.4 “Directors’ Fees” on the conditions for distributing the directors’ fees at Dassault Systèmes SE. (3) Value based on the method chosen for the consolidated financial statements, before the spreading of the expense and taking into account the performance criteria. (4) Such shares are granted to the Chief Executive Officer as part of the gradual process of associating him with the Company’s capital that began several years ago, with the aim of recognizing his entrepreneurial role during more than thirty years with the Company and providing him with an equity interest comparable to that of founders of companies in the same sector, and more generally, of his peers in technology companies around the world. 7 (5 ) See also paragraph 5.1.4.3 “Performance Shares and Share Subscription Options”. (6 ) See also paragraph 5.1.4.2 “Indemnities Due in the Event of the Imposed Departure (départ contraint) of the Chief Executive Officer”. Re-appointment of a director The term as director of Ms. Marie-Hélène Habert, whose appointment on an interim basis by the Board of Directors on July 23, 2014 was ratified by the General Meeting of May 28, 2015, expires at General Meeting of May 26, 2016. You are invited to re-appoint her as a director for a four-year term. For a presentation of the directors, see paragraph 5.1.1.1 “Composition of the Board of Directors”. If this proposal is approved, the Board of Directors will still include four women directors out of its nine members, i.e. a proportion of 44%, which is greater than that recommended by the AFEP-MEDEF Code and the law on the representation of women on Boards of Directors. The proportion of independent directors (44%) will remain greater than that recommended by the AFEP-MEDEF Code for controlled companies. DASSAULT SYSTÈMES ANNUAL REPORT 2015 205 7 General Meeting Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 Appointment of one new director After seeking an opinion from the Compensation and Nomination Committee, the Board of Directors proposes to appoint one new director, Mrs. Laurence Lescourret. 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. MRS. LESCOURRET – DIRECTOR CANDIDATE Biography: Laurence Lescourret has been an associate professor at the Finance Department of ESSEC Business School since 2010. She is also a director of ESSEC’s “Capital Markets and Regulation” Excellence Center and an afﬁ liate academic researcher at the Centre de Recherche en Economie et Statistique (CREST). She holds a PhD in ﬁ nance from HEC Paris (2003), a Master in management from EDHEC, a Master “104 Finance” from Paris Dauphine University, and a Master in political economy analysis from the Ecole d’Economie de Paris. Between 2004 and 2011, she was ﬁ rst an assistant professor, co-director and ultimately director of the ESSEC Finance Department. She also taught at ENSAE between 2000 and 2010. As an academic researcher, she is the author of several publications on organizing and regulating capital markets and has received distinction for her work. She was the 2013 recipient of the Vega Prize from the Federation of European Securities Exchanges and received the 2015 award for best research article on derivative products granted by the IFSID (Montreal Institute of Structured Finance and Derivatives). End of current term: General Meeting called to approve the ﬁ nancial statements for the year ended December 31, 2019. Dassault Systèmes shares owned at December 31, 2015: 0 Age: 42 Nationality: French Professional address: ESSEC Business School – Avenue Bernard Hirsch – 95021 Cergy-Pontoise - France Main position: Associate professor in the ﬁ nance department – ESSEC Business School Other current positions and Directorships: None Other positions held during the past five years: Member of the supervisory board of Groupe ESSEC Determination of amount of directors’ fees The General Meeting is invited to increase to €420,000 for the current and subsequent years, the maximum annual amount of directors’ fees allocated to directors, which is currently set at €350,000. This increase is justified by the necessity to hold an additional meeting of the Board of Directors since the transformation of Dassault Systèmes SE into a Societas Europaea, and by the designation of two additional directors, one of which is representing the employees. Auditex (which is a member of the Ernst & Young network) also expires this year. You are also invited to re-appoint it for the same term. In accordance with the law, (i) the Chief Executive Officer did not participate in the vote of the Board of Directors on this re-appointment proposal and (ii) the Audit Committee issued a positive recommendation on the re-appointment proposal. The amount of the professional fees received by Ernst & Young et Autres is stated in paragraph 5.5 of this Annual Report (Document de référence). Re-appointment of a Principal Statutory Auditor, Ernst & Young et Autres, and its deputy, Auditex Ernst & Young et Autres was appointed Principal Statutory Auditor on May 27, 2010. Since its term of office expires during the General Meeting called to approve the financial statements for the year ended December 31, 2015, you are invited to re-appoint it for a six-year term, until the General Meeting called to approve the financial statements for the year ended December 31, 2021. The term of its deputy 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 on May 28, 2015 will expire at the General Meeting of May 26, 2016. Under this authorization, share repurchases were made in 2015 and at the beginning of 2016 , as described in paragraph 6.2.5 “Stock Repurchase Programs”. In additions, repurchases were also made in 2015 and at the beginning of 2016 to stimulate the market or provide liquidity for the 206 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Presentation of the Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 Company’s shares through the intermediary of an investment services provider by means of a liquidity contract complying with a Code of Ethics accepted by the Financial Markets Authority (AMF) and initially entered into between Dassault Systèmes SE and Oddo Corporate Finance. This agreement has been automatically renewed for 2016. Additional share repurchases may be made until the date of the General Meeting, and will be described in the Annual Report (Document de reference) for the year ending December 31, 2016. 