1. Acquisition of the software division of Jacada Ltd., Israel
As of January 1, 2008, Software AG acquired business units and assets of Jacada Ltd., Israel. Through its acquisition of Jacada’s Application Modernization division, Software AG enhanced its product portfolio by adding new products for the modernization of user interfaces in applications that run on large and medium-sized systems. Jacada Ltd. is publicly listed on the Nasdaq (Nasdaq: JCDA).
Breakdown of purchase price
The purchase price paid for Jacada’s Application Modernization division was €17,665 thousand (US$26,000 thousand). The purchase price was paid on January 2, 2008. The cost of the business combination has been allocated provisionally in accordance with IFRS 3.62 as follows:
in € thousands
Fair value as of
January 01, 2008
Carrying amount prior
|Intangible assets – customer base||15,195||0|
|Carrying amount of the assets acquired||0|
|Cost of the business combination||17,665|
Initial consolidation pursuant to IFRS 3.62
Because of the close proximity in time between the date of acquisition (January 1, 2008) and the balance sheet date of the quarterly financial statements (September 30, 2008), the Application Modernization division acquired from Jacada was initially accounted for using provisional fair values.
Intangible assets – customer base
The Application Modernization division acquired from Jacada generated annual revenue of approximately US$12 million in 2007. The achieved profit margin was higher than the Group average of Software AG. Software AG gained more than 200 corporate customers, primarily from the USA, as a result of this acquisition. For these reasons, a customer base was recognized as part of the initial accounting.
The software that the Group has acquired is designed for the modernization of user interfaces in applications that run on large and medium-sized systems. It supplements Software AG’s product portfolio in the field of legacy modernization. Based upon a preliminary assessment, the software was valued at €2,470 thousand.
Contribution to revenue and earnings since acquisition on January 1, 2008
Since the date of acquisition on January 1, 2008, the Application Modernization division acquired from Jacada has contributed €2,612 thousand to Group revenues, of which €1,067 thousand related to the third quarter. Jacada’s contribution to Group net income since the date of acquisition reached break-even in the third quarter of 2008. As the Jacada software division has been completely integrated into Software AG, the contribution to Group net income for the year could be determined only by means of an estimate. As the date of acquisition was January 1, 2008, a presentation of these profit figures as if the acquisition had occurred at the beginning of fiscal 2008 can be omitted.
Expenses related to the acquisition of the Jacada software division
The customer base, which was identified as an asset in connection with the acquisition of Jacada’s Application Modernization division, will be amortized over a period of 10 years and the acquired software will be amortized over a period of 5 years. Total amortization in the first three quarters of 2008 was €1,621 thousand, of which €550 thousand related to the third quarter. There were no other expenses connected with this acquisition, and no further expenses are expected.
2. Software AG also acquired the remaining minority interests of the following companies in the first three quarters of 2008:
These acquisitions of remaining minority interests eliminated the need to report minority interests in equity and net income in the quarterly consolidated financial statements as of September 30, 2008.
3. Earn-out payments for earlier acquisitions
Revenue-based earn-out payments of €985 thousand (Q3 2008: €35 thousand) for Software A.G. (Israel) Ltd. (previously Sabratec Ltd., Israel) and €332 thousand for Casabac Technologies GmbH, Germany, were paid in the first three quarters of 2008.
4. Currency translation effects
In the first three quarters of 2008, the strong euro, particularly in relation to the US dollar, caused negative currency translation effects on Group revenues compared to the same period in the previous year in the amount of €27,812 thousand, €5,766 of this amount in the third quarter of 2008.
In the third quarter 2008, the Brazilian subsidiary of Software AG signed a major contract with a Brazilian customer on the use and maintenance of software products, the largest deal in the history of Software AG. The total contract volume net of Brazilian sales tax amounts to €63,680 thousand (BRL 151.6 million) over a contract term of 4.5 years, with contract revenues being recognized over the period of the contract. Revenues from this contract recognized in the third quarter of 2008 amount to €8.198 TEUR, of which €5.606 thousand relate to license revenue.