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Other disclosures

[31] Notes to the statement of cash flows

Cash funds amounting to €96,925 thousand (2007: €81,294 thousand) comprise both cash and cash equivalents.

Net payments for acquisitions in 2008 amounted to €38,854 thousand and are equivalent to the gross payments as only minority interests were acquired and an asset deal was conducted in 2008. Accordingly, no cash or cash equivalents were acquired in these transactions.

Software AG defines free cash flow as cash flow from operating activities less cash flow from investing activities, not including net cash outflows for acquisitions. Accordingly, free cash flow amounted to €133,445 thousand (2007: €82,209 thousand).

[32] Segment Report as of December 31, 2008

Notes on segment reporting

The segment report is prepared in accordance with IFRS 8 Operating Segments. This IFRS is effective for annual periods beginning on or after January 1, 2009. As explicitly permitted in IFRS 8, Software AG opted for early application of this standard and has applied it since fiscal year 2007. Segmentation is in accordance with internal control and reporting lines in the Group (management approach).

€ thousands	ETS		webMethods		Total
	Dec.31, 2008	Dec.31, 2007	Dec.31, 2008	Dec.31, 2007	Dec.31, 2008	Dec.31, 2007

Licenses	156,776	153,026	115,252	88,313	272,028	241,339
Maintenance	173,805	155,735	93,254	57,203	267,059	212,938
Product sales	330,581	308,761	208,506	145,516	539,087	454,277
Professional Services	72,777	72,934	104,986	88,248	177,763	161,182
Other	1,549	1,418	2,211	4,382	3,760	5,800
Total revenue	404,907	383,113	315,703	238,146	720,610	621,259
Cost of sales	-83,229	-79,812	-115,031	-101,699	-198,260	-181,511
Gross profit	321,678	303,301	200,672	136,447	522,350	439,748
Sales, marketing and distribution expenses	-75,941	-64,522	-93,554	-94,687	-169,495	-159,208
Business line contribution	245,737	238,779	107,118	41,760	352,855	280,540
Research and development expenses					-76,224	-65,900
General and administrative expenses					-65,083	-59,299
Other operating income/expenses					-16,517	-11,881
EBITA					195,031	143,460
Amortization					-14,483	-6,663
Earnings before interest and taxes					180,548	136,797
Net financial income/expense					-5,122	294
Earnings before taxes					175,426	137,091
Taxes					-59,566	-48,684
Net income for the year					115,860	88,407

Information on geographic regions

Revenues by location of customers can be broken down into geographic regions as follows:

Geographic distribution of revenues

2008
in € thousands	Germany	USA	Spain	Other countries	Group total

Licenses	32,113	75,446	5,041	159,428	272,028
Maintenance	30,783	94,665	15,665	125,946	267,059
Professional Services	17,517	35,348	56,153	68,745	177,763
Other	864	283	2,116	497	3,760

Total	81,277	205,742	78,975	354,616	720,610

2007
in € thousands	Germany	USA	Spain	Other countries	Group total

Licenses	34,055	66,839	10,644	129,801	241,339
Maintenance	28,778	81,691	14,410	88,059	212,938
Professional Services	16,507	26,500	55,015	63,160	161,182
Other	910	610	3,320	960	5,800

Total	80,250	175,640	83,389	281,980	621,259

Countries included in “other countries” are presented separately once the revenue generated in the country in question reaches a significant level. Revenues with external customers in the U.S. and Spain each contributed more than 10 percent to Group revenue and are therefore listed separately.

Non-current assets

The non-current assets reported under this item are comprised of intangible assets, property, plant and equipment, financial assets (not including financial instruments) and goodwill.

	2008	2007
	- € thousands -
USA	479,490	467,138
Other countries	136,495	132,190
Germany	31,067	29,612
Group total	647,052	628,940

[33] Additional information on financial instruments and risk management

The table below shows the carrying amounts and the fair values of loans and receivables, financial liabilities measured at amortized cost, and derivatives, with derivatives with and without hedging relationships shown separately.

