Form 20-F 2005
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
o |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005 |
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
o |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report__________
For the transition period from _________ to ________________ |
COMMISSION FILE NUMBER 0-28578
DASSAULT SYSTÈMES
(Exact name of Registrant as specified in its charter)
FRANCE
(Jurisdiction of incorporation or organization)
9, quai Marcel Dassault
B.P. 310, 92156 Suresnes Cedex, France
(33-1) 40-99-40-99
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
American
Depositary shares, each representing one common share, |
The Nasdaq National Market |
Common Stock, nominal value 1 per share |
The Nasdaq National Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the Annual Report.
Common Stock, nominal value 1 per share as of December 31, 2005: 115,038,378
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes x No
Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): x Large accelerated filer o Accelerated filer o Non-accelerated filer
Indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 x Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes |
x No |
DASSAULT SYSTÈMES Form 20-F 2005 3
|
||||
|
|
|
||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|
||
|
|
|||
|
Material Modifications to the Rights of Security Holders and Use of Proceeds |
|
||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
|
||
|
|
|
||
|
||||
|
||||
|
4 DASSAULT SYSTÈMES Form 20-F 2005
Terminology Used in this Annual Report
Our Principal Companies and Brands
Companies |
|
Main Brands |
|
|
|
Product Lifecycle Management (PLM) business |
|
|
Dassault Systèmes or the Group: our parent company Dassault Systèmes S.A. (the Company) and its subsidiaries |
|
CATIA |
ABAQUS, which refers to ABAQUS Inc. and its subsidiaries |
|
ABAQUS |
Delmia, which refers to Delmia Corp. and its subsidiaries |
|
DELMIA |
Enovia, which refers to Enovia Corp. and its subsidiaries |
|
ENOVIA |
SmarTeam, which refers to SmarTeam Corporation Ltd. and its subsidiaries |
|
SMARTEAM |
Spatial Corp., which refers to Spatial Corp. and its subsidiaries |
|
ACIS |
SRAC, which refers to Structural Research & Analysis Corporation |
|
CosmosWorks and DesignStar |
Mainstream 3D business |
|
|
SolidWorks, which refers to SolidWorks Corporation and its subsidiaries |
|
SolidWorks |
You can find descriptions of our Main Brands in Item 4.B Business Overview - Market Structure and Brands.
Our Business
Product Lifecycle Management (PLM) and Mainstream 3D: We currently organize our business and market our products and services principally according to two types of applications: PLM and Mainstream 3D. We describe them in Item 4B. Business Overview - Summary and - Market Structure and Brands.
Process-centric and Design-centric: These are our two business segments.
|
the Process-centric segment refers to our PLM products and services, and |
|
the Design-centric segment refers to our Mainstream 3D products. |
Our Technology
CAA: Component application architecture, described in Item 4B. Business Overview - Market Structure and Brands under PLM Releases in 2005.
CMP: Channel Management Provider, described in Item 4B. Business Overview - Sales and Marketing.
PDM: Product data management. PDM products refers collectively to our products under the ENOVIA and SMARTEAM brands.
DMU: Digital mock-up, described in Item 4B. Business Overview - Market Structure and Brands under ENOVIA.
PPR: Product, process and resources, described in the Overview section of Item 4B. Business Overview - Technology, Research and Development.
V5 (Version 5): our current generation software platform, described in the Version 5 technology section of Item 4B. Business Overview - Technology, Research and Development.
3D XML: 3D Extensible Markup Language, described in the Overview section of Item 4B. Business Overview - Technology, Research and Development.
DASSAULT SYSTÈMES Form 20-F 2005 5
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
6 DASSAULT SYSTÈMES Form 20-F 2005
Item 1: Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2: Offer Statistics and Expected Timetable
Not applicable.
DASSAULT SYSTÈMES Form 20-F 2005 7
A. Selected Financial Data
The following selected consolidated financial data with respect to each of the years in the five-year period ended December 31, 2005 are derived from our audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles.
|
|
Year ended December 31, |
|
||||||||||||||||
|
|
|
|
||||||||||||||||
(in millions, except per share data and percentages) |
|
2005 (1) |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated Statement of Income Data (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software revenue (3) |
|
$ |
987.3 |
|
|
783.6 |
|
|
670.9 |
|
|
645.6 |
|
|
669.9 |
|
|
643.0 |
|
Services and other revenue |
|
|
190.1 |
|
|
150.9 |
|
|
125.7 |
|
|
109.2 |
|
|
104.2 |
|
|
103.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total revenue |
|
|
1,117.5 |
|
|
934.5 |
|
|
796.6 |
|
|
754.8 |
|
|
774.1 |
|
|
746.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Software |
|
|
(33.8 |
) |
|
(26.8 |
) |
|
(21.7 |
) |
|
(21.7 |
) |
|
(24.4 |
) |
|
(20.8 |
) |
Services and other |
|
|
(145.3 |
) |
|
(115.3 |
) |
|
(101.0 |
) |
|
(89.7 |
) |
|
(96.4 |
) |
|
(86.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total cost of revenue |
|
|
(179.0 |
) |
|
(142.1 |
) |
|
(122.7 |
) |
|
(111.4 |
) |
|
(120.8 |
) |
|
(107.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Gross profit |
|
|
998.4 |
|
|
792.4 |
|
|
673.9 |
|
|
643.4 |
|
|
653.3 |
|
|
638.7 |
|
Research and development |
|
|
(315.0 |
) |
|
(250.0 |
) |
|
(221.9 |
) |
|
(215.6 |
) |
|
(221.6 |
) |
|
(209.2 |
) |
Marketing and sales |
|
|
(281.0 |
) |
|
(223.0 |
) |
|
(173.7 |
) |
|
(162.4 |
) |
|
(169.7 |
) |
|
(164.3 |
) |
General and administration |
|
|
(73.8 |
) |
|
(58.6 |
) |
|
(47.1 |
) |
|
(46.8 |
) |
|
(47.9 |
) |
|
(44.2 |
) |
Amortization of goodwill |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
(44.2 |
) |
Amortization of acquired intangibles |
|
|
(12.3 |
) |
|
(9.8 |
) |
|
(1.4 |
) |
|
(5.9 |
) |
|
(11.1 |
) |
|
(14.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total research, selling and administrative expenses |
|
|
(682.2 |
) |
|
(541.4 |
) |
|
(444.1 |
) |
|
(430.7 |
) |
|
(450.3 |
) |
|
(476.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating income |
|
|
316.3 |
|
|
251.0 |
|
|
229.8 |
|
|
212.7 |
|
|
203.0 |
|
|
162.6 |
|
As a percentage of total revenue |
|
|
26.9 |
% |
|
26.9 |
% |
|
28.8 |
% |
|
28.2 |
% |
|
26.2 |
% |
|
21.8 |
% |
Financial revenue and other, net |
|
|
19.3 |
|
|
15.3 |
|
|
7.5 |
|
|
(0.4 |
) |
|
2.8 |
|
|
14.1 |
|
Income before income taxes |
|
|
335.5 |
|
|
266.3 |
|
|
237.3 |
|
|
212.3 |
|
|
205.8 |
|
|
176.7 |
|
Income tax expense |
|
|
(114.4 |
) |
|
(90.8 |
) |
|
(80.9 |
) |
|
(76.9 |
) |
|
(79.4 |
) |
|
(88.0 |
) |
Net income |
|
$ |
221.1 |
|
|
175.5 |
|
|
156.4 |
|
|
135.4 |
|
|
126.4 |
|
|
88.7 |
|
As a percentage of total revenue |
|
|
18.8 |
% |
|
18.8 |
% |
|
19.6 |
% |
|
17.9 |
% |
|
16.3 |
% |
|
11.9 |
% |
Basic net income per share |
|
$ |
1.94 |
|
|
1.54 |
|
|
1.38 |
|
|
1.20 |
|
|
1.11 |
|
|
0.78 |
|
Diluted net income per share |
|
$ |
1.88 |
|
|
1.49 |
|
|
1.35 |
|
|
1.18 |
|
|
1.09 |
|
|
0.76 |
|
Weighted average number of shares outstanding |
|
|
114.0 |
|
|
114.0 |
|
|
116.2 |
|
|
114.7 |
|
|
114.1 |
|
|
113.7 |
|
Dividends per share (7) |
|
$ |
0.53 |
|
|
0.42 |
|
|
0.38 |
|
|
0.34 |
|
|
0.33 |
|
|
0.33 |
|
8 DASSAULT SYSTÈMES Form 20-F 2005
|
|
Year ended December 31, |
|
||||||||||||||||
|
|
|
|
||||||||||||||||
(in millions, except per share data and percentages) |
|
2005 (1) |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Supplemental Non-GAAP Statement of Income Data (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,188.9 |
|
|
943.6 |
|
|
796.6 |
|
|
754.8 |
|
|
774.1 |
|
|
746.1 |
|
Operating income |
|
|
340.1 |
|
|
269.9 |
|
|
231.2 |
|
|
218.6 |
|
|
214.1 |
|
|
221.0 |
|
As a percentage of total revenue |
|
|
28.6 |
% |
|
28.6 |
% |
|
29.0 |
% |
|
29.0 |
% |
|
27.7 |
% |
|
29.6 |
% |
Net income |
|
|
235.9 |
|
|
187.2 |
|
|
157.6 |
|
|
140.4 |
|
|
136.0 |
|
|
144.0 |
|
Diluted net income per share |
|
|
2.00 |
|
|
1.59 |
|
|
1.36 |
|
|
1.22 |
|
|
1.17 |
|
|
1.23 |
|
|
|
December 31, | ||||||||||||||||
|
|
| ||||||||||||||||
(in millions) |
|
2005 (1) |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consolidated Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments |
|
$ |
478.7 |
|
|
379.9 |
|
|
552.8 |
|
|
439.7 |
|
|
388.4 |
|
|
369.2 |
Net working capital (5) |
|
|
489.5 |
|
|
388.5 |
|
|
591.2 |
|
|
505.1 |
|
|
472.6 |
|
|
411.5 |
Total assets |
|
|
1,780.8 |
|
|
1,413.3 |
|
|
1,099.2 |
|
|
964.5 |
|
|
920.2 |
|
|
831.4 |
Long-term and short-term debt |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
|
|
0.0 |
Long-term obligations and current portion of long-term obligations (6) |
|
|
93.4 |
|
|
74.1 |
|
|
51.6 |
|
|
55.1 |
|
|
50.4 |
|
|
47.2 |
Capital stock |
|
|
144.9 |
|
|
115.0 |
|
|
113.8 |
|
|
113.4 |
|
|
114.6 |
|
|
114.5 |
Shareholders equity |
|
|
1,242.5 |
|
|
986.1 |
|
|
759.2 |
|
|
657.7 |
|
|
628.3 |
|
|
550.9 |
(1) |
U.S. dollar amounts in this column have been translated solely for the convenience of the reader at a conversion rate of $1.26 per 1.00, the Noon Buying Rate on June 26, 2006. |
(2) |
Due to our marketing and sales agreement with IBM, as discussed in Note 3 below, our revenue and percentage of various expenses and other line items to revenue may not be comparable to those of our competitors. See Item 5A: Operating Results. |
(3) |
A substantial portion of our revenue is derived from our marketing and distribution agreements with IBM. See Item 4B: Business Overview - Sales and Marketing and Note 15 to our consolidated financial statements. |
(4) |
We believe that this supplemental non-GAAP financial information is an important indicator of operational strength and performance of our business and is used by analysts, investors and other interested parties in evaluating our performance. However, revenue excluding the effect of adjusting the carrying value of acquired companies deferred revenue and operating income, net income and diluted net income per share excluding amortization of acquired intangible assets are not U.S. generally accepted accounting principles measurements and should not be considered as alternatives to such amounts. For a reconciliation of this non-GAAP financial information with our audited financial statements and the related notes, see Item 5A: Operating Results - Supplemental Non-GAAP Financial Information. Amortization of acquired intangibles totaled 9.8 million in 2005 (6.3 million after tax), 1.4 million in 2004 (1.2 million after tax), and 5.9 million in 2003 (5.0 million after tax). The effect of adjusting the carrying value of acquired companies deferred revenue totaled 9.1 million in 2005 (5.4 million after tax). |
(5) |
Net working capital consists of total current assets less total current liabilities. |
(6) |
Includes financial leases. See Note 10 to our consolidated financial statements. |
(7) |
Excluding, where applicable, avoir fiscal. See Item 8: Financial Information - Dividend Policy. |
EXCHANGE RATE INFORMATION
We publish our consolidated financial statements in euro. Solely for the convenience of the reader, this report contains translations of certain euro amounts into U.S. dollars at specified rates. Unless otherwise stated, the translations of euro into U.S. dollars have been made at the rate of $1.26 per 1.00, which was the noon buying rate for euro in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) on June 26, 2006. These translations should not be construed as representations that the euro amounts represent such U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated or at any other rate.
DASSAULT SYSTÈMES Form 20-F 2005 9
The following table sets forth, for the periods indicated, certain information concerning the exchange rates based on the Noon Buying Rate expressed as U.S. dollar per euro. Such rates are provided solely for the convenience of the reader and are not necessarily the rates used by us in the preparation of our consolidated financial statements.
EXCHANGE RATES
|
|
Period end |
|
Average(1) |
|
High |
|
Low |
|
|
|
|
|
|
|
|
|
|
|
2001 |
|
0.89 |
|
0.89 |
|
0.95 |
|
0.84 |
|
2002 |
|
1.05 |
|
0.95 |
|
1.05 |
|
0.86 |
|
2003 |
|
1.26 |
|
1.14 |
|
1.26 |
|
1.04 |
|
2004 |
|
1.35 |
|
1.25 |
|
1.36 |
|
1.18 |
|
2005 |
|
1.18 |
|
1.24 |
|
1.35 |
|
1.17 |
|
November |
|
1.18 |
|
1.18 |
|
1.21 |
|
1.17 |
|
December |
|
1.18 |
|
1.19 |
|
1.20 |
|
1.17 |
|
2006 |
|
|
|
|
|
|
|
|
|
January |
|
1.22 |
|
1.21 |
|
1.23 |
|
1.20 |
|
February |
|
1.19 |
|
1.19 |
|
1.21 |
|
1.19 |
|
March |
|
1.21 |
|
1.20 |
|
1.22 |
|
1.19 |
|
April |
|
1.26 |
|
1.23 |
|
1.26 |
|
1.21 |
|
May |
|
1.28 |
|
1.28 |
|
1.29 |
|
1.26 |
|
June (through June 26) |
|
1.26 |
|
1.26 |
|
1.30 |
|
1.25 |
|
(1) |
The average of the Noon Buying Rates on the last business day of each month during the relevant period, except for June 2006, in which case the Noon Buying Rate on June 26, 2006, was used. |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
You should carefully consider the risks described below and the other information in this report. Depending on the extent to which any of the following risks materializes, our business, financial condition, cash flow or results of operations could suffer and you could lose all or part of your investment in our shares. The risks described below are not the only ones we face.
RISKS RELATED TO OUR BUSINESS
A decline in general economic and business conditions, or a significant fluctuation in currency exchange rates, may cause a reduction in corporate spending on information technology infrastructure, which would cause our revenue and earnings to decrease, or to grow more slowly. Such a reduction could also increase quarterly fluctuations in our results.
The deployment of a Product Lifecycle Management (PLM) solution may represent a large portion of a customers investments in software technology. Decisions to make such an investment are impacted by the economic environments in which our customers operate. Any important business slowdown or recession, or a significant fluctuation in currency exchange rates, particularly as between the U.S. dollar and the euro, could lead our customers to reduce, defer or cancel their investments in information technology. A decline
10 DASSAULT SYSTÈMES Form 20-F 2005
in such investments could cause our revenue, net earnings and cash flows to decrease, or to grow more slowly, whether on an annual or quarterly basis.
Over the past few years, the growth rate of the gross domestic product (GDP) of our major European markets has remained relatively weak. Although trends in business investment spending, and in our own revenues in these markets have not followed the GDP trend in the recent past, the continued weakness in the overall economic environment may lead to a reduction in corporate spending for information technology, including for our products and services. The ongoing economic weakness in Europe may thus adversely affect our future revenues and earnings. Similarly, weakness in the overall economic environment in any of our major markets, or a decline in business investment spending, could have an adverse effect on our revenues and earnings.
Due to their specific investment cycles and sensitivities to short-term economic conditions, the various industrial sectors we serve have different degrees of exposure to declines in corporate investment, both in terms of intensity and timing. Although these differences have in recent years generally assisted us in avoiding the potential negative impact of downturns in any particular industry, significant down cycles in several key industrial sectors might in the future occur over roughly the same period, which could cause our revenues, net income and cash flow for such period to decline.
