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Notes to the consolidated balance sheet

[18] Trade receivables

Trade receivables include:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -
Trade receivables due within 1 year	196,816	169,471
Uninvoiced services (<1 year)	50,435	39,840
	247,251	209,311
Trade receivables due in more than 1 year	12,744	10,406
Uninvoiced services (>1 year)	4,464	5,298
	264,459	225,015

The following trade receivables were not yet due or past due as of the reporting date:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -
Carrying amount	264,459	225,015
of which neither impaired nor past due as of the balance sheet date	199,275	166,159
of which past due in the following time bands
1 to 3 months	43,059	41,078
4 to 6 months	19,372	11,419
7 to 12 months	2,753	6,359
> 12 months	0	0

In a number of countries, bad debt allowances are deducted directly from the trade receivables.

[19] Other receivables and other assets

Other receivables and other assets mainly consist of derivative financial instruments designated to hedge the management incentive plan in the amount of €7,674 thousand. This item also contains receivables due from tax authorities as well as rent deposits.

[20] INTANGIBLE ASSETS/GOODWILL

Changes in intangible assets and goodwill in fiscal year 2008

in € thousands	Goodwill	Intangible assets	Total
Cost
Balance as of Jan. 1, 2008	433,492	177,926	611,418
Currency translation differences	11,156	6,818	17,974
Additions from acquisitions	0	18,549	18,549
Additions	341	4,694	5,035
Disposals	-417	-21,285	-21,702
Balance as of Dec. 31, 2008	444,572	186,702	631,274
Accumulated amortization/ impairment
Balance as of Jan. 1, 2008	-1,896	-38,661	-40,557
Currency translation differences	0	-803	-803
Additions	0	-16,691	-16,691
Disposals	0	20,384	20,384
Balance as of Dec. 31, 2008	-1,896	-35,771	-37,667
Residual carrying amount as of Jan. 1, 2008	431,596	139,265	570,861
Residual carrying amount as of Dec. 31, 2008	442,676	150,931	593,607

Changes in intangible assets and goodwill in fiscal year 2007

in € thousands	Goodwill	Intangible assets	Total
Cost
Balance as of Jan. 1, 2007	189,843	35,891	225,734
Currency translation differences	-15,709	-13,232	-28,941
Additions from acquisitions	261,138	154,260	415,398
Additions	100	1,283	1,383
Disposals	-1,880	-276	-2,156
Balance as of Dec. 31, 2007	433,492	177,926	611,418
Accumulated amortization/ impairment
Balance as of Jan. 1, 2007	-1,896	-31,197	-33,093
Currency translation differences	0	1,143	1,143
Additions	0	-8,887	-8,887
Disposals	0	280	280
Balance as of Dec. 31, 2007	-1,896	-38,661	-40,557
Residual carrying amount as of Jan. 1, 2007	187,947	4,694	192,641
Residual carrying amount as of Dec. 31, 2007	431,596	139,265	570,861

In the statement of changes in intangible assets and goodwill, accumulated goodwill amortization was offset with cost in accordance with IFRS 3.79 (b).

Goodwill amounted to €442,676 thousand as of December 31, 2008, an increase of €11,080 thousand over December 31, 2007. This increase mainly results from exchange rate fluctuations, above all referring to the U.S. dollar.

Goodwill as well as intangible assets with an indefinite useful life are tested for impairment on an annual basis by comparing the carrying amount of the cash-generating unit to which the goodwill or the intangible asset is allocated with the recoverable amount. Testing for impairment involves regularly checking the recoverable amount with regard to value in use.

Value in use is calculated on the basis of discounted cash flows based on the strategic budgets calculated for the next three years and approved by management. The forecasts take into account historical values and estimates of future developments. The valuation model does not include growth rates beyond the three-year planning horizon. The estimated future cash flows were discounted as of December 31, 2008 using pre-tax weighted average capital costs (WACC) before taxes of 12.8 percent.