The fair values of cash and cash equivalents, current receivables, trade payables, other current financial liabilities, and other financial liabilities correspond approximately with their carrying amounts, primarily due to the short terms of such instruments.

The Company uses various parameters to measure non-current receivables, mainly interest rates and the customers’ individual credit rating. Software AG calculates bad debt allowances to reflect expected defaults based on the measurement results.

Accordingly, the carrying amounts of these receivables corresponded approximately with their fair values as of December 31, 2008 and 2007.

The fair values of exchange-listed securities were based on their listed prices as of the reporting date.

Software AG calculates the fair values of liabilities to banks and other financial liabilities as well as other non-current financial liabilities by discounting the estimated future cash flows using the interest rates applicable to similar financial liabilities with comparable maturities.

	December 31, 2008				December 31, 2007
in € thousands	Fair value		Carrying amount		Fair value	Carrying amount

Financial assets
Financial assets measured at amortized cost
Cash and cash equivalents		96,925	96,925	81,294			81,294
Trade receivables and other receivables		230,602	230,602	197,294			197,294
Other non-derivative financial assets		6,259	6,259	8,120			8,101

Derivatives
Derivatives without qualifying hedging relationship		3	3	623			623
Derivatives with qualifying hedging relationship (cash flow hedge)		8,705	8,705	14,924			14,924

Financial liabilities
Financial liabilities measured at amortized cost
Liabilities to banks and other financial liabilities		167.392	167.201	214.260			214.300
Trade payables		35.892	35.892	31.364			31.364
Other non-derivative financial liabilities		69.066	69.066	64.518			64.518

Derivatives
Derivatives without qualifying hedging relationship		1,596	1,596	65			65
Derivatives with qualifying hedging relationship (cash flow hedge)		2,904	2,904	316			316

With the exception of the abovementioned derivatives, no financial assets or liabilities were measured at fair value through profit or loss in the reporting period. There were also no financial assets classified as available-for-sale financial assets or held-to-maturity investments.

Apart from currency translation effects, only the bad debt allowances described in Note 11 had a significant influence on the net gain/loss from loans and receivables. The net loss from derivatives without qualifying hedging relationships amounted to €1,255 thousand in fiscal 2008. The net loss from derivatives designated as cash flow hedges was included in the income statement and amounted to €1,927 thousand in 2008.

Market risk and the use of derivative financial instruments

As a result of its international operating activities as well as its investing and financing activities, Software AG is exposed to various financial risks. Management continuously monitors these risks. Derivative financial instruments are used in accordance with internal guidelines in order to reduce risks arising from changes in interest rates, exchange rates, cash flows, or the value of financial investments. Derivatives are entered into to hedge existing balance sheet exposure and highly probable forecast transactions.

a) Interest rate risks

The Company is subject to interest rate fluctuations that affect both assets and equity and liabilities on the balance sheet.

On the assets side, income from investing cash and cash equivalents and future interest income resulting from discounting non-current receivables are particularly subject to interest rate risks. On the equity and liabilities side, interest expenses for current and non-current financial liabilities as well as pension provisions and other items related to long-term borrowings are especially exposed to interest rate risks.

This risk is reduced due to the fact that both financial investments and existing financing carry variable interest rates for the most part. Moreover, interest rate swaps are used to hedge a part of the borrowings bearing variable interest rates against changes in market interest rates (cash flow hedges). The changes in value of the interest rate swaps are reported under “other reserves.”

The sensitivity analysis required by IFRS 7 relates to interest rate risks arising from monetary financial instruments bearing variable interest.

Based on the current structure of the interest-bearing financial instruments, a hypothetical increase in the market interest level of 100 basis points would increase earnings by €240 thousand while raising other reserves included in equity by €1,205 thousand.

b) Exchange rate risks

In order to hedge the risk of future fluctuations in exchange rates, the Company enters into currency forwards and currency option transactions. In addition to simple euro call options, combinations of euro call options purchased and euro put options sold are also utilized. The premium payments generally offset each other. Foreign currency receivables and liabilities are offset if possible, and only the remaining net exposure is hedged. Estimated cash flows are also hedged in accordance with internal guidelines.