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 capital of the Company at the date of the General Meeting of May 26, 2016, for a maximum purchase price of €100 per share and within the limits stipulated in the applicable regulations. The maximum amount of funds dedicated to repurchase shares of the Company may not exceed €500 million. Should you approve this proposal, the authorization will be valid until the annual General Meeting approving the financial statements for the year ending December 31, 2016. This authorization to repurchase shares may be used 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 Extraordinary Meeting of Shareholders of the resolution permitting shares to be cancelled; to provide securities representing no more than 5% of the share capital of the Company in payment or in exchange, including external growth transactions; to stimulate 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 a Code of Ethics accepted by the Financial Markets Authority (AMF); to perform all obligations related to stock options grants or other grants of shares to employees or directors of the Company and its affiliates; to cover the Company’s commitments pursuant to rights to cash payments based on increases in the share price of the Company, granted to the employees and directors of the Company and its affiliates; 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 Financial Markets Authority (AMF). The share repurchase program is described in paragraph 6.2.5 “Stock Repurchase Programs”, 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. Authorizations with respect to the access of the employees to the share capital Authorization granted to the Board of Directors by the General Meeting to grant options to subscribe or to purchase shares on May 30, 2013 expires on July 30, 2016. You are invited to reauthorize the Board of Directors to grant options to subscribe or to purchase shares. This authorization would be granted for a period of 38 months, and the maximum number of options that may be granted by the Board of Directors that are still unexercised could not give a right to subscribe or acquire a number of shares exceeding 5% of capital. Information relating to the uses by the Board of Directors of the authorization granted in 2013 by the General Meeting, and to all Dassault Systèmes SE option plans is contained in paragraphs 6.2.4 “Delegations and Authorizations Granted to the Board of Directors by the General Meetings” and 5.3.2 “Interests of Executive Management and Employees in the Share Capital of Dassault Systèmes SE”. This authorization would supersede, for the unused portion, the prior authorizations granted to the Board of Directors. In accordance with the law and as a result of the proposal to authorize the granting of options to subscribe or purchase shares, there will also be a proposal to enable the Board of Directors to carry out capital increases reserved for employees of the Company and/or of associate companies and members of Company savings plans. The maximum nominal amount of the capital increases that may be carried out through the issue of new shares or securities giving access to capital would be €5 million. This new authorization will cancel and replace the one given by the General Meeting of September 4, 2015. Furthermore, pursuant to the AFEP-MEDEF Code and the recommendation of the Nomination and Compensation Committee, it is proposed to cap the number of options that could be granted to executive officers within the meaning of this Code at 35% of the authorized overall amount. 7 DASSAULT SYSTÈMES ANNUAL REPORT 2015 207 7 General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 Amendments to by-laws The General Meeting is invited to make two series of amendments to the Dassault Systèmes SE by-laws. The purpose of these revisions is to take into account the provisions relating to the director representing employees described in Article L. 225-27-1 of the French Commercial Code, to which the Company will be subject because, as of December 31, 2015, the Group has had more than 10,000 employees for the second consecutive year. It is in this framework that the General Meeting is required to approve the amendment of the Company by-laws to anticipate the terms for the appointment of the director representing employees on the Board of Directors. Because the Board of Directors of Dassault Systèmes SE has fewer than 12 members, only one director representing employees shall be appointed within six months of the General Meeting, i.e., by November 26, 2016. The draft amendment to the by-laws, prepared by the Board of Directors to be submitted to the vote of the General Meeting, states that the director representing employees shall be appointed by the trade union organization that has obtained the most votes in the first round of the elections for Works Council members. This method of appointment allows for fair representation of the employees on the Board. The Dassault Systèmes SE Works Council was consulted in accordance with the law, and it issued an opinion with respect to the method of appointment selected. In addition, we propose to modify the articles of association of Dassault Systèmes SE in order to extend to 85 years old, the maximum age of the President of the Board of Directors, and to allow the Board of Directors to appoint a Vice-Chairma n if it deems fit. Should this draft resolution be adopted by the General Meeting on May 26, 2016, the C ompensation and N omination C ommitee will recomme nd to the Board to appoint Bernard Charlès as Vice-Chairma n of the Board. information about the proposed You can find further resolutions in the draft resolutions submitted hereafter to you. 7.2 Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 Ordinary General Meeting ❘ First resolution ❘ Second resolution Approval of the parent company annual financial statements Approval of the consolidated 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 explanations made orally, hereby approves the report of the Board and the parent company annual financial statements for the year ended December 31, 2015, 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 fact that there is no non-deductible tax expenses and charges referred to in Article 39.4 of the French Tax Code, and that consequently such transactions did not give rise to corporate income tax. The General Meeting, after the reading of the report of the Board of Directors with respect to management of the Group included in the management report and the report related to the consolidated financial statements of the Statutory Auditors, in addition to the explanations made orally, hereby approves in all respects the report of the Board and the consolidated financial statements for the year ended December 31, 2015, as they have been presented. The General Meeting consequently approves any transactions disclosed by such consolidated financial statements or summarized in such reports. 