For the year 2005, approximately 52% of our revenue resulted from a long-standing, mutually non-exclusive marketing and distribution agreement with IBM. As our business grows and develops, our relationship with IBM continues to evolve, as in 2005 when we assumed a greater role in managing the marketing and distribution of our PLM products and services. Further changes in our relationship with IBM, or an insufficient commitment of resources by IBM to the marketing and sale of our PLM products, could have a material adverse effect on our financial condition and results of operations.
Pursuant to our long-standing, mutually non-exclusive agreement, IBM markets and distributes a substantial portion of our PLM products worldwide, primarily CATIA, ENOVIA and SMARTEAM. According to the terms of the agreement, we license these products to IBM, who then sub-licenses them to end-users. Revenue generated through our agreement with IBM represented 52%, 56%, and 59% of our total revenue in 2005, 2004 and 2003, respectively.
IBM markets and distributes our PLM products and services through IBM PLM, an organization within IBM dedicated primarily to the marketing and distribution of Dassault Systèmes products, and through IBM distribution partners, known as IBM Business Partners. IBM has substantial discretion and control over such marketing and distribution, including the financial resources devoted to marketing and sales, the selection of marketing and distribution channels and the compensation of its sales personnel and distribution partners. If IBM does not invest sufficiently to develop PLM revenues from our products, we may have to intensify our direct and other external sales efforts at the risk of creating sales channel conflicts and generating additional operating costs impacting our earnings. In addition, a decision by IBM to cease, freeze, or reduce substantially its marketing and distribution efforts for our PLM products would have an immediate and material adverse effect on our financial condition and results of operations. We may not be able to establish effective alternative distribution channels rapidly and the establishment of such channels would require significant management and financial resources.
In mid-2005 we agreed to act as Channel Management Provider (CMP) to IBM. Under the CMP agreement, we manage the marketing and distribution of our PLM products by the IBM Business Partner network in a number of countries in Europe and in the United States. As reflected by the CMP agreement, our relationship with IBM, which has been a core element of our business model, evolves as our business grows and develops, thereby exposing us to new management challenges and greater responsibility for the marketing and sales of our PLM products. In addition, in 2005 we began to sell directly to a network of resellers in China, Australia and New Zealand. In 2006, we further expanded our direct distribution to include Taiwan and Latin America. Further changes in roles and responsibilities, such as the further expansion of our direct sales activities, could cause disruptions and negatively affect our relationship with IBM and the sales organizations performance, which could have a material adverse impact on our revenues.
Furthermore, IBM is not prohibited from competing with us, marketing and distributing other competing PLM software applications, providing services around other competing PLM software applications, or acquiring or forming a strategic alliance with one or more of our competitors. In early 2006, one of our competitors announced an agreement with IBM in China and selected market verticals.
If we do not anticipate, develop or take advantage of new technological opportunities to respond effectively to our customers increasingly complex requirements, demand for our products may be reduced, which would have a material adverse effect on our financial condition and results of operations.
PLM solutions are characterized by the use of rapidly changing technologies and frequent new product introductions or enhancements. These solutions must address complex engineering needs in various areas of product design and manufacturing, and must also meet sophisticated process requirements in the areas of change management, industry collaboration and cross enterprise work.
DASSAULT SYSTÈMES Form 20-F 2005 11
As a result, our success is highly dependent upon our ability:
|
|
to understand our customers needs, and support them in reengineering key product lifecycle processes and managing the migration of substantial amounts of data; |
|
|
to enhance our existing solutions by developing more advanced technologies; |
|
|
to anticipate and take timely advantage of quickly evolving technologies; and |
|
|
to introduce new solutions in a cost-effective and timely manner. |
We commit substantial resources to the development of new offerings, but we continue to face the challenge of increasingly complex integration of our products different functionalities to address our customers PLM requirements. As a result, longer and more difficult industrialization work is required for new releases and offerings. In addition, if we are not successful in anticipating technological leaps and developing new solutions and services that address our customers increasingly sophisticated expectations, demand for our products could decline, and our results of operations and financial condition could be negatively affected.
Errors or defects in our products could cause us to incur additional costs, lose customers, revenue and business opportunities and expose us to potential liability.
Sophisticated software often contains errors, defects or other performance problems when first introduced or when new versions or enhancements are released. If errors or defects are discovered in our current or future products, we may not be able to correct them in a timely manner, or provide an adequate response to our customers. We may therefore need to expend significant financial, technical and management resources, or divert some of our development resources, in order to resolve or work around those defects. We may also experience an increase in our service and warranty costs.
Errors, defects or other performance problems in our products may also result in the loss of, or delay in, the market acceptance of our products or postponement of customer deployment. Such difficuties could also cause us to lose customers and, particularly in the case of our largest customers, the potentially substantial associated revenues which would have been generated by our sales to companies participating in the customers supply chain. Technical problems, or the loss of a customer with a particularly important global reputation, could also damage our own business reputation and cause us to lose new business opportunities.
Because errors, defects or other performance problems in our software could result in significant financial or other damage to our customers, our customers could pursue claims against us. A product liability claim brought against us, even if not successful, would likely be time consuming for our management and costly to defend and could adversely affect our marketing efforts.
Any insurance we carry may only partially offset the cost of correcting significant errors.
Currency fluctuations may significantly affect our results of operations, since we generate revenue and incur expenses in currencies other than the euro.
Our results of operations have been, and may in the future be, significantly affected by changes in exchange rates. Exchange rate fluctuations can impact the revenues and expenses recorded in our statement of income upon translation of other currencies into euro. Although we currently benefit from a natural coverage of most of our exposure to U.S. dollars, our revenues denominated in Japanese Yen, Korean Won and British Pounds substantially outweigh our expenditures in these currencies, which exposes our financial results to a potential depreciation in their value relative to the euro.
Our net financial revenue can also be significantly affected by changes in exchange rates between the time we recognize revenue and receive cash payments or record and pay an expense. Any such differences are accounted for in the Exchange gain/loss portion of our financial revenue.
See Item 11: Quantitative and Qualitative Disclosures About Market Risk - Foreign currency exchange risk.
Since market growth rates for our software applications and the revenue growth rates of our significant competitors are computed in U.S. dollars, such growth rates from period to period may not be comparable to our euro-computed revenue growth rates for the same periods.
Claims that our products, or any third-party components embedded in our products, infringe the proprietary rights of others could harm our sales and increase our costs and, as a result, have a material adverse effect on our financial condition and results of operations.
12 DASSAULT SYSTÈMES Form 20-F 2005
Third parties, including our competitors, may own or obtain copyrights, patents or other proprietary rights that could restrict our ability to further develop, use, or sell our own product portfolio. We have received in the past, and may in the future receive, communications alleging that our products infringe the patents and other intellectual property rights of others. Such a claim could cause us to incur substantial costs to defend ourselves in any litigation which may be brought, regardless of its merits. If we fail to prevail in intellectual property litigation, we may be required to:
|
|
cease making, licensing or using the products or services that incorporate the challenged intellectual property; |
|
|
obtain and pay for licenses from the holder of the infringed intellectual property right, which licenses might not be available on acceptable terms, if at all; or |
|
|
redesign our products, which could involve substantial costs and require us to interrupt product licensing and product releases, or which might not be feasible at all. |
In addition, we embed in our products an increasing number of third party components selected either by us or by companies which we have acquired. Although we have 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 which we acquire. As a result, the use of third party embedded components in our products exposes us to the risk that a third party will claim that the embedded components infringe their intellectual property rights.
If any of the above situations were to occur for a significant product, it could have a material adverse impact on our financial condition and results of operations.
If we fail to adequately protect our intellectual property, our competitive market position could be harmed, which would have a material adverse effect on our financial condition and results of operations.
Our success is heavily dependent upon our proprietary software technology. We rely on a combination of copyright, patent, trademark, trade secret law and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection. In addition, effective copyright, patent, trademark and trade secret protection may be unavailable or limited in certain countries where intellectual property rights are less protected than in the United States or Western Europe, or as a result of the prior rights of third parties.
If we fail to adequately protect our technology, third parties may develop similar technology and cause a reduction in our software revenues. Furthermore, although we enter into confidentiality and license agreements with our employees, distributors, customers and potential customers, and limit access to and carefully control the distribution of our software, documentation and other proprietary information, the measures we take may not be adequate to deter misappropriation or independent third party development of our technology.
In addition, like most of our competitors, we face an increasing level of piracy of our successful products, both by individuals and by groups acting worldwide, which could potentially affect our growth in specific markets.
Litigation may be necessary to enforce our intellectual property rights and to determine the validity and scope of the proprietary rights of others. Any litigation could result in substantial costs and diversion of our resources and could seriously harm our operating results. We may not prevail in any such litigation and our intellectual property rights may be found invalid or unenforceable.
The regulatory environment for listed companies has become increasingly complex and is subject to change. Modification in the applicable standards, rules or interpretations may require us to modify our accounting policies and business practices, which could adversely affect our results of operations. Implementation of regulatory requirements is costly and any reported deficiencies may have a negative adverse effect on our stock price.
Since January 1, 2005, we report according to both International Financial Reporting Standards (IFRS) and U.S. GAAP. The applicable IFRS and U.S. GAAP accounting standards and related interpretations are highly complex and continue to evolve. The reporting requirements may be contradictory or ambiguous. We review our compliance with all new and existing accounting rules and pronouncements on an ongoing basis. Depending on the outcome of these ongoing reviews, and the potential issuance of further accounting pronouncements, implementation guidelines and interpretations, particularly with respect to revenue recognition, scope of consolidation, and stock-based compensation, we may be required to modify our accounting policies and business practices, including license terms and conditions, which could have a material adverse effect on our results of operations or financial reporting. Our current accounting policies are described in Item 5A: Operating Results - Critical Accounting Policies and Note 1 to our consolidated financial statements.
DASSAULT SYSTÈMES Form 20-F 2005 13
We are currently working on the documentation and evaluation of our internal controls procedures in order to be ready for the Sarbanes-Oxley certification for 2006. Despite our efforts and investments regarding these procedures, and because of the complexity of the regulatory environment, we may encounter deficiencies that we would then report and which could have an adverse effect on our results of operations and the market value of our shares.
We expect our quarterly operating results to continue to fluctuate, which could cause our stock price to fluctuate.
Our quarterly operating results have varied significantly and are likely to vary significantly in the future, depending on factors such as:
|
|
the number, timing and significance of product enhancements or new products that we develop or that are released by our competitors; |
|
|
our ability to develop, introduce and market new and enhanced versions of our products and customer order deferrals in anticipation of these new or enhanced products; |
|
|
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; |
|
|
the timing of announcements regarding any significant acquisitions or divestitures; |
|
|
fluctuations in foreign currency exchange rates; and |
|
|
general conditions in our software markets, the software industry generally and computer industries and regional economies. |
A substantial portion of our orders and shipments typically occur in the last month of each quarter and therefore, if any delay occurs in the timing of the order, we may experience significant quarterly fluctuations in our results of operations. Additionally, as is typical in the software applications industry, we have historically experienced our highest licensing activity for the year during the month of December. Delays in orders and shipments can affect our revenue and income.
The trading price of our shares and ADSs may be subject to wide fluctuations in response to quarterly variations in our operating results and the operating results of other software applications developers in our markets. In addition, capital markets around the world experience from time to time extreme price and volume fluctuations, which may particularly affect the market prices for many high technology companies which have become highly volatile.
Because we rely on IBM to provide us information as to the level of a significant portion of our revenue, we generally are not in a position to know our revenue for any particular period within the same timeframe as would otherwise be possible. As a result, we may not be able to confirm or adjust expectations as to sales achieved for a particular period as quickly as we otherwise could, or within the same timeframe as some other companies in our industry.
As a result of our strategy of partnering with other companies for product development, marketing and services, our products and business development could be adversely affected if we experience difficulties with our partners.
Our PLM strategy requires fully integrated solutions of computer-aided-design and manufacturing and data management products, which are themselves increasingly complex. To implement our PLM strategy, we have chosen to partner with other companies in such areas as:
|
|
hardware and technology, to maximize our benefits from available technology; |
|
|
product development, to enable software developers to create and market their own software applications using our key product architecture; |
|
|
consulting and services, to support customers adapting and deploying PLM solutions; and |
|
|
marketing and distribution to promote our solutions outside IBM channels. |
We believe that our partnering strategy allows us to reduce costs while achieving broader market coverage.
Our broad partnering strategy creates a degree of dependency on such partners. Serious difficulties in our relationships with our partners, or an unfavorable change of control of our partners, may adversely affect our products or business development. In addition, any failure by our partners to deliver products of the quality or according to the timing expected may cause delays in the delivery of, or deficiencies in, our own products.
14 DASSAULT SYSTÈMES Form 20-F 2005
If we are unable to hire or retain our key personnel and executives, or if we experience difficulties in our employee relationships generally at one of our major sites, our business activities and operating results may be negatively affected.
Our success depends to a significant extent upon the continued service of our key managers and highly qualified research and development, technical, support, sales management and other personnel, and on our ability to continue to attract, retain and motivate qualified personnel. The competition for such employees is intense, and if we lose the ability to hire and retain key employees and executives with a diversity and high level of skills in appropriate domains (such as research and development and sales), it could have a material adverse impact on our business activities and operating results. We generally do not maintain insurance with respect to the loss of our key personnel.
The continuous growth of our Group, internally and externally, adds complexity to our organization and may make consistent management and appropriate visibility with respect to our operations and strategy more difficult. Risks associated with external growth through acquisitions, as well as changes in the organization of the Group, may adversely affect our business or financial performance.
We continue to grow internally in our markets around the world. This continuous growth in terms of revenues, employees and operations creates increasing complexity for us as we take measures to ensure consistency of our various offerings, control of our operations and appropriate follow-up of return on investments. We also continue to reorganize our Group structure in order to maintain efficiency and remain focused on our strategy. The integration of newly acquired companies or businesses, as well as the management of divestments, is challenging and consuming both in terms of management time and control systems and requires careful attention to management integration and employee retention.
Finally, we may use significant financial resources, make potentially dilutive issuances of equity securities or incur debt to realize future acquisitions or investments. These transactions may also cause us to incur amortization expenses related to intangible assets other than goodwill, or generate goodwill subject to annual (or more frequent) impairment tests. Minority interests or other investments in unaffiliated partners may also have to be written down in our accounts as a result of impairment. Acquired companies may also carry the risk of unanticipated or contingent liabilities, including litigation risk related to prior events (see above the risk of claims that embedded components violate third-party intellectual property rights, and Item 5D. Trend Information - MatrixOne Acquisition and Expansion of Our ENOVIA Brand). Each of these potential consequences of an investment or acquisition could reduce our operating margin or net income. Also, due to local regulatory constraints, a planned acquisition might not be realized as anticipated or at all.
A decrease in prices, a longer sales cycle and changes in the competitive environment could negatively impact revenue growth, financial performance and market position.
Over the last several years prices have declined in the technological market and this trend could continue or accelerate. This price decline may result from competition, low marginal costs and/or rapid technological change. In addition, in the past few years, we have seen a move towards consolidation in our industry, which may lead to increased competitive pressure on prices and negatively impact our revenue, financial performance and market position.
In parallel, due to economic conditions as well as to the complexity of our PLM products, the sales cycle for PLM products has lengthened. We could face a slowdown in our revenue growth as a result.
Our research and development facilities are subject to risks of damage or temporary unavailability due to both system interference or breakdown and physical harm. The short- or long-term unavailability of the use of these facilities could have a material negative impact on our business, results of operations and financial condition.
Our research and development facilities are computer-based and rely on the proper functioning of complex software and integrated hardware systems. However, it is not possible to guarantee the uninterrupted operation and security of these systems. For example, the invasion of our computer-based systems by either computer hackers or industrial pirates could interfere with their proper functioning and cause substantial damage, loss of data or delays in on-going research and production activities. Computer viruses, whether deliberately or unintentionally introduced, could also cause similar damage, loss or delays. As many of our systems include advanced or state-of-the-art functionalities, computer bugs or design errors could cause malfunctions.
In addition, because our research and production facilities are located in a limited number of principal sites, including our headquarters outside Paris in a possible flood zone, our facilities in Japan and California which may be exposed to earthquakes and our site in Israel, substantial physical damage to any one of our sites, by natural causes or by attack or local violence, could materially reduce our ability to continue our normal business operations.
If any of these circumstances were to arise, the resulting damage, loss or delays could have a material negative impact on our business, results of operations and financial condition.
DASSAULT SYSTÈMES Form 20-F 2005 15
Since we have multinational operations, we are subject to certain risks, inherent in international operations, that could adversely affect our financial condition and results of operations.