Hedging transactions are measured at their fair value. The amounts are reported in the balance sheet under other assets or current liabilities. Changes in the fair value of derivative financial instruments designated as cash flow hedges are reported under other reserves until the hedged item is required to be recognized in income. The ineffective portions of cash flow hedges as well as changes in the value of hedging instruments that do not meet the requirements of hedge accounting are recognized immediately in profit or loss for the year in which they are incurred.

The sensitivity analysis required by IFRS 7 relates to exchange rate risks arising from monetary financial instruments that are denominated in a currency other than the functional currency in which they are measured. Exchange differences arising from the translation of financial statements into the Group currency (translation risk) and non-monetary items are not taken into account. Most significant monetary financial instruments are denominated in the functional currency. For Software AG, significant effects on earnings result only from the relationship of the euro to the U.S. dollar. Hedging transactions are based on existing hedges or estimated cash flows and thus reduce any potential effects on earnings. In the case of designated cash flow hedges, exchange rate changes affect other reserves included in equity.

Based on the monetary financial instruments available as of the reporting date, a devaluation of the euro in amount of 10 percent against the U.S. dollar would have reduced earnings by €3,092 thousand and other reserves by €2,499 thousand. This amount only represents a theoretical risk for us as these instruments are hedges of recognized transactions, rather than open trading positions.

c) Market risk

In line with the Group’s policy, assets are controlled in terms of maturity, interest type, and rating such that the Company does not expect any significant fluctuations in value.

d) Credit risk

Software AG is exposed to default risk in its operating business and in connection with certain financial transactions if contracting parties fail to meet their obligations. All financial investments have terms of up to three months. Both financial investments as well as derivative financial instruments are entered into with banks having good credit ratings. The theoretical maximum default risk exposure is indicated by the carrying amounts. The guidelines defined by the management ensure that the credit risk from financial instruments is spread across various banks.

In the operating business, our receivables are continuously monitored and default risks are taken into account via specific and portfolio-based bad debt allowances. As of December 31, 2008, there was no indication of the existence of any risks beyond those taken into account through bad debt allowances. We see no concentration of credit risks with respect to single customers as a result of the size of our customer base or due to the distribution of our revenues across various sectors and countries. The theoretical maximum exposure to credit risk is reflected in the carrying amounts of the receivables, without taking any collateral into account.

e) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations arising from credit agreements, leases, trade payables, or the like. Risk is limited by pursuing active working capital management and Group-wide liquidity management and, if necessary, covered by available cash funds or bilateral credit lines. The table below shows the contractually agreed payments arising from recognized financial liabilities. The figures represent the undiscounted liabilities. In the case of variable interest payments, the interest rate applicable on the reporting date is used for the calculation. Liabilities in foreign currency are measured at the exchange rate as of December 31, 2008.

	Up to 1 year	1–5 years	More than 5 years	Total
	- € thousands -
Non-derivative financial liabilities
Liabilities to banks - Repayments - Interest	59,782 5,006	105,771 4,877	0 0	165,553 9,883
Trade payables	35,823	68	0	35,891
Other financial liabilities	1,569	70	0	1,639
Finance lease liabilities	9	0	0	9
Other non-derivative liabilities	42,698	378	0	43,076

Derivative financial liabilities	1,929	870	0	2,799

Volume and measurement of derivative financial instruments

Derivative financial instruments are used only to hedge existing or estimated currency risks, interest rate risks, or other market risks.

The table below shows the notional amounts, the carrying amounts, and the fair values of derivative financial instruments as of December 31, 2008 and December 31, 2007. The fair values of forward currency contracts are determined on the basis of forward foreign exchange rates. The fair values of stock options used to hedge stock appreciation rights as well as the fair values of interest rate hedges are based on market values which reflect the current market situation and are equivalent to the replacement costs as of the balance sheet date.