208 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 ❘ Third resolution Allocation of the results The General Meeting, upon the proposal of the Board of Directors, hereby resolves to allocate the profit of the year amounting to €299,471,748.73(1) as follows: (cid:125) to the legal reserve (cid:125) for distribution to the 256,850,348 shares making up the share capital as of February 29, 2016 of a dividend of (€0.47 euro × 256,850,348 shares)(2) to retained earnings which, increased by the retained earnings from prior years of €1,784,847,265.29, brings the amount of retained earnings to €17,505.45 €120,719,663.56 €178,734,579.72 €1,963,581,845.01 (1) After allocation to the legal reserve, this profit increased by the retained earnings from prior years of €1,784,847,265.29, results in a distributable profit of €2,084,301,508.57. (2) The aggregate amount of the dividend will be increased, based on the number of new shares created between March 1, 2016 and the date of the General Meeting of May 26, 2016, 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 2,872,387, i.e., a maximum amount of a supplementary dividend of €1,350,021.89. Shares will be traded ex-dividend as of June 2, 2016 and dividends made payable as from June 24, 2016. On the date of payment, the amount of the dividend corresponding to (i) the treasury shares of Dassault Systèmes SE and (ii) the treasury shares of Dassault Systèmes SE held by SW Securities LLC, a company which is controlled by the Dassault Systèmes Group, as of the date of payment, shall be allocated to “retained earnings”, in accordance with the provisions of Article L. 225-210 of the French Commercial Code and the contractual provisions in force between SW Securities LLC and Dassault Systèmes SE. 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 shares subscription options between March 1, 2016 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 thus 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 quater 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 years have been as follows: 7 Dividend (in euros) Number of shares eligible for dividends 2014 0.43 2013 0.83 2012 0.80 255,644,058 126,746,027* 125,572,474* * The number of shares was given before the two-for-one stock split of the Dassault Systèmes SE share on July 17, 2014. ❘ Fourth resolution Option to receive payment of dividends in the form of shares The General Meeting, after the reading of the Board of Directors’ report, and finding that the capital is fully paid up, decides to offer each shareholder the possibility of choosing, in whole or in part, to receive payment of the dividend decided in the third resolution, and to which he is entitled, in the form of new shares in the Company. Each shareholder may decide, in whole or in part, to receive payment of the dividend in cash or in shares. If the shareholder chooses to receive payment of the dividend in the form of shares, the new shares will be issued without a discount at a price equal to the average of the closing prices quoted on the regulated market of Euronext Paris during the 20 stock exchange sessions preceding the date of the General Meeting 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 as from DASSAULT SYSTÈMES ANNUAL REPORT 2015 209 7 General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 January 1, 2016, and will have all the rights and privileges with the other shares issued by Dassault Systèmes SE. Shareholders may choose in whole or in part, payment of the dividend in cash or new shares between June 2 and June 15, 2016, 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 its authorized representative (Société Générale, securities department, 32 rue du Champ de Tir, CS 30812, 44308 Nantes Cedex 3). Failing exercise of such option as at June 15, 2016 at the latest, the dividend will only be paid out in cash. Shareholders who have not chosen payment of dividends in shares before the end of this period or who have chosen only partial payment, will receive the dividend in cash for the portion for which payment in shares was not chosen as from June 24, 2016. 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 dividend 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 with the shareholder paying the difference in cash on the day he/she chose to receive payment in the form of shares, or alternatively 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 Meeting gives full powers to the Board of Directors, with the right of sub delegation to the Chairman of the Board under the conditions provided by law, to carry out 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. ❘ Fifth resolution Related-party agreements (conventions réglementées) The General Meeting, having reviewed the special report of the Statutory Auditors on the agreements governed by Articles L. 225-38 et seq. of the French Commercial Code, acknowledges the report, which did not include any new agreements . 2015 to Mr. Charles Edelstenne, Chairman of the Board of Directors, as indicated in the 2015 Annual Report (Document de référence), under Chapter 5 “Corporate Governance”, paragraph 5.3.1 “Compensation of the Company’s Corporate Officers (mandataires sociaux)”. ❘ Seventh resolution Advisory opinion on the compensation elements due or granted with respect to 2015 to Mr. Bernard Charlès, Chief Executive Officer The General Meeting issues a favorable opinion on the compensation elements due or granted with respect to 2015 to Mr. Bernard Charlès, Chief Executive Officer, as indicated in the 2015 Annual Report (Document de référence), under Chapter 5 “Corporate Governance”, paragraph 5.3.1 “Compensation of the Company’s Corporate Officers (mandataires sociaux)”. ❘ Eighth resolution Re-appointment of Ms. Marie-Hélène Habert as director The General Meeting notes that Ms. Marie-Hélène Habert’s term as director expires at this General Meeting and re-appoints her for a four-year period. This term of office will expire at the General Meeting approving the financial statements for the year ending December 31, 2019. ❘ Ninth resolution Appointment of a new director The General Meeting decides to appoint Mrs. Laurence Lescourret as director of the Company for a four-year term. This term of office will expire at the General Meeting approving the financial statements for the year ending December 