As a global participant in the software industry, our business is subject to certain risks inherent in international operations that are beyond our control. These risks include:
|
|
tariffs, duties, export controls and other trade barriers; |
|
|
unexpected changes in regulatory requirements and applicable laws; |
|
|
the burden of complying with a wide variety of foreign laws and regulations; and |
|
|
political and economic instability. |
Any of these factors could harm our operating results. There can be no assurance that we will not experience material adverse effects with respect to our international operations and sales.
Groupe Industriel Marcel Dassault owns approximately 43.3% of our outstanding shares, and continues to act as controlling shareholder.
Groupe Industriel Marcel Dassault (GIMD), which represents the interests of some of our founding shareholders, has maintained its substantial interest in Dassault Systèmes and owned approximately 43.3% of our outstanding shares and controlled approximately 42.6% of the voting rights as of December 31, 2005. As a result, GIMD continues to act as controlling shareholder with respect to matters submitted to our shareholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets.
Technology-related stock prices have generally been volatile, and this volatility may depress our stock price.
The market price of our shares and ADSs is likely to be highly volatile, as the market for shares of technology companies has generally been more volatile than the stock market overall. A large number of technology companies have reached a market price significantly inferior to their historical highest market price.
The price of our ADSs and the U.S. dollar value of any dividends will be affected by fluctuations in the U.S. dollar/euro exchange rate.
Our ADSs are quoted in U.S. dollars. Fluctuations in the exchange rate between the euro and the U.S. dollar are likely to affect the market price of the ADSs. For example, because our financial statements are reported in euro, a decline in the value of the euro against the U.S. dollar would reduce our earnings as reported in U.S. dollars. This could adversely affect the price at which the ADSs trade on the U.S. securities markets. Our dividends are denominated in euro; a decline in the value of the euro against the U.S. dollar would reduce the U.S. dollar equivalent of any such dividend.
Holders of ADSs may face disadvantages compared to holders of our shares when attempting to exercise voting rights. Holders of shares wishing to exercise their voting rights must block their shares for at least five days prior to shareholders meetings pursuant to our by-laws.
In order to vote at shareholders meetings, ADS holders who are not registered on the books of the depositary are required to transfer their ADSs for a certain number of days before a shareholders meeting into a blocked account established for that purpose by the depositary. Any ADS transferred to this blocked account will not be available for transfer during that time. ADS holders who are registered on the books of the depositary must give instructions to the depositary not to transfer their ADSs during this period before the shareholders meeting. ADS holders must therefore receive voting materials from the depositary sufficiently in advance in order to make these transfers or give these instructions. As these materials are usually sent by regular mail, there can be no guarantee that ADS holders will receive voting materials in time to instruct the depositary to vote. The depositary and the Company are not responsible for failing to carry out or comply with voting instructions. Therefore, it is possible that ADS holders, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote at all.
Preemptive rights may be unavailable to holders of our ADSs.
Under French law, upon the issuance of new shares or equity-related securities for payment, we may grant preemptive rights to our shareholders to subscribe to such securities. However, holders of our ADSs may not be able to exercise these preemptive rights unless both the rights and the shares are registered under the Securities Act of 1933 or an exemption from registration is available. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case the ADS holders will receive no value for these rights.
16 DASSAULT SYSTÈMES Form 20-F 2005
Item 4: Information on the Company
A. History and Development of the Company
1981 THROUGH 2004
Dassault Systèmes was established in 1981 through the spin-off of a team of engineers from Dassault Aviation, which was developing software to design products in 3D. We entered into a distribution agreement with IBM the same year and started to sell our software under the CATIA brand to automotive and aerospace customers. Through our work with large industrial customers, we learned how important it was for them to have a software solution that would support their product development processes. With this in mind, we enriched our solution to enable the design of digital mock-ups (DMU) which helped our customers reduce the number of physical prototypes and realize substantial savings in product development cycle times. The first significant project realized with this new approach was the Boeing 777. We also broadened our targeted industry segments to fabrication and assembly, consumer goods, electrical and electronics, shipbuilding and plant design.
In 1997, we organized our business in two segments: the Process-centric segment, which supports our customers end-to-end product development process, and the Design-centric segment, dedicated to customers seeking to design products in 3D. In conjunction with this decision, we acquired SolidWorks Corporation, with the goal of targeting the significant market of customers designing their products in two dimensions (2D) and interested in taking advantage of the power of 3D design.
In order to fulfill the mission to provide a robust PLM solution for our customers, in conjunction with our internal development, we undertook a series of targeted acquisitions and developed a new software platform, Version 5, for the Process-centric segment. In 1998, we acquired the Product Manager software and development laboratory from IBM, which we merged with our virtual product data management application to create the ENOVIA product line. In 1999, following our acquisition of SmarTeam Corporation, we developed a portfolio of applications across ENOVIA and SMARTEAM in order to manage data product configurations, product lifecycle integration and collaboration (our PDM offering). In 1999, we also introduced Version 5 (V5), an innovative software platform to develop integrated Product Lifecycle Management solutions. In 2000, DELMIA was launched in order to address the digital manufacturing domain following a series of three acquisitions, including (i) Deneb, a U.S. company specialized in robotic simulation which we acquired in 1997, (ii) Safework, a Canadian company specialized in human modelling technology, and (iii) Delta, a German company specialized in manufacturing process management software. Both Safework and Delta were acquired in 2000.
As a result of the capabilities of V5 as a software platform, the different applications developed in the companies we acquired, such as DELMIA, as well as the CATIA and ENOVIA product lines can be integrated to form a powerful Product Lifecycle Management solutions portfolio. In 2000, we acquired Spatial Corp., a U.S. company, to develop and sell its software components, including ACIS.
In 2004 we entered the automation market and created DELMIA Automation based upon internal development work as well as the acquisition in 2003 of Athys, a French company specialized in the development of workcell control software.
2005
During 2005, we continued to expand our addressable markets with the acquisitions of ABAQUS, in simulation, and Virtools in 3D technology.
We significantly increased our presence in the simulation market with the acquisition of ABAQUS, Inc., which has advanced expertise in finite element analysis software. ABAQUS technology is capable of scaling from simple to the most demanding simulations. In connection with the acquisition, we introduced a new PLM brand, SIMULIA, for realistic simulation and unveiled plans to develop an open, multi-physics platform designed to enable the integration of many types of simulation applications. Our SIMULIA brand includes ABAQUS as the core of our realistic simulation offerings, in combination with our existing simulation activities. We believe Dassault Systèmes was among the top three software developers in the simulation market at the end of 2005. (Source: Daratech.)
In 2005, we acquired Virtools, a company with significant expertise in interactive web applications, which give life-like behaviour to 3D content. Currently, Virtools has a small but diverse range of customers across manufacturing, entertainment and consumer goods companies, thus illustrating 3D technologys importance as a communications vehicle. Our objective is to bring the power and value of such 3D representations to a broad audience of potential users.
DASSAULT SYSTÈMES Form 20-F 2005 17
During 2005, we also formed a partnership with i2 Technologies, Inc., in the sourcing segment of the supply chain management industry, to jointly develop sourcing solutions as an integrated component of our V5 PLM. As part of this agreement we purchased a competency center and technology licenses from i2 Technologies. Our objective is to integrate sourcing throughout the product lifecycle, thereby eliminating or significantly reducing the barriers between the engineering and sourcing communities. By aligning sourcing and engineering earlier in the product development cycle, our goal is to help customers reduce product costs, improve time-to-market cycles and enhance initial product quality.
In early 2005, we acquired RAND Worldwides subsidiaries in the United Kingdom, Sweden, Germany, Switzerland and Russia, and we increased our ownership of our RAND North America, Inc. joint venture to 70% from 60%.
PRINCIPAL INVESTMENTS
Acquisitions of companies, or equity interests in companies, and intangible assets offering strategic technology represent our main capital expenditures. See Item 5A: Operating Results - ABAQUS Acquisition and Item 5B: Liquidity and Capital Resources.
CORPORATE INFORMATION
Dassault Systèmes S.A. is a société anonyme, a form of limited liability company, incorporated under the laws of France. Our Company was created on June 9, 1981 for a duration of 99 years and is governed by French company law and related regulations. Our registered office is located in Suresnes, France, at 9, quai Marcel-Dassault, B.P. 310, 92156, and the telephone number is: 33 (0) 1 40 99 40 99. For a list of our significant subsidiaries, please refer to Item 4C: Organizational Structure below. Dassault Systèmes is registered in the Nanterre Commercial Register under No. 322 306 440.
Our shares have been listed in France on the Paris Stock Exchange (Eurolist - Compartment A) and in the United States on the Nasdaq Stock Markets National Market since our initial public offering in 1996.
SUMMARY
We are the world leader, based on global market share, in Product Lifecycle Management (PLM) software solutions powered by three-dimensional (3D) representation. We also provide our expertise in 3D technology to businesses of all sizes and in many industries. Our strategic mission is to provide software solutions and consulting services that enable our customers to:
|
|
increase product innovation and quality; |
|
|
accelerate product design to satisfy market demand; |
|
|
collaborate in 3D for product lifecycle management; |
|
|
create and manufacture products more cost effectively; and |
|
|
develop more environmentally friendly products, both during production and when in service. |
Our software applications address a wide range of products, from consumer goods, machine parts and automobiles to entire ships, factories and aircraft. Our global customer base includes companies primarily in seven manufacturing sectors: automotive; aerospace; fabrication and assembly; consumer goods; electrical and electronics; power, process and petroleum; and shipbuilding.
18 DASSAULT SYSTÈMES Form 20-F 2005
PRODUCT LIFECYCLE MANAGEMENT (PLM) - 81% OF CONSOLIDATED REVENUE IN 2005
Our PLM software and services enable customers to simulate, in a 3D collaborative environment, the entire lifecycle of a product, from its conceptual stage through development, manufacturing and usage in service. This fundamental transformation to the management of product and process development through digital technology creates important new opportunities for innovation. Moreover, our PLM solutions help companies reduce both time to market and costs, as well as better integrate their design and production processes with market needs. Using advanced and breakthrough modeling technologies, including highly sophisticated 3D visualization and collaborative internet technology, our products allow engineers, manufacturing teams, financial planners and other participants to simulate product behaviour and manufacturing operations through virtual prototypes rather than actual physical mock-ups, thereby saving significant time and resources, while increasing innovation and quality. Data about the product and its production, use and maintenance can be shared, modified, managed and archived on an integrated information platform.
Our PLM software is organized into five brands, each with its own clearly defined mission:
|
|
CATIA, our flagship and largest brand, for virtual product design and product excellence; |
|
|
SIMULIA, our newest brand, incorporating ABAQUS, for engineering quality through virtual testing; |
|
|
DELMIA, for virtual production and production performance; |
|
|
ENOVIA, for a global collaborative environment; and |
|
|
SMARTEAM, for enterprise PDM. |
MAINSTREAM 3D - 19% OF CONSOLIDATED REVENUE IN 2005
Our Mainstream 3D solutions focus principally on product design rather than the entire product lifecycle. These 3D products, which are marketed under our SolidWorks brand, complement our PLM software applications by reaching a far larger number of potential users, and they are designed to capitalize on the significant migration opportunity of 2D users to 3D design. Our goal is to set the global standard for Mainstream 3D mechanical design software.
EMERGING BUSINESS INITIATIVES
During 2005, we continued to develop our business initiatives in automation and 3D For ALL.
Automation
The automation market is focused on defining, controlling and monitoring automated production equipment. It is a natural extension of our PLM business, leveraging our existing knowledge and expertise. We are therefore developing a suite of software solutions, DELMIA Automation, that will allow customers to program, simulate and monitor automated production lines and link them with manufacturing processes defined using DELMIA PLM.
We believe the automation market is potentially a large market with long-term opportunity for growth. In addition, automated systems are used in a number of industries that we do not currently address with our DELMIA PLM solutions, such as consumer package goods, food and beverage and pharmaceuticals. We do not expect automation to be a meaningful contributor to our revenue in 2006 and 2007 as we further develop our product offering and distribution network.
3D For ALL
We believe that 3D technology can be made broadly available to all users and communities, from content creators to professionals to consumers. We call this broadly expanded application of 3D technology 3D For ALL. We therefore focus a portion of our research and development resources on developing 3D For ALL technologies, such as 3D XML. We have also entered into new partnerships with companies that share our vision of 3D For ALL. During 2005 we acquired Virtools, which provides us with technologies enabling users to simulate the experience of the product in use in a 3D environment. Virtools is a French company with advanced technology in live web applications and 3D interactive content creation in industrial, commercial and consumer environments.
DASSAULT SYSTÈMES Form 20-F 2005 19
KEY BUSINESS STRENGTHS
We believe that our leadership of the PLM and 3D markets, and our increasing share of the global PLM market over the last six years, is due to our key business strengths.
|
|
We develop long-term, integrated relationships with our customers. Our approach has always been to develop long-term partnerships with customers in our targeted industries. We work closely with our customers to involve them in all phases of product development and to identify their evolving needs. Through these close, long-term working relationships, we are able to gain a deep understanding of their product design processes and requirements. We believe this level of knowledge enables us to develop software solutions more closely attuned to the requirements of our customers, and highly suited to the industries we address. We have also introduced specific industry solutions addressing the unique aspects of product development across different industries. In addition to our software solutions, we operate competency centers where we work with numerous industry leaders to develop service offerings and best practices (PLM Best Practices) to improve the introduction and deployment of our PLM solutions in response to the increasing demand for expertise and optimization of processes. |
|
|
We have a substantial commitment to technological innovation. Technological strength has underpinned our market success. Our current generation software platform for the PLM market, Version 5, enables us to deliver integrated PLM solutions tailored to industry specific processes. Further, we have introduced key innovations to our V5 platform, including engineering and manufacturing hubs, 3D XML technologies, products such as CATIA - Imagine & Shape, and more powerful products for collaboration. |
Through DELMIA Automation, we are introducing innovative technologies for the automation market. These new technologies are intended to digitally define, control and monitor automated systems entirely in 3D.
Through SIMULIA, we deliver the ABAQUS product suite for both routine and sophisticated linear and nonlinear engineering analysis. ABAQUS provides a unified finite element analysis (FEA) environment that enables smooth migration between linear and nonlinear workflows and easy sharing of models and results between engineering disciplines, thereby offering a compelling alternative to implementations involving multiple products and vendors.
Designed specifically for Windows, our Mainstream 3D technology is intended to help designers and engineers make an easy transition from 2D drafting tools to a 3D environment. Its intuitive Windows interface enables users to productively employ SolidWorks software without extensive training.
|
|
We believe a core component of our success as a company is our brand strategy, with each brand having a clear identity and value to customers. Our brand strategy enables us to focus on developing software for specific domains (such as design, manufacturing and simulation), with the objective of making it the leader within its respective markets. As a result, we develop research and development strategies, as well as sales and marketing strategies, closely adapted to individual domains. At the same time, using our V5 platform, we can offer PLM solutions that integrate various domains. Our multiple brand strategy also allows our customers to choose the specific point of entry which corresponds to their individual needs and requirements. |
PLM:
- |
CATIA, for virtual product design and product excellence; |
| |||
- |
SIMULIA, for engineering and virtual testing; |
| |||
- |
DELMIA, for virtual production and production performance; | ||||
- |
ENOVIA, for a global collaborative environment |
| |||
- |
SMARTEAM, for enterprise PDM, and |
| |||
Mainstream 3D design:
- |
SolidWorks, for production and 3D mechanical design. |
|
|
We have an extended enterprise model. Since our inception in 1981, we have developed a network of partners for product development, marketing and enhancement of customer relations, and we intend to continue to build on our extended enterprise model. For marketing and sales, we have important relationships with IBM, a network of distribution partners, as well as a direct sales force. In PLM we have created a program, CAA V5, to enable independent software companies to develop and build complementary applications onto our V5 platform. And through customer cooperation, we establish a permanent dialogue between our customers and our research and development teams commencing early in the product development process to ensure responsiveness to market needs. |
20 DASSAULT SYSTÈMES Form 20-F 2005
|
|
We have a resilient financial model, with a high level of recurring licenses revenue. We generate a high level of recurring revenue. For 2005, recurring revenue represented 50% of our total software revenue, with total software revenue accounting for approximately 84% of our total revenue. This high level of recurring revenue contributes to the resiliency of our business, enabling us to continue to invest in critical resources. |
For the geographic breakdown of our revenues for the past three years and information on the seasonality of our business, see Item 5A: Operating Results - 2005 versus 2004 and - 2004 versus 2003, and - Trends in Quarterly Results, respectively.