	2008			2007
	Notional amount	Fair value	Carrying amount	Notional amount	Fair value	Carrying amount
	- € thousands -
Derivatives with positive fair value
Derivatives (without qualifying hedging relationship)	-	3	3	-	623	623
Forward currency contracts	811	3	3	2,350	40	40
Currency options	-	0	0	3,392	47	47
Stock options (phantom shares)	-	0	0	4,959	536	536
Derivatives (cash flow hedges)	-	8,705	8,705	-	14,924	14,924
Forward currency contracts	16,944	1,031	1,031	7,543	65	65
Stock options	79,596	7,674	7,674	74,169	14,803	14,803
Interest rate swaps	-	0	0	40,000	56	56
Derivatives with negative fair value
Derivatives (without qualifying hedging relationship)	-	-1,596	-1,596	-	-65	-65
Forward currency contracts	-	0	0	1,390	-30	-30
Currency options	-	0	0	3,433	-35	-35
Stock options (phantom shares)	6,361	-1,596	-1,596	-	0	0
Derivatives (cash flow hedges)	-	-2,904	-2,904	-	-316	-316
Forward currency contracts	13,923	-451	-451	-	0	0
Interest rate swaps	180,000	-2,453	-2,453	50,000	-316	-316

The derivative financial instruments presented in the table above are designated to hedge the fair value of recognized assets or liabilities. Changes in the fair value of the hedging instruments are recognized in profit or loss. In addition, the Company has entered into cash flow hedges for forecast transactions. Changes in the fair value of such financial instruments are reported under other reserves.

Forward currency contracts and currency option transactions are entered into for the purpose of hedging foreign exchange risks related to future cash flows.

The interest rate swaps hedge against interest rate risk arising from borrowings bearing variable interest rates.

The stock options serve to hedge against future changes in the fair values of stock appreciation right commitments.

In order to hedge the risks arising from changes in value of the phantom share program, the Company has entered into hedging instruments on Software AG stock with banks.

The financial instruments used to hedge against currency risks have maturities of less than one year. The interest rate swaps mature in 2010 at the latest. The stock options used for hedging the commitments from the third stock price-based remuneration plan fall due in 2012. The individual maturities correspond to the time periods over which the expected cash flows are likely to affect profit or loss.

Financial investment policy

Software AG takes a very conservative approach with regard to its financial investments. The Company invests primarily in time deposits and short-term fixed-income securities with a credit rating of at least “investment grade.” Software AG has introduced a monitoring process in order to monitor the creditworthiness of the banks with which we maintain relationships. Accordingly, the development of the relevant credit default swaps (CDS) is monitored on a weekly basis. The average return on capital invested was approximately 3.9 percent in fiscal year 2008 (2007: 4.6 percent).

[34] Disclosures on leases

Rental agreements or operating leases in the Group relate chiefly to office space, vehicles, and IT equipment. Lease payments under operating leases are recognized as an expense over the term of the lease.

	Up to 1 year	1–5 years	More than 5 years	Total
	- € thousands -
Contractually agreed payments	12,890	38,475	9,032	60,397
Estimated income from subleases	-1,137	-2,782	-301	-4,220

[35] Contingent liabilities

As of December 31, 2008, no provisions were recognized for the following contingent liabilities, expressed at nominal value, since it appeared unlikely that claims would be asserted:

	2008	2007
	- € thousands -
Guarantee	1,311	1,311
Other	1,252	1,341
	2,563	2,652

At year end, the carrying amount of collateral granted amounted to €3,184 thousand, and the carrying amount of collateral received was €521 thousand.

[36] Seasonal influences

Revenues and pre-tax earnings were distributed over fiscal year 2008 as follows:

	Q1 2008	Q2 2008	Q3 2008	Q4 2008	2008
	- € thousands -
Total revenue	159,391	168,767	180,047	212,405	720,610
in % of annual revenue	22.1%	23.4%	25.0%	29.5%	100.0%
Earnings before taxes	34,562	39,518	47,090	54,256	175,426
in % of net income for the year	19.7%	22.5%	26.9%	30.9%	100.0%

Revenues as well as earnings before taxes for the third and fourth quarter were positively influenced due to the build-up of our business in Brazil. Therefore, the quarterly breakdown of revenues and earnings before taxes in the table above is of limited significance.