31, 2019. ❘ Tenth resolution Determination of the amount of directors’ fees The General Meeting sets forth the amount of the directors’ fees to be distributed among the directors at €42 0,000 for the current and subsequent years, until otherwise decided by the General Meeting. It gives all powers to the Board of Directors to allocate the directors’ fees, in whole or part, under conditions that it shall determine. ❘ Sixth resolution ❘ Eleventh resolution Advisory opinion on the compensation elements due or granted with respect to 2015 to Mr. Charles Edelstenne, Chairman of the Board of Directors The General Meeting issues a favorable opinion on the compensation elements due or granted with respect to Re-appointment of a Principal Statutory Auditor The General Meeting, after the reading of the report of the Board of Directors, decides to re-appoint Ernst & Young et Autres, whose registered office is located at 1-2 place des Saisons – Paris la Défense 1 – 92400 Courbevoie, France, as Principal Statutory Auditor for a term of six years, until the 210 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 General Meeting called to approve the financial statements for the year ending December 31, 2021. Ernst & Young et Autres has already indicated that it accepted its re-appointment. ❘ Twelfth resolution Re-appointment of a Deputy Statutory Auditor The General Meeting, after the reading of the report of the Board of Directors, decides to re-appoint Auditex, whose registered office is located 1-2 place des Saisons – Paris la Défense 1 – 92400 Courbevoie, France, as Deputy Statutory Auditor for a term of six years, until the General Meeting called to approve the financial statements for the year ending December 31, 2021. Auditex has already appointment. indicated that it accepted its re- ❘ Thirteenth resolution Authorization to repurchase shares of Dassault Systèmes SE 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 Systèmes SE 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 : to cancel shares for the purpose of increasing the profitability of shareholders’ equity and earnings per share, subject to adoption by the Extraordinary General Meeting of the four teenth 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 Financial Markets Authority (AMF); to perform all obligations related to stock options grants 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 cash payments based on increases in the share price of the Company; to provide shares upon exercise of rights to the Company’s share capital which are attached to issued securities; 1) 2) 3) 4) 5) 6) 7) 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 (i) use of available cash flow, (ii) 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 (iii) the implementation of optional transactions (purchase and sale of 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 €500 million, this condition being cumulative with the cap of 10% of the capital of the Company. Dassault Systèmes SE may not purchase shares at a price per share which exceeds €100 (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 Systèmes. This authorization shall be valid commencing on the date of this General Meeting until the Ordinary General Meeting approving the financial statements for the year ending December 31, 2016. 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 Financial Markets Authority (AMF), 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 Financial Markets Authority (AMF) 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 accordance 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. 7 to implement any stock exchange market practice which may be recognized by law or by the Financial Markets Authority (AMF). This authorization shall replace and supersede the previous share repurchase program authorized by the Combined General Meeting of May 28, 2015, in its fourteenth resolution. DASSAULT SYSTÈMES ANNUAL REPORT 2015 211 7 General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 Extraordinary General Meeting ❘ Fourteenth 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:125) 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:125) deduct the difference between the repurchase value of the canceled shares and their nominal value from available premiums and reserves. The General Meeting hereby gives, more generally, any and 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 Financial Markets Authority (AMF) 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 year ending December 31, 2016. ❘ Fifteenth resolution Authorization granted to the Board of Directors to grant options to subscribe or to purchase shares to the corporate officers (mandataires sociaux) and employees of Dassault Systèmes SE and its affiliated entities giving rise by virtue of law, to a waiver by the shareholders to the preferential subscription right 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, under the provisions of Articles L. 225-177 et seq. of the French Commercial Code, to grant options giving rights to the subscription of new shares or the purchase of existing shares (“Options”) to the employees and corporate officers (mandataires sociaux) of the Company or companies affiliated with it as defined by Article L. 225-180 of the French Commercial Code, or those among them that individually hold less than 10% of the capital of the Company (“Beneficiaries”); 2) decides that this authorization shall be granted for a term of 38 months from the date of this meeting; 3) decides that the maximum number of Options that may be granted by the Board of Directors that are still unexercised may not give a right to subscribe or acquire a number of shares exceeding 5% of capital. This limit shall be assessed at the time that the Options are granted by the Board and take into account not only the new options thus offered, but also from those that would result from the previous grants that remain unexercised; 4) decides that the maximum number of Options that may be granted to executive officers (dirigeants mandataires sociaux) under the AFEP-MEDEF Code shall represent no more than 35% of the overall amount authorized by this General Meeting; 5) decides that the list of the grantees of the Options among the Beneficiaries and the number of Options granted to each of them shall be freely determined by the Board of Directors; 6) notes that, in accordance with the law, that no Option to subscribe or purchase may be granted during the periods prohibited by Article L. 225-177 of the French Commercial Code; 7) decides that the subscription