// Script generated by Search Maker Pro: page=new Array();page[1]=new Array("http://www.netfedreports.de/softwareag04/en/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Successful strategy implementation Software AG, Germany’s second largest software provider and one of Europe’s biggest software vendors is once again highly visible in the market. Revenue has been stabilized and profitability significantly increased. These positive changes were achieved through successful strategy implementation. Further details in the Letter to the Shareholders. Software AG share price development was amongst the best in the TecDAX. Against the trend, the share price rose by 46 percent. This ex-ceptional performance was based on positive business developments and favorable prospects. Further information. Read more... Management Report Financial Statements Through stable revenue, net of currency effects, and significant growth in operating results, Software AG hit its 2004 fiscal targets. For further details... The financial statements for 2004 are the first prepared by Software AG under IFRS allowing us to deliver higher transparency and comparability. For further details... Global Networked Company Innovation, portfolio, customers. The photographs in the Annual Report depict key factors driving the growth of Software AG. They also reflect the particular strengths of the company: internationality and teamwork. The accompanying photographs were taken in winter 2004/2005 by employees of Software AG, on the spot, at locations world-wide. This self-directed photoshoot emphasizes the creation of the annual report through concerted teamwork – as also applies to the strategic progress reported. More Infos Annual Report 2003 Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[2]=new Array("http://www.netfedreports.de/softwareag04/en/contact/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Contact Home Key figures Company profile Letter to our shareholders Strategy Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Contact Software AG Corporate Headquarters Uhlandstraίe 12 64297 Darmstadt, Germany Phone +49 61 51-92-0 Fax +49 61 51-92-19 33 www.softwareag.com More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[3]=new Array("http://www.netfedreports.de/softwareag04/en/goals/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Goals and successes Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Goals and successes Focus on Enterprise Transaction Systems and XML Business Integration. Q1 Two business lines established Q1 Product management and marketing teams formed Q3 R&D integrated with the respective business lines Consistent customer focus. Q1 Company-wide implementation of the Customer First program Q1 Fine tuning of the go-to-market models Q1 R&D focuses on market-driven projects Q3 Central Customer Briefing Center established Definition & strengthening of the company portfolio. Q1 Enterprise Transaction Systems portfolio expanded and optimized Q2 Launch of the new XML Business Integration portfolio Q3 XML Business Integration portfolio expanded to include integration solutions Q4 Extension of the integration portfolio into business processes (BPM) Cultural change & implementation of the Global Networked Company. Q1 Transformation to a learning organization with an emphasis on teamwork Q1 Development of internal networks Q2 Restructuring of the world-wide R&D network Q3 Reorganization of the regions based on cultural affinity Increased profitability Stable sales development Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[4]=new Array("http://www.netfedreports.de/softwareag04/en/keyfigures/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Key figures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order More Infos Consolidated Balance Sheet Consolidated Income Statement Key figures 2003 Investor Relations Enterprise Transaction Systems XML Business Integration Software AG Key figures € millions Dec 12, 2004 IFRS Dec 12, 2003 IFRS Dec 12, 2003 HGB Dec 12, 2002 HGB Dec 12, 2001 HGB Dec 12, 2000 HGB Revenue 411.4 420.0 422.2 475.0 588.5 416.6 Licenses 114.2 104.3 104.3 113.0 199.1 132.9 Maintenance 182.6 191.2 191.2 200.9 196.0 127.9 Professional Services 112.8 122.9 124.3 159.6 190.3 154.9 Other 1.8 1.6 2.4 1.5 3.1 0.9 EBITA net of income from investments and other extraordinary income/expenses 85.8 59.1 60.0 53.5 109.4 62.1 EBIT net of income from investments and other extraordinary income/expenses 83.9 59.1 38.0 31.7 89.6 62.1 Income before tax 111.7 13.0 0.7 50.7 70.3 112.9 as % of revenue 27 3 0 11 12 27 Income after tax 77.2 7.1 - 3.4 33.5 38.7 66.6 as % of revenue 19 2 - 1 7 7 16 Total assets 510.7 505.6 445.4 440.8 504.0 424.6 Cash and cash equivalents 119.1 74.2 74.2 75.4 50.2 215.3 Shareholders’ equity 323.6 269.3 228.4 214.5 196.2 200.9 as % of assets 63 53 51 49 39 47 Employees 2,4381 2,5771 2,5771 3,013 3,326 2,846 in Germany 7651 1,6501 1,6501 1,243 1,306 1,292 1 Full time equivalent Stock: key figures 2004 IFRS 2003 IFRS 2002 HGB 2001 HGB 2000 HGB Year’s closing price (XETRA) in € 23.80 16.30 9.01 43.00 82.66 Total number of shares at close of the fiscal year in € millions 27,266,752 27,266,752 27,266,752 27,261,483 26,397,228 Market capitalization at close of the fiscal year in € millions 648.9 444.4 245.7 1,172.2 2,182.0 Dividend per share in € 0.751 0.00 0.00 0.43 0.38 Earnings per share in € 2.83 0.26 1.23 1.44 2.55 Price/Earnings ratio at the close of the fiscal year 8 63 7 30 32 Net cash from operating activities per share (in €) at year-end 1.06 0.48 1.49 3.05 - 0.71 Year high 28.17 20.19 44.10 87.00 167.00 Year low 17.30 8.38 8.41 35.90 57.00 Frankfurt (prime Standard/TecDAX), ISIN DE 0003304002, Ticker symbol SOW 1 Recommendation by the Supervisory Board and the Executive Board at the Annual Shareholder’s meeting on 13th May, 2005 Print Order Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[5]=new Array("http://www.netfedreports.de/softwareag04/en/companyprofile/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Company profile Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Company profile The XML Company Ever more information needs to be created, administered, and made available. In order to maximize the data availability, we offer our customers integrated data access in real time. This supports businesses and organizations in achieving their fundamental goals: faster overall processes, comprehensive networking, higher added value, increased competitive strength. Our products and solutions enable the integration of innovative applications and systems while simultaneously modernizing the IT environment. We are one of the top companies in our market world-wide, and the market leader in Europe. The Software AG company culture is differentiated by absolute customer orientation. We work in best-practice networks, driving change in an open and transparent way. We focus on profitable growth and a distinctive market profile. XML (eXtensible Markup Language) is the key technology for the exchange of data and documents. At the same time, it simplifies the integration of new technologies and applications in existing IT architectures. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[6]=new Array("http://www.netfedreports.de/softwareag04/en/letter/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Letter to our shareholders Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Basis for growth Karl-Heinz Streibich Chief Executive Officer Darmstadt/Germany Chief Executive Officer since 2003. Previously, deputy CEO of T-Systems GmbH. Graduated as a Communications Engineer. Professional history: Dow Chemical, ITT Industries, ITT-SEL (now Alcatel/SEL), AEG Olympia Office and debis Systemhaus. Dear shareholders, Software AG is once again a player in the market - the second largest software firm in Germany, and one of the major software vendors in Europe. We stopped the decline in sales and significantly increased our profitability. Our stock is among the most successful in the TecDax, and – for the first time in three years – we are planning to distribute a dividend. These positive changes were achieved through a very clear agenda. Customer feedback. The first step was listening. I visited some 80 customers around the globe. They helped me compile a profile of Software AG's strengths and weaknesses. Strategic orientation. Based on this profile, as well as the company history, we defined a new strategy concentrating on core competencies. This resulted in the two business lines of ETS Modernization and XML Business Integration. Development and sale of products or solutions outside of the core segments was discontinued. This strategic reorientation led to structural changes: Our foreign and domestic subsidiaries were focused on the business lines; research and development was reorganized. Marketing and PR. On the product level and in addressing customers, we made use of Anglo-American communication talents. Both business lines are now managed by Anglo-American marketing and sales professionals. Furthermore, we implemented a customer visit program. It commits our world-wide top 60 executives to perform regular customer visits, and opens the doors for Software AG to approach decision makers. These activities once again raised awareness of Software AG within our customer base: Software AG is again in the customers’ focus. The positive development of the share price and the raised visibility of the company in leading media shows the success of these activities. Staff alignment. Central functions were trimmed and aligned with both the market and the company's business levels. Units that did not focus on our core competencies were discontinued. Simultaneously business units with a strong customer focus were strengthened. Renewal of the product portfolio. We have focused on products and solutions that are requested by customers. Their complexity matches our customers' requirements and needs. This reduces the range of products while at the same time increasing their added value. Cooperation between sales, marketing, R&D. The triangle of sales, marketing and R&D, which is essential for corporate success, is once again operating at its optimum. We have focused our R&D clearly on the strategic business lines. R&D, marketing and sales are closely connected. Regional structure strengthened. We redefined Software AG’s operational regions. Southern Europe and Latin America were combined, the Anglo-American sphere now forms a region together with Northern Europe. The markets of the Middle and Eastern European countries and APEC members are grouped with the Middle East, China, and Russia. The success of this restructuring became apparent within three months. Support from the employees is always a key factor in a change management process. From the beginning, we communicated our strategy internally including our employees in the change process. All employees were aware of the challenges facing the company which enables us to introduce changes with widespread approval. The focus on core competencies gave a clear signal to the employees. It showed that we intended to build on existing capabilities and technological leadership. Changes and enhancements to the product portfolio were the first, essential steps in the turnaround. We involved executives who, in some cases, already had long experience with the company. This helped to ensure continuity and reduce concerns. Employees were motivated by our quick successes. The fine development of the share price, as well as Software AG's presence in the media, convinced our employees that we had chosen the right path. With our focus on two business lines and strengthened regional structure, we quickly implemented and consolidated the changes. The fact that Dr. Peter Kόrpick will join our Executive Board, and be responsible for the integration business, emphasizes the attractiveness of Software AG for top managers. Last but not least, as an outward sign of our changed company culture, we remodeled the customer conference center at company headquarters. Today, it is an important meeting point for our employees and customers from all over the world. 2004 was a successful year for Software AG. The great support from customers, analysts and investors, journalists, and employees played a key role in our success. Please accept my thanks in the name of the entire Executive Board as well as the Supervisory Board. I am convinced that opting for Software AG - a corporation with clear goals, evident strengths and a solid basis for growth - represents a good choice, now and in the future. Karl-Heinz Streibich Chief Executive Officer Print Order More Infos Members of the board Customer highlights Letter to Shareholders 2003 Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[7]=new Array("http://www.netfedreports.de/softwareag04/en/strategy/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > The Executive Board Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order The Executive Board Christian Barrios Marchant Managing Director Region South Madrid/Spain Member of the Executive Board since 2003. Managing Director of Software AG Spain and Portugal. Qualified as a Mechanical and Production engineer. Professional history: Gould Electronics, Amdahl-Fujitsu, Apple and Toshiba. Mark Edwards Managing Director Region North America/Northern Europe Derby/England Member of the Executive Board since 2003. Managing Director of Software AG of the United Kingdom. Professional history: Computer Operations Manager for the government of the Bermuda Islands, Computer Associates and Platinum Technology. Andreas Zeitler Managing Director Region Central / Asia Darmstadt/Germany Member of the Executive Board since 2000. Managing Director of SAG Systemhaus GmbH, the German subsidiary of Software AG. Professional history: Novell, Central Point Software, Lotus and Markt & Technik Verlag. Arnd Zinnhardt Chief Financial Officer finance and controlling, global IT services, law, and administration Darmstadt/Germany Member of the Executive Board since 2002. Qualified as Master of Business Administration. Professional history: Professional history: Arthur Young (now Ernst & Young) and BDO Deutsche Warentreuhand. Member of the "Stock Exchange" and "IAS 39" research groups of the Institute of Internal Auditors. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[8]=new Array("http://www.netfedreports.de/softwareag04/en/growth/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Driving growth > Research & development Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Research & development Product management Sales Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Driving growth Darmstadt, Germany Derby, United Kingdom Madrid, Spain Reston, Virginia, USA Our claim to be a leading-edge supplier is based on innovation. In a world-wide R&D network, we develop products and solutions with the potential for market leadership. Research and development are directly linked to the market. In combination with the integration into the business lines, this allows for a strong customer focus. Users' requests are anticipated and implemented in advance. Tomorrow's success will grow from today's competence. “Customers need a central, uniform source of information which compiles all kinds of data in real time. Software AG is capable of implementing business initiatives, such as consistent access to information, or self service, fast and cost-efficiently. This could actually shake up the classical integration approach.“ IDC, USA. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[9]=new Array("http://www.netfedreports.de/softwareag04/en/highlights/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Customer Highlights Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Customers benefit through higher productivity globally Software AG is the market leader for products and applications that support the universally applicable data format XML. World-wide, we offer our customers economic solutions for innovative processes. Their goals are, to network systems, make information accessible, improve the performance capacity of existing IT systems and protect investments. Citizen-friendly administrations rely on e-Government With their experience in the area of XML integration and the modernization of mainframe systems, Software AG is the ideal partner for public administration. Innovative solutions permit the establishment of electronic civil services and the acceleration of bureaucratic processes for the benefit of citizens. Since 2004, our product range has been enhanced by the Integration Services Framework (ISF). The e-Government solution, which had been successfully implemented in the United Kingdom previously, was introduced internationally in the second half of the year. Germany The city of Gieίen, Germany, wanted faster building permit procedures and decided to go with ISF. With this solution from Software AG, the time required for the preliminary examination of building permit applications is reduced to a minimum. Existing administrative procedures can be electronically reproduced, and existing special applications continue to be used. China The municipal government of Shanghai uses Software AG products and solutions for the development of their e-Government platform. An Enterprise Service Bus is used to integrate and exchange information from a variety of departments, such as the business office or the office for real estate issues. Furthermore, our Tamino XML Server is used to create a Decision Support System (DSS) and a Multimedia Content Management System. By using XML technology, the government offices benefit from uniform data processing and administration with a minimum of expense. Departments efficiently connected United States of America The California State Public Employee Retirement System (CalPERS) provides retirement and health benefits to employees of the state of California. CalPERS partnered with Software AG to implement its new Automated Member Statement solution, which was successfully used to mail more than one million member statements. Employing the latest open-standard technologies, the solution enables CalPERS to increase customer service, as well as reduce production time and costs. Internal processes effectively optimized United Kingdom The Shepway local council wanted to offer on-line services to citizens for financial transactions, such as paying taxes. To this purpose, we developed a server solution which securely connects Shepway to the existing government gateway. By using this new technology, the District Council is the first British community to successfully offer services of this kind. Enterprise Transaction Systems Data management and backup: Enterprise Transaction Systems can extend the useful life of mainframe systems through optimization, enhancement, and effective management. In this way, companies can ensure their investments remain state of the art, and that their applications deliver cutting-edge functions and high performance. Our focus: two main business lines Logistics value information transfer Logistics processes require increasingly more transparency and clarity. However, the necessary information is often stored in a wide variety of systems in different locations. For logistics partners, effectively accessing, analyzing and sharing such business data is of essential interest. This is possible with Software AG's XML integration solutions. By optimizing existing IT systems, they create seamless data exchange and simplified processes. Germany Together with Siemens Business Services, we designed and implemented a Service Process Management (SPM) system for the Daimler Chrysler factory in Sindelfingen, Germany. Software AG brought the EntireX integration platform into the project, thus providing base technology which is both stable and high-performance. Today, in the Daimler Chrysler plant, both subsidiary processes and services are coordinated and controlled via the SPM. Netherland The Central Information System Schiphol (CISS) for the Amsterdam airport processes the data for approximately 400,000 flights annually. In 2004, Software AG contributed to the modernization of the system and equipping it for the future. The crucial factor for awarding this contract was cutting-edge technology, experience, and reputation in the market. Spain With a 7,000 kilometer pipeline network and a large number of storage facilities, Enagas S.A. is the largest natural gas transport company in Spain. Software AG implemented a powerful query tool for the company which can be used to extract technical data and generate statistics. XML Business Integration Data transfer and systems integration: XML is the ideal way to integrate structured and unstructured data, creating a process-oriented application. This maximizes productivity and return on assets. Insurance and financial service providers take new approaches In the complex administrative structure of financial and insurance companies, mainframe modernization and business integration are essential subjects. In addition to products, since 2004 we have also provided vertical solutions for overcoming these challenges. They are field tested and designed to meet the special requirements for this group of customers. South Korea Shindongah Fire and Transportation Insurance is one of the largest insurers in South Korea. They have used our products for a long time for business-critical applications, including contract, sales and financial management. Since 2004, Shindongah has also used EntireX to open their IT systems for web applications. Data exchange with all participating locations Germany In cooperation with Commerzbank, we designed a platform for the integration and new development of financial applications – the XMS framework. It enables the departments to model and generate financial products independently, as well as integrate inventory systems with varying data structures. This results in a significantly shortened time to market and lower IT costs. The concept of the infrastructure can be applied as a general solution approach for other financial and economic issues United States of America The American Fidelity Assurance Company (AFA) uses our Enterprise Modernization and XML Business Integration solutions to optimize and extend their mainframe technology to interoperate with new real-time and customer-centric applications. AFA can now more efficiently achieve (HIPAA) standards compliance, is able to enroll insurance customers remotely, and has developed an online service center capability over the Web for all six of its customer types. Combined annual savings from these latter two initiatives approaches seven figures. Generally applicable solution approach for finance Print Order More Infos References Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[10]=new Array("http://www.netfedreports.de/softwareag04/en/stock/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Software AG stock Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Top performer in the technology sector The increase in value of the