Notes to the Quarterly Financial Statements

Accounting Policies

Basis of presentation Software AG’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB). The IAS/IFRSs applicable as of December 31, 2006 were observed, as were the corresponding interpretations of the International Financial Reporting Interpretations Committee (IFRIC – formerly SIC). The same accounting policies have been applied to these interim financial statements as were applied to the 2006 financial statements. Therefore, the accounting policies are not explained in detail in these quarterly financial statements. These quarterly financial statements have been prepared in accordance with IAS 34, Interim Financial Statements.

The consolidated financial statements of Software AG are expressed in thousands of euros unless otherwise stated.

These interim financial statements have not been audited or reviewed by an auditor.

Changes in the consolidated group

The companies in the consolidated group changed as follows in comparison with December 31, 2006:

SPL Software, Ltd., Israel Effective April 1, 2007, Software AG acquired 80,08 percent of the shares in SPL Software, Ltd., Israel (SPL), along with its five subsidiaries. The fixed cost for obtaining 80,08 percent of the shares, including costs directly attributable to the acquisition, amounted to €43,174 thousand. With regard to the remaining 19,92 percent of the shares, Software AG holds a call option and the seller holds a put option that may be exercised within two years of purchase of the company. The purchase price for the remaining shares will be calculated on the basis of the operating result for fiscal 2007. The price was initially set at €7,888 thousand in connection with inclusion of SPL in the financial statements of Software AG. Based on the requirements of IFRS 3 regarding the treatment of combined put and call options, 100 percent of the shares in the SPL companies were included in the financial statements of Software AG as of the date of acquisition. At the time of their acquisition, these companies contributed equity of €11,651 thousand to the consolidated accounts. In fiscal 2006, the SPL companies generated revenues amounting to €31,298 thousand.

webMethods, Inc., USA On May 25, 2007, a majority shareholding was acquired in webMethods, Inc., Fairfax, Virginia, USA. A 100-percent shareholding was subsequently acquired as of June 1, 2007. Given that Software AG effectively obtained control of webMethods as of May 25, 2007 (date of acquisition), webMethods and its 23 subsidiaries were included in the consolidated accounts of Software AG as of such date.

The cost for obtaining 100 percent of the shares, including costs directly attributable to the acquisition, amounted to €416,640 thousand (USD 559,548 thousand). As of the date of acquisition, the webMethods Group contributed equity of €150,244 thousand to the consolidated accounts. In the fiscal year extending from April 1, 2006 to March 31, 2007, the webMethods Group generated revenues in the amount of €156,719 thousand.

Earnings per share

Earnings per share were calculated by dividing net income for the period attributable to Software AG’s shareholders by the weighted average number of shares outstanding during the reporting period and have been presented accordingly. Software AG has only issued common shares. In the second quarter of 2007, the weighted average number of shares amounted to 28,460,127. In the first half of 2007, the weighted average number of shares was 28,368,188.

All three criteria for exercising options as set out in the first stock option plan for members of the Executive Board, officers, and other employees were met in the first and second quarters of 2007. The 6,750 options outstanding under this stock option plan were exercised during the first quarter. No other options are available for exercise from this plan.

The two criteria for exercising stock options under the second stock option plan were met in fiscal 2006: Revenue increased by more than 10 percent over the previous year, and the return on sales was 23 percent. As a result 320,317 stock options from this plan were exercised in the first quarter of 2007, and 40,689 in the second quarter of 2007.

Exercise of the options increased the total number of shares by 367,756.

Another 73,460 stock options may be exercised from the second stock option plan in fiscal 2007. The diluted earnings per share were thus calculated for these potential shares using the treasury stock method and presented accordingly for the reporting period. Diluted earnings per share were computed by dividing net income for the period attributable to Software AG’shareholders by the number of shares in issue and the exercisable stock options.

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