price of the new shares or the purchase price of existing shares through the exercise of Options shall be determined by the Board of Directors on the date that the Options are granted and that (i) should share subscription options be granted, the price thereof may not be less than 80% of the average trading price of the share on the Euronext Paris market during the twenty trading sessions preceding the date when the Options will be granted and (ii) should share purchase options be granted, the price thereof may not be less than the value indicated in (i) above or the average purchase price of the shares referred to in Article L. 225-179 of the French Commercial Code. The exercise price of the Options as determined above may not be modified unless the Company performs one of the financial transactions or securities trades referred to in Article L. 225-181 of the French Commercial Code. In this case, the Board of Directors will, pursuant to the laws and regulations in force, adjust the exercise price and the number of shares that may be acquired or subscribed by exercising the Options, as applicable, to take into account of the impact of the transaction; 8) notes that this authorization constitutes, for the Beneficiaries of the share subscription options, an express waiver by the shareholders of their pre-emptive subscription right to the shares that may be issued as the Options are exercised; 9) gives all powers to the Board of Directors for the purpose of setting the terms and conditions for the Options, which include but are not limited to the following: (cid:125) the period of validity of the Options, with the understanding that the Options must be exercised within a maximum period of 10 years, 212 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 (cid:125) the date(s) or periods for the exercise of the Options, with the understanding that the Board of Directors may (a) bring forward the dates or periods for the exercise of Options, (b) extend the exercisability of the Options or (c) modify the dates or periods during which the shares obtained through the exercise of Options may be transferred or converted into bearer shares, (cid:125) any clauses that prohibit the immediate resale of all or part of the shares obtained through the exercise of the Options, and such time limit imposed for the lock-up of shares may not exceed three years from the exercise of the Option, without prejudice to provisions of Article L. 225-185, paragraph 4 of the French Commercial Code, (cid:125) as appropriate, limiting, suspending, restricting or prohibiting the exercise of Options or the transfer or conversion into bearer form of the shares obtained through the exercise of the Options, for certain periods or after certain events, and such a decision may affect some or all of the Options or shares or some or all of the Beneficiaries, (cid:125) determining the dividend eligibility date, retroactive or otherwise, for the new shares from the exercise of share subscription options; 10) decides that the Board of Directors shall also have, with the option to delegate under the conditions set by law, all powers to record the capital increases in the amount of the shares that shall be actually subscribed by the exercise of the subscription Options, amend the by-laws accordingly, and, at its sole discretion, if it considers it appropriate, deduct the fees involved in carrying out the capital increases from the premiums relating to these capital increases as well as the sums necessary to increase the legal reserve to one-tenth of the new share capital after each capital increase, and carry out all formalities necessary for the listing of the securities thus issued and all declarations with any bodies and do anything else that may be necessary; 11) decides that this authorization supersedes as of this date the unused portion of the similar authorization granted by the sixteenth resolution of the Combined General Meeting of May 30, 2013. ❘ Sixteenth resolution Authorization of the Board of Directors to increase the share capital for the benefit of members of a corporate savings plan, without pre-emptive rights The General Meeting, having reviewed the report of the Board of Directors and the special report of the Statutory Auditors, pursuant to 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, first and second paragraphs, of the French Commercial Code: 1) authorizes the Board of Directors to increase the share capital of the Company, in one or several transactions, at its sole discretion, by a maximum nominal amount of €5 million through the issue of new shares or other securities giving access to the share capital of the law, Company under the conditions prescribed by reserved for members of corporate savings plans of the Company and/or its affiliated entities within the meaning of Articles L. 225-180 of the French Commercial Code and L. 3344-1 of the French Labor Code; 2) stipulates to eliminate the pre-emptive rights of shareholders to subscribe for the new shares to be issued or other securities giving access to share capital and securities to which these securities give entitlement under this resolution for the benefit of the members of the plans referred to in the previous paragraph and waives the rights to the shares or other securities that would be allocated through the application of this resolution; 3) stipulates that the maximum nominal amount that may be issued under this authorization shall be included in the maximum nominal amount for capital increases of €12 million set under the sixteenth resolution of the General Meeting of May 28, 2015; 4) stipulates that the subscription price for the new shares will be at least 80% of the average listed price of the Company’s shares on Euronext Paris in the 20 trading days preceding the day on which subscriptions open, where the lock-up period set by the savings plan in accordance with Article L. 3332-25 of the French Labor Code is shorter than ten years, and 70% of this average where the lock-up period is ten years or more. However, the General Meeting of Shareholders expressly authorizes the Board of Directors, if it deems it appropriate, to reduce or cancel the above-mentioned discounts, within the legal and regulatory limits, in order to take account of, inter alia, the legal, accounting, tax and social security rules applicable locally; 5) stipulates that the Board of Directors may also replace all or part of the discount with the free allocation of shares or other securities giving access to the share capital of the Company, whether