world stock markets during the past year was average at best. However, Software AG stock defied the subdued climate with a 46 percent price increase. Positive business trends and favorable perspectives for 2005 drove this extraordinary performance. The year 2004 was characterized by volatile oil prices, a weak US dollar, and low interest rates in the capital market. There was a mostly restrained performance in the first half of the year, but dividend announcements were more prevalent in the autumn. This moderate upswing enabled the Dow Jones to gain 3 percent over the year; the Dax rose by a solid 7 percent. Software AG stock - a pearl in the TecDAX In the USA, technology shares managed to outperform the market. With a 10 percent increase, the Nasdaq 100 did much better than the standard. Not so in Germany: The TecDAX index lost some ground in 2004, and closed down by just under 4 percent. Software AG stock, which is traded on the TecDAX, clearly distanced itself from the pack. By meeting or exceeding market expectations in every quarter, it generated a price increase of 46 percent, to 23.80 Euro. In terms of shareholder value, this corresponds to a gain of €204.5 million. Key stock figures 2004 2003 2004 high* 28.17 20.19 2004 low* 17.30 8.38 2004 closing price* 23.80 16.30 Total number of shares (Dec 31) 27,266,752 27,266,752 Market capitalization (Dec 31) in € million 648.9 444.4 Diversified holdings (free float) in % 68.4 68.4 Average daily trading volume (Xetra) 111,161 82,100 * Xetra closing price in Euros Resumption of dividend payment planned In light of the satisfying performance of Software AG, the Executive Board and Supervisory Board recommended paying a dividend of € 0.75 per share for the 2004 business year. In relation to the average share price for the year of € 23.09, this would result in a dividend price ratio of 3.25 percent. Average daily sales in Xetra: 111,161 shares (2003: 82,100). Diversified holdings 68.4 percent Transparency for private investors The core principle of our investor relations activities is up-to-date, open communication, addressing all relevant target groups equally. Private investors are integrated through special services. With the publication of the quarterly figures, for example, they can participate directly in the analyst conference via the Internet, or refer to its minutes later. The shareholders' meeting is also carried live and later made available as a video clip. Those who do not wish to participate in the shareholders' meeting personally can entrust their vote to a proxy from the company. First roadshow in Spain One of the central investor relations goals of the past year was to broaden the investor base. Investor conferences and roadshows in international financial centers generated opportunities for investor contact. The dialog with the capital markets convinced institutional investors and, in particular, public funds of the stock potential. Software AG makes use of innovative channels to additional capital markets. For example, investors with local support we addressed targeted Spanish investors. Spain and Germany are the highest-volume single markets in Europe for Software AG. The high popularity of our products provides favorable conditions for building awareness in these capital markets. This awareness Therefore and precise structural analysis ensured that the road show was a complete success. Diversified holdings 68.4 percent Coverage further expanded Software AG’s new strategic direction the company’s resulting potential were the main investor relation issues. A stable business volume, increasing income, and a stronger cash flow positioned our stock as a value share. In addition, there is the prospect of profitable growth as of 2005. All of this led to an increase in the upside targets, along with higher valuations by financial analysts. Therefore, the already good overall coverage was further improved. This included globally and locally operating analyst firms in Germany and London and resulted in Software AG’s stock moving even further into the focus of private and institutional investors. Visibility in the capital market reinforced Dedicated to the capital market in Germany In the framework of our investor relations, Software AG is committed to promoting the professionalization of the German capital market. This contribution includes collaboration in national and international committees, as well as the effort to implement the relevant standards in an exemplary fashion. The legal innovations for improving investor protection, for example in ad hoc publicity, the obligation to report securities transactions (director’s dealings), and the obligation to maintain insider directories, were implemented early by Software AG. XBRL Initiative strengthens the financial position of Germany The XBRL initiative of the Deutsche Bφrse AG also aims at higher transparency and efficiency. We supported this pilot project in two ways. From a content perspective, Software AG now also provides its quarterly reports in the eXtensible Business Reporting Language (XBRL) format. From a technology perspective, we provided the data management software and operate the portal under contract with the Deutsche Bφrse. Thanks to the XBRL data format, which is based on XML, financial data can be exchanged without difficulty. Key figures are available faster, are easier to process and easier to compare. Issuers, analysts, and investors all benefit from this. Print Order More Infos Stock 2002 Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[11]=new Array("http://www.netfedreports.de/softwareag04/en/governance/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Corporate Governance Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order “Corporate governance increases shareholder value.” High transparency, reliable management and effective corporate monitoring are gaining more significance world-wide. Software AG is one of the companies which comply with the German Corporate Governance Code without reservation. Frank F. Beelitz, Chairman of the Supervisory Board, and Karl-Heinz Streibich, CEO, explain the status of corporate governance within company. Software AG relies on effective corporate governance. What importance do you place on the principles of the German Corporate Governance Code? Karl-Heinz Streibich One characteristic of Software AG is our international orientation. We operate in global markets and address both German and foreign investors. With our commitment to the Corporate Governance Code, we accept internationally recognized standards of good enterprise management. This promotes a lasting trust in our company. Frank F. Beelitz In principle, responsible company management is synonymous with providing for the future, and thus nothing new for Software AG. The code makes it possible to place our own activities in a transparent context. It allows comparison and points out optimization potentials. We have used the opportunities this offers right from the start. Corporate governance is fueled by continuous improvements. What progress was Software AG able to achieve in 2004? Frank F. Beelitz In previous years, Software AG already met the obligatory and voluntary regulations of the code with few exceptions. In 2004, the Executive Board and Supervisory Board took the final steps to fulfill the recommendations completely. Therefore, in the last business year, the financial reporting was provided in accordance with IFRS, the International Financial Reporting Standards, for the first time. With international balancing, we increase transparency and comparability. We also implemented the recommendation to reveal the individual salaries of the members of the Executive and Supervisory Boards. In order to tie executive pay more closely to business success, since the beginning of 2005, two-thirds of this pay have been linked to revenue, profit, and other company goals. Approximately 30 percent of the variable compensation is only paid in the years that follow, which promotes the desired long-term incentive effect. Do you aspire to be a role model in terms of corporate governance? Karl-Heinz Streibich By fulfilling the regulations of the Code as closely as possible, we are documenting our sense of responsibility. A corresponding corporate image occurs automatically, but it is not the main objective. Business administration in the sense of corporate governance is not an end in itself for Software AG. Rather, we regard it as an investment which does demand effort, but also creates additional strengths. Elements such as the world-wide development of a compliance system, or balancing in accordance with international financial reporting, are effective means of securing and consolidating the position of Software AG. Studies confirm the connection between convincing business administration and positive development of the stock price. Could exemplary corporate governance be called a powerful argument? Frank F. Beelitz Corporate governance is never the sole cause of convincing performance, but it can provide an additional positive impulse. Investors hold observance of the rules of conduct in high regard and prefer companies which set an example in this regard. Particularly in the Anglo-American region, fairness towards investors and the quality of the business administration are fundamental criteria. Karl-Heinz Streibich Here, the attraction goes far beyond the capital market. Good corporate governance strengthens the company's reputation in every field, including the operating business. The resulting benefits create competitive advantages and thus also help promote market success. The value of the company increases – both on the exchange and in the market. Print Order More Infos Corporate Governance Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[12]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > The global economy Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Earnings significantly improved The parent company Software AG is the worldwide operative holding of the Software AG group. The business situation oft the parent company Software AG depends on the combiened business of the group. On these grounds the Software AG executive board combine the management reports of both group and Software AG. Software AG's key objectives for 2004 were to stabilize revenue and significantly increase profitability. With revenue stable, at constant currency rates, and significant profit growth, both objectives were achieved. The consistent implementation of the company strategy also created a solid base for future profitable growth. The global economy Strong growth of the global economy continues In 2004, the global economy experienced a growth of almost 5 percent. This growth, which was strongest during the first half of the year, was driven primarily by the economies of the USA, China, and other Asian countries. In the USA, massive tax cuts as well as expansive monetary policies strengthened the economy, which grew by 4.3 percent. With growth of 4.4 percent in 2004, the economic recovery of 2003 continued in Japan. In the south-east Asian countries, GDP grew by 4.6 percent. China proved to be the strongest market in the region, with 9.5 percent growth. In Latin America, the GDP increased by 4.6 percent, supported by a general economic recovery, rising raw material prices and stronger domestic demand. Bull market in the eurozone Economic growth within the eurozone improved slightly in 2004. The real GDP of the Euro countries increased by 2 percent – following roughly 1.5 percent in 2003. Although the eurozone is still far from meeting the objectives defined in the Lisbon agenda, both production and business climate still showed slight improvements. Consumer confidence and retail revenue did not meet expectations. At the same time, the strong Euro, which gained 10 percent on the US dollar over the year, had an increasing impact on exports. In Germany, economic growth was somewhat restrained. According to the OECD, it amounted to around 1.2 percent in 2004. The United Kingdom, however, registered a 2.9 percent GDP increase. In the countries that joined the European Union, growth expectations were met. Their economies were driven by high earnings and direct investments. Investments in information technology booming Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[13]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Consolidated Income Statement Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Consolidated Income statement for the twelve months ended December 31, 2004 € thousands Note 2004 2003 Licenses 114,214 104,280 Maintenance 182,565 191,236 Services 112,828 122,871 Other 1,764 1,655 Total revenue (1) 411,371 420,042 Cost of sales (2) - 137,402 - 151,733 Gross profit 273,969 268,309 Research and development (3) - 49,004 - 61,833 Sales, marketing and distribution (4) - 89,095 - 99,370 Administrative costs (5) - 45,298 - 55,074 Operating result 90,572 52,032 Income from sale of SAP-SI shares (6) 24,539 0 Other operating income (7) 13,557 17,795 Other operating expenses (8) - 18,310 - 10,760 Restructuring expenses 0 - 48,792 Earnings before interest, taxes and amortization 110,358 10,275 Amortization (9) - 1,881 0 Earnings before interest and taxes 108,477 10,275 Interest result (10) 3,253 2,748 Earnings before taxes 111,730 13,023 Income taxes (11) - 33,049 - 4,201 Other taxes (12) - 1,442 - 1,759 Consolidated income 77,239 7,063 Thereof for shareholders of Software AG 77,125 7,096 Thereof for minority interest (13) 114 - 33 Earnings per share (EUR, basic) (14) 2,83 0,26 Earnings per share (EUR, diluted) (14) 2,83 0,26 Weighted average shares outstanding (basic) 27,266,752 27,266,752 Weighted average shares outstanding (diluted) 27,266,752 27,266,752 Print Order Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[14]=new Array("http://www.netfedreports.de/softwareag04/en/auditorsreport/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Auditors’ Report Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Independent auditor’s report and opinion We have audited the consolidated financial statements (consisting of balance sheet, income statement, statement of changes in equity, cash flow statement, and notes) as prepared by Software AG for the fiscal year ended December 31, 2004. The preparation and content of the consolidated financial statements are the responsibility and assertions of the Company’s Ex-ecutive Board. Our responsibility is, based on our audit, to express an opinion on whether the consolidated financial statements conform with the International Financial Reporting Standards (IFRS). We have conducted our annual group audit in accordance with German auditing regulations and with due regard to generally accepted standards on the audit of financial statements as established by IDW, the Institute of Sworn Public Accountants & Auditors in Germany. Said standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of any material misstatements. When planning the audit procedures, knowledge and understanding of the Group’s business, its eco-nomic and legal environment as well as sources of potential errors are given due consideration. An audit includes examining on a test basis the evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the ac-counting principles used, and significant estimates made, by the Executive Board, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. It is our opinion that the consolidated financial statements, which are in conformity with IFRS, present a true and fair view of the Group’s net assets, financial position, the results of its op-erations and its cash flows in the fiscal year. Our audit, which has also encompassed the combined management report on the Company and the Group as prepared by the Executive Board for the fiscal year ended December 31, 2004, has not resulted in any objections or exceptions. It is our opinion that the combined management report on the Company and the Group presents fairly, in all material respects, both the Group’s position and the risks inherent in its future development. In addition, we confirm that the consolidated financial statements and the combined management report on the Company and the Group for the fiscal year ended December 31, 2004, satisfy the requirements for exempting the Company from preparing consolidated group accounts and a group management report in accordance with German law. Frankfurt/Main, February 28, 2005 BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprόfungsgesellschaft sgd. Schumacher Independent Auditor sgd. Dr. Rosien Independent Auditor Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[15]=new Array("http://www.netfedreports.de/softwareag04/en/report/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Report of the Supervisory Board Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Report of the Supervisory Board Frank F. Beelitz, Chairman of the Supervisory Board During fiscal 2004, the Software AG Supervisory Board oversaw the performance and activities of management and closely monitored all key business events, as well as the development of the Company and the Group. The Supervisory Board met six times during the year under review and at least once per quarter. There was full attendance at all six sessions. Each meeting involved comprehensive analysis of current business development and discussion of strategy with the Executive Board. Any transactions requiring Supervisory Board sanction in accordance with the Articles of Incorporation or with the applicable legislation were examined in detail, carefully considered and, where appropriate, approved. Topics included the current status of Software AG and its subsidiaries, prospects for individual business segments, and the corresponding product, sales, and marketing strategies. The Supervisory Board also received written reports on business development from the Executive Board on a monthly basis. The following Committees are active: The Committee for Compensation and Succession Issues The Audit Committee The Committee for Compensation and Succession Issues met six times and the Audit Committee met twice in the year under review. The Supervisory Board and Executive Board membership changed as follows during 2004: Dr. Peter Mossack, Chief Research and Development, left the Executive Board effective July 23, 2004. Research was reorganized into two departments supporting the two business lines to insure a stronger focus on market requirements. The R+D department head report directly to the CEO. On September 10, 2004, Gary Voight, previously Director of the America Region, resigned to pursue other career interests. The Supervisory Board appointed Dr. Peter Kόrpick as member of the Executive Board, effective April 1, 2005. He will be responsible for the business line XML Integrations and its Research and Development department. The tenure of Dr. Peter Lex, a member of the Supervisory Board since 1999, terminated at the end of the Annual Shareholders’ Meeting on April 30, 2004. On the recommendation of the Supervisory Board, the Annual Shareholders’ Meeting elected Dr. Ing. Andreas Bereczky to succeed Dr. Peter Lex on the Board. Dr. Bereczky is Director of Production at ZDF in Mainz. Karl-Heinz Hageni, employee representative, left the Supervisory Board on April 30, 2004. On June 25, 2004, the employees elected Monika Neumann, Chairperson of the Works Council, to replace him in the Supervisory Board. The Supervisory Board would like to express its gratitude to the former members for their commitment and contribution. The Supervisory Board deliberated during several sessions in detail on the subject of corporate governance, as well as on the German Corporate Governance Code. Together with the Executive Board, final measures were implemented in the year under review in order to comply in full with the recommendations under the Code. Accounts were prepared according to IFRS for the first time in 2004 and remuneration for members of the Executive and Supervisory Boards was reported individually for the first time. Starting in fiscal 2005, remuneration of the Executive Board is being restructured and will be even more closely related to corporate profits. Since the beginning of fiscal 2005, two thirds of remuneration has been linked to sales, earnings and other corporate targets. A further criterion is that this variable remuneration will in part (30 percent) be paid only in subsequent years based on a phantom share program. The stock option plan in effect previously will be discontinued. The declaration submitted jointly with the Executive Board according to Section 161 of the German Stock Corporation Act specified that Software AG has complied in 2004 with the recommendations of the Code as of May 21, 2003, without exception and will continue to do so in future. The declaration of compliance is available for review by shareholders on a permanent basis on the Company’s website. In accordance with the wishes of the Annual Shareholders’ Meeting, the Supervisory Board confirmed BDO Deutsche Warentreuhand Aktiengesellschaft, Frankfurt am Main, as auditors of the Software AG financial statements and consolidated financial statements for fiscal 2004. BDO Deutsche Warentreuhand Aktiengesellschaft examined the financial statements and consolidated financial statements as of December 31, 2004, as well as the management report, and these were certified without qualification. The auditors have issued the following certificate: The results of the audit were submitted to the Supervisory Board and explained in person by the head of the auditing team to the Audit Committee and the complete Supervisory Board and Executive Board. The Audit Committee and Supervisory Board thoroughly reviewed the reports in their sessions on March 16 and 18, 2005. The Supervisory Board is in agreement with the results of the audit and approves the annual financial statements and consolidated financial statements. The financial statements presented are thereby deemed approved. We agree with the recommendation of the Executive Board with respect to the appropriation of profits. The Supervisory Board wishes to thank the Executive Board and all employees for their commitment as well as the work they have performed in 2004. Darmstadt, March 2005 The Supervisory Board Frank F. Beelitz Chairman Members of the Supervisory Board: Frank F. Beelitz (Chairman) Karl Heinz Achinger (Deputy Chairman) Dr. Andreas Bereczky (since April 30, 2004) Dr. Peter Lex (until April 30, 2004) Justus Mische Karl-Heinz Hageni (employee representative until April 30, 2004) Monika Neumann (employee representative since June 25, 2004) Reinhard Springer (employee representative) Additional information on members of the Supervisory Board is included in the notes to the consolidated financial statements of Software AG. Print Order More Infos Members of the Supervisory Board Report of the Supervisory Board (2003) Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[16]=new Array("http://www.netfedreports.de/softwareag04/en/glossary/","Software AG: Geschäftsbericht 2003","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Glossary Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Glossary Cobol – Common Business Oriented Language One of the earlier programming languages, accounts for a major part of mainframe applications. E-Government – Electronic Government Online availability of local or regional Public Administration services. Interstage Business Process Manager A management solution for the dynamic process definition and modeling delivering automated and optimized process implementation. ISF – Integrated Services Framework An E-Government solution that provides public administration services over multiple channels. SOA – Service Oriented Architecture An IT systems architecture for linking system components based on busi-ness criteria. Information and functionality can be then used by different. Single View Uniform access to data and information independent of location and system type. XML – eXtensible Markup Language Universal language for describing data. XML enables independent online transfer of business and other data. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[17]=new Array("http://www.netfedreports.de/softwareag04/en/financialcalender/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Calendar Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Financial Calendar* April 14 UBS Small & MidCap Conference, London, UK April 21-22 WestLB Conference, Opportunities in German stocks, San Francisco, USA April 28 Q1 2005 financial figures April 28-29 Citigroup-Smith Barney Software Conference, New York, USA May 13 Annual General Shareholders’ Meeting, Frankfurt, Germany June 1 CSFB European Technology Conference, Barcelona, Spain June 2 8th German Corporate Conference, Deutsche Bank AG, Frankfurt, Germany June 7 Pan-European Technology, Media and Telecommunications Conference, Merrill Lynch, London, UK July 28 H1/Q2 2005 financial figures September 28 HVB German Investment Conference, Munich, Germany October 5-6 Sal. Oppenheim Investor Conference, London, UK October 28 Q3 2005 financial figures November 21-23 German Equity Forum, Deutsche Bφrse AG, Frankfurt, Germany * Status: March 2005 More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[18]=new Array("http://www.netfedreports.de/softwareag04/en/impressum/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Impressum Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Impressum Publisher: Software AG Susanne Eyrich VP Corporate Communications Phone +49 61 51-92-12 01 Fax +49 61 51-92-16 21 E-Mail: susanne.eyrich@softwareag.com More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[19]=new Array("http://www.netfedreports.de/softwareag04/en/order/","Software AG: Annual Report 2004","","Annual Report 2004 to order Order your copy of the Annual Report 2004. Titel: Mr. Mrs. Last Name: First Name: Your E-mail: Company: Adress: Postal Code/City: Country: I would like to order the Annual Report 2004 in german english Close"); page[20]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/balancesheet/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Consolidated Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Consolidated Balance-sheet Assets € thousands Note December 31, 2004 December 31, 2003 Current assets Cash on hand and bank balances (15) 89,397 53,083 Securities (15) 29,695 21,076 Inventories 345 387 Trade receivables (16) 109,674 108,993 Other receivables and other assets (17) 4,015 7,701 Deferred expense (18) 5,261 6,476 238,387 197,716 Non-current assets Intangible assets (19) 1,516 1,491 Goodwill (20) 174,591 176,472 Property, plant and equipment (21) 44,274 47,880 Financial assets (22) 1,592 21,539 Trade receivables (16) 14,648 15,585 Deferred taxes (23) 35,677 44,959 272,298 307,926 510,685 505,642 Equity and liabilities € thousands Note December 31, 2004 December 31, 2003 Current liabilities Financial liabilities (24) 3,349 6,546 Trade liabilities (25) 21,192 26,770 Other liabilities (26) 22,279 25,294 Other provisions (27) 33,257 66,145 Tax provisions (29) 14,291 10,929 Deferred income (30) 47,245 57,330 141,613 193,014 Non-current liabilities Financial liabilities (24) 3,490 4,356 Trade payables 0 22 Other liabilities 299 1,108 Provision for pensions (28) 22,149 19,666 Other provisions (27) 906 5,357 Deferred taxes (23) 12,443 12,798 Deferred income (30) 6,183 0 45,470 43,307 Equity (31) Share capital 81,800 81,800 Capital reserve 132 132 Retained earnings 154,032 149,358 Consolidated income 77,125 7,096 Currency translation differences - 41,574 - 32,340 Other reserves (32) 51,847 63,149 Minority interest (33) 240 126 323,602 269,321 510,685 505,642 Print Order Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[21]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other12.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Members of Executive Board: Karl-Heinz Streibich Graduate engineer Communications engineering Chairman of the Executive Board Resident of: Radolfzell Supervisory Board memberships: none Christian Barrios Marchant Executive MBA Member of the Executive Board Resident of: La Moraleja, Alcobendas, Madrid, Spain Supervisory Board memberships: Member of Board of Directors Visual Century S.A., Barcelona, Spanien Mark Edwards Businessman Managing Director Resident of: Buckhurst Hill, Essex, UK Supervisory Board memberships: Member of Board of Directors (Company Secretary) Claremont Consulting Ltd., London, UK Dr. Peter Mossack Physicist (until July 23, 2004) Managing Director Resident of: Erzhausen Supervisory Board memberships: none Gary Voight BBA (until September 10, 2004) Managing Director Resident of: Reston, VA, USA Supervisory Board memberships: none Andreas Zeitler Businessman Managing Director Resident of: Kelkheim/Ts. Supervisory Board memberships: none Arnd Zinnhardt Graduate in business Managing Director Resident of: Kelkheim/Ts. Supervisory Board memberships: none Darmstadt, February 28, 2005 Software AG K.-H. Streibich C. Barrios Marchant M. Edwards A. Zeitler A. Zinnhardt zurόck Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[22]=new Array("http://www.netfedreports.de/softwareag04/en/growth/productmanagement/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Driving growth > Product management Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Research & development Product management Sales Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Driving growth Darmstadt, Germany Derby, United Kingdom Madrid, Spain Reston, Virginia, USA ETS modernization increases the efficiency of mainframe systems. XML integration provides seamlessly linked systems. Together both business areas deliver the fundamental tasks of information technology. Our product management network’s research is based on the international experience gained from successful projects. This produces best practice models, which we reproduce world-wide. For example, with vertical industry solutions, which address specific business issues. "With the support of Software AG, we have developed an infrastructure that can be considered a generally applicable solution approach for other fiscal and economic problems. Without the flexibility and expandability of XML, we could not have achieved this." Commerzbank AG, Germany Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[23]=new Array("http://www.netfedreports.de/softwareag04/en/growth/sales/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Driving growth > Sales Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Research & development Product management Sales Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Driving growth Cambridge, Canada Hong Kong, China Lomas de Chapultepec, Mexico Singapore, Singapore Integrated processes. Secure data transfer. Information in real time. World-wide, we support 3,000 customers from industry and from public administration. Our strong customer base ensures continuous repeat business and our established reputation opens up additional sales opportunities. Efficient marketing, proven sales strategies, and access to decision-makers create a win-win situation from which both sides benefit – our customers as well as Software AG. "Our relationship with Software AG, which has existed for almost 20 years, has never been better than today. The professional team from Software AG offers us outstanding support. As a result, the company has become one of our most important business partners." Nissan Motor Company Pty Ltd, Australia. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[24]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/economy/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > The IT market Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order The IT market IT investments on the upswing In the year under review, world-wide spending for information technology increased significantly for the first time in years. In the United States, 15 percent growth was recorded in the first half of the year; in the months that followed, however, growth rates receded. For Western Europe, the autumn prognosis of the European Information Technology Observatory (EITO) reckoned that IT spending grew by 2.3 percent in 2004. The development of the German IT market was considerably weaker; here, EITO reckoned growth of 1.9 percent. The federal association Bitkom reckoned 3.5 percent growth for the German software market. The USA and Eastern Europe remained the key regions in the global IT market. The American market accounts for about 43 percent of the global IT and Communications sales, and the Western European market for roughly one quarter. In the growth markets of India, China and Eastern Europe, the demand for information technology increased sharply. Asia already accounts for 10 percent of international spending for information and telecommunications. Software market development Compared to 2003, spending on software licenses and maintenance decreased by 0.5 percent world-wide to $147 billion. Software investments were made primarily under the aspect of rationalization. Expenses for system infrastructure rose by 0.3 percent to $76 billion, and those for information management by 2.5 percent to $17 billion. $23 billion was spent on business applications, 3.5 percent less than in the previous year. Expenses for other applications were reduced by 1.8 percent to $31 billion. Real-time as a central criterion Integration of existing applications and comprehensive access to relevant information in real time enhances the transparency of business activities. In 2004, this was a key objective in software investments. Four core segments address the real-time access to processes, business data, and information requested by customers: Extended Business Intelligence systems record all key data regarding ongoing business activities, evaluate them, and forward them as individually defined. Business Integration technologies use business process models and are able to integrate the processing of both long-term and short-term transactions. This capability is a key requirement for business-to-business integration. Supply Chain Event Management enables realtime access to all information along the supply chain. XML technology is used to an increasing degree; it allows the automation of processes, internally and between companies. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[25]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/tradingvolume/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Trading volume Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Trading volume Decline of sales volumes stopped In this overall economic and industry environment, Software AG achieved consolidated sales of €411.4 million in 2004 (2003: 420.0). We generated a significant portion of our revenue outside of the Euro region, mainly in the US dollar zone. Accordingly, the strong Euro clearly affected the reported revenue, even though at constant currency rates, the sales volume rose slightly above that of 2003. Increase of the promising license business More than one quarter of our total revenue was generated in the strategically important software license business. The licensing revenue, which offers attractive margins, increased by 10 percent to €114.2 million. Besides expansion and replacement investments by our established customers, new customer projects in particular contributed to this growth. The business area of Enterprise Transaction Systems (ETS) accounted for most of the license sales. With the products Adabas and Natural, it is geared towards the upgrading of databases. Demand was reinforced through the extension of our product line by enhanced IT system productivity and performance packages. Another boost in the Enterprise Transaction Systems area came from our intensive global customer contact program. Both effects enabled 12 percent growth of license revenues to €85.9 million. The performance of existing applications of the German Federal Securities Administration, the Belgian Railway, and the state of California and others were boosted during 2004. Adabas is still one of the world's fastest and most reliable databases. New Adabas customers included the Bank of Tirol & Vorarlberg, the Russian Gorki Automotive Plant, and the Central Government Organization in Italy. Customer base enlarged in both business segments Integration ever more in demand In the XML Business Integration segment, the business year was somewhat subdued at first. In the course of the year, however, XML revenues were increased, which more than compensated for the slow beginning. The extended range of XML Business Integration products and services offered also contributed to the flourishing business in this sector. With integration packages and integration solutions, our portfolio was significantly enhanced in the second quarter. The first positive effects of the introduction of these packages was to strengthen revenue, which amounted to €26.1 million Euro (2003: 26.2). Net of currency effects, this value lay slightly above that of 2003. Our integration customer base was expanded to include, amongst others, the state of Florida, the Spanish financial institutions Mapfre Vida and Mapfre Caja Salud, and the French association Prism, which operates in the health sector. Higher products revenue Maintenance revenue fell by 1 percent, at constant currency rates, to €182.6 million. We were able to more than compensate for this slight decrease through the sale of software licenses, a very positive development. Therefore, the combined revenue from both product license and maintenance sales increased to €296.8 million. Before currency effects, this corresponded to an increase of 4 percent. Restraint regarding professional services Businesses now only order professional services when these also result in a reduction of their costs. Accordingly, in 2004 we once again operated in a professional service environment characterized by excess capacities and pricing pressure. We only accepted service projects that met our fixed profitability criteria. Our withdrawal from unprofitable segments is reflected in reported revenue, which fell by 8 percent to € 112.8 million. Regional revenues profit from the license business In the North America / Northern Europe region, Software AG generated revenue of €171.4 million (2003: 186.2). At least two thirds of the revenue in this region is determined by the American market. Correspondingly, the exchange rates changes compared to 2003 had a strong impact on the regional result. Before currency effects, the revenue reported was €180.4 million, that is 3 percent below the 2003 figure. The revenue in region South increased by 6 percent to €129.7 million. A quarter of all sales were generated from new software licenses. With 44 percent growth, the licensing revenue increased significantly to €32.3 million. In the Central/Asia region, we achieved revenue of €111.4 million. Half of the nominal 2.7 million decline is due to currency effects. Declining volumes in the professional services area were countered by growing maintenance and license sales. In the license business, the region achieved a revenue increase of 16 percent, to €32.6 million. For details, please see the segment reports Strong international market position Software AG is the second-largest software house in Germany, one of the largest software vendors in Europe, and a world leader in XML technology. We operate in two segments: The high-performance database market and integration. In the high-performance database market we are amongst the leading enterprises, world-wide. This strong position provides the basis for our expansion into the growing integration market. The integration market is fragmented with a large number of small suppliers. In this context, our target group still mainly consists of major enterprises. Through the size of the corporation, Software AG is in an optimal position to implement the large projects which are relevant to this group of customers. This holds for both the complexity of projects, and also the international aspects of project design. Software AG's position in the up-and-coming e-government segment has been significantly reinforced. In 2004 we acquired a double-digit number of new customers. Partner for integration projects in major corporations Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[26]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/profitability/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Profitability Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Profitability Profitability significantly increased The restructuring process, started in 2003, was completed in 2004. It provides Software AG with an efficient corporate structure, in-line with the sales volume, and at the same time, guaranteeing a strong, growth-promoting performance. In 2004, the results of our restructuring program resulted in considerable cost reductions. Compared to 2003, administration, marketing and sales, plus research and development expenses were reduced by €32.9 million. In combination with the growth of the profitable license business, these efficiency gains provided a significant increase in income. The operating EBIT grew by 42 percent to €83.9 million. In addition, Software AG generated an extraordinary income of €24.5 million through the sale of the remaining SAP Systems Integration AG (SAP SI) shares in the second quarter. Increasing income in the regions In the North America / Northern Europe region, the operating earnings were increased by 3 percent to 49.0 € million. This corresponds to an EBIT margin of 29 percent. This region, which contributed 42 percent of the total revenue, accounts for 58 percent of the group's operating EBIT. The operating EBIT of the Central/Asia region were increased by 55 percent to €19.4 million. This strong growth is mainly due to an increase in the profitable license business. This was boosted by more favorable business development in Germany, where Software AG successfully implemented a turnaround in 2004. In the region South, operative earnings fell to €12.9 million (2003: 18.6). Besides expenses for R&D activities in Spain, this decrease is mainly due to investments in the development of the South American market. Investments in buildings and IT equipment Investments totaled €6.9 million (2003: 7.6), with the main part accounted for by tangible and intangible assets. About half of this amount was spent on construction, including the establishment of the new Customer Briefing Center in Darmstadt, Germany, and the branch office in Spain. Another main focus was investments in the internal IT infrastructure and technology, particularly new hardware purchases. The financial assets were reduced by €19.9 million, essentially due to the sale of the SAP SI shares. Financial power strengthened once again Its solid financial structure is a characteristic feature of Software AG. Total assets grew to €510.7 million (2003: 505.6); the decrease in fixed assets by €25.4 million is essentially due to the sale of the remaining SAP SI shares. With €119.1 million (2003: 74.1), cash and cash equivalents came to almost one quarter of the total assets at the end of the year. Our equity increased by €54.3 million to €323.6 million. This results in a further equity to total assets increase ratio to 63 percent (2003: 53 percent). As in 2003, the company has no bank debts. Equity to total assets ratio reaches 63 percent Strong operating cash flow The operating cash flow - before the SAP SI revenue - more than doubled to €28.9 million, in comparison to 2003. Almost one quarter of this amount flowed into investments. In the course of restructuring, we spent €23.4 million. Provisions for restructuring of €30.7 million had been made in 2003. In 2004, the organic cash flow was €54.7 million (2003: 55.1). This corresponds to 13 percent of the total revenue, or about 10 percent of the shareholder value at the end of the year, or €2.00 per share. Print Order More Infos Consolidated Balance Sheet Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[27]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/strategicprogress/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Strategic developments Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Strategic developments Setting the course for future growth These were essential focal points of our strategy: Continuously increasing efficiency for higher profitability Focusing on core competencies through the formation of two business lines Definition and market-driven development of the portfolio Geographic consolidation with a new regional structure to reinforce our presence in specific countries Diversification into newly industrialized countries penetrating regional growth markets. Increased efficiency – Higher profitability We continued our process of increasing efficiency through specific focused activities. In order to enhance profitability, the company analyzed market demands and adapted the number of employees to market requirements. As a result of the drop in sales experienced over the last few years, we reduced our staff in the research and development sector by 35 percent in the first quarter of 2004. Structuring business sectors Since 2003, Software AG has been focusing on the business lines Enterprise Transaction Systems and XML Business Integration Portfolio. The Enterprise Transaction Systems sector's main focus lies in supporting customers in increasing their productivity and efficiency. XML Business Integration facilitates the integration of highly diverse customer data and applications. This results in consistent access to all information, as well as the ability of diverse applications to communicate with each other on different platforms. Company portfolio defined and extended To help us focus on our core business areas, in 2004 we integrated market-relevant functions such as marketing and product management, along with research and development, directly into the business lines. This brought lasting improvements in competence, flexibility, and customer orientation. Today, specific features of different business