GROWTH STRATEGY
We believe there are a number of opportunities to continue to grow our business. We have outlined below our most significant current growth opportunities.
|
|
Extend the penetration of CATIA Version 5 in our largest industries. Our current CATIA Version 5 software is designed to address the needs of a wide range of users, from entry-level to the most sophisticated. In addition, we are expanding the number of applications within CATIA, which then broadens its potential usage. |
|
|
Extend our presence in the supply chain of key industries. Our customer base includes many of the leading original equipment manufacturers (OEMs) in the aerospace and automotive industries. Many of these customers are currently in the process of migrating to our Version 5 platform. We believe their supply chain offers growth opportunities, since OEMs, particularly in the automotive and aerospace industries, seek to better integrate design and manufacturing through collaborating more closely with their suppliers. We also see an increase in interest in our PLM solutions among supply chain companies in part as a response to the changing requirements of their OEM partners. Our PLM solutions are suited to a broad range of supply chain participants, since they have been designed to address the needs of large-, medium- and small-sized businesses. |
|
|
Expand our presence in new target industries. Our diversification strategy has met with significant success. Historically, our two main markets were the automotive and aerospace industries. We have strengthened our presence in the fabrication and assembly industry, which is now among our largest contributors to revenues. In addition to ongoing opportunities in our largest target industries, we believe our current software solutions present a good opportunity to increase our presence in the consumer, electrical and electronics, power, process and petroleum and shipbuilding industries. |
|
|
Implement PLM solutions integrating product data management, digital manufacturing and simulation applications. Our PLM solutions can integrate product data management (PDM) solutions (ranging from data management and collaboration, with SMARTEAM, to product lifecycle management and decision support, with ENOVIA), digital manufacturing (through DELMIA) and simulation (with SIMULIA). |
|
|
Capitalize on the 2D to 3D migration opportunity. Many designers continue to work within a 2D environment. We believe our solutions, particularly our Mainstream 3D solutions with our SolidWorks brand, address the needs of these designers as they migrate to 3D solutions. |
|
|
Expand our addressable markets. Expanding our addressable markets is a key component of our overall growth strategy. Most recently, through our acquisition of ABAQUS in 2005, we substantially broadened the scope of our simulation strategy. In addition, there is a substantial long-term opportunity in automation and 3D For ALL technologies. |
MARKET STRUCTURE AND BRANDS
We currently organize our business and market our products and services principally according to two types of applications: the PLM, or Process-centric, market, to support product development, production, maintenance and lifecycle management; and the Mainstream 3D, or Design-centric, market, which is primarily focused on product design.
PLM SOLUTIONS
Our PLM software and services enable customers to simulate, in a 3D collaborative environment, the entire lifecycle of a product, from its conceptual stage through development, manufacturing and usage in service. PLM solutions facilitate the simultaneous collaboration of the many different functions involved in PLM: engineering, strategy, marketing and sales, planning and production, procurement, finance and human resources, as well as throughout the supply chain. Our products allow engineers, manufacturing teams and financial planners within a company, as well as throughout the supply chain, to collaborate simultaneously. Based upon customer experience, our V5 PLM solutions can bring significant, measurable benefits.
DASSAULT SYSTÈMES Form 20-F 2005 21
CATIA is our largest software product line as our PLM solution for digital product definition and simulation. CATIA is a fully integrated system that allows users to tailor their product development functionalities to their particular needs. In addition, we have introduced many CATIA products that address the specific needs of each of our target markets.
We believe that CATIA is among the most powerful product design and simulation systems, as illustrated by the markets adoption of the digital mock-up (DMU) process. We believe this leadership position is built on CATIAs most important features:
|
|
enables companies to capture and reuse their corporate knowledge; |
|
|
covers all possible product shapes, thanks to a wide array of modelling technologies; |
|
|
offers breakthrough technologies, such as generative design and functional modelling, to facilitate and accelerate design across product programs, and imagine & shape, to facilitate styling; |
|
|
uses a simple and intuitive user interface to optimize productivity and reduce training time; |
|
|
fully integrates all CATIA applications based on a common product, process and resources (PPR) model; |
|
|
provides scalable functionality, from entry-level users to high-end experts; and |
|
|
enables increased collaboration among users. |
SIMULIA is our newest PLM brand. In conjunction with the completion of the ABAQUS acquisition, we announced the creation of SIMULIA, our PLM brand for realistic simulation. Our SIMULIA brand includes ABAQUS and other Dassault Systèmes simulations offerings.
We believe there is a growing need for simulation, as well as a significant opportunity to transform how companies use simulation in product lifecycle management. Currently, companies spend substantial human and financial resources on real world product testing which could be done at lower cost and earlier in the product design process by virtual testing. In addition, many companies have their own applications in the field of simulating product behaviour which are expensive to develop and maintain. We therefore believe there is a large opportunity for customers to realize performance improvement and substantial savings in this domain.
Our simulation products seek to match companies growing need for realistic product and process simulation; to make realistic simulation more readily accessible through integrated and collaborative simulation best practices; and to help our customers and partners by providing an open, multi-physics framework for simulation applications.
The ABAQUS suite of software for finite element analysis (FEA) allows engineering organizations to respond to their own competitive pressures to create and test real-world virtual prototypes of complex products and processes. ABAQUS software provides general purpose analysis tools that encompass a multitude of linear, nonlinear, dynamic response and other advanced technologies, packaged to match various simulation requirements. With a strong emphasis on high performance computing, ABAQUS effectively solves the largest and most computer intensive problems with its unique combination of implicit and explicit solution techniques, plus the ability to perform integrated multi-body dynamics. Each of the ABAQUS suites three core products - ABAQUS/Standard, ABAQUS/Explicit and ABAQUS/CAE - offers additional optional modules that address specialized capabilities required by different customers. We also offer other Dassault Systèmes CAE applications as a component of our simulation offerings.
DELMIA is our brand spanning PLM digital manufacturing solutions and our automation solutions which we also market under the DELMIA brand.
DELMIA PLM offers a comprehensive suite of digital 3D manufacturing solutions that allow the complete design and validation of a manufacturing process through a digital mock-up. DELMIA PLM thus seeks to enable companies to optimize their manufacturing process before actual production takes place. DELMIA PLM solutions are built on an open product, process and resources model. They enable the continuous creation and validation of the manufacturing process in the following domains:
|
(i) |
Process planning: The DELMIA Process Planning suite provides comprehensive process and resource planning support. It creates an environment that allows customers to review the sequences and links between processes and resources early in the product design cycle. Customers can perform planning tasks such as layout planning, time measurement, process and resource planning, product evaluation, cost analysis and factory line balancing. |
|
(ii) |
Process detailing and validation: The DELMIA Process Detailing and Validation suite employs the structure and diagrams of the DELMIA Process Planning solutions. It addresses specific manufacturing issues using actual product geometry and defines processes in detail in a 3D environment. Processes that can be validated in 3D include manufacturing and maintenance, weld point allocations, assembly sequences, factory/cell layouts and machining operations. |
22 DASSAULT SYSTÈMES Form 20-F 2005
|
(iii) |
Resource modelling and simulation: The DELMIA Resource Modelling and Simulation suite provides the tools to develop and implement the mechanical resources, routines and programming that are used in conjunction with the Process Planning and Process Detailing and Validation solutions. Resources such as robots, tooling, fixtures, machinery, automation and ergonomics are defined and integrated into complete manufacturing scenarios. |
ENOVIA provides a complete set of integrated solutions to help customers create a collaborative digital enterprise. By providing unique workspaces for enterprise-wide integration, including engineering and manufacturing, ENOVIA solutions enable customers to manage their digital products at each stage of the lifecycle and simulate specific processes. Benefiting from the open V5 platform and internet technologies, ENOVIA forms the PLM backbone for the entire company, providing a gateway into the digital enterprise for collaboration, visualization, analysis and decision support.
ENOVIA solutions cover the following domains:
|
(i) |
Digital mock-up and review: ENOVIA V5 DMU (digital mock-up) enables virtual product simulation, analysis and validation. It helps streamline collaborative review and decision-making, while providing real-time insight into product performance. |
|
(ii) |
Virtual Product Manager: ENOVIA V5 VPM helps evaluate changes and improve decision-making. It enables users to capture in real time information regarding the impact of product design changes on quality, cost, performance and other product lifecycle issues. VPM manages DMU and links between the different parts of an assembly. |
|
(iii) |
Lifecycle management: ENOVIA V5 LCA provides unified product, process and resources definition and end-to-end process coverage within a Web-based collaborative environment, to enhance productivity and improve business agility. |
SMARTEAM software solutions enable organizations and their supply chains to efficiently exchange, track and manage corporate product information throughout a product lifecycle. SMARTEAM solutions offer an array of integrated, on-line collaboration technologies and provide an affordable, readily customizable, easy to implement solution. A SMARTEAM solution can therefore range from collaborative product data management to entry access to PLM deployment.
SMARTEAM solutions cover the following domains:
|
(i) |
Enterprise services: Enterprise services provide secure real-time access to product data for authorized users from virtually anywhere on the globe. The SMARTEAM repository ensures data integrity, and core technologies enable global access. |
|
(ii) |
User services: User services streamline business processes by enabling users to manage project workflow. |
|
(iii) |
Collaboration dashboards: Enables businesses to share, manage, search and view various types of data and resources. They provide secure product lifecycle collaboration and allow the implementation across the extended enterprise of a web-based collaborative portal. |
|
(iv) |
Business solutions: Business solutions provide predefined business templates, efficient customization tools, and an intuitive, user-friendly interface that enable companies to reduce the learning curve involved at each project stage and generate results more quickly. |
PLM releases in 2005
During 2005, we introduced two new PLM releases for our CATIA, DELMIA, ENOVIA and SMARTEAM applications:
Version 5 Release 15 (V5R15), Open Collaboration on the Proven V5 Platform - Announced in May 2005 for CATIA, DELMIA, ENOVIA and SMARTEAM, V5R15 builds on the strengths of V5R14 by providing unified working environments, or desktops, targeting the specific needs of key user communities, such as engineering, manufacturing and enterprise users more broadly. We also further strengthened our coverage of business processes with new technologies designed to help improve productivity and innovation among companies across a number of industries. This Release leverages our open V5 platform, with the goal of providing companies in the supply chain with enhanced collaboration capabilities and process coverage. Highlights include: (i) accelerated collaboration with suppliers by facilitating the exchange of engineering package data between OEMs and suppliers of all sizes and (ii) enhanced communications with 3D XML including the introduction of a new 3D XML viewer in V5R15, among other key highlights.
Version 5 Release 16 (V5R16), Empowering Innovation Networks - V5R16 helps customers create more innovative products and leverage the talents of their global supply chains. V5R16 delivers powerful new collaboration capabilities within ENOVIA V5 VPM Navigator and SMARTEAM TeamPDM, enabling extended networks of partners to work together in globally distributed 3D environments. Entire engineering packages can now be shared and managed collectively while protecting intellectual property, enabling true concurrent engineering across the value chain. More broadly, V5R16 increases the power of the V5 PLM platform in three ways: by delivering unified PLM solutions for unrivalled gains in productivity; by extending the reach of 3D XML within the enterprise for ease of communication; and by accelerating performance with Microsoft Windows 64-bit support.
DASSAULT SYSTÈMES Form 20-F 2005 23
PLM Industry Solutions
As part of our PLM offering, we have developed PLM industry solutions to ensure that customers of all sizes and across different industries transition as quickly as desired from purchasing our PLM solutions to having our PLM solutions in operation delivering measurable return on investment. We believe PLM is a business transformation, requiring proven and experienced-based methodologies. Our PLM industry solutions are comprised of our PLM products including those of our CAA partners, our PLM Practice scenarios, our Business Process Content Solutions and consulting services designed for specific industries. In addition, we distribute our PLM V5 infrastructure under the name Component Application Architecture (CAA V5) development platform, which permits the development of additional complementary applications in the various industries we serve.
We have developed PLM industry solutions to address the specific processes of selected industries, such as the automotive, aerospace, fabrication and assembly, electrical and electronics, consumer goods and shipbuilding industries. In early 2006 we introduced Business Process Content (BPCs), which are flexible software assets designed to enable customers to implement and adapt our software products to meet their specific industry needs, without the cost of custom-made software.
MAINSTREAM 3D SOLUTIONS
We address the Mainstream 3D market with our SolidWorks brand. Since the introduction of the first SolidWorks mechanical design software solution in 1995, SolidWorks software products have been shipped to more than one-half million product designers, engineers and engineering students worldwide.
SolidWorks products include solutions for 3D mechanical design, design validation analysis, data management, design communication and collaboration, CAD (computer aided design) productivity enhancement and 3D online catalogues.
Our principal Mainstream 3D product solutions include:
|
|
SolidWorks 3D mechanical design software. |
|
|
SolidWorks Office Professional: This suite of core productivity tools includes SolidWorks 3D mechanical design software, a full range of design communication and CAD productivity tools and PDMWorks, an easy-to-set-up-and-use product data management solution that is uniquely adapted to managing SolidWorks product data for the individual or work group. |
|
|
SolidWorks Office Premium: SolidWorks Office Premium is the complete 3D product design solution, providing product design teams with design engineering, data management, and communications tools. SolidWorks Office Premium provides all of the capabilities included in SolidWorks Office Professional, plus the powerful tools offered by COSMOSWorks Designer design validation, COSMOSMotion simulation, and SolidWorks Routing add-on modules. |
SolidWorks 2006 was introduced in June 2005. SolidWorks 2006 includes a number of improvements to simplify, accelerate and integrate design engineering work, including: (i) a significant increase in performance; (ii) new user productivity tools such as Smart Components; (iii) new features for consumer product, sheet metal, and machine designers; (iv) new mainstream design validation capabilities; (v) innovations that significantly ease the migration from 2D to 3D design, such as 3D Drawing View and Design Checker, as well as enhancements to the DWG Series (Editor, Gateway, Viewer); and (vi) enhancements in SolidWorks Office Premium to strengthen application capabilities.
In addition to its portfolio of products, SolidWorks has developed SolidWorks Solution Partner Program. This program encompasses software and hardware vendors whose products interoperate with SolidWorks software and provide solutions in specific areas.
AUTOMATION SOLUTIONS
DELMIA Automation, introduced in 2004, is focused on control engineering and simulation. Historically, production engineering, which we address with our DELMIA PLM solutions, and control engineering have largely functioned as two distinct areas within the manufacturing process. Process engineering is focused on process planning, detailing and validation as well as resource definition. In contrast, control engineering, which is focused on defining, controlling and monitoring the automation systems, including programmable logic controllers, is largely validated only during real production, when all physical resources have been put in place.
Our automation solutions will enable customers to (i) simulate production resources before production begins; (ii) reduce time to design, program, test and optimize automated systems; and (iii) enable automated systems manufacturers to sell complete solutions, including hardware, software and associated services.
24 DASSAULT SYSTÈMES Form 20-F 2005
During 2005, we introduced our first products for DELMIA Automation, which enables control engineers in all automation industries to digitally define, control and monitor automated systems entirely in a 3D virtual environment. Based upon a unique Logic Control Modeller technology, DELMIA Automation provides a digital model of control logic for an automated system independent of programmable logic controller (PLC) hardware.
TECHNOLOGY, RESEARCH AND DEVELOPMENT
Overview
The development of breakthrough technologies has been a core component of our business strategy since our inception. We have devoted significant resources each year to research and development. In 2005, research and development investments totaled 250.0 million and represented approximately 27% of total revenue. As of December 31, 2005, approximately 2,678 employees, representing 47% of our employee base, were in research and development.
We continued to develop our 3D XML technology. First introduced in 2004, 3D XML (Extensible Markup Language), a universal, lightweight XML-based format enables users to capture and share 3D data. 3D XML technology compresses highly complex data, with file sizes up to 99 percent smaller than those of existing formats. This format was designed to greatly enhance collaboration around 3D information.
During 2005, we announced the availability of our V5 PLM solutions, including CATIA V5, DELMIA V5, ENOVIA V5 and SMARTEAM, on Microsoft Windows XP Professional x64 Edition. These versions will take advantage of the full power of the Windows 64-bit architecture to enable customers to create, analyze and manage very large assemblies and complex products and considerably reduce product development cycles by accelerating design and enhancing design reviews, product optimization and decision support.