Intangible assets include the customer base acquired in connection with the acquisition of webMethods with a carrying amount of €53,257 thousand (2007: €55,171 thousand) as of December 31, 2008, as well as software (rights and licenses) acquired in the same acquisition with a carrying amount of €38,922 thousand (2007: €43,784 thousand). The assumed useful life of the customer base is twelve years, while that of the acquired software (rights and licenses) is seven years.

Intangible assets mainly include software, customer bases and brand names obtained in connection with acquisitions.

The carrying amount of the brand name identified as an asset amounted to €17,888 thousand in fiscal 2008 (2007: €16,986 thousand). The carrying amount is attributable to the acquisition of webMethods in 2007. The webMethods brand name is now used for distributing both webMethods products as well as the Crossvision products. The webMethods brand is intended to be used for an indefinite period of time and to be expanded in future. Accordingly, Software AG assumes an indefinite useful life, which means that the brand name is not amortized. The change in the carrying amount results from currency translation effects.

The carrying amount of goodwill was allocated to the segments as follows:

	Dec. 31, 2008	Dec. 31, 2007
Segment	- € thousands -
ETS	231,674	227,966
webMethods	211,002	203,630
	442,676	431,596

The segments represent the smallest cash-generating units in the Group.

[21] Property, plant and equipment

Changes in property, plant and equipment in fiscal 2008

in € thousands	Land and buildings	Operating and office equipment	Total
Cost
Balance as of Jan. 1, 2008	53,352	46,021	99,373
Currency translation differences	-67	-531	-598
Additions	1,186	2,455	3,641
Disposals	-1,270	-4,687	-5,957
Balance as of Dec. 31, 2008	53,201	43,258	96,459
Accumulated depreciation/ impairment
Balance as of Jan. 1, 2008	-18,164	-31,362	-49,526
Currency translation differences	130	379	509
Additions	-3,636	-5,211	-8,847
Disposals	1,628	6,765	8,393
Balance as of Dec. 31, 2008	-20,042	-29,429	-49,471
Residual carrying amount as of Jan. 1, 2008	35,188	14,659	49,847
Residual carrying amount as of Dec. 31, 2008	33,159	13,829	46,988

Changes in property, plant and equipment in fiscal 2007

in € thousands	Land and buildings	Operating and office equipment	Total
Cost
Balance as of Jan. 1, 2007	51,252	42,589	93,841
Currency translation differences	-1,118	-2,227	-3,345
Additions to the group of consolidated entities	5,811	5,283	11,094
Additions	1,352	4,475	5,827
Disposals	-3,945	-4,099	-8,044
Balance as of Dec. 31, 2007	53,352	46,021	99,373
Accumulated depreciation/ impairment
Balance as of Jan. 1, 2007	-17,981	-31,457	-49,438
Currency translation differences	363	1,837	2,200
Additions	-993	-5,260	-6,253
Disposals	447	3,518	3,965
Balance as of Dec. 31, 2007	-18,164	-31,362	-49,526
Residual carrying amount as of Jan. 1, 2007	33,271	11,132	44,403
Residual carrying amount as of Dec. 31, 2007	35,188	14,659	49,847

Only the parent company and the Spanish subsidiary own land and buildings. In both cases, amounts pertain to the central administrative buildings of these entities. The capital expenditure of €1,186 thousand primarily relates to expenses for leasehold improvements.

Operating and office equipment mainly includes office furniture and IT equipment. The capital expenditure in the amount of €2,455 thousand consisted predominantly of replacement purchases of IT equipment as well as capital expenditures in connection with a new office building in the United Kingdom.

[22] FINANCIAL ASSETS

Financial assets chiefly relate to the provision of collateral as part of long-term customer contracts as well as rent deposits and assets held to cover the value of long-term employee time accounts.

