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Notes to the Consolidated Balance-sheet


Cash on hand and bank balances
This item includes cash and demand deposits as well as short term cash equivalents.

The securities item includes short term, extremely liquid financial investments which can be transformed into cash amounts at any time and are only subject to insignificant fluctuations in value.

Securities, financial investments and derivative hedging instruments
Financial assets are initially valued at the cost of acquisition, including the transaction costs. The subsequent valuation depends on the classification of the financial assets.

Financial investments available for sale are valued at their fair value (market value) at the balance sheet date. Gains or losses are excluded from income and reported in equity as other reserves.

The financial assets reported under financial investments are included individually at their fair values where their fair value can be determined and unless they are held until final maturity. Loans and receivables included in this item which are not held for trading purposes, and assets with no published price quotation on an active market and for which the fair value cannot be reliably determined, are valued at amortized cost. Financial assets are regularly reviewed to determine whether there are objective, material indications of impairment. Impairments losses are charged against net income for the period.

In order to hedge the risk of future fluctuations in exchange rates, currency forward and currency option transactions are concluded. This provides a general protection against various currency exchange rate risks independent of the individual underlying transactions. The valuation of the open positions in currency forward transactions and options is at market value. These are reported in the balance sheet under other assets and short term provisions. Changes in market value of financial derivatives intended to cover future foreign currency cash flows are reported under other reserves until the underlying transaction is reflected in income.The portions of cash flow hedges which have not taken effect as well as changes in the values of hedging transactions which do not satisfy the requirements of hedge accounting, are immediately included in the net income for the current year.

Inventories are recognized at the lower of purchase or production cost and net realizable value. The net realizable value is the estimated selling price in the ordinary course of business less the estimated costs until completion and the estimated costs necessary to make the sale.

Trade receivables
Receivables are recognized at the fair value applicable at the time the revenues are realized or services are provided, and they are valued at amortized cost, taking into consideration any necessary bad debt provisions.

This item also includes performance under fixed price projects which has not yet been invoiced and is recognized according to the percentage-of-completion-method.

Other current assets
The other items reflected under current assets are valued at cost which corresponds to their respective market prices.

Deferred expenses
The deferred expenses include advance payments by Software AG in regard to license agreements and lease agreements. The accrual is released and the expense is recorded in the period in which performance is rendered by the corresponding contracting party.

Intangible assets
Permits, intellectual property rights and similar rights, intangible assets as well as licenses for such rights are capitalized at cost and amortized over the useful life of the asset using the straight-linemethod of amortization. The assets are regularly tested for impairment.

The goodwill in the amount of €174,591 thousand resulted from the acquisition of the Software AGUSA Group as of February 1, 2001, and in the amount of €3,250 thousand from the acquisition of both Sabratec companies in Israel and in the USA on February 3, 2005. The goodwill relating to Software AG-USA Group was amortized as planned until January 1, 2003.

Property, plant and equipment
Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairments losses. When items constituting property, plant and equipment are sold or scrapped, the corresponding costs of acquisition as well as the accumulated depreciation are eliminated, and any realized gain or loss from the disposal is recognized as income or expense in the consolidated income statement.

The acquisition and production costs of an item in property, plant and equipment consists of the purchase price, including any import duties and non-refundable sales tax and all directly attributable costs required to prepare the asset for its intended use. Subsequent expenditures, such as service and maintenance charges arising once the asset is put into operation, are recognized as expenses in the period in which they are incurred. Subsequent expenditures for property, plant and equipment are only reflected as assets if the expenditure improves the condition of the asset beyond its originally assessed standard of performance. Financing costs are not capitalized as part of the acquisition and production costs.

Depreciation is generally taken using the straightline method corresponding to the useful economic life.



50 years

Improvements to property

8 – 10 years

Office equipment

3 – 13 years

Computer hardware and accessories

1 – 4 years


The lengths of the useful economic life and the methods of depreciation are periodically examined in order to make sure that they are in accordance with the anticipated economic use.