[37] Litigation

As part of the planned restructuring of Software AG’s business in Brazil, this market has been serviced by our own sales company since January 1, 2008 after a New York court ruled in December 2007 that the termination of the distribution agreement with the previous exclusive sales partner, effective December 31, 2007, was legally valid. The sales partner has appealed the decision. No judgment has been issued on the appeal.

A small software company in Canada sued Software AG USA Inc. together with Software AG Inc., Software AG, and 17 additional defendants, including Microsoft and IBM, for a patent violation relating to its software in August of 2007. The lawsuit was filed with a court located in Texas. The main proceedings, which will be held before a jury in accordance with U.S. practice, are scheduled for November 2009. Mediation talks with all defendants were held at the end of January 2009, with no results to date for the defendant companies of the Software AG Group.

As the legal proceedings described above are pending, we elect not to make additional disclosures in accordance with IAS 37.

[38] Stock option plans

Software AG has various stock option plans for members of the Executive Board, officers, and other Group employees. These involve equity-settled plans and plans where the Company has the choice of settling either in cash or by providing equity instruments.

The total expense for share-based payment transactions amounted to €9,146 thousand in fiscal 2008 (2007: €7,271 thousand). This includes expenses of €1,791 thousand (2007: income of €243 thousand) from hedging the commitments from the Management Incentive Plan 2007.

Expenses for stock options accounted for as equity-settled plans pursuant to IFRS 2 amounted to €2,368 thousand in fiscal 2008 (2007: €2,413 thousand).

No expenses for share-based payment transactions were capitalized as inventories or non-current assets.

Management Incentive Plan II (MIP II)

The Management Incentive Plan II is a stock option plan for Executive Board members and officers that was launched in the second quarter of 2001.

The subscription price per share upon exercise of the options corresponds to the average price in the XETRA closing auction over the last five trading days on the Frankfurt Stock Exchange prior to the date of the offer to grant the subscription rights.

In order for the options to be exercised, the following two conditions must be met:

(1) In the fiscal year preceding exercise of the options, the Group’s revenue must have increased by at least 10 percent over the previous year.

(2) The Group’s profit from ordinary activities must be equivalent to at least 10 percent of the revenue in the year prior to exercise of the option.

The Management Incentive Plan has a term of seven years for each individual tranche. Options may be exercised and acquired shares may be sold no earlier than 24 months after the start of the respective term. This restriction applies separately to each tranche. Options may only be exercised on a quarterly basis after publication of the annual results or the quarterly results.

The stock option plan led to personnel expenses of €120 thousand in fiscal year 2008 (2007: €1,634 thousand). This amount was transferred to the capital reserve.

570 stock options had been issued prior to November 7, 2002 and were not measured in accordance with the transition regulations set out in IFRS 2.53.

The options granted under the Management Incentive Plan II (MIP II) changed as follows in fiscal 2008:

	Number of options outstanding	Weighted average exercise price per option (€)	Weighted average remaining term (years)	Aggregated intrinsic value (€ thousands)
Balance as of Dec. 31, 2007	191,907	18.45	3.0	8,083
Granted	0	-	-	-
Exercised	-99,387	18.19	-	-
Forfeited/expired	-14,813	22.69	-	-
Balance as of Dec. 31, 2008	77,707	22.09	2.6	1,391
Thereof exercisable as of Dec. 31, 2008	72,217	21.95	2.6	1,302

The exercise prices of the options outstanding as of December 31, 2008 amount range from €11.83 to €26.47. The average share price for the options exercised during 2008 at the date of exercise amounted to €47.93.

Management Incentive Plan 2007 (MIP III)

A new share-based incentive plan for members of the Executive Board and officers was launched during the third quarter. To date 2,230,500 participation rights have been issued to Executive Board members and officers under the plan, 2,049,000 of that amount in 2007.