[23] Deferred taxes

Deferred taxes were composed of the following as of the balance sheet date:

	Deferred tax assets		Deferred tax liabilities
	Dec. 31, 2008	Dec. 31, 2007	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -
Intangible assets	18,196	20,598	47,228	51,399
Current liabilities	15,049	4,110	11,484	12,189
Non-current liabilities	13,974	3,300	13,507	11,642
Tax loss carryforwards	13,263	20,206	0	0
Goodwill	3,668	4,154	0	0
Current assets	3,270	3,604	8,640	8,555
Securities	2,232	1,659	168	993
Property, plant and equipment	652	2,171	4,075	5,414
Business combinations	-3,576	-4,318	-11,332	-10,571
	66,728	55,484	73,770	79,621

Deferred tax assets on tax loss carryforwards decreased over the prior year by €6,943 thousand. This amount is attributable to the utilization of deferred taxes from losses carried forward of €12,434 thousand and an addition amounting to €5,491 thousand.

As of December 31, 2008, the consolidated Group had unutilized tax loss carryforwards in the amount of €110,494 thousand (2007: €28,794 thousand) for which no deferred tax assets have been recognized. These losses may be carried forward indefinitely. The increase mainly is due to additional losses carried forward which could not be recognized in the previous year as there were doubts as to their recoverability.

We expect that the trend of improving financial performance in France, Spain and the Netherlands will continue. Therefore, we recognized deferred taxes amounting to €6,115 thousand, the utilization of which depends on future taxable profits.

In fiscal year 2008, deferred tax income totaling €2,147 thousand (2007: deferred tax expense of €2,933 thousand) was recognized directly in equity. These amounts mainly resulted from actuarial gains/losses recognized directly in equity based on changes in the measurement of pension obligations as well as from financial instruments also recognized directly in equity.

[24] Financial liabilities

Financial liabilities can be broken down as follows:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -
Current financial liabilities
Liabilities to banks	59,782	44,849
Bills payable	1,569	1,771
Liabilities from finance leases	9	32
	61,360	46,652
Non-current financial liabilities
Liabilities to banks	105,771	167,647
Liabilities from finance leases	0	1
Other non-current financial liabilities	70	0
	105,841	167,648

Liabilities to banks had the following maturities as of the reporting date:

	Up to 1 year	More than 1 year
	- € thousands -

Loans with variable interest rates	57,932	94,068
Loans with fixed interest rates	1,850	11,703
	59,782	105,771

The fair values of the liabilities to banks with variable interest rates are equal to their carrying amounts. The fair values of the liabilities with fixed interest rates amounted to €13,744 thousand. The fair values were calculated by discounting the future cash flows using current market rates.

[25] Trade payables

Trade payables can be broken down as follows:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -
Current liabilities
Payables to suppliers	34,688	28,620
Payments received on account of orders	1,136	2,680
	35,824	31,300
Non-current liabilities
Payables to suppliers	68	64

[26] Other LIABILITIES

Other liabilities relate to the following items:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -
Other current liabilities
Tax liabilities	20,084	15,520
Liabilities due to employees	14,112	15,684
Liabilities for social security	3,306	6,590
Deferred lease payments	2,962	2,419
Outstanding purchase price payments (acquisitions)	0	21,191
Remaining miscellaneous other provisions	4,687	2,795
	45,151	64,199
Other non-current liabilities
Deferred lease payments	0	2,501
Liabilities due to employees	214	171
Tax liabilities	2	2
Remaining miscellaneous other liabilities	162	292
	378	2,966

[27] Other PROVISIONS

€ thousands	Other provisions for personnel expenses	Restructuring provisions	Miscellaneous other provisions	Total other provisions

Balance as of Jan. 1, 2008	27,575	1,545	23,368	52,488
Currency translation	-750	1	-2,024	-2,773
Additions	25,002	172	38,547	63,721
Utilization	-15,012	-1,040	-11,737	-27,789
Reversal	-2,189	0	-488	-2,677
Balance as of Dec. 31, 2008	34,626	678	47,666	82,970

of which with a remaining term of more than 1 year	1,175	0	12,784	13,959

Miscellaneous other provisions

Miscellaneous other provisions include:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -

Bonuses	14,372	11,151
Lease payment obligations	7,829	5,152
Obligations from stock price-based remuneration plans	2,062	1,471
Impending losses for PS projects	1,593	1,984
Other taxes	1,129	603
Asset retirement obligations	979	746
Remaining miscellaneous other provisions	19,702	2,261
	47,666	23,368

Remaining miscellaneous other provisions primarily include provisions related to pending litigation, guarantee obligations for PS projects as well as the audit of financial statements.

