Feb 08 1999

1998 Total Revenue Increases 30% to FF 2,712 Million (Euro 413 million) and EPS before acquisition costs rises 31% to FF 5.53 (Euro 0.84)

Dassault Systèmes S.A. (Nasdaq: DASTY; Bourse de Paris), a worldwide leading software developer of CAD/CAM/CAE/PDM II products, today announced financial results for the fourth quarter and year ended December 31, 1998



As previously announced, Dassault Systèmes completed the acquisition of Deneb on December 30, 1997 and IBM's ProductManager on April 1, 1998. 1997 pro forma results include those of SolidWorks, as the acquisition was accounted for as a pooling-of-interests. Fourth quarter and twelve months pooled pro forma 1997 financial results are presented for comparison purposes only and include the impact of ongoing operations of Deneb as if the acquisition had occurred on January 1, 1997. All references in the press release to 1997 figures are pro forma, unless stated otherwise.

In addition, in connection with the acquisition of Deneb and ProductManager, 1998 fourth quarter and full year financial results include estimated pre-tax charges totaling FF 4.7 million and FF 66.3 million, respectively, related to the write-off of in-process Research and Development from ProductManager and goodwill amortization from Deneb and ProductManager. Goodwill amortization which was previously classified as R&D is now classified as an Acquisition Cost. All financial figures in this press release are before these Acquisition Costs unless otherwise noted.

Total revenue increased 27.5% to FF 822.3 million (Euro 125.4 million) in the 1998 fourth quarter, up from FF 644.9 million (Euro 98.3 million) in the 1997 fourth quarter. Software revenue was FF 713.4 million, an increase of 29% over the year-ago quarter. The Company commented that software license sales were very strong in both Europe and the Americas, growing 37% and 32%, respectively. Software revenue represented 87% of total revenue, with service revenue accounting for 13%.

Operating income rose 29% to FF 351.6 million in the 1998 fourth quarter, up from FF 273.3 million in the year-ago quarter. The operating margin was 42.8% in the recently completed quarter, comparable to 42.4% in the 1997 fourth quarter. For the three months ended December 31, 1998, net income increased 57% to FF 224.0 million, or FF 1.97 per share (Euro 0.30), compared to FF 142.3 million or 1.26 per share (Euro 0.19) in the 1997 fourth quarter.

Charles Edelstenne, Dassault Systèmes’ Chairman and Chief Executive Officer, stated, "1998 was a year of exceptional performance for the Company. Dassault Systèmes reported record financial results, notwithstanding the difficult economic environment in Asia during the year. Both Europe and the Americas more than offset the weakness in Asia, posting substantial revenue growth."

Recurring software revenue represented 36% of total software revenue in the quarter and 44% for the year. The level of recurring revenue may vary from quarter to quarter due to the seasonality of the level of software sales. New CATIA-CADAM workstation seats shipped in the quarter increased 19% to 8,601 and new SolidWorks seats shipped totaled 3,796, representing an increase of 39% in comparison to the year-ago period.

Bernard Charlès, Dassault Systèmes’ President, commented, "Dassault Systèmes grew three times faster than the overall CAD/CAM industry in 1998, with every area of the Company contributing to this success. As a result of this achievement Dassault Systèmes increased its market share during 1998. We are very proud of this achievement, which we believe reflects our success in providing customers with the appropriate software solutions to respond to their business needs ".

"The fourth quarter of 1998 was very productive for the Company. RENAULT, a CATIA customer for the powertrain division, selected Dassault Systèmes as its primary strategic system for future digital automotive engineering ".

"Recently, following an extensive benchmarking process, PSA Peugeot Citroën selected CATIA as its core modeling solution to assist them in the development of their digital engineering vision. With these recent decisions by RENAULT and PSA Peugeot Citroën, now all the major European automotive manufacturers have decided to standardize on CATIA."

Bernard Charlès, President of Dassault Systèmes S.A., added, "In terms of product development, 1998 has been the opportunity to ‘bring together’ our solutions to create the Digital Enterprise, significantly reinforcing CATIA Digital Mock-up and Digital Manufacturing with the Deneb solutions and introducing a revolutionary approach with ENOVIA Virtual Product Development Management".

"1999 will be the year to ‘leverage together’ by introducing, with Version 5, a consistent architecture for all our product lines. The deployment of our digital enterprise vision for ‘process-centric’ customers will help them to optimize the whole product lifecycle and to focus on innovation".

"This reinforces the need to have SolidWorks continue its effort in developing solutions to address the ‘design-centric’ market. I am extremely pleased with their performance in this market in 1998 with an 80% rise in revenues, and the promising start they took with SolidWorks 98 Plus."

Dassault Systèmes’ Executive Vice President, Thibault de Tersant, said, "We enter 1999 with better visibility and believe the Company is well-positioned to continue to outpace the growth of the overall CAD/CAM industry and to continue to gain market share, based on significant investments in R&D, consulting and marketing."

For the year ended December 31, 1998, total revenue increased 30% to FF 2,711.6 million (Euro 413.3 million), compared to FF 2,092.4 million (Euro 319.0 million) in 1997. In 1998 operating income increased 33% to FF 1,026.5 million. Net income rose 37% to FF 628.8 million in 1998, compared to FF 457.4 million in 1997. On a per share basis, net income increased 31% to FF 5.53 (Euro 0.84 million), up from FF 4.21 in 1997 (Euro 0.64 million). New CATIA-CADAM workstation seats shipped in 1998 totaled 26,006 and new SolidWorks seats shipped totaled 13,847.

Net income after acquisition-related costs was FF 584.5 million or FF 5.14 per share in 1998, compared to a net loss, after acquisition-related costs, of FF 113.4 million or FF 1.06 per share.

In conjunction with the acquisition of ProductManager in April of 1998, the Company initially recorded FF 95.6 million of in-process R&D, FF 49.6 million of acquired technology and no goodwill in accordance with established accounting practice and an independent valuation. The Securities and Exchange Commission issued new guidance to public accounting firms regarding the valuation of in-process research and development after the Company had reported results for the second and third quarters. As a result of the new guidance by the SEC related to the valuation of in-process R&D, the Company has lowered the value of in-process R&D to FF 49 million, decreased acquired technology to FF 44.8 million and recorded goodwill of FF 51.4 million. In connection with these changes, the Company has restated its financial results for the second and third quarters of 1998. Restated first nine months earnings per share on an after-tax diluted basis amount to FF 3.18 per share versus FF 3.05 per share.

The impact on prior quarters financial statements of reclassification of the goodwill amortization and the restated valuation of ProductManager in-process R&D and goodwill is displayed in a PDF file which is available on Dassault Systèmes’ Internet Web-site at:

www.dsweb.com

.