areas can be integrated much more thoroughly. Research and development is linked to the market much more closely. This strengthens our ability to identify customer requirements in advance and directly implement them in market-driven, innovate product, services and solutions. Our market position therefore benefits, especially in the fast developing field of integration based on XML technology. Extended range of products to meet market needs To enhance the ‘value add’ for our customers, we extended our range of products and services. In the first quarter, the Enterprise Transaction Systems business line introduced new product packages to the market. Our optimized range of solutions reinforced our traditional position in the business area of high-performance databases. It assisted our customers in optimizing, expanding and managing their database applications and platforms. In the second quarter, Software AG also expanded the XML Business Integration portfolio. Integration packages completed the existing range of services and products, adding technology platforms for the integration of data and information. The focus lies on system integration (Enterprise Legacy Integrator), data integration (Enterprise Information Integrator) and service integration (Enterprise Service Integrator). In order to expand our integration business, we established a Business Process Management (BPM) unit. BPM enhances the efficiency of business processes along the entire value chain of an enterprise. BPM is therefore a logical expansion of the Software AG integration business portfolio. Besides the horizontal, non-industry specific integration packages, we added specific vertical industry focused integration solutions in the third quarter. Software AG strengthened its profile as a technology and solution provider. The company has already released integration solutions for financial service providers, health services, and public administration with further industry solutions to follow. Geographic consolidation With a new international organizational structure, the company is now aiming for growth in traditional markets and fast, effective development of new markets. Three regions now support the 59 countries where we have either branch offices or distribution partners. This makes it easier to cater to specific customer requirements, as well as to diverse market, economic and cultural characteristics. Each of the regions is headed by an executive board member. Region North America / Northern Europe – including the USA, Canada, the United Kingdom, Scandinavia, and South Africa. This grouping promotes cooperation between the primarily English-speaking countries. At the same time, the exchange of knowledge and experience between countries is intensified. In adopting this structure, the company benefits from the traditionally close connections within the English-speaking culture group. Region South – including Southern Europe and South America. With this grouping, the company not only makes use of the common linguistic base of these countries, but also founds future growth on the historically close cultural and economic relationships between Spain and the South American countries. Region Central / Asia - including the central and Eastern European countries, Russia, the Middle East, plus Asia and Australia. With this structure and added support from Germany, the company caters to the special characteristics of these promising growth markets. Markets of the future - diversification into newly industrialized countries Up-and-coming economic regions offer promising opportunities for Software AG. In 2004, we began to focus on these countries. Our strategic alliance with a Chinese partner strengthened our position in China. It is primarily geared towards the distribution of our integration products and solutions. Our previous sales cooperation in South Africa was replaced by our own representative office. Together with a local company, we initiated a Competence Center in Russia. Here, the focus lies on upgrading mainframe computers. In Bahrain, we set up a representative office, servicing 20 clients in Oman, Qatar, Bahrain, Kuwait, the United Arab Emirates, and Saudi Arabia. Last but not least, with our branch office in Chile, we succeeded in entering the South American market directly. Our geographic diversification led to almost instant success. In Chile, we are supporting the government, the ministry of health, and the Chilean mail service. Furthermore, newly-won customers include the Russian government, and the municipal government of Shanghai. Restructuring of the regions Stronger commitment abroad proves effective Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[28]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/researchdevelopment/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Research and Development Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Research and Development Market-driven innovation The research and development department was further aligned to the market. New product and solution developments are now increasingly market-driven. Proven, field-tested solutions are developed into globally relevant applications, and integrated into the overall Software AG portfolio. This development process ensures consistent market orientation. Specific characteristics of regional and vertical markets can be fully incorporated. This significantly reduces the time to market, therefore strengthening the competitive position of Software AG. Customer's requests dominate R&D activities Progress through R&D Enterprise Information Integrator (EII) is amongst the key innovate products and solutions of the past business year. Software AG developed it from a package which initially met the requirements of American customers asking for Single View technology. It offers one-stop access to distributed data stored on different systems. In 2004, the technology was expanded into a generally usable package. Further product developments include Replication and ISF. Replication was also created to meet customers' demands. In this case, to be able to automatically transmit changes to a data record to identical data records on servers all over the world. Therefore customers can access real-time data records anywhere within the network. ISF is an e-government-solution, allowing public authorities to provide online services for citizens in order to independently handle administrative processes. Originally developed in England, this solution is currently being implemented in the German city of Giessen. High-potential cooperation To optimize their products, Software AG entered a technology partnership with Ontoprise GmbH in 2004, focusing on the semantic interpretation of company data within a single view. R&D locations world-wide To ensure that its solutions and packages are always state-of-the-art, Software AG invested 16.5 percent of its licensing and maintenance revenue in research and development. With this percentage, Software AG reaches IT industry Best Practice investment level. In five countries, 348 employees are working on innovative products which anticipate and meet customers' requirements. R&D awards Readers of the US magazines XML Journal and Web Services Journal ranked Software AG products first in 14 out of 23 categories. In Switzerland, we integrated the central database solution of the Swiss Federal Roads Authority with all peripheral and heterogeneous solutions used by the road traffic departments of the different Cantons. By using EntireX, the applications used in the road traffic departments, based on various operating system platforms, were seamlessly connected to the central register of driving licenses in Bern. This facilitated a smooth bi-directional data flow. For this solution, Business Integration Journal awarded Software AG the title of runner-up for the best EAI solution. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[29]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/salesmarketing/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Sales and Marketing Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Sales and Marketing Market position expanded Software AG has reorganized its marketing and sales structure as well. In accordance with the new concept of market-oriented business lines, the central marketing department has been dissolved and integrated into the two business units. This makes it easier for our marketing specialists to match their activities efficiently and effectively to the requirements of the Enterprise Transaction Systems and XML Business Integration business lines. All marketing programs are planned and implemented in close cooperation with our regional offices. Marketing and sales directly allocated to business segments In order to align Software AG’s portfolio even more closely to customer needs, we internationalized our Customer First program. This ensures that customer orientation and market know-how is consolidated at all levels, and that customer requests can be implemented quickly. A new world-wide Software AG Customer Knowledge Base helps in optimally offering our customers the knowledge of our globally networked corporation. Software AG's Internet presence received a makeover in 2004 to reflect both the new corporate identity and the business strategy. Moreover, the department supported marketing activities such as Software AG user groups, product presentations, participation in seminars and conferences, and trade show presences. All these activities serve to provide the market with comprehensive and reliable information regarding Software AG products and solutions. To complement our own sales activities, we expanded our partner network, with further growth in this are planned. Intensification of PR activities In order to enhance the visibility of the company cost-effectively among our customer base, and with the general public, we separated Public Relations and Investor Relations. This split immediately yielded measurable success. The circulation of articles reporting on Software AG increased by 800 percent in Germany. Whilst previously, media coverage had been handled mainly through local and online media, this base has now been expanded to include opinion-forming economic key media. Financial Times Germany, Frankfurter Allgemeine Zeitung, and Handelsblatt now report on the company on a regular basis. Leading agencies such as Reuters, Dow Jones, Bloomberg, and dpa-AFX provide world-wide coverage of Software AG. Moreover, through its regional structure, the company is in contact with key media globally. The TV presence of our CEO at CNBC, Bloomberg, and the Spanish financial broadcasting station „Encuentras a fondo“ emphasizes the international attention enjoyed by Software AG. High media coverage Optimized top management structures We have closely linked marketing and sales, as well as research and development. To this purpose, we modified our internal management structures during the year under review. The central Chief Technology Officer was replaced by two Vice Presidents. They are responsible for R&D in the Enterprise Transaction Systems and XML Business Integration business lines respectively. Marketing and product management is structured in the same way. All four Vice Presidents are part of the company's extended management team, and therefore directly involved in the Executive Board's decision-making processes. Next in the leadership pyramid is the management team, with representatives from the leading six countries, and the „Direct Reports Board“, which includes the 45 leading employees world-wide. These managers, 60 altogether, each visit five customers per quarter, therefore reinforcing the close link between market and strategy. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[30]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/executiveboard/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Executive Board and Supervisory Board Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Executive Board and Supervisory Board Executive and Supervisory Board changes At the annual shareholders' meeting, Dr. Andreas Bereczky was voted onto the Supervisory Board as the successor of Dr. Peter Lex. Monika Neumann joined the Supervisory Board as an employee representative. She follows Karl-Heinz Hageni in this function. Dr. Peter Mossack and Gary Voight resigned from the Executive Board. As of April 1, 2005, the Supervisory Board appointed Dr. Peter Kόrpick as a member of the Executive Board. He will be responsible for Software AG´s integration business line including research and development. More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[31]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/employees/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Personal Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Personal International employee structure The process of restructuring was completed faster than anticipated. During the second half of the year, the number of employees was slightly increased. The personnel structure was reinforced in particular in customer-oriented areas. As of December 31, 2004, Software AG had 2,438 employees within the group (translated into full-time positions), 139 fewer than on the same day of the previous year. Reflecting our international line-up, two thirds of our employees are working outside of Germany. In 2004, the International Conference of the Software AG personnel department focused on the global coordination of human resources. Personnel managers from all regions worked out new methods of cooperation. The first projects, including a group-wide guideline for the deployment of employees to foreign countries, were already implemented in 2004. To Software AG, employees are an important asset. Accordingly, great emphasis is placed on additional training. We do not link training investments to employee numbers. Thus, despite a decrease in the number of employees, advanced training expenses in Germany rose by 4 percent. As a partner of the Technical University of Darmstadt, Germany, Software AG is involved with the pilot project „ProIT Professionals“. The key issue is the development of real life, hands-on curricula and generally applicable grading systems in IT training. Above all, the quality of bachelor and master study programs is to be guaranteed. Commitment to education and advanced training Changes in the company culture Our operating and structural progress is accompanied by changes in our company culture. Customer orientation, exchange of Best Practices, and teamwork are becoming increasingly important. Strategic reorientation intentions and measures are openly communicated. This allows employees to develop, evaluate and understand planed changes, therefore reinforcing motivation and commitment. Open dialog was further promoted through an employee survey, designed to identify potential for improvement. Through the internal changes, the role played by our headquarters was expanded. For example, the newly initiated Customer Briefing Center (CBC) now supports countries in the qualified development of essential customer relations. It compiles strategic customer data and distributes it throughout the group, and encourages visits by international key customers to the company headquarters. Headquarter opened to customers worldwide Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[32]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/riskreport/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Risk report Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Risk report Risks through lawsuits With the development of jurisdiction regarding patent laws in the USA and the European Union, software increasingly becomes subject to patent protection. This means that Software AG is also increasingly involved in patent lawsuits. At the moment, two such lawsuits are underway in the USA. Provisions have been made for both procedures. For detailed information, please see the appendix in the Notes. Moreover, there is a risk of becoming involved in court proceedings regarding sales disputes. Software AG was involved in such a legal dispute with a software house in Israel. This dispute was settled in January 2005. The amount of this settlement is fully incorporated in the annual financial statement for 2004. Risks through US export regulations The US restrictions regarding exports to countries which are under US embargo, or business partners who are blacklisted by the US government, have an impact on our research and development in the USA. The US export regulations are also applied to products that merely contain some components manufactured in the USA. Software AG also maintains a research facility in the USA. As soon as this facility contributes more than 10 percent to the development of the company's products, these products will be subject to the US laws and regulations which govern the export restrictions. Software AG, with customers in more than 70 countries world-wide, works around these tight export restrictions by keeping the amount of research contributed by the American research center to well under 10 percent. Securing acquisitions The acquisition of enterprises in order to expand the range of technologies offered is part of Software AG's growth strategy. In order to ensure successful acquisition, Software AG has defined processes in both the pre- and post-acquisition phases. Pre-acquisition phase: When selecting an object for acquisition, the economic situation is carefully analyzed. This is followed by a thorough assessment as to whether the technology represents a logical and consistent extension of the product portfolio, and whether the company culture of the enterprise in question is compatible with that of Software AG. Post-acquisition phase: In order to identify possible problem areas as early as possible, finances, legal issues, research and development, sales, marketing and internal communications are all analyzed as closely as possible. Loss of intellectual assets Software AG is a technology leader in the development of high performance databases and integration. Therefore, employees with extensive knowledge in this area are subject to recruiting attempts by competitors. Software AG guards itself against such recruiting attempts through the following measures: identification of key intellectual assets motivation (in part) agreement on a non-competition clause. Exchange rate risks As a global enterprise, Software AG operates in various currency zones and is therefore subject to exchange rate risks. Based on internal guidelines, financial derivatives are used in order to reduce the impact of exchange rate fluctuations. Besides securing existing foreign currency assets and liabilities, these hedging tools also secure planned payments as well as income from individual companies within the group, which is earned in foreign currency, against value changes through exchange rate fluctuations. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[33]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/outlook/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Outlook Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Outlook Global economy keeps up dynamic growth For 2005, the global economy is expected to grow by a good 4 percent. Compared to growth of 5 percent in 2004 the global economy will loose some of its momentum, but still experience above average growth. As before, positive incentives will be provided by the United States and the Asian threshold countries. The IMF is expecting 3.5 percent growth in the USA, and 7.5 percent in China. Due to falling export demand, the eurozone will lag behind the global economic trend, but still continue with a slight upswing. According to forecasts issued by the European Central Bank (ECB), economic growth of 1.9 percent is possible here. In Germany, this will depend on whether the domestic demand is going to bolster the export-based bull market. The export impetus might slow down, due to the decreasing intensity of international growth. Against this background, the OECD predicts a 1.4 percent increase for the German economy. Positive prognosis for the IT market According to calculations by the market research institute Forrester Research, the global IT market will increase by 6 percent annually until 2008. IDC market researchers also forecast such growth for 2005. Above-average growth is expected for the regions of central and Eastern Europe, and the up-and-coming Asian states. According to a study by the market research institute Global Insight, the Eastern European market will expand by 11.9 percent annually, and the Chinese market by 9.3 percent until 2007 The USA continues to offer good prospects, and for Western Europe, IDC forecasts a slight increase. According to EITO's calculations, the Western European IT market will boom in 2005 by 4.2 percent. For Germany, EITO is predicting 4.1 percent growth. The federal association Bitkom expects a 5.5 percent increase for software and IT services. Therefore, the IT sector would develop better in 2005 than the overall economy. Software in particular demand Integration remains the key issue in the IT world. The progressive use of networking between companies and related business processes will drive the demand for software and IT services. The linkage of individual applications, together with efficient access to existing information, still tops the list of priorities. There is a growing demand for flexible software, tailored to reflect each customer's unique situations, which is capable of adapting to individual business and user requirements. Forecasts expect strongly growing IT market Profitable growth to be expected For 2005, Software AG is aiming for sales growth of 4 to 6 percent. In the medium term, two-digit sales growth is possible. This is assuming that increasing revenues from XML integration solutions will add to the stable revenue i n the mainframe sector. Our focus still lies on profitable growth. We are planning for consistently high margins and, for 2005, expect an operating free cash flow of roughly 2 Euros per share. The focus of the ETS business segment still lies on consolidating our broad customer base. At the same time, we intend to benefit from the opportunities offered by integrating and modernizing the lucrative Cobol market. In XML Business Integration, we see great potential for industry solutions. We will further develop our go-to-market model, primarily in the direction of business value selling, and addressing decision makers. Focus on emerging markets We expect additional incentives from direct entry into new sales territories, especially in the newly industrialized countries. In realizing geographic growth potential, we have adopted a dual approach: Presence through owned subsidiaries as well as partners. For this, we see potential in China, Eastern Europe, Russia, and most of all in South America. Additional strength through partners We will supplement our own growth through alliances and acquisitions. However, our goal is not primarily the purchase of