Upon achievement of certain performance targets, participants are entitled to payment of the difference between the price of Software AG shares and the strike price of €72.36 by June 30, 2016. However, the Company is entitled to elect to issue shares in lieu of a cash payment at its discretion. The defined performance target involves reaching the €1,000,000 thousand mark for Group revenues by no later than 2011, while at the same time doubling after-tax earnings compared to fiscal year 2006.

In order to hedge the cash flow risks from the MIP III, Software AG acquired 1,100,000 stock options which were designated as cash flow hedges as part of a hedging relationship. As a result of this hedge, 1,100,000 of the participation rights are accounted for as cash-settled share-based payment transactions in accordance with IFRS 2. Accordingly, Software AG recognizes a provision on a pro rata temporis basis based on the fair values of the rights granted as of the grant date.

The fair value of these participation rights was determined on the basis of the Black-Scholes option pricing model and corresponds to the market value of the purchased stock options as of the grant date. The fair value, which was calculated on the basis of the following parameters, amounted to €6.98 per right as of December 31, 2008.

The valuation was based on the following parameters:

Expected average term until exercise of the options (in years)	3.4
Risk-free interest rate	3.15%
Assumed volatility	50%
Share price on December 31, 2008	€ 40.00
Expected dividend yield	2.5%

The calculation of the average term until exercise of the options was based on experience with previously exercised options. This calculation took into account the previous average holding periods of the employee options as well as expected future share price performance.

The assumed volatility is based on the average expected volatility of various market participants.

The resulting personnel expenses are amortized over the period of service and amounted to €971 thousand in fiscal year 2008 (2007: €1,091 thousand). In addition, expenses of €1,791 thousand were incurred for hedging the rights granted in fiscal year 2008 (2007: income of €243 thousand).

The liability for the participation rights, which are accounted for as cash-settled share-based payments, amounted to €2,062 thousand (2007: €1,091 thousand) as of December 31, 2008.

The amount of the personnel expenses for non-vested rights not yet recognized in profit or loss depends on the rights’ intrinsic value as of the exercise date and, therefore, may not be forecasted. The final amount of payment is expected to be recognized in profit or loss over the next three to four years. The unrealized price losses of the stock options will be recognized over the same period.

If the exercise behavior and the actual term are in line with the current assumptions, the accumulated personnel expenses will be limited to the purchase price of the hedge (€14.6 million).

The remaining 1,130,500 participation rights are accounted for as equity-settled share-based payment transactions. The fair value was determined as of the grant date using the Black-Scholes option pricing model. The weighted average of the fair values granted during the reporting period amounted to €6.12 on the grant date. The valuation was based on the following parameters:

Expected average term until exercise of the options (in years)	2.9
Risk-free interest rate	4.5%
Assumed volatility	41%
Expected dividend yield	2.4%
Weighted average share price upon exercise	€46

The assumed volatility is based on the average market expectations.

No additional parameters were used for the calculation of fair value other than the market conditions described above.

In fiscal 2008, the personnel expenses resulting from these 1,130,500 participation rights, taking into account the expected staff turnover, amounted to €2,248 thousand (2007: €779 thousand). This amount was transferred to the capital reserve.

The options granted under the Management Incentive Plan 2007 (MIP III) changed as follows in fiscal year 2008:

	Number of rights outstanding	Weighted average exercise price per right (€)	Weighted average remaining term (years)	Aggregated intrinsic value (€ thousands)
Balance as of Dec. 31, 2007	2,014,000	72.36	8.5	0
Granted	181,500	72.36	-	-
Exercised	0	72.36	-	-
Forfeited/expired	-276,500	72.36	-	-
Balance as of Dec. 31, 2008	1,919,000	72.36	7.5	0
of which exercisable as of Dec. 31, 2008	-	-	-	-

Performance Phantom Share Plan

A portion of the variable remuneration for Executive Board members is paid out as a medium-term component on the basis of a phantom share plan. As in the previous year, the portion accruing for fiscal year 2008 will be converted into virtual (phantom) shares on the basis of the average share price of Software AG stock in February 2009, less 10 percent. The resulting number of shares will become due in three identical tranches with terms of one, two, and three years. On the due dates in March 2009 to 2011, the number of phantom shares will be multiplied with the then applicable average share price for February of the relevant year. This amount will be adjusted to reflect the amount (measured in percent) by which the shares outperform or underperform the TecDAX30 index and then paid to the members of the Executive Board. The members of the Executive Board will receive an amount per phantom share equal to the dividends paid to Software AG shareholders prior to payment of a phantom share tranche.

