173 06 HIGHLIGHTS 08 LETTER FROM THE MANAGEMENT BOARD 12 THE COMPANY 38 SOFTWARE AG SHARE 46 CORPORATE GOVERNANCE 58 REPORT OF THE SUPERVISORY BOARD 68 GROUP MANAGEMENT REPORT 155 CONSOLIDATED FINANCIAL STATEMENTS 245 FURTHER INFORMATION CONSOLIDATED INCOME STATEMENT 156 STATEMENT OF COMPREHENSIVE INCOME 157 CONSOLIDATED BALANCE SHEET 158 CONSOLIDATED STATEMENT OF CASH FLOWS 160 CONSOLIDATED STATEMENT OF CHANGES 162 IN EQUITY NOTES TO THE CONSOLIDATED FINANCIAL 164 STATEMENTS RESPONSIBILITY STATEMENT 243 AUDITORS‘ REPORT 245 costs incurred for work performed as of the balance sheet date to the estimated total contract costs. Some of the costs for making this calculation are estimated using the number of consulting hours/consulting days charged. Revenue is reported net of discounts, price rebates and customer bonuses. Cost of sales Cost of sales includes all production-related full costs based on normal capacity utilization. In particular, the cost of sales includes the individual unit costs that can be directly allocated to orders as well as fixed and variable overheads. No write-downs on inventories were necessary during the reporting period. Government grants Government grants are not recognized until there is reasonable assurance that the conditions attached to them will be complied with and that the grant will be received by Software AG. This is normally the case upon receipt of payment. Government grants are reported under “other operating income.” Research and development expenses Research and development expenses are recognized in the income statement as incurred. New products are not technologically realizable until shortly prior to being ready for market launch. In the run-up to technological realizability, research and development processes are closely linked. Any research and development expenses incurred after technological realizability has been achieved are immaterial. Sales, marketing and distribution expenses Sales, marketing and distribution expenses include costs for personnel, materials, depreciation allocated to the sales cost center and advertising costs.