additional revenue. We rather intend to generate technological components which will enhance and further develop our product portfolio. This implies that we will restrict ourselves to purchases of a reasonable size, which also helps to ensure seamless integration. Integration business yields increasing contributions Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[34]=new Array("http://www.netfedreports.de/softwareag04/en/managementreport/events/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Management Report > Events subsequent to the balance-sheet date Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report The global economy The IT market Trading volume Profitability Strategic developments Research and Development Sales and Marketing Executive Board and Supervisory Board Personal Risk report Outlook Events subsequent to the balance-sheet date Financial Statements Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Events subsequent to the balance-sheet date Sabratec software completes portfolios In February 2005, Software AG acquired Sabratec Ltd, the parent company in Israel and the firm's New York sales company. The Sabratec integration software, which is geared towards host systems, complements our ETS and integration portfolios. Therefore, this acquisition meets our strategy of enhancing Software AG's range of products by purchasing suitable technologies. Fujitsu and Software AG opt for strategic alliance Fujitsu Limited and Software AG signed an agreement on February 28, 2005, to jointly develop, market and sell a Service Oriented Architecture offering. Fujitsu and Software AG plan to use their complementary technology platforms and their global R&D know-how in order to offer a technical methodology with an integrated metadata storage. This will allow users to shorten development times, improve productivity, and create the necessary flexibility for adjusting to changing business requirements. Within the framework of this partnership, Fujitsu and Software AG are planning to market a mutual solution in the summer of 2005. Software AG already distributes Fujitsu's Business Process Management solution, the Interstage Business Process Manager. More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[35]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/cashflows/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Statement of Cash Flows Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Statement of cash flows for the twelve months ended Dezember 31, 2004 € thousands Note 2004 2003 (34) Consolidated net income 77,239 7,063 Income taxes 33,049 4,201 Interest result - 3,253 - 2,748 Depreciation 11,152 10,753 Income from sale of SAP-SI shares - 24,539 0 Income from sale of other assets 288 399 Cash generated from operations 93,936 19,668 Changes in inventories, receivables and other current assets 3,753 5,986 Changes in payables and other liabilities - 48,907 14,845 Income taxes paid - 22,920 - 29,725 Interest paid - 2,360 - 1,223 Interest received 5,353 3,959 Net cash provided by operating activities 28,855 13,510 Cash received from the sale of tangible/ intangible assets 166 1,316 Investments in tangible/ intangible assets - 6,031 - 6,329 Cash received from the sale of financial assets 27,371 280 Investments in financial assets - 846 - 1,292 Net cash provided by/used in investing activities 20,660 - 6,025 Proceeds from issues of minority share capital 0 159 Repayment of loans from acquisitions and other finance liabilities - 3,170 - 5,533 Net cash used in financing activities - 3,170 - 5,374 Change in cash funds from cash relevant transactions 46,345 2,111 Adjustment from currency translation - 1,412 - 3,375 Net change in cash and cash equivalents 44,933 - 1,264 Cash and cash equivalents at the beginning of the period 74,159 75,423 Cash and cash equivalents at the end of the period 119,092 74,159 Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[36]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/changesinequity/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Development of shareholders’ equity Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Development of shareholders’ equity Statement of Changes in Equity Table More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[37]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Summary of significant accounting policies Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Summary of significant accounting policies Basis of presentation In fiscal 2004, Software AG’s consolidated financial statements were for the first time prepared in accordance with the International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards Board (IASB). The IFRS/IAS applicable as of December 31, 2004, were observed, as were the corresponding interpretations of the International Financial Reporting Interpretations Committee (IFRIC, formerly SIC). In addition, the following standards have been adopted, despite the fact that their application is not yet mandatory: IAS 1, (revised 2003), IAS 36, (revised 2004), IAS 38, (revised 2004), IFRS 3 and IAS 19 (revised in December 2004), and IFRS 2. Significant differences between IFRS and German accounting in accordance with the provisions of the German Commercial Code (“HGB”) include the measurement of goodwill, provisions, and provisions for employee benefits, as well as the classification of leases, recognition of income from long-term service contracts according to percentage of completion, and accounting for deferred tax assets and liabilities. Software AG is a publicly quoted corporation established under German law registered in Darmstadt. The Company is active worldwide in the fields of software development, software licensing, software maintenance and IT services. The consolidated financial statements of Software AG are expressed in thousands of euro unless otherwise stated. Scope of consolidation The consolidated financial statements include Software AG and all companies it controls. Control is generally considered to exist, if Software AG directly or indirectly controls the majority of voting rights of a company’s share capital and/or is in a position to determine the financial and operating policies of a company. The following affiliated companies belong to the Software AG Group, of which the latter is the parent. a) Domestic companies (Table) b) Foreign companies (Table) The scope of consolidation has changed in comparison to December 31, 2003, due to the initial consolidation of the company Software AG Espaρa, Systemhaus S.L., Unipersonal, Madrid, Spain. We established this company on May 13, 2004, with subscribed capital of €60,000 and consolidated it at the same point in time. There were no further changes in the scope of consolidation compared to December 31, 2003. With the approval of the respective shareholders’ meetings, consolidated Group companies SAG Systemhaus GmbH, Darmstadt, SAG East GmbH, Darmstadt, and SQL Datenbanksysteme GmbH, Berlin, exercised the option provided in Section 264, paragraph 3, no. 4 of the HGB and are thus exempt from the duty to prepare and publish additional financial statements in accordance with HGB accounting. Principles of consolidation The separate financial statements of the companies included in the consolidated financial statements were prepared according to uniform accounting policies in accordance with IFRS as of the balance sheet date of the consolidated financial statements (December 31, 2004). All annual financial statements of subsidiaries have been audited by independent auditors and in each case have been granted an unqualified audit opinion. In the consolidation of equity, subsidiaries established by Software AG are consolidated at the date they were established. The date of first inclusion in the consolidated financial statements is taken as the date of consolidation for the companies SAG-E, SAG-P, SAG-CH, SIH, SQL, SAG-IRL and the Asian subsidiaries, which were initially consolidated in 1994. In the case of all other companies included in the consolidated financial statements, the acquisition date is selected as the consolidation date. The initial consolidation of companies consolidated prior to December 31, 2002 followed the book value method in accordance with section 301, paragraph 1 no. 1 of the HGB. Accordingly, the acquisition and start-up costs were offset against the Group’s investment in shareholders’ equity. Initial consolidation after the transition to IFRS on January 1, 2003 followed the regulations set out in IFRS 3. Subsequent consolidations were based on the initial consolidation. Goodwill arising from the consolidation of equity was offset against retained earnings for acquisitions prior to January 31, 2001 in accordance with section 309 paragraph 1 HGB. Goodwill araising after that date was capitalized in accordance with HGB accounting and amortized over 10 years unsing the straight-line method. In accordance with the option set out in IFRS 1.14, the Company continues to account for business combinations and the goodwill arising thereof on the date of transition to IFRS in accordance with HGB. Goodwill previously capitalized in line with HGB accounting was measured in accordance with IAS 36 for fiscal 2003 and 2004. It was frozen at the carrying amount stated on the date of transition to IFRS on January 1, 2003, and only written down in case of actual impairments. Goodwill is annually tested for impairment. Revenue, expenses and income, receivables and payables arising between consolidated companies have been eliminated. Inter-company earnings from services provided within the Group were also eliminated where these were not realized from services to third parties. Consolidated equity and net income allocable to minority interests are reported separately from consolidated equity and net income allocable to the parent company. Currency translation Financial statements of foreign subsidiaries are translated according to the functional currency concept using the modified closing rate as set out in IAS 21. Since the subsidiaries operate independently from an organizational, financial and business standpoint, the local currency is identical with the functional currency. Income and expenses are translated at monthly average rates, assets and liabilities at closing rates and equity in subsidiaries at historical rates. Currency translation differences arising from the consolidation of equity are excluded from income and reported in a separate column in the statement of changes in equity. When eliminating receivables and liabilities, currency translation differences are recognized under other operating income and expenses on the income statement. In the statement of fixed assets movements, the balances at the beginning and end of the fiscal year are converted at the applicable closing rates and other items at average rates. Any difference arising from exchange rate changes is displayed in a separate column under both costs and accumulated depreciation/amortization as an exchange difference. Foreign currency payables and receivables are translated at the closing rate in the financial statements of consolidated companies. Exchange gains and losses not yet recognized on the balance sheet date are included in net income for the period except for translation differences from longterm, inter-company monetary items that are part of a net investment in a foreign company. These differences are excluded from income and recorded as other reserves in shareholders’ equity. The exchange rates of key currencies used for currency translation have changed against the euro as shown below: Closing rate (€ 1) Dec. 31, 2004 Dec. 31, 2003 Change in foreign currency in % US dollar 1.3640 1.2607 - 8.2 Pound sterling 0.7063 0.7063 0.0 Swiss franc 1.5435 1.5583 1.0 South African rand 7.6700 8.3300 7.9 Australian dollar 1.7510 1.6790 - 4.3 Average rate (€ 1) 2004 2003 Change in foreign currency in % US dollar 1.2432 1.1309 - 9.9 Pound sterling 0.6785 0.6919 1.9 Swiss franc 1.5440 1.5207 - 1.5 South African rand 8.0126 8.5309 6.1 Australian dollar 1.6894 1.7384 2.8 Use of estimates In the preparation of the consolidated financial statements, estimates and assumptions are made for certain items impacting the recognition and measurement of assets, liabilities and contingent liabilities as well as income and expenses reported. Actual amounts may differ from these estimates. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[38]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other11.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Members of the Supervisory Board: Frank F. Beelitz Chairman Independent investment banker (Beelitz & Cie., Frankfurt am Main) Resident of: Bad Homburg v.d.H. Supervisory Board memberships:: Member of the Supervisory Board Syntec Capital AG, Munich Member of the Supervisory Board Sόdwestbank AG, Stuttgart (since June 1, 2004) Member of the Board of Directors Eon Labs. Inc., New York, N.Y., U.S.A. Karl Heinz Achinger Graduate in Business Deputy Chairman Independent management consultant Resident of: Seefeld Supervisory Board memberships: Chairman of the Supervisory Board Dosch & Amand Systems AG, Munich (until September 30, 2004) Chairman of the Supervisory Board Magix AG, Munich Chairman of the Supervisory Board Tiscon AG, Neu-Ulm Member of the Supervisory Board debitel AG, Stuttgart (until June 4, 2004) Member of the Supervisory Board Dosch & Amand Systems AG, Munich (since October 1, 2004) Member of the Supervisory Board RWE Systems AG, Dortmund Member of the Supervisory Board TDS Infomationstechnologie AG, Neckarsulm (since May 28, 2004) Member of the Supervisory Board teleson AG, Munich Member of the Board Augeo Software B.V., Nijkerk/The Netherlands (until February 12, 2004) Dr. Andreas Bereczky (since April 30, 2004) Director of Production ZDF, Mainz Resident of: Eschweiler Supervisory Board memberships: none Karl-Heinz Hageni Employee representative (until April 30,) Software AG employee in the division of training and consulting Resident of: Alsbach-Hδhnlein Supervisory Board memberships: none Dr. Peter Lex (until April 30,2004) Attorney Law practice of Dr. Mohren+Partner, Munich Resident of: Munich Supervisory Board memberships: none Justus Mische Graduate in business Resident of: Kelkheim/Ts. Supervisory Board memberships: Chairman of Supervisory Board Altana AG, Bad Homburg v.d.H. Chairman of Supervisory Board B. Braun Melsungen AG, Melsungen Chairman of Supervisory Board Hoechst AG, Frankfurt am Main (until October 6, 2004) Monika Neumann Employee representative (since June 28, 2004) Employee of SAG Systemhaus GmbH Chairman of the General Works Council Resident of: Schliersee Supervisory Board memberships: none Reinhard Springer Employee representative Employee of Software AG in the Global Information Services Department Resident of: Frδnkisch-Crumbach Supervisory Board memberships: none back next Print Order Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[39]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Market risk and the use of derivatives As a company with international operations, Software AG is active in a variety of currency zones and therefore subject to exchange rate risks. Management continuously monitors these risks. Financial derivatives are used according to internal guidelines in order to mitigate risks arising from changes in interest rates, exchange rates or the value of financial assets. Hedging transactions using derivatives are only entered into to cover existing risk positions or business events that are highly likely to materialize. a) Interest rate risks The Company has an exposure to fluctuations in interest rates. Since there are no loan liabilities, interest rate risks apply only to cash and cash equivalents held by the Group. Changes in the market interest rate result in changes in interest income due to the focus on financial assets with short-term maturities and investments with minimal fluctuation in value. In order to lessen this dependency, interest rate derivatives, primarily forward rate agreements, are used on a limited basis. These are measured at market value; changes in value are recognized as profit or loss. b) Exchange rate risks Forward currency and currency option deals are entered into in order to hedge the risk of future fluctuations in exchange rates. For this purpose foreign currency receivables and payables are offset to the extent possible and only the remaining net position is hedged. Anticipated cash flows are also hedged according to internal guidelines. Hedging transactions are measured at market value. They are reported in the balance sheet under other assets/current liabilities. Changes in market value of derivative financial instruments designed to hedge future foreign currency cash flows are reported under other reserves until such time as the underlying transaction has been recognized in income. The non-effective portion of a cash flow hedge as well as changes in value of hedging transactions that do not meet the requirements of hedge accounting are immediately included in net income for the current year. c) Risks of changes in value In line with Group policy, assets are controlled in such a manner in terms of maturity, interest type and rating, that no noteworthy fluctuations in value are expected in the Company’s view. d) Credit risk Software AG is exposed to default risk if contracting parties fail to meet their obligations. All financial instruments are transacted with banks with excellent credit ratings. The default risk of our business partners is considered to be extremely low. next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[40]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/accountingpolicies/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Accounting Policies Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Accounting Policies Revenue Software AG primarily generates revenue from software licenses of usually unlimited periods of usage, maintenance, and other services. Sales from perpetual software licenses are only posted as revenue once a contract has been signed with the customer, all possible rights of return have expired, the software has been delivered, a price has been agreed or can be established, and there is sufficient probability that payment will be made. Maintenance revenues are prorated over the period of service provision. Service agreements that are invoiced based on hours performed are recognized in relation to the services rendered by the Group companies. Pursuant to IAS 11 and IAS 18, revenues and expenses from fixed-price service contracts are recognized according to the percentage-of-completion method if revenues can be reliably measured, there is sufficient probability that Software AG will receive the economic benefits of the transaction, and all related costs expected by completion of the service can be reliably established. Revenues are reported net of discounts, price rebates, customer bonuses and allowances. Cost of sales Costs of sales include all production-related costs based on normal capacity utilization. They include individual unit costs that can be directly allocated to projects, plus fixed and variable overheads. Financing costs are not capitalized as part of manufacturing costs. No write-downs on inventories were required during the reporting period. Research and development costs Research and development costs are recorded as expense in the income statement as they are incurred. The creation and development of software involves closely linked research and development phases. As a result, expenses incurred for research cannot be strictly separated from those incurred for development. The criteria for the capitalization of development expenses defined in IAS 38.57 in conjunction with 38.53 (revised 2004) are thus not met. Financing costs Interest expense is recognized in the period in which it is incurred in accordance with IAS 23. Cash and cash equivalents Software AG treats cash on hand, deposits with bank, fixed-term deposits with terms of up to 3 months and securities under current assets as cash and cash equivalents. The securities account includes exclusively short-term, highly liquid financial investments that can be converted to cash immediately and are subject only to minor price fluctuation risks. The Company classifies all securities under current assets as “held-for-trading”. Securities are initially recognized at cost on the day they are acquired. Measurement at the balance sheet date is at market value. Changes in value are included in income. Inventories Inventories are recognized at the lower of cost and net realizable value. The net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Trade receivables Trade receivables are carried at the fair value applicable when revenues are realized or services provided, and measured at amortized cost less bad debt provisions. Receivables from software licenses are recognized only if there is a signed contract with the customer, any rights of return have expired and the software has been delivered in accordance with the terms of the contract. Trade receivables are carried at their nominal value, unless specific write-downs were necessary to cover default risks. Receivables with maturities in excess of one year are discounted at market rates. Trade receivables also cover performance under fixed-price projects not yet invoiced, which are recognized according to their degree of completion. Other receivables and other assets Other receivables and other assets are initially measured at cost, and are subsequently written down to their fair value. Intangible assets Intangible assets for which a useful life can be established, are measured at cost less any accumulated amortization and any accumulated impairment losses. Intangible assets with an indefinite useful life, such as goodwill, are carried at cost less any accumulated impairment losses. Goodwill In accordance with IFRS 3, goodwill is not amortized, but written down in case of impairment. The residual amount is annually tested for impairment and written down to its fair value if there are any indications for impairment. Property, plant and equipment Property, plant and equipment is carried at cost less any accumulated depreciation and any accumulated impairment losses. Where items are sold or scrapped, the relevant cost and any accumulated depreciation and any accumulated impairment losses are eliminated. Gains or losses arising from the disposal of the asset are recognized as income or expense in the income statement. The cost of an item of property, plant and equipment includes the purchase price as well as any applicable import duties and non-refundable sales tax and all directly attributable costs required to prepare the asset for its intended use. Subsequent expenditure, such as service and maintenance charges that arise once the asset is put into operation, are recognized as expense in the period in which they are incurred. Subsequent expenditure relating to an item of property, plant and equipment is only added to the carrying amount of