This plan led to personnel expenses of €3,995 thousand in fiscal year 2008 (2007: €3,524 thousand).

The provision for the rights outstanding under the phantom share plan amounted to €6,814 thousand (2007: €7,563 thousand) as of December 31, 2008.

[39] Corporate bodies

Members of the Supervisory Board:

Frank F. Beelitz Chairman	Independent investment banker (Beelitz & Cie., Frankfurt/Main) Resident of: Bad Homburg v.d.H.
Supervisory Board seats:	Member of the Supervisory Board of Südwestbank AG, Stuttgart Member of the Supervisory Board of IVG Immobilien AG, Bonn (since March 1, 2008)
Willi Berchtold Graduate in business administration (since April 29, 2008)	Chief Financial Officer, Controlling and Informatics at ZF Friedrichshafen AG Resident of: Überlingen
Supervisory Board seats:	Member of the Supervisory Board of Lufthansa Systems AG, Kelsterbach Chairman of the Supervisory Board of ZF Boge Elastmetall GmbH, Bonn Member of the Supervisory Board of ZF Sachs AG, Schweinfurt Member of the Supervisory Board of ZF Lemförder GmbH, Lemförder Member of the Supervisory Board of ZF Passau GmbH, Passau Member of the Supervisory Board of ZF Getriebe GmbH, Saarbrücken Member of the Supervisory Board of ZF Lenksysteme GmbH, Schwäbisch Gmünd
Dr. Andreas Bereczky Deputy Chairman	Director of Production of ZDF, Mainz Resident of: Eschweiler
Supervisory Board seats:	- Member of the Supervisory Board of of Alfabet AG, Berlin
Rainer Burckhardt Employee representative	Employee of SAG Deutschland GmbH, Chairman of the Works Council at the Darmstadt location Resident of: Darmstadt
Supervisory Board seats:	none

Justus Mische Graduate in business administration Member (until April 29, 2008)	Resident of: Kelkheim/Ts.
Supervisory Board seats:	Chairman of the Supervisory Board of B. Braun Melsungen AG, Melsungen
Monika Neumann Employee representative	Employee of SAG Deutschland GmbH Chairman of the General Works Council Resident of: Schliersee
Supervisory Board seats:	none
Alf Henryk Wulf Graduate in electrical engineering Member	Chairman of the Management Board of Alcatel-Lucent Deutschland AG, Stuttgart Resident of: Stuttgart
Supervisory Board seats:	Member of the Supervisory Board of Alcatel-Lucent Network Services GmbH, Düsseldorf (since December 15, 2008)

Members of the Executive Board:

Karl-Heinz Streibich Graduate in communications engineering	Chief Executive Officer Global Marketing, Press/PR, HR, Legal, Processes, Internal Audit and Partners Resident of: Radolfzell
Supervisory Board seats:	none
David Broadbent Businessman	Member of the Executive Board Chief Operating Officer Region East Resident of: Newtown, Newbury, Berkshire, UK
Supervisory Board seats:	none
Mark Edwards Businessman	Member of the Executive Board Chief Operating Officer Region West Resident of: Ascot, Berkshire, UK
Supervisory Board seats:	none

Holger Friedrich IT specialist (since October 1, 2008)	Member of the Executive Board Global Professional Services Resident of: Berlin
Supervisory Board seats:	none
Dr. Peter Kürpick Physicist	Member of the Executive Board Chief Product Officer Resident of: Darmstadt
Supervisory Board seats:	none
David Mitchell Businessman (until April 30, 2008)	Member of the Executive Board webMethods Business Division Resident of: Plano, Texas, USA
Supervisory Board seats:	none
Arnd Zinnhardt Graduate in business administration	Member of the Executive Board Chief Financial Officer Finance & Treasury, Controlling, Business Operations, Taxes, Global Procurement, M&A, Investor Relations, Global IT, Support and Administration Resident of: Kelkheim/Ts.
Supervisory Board seats:	none

Total remuneration for the Executive Board members in fiscal 2008 amounted to €9,414 thousand (2007: €34,005 thousand). Included in the total remuneration for the previous year is the fair value of the MIP III options in the amount of €20,920,000 which represents a nonrecurring long term element.

