Revenues and pre-tax earnings per quarter were as follows in fiscal 2007:
|in € thousands||Q1 2007||Q2 2007||Q3 2007||Q4 2007||2007|
|in % of annual revenue||25.2||24.4||23.1||27.3||100.0|
|Earnings before taxes||28,163||37,946||30,412||40,570||137,091|
|in % of net income for the year||20.5||27.7||22.2||29.6||100.0|
In order to show seasonal influences, the revenues of SPL Software Ltd., Israel from January 1, 2007 through March 31, 2007 as well as the revenues of webMethods, Inc., USA from January 1, 2007 through May 24, 2007 were added to the revenues of the Software AG Group. Prior years showed a similar structure of revenues per quarter, which primarily reflects the purchasing behavior of our customers.
Pre-tax earnings show unadjusted values for the Software AG Group, excluding minority interests of acquired companies from the beginning of the year up to the date of acquisition. Because of the acquisitions of these companies and the cost synergies achieved during fiscal year 2007, the presentation does not reflect the normalized profit allocation. For this reason, no forward-looking statements can be derived from this profit allocation.
Given the forward-looking nature of these disclosures, the presentation of the previous year’s figures was omitted.
|in € thousands||Sept. 30, 2008||Dec. 31, 2007||Sept. 30, 2007|
The carrying amount of collateral received is €521 thousand (Q3 2007: €0 thousand).
The Company has entered into rent and lease agreements for buildings, land, computer and telephone equipment, and vehicles. The obligations under these agreements for their remaining non-cancelable terms up until the end of fiscal 2008 amount to €3,233 thousand (Q3 2007: €2,751 thousand). Obligations of €46,506 thousand exist for the period up until the end of fiscal year 2013 (Q3 2007: €38,608 thousand until the end of fiscal 2012), and obligations of €6,658 thousand for the period after fiscal 2013 (Q3 2007: €8,844 thousand for the period after fiscal 2012). The lease agreements are operating leases as defined in IAS 17.
Software AG has two different stock option plans for members of the Executive Board, officers, and employees of the Group. For a detailed description of our share-based payment programs, please refer to pages 91 – 93 of our 2007 Annual Report.
The expenses for stock options which were accounted for as equity-settled stock option programs in accordance with IFRS 2 for the first three quarters of 2008 amount to €1,077 thousand (Q1-3 2007: €2,523 thousand), of which €197 thousand related to the third quarter (Q3 2007: €1,041 thousand).
The expenses for stock options which were accounted for as cash-settled stock option programs in accordance with IFRS for the first three quarters of 2008 amount to €2,274 thousand (Q1-3 2007: €0 thousand), of which €666 thousand related to the third quarter (Q3 2007: €0 thousand).
The number of stock options outstanding has changed as follows since December 31, 2007:
|in € thousands||Balance as
of Dec. 31,
of Sep. 30,
as of Sep. 30,
plan from 2007
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.
As of September 30, 2008, the effective number of employees (i.e., part-time employees taken into account on a pro-rata basis only) amounted to 3,466 (September 30, 2007: 3,552), 78.1 percent of whom were employed abroad (June 30, 2007: 78.6 percent). In absolute terms (i.e., part-time employees are taken fully into account), the Group employed 3,570 people (June 30, 2007: 3,662) at the end of the second quarter on September 30, 2008.
The term of office of Mr. Justus Mische, who had been a member of the Supervisory Board since December 9, 2002, and who was elected by the Annual Shareholders’ Meeting, ended with the end of the Annual Shareholders’ Meeting on April 29, 2008, as he had reached the age limit specified in the Articles of Association.
Mr. Willi Berchtold, Dipl. Oec., Chief Financial Officer, Controlling and Informatics at ZF Friedrichshafen AG, and residing in Überlingen, was elected by the Annual Shareholders’ Meeting on April 29, 2008 as a new member of the Supervisory Board.
On April 29, 2008, the Supervisory Board approved a reorganization of the Executive Board. The sales organizations of the two business divisions, webMethods and ETS, have been placed under the joint direction of two Executive Board members with different regional responsibilities. Region West (North and South America, Western and Southern Europe), will be headed by Executive Board member Mark Edwards, previously Chief Operation Officer for the ETS division. Region East (Northern and Central Europe, Africa, Australia, and Asia) will be headed by David Broadbent, previously Chief Product Officer for the ETS Division, who directed sales in the Asia/Pacific region.
Dr. Peter Kürpick, who was previously responsible for R&D in the webMethods division, will in addition assume responsibility for R&D in the ETS division. Mr. David Mitchell resigned his office as member of the Executive Board on April 29, 2008. He had previously been responsible for sales in the webMethods business division.
Mr. Holger Friedrich was appointed as a new member of the Executive Board with global responsibility for Professional Services effective October 1, 2008. There were no further significant events between the end of the third quarter and the date of release of these quarterly financial statements by the Executive Board.
Software AG’s Executive Board approved the quarterly consolidated financial statements on October 31, 2008.