the asset where this improves the condition of the asset beyond its originally assessed standard of performance. Financing costs are not capitalized as part of costs. In accordance with their useful economic lives, items of property, plant and equipment are generally depreciated using the straight-line method: Buildings 50 years Improvements to property 8 – 10 years Office equipment 3 – 13 years Computer hardware and accessories 1 – 4 years The terms of useful life and depreciation methods are reviewed on a regular basis to ensure they are in accordance with the anticipated economic life of the asset in question. Assets under construction are recorded as such. Depreciation on these items begins only after they have been completed and put into operation. Impairment of intangible assets and property, plant and equipment As soon as there are indications that an intangible asset or item of property, plant and equipment is impaired, the carrying amount of the asset is reduced to its recoverable amount and an impairment loss is recognized. The recoverable amount is the higher of the asset’s market value and its value in use. The value in use is the present value of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Impairment losses are reported under costs of the relevant functional area or under other operating expense. Financial assets Securities in the amount of €231 thousand comprise investments in securities’ funds to cover the value of employee time accounts in case of insolvency. Leases Fixed assets include assets provided under leasing contracts. Software AG leases computer hardware and accessories, and office equipment. In accordance with IAS 17, leasing contracts are classified, according to opportunities and risks, as capital leases (where the leased asset is allocated to the lessee) or operating leases (where the leased asset is allocated to the lessor). Leased objects are recognized on the balance sheet as both assets and lease obligations, in equal amounts. They are carried at the lower of the fair value of the lease object at the beginning of the lease and the present value of minimum lease payments. Capitalized leased objects are depreciated according to the straight-line method over their useful lives, or, if shorter, the lease term. Future lease payments are recognized as financial liabilities. Financial assets and hedging instruments Financial assets are initially recognized at cost, including transaction costs. The subsequent measurement depends on their classification. Financial assets available for sale are recognized according to their market value at the balancesheet date. Gains or losses are excluded from income and reported in equity as other reserves. Financial assets are recorded at their fair value where this can be reliably established. Loans and receivables included under this item which are not held for trading purposes, and assets with no published price quotation on an active market, the fair value of which can not be reliably determined, are measured at amortized cost. Carrying amounts are regularly reviewed for significant objective indications of impairment. Impairment losses are charged against net income for the period. Deferred taxes Deferred tax assets and liabilities have been recognized for all temporary differences between the carrying amounts in accounts prepared for tax purposes and the carrying amounts in the financial statements, as well as with respect to consolidation measures with an impact on income. Deferred tax assets also include claims for tax reductions resulting from the anticipated use of loss carry forwards in subsequent years, the realization of which is deemed reasonably certain. Deferred taxes are calculated on the basis of tax rates which apply or are anticipated in the relevant countries according to the legal situation prevailing at the time of realization (reversal of tax deferrals). Deferred tax assets and liabilities are not discounted. The carrying values of deferred taxes are regularly examined and, where necessary, adjusted. Liabilities Current liabilities are reported at their repayment or settlement amount. Non-current liabilities are recorded at amortized cost. Amortized cost is determined using the effective interest rate method by discounting the repayment amount. Provisions Provisions are set up in the event that a current legal or constructive obligation towards a third party exists due to a past event, which is likely to result in a future outflow and for which the amount of the obligation can be reliably estimated. Estimates are regularly reviewed and adjusted. If the interest rate impact is significant, the net present value of required expenditures anticipated in fulfillment of the application is recorded. Provisions for pensions and similar obligations Pension plans may be either defined benefit plans or defined contribution plans. Pension provisions are calculated on an actuarial basis using the projected unit credit method set out in IAS 19. This approach takes into account anticipated future increases in pensions and salaries in addition to the pensions known at the balance sheet date. Provisions for pensions are accounted for in line with the amendment to IAS 19, issued in December 2004. Accordingly, they are created at the full present value of the defined obligation, adjusted for the present value of the cover taken out to protect defined benefit obligations, and reduced by the fair value of plan assets. Changes to actuarial gains/losses in comparison to 2003 are excluded from income and allocated to retained earnings. Due to their absolute and relative immateriality (€–214 thousand), these amounts were included in income in the previous year. German pension obligations are calculated on the basis of the 1998 mortality tables compiled by Prof. Dr. Klaus Heubeck. Since employees do not receive illness-related allowances either domestically or abroad, calculation of costs related to health care plans is not required. In the case of defined contribution plans the Group incurs no obligations. For the defined contribution plan, Software AG has no obligations other than the payment of contributions to special-purpose funds. Contribution payments are recorded against current income. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[41]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/profit/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Income Statement Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Income Statement (1) Revenue License and maintenance revenues can be broken down as follows according to business line: € thousands XML ETS Other Total 2004 2003 2004 2003 2004 2003 2004 2003 Licenses 26,080 26,199 85,907 76,878 2,227 1,203 114,214 104,280 Maintenance 21,162 21,535 156,738 165,805 4,665 3,896 182,565 191,236 Product sales 47,242 47,734 242,645 242,683 6,892 5,099 296,779 295,516 Service revenues Sales of €14,530 thousand are included in service revenues, recognized according to the percentage-of- completion method. Revenue and expense components of this item can be broken down as follows: € thousands Accumulated costs 12,868 Reported profit 2,587 Advance payments received 753 Sales recognition according to PoC method 14,530 Deductions 28 (2) Cost of sales Cost of sales include the following cost types: € thousands 2004 2003 Personnel expenses 77,186 80,646 Purchased services 26,519 30,034 Office rental and other tenancy costs 6,933 6,258 IT expenses 7,600 7,149 License fees 6,120 3,407 Car and travel expenses 6,056 6,932 Other expenses 6,988 17,307 137,402 151,733 next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[42]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (15) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, bank balances, and short-term securities. The level of cash and cash equivalents rose during fiscal 2004 by €44,933 thousand to €119,092 thousand. This rise is due in the greater part to the positive cash flow generated by operating activities amounting to €28,855 thousand, as well as sales proceeds from SAP-SI shares totaling €25,951 thousand. The reduction in financial obligations from finance leases of €3,170 thousand, as well as investment in intangible assets and property, plant and equipment of €6,031 thousand, provided an offsetting effect. (16) Trade Receivables These items may be broken down as follows: € thousands 31.12.2004 31.12.2003 Remaining term Trade accounts receivable 103,282 106,790 Unbilled receivables 6,392 2,203 109,674 108,993 Remaining term > 1 year Trade accounts receivable 14,648 15,585 124,322 124,578 (17) Other Receivables and Other Assets Other receivables and other assets primarily include receivables from tax authorities for input VAT as well as rental deposits. next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[43]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/cashflow/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Statement of Cash Flows Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Statement of Cash Flows (34) Cash and cash equivalents of €119,092 thousand is composed of the balance sheet accounts of cash on hand and bank balances (€89,397 thousand) and securities (€29,695 thousand). Only short-term, highly liquid financial investments, subject to minimal price fluctuations, are reported in the securities account. Net cash from operating activities includes restructuring payments totaling €23,429 thousand. Moreover, interest payments of €2,360 thousand, and interest receipts of €5,353 thousand, are included. Cash inflows from the disposal of SAP-SI shares are reported under cash flow from investment activities. Cash outflows for capital expenditures in property, plant and equipment and intangible assets stem primarily from renovation measures taken in the corporate headquarters building and the SAG-E building, as well as the purchase of office equipment and hardware and software. Changes in financial assets are based mainly on regular adjustments of securities positions in order to cover existing employee time accounts in the case of insolvency. Acquisitions under finance leases in the amount of €288 thousand were undertaken in fiscal 2004. These non-cash transactions are not reflected in the cash flow statement. While €2,869 thousand in liabilities from earlier acquisitions was repaid in the previous year, the account repayment of loans from acquisitions and other finance liabilities contain only the repayment of obligations under finance leases amounting to €3,170 thousand in 2004. Changes in value of the balance sheet account cash and cash equivalents, stemming from the decline in key exchange rates, are reported separately as valuation-related changes in cash and cash equivalents at €–1,412 thousand. Software AG defines free cash flow as cash flow from operating activities from which payments for property, plant and equipment have been deducted. Organic cash flow is the result of the elimination of special effects according to the table below: € thousands 2004 2003 Net cash provided by operating activities 28,855 13,510 Expenditures on property, plant and equipment and intangible assets - 6,031 - 6,329 Investment in financial assets - 846 - 1,292 Free cash flow 21,978 5,889 + Repayment of factoring + 11,200 + 24,600 + Payments for restructuring + 23,429 + 18,637 - Tax refunds from previous periods - 1,930 0 + Back taxes for previous periods 0 + 6,005 Organic cash flow 54,677 55,131 (35) Other liquidated provisions €18,174 thousand in unrealized income recorded in other reserves as of December 31, 2003, were taken to income in fiscal 2004. Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[44]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/segmentreport/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Segment Report Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Notes to the Segment Report Segment reporting is prepared according to IAS 14 (Segment Reporting). Segmentation is defined along internal control and reporting lines in the Group. It was a decision of management to restructure the Group in 2004. The four geographic regions that had existed hitherto were amalgamated into three regions. This accurately reflects the new direction in control. Since the parent company Software-AG, the research and development companies SAG-IN, SQL, SAG-IRL and the non-operational sub-holding SIH and SAG-MK report inter-company sales almost exclusively, these companies were included in the column “research and development, central functions and consolidations”. Regions in 2004: 1.) The Northern Europe/USA segment includes the SAG-USA Group (excluding revenues from sales partners in Israel, Japan and the business division of Latin America), SAG-CAN, SAG-UK, SAG-DK, SAG-N, SAG-S, SAG-SF, SAG-ZA, as well as revenues from the sales partner in South Africa. 2.) The Southern and Western Europe segment encompasses the companies SAG-E, with its subsidiaries SAG-P and SAG-ESYS, SAG-F, SAG-I, SAG-B, SAG-NL with its subsidiaries the IC Group and SAG-MS, SAG-TR, SAG-MEX and the business division of Latin America of the SAG-USA Group and the business division of Greece of the SAG-ME company. 3.) The Central and Eastern Europe, Asia segment is composed of the companies SAG-D, SAG-ME (without revenues from the business unit, Greece), SAG-PL, SAG-CS, SAG-A, SAG-CH, SAG-AUS (holding company), SAG-AUS, SAG-PHI, SAG-HK, SAG-TW, SAG-SIN, SAG-AP, SAG-MAL and revenues from sales partners Israel and Japan of the SAG-USA Group. Segment report for the twelve months ended December 31, 2004 Segment report for the twelve months ended December 31, 2003 (Tables) Regions in 2003: 1.) The America segment includes the SAG-USA Group (without revenues from sales partners in Japan, South Africa and Israel), SAG-CAN and SAG-MEX. 2.) The Southern and Western Europe segment includes the companies SAG-E with its subsidiary SAG-P, SAG-F, SAG-I, SAG-B, as well as SAG-NL with its subsidiaries IC Group and SAG-MS. 3.) The Northern Europe, Asia/Pacific segment is composed of the companies SAG-UK, SAG-HK, SAG-MAL, SAG-SIN, SAG-TW, SAG-AP, SAG-PHI, SAG-AUS (holding company), SAG-AUS, SAG-ZA, SAG-DK, SAG-N, SAG-S, SAG-SF and revenues from sales partners of the SAG-USA Group in Japan and South Africa. 4.) The Central and Eastern Europe segment comprises the companies SAG-D, SAG-ME, SAG-A, SAG-CH, SAG-CS, SAG-TR, SAG-PL, as well as revenues from the SAG-USA Group sales partner in South Africa. The figures for the previous year were adapted to reflect the new structure. In order to facilitate the reconciliation, segments are shown according to the old and new structures for both years 2003 and 2004. Key figures for 2004 and the preceding year have also been presented according to the former structure in order to enhance transparency. Contents of individual report lines: External sales refer to sales outside the Group. Since there are no noteworthy inter-segmental relationships, no separate presentation of internal and external sales has been undertaken. The segment control figure “Operating EBITA” represents the net income for the period before financial income, income taxes, extraordinary items and amortization of goodwill. Segment assets are comprised of non-current assets (intangible assets; property, plant and equipment; investments in associates) and current assets (excluding cash and cash equivalents, securities and inter-company receivables). Goodwill is allocated to the segments. Segment liabilities relate to non-interest bearing liabilities (excluding financial liabilities, tax liabilities and inter-company liabilities). Segment investment covers both tangible and intangible assets. Depreciation and amortization applies to segment assets allocated to individual business fields. Segment report for the twelve months ended December 31, 2004 Segment report for the twelve months ended December 31, 2003 (Tables) Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[45]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/application/","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > First time application of IFRS Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Notes to the consolidated income statement Significant differences in accounting practices between I FRS/IAS and German commercial law (HGB) Accounting policies Pursuant to IFRS 1, International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) are applied retrospectively upon their initial adoption. Figures from previous periods are adjusted as if they were originally reported under IAS/IFRS. The application of new standards published as part of the International Accounting Standards Board Improvement Project in December 2003 was not compulsory until January 1, 2005. They have only been applied to these financial statements where explicitly stated in these notes. During fiscal 2004, new standards were published that come into force January 1, 2005 or later. Of these, Software AG chose to apply the provisions of IFRS 3 relating to the impairment testing of goodwill. Accounting and valuation rules that differ significantly from the German Commercial Code include: Goodwill is subject to regular impairment tests; no scheduled amortization is undertaken. Securities available-for-sale are measured at fair value, even if this exceeds cost. Price gains or losses are excluded from income and recorded as other reserves in shareholders’ equity. Derivatives are measured at market value, even if this exceeds cost. Price losses and gains are reported in the income statement. Revenue of fixed price contracts is recognized according to the stage of completion. Buildings are depreciated according to the anticipated useful life and not according to tax scales. Leases that qualify as finance leases under the more restrictive IFRS requirements are reported under both assets and lease liabilities in the balance sheet. Provisions are only created for obligations to third parties provided the probability of an outflow of resources is regarded as more likely to occur than not. Medium and long-term provisions are recorded at net present value. Provisions for neglected maintenance and other expense provisions are no longer created. Pension provisions are calculated according to the projected unit credit method. Under IFRS deferred tax liabilities and deferred tax assets should be recognized for all temporary differences arising between taxable balance and trade balance; quasi-permanent differences are also classified as temporary. Deferred taxes are measured on the basis of tax rates expected to apply at the anticipated time of the reversal of the deferral – i.e. when the asset is realized or the liability settled – according to the legal situation prevailing in the individual countries at the time the financial statements are prepared. According to the provisions of the German Commercial Code only deferred tax assets and deferred tax liabilities related to consolidation measures are required to be recorded. Deferred taxes are thereby calculated based on tax rates applicable at the balance sheet date. Deferred taxes may not be recorded for quasi-permanent differences between amounts in the financial statements for tax purposes and the consolidated financial statements that will only be realized in the longer term or in the case of sale of an asset or liquidation. A deferred tax asset should be recognized for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Under German accounting law, deferred tax assets for tax loss carry forwards were only permitted to be created starting in fiscal 2003 pursuant to DRS 10. Deferred tax assets, netted against deferred tax liabilities that may be offset, increase by €38,060 thousand as of January 1, 2003. This is to a great degree the result of additional utilization of tax loss carry forwards, as well as the accounting and measurement of provisions. According to IFRS deferred tax liabilities of €17,006 thousand should be recorded; they pertain mainly to deferred taxes arising from deferred revenue and carrying amounts in property, plant and equipment. Monetary items in foreign currency are measured at the rate applicable on the balance sheet date and recognized in net income for the period. Translation differences from long-term, intercompany monetary items that are part of a net investment in a foreign company constitute an exception to the above and are included in other reserves in shareholders’ equity without impacting income. Reconciliation of the Balance Sheet from HGB to IFRS at January 1, 2003 (Table) Comments to the reconciliation of the Balance Sheet from HGB to IFRS at January 1, 2003: (1) Work in progress as defined by HGB was recognized and posted as non-invoiced receivables according to the per-centage of completion method (including a portion of the margin). (2) Derivative instruments are valued at fair market value, even where this exceeds the cost of acquisition. (3) Depreciation of property was adjusted to take account of expected useful economic life. Assets from capital leases were capitalized. (4) This change is a result of the fair-market valuation of securities. The change is included in other comprehensive income under equity, but not recognized in net profit or loss for the period. (5) Deferred tax assets are primarily formed for loss carryforwards and provisions. Deferred tax liabilities are primarily formed for deferred expense and property, plant and equipment. (6) Long and short-term financial liabilities include capitalized liabilities from capital leases. (7) Certain provisions under HGB were reclassified as short or long-term liabilities to comply with IFRS. (8) The adjustment of provisions (recognized in net profit or loss) primarily comprises dissolved provisions for expenses (maintenance, guarantees) and provisions where the probability of the obligation having to be settled is less than 50 percent (legal costs, contingent losses, general risks). Reclassifications comprise provisions which, according to IFRS, are to be posted as liabilities. See also note (7). (9) The increase in pension provisions is primarily a result of the requirement under IFRS to include indirect pension obligations at SAG UK. These were not previously included, in accordance with the option granted by Article 28 of the Introductory Act to the German Commercial Code (EGHGB). (10) Other reserves includes unrealized gains from the fair-market valuation of securities and differences from the translation of long-term intra-Group cash positions in foreign currencies (i.e. not in euros). Reconciliation of the Equity from HGB to IFRS at January 1, 2003 € thousands Note Equity in accordance with HGB at 01.01.2003 214,468 Revenue recognised according to percentage of completion (1) 616 Depreciation of buildings (3) 8,884 Finance leases (3), (6) - 4,519 Market value of securities and financial derivatives (2), (4) 10,957 Deferred tax assets (5) 38,060 Adjustments to other accruals (8) 16,110 Adjustments ot pension accrual (9) - 10,653 Deferred tax liabilities (5) - 14,994 Equity in accordance with IFRS at 01.01.2003 258,929 Reconciliation of