Our CATIA - Imagine & Shape modelling product is designed to bring V5 PLM to industrial designers, who have long preferred to work by hand. This product facilitates the exploration of more product ideas in a shorter period of time. Importantly, our Imagine & Shape product enables industrial designers to work more closely and earlier in the process with design engineers with numerous benefits resulting from this improved collaboration. Our CATIA - Functional Molded Parts product greatly facilitates product design, particularly of plastic parts in the electronics and consumer goods industries. This product enables plastic parts designers to concentrate on what they want to design, rather than on how to design the part. Specifically, it allows them to design more freely, as the software will automatically adjust the new feature to fit predefined functional characteristics, such as thickness, detailed shape design or zones that must remain clear to prevent clashes or interferences. Our CATIA V5 Knowledgeware solutions help customers re-use corporate knowledge throughout the product lifecycle. First, our knowledgeware tools have been developed to enable capture of expertise and automation of business processes. Second, our knowledgeware tools enable design alternatives to be explored more quickly while ensuring that they meet multidisciplinary specifications. And third, these tools help ensure consistency and quality of design alternatives.
In collaboration and product lifecycle management, our latest Release, ENOVIA V5R16, includes VPM Navigator, a powerful tool that enables designers to access engineering hub data and navigation functionalities directly from the CATIA V5 interface. Key benefits to customers include increased innovation and productivity, improved quality as data management capabilities are integrated as part of the CATIA V5 design experience, and ease of use as the number of steps required to design context definition are reduced.
Our Logic Control Modeller is based on a mathematical model that allows an enhanced (highly-typed) structuralization of data and flows. This modeller enables system and control design of automated systems and is the foundation of the DELMIA Automation solutions.
We believe we are the industry leader in connecting product engineering design to manufacturing process design. We do this through a product, process and resources (PPR) model, shared by CATIA, DELMIA and ENOVIA. The PPR model allows companies to capture, share and reuse knowledge throughout the entire product lifecycle, while the open architecture provided by V5 allows extension and integration of our solutions according to each customers specific needs. The PPR connects our engineering hub with our manufacturing hub through the ENOVIA backbone.
Openness of our software solutions
In the PLM market, CAA V5 is our robust, powerful, open and comprehensive development platform. Our CAA partners develop, sell and support innovative applications that integrate seamlessly with our PLM solutions through CAA V5. Our partners may also choose to benefit from the V5 platform possibilities to connect with other applications, such as customers applications or applications developed by other software companies. The V5 platform supports the use of standards such as WebSphere.net, PROSTEP, ONG, W3C and XML. Standards are widely created by industry consortia, or by leading industry players for the exchange of data, or user interfaces or formats.
DASSAULT SYSTÈMES Form 20-F 2005 25
In the Mainstream 3D market, our SolidWorks software is an open system that allows independent software developers to create complementary products that can be integrated with SolidWorks, thereby significantly increasing our products range of functions and capabilities.
In addition to our PLM and Mainstream 3D software solutions, we supply software components, through our subsidiary Spatial. These components are based on industry standards and increase software interoperability. Software developers in more than 14 industries around the world use our 3D ACIS Modeller (ACIS), a well-known, 3D modelling engine. ACIS features an open, object-oriented C++ architecture. We also offer InterOp Translators that allow software developers to easily integrate advanced 3D data interoperability capabilities with 3D software. For example, our InterOp CATIA V5 Reader and Writer translator enables data to be translated to and from other 3D formats.
Version 5 technology
Combining our technological capabilities with our understanding of market needs, we developed an innovative and open software architecture, Version 5, or V5, which was first released in 1999. V5 is the technological platform for the development of new products for the PLM market and makes possible a tight integration of CATIA, DELMIA and ENOVIA solutions.
A major component of V5 is its unique object model allowing joint/simultaneous definition of product, process and resources (PPR) to support multidisciplinary collaboration. V5 enables knowledge-based product creation, engineering and manufacturing processes management within a dynamic environment (enabling multiple actions to occur simultaneously) to drive optimized product definition, manufacturing preparation, production and service.
V5 technology also provides our PLM products with scalability. Scalability allows enterprises of different sizes, and users with diverse profiles, from occasional use to highly sophisticated engineering, to benefit from a fully integrated PLM solution. Scalability is possible with our PLM solutions because they have a common V5 architecture, which allows them to be packaged according to the clients specific needs and because they promote the usage of industry best of breed standards on which all participants can develop and build their products.
The following five fundamental principles provide the underlying strength of our V5 products:
|
|
Industry-specific process optimization. Process optimization can only be achieved by investing the time, resources and energy necessary to grasp the underlying nature of the process. Process optimization requires understanding the direction in which businesses are moving and defining with them the processes that need to be put in place (Best Practices). Delivering competitive advantage through end-to-end process optimization is achieved by sharing with our customers a common and thorough view of the next breakthrough processes and then realizing them through V5. |
|
|
Pervasive 3D based communication and collaboration. When people interact in a shared workspace, their communication and collaboration can be uniquely enhanced by the use of 3D imaging, such as digital mock-up (DMU). Pioneered by us, DMU provides an immersive 3D environment where all the PLM participants can interact with each others designs. This 3D interaction can significantly enhance communication through rapid exchange, direct-use, simulation and validation. Many major new projects are now being developed by a network of partners spanning corporate and geographic boundaries. It is crucial to have accurate and comprehensive information circulating throughout such networks in order to achieve virtual co-location of all the participants. V5 incorporates breakthrough technologies and delivers capabilities that harness the Internet and corporate information hubs to extend the pervasiveness of 3D across these partner networks. Our 3D XML technology, which was first introduced in 2004, enhances collaboration around 3D as its lightweight XML-based format has been designed to enable a wide array of participants to easily share 3D data and product information. |
|
|
Unique product, process and resources (PPR) description and integration model. The lifecycle of a manufactured product extends beyond the product itself to also include the means and methods required to produce and maintain it. At the core of V5 lies a unique technology called PPR. PPR incorporates a virtual product model that captures the logical, functional and physical definitions of the product and its associated processes and resources. PPR thus allows the creation of an accurate context to managing the entire product lifecycle. This capability is unique within the V5 architecture. |
|
|
Capturing, sharing and reapplying corporate knowledge. Manufacturing corporations have recognized that intellectual property is increasingly becoming their most valuable asset as competitive pressures place a premium on innovation. Harnessing knowledge to innovate requires capturing or mining knowledge, sharing it and reusing or reapplying it accurately and efficiently. The integration of knowledge-based services throughout V5 is intended to provide this capability. For example, V5 applications provide full, knowledge-grounded solutions to support the design of a car door or an airplane wing. |
26 DASSAULT SYSTÈMES Form 20-F 2005
|
|
Openness and extension through component based architecture and community. The specific needs of each customer require that their PLM solution be tailored, extended and integrated. These requirements necessitate openness and the ability to integrate components. V5s open architecture was developed specifically to meet these needs and allow customers and other software developers to make their own contributions to the software system. We have developed a network of partner companies that offer niche products incorporating specific expertise. By using V5, these partners have a single development platform that ensures delivery of a seamless, integrated software solution composed of both our products and theirs. Incorporating object oriented programming languages, including Java and C++, the V5 architecture is similar to other widely used software such as IBM and Microsoft platforms. In addition, new advances in our technology, including our 3D XML technology, have been introduced to significantly enhance the openness of our software solutions by enabling increased collaboration across a broad range of parties involved in a products lifecycle. |
Mainstream 3D technology
Designed specifically for Windows, our SolidWorks technology for the Mainstream 3D market is intended to enable designers and engineers to make an easy transition from 2D drafting to a 3D environment. Its intuitive Windows user interface enables users to productively employ SolidWorks software without extensive training. SolidWorks applications provide users with a 3D design process, for which a fully detailed solid model is used to quickly produce drawings and perform downstream design functions. SolidWorks focuses on three core capabilities: design, analysis and product data management.
CUSTOMERS AND INDUSTRIAL SECTORS
Our diversification strategy into a broad number of industrial sectors has met with significant success. Our three largest industries are automotive, fabrication and assembly, and aerospace. In addition to ongoing opportunities in our three largest target industries, we believe our software solutions present a good opportunity to continue to increase our presence in the consumer goods, electrical and electronics, power, process and petroleum and shipbuilding industries.
During 2005 we expanded our client base, adding an estimated 12,000 new design customers and 1,100 new PDM customers. We sold 72,100 design seats comprised of our CATIA and SolidWorks new licenses and in PDM we sold approximately 40,000 new licenses in 2005. We estimate that at the end of 2005, we had over 90,000 customers across 80 countries.
While we have built long-standing relationships with our customers, we continue to have a diversified customer base. We estimate that our largest customer represented approximately 6% of total revenue, and our five, ten and twenty largest customers accounted, respectively, for approximately 17%, 24% and 30% of total revenue in 2005.
Automotive: The automotive market has been and continues to be an important market for our Group. We work with most of the worlds largest automotive OEMs. We also have developed business relationships with a number of companies within the automotive supply chain. The automotive market encompasses cars, motorcycles, trucks, buses and campers.
Aerospace: We have a significant presence in the aerospace industry as we are the largest supplier of advanced design solutions to the aerospace industry. We are the main design system at Boeing (civil aircraft division) and Airbus.
Fabrication and Assembly: Fabrication and Assembly (F&A) is among our largest industry groups. Our software solutions are purchased by a wide range of companies in the F&A industry, spanning fabricated metal products, industrial equipment and manufacturing machinery, mobile equipment and products, trains and other fabricated products. New customers in 2005 included Jokan, a conveyor manufacturer; Mecasonic, a manufacturer of plastic welding equipment; Meyn, a poultry-processing equipment manufacturer; Dong Feng, a manufacturer of electric machinery; THK, a manufacturer of linear motion guide products; and BT Industry, a manufacturer of electric-powered warehouse trucks, among many other new customers.
Consumer Goods and Electrical and Electronics: Consumer goods, consumer packaged goods (CPG) and electrical and electronics (E&E) were industries where we made good progress in 2005. New customers in these industries in 2005 included: Nokia, the worlds largest phone manufacturer; Whirlpool India, a manufacturer of washing machines; Raylase, a manufacturer of laser deflection units; Alpine, a large manufacturer of car audio and car navigation systems; and BTicino, a manufacturer of electrical devices.
Power, Process and Petroleum and Shipbuilding: In power, process and petroleum and shipbuilding we had a number of important wins during 2005 including: Farnham & Pfile, an engineering and construction company; Kawasaki Heavy Industry, SNC Lavalin, an engineering and construction company; Hydrolift, a pleasure boats manufacturer; and Samsung Heavy Industry Co., a ship and offshore platform manufacturer.
DASSAULT SYSTÈMES Form 20-F 2005 27
Automotive. Original Equipment Manufacturers using our software solutions include:
BMW |
|
Mitsubishi Fuso Truck & Bus |
|
China Motor Corporation |
|
Mitsubishi Motors |
|
DaimlerChrysler |
|
Porsche |
|
FAW |
|
PSA PeugeotCitroën |
|
Ferrari |
|
Renault |
|
Ford |
|
Scania |
|
Honda |
|
SsangYong Motor Company |
|
Hyundai Kia Motor Company |
|
Subaru |
|
Irisbus |
|
Toyota Motor |
|
Iveco |
|
VolkswagenAudi Group |
|
MAN Nutzfahrzeuge AG |
|
Volvo AB |
|
MG Rover |
|
|
|
Customers in the automotive sector supply chain using our software solutions include:
Aisin Seiki Co. |
|
Karmann |
|
Autoliv |
|
Koito Manufacturing |
|
Behr |
|
Koyo Seiko |
|
Bertone |
|
Lear |
|
Bertrandt AG |
|
Magna |
|
BorgWarner Automotive |
|
Marcopolo |
|
Bosch |
|
Michelin |
|
Brose Fahrzeugteile |
|
Paulstra |
|
Cimos |
|
Pininfarina |
|
Comau Systems |
|
Ruecker |
|
Continental AG |
|
Siemens VDO |
|
Denso Corp. |
|
Sumitomo Wiring Systems |
|
Draexlmaier |
|
Toyota Gosei |
|
Edag |
|
TRW Automotive |
|
Faurecia |
|
Universal Propulsion Co. |
|
Hella |
|
Valeo |
|
Ichikoh Industries |
|
Williams Controls |
|
Italdesign |
|
Yazaki |
|
Kanto Automotive Works |
|
ZF |
|
Aerospace. Customers in the Aerospace sector using our software include:
Aermacchi |
|
KAI (Korea Aerospace Industries) |
|
AgustaWestland |
|
KHI (Kawasaki Heavy Industries) |
|
Airbus |
|
Latécoère |
|
Alcatel Space |
|
Liebherr |
|
Alcoa Global Fasteners |
|
Litton Guidance & Control Systems |
|
Alenia Aeronautica |
|
Lockheed Martin |
|
Alenia Spazio |
|
Loral |
|
28 DASSAULT SYSTÈMES Form 20-F 2005
AVIC |
|
Lufthansa Technik AG |
|
BAE Systems |
|
MHI (Mitsubishi Heavy Industries) |
|
Ball Aerospace & Technologies |
|
MTU |
|
Bell Helicopter |
|
NASA |
|
Boeing |
|
Northrop Grumman |
|
Bombardier |
|
Piaggio Aero |
|
Cessna |
|
Pratt & Whitney Canada |
|
Dassault Aviation |
|
Raytheon |
|
Driessen Aircraft Interior Systems |
|
Saab |
|
EADS |
|
Scaled Composites |
|
EI-OP |
|
Sikorsky |
|
Embraer |
|
Singapore Technologies Aerospace |
|
Eurocopter |
|
Smiths Aerospace |
|
FHI (Fuji Heavy Industries) |
|
Snecma |
|
Flight Safety International |
|
Stork Fokker |
|
Goodrich |
|
Sukhoi |
|
Gulfstream |
|
Vought Aircraft Industries |
|
Honeywell |
|
|
|
Fabrication & Assembly. Customers in the Fabrication and Assembly sector using our software include a wide range of companies, including manufacturers of heavy equipment manufacturers, industrial machines, and other products. Some of the customers are listed below as follows:
Alstom Power |
|
Krebs |
|
Arburg |
|
Makino Milling Machine |
|
Bobst |
|
Metso |
|
Bridgestone |
|
Meyn |
|
Claas |
|
Michelin |
|
Daewoo Heavy Industries |
|
Multivac Sepp Haggenmueller GmbH |
|
Elopak, Inc |
|
NTN |
|
F.L. Smidth |
|
OshKosh Group |
|
FlexLink Systems AB |
|
Paper Converting Machine Corporation |
|
Framatome |
|
Philips Oral Healthcare Inc. |
|
Goodyear |
|
Sanyo Machine Works |
|
Grundfos |
|
Scheidt and Bachmann |
|
Halla Engineering & Construction |
|
Schuler |
|
Homag |
|
Sidel |
|
Industrias Romi S.A. |
|
Staubli |
|
Iscar |
|
Sumitomo Heavy Industries |
|
Julius Blum GmbH |
|
Toyota Industries Corporation |
|
Kalmar |
|
TRUMPF Werkzeugmaschinen |
|
Kikuchi Press |
|
Volvo Construction Equipment |
|
Kliklok International |
|
Volvo Penta |
|
Kobelco Construction Machinery |
|
|
|
Customers in the train industry using our products include: Bombardier Transport, Alusuisse Road & Rail Ltd., Alstom Transport, Changchun Car Co. and Westinghouse Rail Systems Ltd.