existing or to be issued, it being specified that the total benefit resulting from this allocation and, if applicable, from the discount mentioned above, cannot exceed the total benefit that members of the savings plan would have received if this difference had been 20% or 30%, depending on whether the lock- up period set by the plan is greater than or equal to ten years; 6) stipulates that the Board of Directors may proceed, in accordance with Article L. 3332-21 of the French Labor Code, the free allocation of shares or other securities giving access to the share capital of the Company to be issued or already issued under a bonus scheme, provided that the inclusion of their monetary value, valued at the subscription price, does not result in the legal or regulatory limits being exceeded; 7) stipulates that the characteristics of the other securities giving access to the share capital of the Company will be determined by the Board of Directors according to the conditions laid down by the regulations; 7 DASSAULT SYSTÈMES ANNUAL REPORT 2015 213 7 General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 8) stipulates that the Board of Directors will have all the necessary powers, with the option for delegation or sub- delegation, in accordance with the legal and regulatory provisions, within the limits and under the conditions specified above, to determine all the terms and conditions of transactions and, in particular, to decide on the amount to be issued, the issue price and the terms of each issue, and to define the terms for the free allocation of shares or other securities giving access to share capital, in application of the authorization given above, to determine the opening and closing dates for subscriptions, to set, within the maximum limit of three years, the period granted to subscribers to pay for their shares, to determine the date, which may be retroactive, from which the new shares will be eligible for dividends, to apply for their admission to listing on the stock market wherever they are advised to do so, to record the capital increase in the amount of shares effectively subscribed for, to make all necessary arrangements to carry out the capital increases, carry out all formalities arising therefrom and amend the by-laws accordingly, and at its sole discretion, and if it deems it appropriate, to deduct the fees involved in carrying out the capital increases from the premiums relating to these capital increases as well as the sums necessary to increase the legal reserve to one-tenth of the new share capital after each capital increase; 9) stipulates that this authorization cancels and replaces all previous authorizations relating to capital increases reserved for members of corporate savings plans, and in particular, that granted by the General Meeting of September 4, 2015 in the second resolution; 10) the authorization thus granted to the Board of Directors is valid for 26 months from the date of this General Meeting. ❘ Seventeenth resolution Amendments to by-laws The General Meeting, after review of the report of the Board of Directors, decides to: 1. amend paragraphs 1 and 3 of Article 14 of the by-laws “Board of Directors”, which states as follows: “Article 14 – Board of Directors 1. Composition The Company shall be administered by a Board of Directors established in accordance with the Law. Directors shall be appointed and their positions renewed by an ordinary shareholders meeting, which may remove them at any time. However, in the event of merger or split-up, d irectors may be appointed by an extraordinary shareholders meeting. Directors may be individuals or legal entities. Directors who are legal entities must, at the time of their appointment, designate a permanent representative, who shall be subject to the same conditions and obligations and who shall incur the same civil and criminal liability as if he were a d irector on his own behalf, without prejudice to the joint and several liability of the legal entity that he represents. This mandate of permanent representative shall be given to him for the duration of the mandate of the legal entity that he represents; it must be renewed whenever the mandate of the legal entity is renewed. When the legal entity revokes its representative, it must so notify the Company, immediately, by registered letter and appoint a new permanent representative under the same terms; the same shall hold true in the event of death or resignation of the permanent representative. An individual d irector may have multiple mandates in a board of directors or supervisory board, in so far as the rules of Law are complied with. An employee of the Company may be appointed as d irector only if his/her employment contract predates his appointment and that the contract corresponds to an actual job. The number of d irectors bound to the Company by an employment contract may not exceed one third of the d irectors in office.” […] “3. Vacancy of Seats – Cooptation In the event of vacancy due to the death or resignation of one or more of the directors, the Board of Directors may make temporary appointments between two Shareholders Meetings. However, if only one or two directors remain in office, such director or directors, or otherwise the auditor(s), must immediately convene the Ordinary Shareholders Meeting to fill the remaining seats on the Board of Directors. Provisional appointments made by the Board of Directors shall be subject to confirmation by the next Ordinary Shareholders Meeting. In the absence of such confirmation, the resolutions adopted and the acts accomplished previously by the Board of Directors shall remain valid nevertheless. A director appointed in replacement of another shall remain in office only for the un-elapsed remainder of his predecessor’s term of office.” 