[28] Pension provisions

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -

Pension provisions (foreign)	8,351	8,912
Pension provisions (domestic)	7,511	8,317
Provisions for insignificant pension obligations from defined benefit plans and similar obligations	788	0
	16,650	17,229

The consolidated balance sheet includes the following items relating to significant defined benefit plans as of December 31, 2008 and December 31, 2007:

	Dec. 31, 2008	Dec. 31, 2007
	- € thousands -

Benefit obligation fully funded	3,887	40,675
Benefit obligation partially funded	34,557	8,366
Benefit obligation unfunded	1,483	1,556
	39,927	50,597
Fair value of plan assets	-24,087	-33,368
Net carrying amounts	15,840	17,229
of which pension provisions	15,862	17,229
of which plan assets	22	0

Pension commitments in Germany consist of fixed commitments to a select group of people. These commitments are partially covered by life insurance policies.

The major part of these foreign pension commitments result from a defined benefit plan of Software AG (UK) Limited, United Kingdom. The commitments comprise post-employment benefits for employees as well as benefits payable on death during their active service period. Both the pension commitments from the plan of Software AG (UK) Limited and the pension commitments of the other foreign subsidiaries are partially funded through plan assets.

The actuarial calculations of the defined benefit obligations are based on the following assumptions (weighted averages):

Actuarial assumptions in %

	Domestic pension plans		Foreign pension plans
	2008	2007	2008	2007
Discount rate	6.0%	5.3%	5.7%	5.6%
Expected salary increases	0.0%	0.0%	4.4%	4.9%
Expected pension increases	1.9%	1.7%	2.2%	2.9%
Expected return on plan assets	4.5%	4.5%	5.8%	6.4%

The discount rates used for have been derived from available interest rates of high-quality bonds with comparable maturities.

Since fixed pension commitments granted under domestic plans do not take into account salary levels, salary increases are assumed to be 0.0 percent.

Pension commitments in foreign countries are calculated in accordance with country-specific calculation principles and parameters.

Due to the fact that pension commitments in Germany are exclusively invested in life-insurance policies, the expected return on plan assets corresponds to the minimum return stated by the insurance company.

The expected return on plan assets for foreign plans was calculated as an expected weighted average of the individual asset classes. The expected returns on such asset classes were determined on the basis of the relevant local capital market conditions.

The changes in the defined benefit obligations and plan assets are as follows:

	Domestic pension plans		Foreign pension plans
	2008	2007	2008	2007
	- € thousands -
Changes in defined benefit obligations (DBO)
DBO as of January 1	9,922	11,649	40,675	41,519
Additions related to business combination	0	0	0	5,674
Service cost	248	336	1,964	2,426
Interest expense	512	457	2,147	2,135
Employee contributions	0	0	315	149
Actuarial gains (-)/losses (+)	-396	-2,082	-5,696	-5,621
Pension payments	-732	-438	-1,717	-2,110
Exchange differences	0	0	-7,315	-3,497
DBO as of December 31	9,554	9,922	30,373	40,675

Changes in plan assets
Fair value of plan assets as of January 1	1,605	1,138	31,763	27,421
Additions related to business combination	0	0	0	4,862
Expected return on plan assets	72	48	2,106	2,021
Employer contributions	523	169	2,792	3,132
Employee contributions	0	0	315	149
Actuarial gains (+)/losses (-)	-157	250	-9,580	-1,180
Pension payments	0	0	-1,678	-2,007
Exchange differences	0	0	-3,674	-2,635
Fair value of plan assets as of December 31	2,043	1,605	22,044	31,763

Net periodic pension cost can be broken down as follows:

	2008	2007
	- € thousands -

Interest expense	2,659	2,592
Service cost	2,212	2,762
Expected return on plan assets	-2,179	-2,069
Net periodic pension cost	2,692	3,285

Service cost was recognized as a personnel expense under operating expenses. Interest expense, less the expected return on plan assets, was included in net financial income/expense.