In fiscal 2008, 150,000 stock option rights from the Management Incentive Plan III (MIP III) (2007: 1,025,000) were granted to Executive Board members, and 125,000 stock option rights were cancelled. The stock option rights granted had a fair value as of the grant date of €6.22 per right.

The Executive Board members received a total of 71,962 (2007: 61.546) phantom shares under the phantom share plan. The phantom shares granted had a fair value as of the grant date of €49.82 (2007: €51.39) per phantom share.

Remuneration for former Executive Board members totaled €291 thousand (2007: €169 thousand).

Pension provisions for former Executive Board members amounted to €1,765 thousand (2007: €1,886 thousand).

Software AG did not grant any advances or loans to Executive Board members in fiscal 2008 or in fiscal 2007.

Detailed disclosures on the remuneration paid to Executive Board members are made separately in the Remuneration Report of the Corporate Governance Report, which forms part of the Management Report.

Supervisory Board remuneration

Total remuneration for members of the Supervisory Board amounted to €519 thousand in fiscal 2008 (2007: €775 thousand).

Software AG did not grant any advances or loans to Supervisory Board members in fiscal 2008 or in fiscal 2007.

Detailed disclosures on the remuneration paid to Supervisory Board members are made separately in the Remuneration Report of the Corporate Governance Report, which forms part of the Management Report.

[40] Auditors’ fees

General and administrative expenses include expenses for auditors’ fees for BDO Deutsche Warentreuhand AG, the Group auditor, totaling €384 thousand (2007: €375 thousand). Of this amount, €286 thousand (2007: €295 thousand) relates to the audit of the domestic entities’ and the Group’s financial statements, €8 thousand (2007: €27 thousand) to tax advisory services, and €90 thousand (2007: €53 thousand) to other audit services.

[41] Events after the balance sheet date

At the end of February Software AG signed an agreement to purchase a 51 percent interest in itCampus Software- und Systemhaus GmbH, Leipzig (itCampus), a provider of software and communication solutions for call center utility, medical and public sector. The agreement foresees a payment of €3.1 million to itCampus and €2.9 million to current owners of itCampus resulting in an expected acquisition cost of €6.0 million. Due to the short time period between the signing of the deal and the authorization of the financial statements, it was not possible to provide further details regarding a preliminary purchase price allocation. However, Software AG currently expects the impacts of the acquisition on the net assets, financial position and results of operations to be nonmaterial.

[42] Declaration of compliance with the German Corporate Governance Code

On December 12, 2008, the Company submitted a declaration of compliance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG). Shareholders may view the declaration of compliance at http://www.softwareag.com/Corporate/inv_rel/corpgovernance/default.asp

[43] Exemption for domestic group companies pursuant to section 264 (3) of the german commercial code (HGB)

With the approval of the relevant shareholders’ meetings, SAG Deutschland GmbH, Darmstadt; SAG East GmbH – A Software Company, Darmstadt; SAG Consulting Services GmbH, Darmstadt; and Software Financial Holding GmbH, Darmstadt, which are included in the consolidated financial statements of Software AG, have been exempted from the duty to prepare and publish annual financial statements, and from the duty to have them audited, in compliance with provisions applicable to corporations in accordance with Section 264 (3) of the German Commercial Code.

Date and authorization for issue

Software AG’s Executive Board approved the consolidated financial statements on February 27, 2009.

Darmstadt, February 27, 2009

Software AG

K.-H. Streibich	D. Broadbent
M. Edwards	H. Friedrich
Dr. P. Kürpick	A. Zinnhardt