DASSAULT SYSTÈMES Form 20-F 2005 29
Consumer Goods. Customers in the consumer goods sector using our software solutions include:
Arc International |
|
Kärcher |
|
Asahi |
|
Kodak |
|
Austria Gaming Industries |
|
Konica |
|
Black & Decker |
|
Leifheit |
|
Bombardier Recreation |
|
Life Fitness |
|
Braun |
|
Metabo |
|
Burton Snowboards |
|
Microsoft |
|
Coca Cola |
|
Newell Rubbermaid |
|
Crown, Cork & Seal |
|
Nilfisk Advance |
|
Dauphin North America |
|
Patek Phillippe |
|
De Longhi |
|
Rain Bird |
|
Dorel Juvenile Group |
|
Rayovac |
|
ETA Swatch |
|
Samsonite |
|
Fratelli Guzzini |
|
Smoby |
|
Gucci |
|
Solo Golf |
|
Hamilton Beach/Proctor Silex |
|
Trek Bicycles |
|
Herman Miller |
|
Werner Ladder Co. |
|
Hewlett Packard |
|
Yakima |
|
Isafrance |
|
|
|
Electrical & Electronics. Customers in the electrical and electronics sector using our software solutions include:
ABB PMTV |
|
Mars Electronics |
|
AEG |
|
Matsushita Electric Industrial |
|
Alpine Electronics |
|
MDS Sciex |
|
AMC Centurion AB |
|
Miele |
|
Ares Communications Tech |
|
NEC |
|
Ascom Monetel |
|
Newport Corporation |
|
Automatic Systems |
|
Nikon |
|
Braun Medical |
|
Pioneer |
|
Ceragon Networks |
|
Promise Technology |
|
Clarion |
|
Radio Frequency Systems |
|
Corecess |
|
Ricoh |
|
Electrolux |
|
Sagem |
|
Gnatus |
|
Sanyo Electronics |
|
Gretag Imaging |
|
S&C Electric |
|
Grundig |
|
Sennheiser |
|
Hubert and Suhner |
|
Shunde Special Transformer Works |
|
IBM |
|
Siemens |
|
IFM Electronics GmbH |
|
Sony |
|
Intel Corporation |
|
Sub-Zero |
|
JDS Uniphase |
|
Texas Instruments |
|
Johnson Electric |
|
Thales |
|
Kinpo Electronics |
|
Visonic Group |
|
Legrand |
|
Wolf Appliance |
|
30 DASSAULT SYSTÈMES Form 20-F 2005
Power, Process and Petroleum. Customers in this sector using our software solutions include:
Aker |
|
Haden International |
|
Albert Kahn Associates |
|
Hydro Quebec |
|
Alstom Power |
|
ITER |
|
Ansaldo |
|
Kvaerner |
|
Areva |
|
METSO Corporation |
|
BEI |
|
Oceanografia |
|
Consol Energy |
|
PEMEX |
|
DaimlerChrysler |
|
Permasteelisa |
|
Farnham & Pfile Engineering and Construction |
|
Shell |
|
F.L.Smidt |
|
Southern California Edison |
|
Gehry Partners |
|
Trinity Industrial |
|
Shipbuilding Yards and Operators of Passenger and Cruise Ships. The shipbuilding sector is the most recent segment we have targeted. Our customers include:
Bénéteau |
|
MHI (Mitsubishi Heavy Industries) |
|
Berret Racoupeau |
|
Namura Shipbuilding |
|
General Dynamics Bath Iron Works |
|
Northrop Grumman Newport News |
|
General Dynamics Electric Boat |
|
Northrop Grumman Ship Systems |
|
HDW AG |
|
Samsung Heavy Industries |
|
HSD Engines |
|
Seaway |
|
IHI-Marine United |
|
Universal Shipbuilding Corporation |
|
MeyerWerft |
|
Yantai Raffles Shipyard |
|
OUR EXTENDED ENTERPRISE PARTNERSHIPS
We have reinforced our extended enterprise approach through our relationships with customers, technological partners, product development partners and cooperation with computer hardware manufacturers.
IBM relationship. The extended enterprise concept emerged from our relationship with IBM for the distribution of our products. We have had a long-standing relationship with IBM that has provided us with deep technical expertise and commercial strength beyond the distribution agreement described more fully below under - Sales and Marketing. In the hardware, middleware and consulting services domains, IBM has been a key partner to us. Furthermore, collaboration in several areas of research and development has been the cornerstone of our and IBMs commitment to technical leadership for the digital enterprise.
Customer partners. We establish a permanent dialogue between our research and development teams and our customers, thereby ensuring product developments that are responsive to market needs. Principally due to the openness of our software applications, we offer our customers the opportunity to develop complementary seamless software applications for internal use. We believe that thousands of applications have been thus developed by our customers to meet their specific needs. In addition, we have competency centers based on specialized industrial segments to gather information on our customers processes and thus help develop additional applications tailored to the needs of each industry.
During 2005, we continued active development of customer partnerships to specify, evaluate and test process-oriented applications. We also organized user groups and forums in the United States, Europe, Asia and Australia to enable customers to share their experiences with our software products and solutions. Over 10,000 people attended such forums around the world in each of the last several years.
Hardware and technology partners. We have established long-standing, technical collaborations with key partners in order to maximize the benefits from available technology and to increase the value for our common customers. These partners include AMD, DELL, Fujitsu Siemens, Hewlett-Packard, IBM, INTEL, Microsoft, and Sun Microsystems as well as smaller companies bringing specific, significant technology expertise. The latest Version 5 Release, for example, has been developed on both native Windows and UNIX environments.
DASSAULT SYSTÈMES Form 20-F 2005 31
In addition, a certification program is available to our partners to further optimize, based on customers needs, the technology of our solutions on various platforms.
In 2004 we entered into a multi-year, global strategic alliance with Microsoft Corporation to deliver our V5 PLM and 3D design solutions to companies of all sizes taking advantage of the Microsoft software platform. By capitalizing on the Microsoft platform, the goal of the alliance is to deliver greater customer value through solutions that are easy to use, deploy and maintain with reduced ownership and integration costs. As part of this strategic alliance, we and Microsoft announced several value-creating agreements for customers during 2005:
|
|
we agreed to support Microsofts XAML format. Cross-format compatibility will enable users of 3D solutions to capture and share rich 3D data; |
|
|
we delivered a version of our V5 PLM solutions for the Windows XP x64 Professional platform, to enable users to leverage the memory and bandwidth of Windows 64-bit system; and |
|
|
we announced V5 PLM support for Microsofts major enterprise suites (SQL Server 2005, Visual Studio 2005 and BixTalk Server 2006). For our customers, this will provide seamless integration between the power of our V5 PLM solutions and the cost-effectiveness and ease of use of Microsofts enterprise system platforms. |
Product development partners. In order to enable software developers to create and market their own software applications using the Version 5 architecture, we set up a CAA V5 program. This program was launched in July 2001 to provide independent software vendors with an open next-generation V5 platform and with comprehensive support to deliver best-in-class PLM applications to the market that are fully integrated and complementary to CATIA, ENOVIA and DELMIA V5. By using V5, these partners have a single development platform that ensures delivery of seamless, integrated software solutions composed of both our products and theirs.
Our CAA V5 program has been very successful with more than 360 products based on CAA V5 introduced on the PLM market with V5 R16 by 140 CAA V5 partners as of January 2006. We also hold an annual CAA V5 Developer Conference focused on expanding the network of companies using our CAA V5 PLM development platform.
In China, we entered into a strategic alliance with CAXA, the leading domestic PLM vendor, to create and sell design packages developed in China based on our V5 PLM technology. In early 2005 we announced with CAXA, the availability of CAXA V5, a new generation of integrated and scalable 2D and 3D PLM solutions for the Chinese market that embed our V5 technology components. These CAXA V5 solutions are the result of our partnership with CAXA and software development carried out in a joint research and development center operated by CAXA in Beijing. The short time-frame to develop these solutions demonstrates the ease with which developers can build solutions on our Component CAA V5 platform.
SolidWorks operates a two-tier development partnership program bringing together companies supplying products that are either compatible with or entirely integrated with SolidWorks. SolidWorks extensively tests the integration between products and over 260 compatible products are available in many areas, including machining, analysis, simulation and rapid prototyping.
In 2005, 40 products from 36 SolidWorks partners achieved Certified Gold status. Gold Products are software applications developed by partners, and tested and certified by SolidWorks to ensure high quality, integration and interoperability with SolidWorks software, thereby delivering a higher degree of productivity to our customers. These products are part of the more expansive SolidWorks Solution Partner program that includes over 700 companies worldwide.
Consulting and service partners. Our ecosystem of industry alliances also includes a community of consulting firms and systems integrators, led by our integrated services organization, Dassault Systèmes Services, now merged with our Solutions organization to form Dassault Systèmes Industry Solutions. These Consulting and Services Partners are able to complete our own Services Offerings to customers to optimize their business processes as well as integrate global PLM solutions in line with best-of-class implementation practices.
We have had a long-standing relationship with IBM PLM in the marketing and sales of our PLM solutions. In addition, we continue to expand our relationship with IBM in services. Specifically, since January 2002, IBMs Global Service Business Consulting Group (BCS), the IBM global services organization, has been a Premier consulting partner to us. Through our services teams, IBM BCS now provides complementary consulting and implementation services to customers in order to drive adoption of our PLM solutions. IBM BCS collaborates with our integrated services teams to develop services offerings related to our PLM solutions. During 2005 we signed an agreement in services with IBM BCS and our services group designed to help customers accelerate their business transformations, of which PLM is a key component. We believe clients will benefit from the combination of IBMs consulting and project management skills and our software technology and technical expertise.
32 DASSAULT SYSTÈMES Form 20-F 2005
Our network of consulting and services partners has significantly expanded over the last several years as we add selected companies with recognized skills and expertise in delivering PLM and integration services. Our most active/major partners include, in addition to IBM, Atos Origin, AvicIT, Axiom Systems Inc., Cards Engineering, Cenit, CSC, Dipro, Elsag, EXA, Fasotec, Geometric Software Solutions, Hitachi Zosen (HZS), IASC, Infosys, Incat, Larsen & Toubro, MDTVision (IBM), MRI Systèmes, MSC Software, Nihon Unisys, NS Solutions, PCO Technologies, Processia, PROSTEP, Toyota Communications Systems, T-Systems, Tata Consulting Services, Tata Technologies Limited, Volvo IT and Wipro.
We also work closely with our consulting and service partners to ensure that they are well-positioned to deliver best-of-class PLM implementations. In connection with this objective, we offer three enablement programs to our partners in the areas of (i) consulting and systems integration, (ii) training and education and (iii) application development.
DELMIA Automation partners. In April 2004, we entered into a business partnership with Schneider Electric, a world leader in Power and Control, to sell DELMIA solutions and develop consulting and services for the Automation and Production Engineering (production process planning, production assembly processes and factory simulation) markets. In connection with this partnership, Schneider Electric formed Dextus, a wholly-owned subsidiary, which plans to sell and provide services to both DELMIA PLM and DELMIA Automation.
Since November 2004, we have had a strategic partnership with OMRON Corp., a leading manufacturer of control equipment for factory automation, through which OMRON plans to distribute DELMIA Automation as its new collaborative programming desktop for control engineers. In connection with this agreement, OMRON has become a DELMIA Business Partner and plans to integrate DELMIA Automation into its new generation of Control and Network Solutions using our CAA V5 platform.
On April 12, 2005, Siemens A&D Automation Systems and DELMIA signed a technical cooperation agreement for the development and support of a Siemens PLC Setup product in the DELMIA Automation portfolio. Through this technical partnership, Siemens A&D provides DELMIA Automations research and development team with technical support around its PLC programming tools (STEP7) to create the Siemens PLC Set-up enabling users from DELMIA Automation to generate code into Siemens PLCs.
Academic relationships. We have established a number of relationships with research centers, universities and schools throughout the world over the years. Some of these academic institutions include: AIP-PRIMECA, California Institute of Technology, Cambridge University, École Polytechnique, the Freiburg Regional School District, Georgia Tech, Hokkaido University, Hong Kong Polytechnic, JSS Noida, MIT, the Norwegian Ministry of Education, Polytechnico di Milano, Princeton University, Purdue University, the Seoul National University, Tsinghua University, the University of Tokyo, the University of Versailles Saint-Quentin-en-Yvelines and Queens University-Belfast.
SALES AND MARKETING
Overview. We largely market and sell our software solutions through indirect selling channels. With respect to most of our PLM solutions our primary partner is IBM, with whom we have a long-standing strategic relationship (described below). In the Mainstream 3D market, SolidWorks software is distributed through a network of value-added resellers and distributors worldwide.
Revenue generated through our agreements with IBM represented approximately 52%, 56% and 59% of our total revenue in 2005, 2004 and 2003, respectively. Under our marketing and distribution agreement, we license CATIA, ENOVIA and SMARTEAM products to IBM, which then sublicenses them to end-users. Our CATIA, ENOVIA and SMARTEAM products are marketed and distributed principally by IBM pursuant to a mutually non-exclusive agreement. See Item 3D: Risk Factors - Risks Related to Our Business.
IBM pays us royalties, which approximate 50% of total CATIA, ENOVIA and SMARTEAM license fees invoiced by IBM. IBM may earn an incentive provided it reaches certain royalty growth targets. Specifically, IBMs achievement of certain levels of Business Partners fees can lead to an incentive of up to 2% of small- to medium-size business end-user revenues, and the royalty growth achievement can lead to up to a 1.2% incentive on large accounts end-user revenues.
In addition, specifically for DELMIA PLM products, we have agreed with IBM to team together through a cooperative licensing agreement to deliver digital manufacturing software applications to accounts where both IBM and we can bring value. This agreement enables IBM to sell DELMIA PLM products to certain customers on a case-by-case basis, while ensuring that the DELMIAs specialized sales force maintains the customer support lead.
Marketing and Sales of our PLM solutions. We market and sell our PLM software solutions through (i) IBM PLM, as well as through the network of IBM Business Partners; (ii) our direct sales force for certain specialized PLM software applications and (iii) our PLM indirect sales channels.
IBM PLM and IBM Business Partners channel: Our marketing strategy with IBM is focused on addressing the needs of large companies and small and medium-sized businesses (SMBs) in the PLM market. IBM PLM is an IBM organization dedicated to the marketing and sales of our CATIA, ENOVIA and SMARTEAM products to large enterprises primarily. A network of IBM Business Partners is devoted to market, on a non-exclusive basis, our CATIA, ENOVIA and SMARTEAM products.
DASSAULT SYSTÈMES Form 20-F 2005 33
Under a Channel Management Provider (CMP) contract in place with IBM since mid-2005, we currently manage the marketing and distribution of a substantial portion of IBMs European and American small and medium-sized (SMB) Dassault Systèmes PLM business. Our goal is to improve organisational efficiency and provide greater support to IBM Business Partners who are responsible for selling our software solutions to small and medium-sized businesses. Based upon this new agreement, our role as CMP on behalf of IBM expanded significantly and now includes a number of countries in Europe and the United States. Prior to the CMP contract, we served as Master Partner (renamed CMP in mid-2005) in France and Benelux.
To further address the opportunities for marketing and sales of our PLM solutions to SMBs, we are also an IBM Business Partner in certain targeted geographies, to complement the work of IBM PLM. We became an IBM Business Partner in France, Belgium, Switzerland and, since 2004, in North America through our joint venture, RAND North America, Inc., with RAND Worldwide. In January 2005 we became an IBM Business Partner in several European countries, following our acquisitions of RAND Worldwides entities in the United Kingdom, Sweden, Germany, Switzerland and Russia.
Our PLM direct sales channel: ABAQUS products are largely marketed by a direct sales force. DELMIA products are marketed by a direct sales force, which is complemented primarily by resellers. To a small degree, in some geographic markets, and in addition to the IBM sales channel, SMARTEAM engages a direct sales force to market and sell its solutions.
Our PLM indirect sales channels: ABAQUS also has an indirect sales channel for the marketing and sales of its products in selected countries. DELMIA solutions are also sold by a network of business partners. To a small degree, in some geographic markets and in addition to the IBM sales channels, SMARTEAM products and solutions are also marketed and sold in part by resellers. In 2005 we established a VAR channel in China to sell our V5 PLM software applications. In order to respond to the needs of the Chinese market, this network of VARs is in charge of selling four of our PLM brands - CATIA, ENOVIA, SMARTEAM and DELMIA - in an integrated approach. We also work with our partner CAXA, marketing and selling in China, 2D and 3D products based on our V5 infrastructure.
Marketing and Sales of Our Mainstream 3D solutions. In the Mainstream 3D market, SolidWorks software is distributed through a network of more than 300 value-added resellers and distributors worldwide. We support their activities through industry trade shows, seminars, online educational activities, advertisements and marketing materials.
COMPETITION
Markets for our products are highly competitive and characterized by rapidly changing technology and evolving standards. Our main competitors in the PLM market include UGS and PTC. For our Mainstream 3D products, our main competitors include Autodesk, Inc., PTC and others. We also compete with several supply-chain management, computer-aided engineering (CAE) and other enterprise software providers, including ANSYS, Agile Software Corporation, MSC.Software, Oracle and SAP. In addition, numerous specialist software developers, both large and small, compete with us in specific applications, including Adobe. In general, our competitors compete with us on a worldwide basis.
We compete in our various product lines on the basis of product features, product coverage and optimization, price, openness, customized design, marketing, sales, services and technical support. Our ability to compete successfully depends on elements both within and outside our control, including successful and timely development of new products, product performance and quality, pricing, customer service, and industry trends.
Dassault Systèmes S.A., the parent company of the Group, has two primary functions: first, it is the largest operating company of the Group, responsible for the development of our CATIA solutions, a part of our ENOVIA solutions and the CAA V5 platform. Second, the parent company provides certain centralized services to all the companies within the Group and in this role operates in a fashion similar to a holding company.