Taking into account deferred taxes, actuarial gains and losses recognized in equity have changed as follows:

	2008	2007
	- € thousands -

Actuarial gains (+)/losses (-) recognized in the period	-2,316	4,467
Net actuarial gains (+)/losses (-) recognized in the period from insignificant plans	-99	0
Accumulated actuarial gains (+)/losses (-) recognized in the period as of December 31	-1,922	492

The plan assets used to fund the pension obligations can be broken down as follows:

	Dec. 31, 2008	Dec. 31, 2007	Dec. 31, 2006	Dec. 31, 2005	Dec. 31, 2004
	- € thousands -
Equities	9,259	21,497	22,296	17,760	9,546
Life insurance policies	7,996	6,289	4,407	5,141	5,328
Bonds	6,386	3,821	1,138	861	632
Other	446	1,761	718	467	3,072
	24,087	33,368	28,559	24,229	18,578

The actual return on plan assets was negative and amounted to €7,267 thousand in fiscal 2008.

Contributions from the Software AG Group to plan assets for fiscal year 2009 are expected to amount to €2,547 thousand.

The defined benefit obligations, present values of plan assets, net carrying amounts and experience adjustments for the current and the four preceding reporting periods are as follows:

	Dec. 31, 2008	Dec. 31, 2007	Dec. 31, 2006	Dec. 31, 2005	Dec. 31, 2004
	- € thousands -
DBO	39,927	50,597	53,168	49,337	40,727
Present value of plan assets	-24,087	-33,368	-28,559	-24,229	-18,578
Net carrying amounts	15,840	17,229	24,609	25,108	22,149

Experience adjustments to DBO in %	-17.7	-6.1	1.2	1.6	-0.2
Experience adjustments to plan assets in %	-36.0	7.4	-9.3	1.8	5.7

The large amount of experience adjustments to plan assets in 2008 mainly result from losses incurred by the plan assets of Software AG (UK), which has a high exposure to equities. Due to the current market situation and the uncertain economic prospects, further losses on plan assets may not be ruled out for 2009.

Defined contribution plans

In addition to the defined benefit plans, the Group also maintains defined contribution plans. These plans resulted in expenses of €3,623 thousand in fiscal 2008.

[29] Tax provisions

	2008	2007
	- € thousands -
Balance as of January 1	11,485	14,726
Currency translation	-1,291	-383
Additions to the group of consolidated companies	0	1,561
Additions	35,671	10,344
Utilization	-8,983	-14,496
Reversal	-194	-267
Balance as of December 31	36,688	11,485

[30] EQUITY

Table 1/2: Statement of changes in equity 2008

	Common shares
€ thousands	Number	Share capital	Capital reserve	Retained earnings
Equity as of January 1, 2008	28,539,455	85,618	31,933	387,907
New shares issued	99,387	299	1,510
Stock options			2,367
Purchase of minority interest in fully consolidated companies
Net income for the period
Dividend payment				-28,539
Currency translation differences
Net gain from fair value measurement of financial instruments not recognized in income
Net gain from fair value measurement of net investments in foreign operations not recognized in income
Net gain from actuarial gain/loss on pension obligations not recognized in income				-2,415
Equity as of December 31, 2008	28,638,842	85,917	35,810	356,953

Table 2/2: Statement of changes in equity 2008


€ thousands	Net income attributable to shareholders	Currency translation differences	Other reserves	Minority interest	Total
Equity as of January 1, 2008		-80,008	36,343	669	462,462
New shares issued					1,809
Stock options					2,367
Purchase of minority interest in fully consolidated companies				-669	-669
Net income for the period	115,860				115,860
Dividend payment					-28,539
Currency translation differences		3,264			3,264
Net gain from fair value measurement of financial instruments not recognized in income			-7,059		-7,059
Net gain from fair value measurement of net investments in foreign operations not recognized in income			2,059		2,059
Net gain from the measurement of pension obligations not recognized in income					-2,415
Equity as of December 31, 2008	115,860	-76,744	31,343	0	549,139