the Balance Sheet from HGB to IFRS at December 31, 2003 (Table) Comments to the reconciliation of the Balance Sheet from HGB to IFRS at December 31, 2003: (1) Work in progress as defined by HGB was recognized and posted as non-invoiced receivables according to the percentage of completion method (including a portion of the margin). (2) Scheduled amortization of goodwill pursuant to HGB was reversed as, according to IFRS 1, where IFRS 3 is voluntarily applied to 2004, must be applied to 2003. Accordingly, 2003 goodwill was not amortized according to the straightline method. (3) Depreciation of property was adjusted to take account of expected useful economic life. Assets from capital leases were capitalized. (4) This change is a result of the fair-market valuation of securities. The change is included in other comprehensive income under equity, but not recognized in net profit or loss for the period. Derivative instruments are valued at fair market value, even where this exceeds the cost of acquisition. (5) Deferred tax assets are primarily formed for loss carryforwards and provisions. Deferred tax liabilities are primarily formed for deferred expense and property, plant and equipment. (6) Long and short-term financial liabilities include capitalized liabilities from capital leases. (7) Certain provisions under HGB were reclassified as short or long-term liabilities to comply with IFRS. (8) The adjustment of provisions (recognized in net profit or loss) primarily comprises dissolved provisions for expenses (maintenance, guarantees) and provisions where the probability of the obligation having to be settled is less than 50 percent (legal costs, contingent losses, general risks). Reclassifications comprise provisions which, according to IFRS, are to be posted as liabilities. See also note (7). (9) The increase in pension provisions is primarily a result of the requirement under IFRS to include indirect pension obligations at SAG UK. These were not previously included, in accordance with the option granted by Article 28 of the Introductory Act to the German Commercial Code (EGHGB). (10) All currency translation differences were posted since the changeover to IFRS accounting methods. As permitted by IFRS 1.22, the HGB figure was reset to zero for the IFRS statements on January 1, 2003. (11) Other reserves includes unrealized gains from the fair-market valuation of securities and differences from the translation of long-term intercompany cash positions in foreign currencies (i.e. not in euros). Reconciliation of the Equity from HGB to IFRS at December 31, 2003 € thousands Note Equity in accordance with HGB at 31.12.2003 228,431 Revenue recognised according to percentage of completion (1) 841 Correction to goodwill amortization (2) 21,839 Depreciation of buildings (3) 8,920 Finance leases (3), (6) - 745 Market value of securities and financial derivatives (2), (4) 19,390 Deferred tax assets (5) 11,111 Adjustments to other accruals (8) 4,635 Adjustments to pension accrual (9) - 12,202 Deferred tax liabilities (5) - 12,785 Other - 114 Equity in accordance with IFRS at 31.12.2003 269,321 Reconciliation of Net income/loss from HGB to IFRS at December 31, 2003 € thousands Note Net loss in accordance with HGB at 31.12.2003 - 3,322 Revenue recognised according to percentage of completion (1) 225 Correction to goodwill amortization (2) 21,839 Depreciation of buildings (3) 36 Finance leases (3), (6) 3,774 Market value of securities and financial derivatives (4) - 159 Deferred tax assets (5) - 4,345 Adjustments to other accruals (8) - 11,475 Adjustments to pension accrual (9) - 1,549 Deferred tax liabilities (5) 2,209 Other - 137 Net gain in accordance with IFRS at 31.12.2003 7,096 Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[46]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other10.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Events after the balance sheet date Further expenditures related to restructuring measures in the amount of €7,506 thousand should be expected for fiscal 2005; these were provided for in the balance sheet as of December 31, 2004. Software AG has acquired the Israeli company Sabratec Ltd. in full based on an agreement dated February 3, 2005. The purchase price of €5,376 thousand is to be paid in February of 2005. In January 2005, a settlement agreement was concluded with a U.S. software company with respect to litigation. This settlement will be effected by a payment in the first quarter of 2005, already provided for in the 2004 financial statements. Fujitsu Limited and Software AG signed an agreement on February 28, 2005, to jointly develop, market and sell a Service Oriented Architecture offering. Fujitsu and Software AG plan to exploit their complementary technology platforms and global R&D know-how to offer a technical process with integrated meta-data storage. This will allow users to curtail development time, improve productivity and provide the flexibility necessary to respond to changing business challenges. As part of this partnership, Fujitsu and Software AG intend to launch a joint product range on the market in the summer of 2005. Software AG already sells Interstage Business Process Manager, Fujitsu’s business process management solution. Declaration on the German Corporate Governance Code The Company published its declaration of conformity with the German Corporate Governance Code on January 28, 2005, in accordance with section 161 of the German Stock Corporation Act. Time of release of this publication Software AG’s Executive Board approved the consolidated financial statements on February 28, 2005. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[47]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other02.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Volume and measurement of derivative financial instruments The tables below show the transaction volumes of financial derivatives as of December 31, 2004, and December 31, 2003. The market value of these financial instruments is based on the values made available by the respective banks and correspond to the replacement cost at the balance sheet date. Effects on income/expense from the market valuation of financial instruments. Volume and measurement of derivative financial instruments € thousands Currency Transaction volume Positive market value Negative market value 2004 2003 2004 2003 2004 2003 Forward currency contracts GBP 0 995 0 10 0 0 USD 1,668 0 107 0 0 0 Currency options GBP 0 2,132 0 10 0 7 USD 0 9,466 0 516 0 0 Forward rate agreements EUR 10,000 0 8 0 0 0 Financial instruments shown are for the purpose of hedging an asset or liability recorded (fair value hedges). Changes in value are recorded against income. In addition, agreements to hedge anticipated transactions (cash flow hedges) exist. Changes in value of these financial instruments are reported under other reserves. Once the anticipated underlying transaction has been realized, the changes in value booked to other provisions are reclassified and taken to income. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[48]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/profit/02.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Income Statement Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Income Statement (3) Research and development expenses Research and development expenses are composed as follows: € thousands 2004 2003 Personnel expenses 30,544 46,628 IT expenses 10,765 11,282 Purchased services 3,449 1,338 Other expenses 4,246 2,585 49,004 61,833 (4) Sales costs Sales costs include the following cost types: € thousands 2004 2003 Personnel expenses 53,734 54,422 Marketing expenses 7,679 9,689 Car and travel expenses 6,515 6,990 Office rental and other tenancy costs 5,915 5,665 Sales commissions 4,842 8,410 IT expenses 4,363 3,833 Other expenses 6,047 10,361 89,095 99,370 (5) General and administrative expenses General and administrative costs are composed as follows: € thousands 2004 2003 Personnel expenses 34,882 41,284 Office rental and other tenancy costs 7,230 7,400 Other expenses 3,186 6,390 45,298 55,074 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[49]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/02.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (18) Deferred Expenses Deferred expenses reflect advance payments on the part of SAG associated with license and lease agreements. The accrual is released and the expense recorded in the period in which the relevant contracting partner provides the service. Table (19) Intangible Assets This account is composed primarily of acquired software licenses. (20) Goodwill Goodwill is the result of the acquisition of the SAGUSA Group effective February 1, 2001, amortized until January 1, 2003. (21) Land and buildings Land and buildings mainly consist of assets that belong to the parent company. Primarily this refers to the central administration building of the controlling company. Capital expenditures of €1,509 thousand were made to the administration building of Software AG and to the administration building of Software AG Espaρa S.A., Madrid, Spain. Other plant, office furniture and equipment Other plant, office furniture and equipment primarily includes office furniture and IT equipment acquired under finance leases. Capital expenditures of €4,197 thousand were incurred as part of the modernization of the IT infrastructure, as well as renovation measures to the main headquarter building in Darmstadt. (22) Financial Assets Financial assets to a large extent reflect assets held to cover long-term employee time accounts in the case of insolvency. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[50]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other09.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Remuneration of Executive Board and Supervisory Board Starting in fiscal 2005, remuneration of the Executive Board is being restructured and will be even more closely related to corporate profits. Beginning on January 1, 2005, two-thirds of the compensation will be directly linked to revenue, earnings and other Company targets. A portion of variable remuneration (30 percent) will only be paid in subsequent years based on a phantom share program. The stock option plan in effect previously will not be continued. Remuneration of former Executive Board members totaled €2,103 thousand. Pension provisions for departed members of the Executive Board amount to €2,676 thousand. Remuneration of active Executive Board members for fiscal 2004 is composed as follows: € Fixed remu- neration Variable remu- neration Other remun- eration components Total Stock options granted Karl-Heinz Streibich Chairman of the Executive Board 444,000.00 772,025.47 39,018.47 1,255,043.94 20,000 Mark Edwards 252,173.93 603,307.36 28,250.67 883,731.96 17,500 Arnd Zinnhardt 270,600.00 446,648.82 21,614.84 738,863.66 0 Christian Barrios Marchant 252,000.00 293,070.88 13,029.92 558,100.80 8,750 Andreas Zeitler 306,775.00 221,105.27 22,216.13 550,096.40 20,000 Departed Executive Board members 317,027.23 109,237.45 32,551.72 458,816.40 0 Gesamt 1,842,576.16 2,445,395.25 156,681.75 4,444,653.16 66,250 There was a variable salary prepayment to the Executive Board members in fiscal 2004 in the amount of €493 thousand. Interest was not be charged. Remuneration of Supervisory Board members for fiscal 2004 is composed as follows: € Fixed remu- neration Variable remu- neration Remu- neration for committee activities Total Frank F. Beelitz Chairman 20,000.00 40,000.00 18,000.00 78,000.00 Karl Heinz Achinger Deputy Chairman 15,000.00 30,000.00 14,000.00 59,000.00 Justus Mische 10,000.00 20,000.00 12,000.00 42,000.00 Reinhard Springer 10,000.00 20,000.00 3,000.00 33,000.00 Dr. Andreas Bereczky 6,667.00 13,333.00 0,00 20,000.00 Monika Neumann 5,000.00 10,000.00 4,500.00 19,500.00 Departed members of the Supervisory Board 6,667.00 13,333.00 4,500.00 24,500.00 Gesamt 73,334.00 146,666.00 56,000.00 276,000.00 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[51]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other03.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Effects on other reserves from the market valuation of financial instruments. Financial instruments (Cash flow hedges) € thousands Currency Transaction volume Positive market value Negative market value 2004 2003 2004 2003 2004 2003 Forward currency contracts GBP 500 0 5 0 0 0 USD 13,186 0 1,196 0 0 0 Currency options GBP 0 0 0 0 0 0 USD 0 6,915 0 543 0 0 Currency options consist exclusively of unstructured EURO call options, so-called “plain vanilla options”. Forward currency contracts include so-called “dynamic forward sales” in addition to traditional forward currency sales. In this case, Software AG has the opportunity of participating in positive market developments, but simultaneously has hedged at the defined “worst case” rate. This type of transaction showed a positive market value of €214 thousand at the balance sheet date, included in the table above. A maximum default risk equivalent to the market values recorded arises from existing hedging transactions. All financial instruments have a remaining term of less than a year. Use of derivative financial instruments is purely to hedge existing or anticipated interest rate, currency or other market risks. Financial investment policy Software AG is very conservative in its financial investments. Primarily time deposits and short-term fixed-interest securities, with a credit rating of at least “investment grade”, are purchased. Interest on capital invested averaged approx. 2.1 percent in fiscal 2004. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[52]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/profit/03.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Income Statement Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Income Statement (6) Income from the sale of SAP-SI shares On April 14, 2004, Software AG sold 1,272,100 shares in SAP-SI at a price of €20.40 per share, resulting in proceeds of €25,951 thousand and income of €24,530 for the Group. Following the sale, Software AG no longer holds any shares in SAP-SI. (7) Other Operating Income Other operating income includes the following accounts: € thousands 2004 2003 Exchange gains 5,589 4,851 Income from leases 2,868 2,546 Income from the release of provisions 2,087 3,115 Other income 3,013 7,283 13,557 17,795 (8) Other Operating Expenses Other operating expenses includes the following accounts: € thousands 2004 2003 Legal costs 11,080 0 Exchange losses 3,912 2,227 Costs related to vacant premises 2,130 7,099 Other expenses 1,188 1,434 18,310 10,760 Legal costs amounting to €11,080 thousand consist primarily of the legal cases presented under other disclosures. Legal costs are shown in general and administrative expenses except for legal proceedings likely to incur high costs that are reclassified as other operating expenses. No significant expenses related to legal cases were required to be reclassified in the previous year. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[53]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/03.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (23) Deferred Tax Assets and Liabilities The balance of deferred tax assets and liabilities, calculated according to the liability method, for individual balance sheet accounts is shown in the following breakdown: Deferred tax assets Deferred tax liabilities € thousands 2004 2003 2004 2003 Securities 290 338 819 456 Current assets 39 152 304 783 Goodwill 5,482 5,867 0 0 Property, plant and equipment 1,514 1,569 3,471 3,609 Tax loss carry forwards 27,021 29,783 0 0 Current debt 5,667 5,872 6,813 7,818 Non-current debt 7,746 13,845 22,015 18,142 Consolidation measures - 5,482 - 5,867 - 20,979 - 18,010 42,277 51,559 12,443 12,798 Write-downs - 6,600 - 6,600 0 0 35,677 44,959 12,443 12,798 Deferred tax assets and liabilities are broken down as follows with respect to maturity: € thousands 2004 2003 Deferred tax assets Short term 5,968 6,329 Long term 29,709 38,630 35,677 44,959 Deferred tax liabilities Short term 7,936 8,147 Long term 4,507 4,651 12,443 12,798 Deferred tax assets from tax loss carry forwards have decreased by €2,762 thousand compared to the previous year. This is to a great degree the result of additional utilization of tax loss carry forwards, in particular in the case of Software AG. Write-downs of deferred tax assets are undertaken if there are doubts as to their realization. To determine these write-downs, all positive and negative factors that might impact the achievement of future taxable income have been taken into consideration. Assumptions made in this respect may change depending on future developments. The write-down account is due solely to tax loss carry forwards pertaining to the parent company for both 2003 and 2004. As of December 31, 2004, nominal tax loss carry forwards for the Group exist in the amount of €87,836 thousand (previous year: €90,857 thousand). In principle these may be utilized at any time in the future, save for a partial amount of €6,269 thousand (previous year: €3,742 thousand). Deferred taxes on earnings retained by foreign subsidiaries are not taken into account, since these earnings are expected to be utilized for the maintenance and expansion of business volumes in the companies in question. Tax provisions amounting to €1,166 thousand (previous year: €0 thousand) pertain to tax charges from dividend payments of foreign subsidiaries resolved at the beginning of 2005. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[54]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other08.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Stock-based compensation Software AG conducts different stock option plans for members of the Executive Board, key management staff and other Group employees; these have not been recorded as personnel expenses in the measurement process according to IFRS 2, due to the conditions for exercising the options. First Stock option plan: 145,846 subscription rights had been issued to members of the Executive Board and 69,069 subscription rights to key management staff as of the balance sheet date; however, these could not be exercised until after the balance sheet date. The number of subscription rights has thus remained unchanged since December 31, 2003. No subscription rights were exercised in the period under review. Options have a term of seven years dated from the time they are granted. They may only be exercised during their term, starting with a 24-month waiting period after the Company’s IPO, on a quarterly basis, after the publication of annual results, half-year results and quarterly results. The subscription price per share when exercising an option is equivalent to the issue price minus a discount of 20 percent, but must be at least €28.12 (DM 55.00). The minimum price was applied, since the issue price was €30. In order for the options to be exercised, the following prerequisites must be satisfied: (1) The Group’s profit from ordinary activities according to the German Commercial Code must have risen by a total of 30 percent in the years 1997 to 1999. This condition was met by the profits recorded at the time. (2) The Group’s profit from ordinary activities is equivalent to at least 10 percent of sales in the year prior to exercise of the option. (3) The share price is above the minimum price at the time the option is exercised. Second Stock option plan: 163,375 subscription rights had been issued to members of the Executive Board and 566,025 subscription rights to key management staff as of the balance sheet date; however, these could not be exercised until after the balance sheet date. The subscription price per share in exercising an option is equivalent to the average of the XETRA closing prices over the last five trading days at the Frankfurt Stock Exchange prior to the offer to grant subscription rights. In order for the options to be exercised, the following prerequisites must be satisfied: (1) The Group’s sales must have risen at least 10 percent over the previous year’s sales in the fiscal year preceding exercise of the options. (2) The Group’s profit from ordinary activities is equivalent to at least 10 percent of sales in the year prior to exercise of the option. Terms, waiting periods and exercise intervals correspond to conditions under the First Stock Option Plan. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[55]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other04.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Legal proceedings The following litigation is pending: 1.) Israeli software company·/· Software AG Software AG took over global product distribution for an Israeli software company in 1988. The relevant sales agreement lapsed in 1991. The parties negotiated a successor agreement for a considerable period of time, but the agreement did not come to fruition. Product distribution was continued during this period under mutual agreement until such time as the business relationship was definitively terminated in 1996. After the business relationship was terminated, the Israeli company asserted claims for subsequent payment of license fees and damages resulting from the failure to complete a successor agreement and the allegedly improper termination of the business relationship. The plaintiff brought the legal case before the International Court of Arbitration and sued for millions. The legal dispute was amicably settled in January of 2005. The amount to be paid in settlement is fully disclosed in the 2004 financial statements. 2.) U.S. software company·/· Software AG Inc. In the middle of 2002, a U.S. software company sued Software AG Inc. before the U.S. District Court in Orlando for unspecified damages and negligence due to alleged patent violation by a Software AG product. The proceedings were amicably settled in December of 2004. Software AG Inc. agreed to pay the U.S. software company a settlement amount that is fully disclosed in the 2004 financial statements. 3.) Software AG Inc. and Software AG·/· additional U.S. software company Following the failure of out-of-court discussions, Software AG Inc. and Software AG sued a U.S. software company in July of 2003 for damages and negligence due to violation of a patent granted to Software AG in 1994. The proceedings are currently before the U.S. District Court in Delaware. Upon completion of the pre-trial discovery the court has set May 2005 for oral proceedings. In November of 2004 the company being sued has in turn instigated legal proceedings due to alleged patent violation before the U.S. District Court in Alexandria. The case is currently in pre-trial discovery. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[56]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/profit/04.