As the parent company for the Group, Dassault Systèmes S.A. defines the Groups strategy and operating plans. The executive management team is located at the parent companys principal office in Suresnes, France, which is also the headquarters for Dassault Systèmes. The parent company directs the following activities from its principal office: finance, investor relations, communications, legal, human resources, and information technology, as well as our global research and development strategies and management of our strategic partnership with IBM. The costs of providing centralized services are billed back at their actual costs to the respective subsidiaries using these services. The total amount charged back to subsidiaries was 1.7 million in 2005, 1.5 million in 2004 and 1.5 million in 2003. With respect to the assets of the Group, the assets largely rest with the respective subsidiaries using such assets for the development of software and services.
34 DASSAULT SYSTÈMES Form 20-F 2005
At December 31, 2005, Dassault Systèmes included our parent company and 68 operational subsidiaries located in 19 countries. The organigram for the main subsidiaries of the Group at such date is set forth below.
DASSAULT SYSTÈMES Form 20-F 2005 35
The following table lists our principal operating subsidiaries and certain additional information at December 31, 2005.
Subsidiary |
|
Proportion
of |
|
Country
of |
|
|
|
|
|
|
|
SolidWorks Corporation |
|
98 |
% |
United States |
|
Enovia Corp. |
|
100 |
% |
United States |
|
Delmia Corp. |
|
100 |
% |
United States |
|
ABAQUS Inc. |
|
100 |
% |
United States |
|
SmarTeam Corporation Ltd. |
|
100 |
% |
Israel |
|
Spatial Corp. |
|
100 |
% |
United States |
|
Dassault Data Services |
|
95 |
% |
France |
|
Dassault Systèmes KK |
|
100 |
% |
Japan |
|
Dassault Systèmes Services LLC |
|
100 |
% |
United States |
|
While our parent company accounted for 49% of total revenue, SolidWorks Corporation (substantially represented by our Mainstream 3D segment) was our only subsidiary that accounted for more than 10% of total revenue in 2005.
For a list of our direct subsidiaries, see Note 18 to our consolidated financial statements.
D. Property, Plant and Equipment
We lease our current principal executive offices (a total of approximately 30,000 square meters) in Suresnes outside Paris, France, in part under capital leases and in part under operating leases. We lease most of our other administrative, research, production and distribution facilities, which are located principally in France, the United States, Germany, India, Israel, Japan, Canada and the United Kingdom. We have recently entered into a built-to-suit lease agreement for new headquarters facilities, under which we have committed to lease approximately 55,000 square meters of office space located in Vélizy, outside Paris, France, for a non-cancelable initial term of 12 years. The lease is to begin when construction is completed, which is expected to be in mid-2008. We believe that our existing office facilities and, once we move to our new headquarters, our future facilities will be adequate for our foreseeable needs, and that suitable additional or alternative space should be available in the future on commercially reasonable terms as needed.
We believe that we are not exposed to substantial risks relating to the environment due to the nature of our business. On the contrary, our products contribute to the protection of the environment since they are designed to replace the construction of physical mock-ups and to reduce the environmental issues that are common to all industries.
We are insured under various global insurance policies, managed centrally. These policies provide coverage for significant risks and activities related to our operations, including damage to property, product liability, intellectual property, directors and officers liability, and global electronic errors or omissions. We believe that the guarantees provided for by these insurance policies amount to sums proportionate to the risks involved.
Item 4A: Unresolved Staff Comments
Not applicable.
36 DASSAULT SYSTÈMES Form 20-F 2005
Item 5: Operating and Financial Review and Prospects
We have included below an executive overview which highlights selected aspects of our financial results for 2005 in accordance with U.S. GAAP. The executive overview, and the more detailed discussion that follows, should be read together with our consolidated financial statements and the related notes included elsewhere in this Annual Report.
In discussing and analyzing our results of operations, we consider supplemental non-GAAP financial information which excludes (i) for the year ended December 31, 2005, the effect of adjusting the carrying value of acquired companies deferred revenue and (ii) for the years ended December 31, 2005, 2004 and 2003, the amortization of acquired intangibles. We refer collectively to these excluded elements as adjustments for acquired companies and technology. A reconciliation of this supplementary non-GAAP financial information with information set forth in our financial statements and the notes thereto is presented below under Supplemental Non-GAAP Financial Information.
EXECUTIVE OVERVIEW FOR 2005
|
|
Strong growth in our activity drove our revenue and net income results for 2005. |
Total revenue increased 17.3% to 934.5 million in 2005. Excluding adjustments for acquired companies and technology, total revenue increased 18.5% to 943.6 million. PLM segment revenue, including PDM revenue, increased 15.8% to 753.6 million in 2005 (excluding 2.1 million of inter-segment sales). Excluding adjustments for acquired companies and technology, PLM revenue increased 17.1% to 761.8 million (excluding 2.1 million of inter-segment sales). PDM revenue, on a stand-alone basis, increased 19.9% to 121.9 million in 2005 primarily reflecting a strong performance by ENOVIA. Our PLM results also benefited from the inclusion of ABAQUS for the fourth quarter of 2005 following its acquisition in October. Mainstream 3D segment revenue increased 24.0% to 180.9 million in 2005 (excluding 0.5 million of inter-segment sales). Excluding adjustments for acquired companies and technology, Mainstream 3D revenue increased 24.6% to 181.8 million (excluding 0.5 million of inter-segment sales).
Net income increased 12.2% to 175.5 million in 2005, and diluted net income per share increased 10.4% to 1.49 in 2005. Excluding adjustments for acquired companies and technology, our net income for 2005 increased 18.8% to 187.2 million, with diluted net income per share increasing 16.9% to 1.59.
|
|
Total revenue growth in 2005 reflected strong year-over-year increases in both software and services activities. |
Software revenue increased 16.8% in 2005. Excluding adjustments for acquired companies and technology, software revenue increased 18.2% to 792.7 million. Service revenue increased 20.1% to 150.9 million in 2005.
|
|
We extended our leadership of the Product Lifecycle Management market in 2005, gaining one percentage point to 23 percent of global market share. In the aggregate, we have gained eight points of market share over the last four years. |
In U.S. dollars (used by industry consultants to measure market share), our total revenue, excluding the effect of adjusting the carrying value of acquired companies deferred revenue, increased 19% in 2005, leading to an estimated market share gain of one percentage point to 23%. This market share calculation is based upon an exchange rate of $1.24 to 1.00. In 2004, we were ranked number one in the global PLM market with a market share of 22% (due to the upward revision of the size of the 2004 global market by industry analyst Daratech, market share percentages were adjusted, and our market share was adjusted to 22% for 2004. Our ranking did not change).
|
|
Total CATIA and SolidWorks design licenses sold in 2005 increased significantly in comparison to 2004. |
Total CATIA and SolidWorks licenses increased 15.2% in 2005 to 72,078, with average pricing generally stable to slightly positive for the year compared to 2004.
|
|
We continued to have a high level of recurring licenses revenue. |
An important attribute of our financial model is our high percentage of recurring revenue. In 2005 recurring licenses revenue represented 50% of our software revenue, which in turn represented 84% of total revenue.
|
|
We achieved our objective of maintaining a relatively stable operating margin, excluding adjustments for acquired companies and technology, in comparison to 2004. This was a result of the positive underlying improvements in our existing businesses, which enabled us to largely absorb the dilution from our 2005 and 2004 acquisitions, including joint ventures. |
DASSAULT SYSTÈMES Form 20-F 2005 37
Our operating margin equalled 26.9% in 2005 and 28.8% in 2004. For purposes of setting our financial objectives we focus on operating margin excluding adjustments for acquired companies and technology. On this basis, our operating margin equalled 28.6% in 2005, compared to 29.0% for 2004.
|
|
We continued to have a strong financial position. |
Cash and short-term investments totaled 379.9 million at December 31, 2005. Net cash provided by operations was 196.7 million for 2005. During 2005, we paid cash dividends aggregating 43.1 million and completed acquisitions, net of cash acquired, totalling 329.4 million, which were funded from cash and short-term investments.
Key Financial Data |
|
Year ended December 31, |
|
|||||||
|
|
|
|
|||||||
(in millions of euros, except per share data) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
934.5 |
|
|
796.6 |
|
|
754.8 |
|
Operating income |
|
|
251.0 |
|
|
229.8 |
|
|
212.7 |
|
As a percentage of total revenue |
|
|
26.9 |
% |
|
28.8 |
% |
|
28.2 |
% |
Net income |
|
|
175.5 |
|
|
156.4 |
|
|
135.4 |
|
Diluted net income per share |
|
|
1.49 |
|
|
1.35 |
|
|
1.18 |
|
Supplemental non-GAAP financial information (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
943.6 |
|
|
796.6 |
|
|
754.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
269.9 |
|
|
231.2 |
|
|
218.6 |
|
As a percentage of total revenue |
|
|
28.6 |
% |
|
29.0 |
% |
|
29.0 |
% |
Net income |
|
|
187.2 |
|
|
157.6 |
|
|
140.4 |
|
Diluted net income per share |
|
|
1.59 |
|
|
1.36 |
|
|
1.22 |
|
(1) |
The supplemental non-GAAP financial information excludes adjustments for acquired companies and technology (for the year ended December 31, 2005, the effect of adjusting the carrying value of acquired companies deferred revenue and, for the years ended December 31, 2005, 2004 and 2003, amortization of acquired intangibles). For the reconciliation of this non-GAAP financial information with information set forth in our financial statements and the notes thereto, see Supplemental Non-GAAP Financial Information below. |
|
|
Currency fluctuations had only a minor impact on our financial results in 2005 due to a much lower level of fluctuation in comparison to 2004. |
Currency fluctuations had a much lower impact on our financial results in 2005 in comparison to 2004 and 2003, when we experienced significant differences in our reported growth rates and our growth rates on a constant currency basis due to the substantial fluctuations in the value of the U.S. dollar and Japanese yen to the euro during those years.
|
|
Relevant economic and business trends (Source: Consensus Forecasts published by Consensus Economics Inc., January 2006) |
The overall economic environment has an important impact on our revenue and level of business activity. In addition, since our customers are largely composed of manufacturing companies, we also consider trends in business investment spending and industrial production. However, in light of the time lag between general economic cycles and business investment spending, the differing investment cycles of the various industrial sectors we serve, and the specific investment budgets and calendars of our individual customers, there is no reliable short- or mid-term correlation between these macro-economic indicators and our revenues for any particular region or period.
Overall economic environment. Overall economic growth in 2005 as measured by gross domestic product (GDP) was estimated at 3.6% in the U.S. (4.2% in 2004), 2.5% in Japan (2.3% in 2004), 1.6% in France (2.1% in 2004) and 0.9% in Germany (1.6% in 2004). Current consensus estimates for 2006 indicate a mixed economic environment with variable rates of GDP growth expected across different regions.
Business investment spending. In 2005, estimated business investment spending in three of our four largest national markets - France, Germany and Japan - experienced higher growth rates in 2005 than in 2004, and the United States continued to sustain a strong rate of growth. Specifically, in France and Germany, business investment spending increased an estimated 3.4% and 5.3%, respectively, in 2005 compared to 2.3% and 2.6%, respectively, in 2004. In Japan business investment increased an estimated 8.0% in 2005 compared to 4.6% in 2004. In the United States, business investment spending increased an estimated 8.9% in 2005 compared to 9.4% in 2004.
38 DASSAULT SYSTÈMES Form 20-F 2005
Industrial production. In 2005 industrial production increased an estimated 3.2% in the U.S. (4.1% in 2004), 1.3% in Japan (5.2% in 2004), 0.5% in France (2.2% in 2004) and 2.7% in Germany (2.4% in 2004).
See also Item 3.D - Risk Factors for further discussion of the potential effects of overall economic conditions on our business and operating results.
ABAQUS Acquisition
On October 4, 2005, we completed the acquisition of ABAQUS Inc., for a total cost, including transaction costs, of approximately 346 million. For information on ABAQUS products, see Item 4B: Business Overview - Market Structure and Brands. For information on the impact of the acquisition on our operating results for 2005, see the discussion below on operating results for 2005 compared to 2004. For other financial information related to our acquisition of ABAQUS, including pro forma information, see also Note 6 to our consolidated financial statements.
PRINCIPAL ELEMENTS OF OUR REVENUE AND EXPENSES
Revenue
Our total revenue is comprised of (i) software revenue, which is our primary source of revenue, and (ii) services and other revenue.
Software revenue. Software revenue accounted for 84%, 84% and 86% of our total revenue in 2005, 2004 and 2003, respectively. Software revenue is comprised of new licenses revenue as well as recurring licenses and product development revenue. In 2005, 2004 and 2003, approximately 50%, 51% and 51% respectively of our software revenue consisted of recurring licenses revenue comprised of periodic fees for rental licenses and maintenance as described herein. Our PLM products are mainly licensed pursuant to one of two payment structures: (i) rental licenses, for which the customer pays equal periodic fees to keep the license active, and (ii) primary fee licenses, for which the customer pays an initial fee and subsequently pays periodic fees, generally on an annual basis. For both forms of license, these periodic fees entitle the customer to corrective maintenance and product updates without additional charge. Product updates include improvements to existing products but do not cover new products. Our product development revenue relates to the development of additional functionalities of standard products requested by customers.
Software licenses offered by SolidWorks require the payment of a one-time fee. Access to upgrades and maintenance require payment of an annual subscription fee.
For a breakdown of revenue between new license revenue, recurring licenses and product development revenue, see Note 15 to our consolidated financial statements.
Services and other revenue. Services and other revenue are generated mainly from consulting services in methodology for design, deployment and support, training services and engineering services. In addition, we generate services revenue from the commissions we receive as a result of our sales activities as an IBM Business Partner in Europe and in North America. Since mid-2005, we receive fees from IBM based on our CMP (Channel Management Provider) agreement, under which we manage the marketing and distribution of our PLM products by the IBM Business Partner network in a number of countries in Europe and in the United States. We also resell a limited amount of computer hardware, for which we record only the gross margin from these sales as service revenue. In 2005, 2004 and 2003, our services and other revenue was generated principally by the PLM segment.
A substantial portion of our revenue is generated through our marketing and distribution agreements with IBM. For further information on our relationship with IBM, see Item 3D: Risk Factors and Item 4B: Business Overview - Sales and Marketing.
Expenses
Research and development. Research and development expenses represented 27%, 28% and 29% of total revenue in 2005, 2004 and 2003, respectively. Research and development expenses include primarily personnel costs for specialists in software architecture and various application fields such as mechanical design, manufacturing, mechanical engineering and computer graphics, as well as for specialists with significant experience and knowledge of our target industrial sectors. Research and development expenses also include computer rental expenses, the depreciation and cost of maintenance related to computer hardware used in research and development, development tools, networking and communication expenses.
Costs for research and development of software are expensed when incurred, if the analysis of technical criteria does not qualify them as a capital asset. Since our founding in 1981, implementation of this accounting policy has resulted in all such costs being expensed in the period in which they were incurred.
DASSAULT SYSTÈMES Form 20-F 2005 39
Marketing and sales. Marketing and sales expenses represented 24%, 22% and 22% of total revenue in 2005, 2004 and 2003, respectively. Marketing and sales expenses consist primarily of personnel costs, travel expenses and marketing infrastructure costs, such as computer and office rental expenses, as well as sales commissions. Marketing and sales expenses are derived principally from our marketing activities in support of IBM, including our work as CMP (Channel Management Provider) since mid-2005 and as an IBM Business Partner in Europe and North America; our direct sales channels; and our work supporting our indirect sales channels.
Amortization of acquired intangibles. Amortization of acquired intangibles includes amortization of acquired technology and amortization of intangible assets recognized in connection with business combinations (primarily customer relationships and technology).
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make certain assumptions and judgments. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, among others, affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition
We recognize revenue in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (SAB-104) and other authoritative guidance. Although we believe that we are currently in compliance with SOP 97-2, SOP 98-9 and SAB-104, the accounting profession continues to discuss various provisions of these guidelines with the objective of providing additional guidance on their future application. These discussions and the issuance of new interpretations could lead to changes in our revenue recognition policies. Our operating results and financial position may be impacted by changes in these policies. See Note 1 to our consolidated financial statements and Item 3D: Risk Factors - The regulatory environment for listed companies has become increasingly complex and is subject to change. Modification in the applicable standards, rules or interpretations may require us to modify our accounting policies and business practices, which could adversely affect our results of operations. Implementation of regulatory requirements is costly and any reported deficiencies may have a negative adverse effect on our stock price.
Under our arrangement with IBM, royalties from products distributed by IBM are recognized when IBM recognizes revenue and reports such revenue to us. The reporting of IBM activity is subject to an annual audit and adjustment process, whereby either party has the opportunity to correct differences that may have occurred during the preceding year. Such differences generally result from interim reporting which occasionally either overstates or understates the number of software license transactions with a group or groups of end-user customers. We monitor the possible differences based upon historical trends and known specific situations, and defer the recognition of revenue by IBM based upon its estimate of adjustments that will ultimately be made. Due to the volume of revenues generated from our marketing and distribution arrangement with IBM, significant audit adjustments could have a material impact on our results of operations. During the periods reported, no significant adjustments have been recorded.