Table 1/2: Statement of changes in equity 2007

	Common shares
€ thousands	Number	Share capital	Capital reserve	Retained earnings
Equity as of January 1, 2007	28,112,715	84,338	23,576	320,367
New shares issued	426,740	1,280	5,945
Stock options			2,412
Net income for the period
Dividend payment				- 25,302
Currency translation differences
Net gain from fair value measurement of financial instruments not recognized in income
Net gain from fair value measurement of net investments in foreign operations not recognized in income
Net gain from the measurement of pension obligations not recognized in income				4,467
Equity as of December 31, 2007	28,539,455	85,618	31,933	299,532

Table 2/2: Statement of changes in equity 2007


€ thousands	Net income attributable to shareholders	Currency translation differences	Other reserves	Minority interest	Total
Equity as of January 1, 2007	0	- 41,133	34,446	637	422,231
New shares issued					7,225
Stock options					2,412
Net income for the period	88,375			32	88,407
Dividend payment					- 25,302
Currency translation differences		- 38,875			- 38,875
Net gain from fair value measurement of financial instruments not recognized in income			1,983		1,983
Net gain from fair value measurement of net investments in foreign operations not recognized in income			- 86		- 86
Net gain from the measurement of pension obligations not recognized in income					4,467
Equity as of December 31, 2007	88,375	- 80,008	36,343	669	462,462

Share capital

As of December 31, 2008, Software AG’s share capital totaled €85,917 thousand, divided into 28,638,842 bearer shares. Each share entitles its holder to one vote.

Conditional capital

The following conditional capital existed as of December 31, 2008:

1.) Up to €6,840 thousand divided into up to 2,280,000 bearer shares to service subscription rights under the third stock option plan (Management Incentive Plan III, or MIP III) for members of the Executive Board and Group officers. The requirements of this plan and the status of allocations and options exercised are presented under other disclosures/stock appreciation rights plans.

The Executive Board did not make use of this authorization in fiscal year 2008.

2.) Up to €1,442 thousand divided into a maximum of 480,623 bearer shares to service subscription rights under the second stock option plan (Management Incentive Plan II, or MIP II) for members of the Executive Board and officers of the Software AG Group. The requirements of this plan and the status of allocations and options exercised are presented under other disclosures/stock appreciation rights plans. Based on the options exercised during 2008 by officers and Executive Board members, the Executive Board made partial use of its option to increase conditional capital in the amount of €298 thousand, divided into 99,387 bearer shares.

3.) Up to €33,000 thousand divided into a maximum of 11,000,000 bearer shares, each with a notional interest in the share capital of €3.00, for the purpose of granting option rights and agreeing on option obligations arising from bonds with warrants or granting conversion rights and agreeing on conversion obligations to/with bearers of convertible bonds in an aggregate principal amount of up to €500,000 thousand and a term not to exceed 15 years in accordance with the terms and conditions of the bonds, as resolved by the Annual Shareholders’ Meeting on May 13, 2005. Pursuant to this authorization, the Executive Board may, subject to the consent of the Supervisory Board, resolve on or before May 12, 2010 that the rights described be issued by Software AG or a directly or indirectly held wholly-owned affiliate of Software AG.

In this respect, the shareholders are to be granted subscription rights except in the following cases:

The Executive Board is authorized to exclude fractional amounts from shareholders’ subscription rights.

Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude the shareholders’ subscription rights in full, provided it has come to the conclusion that the issue price of the bonds with warrants or convertible bonds is not significantly lower than their hypothetical market value arrived at by using accepted methods, in particular financial calculation methods, after having conducted a review in accordance with its professional duties. However, this authorization to exclude subscription rights only applies to bonds with warrants and convertible bonds with option or conversion rights or with share based option or conversion obligations with a share in the issued share capital not to exceed €8,180 thousand, or – if lower – 10 percent of the issued share capital in existence at the time the authorization is acted upon.

As of December 31, 2008, the Executive Board had not made use of this authorization.