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Income Statement Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Income Statement (9) Goodwill amortization Due to the planned closure of the IC Group B.V., Capelle, the Netherlands, in 2005, goodwill arising from the purchase of this company was fully written off in the year under review. (10) Interest result Due to a further increase in net liquidity in 2004, higher interest income of €3,253 thousand was achieved than in the previous year, despite lower interest rates. Interest income is composed as follows: € thousands 2004 2003 Interest income 5,612 3,992 Interest expense - 2,359 - 1,244 3,253 2,748 (11) Income taxes The Group’s income tax can be classified according to its origin: € thousands 2004 2003 Current domestic taxes - 2,674 687 Current foreign taxes - 21,575 - 16,013 - 24,249 - 15,326 Deferred domestic taxes - 9,800 9,797 Deferred foreign taxes 1,000 1,328 - 8,800 11,125 - 33,049 - 4,201 In December of 2003, German legislators adopted a new law designed to reduce tax exemptions (“Act to Implement the Mediation Committee’s Proposals to the Tax Privilege Reduction Act”) effective January 1, 2004. The key changes in tax legislation with respect to calculation of Software AG income taxes is that since 2004, only 95 percent of domestic dividends and 95 percent of gains from the disposal of domestic and foreign investments continue to be tax-exempt; this implies that 5 percent of dividends and gains from disposals are to be considered non-deductible operating expenses. The effects of these changes are not material for the consolidated income statement of 2003. The rise in current tax expense is mainly due to the introduction of the so-called minimum taxation (change in section 10 of the income tax code) effective for both parent and German subsidiaries for the assessment period 2004. Expenses for current income taxes in the previous year amounting to €15,326 thousand are offset by income from the release of tax provisions of €4,942 thousand. The change in deferred taxes is primarily the result of the utilization of tax loss carry forwards brought about by positive earnings growth in 2004. Deferred taxes are calculated on the basis of tax rates which will apply at the anticipated time of realization in the relevant countries according to the legal situation prevailing at the time the consolidated financial statements are prepared. In Germany a uniform corporate tax rate of 25 percent applies. Taking into consideration an average municipal trade tax collection rate of 424 percent and the solidarity surcharge of 5.5 percent on corporate tax, an income tax rate of 39.9 percent is computed for domestic companies (previous year: 39,9 percent). Tax rates abroad range between 4.3 percent and 37 percent (previous year: between 4.3 percent and 37 percent). Income tax expense reported in fiscal 2004 to the amount of €33,049 thousand (previous year: €–4,201 thousand) is €10,956 thousand less than the income tax expense anticipated of €–44,005 thousand (previous year: €–4,494 thousand), which would result from applying the domestic tax rate of 39.9 percent (previous year: 39.9 percent) at the consolidated level. The difference between expected and actual tax expense can be traced to the following causes: € thousands 2004 2003 Earnings before income tax 110,288 11,264 Expected income tax (39.9%; 39.9%) - 44,005 - 4,494 Tax rate-related adjustments 15,505 3,101 Back taxes (+)/tax refunds (–) from previous years -222 4,263 Tax decreases (–)/tax increases (+) due to tax-exempt income or non-tax-deductible expenses -438 -102 Other adjustments - 3,889 - 6,969 Reported income tax expense - 33,049 - 4,201 Back taxes/tax refunds in the previous year reflect the release of provisions due to the elimination of risks associated with tax audit. Other adjustments mainly include expenses for dividend payments from subsidiaries resolved for the subsequent year of €–1,166 thousand (previous year: €0 thousand) and changes in the measurement of deferred tax assets from tax loss carry forwards amounting to €–737 thousand (previous year: €–7,201 thousand). back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[57]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/04.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (24) Financial Liabilities Financial liabilities may be broken down as follows: € thousands 31.12.2004 31.12.2003 Current financial liabilities Liabilities from finance leases 2,114 4,009 Bills payable 1,235 2,537 3,349 6,546 Non-current financial liabilities Liabilities from finance leases 3,490 4,356 3,490 4,356 Financial liabilities stemming from finance leases may be broken down as follows as of December 31, 2004: Within 1 year 1 to 5 years > 5 years Total Lease payments 2,460 3,736 0 6,196 Of which interest - 346 - 246 0 - 592 Net present value of lease installments 2,114 3,490 0 5,604 Expected income from sub-leases 0 0 0 0 (25) Trade Payables Trade payables can be broken down as follows: € thousands 31.12.2004 31.12.2003 Payables to suppliers 19,787 24,090 Advances received on orders 1,405 2,631 Other 0 49 21,192 26,770 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[58]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other07.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Employees The effective number of employees (i.e. part-time employees are taken into account on a pro-rated basis) can be broken down by qualification as follows: 31.12.2004 31.12.2003 Applications development 954 929 Administration and other 536 552 Sales 310 293 Research and development 323 501 Customer service 154 145 Marketing 85 83 Executive and senior management 76 74 2,438 2,577 The average absolute number of employees (i.e. part-time employees are recorded in full) in the Software AG Group in 2004 was 2,512 (previous year: 2,844). As of the balance sheet date of December 31, 2004, an absolute number of 2,505 employees (previous year: 2,703) were engaged by the Group. Personnel expenses Personnel expenses for fiscal 2004 and the previous year is composed as follows: € thousands 2004 2003 Salaries and wages 163,616 186,443 Social security 27,535 30,700 Expenses for pensions 5,195 5,837 196,346 222,980 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[59]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other05.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Operating leases Rental or operating leases in the Group primarily relate to office space, vehicles and IT equipment. Lease payments from operating leases are recorded as expense over the term of the lease. € thousands Within 1 year 1 to 5 years > 5 years Total Lease payments 17,332 27,729 15,462 60,523 Expected income from sub-leases 2,115 1,434 68 3,617 Contingent liabilities No provisions have been created for the contingent liabilities below, expressed at nominal value, since claims in this regard are considered unlikely: € thousands Guarantees 4,361 Other 930 5,291 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[60]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/profit/05.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Income Statement Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Income Statement (12) Other Taxes Other taxes mainly comprise of property taxes, vehicle tax and non-deductible sales tax. (13) Minority Interests Minority interest relates to 49 percent third-party holdings in the joint venture Software AG (India) Pvt. Ltd., Pune, India (SAG-IN) established jointly with iGate Solution Limited in 2003. (14) Earnings per Share The basic earnings per share figure is calculated by dividing net income allocable to shareholders by the weighted average number of shares outstanding during the period under review and presented accordingly. Software AG has issued only common shares. Diluted earnings per share is equivalent to basic earnings per share, since an issue of new shares is not currently anticipated due to the exercise hurdle in the stock option plan. back Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[61]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/05.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (26) Other Liabilities Other liabilities include the following accounts: € thousands 31.12.2004 31.12.2003 Tax liabilities 7,614 9,331 Liabilities to employees 6,671 8,666 Liabilities related to social security 2,746 4,730 Other 5,248 2,567 22,279 25,294 (27) Other Provisions € thousands Other employee-related provisions Restructuring provisions Other sundry provisions Total other provisions Balance at 01.01.2004 12,864 30,682 27,956 71,502 Currency translation - 251 - 84 - 273 - 608 Additions 10,613 0 10,546 21,159 Utilized - 10,018 - 22,121 - 20,485 - 52,624 Released - 519 - 971 - 3,776 - 5,266 Balance at 31.12.04 12,689 7,506 13,968 34,163 Thereof with remaining term > 1 year 542 0 364 906 Other sundry provisions Other sundry provisions include: € thousands 31.12.2004 31.12.2003 Rental payment obligations 5,365 13,778 Litigation risks 4,673 4,586 Executive Board bonuses 1,610 1,450 Guarantees for PS projects 476 1,176 Impending losses for PS projects 466 5,322 Other 1,378 1,644 13,968 27,956 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[62]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/other/other06.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Other disclosures Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Board Glossary Financial Calendar Impressum Print Order Other disclosures Seasonal influences Revenues and pre-tax income were distributed as follows for fiscal 2004: 1. Quarter 2004 2. Quarter 2004 3. Quarter 2004 4. Quarter 2004 2004 Revenue € 95,720 106,256 96,635 112,760 411,371 in % of annual sales 23.3 25.8 23.5 27.4 100,0 Earnings before taxes € 15,782 49,608 21,878 24,462 111,730 in % of net income for the year 14.1 44.4 19.6 21.9 100.0 A similar distribution of revenues throughout the year has been observed in prior years and is primarily the result of our customers’ purchasing behavior. Restructuring measures in the first half of 2003 and in the first quarter of 2004 resulted in considerable cost savings and a corresponding rise in pretax earnings. €24,539 thousand in special income is included in earnings before taxes in the second quarter of 2004, arising from the sale of SAP-SI shares. It is not likely that similar special income will be achieved in future. Comments on significant business events Income from the sale of SAP-SI shares in the amount of €24,539 thousand was realized in the second quarter of 2004. A total of €23,430 thousand was expended on restructuring measures during fiscal 2004. Provisions for restructuring had been created for this event in the amount of €30,682 thousand during the previous year. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[63]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/06.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (28) Provisions for pensions € thousands Balance at January 1, 2004 19,666 Currency translation - 45 Additions 2,940 Utilized - 385 Released - 27 Balance at December 31, 2004 22,149 € thousands 31.12.2004 31.12.2003 Provisions for pensions abroad 13,317 10,680 Provisions for pensions domestically 8,832 8,986 22,149 19,666 Pension commitments in Germany consist of fixed commitments to a selected group of employees. A portion of these commitments is covered by lifeinsurance policies. The remaining defined-benefit pension obligations abroad are covered to a large extent by external funds. Principal actuarial assumptions in % German pension plans Non-German plans 1 2004 2003 2004 2003 Discount rate 4.5 4.5 5.2 5.6 Future salary increases 0.0 0.0 4.0 4.7 Future pension increases 0.0 0.0 2.7 2.7 Expected return on plan assets 4.5 4.5 6.6 6.8 Development of defined benefit obligation - 0.1 6.8 22.5 7.4 1 Weighted average figures for individual plans Since fixed pension commitment entitlements independent of salary exist for beneficiaries of the domestic plans, future salary and pension increases are set at 0.0 percent. Non-German pension commitments are calculated according to country-specific accounting principles and parameters. As cover for German pension commitments is only provided by life-insurance policies, the figure quoted for expected return on plan assets is the minimum return quoted by the life-insurance company. The expected return on plan assets for non-German programs was calculated as a weighted average of the individual asset classes, which in turn were based on the relevant local capital-market conditions. The computation of pension expense is based on planned service cost and the anticipated return on the plan assets. Changes in the projected benefit obligations and plan assets are shown below: Changes in projected benefit obligations Domestic pension plans Foreign pension plans € thousands 2004 2003 2004 2003 Projected benefit obligation as of January 1 9,257 8,664 25,749 23,978 Service cost 165 145 1,386 1,455 Interest expense 394 403 1,455 1,231 Actuarial gains (–)/losses (+) 37 434 2,998 - 220 Benefits paid - 389 - 389 - 102 0 Currency changes 0 0 - 223 - 695 Projected benefit obligations at December 31 9,464 9,257 31,263 25,749 Changes in plan assets Domestic pension plans Foreign pension plans € thousands 2004 2003 2004 2003 Fair value of plan assets as of January 1 271 186 15,069 13,022 Return on plan assets 23 12 1,354 806 Employer contributions 194 59 1,708 1,580 Compensation for pension claims 144 14 0 0 Benefits paid 0 0 - 102 0 Currency changes 0 0 - 83 - 339 Fair value of plan assets as of December 31 632 271 17,946 15,069 Provisions for pensions 8,832 8,986 13,317 10,680 Pension provisions have developed as follows from the time of the transition at January 1, 2003: € thousands 31.12.2004 31.12.2003 01.01.2003 Defined benefit obligation (DBO) 40,727 35,006 32,642 Present value of plan assets - 18,578 - 15,340 - 13,208 Provisions for pensions 22,149 19,666 19,434 Since differences between the expected and actual developments in projected benefit obligations and plan assets are relatively low, no planned to actual comparison has been performed. Projected benefit obligations can be broken down according to type of reinsurance as shown below: € thousands 31.12.2004 31.12.2003 01.01.2003 Projected benefit obligations fully covered by capital 30,657 24,954 23,379 Projected benefit obligations partially covered by capital 7,704 7,863 7,574 Projected benefit obligations without capital coverage 2,366 2,189 1,689 40,727 35,006 32,642 Plan assets to cover the pension provisions are composed as follows: € thousands 31.12.2004 31.12.2003 01.01.2003 Shares 9,546 7,518 4,872 Bonds 5,328 6,220 5,390 Life insurance 632 271 186 Other 3,072 1,331 2,760 18,578 15,340 13,208 Realized gains in plan assets developed as follows: € thousands 2004 2003 2002 Realized gains 1,377 818 824 Since realized gains in plan assets differed only insignificantly from planned gains, no planned to actual comparison has been performed in this instance. Anticipated contributions on the part of the Software AG Group to plan assets in fiscal 2005 total €1,914 thousand. Actuarial gains and losses have developed as follows from the time of the transition at January 1, 2003: € thousands 2004 2003 Actuarial gains 279 220 Actuarial losses 2,701 434 Actuarial net loss 2,422 214 Of which included in other provisions 2,422 0 Of which recognized as expense 0 214 Expenses related to pension obligations recorded in the income statement are broken down as follows: € thousands 2004 2003 Service cost 1,551 1,600 Interest expense 1,849 1,634 Past service cost 0 0 Compensation, transfers and reductions 0 0 3,400 3,234 Expenses were recorded in the profit and loss statement as follows: € thousands 2004 2003 Cost of sales 1,068 1,010 Research and development expenses 389 368 Selling expenses 992 937 General and administrative expenses 951 919 3,400 3,234 back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[64]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/07.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (29) Tax provisions € thousands Balance at January 1, 2004 10,929 Currency translation 28 Additions 8,475 Utilized - 5,140 Released - 1 Balance at December 31, 2004 14,291 (30) Deferred income Deferred income reflects advance payments from customers associated with revenues from maintenance agreements. The release of deferred income will be realized in the period in which SAG provides the service. (31) Equity Changes in equity are shown in the Statement of Changes in Equity preceding the notes to the consolidated financial statements. The following conditional capital existed as of December 31, 2004: 1.) A maximum of €3,357 thousand divided into a maximum of 1,118,962 bearer shares to provide for subscription rights from the first share option plan (Management Incentive Plan I, MIP I) for members of the Executive Board and key employees in the Group. Requirements of this program, the status of allocations and exercising options are presented under other disclosures/stock-based compensation programs. 2.) A maximum of €3,000 thousand divided into a maximum of 1,000,000 bearer shares to provide for subscription rights from the second share option plan (Management Incentive Plan II, MIP II) for members of the Executive Board and key employees of the SAG Group. Requirements of this program, the status of allocations and exercising options are presented under other disclosures/stock-based compensation programs. 3.) An amount of €36,000 divided into a maximum of 12,000,000 bearer shares with a proportional share in capital stock of €3 each, in order to grant option rights and agree option obligations from bonds with warrants or, to bearers of convertible bonds, conversion rights and conversion obligations according to the bond conditions, as resolved at the Annual Shareholders’ Meeting on April 30, 2004. According to this authorization, the Executive Board may, with the consent of the Supervisory Board, resolve that the rights presented may be issued by Software AG or a directly or indirectly held fully owned affiliate of Software AG, up to April 29, 2009. Subscription rights are hereby to be granted to shareholders with the exception of the following cases: The Executive Board is authorized to exclude fractional amounts from the shareholders’ subscription rights. The Executive Board is authorized, with the consent of the Supervisory Board, to set aside the subscription rights of shareholders in full, provided it has reached the opinion after reviewing in accordance with its professional duties that the issue price of the warrants or convertible bonds is not significantly lower than its hypothetical market value arrived at by accepted financial calculation methods. This authorization, however, applies only to the waiving of subscription rights in the case of warrant and convertible bonds with a warrant or conversion right or a warrant and conversion obligation related to shares at the lower of a proportional amount of stock capital totaling a maximum of €8,180 thousand or 10 percent of stock capital in existence at the time the authorization is acted upon. The Executive Board had not made use of this authorization prior to the balance sheet date. As of the balance sheet date, the Executive Board is also authorized, with the consent of the Supervisory Board, to increase the company’s issued capital stock on one or more occasions on or before April 27, 2006, by up to a total of €37,989 thousand by issuing up to 12,663,036 bearer shares against cash and/or non-cash capital contributions (authorized capital). Subscription rights are hereby to be granted to shareholders with the exception of the following cases: The Executive Board is authorized to exclude fractional amounts from the shareholders’ subscription rights. The Executive Board is further authorized, with the consent of the Supervisory Board, to set aside subscription rights for capital increases against non-cash contributions for purposes of acquiring investments or companies in part or in whole. The Executive Board is also authorized, with the consent of the Supervisory Board, to set aside subscription rights for capital increases against cash contributions, in the event that the capital increases resolved based on this authorization do not exceed 10 percent of stock capital at the time of the first utilization of the autorization and in the event that the issue price is not significantly lower than the stock market price. Finally, the Executive Board is authorized, with the consent of the Supervisory Board, to set aside subscription rights to a maximum nominal value of €6,503 thousand, for the purpose of offering the new shares to employees of the Company and its affiliated companies as defined in sections 15 et seq. of the German Stock Corporation Act as part of an employee participation scheme. Distribution of the new shares can also be undertaken by a bank, with the proviso that they are exclusively held for the acquisition of entitled employees, according to the Company’s instructions. The Executive Board had not made use of this authorization prior to the balance sheet date. The Executive and Supervisory Boards recommend to the Annual Shareholders’ Meeting that a dividend of €20,450 thousand should be paid out and €42,505 thousand carried forward from the unappropriated profits total €62,955 for 2004 of the Group controlling company Software AG. This corresponds to a dividend of €0.75 per share. back next Print Order More Infos Investor Relations Enterprise Transaction Systems XML Business Integration Home | Legal Aspects | Privacy Policy | Impressum ©2005 Software AG"); page[65]=new Array("http://www.netfedreports.de/softwareag04/en/financialstatements/notes/balancesheet/08.htm","Software AG: Annual Report 2004","","Deutsch | Order | Contact | Software AG Homepage You are here: Home > Financial Statements > Notes > Notes to the Balance Sheet Home Goals and successes Key figures Company profile Letter to our shareholders The Executive Board Driving growth Customer Highlights Software AG stock Corporate Governance Management Report Financial Statements Consolidated Income Statement Consolidated Balance Sheet Statement of Cash Flows Development of shareholders’ equity Notes Summary of significant accounting policies Accounting Policies Notes to the Income Statement Notes to the Balance Sheet Notes to the Statement of Cash Flows Notes to the Segment Report First time application of IFRS Other disclosures Auditors’ Report Report of the Supervisory Boards Glossary Financial Calendar Impressum Print Order Notes to the Balance Sheet (32) Other Reserves Other reserves include differences arising from the currency translation of the financial statements of economically independent foreign subsidiaries into euros. They also contain the effects of the measurement of financial instruments, which are not taken to income. Translation differences from monetary items primarily consisting of net investments in independent foreign sub-units are also recorded in this account. These amounts are recognized on an after-tax basis. (33) Minority Interests Minority interest relates to 49 percent third-party holdings in the joint venture Software AG (India) Pvt. 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