231 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 After the date of the Annual Shareholders’ Meeting the fair value was determined based on a binomial model. For the measurement, the market condition that stipulates that the share price must be at least €60 on one of the last five weekdays prior to exercise was taken into account. Valuation was based on the following parameters: Software AG share price on May 4, 2012 €25.44 Strike price of rights €41.34 Assumed average volatility 43.0% Expected dividend yield 2.0% Risk-free interest rate 1.1% Expected average term until exercise of the rights (in years) 7.0 The expected volatility was derived by applying the implied volatility of stock options with comparable terms of maturity to Software AG shares. This results in a fair value of €5.84 for all rights awarded prior to May 4, 2012 (6,515,500 rights) under the program. The fair values on the respective award dates for rights awarded after May 4, 2012 (387,500 rights) were between €5.00 and €7.50. Expenses of €4,389 thousand (2011: €3,020 thousand) were incurred under this plan during fiscal year 2012. Management Incentive Plan 2007 (MIP III) (2007–2011) In 2007, a share-based incentive plan for members of the Management Board and upper management was launched. A total of 7,342,500 (before stock split: 2,447,500) participation rights have been issued to Management Board members and managers under the plan. As part of the plan, the defined performance target involves reaching €1,000,000 thousand for Group revenues by no later than fiscal year 2011, while at the same time doubling after-tax earnings compared to fiscal year 2006. These performance targets were achieved at the end of fiscal year 2010. Accordingly, since May 19, 2011, participants are entitled to payment of the difference between the price of Software AG shares and the base price of €24.12. However, the Company is entitled to elect to issue shares in lieu of a cash payment at its discretion.