Authorized capital

As of December 31, 2008, the Executive Board is also authorized, subject to the consent of the Supervisory Board, to increase the Company’s share capital on one or more occasions on or before May 12, 2011 by up to a total of €41,804 thousand by issuing up to 13,934,544 new bearer shares against cash contributions and/or contributions in kind (authorized capital). In this respect, the shareholders are to be granted subscription rights except in the following cases:

The Executive Board is authorized to exclude fractional amounts from shareholders’ subscription rights.

The Executive Board is authorized, subject to the consent of the Supervisory Board, to exclude subscription rights in an amount not to exceed €89 thousand of the par value of the new shares issued in order to allow the Company to offer new shares to the employees of the Company and its affiliated entities as defined in Sections 15 et seq. of the German Stock Corporation Act (AktG) as part of an employee stock ownership plan. The new shares may also be transferred to a bank, provided they will be held exclusively for the purpose of acquisition by entitled employees in accordance with the Company’s instructions.

Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude subscription rights in the event of capital increases against contributions in kind, provided the contribution in kind is for the purpose of acquiring companies, parts of companies, or equity interests in companies.

Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude subscription rights in the event of capital increases against cash contributions, provided the capital increases resolved on the basis of this authorization do not, in total, exceed 10 percent of the issued share capital at the time the authorization is first acted upon and provided the issue price is not significantly lower than the stock market price. The upper limit of 10 percent of the issued share capital will be reduced by the pro rata amount of the share capital attributable to those treasury shares of the Company that are sold during the term of the authorized capital, subject to exclusion of shareholders’ subscription rights pursuant to Section 71 (1) No. 8, Sentence 5 and Section 186 (3) Sentence 4 of the German Stock Corporation Act. Furthermore, the upper limit will be reduced by the pro rata amount of the share capital attributable to those shares issued to service warrants and convertible bonds with option or conversion rights or conversion obligations, provided the bonds were issued during the term of the authorized capital subject to the exclusion of subscription rights as set forth in Section 186 (3) Sentence 4 of the German Stock Corporation Act.

The Executive Board did not make use of this authorization in fiscal year 2008.

Acquisition of treasury shares

Pursuant to the Annual Shareholders’ Meeting resolution dated April 29, 2008, the Company is authorized to purchase on or before October 28, 2009:

Treasury shares having a notional interest in the issued share capital of up to €8,573 thousand.
Treasury shares may be purchased on the stock market or through a public purchase offer directed to all shareholders of the Company. If the shares are purchased via the stock exchange, the consideration paid for the shares (not including transaction costs) may be up to 10 percent higher or lower than the average listed price – the unweighted average of the closing rates in Xetra trading on the Frankfurt stock exchange or a successor system – during the five days preceding the purchase or commitment to purchase. The date of acquisition is the date upon which the transaction is concluded. If the shares are purchased via a public offer, the consideration paid for the shares (not including transaction costs) may be up to 20 percent higher or lower than the average listed price – the unweighted average of the closing rates in Xetra trading on the Frankfurt stock exchange or a successor system – on the fifth to ninth trading days prior to publication of the offer.
The Executive Board is authorized to sell the treasury shares purchased via the stock exchange or in another manner that fulfills the requirement to treat all shareholders equally.
The Executive Board is also authorized, subject to the consent of the Supervisory Board and the exclusion of shareholder subscription rights, to sell the treasury shares purchased, provided the shares are sold for cash at a price that is not significantly lower than the listed prices of Company shares that have the same terms and features at the time of the sale. This authorization is limited to shares with a notional interest in the share capital not to exceed a total of €8,573 thousand. The upper limit will be reduced by the pro rata amount of the share capital attributable to those shares issued during the term of this authorization as part of a capital increase subject to the exclusion of subscription rights pursuant to Section 186 (3), Sentence 4 of the German Stock Corporation Act. Furthermore, the upper limit will be reduced by the pro rata amount of the share capital attributable to those shares issued to service warrants and convertible bonds with option or conversion rights or option or conversion obligations, provided the bonds were issued during the term of the authorized capital subject to the exclusion of subscription rights as set forth in Section 186 (3) Sentence 4 of the German Stock Corporation Act. The average listed price of the Company shares – the unweighted average closing price in Xetra trading on the Frankfurt stock exchange or a successor system – during the five trading days preceding the sale will be considered the applicable listed price within the meaning of this paragraph. The date of acquisition is the date upon which the transaction is concluded.
The Executive Board is also authorized, subject to the consent of the Supervisory Board and the exclusion of shareholders‘ subscription rights, to dispose of the treasury shares as follows:
1. To sell the shares to third parties, provided such sale is for the purpose of acquiring companies, parts of companies, or equity interests in companies;
2. To offer the shares to the Executive Board or officers of the Company and its affiliated companies under the Company‘s stock option plan for Executive Board members and officers of the Company (Resolution on Agenda Item 8b of the Annual Shareholders’ Meeting of April 27, 2001); if shares are offered to Executive Board members in accordance with the above, this authorization shall also apply to the Supervisory Board; or
3. In compliance with the terms and conditions of the bonds, the Executive Board may deliver the shares to the holders of warrants or convertible bonds issued by the Company or by a wholly-owned direct or indirect subsidiary of the Company.
In the event of a sale of treasury shares via an offer to all shareholders, the Executive Board is furthermore authorized, subject to the consent of the Supervisory Board, to grant subscription rights to the holders of warrants or convertible bonds issued by the Company or by a wholly-owned direct or indirect subsidiary of the Company equivalent to that to which the warrant holders or bondholders would be entitled upon exercising their option or conversion rights or fulfilling their option or conversion obligations and in the scope necessary to exclude shareholder subscription rights.
The Executive Board is also authorized to recall all or part of the treasury shares in one or several steps without any additional authorization from the Annual Shareholders’ Meeting.
The authorization to purchase or use the Company’s treasury shares may be exercised either in whole or in part, and in the latter case on more than one occasion. Treasury shares may be purchased for one or more of the aforementioned purposes.
The authorization to purchase treasury shares on or before November 10, 2008 as resolved by the Annual Shareholders’ Meeting of May 11, 2007, Agenda Item 7 (“authorization to acquire treasury shares”) has been rescinded.

As of December 31, 2008, the Executive Board had not made use of its authorization to acquire treasury shares.

Equity management

The Software AG Group has an obligation to achieve long-term, profitable growth. For this reason, net income for the year and equity are the key indicators with regard to corporate management. A high equity ratio represents the basis for continued internal and external growth and increases the attractiveness of the Group for shareholders. Dividends are calculated as the average of net income for the year and free cash flow. This resulted in total dividends of €31,503 thousand (2007: €28,539 thousand) and a payout ratio of 25.3 percent (2007: 33.5 percent).

Dividend payment

Pursuant to the proposal of the Executive Board and the Supervisory Board, the Annual Shareholders’ Meeting resolved on April 29, 2008 to transfer €9,455 thousand to retained earnings, to appropriate €28,539 thousand for a dividend payout and to carry forward €75,913 thousand from the 2007 net retained profits of €113,907 thousand reported by Software AG, the controlling Group company. This corresponds to a dividend of €1.00 per share.

The Executive Board and the Supervisory Board will propose to the Annual Shareholders’ Meeting to distribute the net retained profits of €153,060 thousand for 2008 of Software AG, the controlling Group company, as follows: to transfer €150 thousand to other retained earnings, to use €31,503 thousand for the payment of dividends – corresponding to a dividend of €1.10 per share – and to carry forward €121,407 thousand.

Other reserves

Other reserves include adjustments resulting from the currency translation of the financial statements of economically independent foreign subsidiaries into the reporting currency. The effects from the measurement of financial instruments not recognized in profit or loss are also included in this item. Translation differences from monetary items primarily consisting of net investments in foreign operations are also recorded under this item. The amounts are recognized net of tax.

Of the unrealized income and expenses from the fair value measurement of derivatives recorded in other reserves as of December 31, 2007, income of €65 thousand (2007: expenses of €61 thousand) was recognized in income during fiscal year 2008.