2. add a paragraph 4 to Article 14 of the by-laws “Board of Directors”, entitled “Director representing employees”, which states as follows: “4. Director representing employees In accordance with Article L. 225-27-1 of the French Commercial Code, the Board of Directors also includes a director representing employees appointed by the trade union organization that has obtained the highest number of votes in the first round of the elections referred to in Articles L. 2122-1 and L. 2122-4 of the French Labor Code in the Company and its direct or indirect subsidiaries whose registered office is located on French territory. The failure to appoint a director representing employees pursuant to and under the conditions of the law and this 214 ANNUAL REPORT 2015 DASSAULT SYSTÈMES General Meeting Draft Resolutions Proposed by the Board of Directors to the General Meeting on May 26, 2016 7 article does not impair the validity of the deliberations of the Board of Directors. The term of office of a director representing employees is four years. The term of office of the director representing employees shall expire at the end of the General Meeting called to approve the parent company financial statements for the previous year held during the year in which his or her term of office expires. In the event of vacancy of a director representing employees, for whatever reason, his or her replacement shall be appointed according to the same procedure as the director in question and shall remain in office only for the remainder of his or her predecessor’s term. Up to the date of such replacement, the Board of Directors may meet and deliberate validly. If, at the close of a year, the provisions of Article L. 225-27- 1 of the French Commercial Code are no longer applicable to the Company, the term of the director representing employees expires at the end of the Ordinary General Meeting called to approve the financial statements for that year. Paragraphs 1 to 3 of this Article shall not apply to the director representing employees, with the exception of the rules on simultaneous offices referred to in paragraph 1 and the rules relating to reappointment referred to in paragraph 2. Subject to the provisions of this Article or of the provisions of the law, the director representing employees has the same status, rights and responsibilities as other directors.” 3. amend paragraphs 1 and 3 of Article 15 of the by-laws “Chairmanship – Organization of the Board of d irectors” as follows: "1. From among its individual members, the Board of Directors shall elect a Chairman and set his term of office, which term may not exceed his term of office as Director. The Board of Directors may also, under the same conditions, elect a Vice-Chairman. The Chairman may not be more than eighty-five years of age. Should he exceed this age limit , he shall be considered to have resigned automatically. In the case of a temporary incapacity or death of the Chairman, the Vice-Chairman shall serve as Chairman on an interim basis and, in the event that no Vice Chairman has been appointed, the Board of Directors may appoint a Director to assume the role of Chairman. The replacement of the Chairman by the Vice-Chairman or by the delegate shall end on the date of resumption of the duties of the Chairman or as the case may be, upon the election of a new Chairman.” […] “3. Should the Chairman be absent or unavailable to preside over a meeting of the Board of Directors, the Vice-Chairman shall serve as Chair, and in the event that no Vice-Chairman has been appointed, the Board shall appoint, for that relevant meeting, one of its members present to chair the meeting.” 4. amend the title of Article 20 as follows: "Article 20 - Compensation of Directors, the Chairman of the Board of Directors, the Vice-Chairman, Senior Management, agents of the Board of Directors and members of committees." 5. amend paragraph 2 of Article 20 of the by-laws "Compensation of Directors, the Chairman of the Board of Directors, the Vice-Chairman, Senior Management, agents of the Board of Directors and members of committees"as follows: The compensation of the Chairman of the Board of Directors and the compensation of the Directeur general, and, as the case may be, the compensation of the Vice-Chairman and the Directeurs généraux délégués, shall be determined by the Board of Directors. It may be fixed or proportional, or both." 7 6. amend the first item of the second paragraph of Article 28 "General Meetings - Secretariat - Minutes" as follows: "Shareholders meetings shall be chaired by the Chairman of the Board of Directors. In his absence, such meetings are chaired by the Vice-Chairman or by a Director specifically delegated by the Board of Directors for that purpose." The other provisions of the By-laws remain unchanged. . Ordinary and Extraordinary General Meeting ❘ Eigh teenth 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. DASSAULT SYSTÈMES ANNUAL REPORT 2015 215 T Cross-reference tables Annual ﬁ nancial report CROSS-REFERENCE TABLES Annual ﬁ nancial 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 222-3 of the General Regulation of the Autorité des marchés 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 4.2 4.1 Pages 124 86 See Annual Management report cross-reference table below – 4.2.3 4.1.2 5.5 3 146 122 184 216 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Cross-reference tables Annual management report T 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 et seq. of the French Commercial Code. Annual management report 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 2015 8. 9. Information Required by the Article L. 225-100-3: Possible Consequences in Case of a Public Tender Offer Information Required by the Article L. 225-211 of the French Commercial Code, Relating to the Shares Repurchases 10. Situation during the Fiscal year 2015 11. Foreseeable Trend of the Situation 12. Substantial Events Occurred since the End of 2015 13. Research & Development Activities 14. Business and Results of Operations of the Parent Company Dassault Systèmes SE 15. Business and Results of the Parent Company’s Subsidiaries during the Fiscal Year 2015 16. 2016 Business Outlook 17. Selected Financial Information of Dassault Systèmes SE 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 Systèmes in 2015 20. List of the Terms and Responsibilities of the Directors (mandataires sociaux) of Dassault Systèmes in 2015 21. Social and Environmental Information Reference Document Paragraphs Pages 3.1 3.1 3.1 1.6 72 72 72 28 4.1.1 – Notes 2, 21 92, 113 1.6.2 6.2.4 5.1.7.2 6.2.5 3.1, 4.1, 4.2 3.1.1.1, 3.2 4.2.1 – Note 23 1.5 1.3, 1.4, 4.2 1.3.2, 1.4 3.1.1.1, 3.2 4.2.2 6.3.1 5.3 5.1.1.1 2 35 191 170 193 72, 86, 124 72, 83 143 27 12, 14,124 13, 14 72, 83 145 194 172 152 37 22. Equity Holdings or Controlled Companies, Subsidiaries with a French Head-Office 4.2.1 – Notes 1, 24 128, 144 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 5.4 4.2.1 – Note 19 5.1 7.1 181 141 152 202 T DASSAULT SYSTÈMES ANNUAL REPORT 2015 217 T Cross-reference tables Cross-reference table including the European Directive no. 809/2004 – Annex 1 items 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 Reference Document Paragraphs Pages 1. 2. 3. 4. 5. 6. 7. 