Purchase Price Allocation for Business Combinations
We allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. The fair value of in-process research and development projects, if any, is immediately expensed. The excess purchase price over those fair values is recorded as goodwill, which is not amortized but subject to annual impairment review.
A significant portion of the price paid for our recent acquisitions has been assigned to goodwill and identifiable intangible assets, primarily developed technology and contractual customer relationships, amortized over their estimated useful life of up to 10 years. We typically perform valuation studies to determine the fair value of identifiable intangible assets, generally using a discounted cash flow approach. This requires us to make assumptions about the acquired entitys future operating cash flows, the attrition rate of existing customers, the useful life of existing technology, and the applicable discount rate. We also use judgment to determine the fair value of post-contract customer support obligations or the acquired entity. Different assumptions may result in different IPR&D write-offs, intangible amortization or goodwill impairment charges recorded in our income statement.
40 DASSAULT SYSTÈMES Form 20-F 2005
Income taxes
We account for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
We evaluate regularly the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. We have used tax planning strategies to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits.
In addition, we operate within multiple tax jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. The accounting for income taxes encompasses the use of judgments and estimates. Actual results and amounts could differ from those used in accounting for income taxes. Such differences could have a material impact on our future operating results.
Investments
We hold minority interests in and also grant loans to companies having operations or technology in areas within our strategic focus, some of which are publicly traded and have highly volatile share prices. We record an impairment charge when we believe an investment or a loan has experienced a decline in value that is other than temporary. This determination requires significant judgments, including our assessment of the financial health of and near-term business outlook for the investee or creditor. Future adverse changes in market conditions or poor operating results of these companies could result in losses or an inability to recover the carrying value of the investments or loans that may not be reflected in an investments current carrying value, thereby possibly requiring an impairment charge in the future.
Goodwill and other intangible assets
We account for goodwill and other intangible assets in accordance with SFAS 142, which requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates, and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit, and consequently our results of operations.
In addition, we review our intangible assets, including acquired technology, whenever changes in circumstances or new events indicate that the carrying value may not be recoverable and we make assumptions about future cash flows expected to be generated by these assets.
Should different operating conditions prevail, including changes in our perception of competition and market demand for any of our reporting units or acquired technologies, this could materially affect our determination of their fair values and useful life, and lead us to record impairment charges or increased amortization expense.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires that all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values over the period that an employee provides service in exchange for the award. Pro forma disclosure is no longer an alternative.
In April 2005, the Securities and Exchange Commission (SEC) amended the compliance dates for SFAS 123(R) to allow companies to implement the standard at the beginning of their next fiscal year, instead of the next reporting period beginning after June 15, 2005. SFAS 123(R) is effective for us as of January 1, 2006 as we have not elected for early adoption of the standard.
DASSAULT SYSTÈMES Form 20-F 2005 41
Upon adoption of SFAS 123(R), companies are allowed to select one of three alternative transition methods, each of which has different financial reporting implications. We plan to adopt SFAS 123(R) using the modified prospective method, in which compensation cost is recognized beginning with the effective date (1) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (2) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date.
As permitted by SFAS 123, we currently account for share-based payments to employees using APB 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share above.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the Staffs interpretation of SFAS 123(R). This interpretation expresses the views of the staff regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and provides the staffs views regarding the valuation of share-based payment arrangements for public companies. We will adopt SAB 107 in connection with its adoption of SFAS 123(R).
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). SFAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by newly issued accounting pronouncements in the event the pronouncements do not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and requires prospective application. We will adopt this standard on January 1, 2006 and do not believe that adoption will have a material effect on our consolidated financial position, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not or are not believed by management to have a material impact on our present or future consolidated financial statements.
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
In evaluating and communicating our results of operations, we use supplemental non-GAAP financial information which, in connection with our recently acquired companies, excludes:
|
|
for the year ended December 31, 2005, the effect of adjusting the carrying value of acquired companies deferred revenue; and |
|
|
for the years ended December 31, 2005, 2004 and 2003, the amortization of acquired intangibles. |
We refer to the amounts which we exclude from our audited financial information as adjustments for acquired companies and technology.
We believe that this supplemental non-GAAP information is an important indicator of operational strength and performance of our business, and is used by analysts, investors and other interested parties. However, this supplemental information is not a U.S. generally accepted accounting principles (U.S. GAAP) measurement or an alternative to such amounts.
42 DASSAULT SYSTÈMES Form 20-F 2005
The tables below reconcile our supplemental non-GAAP financial information to the information presented in our consolidated financial statements and the notes thereto for the years ended December 31, 2005, 2004 and 2003.
|
|
Year ended December 31, 2005 |
| |||||||||||||||
|
|
|
| |||||||||||||||
(in millions of euros, except % and per share data) |
|
Revenue |
|
Operating expenses |
|
Operating income |
|
Operating margin |
|
Net income |
|
Earnings |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Information on a reported basis |
|
|
934.5 |
|
|
683.5 |
|
|
251.0 |
|
26.9 |
% |
|
175.5 |
|
|
1.49 |
|
Growth (decrease) compared to 2004 |
|
|
17 |
% |
|
21 |
% |
|
9 |
% |
(1.9 |
pt) |
|
12 |
% |
|
10 |
% |
Amortization of acquired intangibles |
|
|
n.a. |
|
|
(9.8 |
) |
|
9.8 |
|
|
|
|
9.8 |
|
|
0.08 |
|
Effect of adjusting the carrying value of acquired companies deferred revenue |
|
|
9.1 |
|
|
n.a. |
|
|
9.1 |
|
|
|
|
9.1 |
|
|
0.08 |
|
Tax on amortization of acquired intangibles and the effect of adjusting the carrying value of acquired companies deferred revenue |
|
|
n.a. |
|
|
n.a. |
|
|
n.a. |
|
|
|
|
(7.2 |
) |
|
(0.06 |
) |
Excluding adjustments for acquired companies and technology (the effect of adjusting the carrying value of acquired companies deferred revenue and amortization of acquired intangibles) |
|
|
943.6 |
|
|
673.7 |
|
|
269.9 |
|
28.6 |
% |
|
187.2 |
|
|
1.59 |
|
Growth (decrease) compared to 2004 |
|
|
18 |
% |
|
19 |
% |
|
17 |
% |
(0.4 |
pt) |
|
19 |
% |
|
17 |
% |
|
|
Year ended December 31, 2004 |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
(in millions of euros, except % and per share data) |
|
Revenue |
|
Operating expenses |
|
Operating income |
|
Operating margin |
|
Net income |
|
Earnings |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Information on a reported basis |
|
|
796.6 |
|
|
566.8 |
|
|
229.8 |
|
28.8 |
% |
|
156.4 |
|
|
1.35 |
|
Growth (decrease) compared to 2003 |
|
|
6 |
% |
|
5 |
% |
|
8 |
% |
|
|
|
16 |
% |
|
14 |
% |
Amortization of acquired intangibles |
|
|
n.a. |
|
|
(1.4 |
) |
|
1.4 |
|
|
|
|
1.4 |
|
|
0.01 |
|
Tax on amortization of acquired intangibles |
|
|
n.a. |
|
|
n.a. |
|
|
n.a. |
|
|
|
|
(0.2 |
) |
|
(0.0 |
) |
Excluding adjustments for acquired companies and technology (amortization of acquired intangibles) |
|
|
796.6 |
|
|
565.4 |
|
|
231.2 |
|
29.0 |
% |
|
157.6 |
|
|
1.36 |
|
Growth(decrease) compared to 2003 |
|
|
6 |
% |
|
5 |
% |
|
6 |
% |
0 |
pt |
|
12 |
% |
|
11 |
% |
|
|
Year ended December 31, 2003 |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
(in millions of euros, except %) |
|
Revenue |
|
Operating expenses |
|
Operating income |
|
Operating margin |
|
Net income |
|
Earnings |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Information on a reported basis |
|
|
754.8 |
|
|
542.1 |
|
|
212.7 |
|
28.2 |
% |
|
135.4 |
|
|
1.18 |
|
Amortization of acquired intangibles |
|
|
n.a. |
|
|
(5.9 |
) |
|
5.9 |
|
|
|
|
5.9 |
|
|
0.05 |
|
Tax on amortization of acquired intangibles |
|
|
n.a. |
|
|
n.a. |
|
|
n.a. |
|
|
|
|
(0.9 |
) |
|
(0.01 |
) |
Excluding adjustments for acquired companies and technology (amortization of acquired intangibles) |
|
|
754.8 |
|
|
536.2 |
|
|
218.6 |
|
29.0 |
% |
|
140.4 |
|
|
1.22 |
|
Based on our consolidated effective tax rates for 2005, 2004 and 2003 of 34.1%, 34.1% and 36.2%, respectively, the after-tax effect of adjusting the carrying value of acquired companies deferred revenue was 5.4 million for 2005, and the after-tax amortization of acquired intangibles was 6.3 million for 2005, 1.2 million for 2004 and 5.0 million for 2003. In 2004 and 2003, the amortization of acquired intangibles consisted entirely of the amortization of acquired technology.
DASSAULT SYSTEMES Form 20-F 2005 43
RESULTS OF OPERATIONS
The table below sets forth the contribution of the Process-centric and Design-centric segments to our revenue, operating income and net income (see Notes 1 and 17 to our consolidated financial statements).
|
|
Year ended December 31, |
| |||||||||||||
|
|
|
| |||||||||||||
(in millions of euros, except percentages) |
|
2005 |
|
2004 |
|
2003 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process-centric |
|
|
755.8 |
|
80.9 |
% |
|
652.1 |
|
81.9 |
% |
|
630.5 |
|
83.5 |
% |
Design-centric |
|
|
181.3 |
|
19.4 |
% |
|
146.2 |
|
18.3 |
% |
|
126.1 |
|
16.7 |
% |
Elimination |
|
|
(2.6 |
) |
(0.3 |
%) |
|
(1.7 |
) |
(0.2 |
%) |
|
(1.8 |
) |
(0.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
934.5 |
|
100.0 |
% |
|
796.6 |
|
100.0 |
% |
|
754.8 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process-centric |
|
|
187.6 |
|
74.7 |
% |
|
182.7 |
|
79.5 |
% |
|
175.4 |
|
82.5 |
% |
Design-centric |
|
|
63.4 |
|
25.3 |
% |
|
47.1 |
|
20.5 |
% |
|
37.3 |
|
17.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
251.0 |
|
100.0 |
% |
|
229.8 |
|
100.0 |
% |
|
212.7 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process-centric |
|
|
132.3 |
|
75.4 |
% |
|
122.8 |
|
77.7 |
% |
|
111.2 |
|
82.1 |
% |
Design-centric |
|
|
43.2 |
|
24.6 |
% |
|
33.6 |
|
22.3 |
% |
|
24.2 |
|
17.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
175.5 |
|
100.0 |
% |
|
156.4 |
|
100.0 |
% |
|
135.4 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-GAAP Financial Information (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process-centric |
|
|
763.8 |
|
80.9 |
% |
|
652.1 |
|
81.9 |
% |
|
630.5 |
|
83.5 |
% |
Design-centric |
|
|
182.4 |
|
19.3 |
% |
|
146.2 |
|
18.3 |
% |
|
126.1 |
|
16.7 |
% |
Elimination |
|
|
(2.6 |
) |
(0.2 |
%) |
|
(1.7 |
) |
(0.2 |
%) |
|
(1.8 |
) |
(0.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
943.6 |
|
100.0 |
% |
|
796.6 |
|
100.0 |
% |
|
754.8 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process-centric |
|
|
204.0 |
|
75.6 |
% |
|
183.8 |
|
79.5 |
% |
|
181.0 |
|
82.8 |
% |
Design-centric |
|
|
65.9 |
|
24.4 |
% |
|
47.4 |
|
20.5 |
% |
|
37.6 |
|
17.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
269.9 |
|
100.0 |
% |
|
231.2 |
|
100.0 |
% |
|
218.6 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process-centric |
|
|
141.7 |
|
75.7 |
% |
|
123.8 |
|
77.7 |
% |
|
116.1 |
|
82.7 |
% |
Design-centric |
|
|
45.5 |
|
24.3 |
% |
|
33.8 |
|
22.3 |
% |
|
24.3 |
|
17.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
187.2 |
|
100.0 |
% |
|
157.6 |
|
100.0 |
% |
|
140.4 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The supplemental non-GAAP financial information excludes adjustments for acquired companies and technology (for the year ended December 31, 2005, the effect of adjusting the carrying value of acquired companies deferred revenue and, for the years ended December 31, 2005, 2004 and 2003, amortization of acquired intangibles). For the reconciliation of this non-GAAP financial information with information set forth in our financial statements and the notes thereto, see Supplemental Non-GAAP Financial Information above. |
44 DASSAULT SYSTEMES Form 20-F 2005
The tables below present certain financial data taken from our consolidated financial statements expressed as a percentage of our total revenue. Our revenue and the percentage of the various expense or other revenue items of total revenue may not be comparable with those of our competitors due to our sales and marketing relationship with IBM.
CONSOLIDATED DATA
|
|
Year ended December 31, |
| ||||
|
|
|
| ||||
(as a % of total revenue) |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
Software revenue |
|
83.9 |
% |
84.2 |
% |
85.5 |
% |
Services and other revenue |
|
16.1 |
|
15.8 |
|
14.5 |
|
|
|
|
|
|
|
|
|
Total revenue |
|
100.0 |
|
100.0 |
|
100.0 |
|
|
|
|
|
|
|
|
|
Software |
|
(2.9 |
) |
(2.7 |
) |
(2.9 |
) |
Services and other |
|
(12.3 |
) |
(12.7 |
) |
(11.9 |
) |
|
|
|
|
|
|
|
|
Total cost of revenue |
|
(15.2 |
) |
(15.4 |
) |
(14.8 |
) |
|
|
|
|
|
|
|
|
Gross profit |
|
84.8 |
|
84.6 |
|
85.2 |
|
Research and development |
|
(26.7 |
) |
(27.9 |
) |
(28.6 |
) |
Marketing and sales |
|
(23.9 |
) |
(21.8 |
) |
(21.5 |
) |
General and administrative |
|
(6.3 |
) |
(5.9 |
) |
(6.2 |
) |
Amortization of acquired intangibles |
|
(1.0 |
) |
(0.2 |
) |
(0.8 |
) |
|
|
|
|
|
|
|
|
Total research, selling and administrative expenses |
|
(57.9 |
) |
(55.8 |
) |
(57.1 |
) |
|
|
|
|
|
|
|
|
Operating income |
|
26.9 |
|
28.8 |
|
28.2 |
|
Financial revenue and other - net |
|
1.6 |
|
1.0 |
|
(0.1 |
) |
Income before income taxes |
|
28.5 |
|
29.8 |
|
28.1 |
|
Income tax expense |
|
(9.7 |
) |
(10.2 |
) |
(10.2 |
) |
Net income |
|
18.8 |
|
19.6 |
|
17.9 |
|
Supplemental Non-GAAP Financial Information (1) |
|
|
|
|
|
|
|
Operating income |
|
28.6 |
% |
29.0 |
% |
29.0 |
% |
Net income |
|
19.8 |
|
19.8 |
|
18.6 |
|
(1) |
The supplemental non-GAAP financial information excludes adjustments for acquired companies and technology (for the year ended December 31, 2005, the effect of adjusting the carrying value of acquired companies deferred revenue and, for the years ended December 31, 2005, 2004 and 2003, amortization of acquired intangibles). For the reconciliation of this non-GAAP financial information with information set forth in our financial statements and the notes thereto, see Supplemental Non-GAAP Financial Information above. |
DASSAULT SYSTÈMES Form 20-F 2005 45
PROCESS-CENTRIC CONSOLIDATED DATA
|
|
Year ended December 31, |
|
||||
|
|
|
|
||||
(as a % of Process-centric revenue) |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
Software revenue |
|
79.8 |
% |
80.5 |
% |
82.5 |
% |
Services and other revenue |
|
20.2 |
|
19.5 |
|
17.5 |
|
|
|
|
|
|
|
|
|
Total Process-centric revenue |
|
100.0 |
|
100.0 |
|
100.0 |
|
|
|
|
|
|
|
|
|
Software |
|
(1.6 |
) |
(1.4 |
) |
(1.6 |
) |
Services and other |
|
(15.3 |
) |
(15.5 |
) |
(14.2 |
) |
|
|
|
|