8. PERSONS RESPONSIBLE 1.1 Name and function of the persons responsible 1.2 Declaration of the persons responsible STATUTORY AUDITORS SELECTED FINANCIAL INFORMATION RISK FACTORS INFORMATION ABOUT THE ISSUER 5.1 History and development of the Company 5.2 Investments BUSINESS OVERVIEW 6.1 Principal activities 6.2 Principal markets 6.3 6.4 Exceptional factors 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 ORGANIZATIONAL STRUCTURE 7.1 Brief description of the Group 7.2 List of the significant subsidiaries 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 fixed assets OPERATING AND FINANCIAL REVIEW 9. 10. CAPITAL RESOURCES 11. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 12. TREND INFORMATION 13. PROFIT FORECASTS OR ESTIMATES 14. ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES AND SENIOR MANAGEMENT 14.1 Information relating the Board of Directors and Senior Management 14.2 Administrative, Management and Supervisory Bodies and Senior Management Conflicts of Interests 15. REMUNERATION AND BENEFITS 3 3 184 6 28 8 11 14 18 28 14 12 13 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 2.2.2.3, 4.1.1 – Notes 14, 25 60,107,119 2.2.2.3 3.1 3.1.4 1.5 1.6.1.1 3.2 60 72 83 27 28 83 5.1.1, 5.1.2 5.1.3 152, 162 163 15.1 Amount of remuneration paid and benefits in kind 5.3 15.2 Amount set aside or accrued to provide pension, retirement or similar benefits 5.3.1 – Table 11 172 176 218 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Cross-reference tables Cross-reference table including the European Directive no. 809/2004 – Annex 1 items T European directive – Annex 1 items 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 Reference Document Paragraphs 5.1 5.1.1.1 5.1.3 5.1.1.3 Pages 152 152 163 160 16.4 Statement of compliance with the regime of corporate governance 5.1, 5.1.5 152, 166 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 25. INFORMATION ON HOLDINGS 2.1.1 5.1.1, 5.3.2 39 152,176 None 6.3 6.3.1 6.1.2.3 6.3.2 6.3.3 194 194 188 196 197 4.1.1 – Note 26, 4.2.4, 7.1 120,148,202 4.1 86 Not applicable 4.1, 4.2 86, 124 4.1.2, 4.2.3, 4.2.4 122, 146, 148 December 31, 2015 3.3 7.1 4.3 None 6.2, 6.3 6.1.2 1.4.3 Not applicable 84 202 150 189,194 187 26 T 6.1.1.6 186 1.3.2, 4.1.1 – Note 27, 4.2.1 – Note 24 13, 121,144 DASSAULT SYSTÈMES ANNUAL REPORT 2015 219 T Cross-reference tables NRE correspondence table NRE correspondence table Article R. 225-105-1 of the French Commercial Code items EMPLOYMENT Total employees and distribution by gender, age and geographic location New hires and departures Compensation ORGANIZATION OF WORKING TIME Absenteeism LABOR RELATIONS Organization of employee relations and employee communications, consultation and negotiation procedures Summary of collective agreements HEALTH AND SAFETY 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 Training policies Total training time EQUAL TREATMENT Measures for the equal treatment of women and men Measures for the employment of disabled persons Anti-discrimination policy PROMOTION OF AND RESPECT FOR THE PROVISIONS OF THE BASIC CONVENTIONS OF THE INTERNATIONAL LABOR ORGANIZATION ON Respect for the freedom of association and the right to collective negotiation Eliminating discrimination at work Eliminating forced labor Eliminating child labor INFORMATION ON SOCIETAL COMMITMENTS AND COMMITMENTS TO SUSTAINABLE DEVELOPMENT Regional, economic and social impact of the business in terms of employment and regional development, on nearby or local populations Relations with individuals and organizations interested by the Company’s business (job placement associations, educational establishments, environmental protection associations, etc.), partnership and sponsorship Sub-contractors and suppliers: social responsibility. Taking social and environmental issues into account in the purchasing policy. Importance of sub-contracting. Taking suppliers’ and sub-contractors’ social and environmental responsibility into account in relations with them Good citizen practices (actions to prevent corruption and measures to protect the health and safety of consumers) and other measures to support human rights GENERAL POLICY ON ENVIRONMENTAL ISSUES Organizing the Company to take into account environmental issues. If need be, environmental assessment or certification processes Employee training and information actions regarding environmental protection Resources devoted to the prevention of environmental risks and pollution Amount of provisions and guarantees for environmental risks 220 ANNUAL REPORT 2015 DASSAULT SYSTÈMES Reference Document Paragraphs Pages 2.1.1, 2.1.7 2.1.2, 2.1.7 39,56 42,56 2.1.4 2.1.1 2.1.5 2.1.5 2.1.5 2.1.5 2.1.5 2.1.2 2.1.2 2.1.2 2.1.2 2.1.2 2.1.5 2.1.2 2.1.5 2.1.5 2.1.2 2.1.2 2.1.1 2.1.5 2.2.1 2.2.3 2.2.6 2.2.6 50 39 52 52 52 52 52 42 42 42 42 42 52 42 52 52 42 42 39 52 58 65 67 67 Article R. 225-105-1 of the French Commercial Code items POLLUTION AND WASTE MANAGEMENT Measures for preventing, recycling or eliminating waste SUSTAINABLE USE OF RESOURCES Water consumption Consumption of raw materials Measures taken to improve the efficiency of the use of raw materials Energy consumption Measures taken to improve energy efficiency and the use of renewable energy CLIMATE CHANGE Greenhouse gas emissions Cross-reference tables NRE correspondence table T Reference Document Paragraphs Pages 2.2.2.5 and 2.2.4 61, 65 2.2.2.5 2.2.2.5 and 2.2.4 2.2.2.5 and 2.2.4 2.2.2.5 2.2.2.5 2.2.2.5 61 61, 65 61, 65 61 61 61 Information not published due to lack of relevancy Explanation Frequency/severity rate of work accidents. Professional illnesses. Consideration of noise pollution Land use Water supply in accordance with local constraints Adaptation to the consequences of climate change Biodiversity protection Given the nature of Dassault Systèmes’ activity, the number of work accidents is low and consists of only a few cases per year. This indicator is not calculated. Given Dassault Systèmes’ activity, these topics are not covered. The Group is not aware of any noise pollution that could negatively impact the environment, nor is it aware of any impact on biodiversity. With regards to land use, the Group is only a commercial user, and the Group is not aware of any local constraints with regards to water supply. The Group does not believe that it is at risk with regards to climate change in the near-or mid-term. T DASSAULT SYSTÈMES ANNUAL REPORT 2015 221 222 ANNUAL REPORT 2015 DASSAULT SYSTÈMES DASSAULT SYSTÈMES ANNUAL REPORT 2015 223 224 ANNUAL REPORT 2015 DASSAULT SYSTÈMES

Continue reading text version or see original annual report in PDF format above