Assets under construction are allocated to property, plant and equipment under construction and are recognized at acquisition and production cost. Assets under construction are only depreciated starting when they have been completed and placed in operation.

Impairments of intangible assets and property, plant and equipment
As soon as there are indications of an impairment regarding an intangible asset or item of property, plant and equipment, the book value of the asset is reduced to its recoverable amount and the resulting impairment loss is recognized. The recoverable amount is the higher of the asset’s market value and its value in use. The value in use is the present value of estimated future cash flows expected to arise from the continued use of the asset and its disposal at the end of its useful life.

Impairments losses are recognized within the costs of the respective functional area or under other operating expenses.

Fixed assets include assets provided under lease contracts. Software AG leases computer equipment as well as other operating and office equipment. The lease contracts are classified in accordance with the provisions in IAS 17 under which the lease agreement is valued on the basis of the risks and opportunities, with the leased asset being allocated to the lessee (finance leases) or the lessor (operating leases).

Finance leases
Leased objects are recognized on the balance sheet both as assets and lease obligations in the same amounts are carried at the lower of the fair value of the leased object at the beginning of the lease and the present value of the minimum lease payments. The depreciation of the capitalized leased objects is according to the straight-line method over the intended useful economic life of the asset or, if shorter, the term of the lease contract. The payment obligations resulting from future lease installments are recognized as financial liabilities.

Operating leasing
The lease payments under operating leasing contracts are recognized as an expense over the term of the lease.

Deferred taxes
Deferred taxes are recognized according to the balance sheet-oriented binding effect method for temporary differences between the values in the consolidated balance sheet and in the tax balance sheet. Deferred taxes for loss carry forwards are also recognized.

Deferred tax assets and liabilities are recognized for all temporary differences between the balance sheet values in the consolidated balance sheet and the values for tax purposes and for consolidation measures which have an impact on income. The deferred tax assets also include claims for tax reductions resulting from the anticipated use of loss carry forwards in subsequent years if there is a sufficient probability that they will be realized.

Deferred taxes are calculated on the basis of tax rates which are anticipated to apply at the time of realization (reversal of the tax deferral) according to the then applicable law.

Deferred tax assets and liabilities are not discounted. The book values of the recognized claims and liabilities are regularly examined and adjusted if necessary.

Current liabilities are reported at their repayment or settlement amount.

Non-current liabilities are recorded at amortized cost. Amortized cost is determined using the effective interest rate method by discounting the repayment

Provisions are reported if the Company has a current legal or factual obligation towards a third party due to a past event, it is likely that the provision will be utilized and the amount of the obligation can be reliably estimated. Estimates are regularly reviewed and adjusted.

If the interest rate impact is material, the net present value of expenditures expected to be required to perform the obligation is reported.

Provisions for pensions
There are both defined benefit plans and defined contribution plans for pensions. The pension provisions are calculated using actuarial principles in accordance with the projected unit credit method set forth in IAS 19. This approach takes into account anticipated future increases in pensions and salaries in addition to the pensions known at the balance sheet date.

Provisions for pensions are accounted for pursuant to the amendment to IAS 19 issued in December 2004. Accordingly, they are created at the full present value of the defined obligation, adjusted for the present value of the coverage claims against life insurance companies or the present value of the assets accumulated to cover the pension claims. The changes in the actuarial profits/losses compared to the previous year have been directly allocated to the retained earnings of the Group without affecting the income.

German pension obligations are calculated on the basis of the biometric calculations in the 1998 mortality tables of Prof. Dr. Klaus Heubeck.

Since employees do not receive illness-related allowances either domestically or in other countries, it is not necessary to calculate costs related to health care plans.

In the case of defined contribution plans, Software AG does not incur any obligations other than the payment of contributions to special-purpose funds. The payment of contributions is reflected in the current income result.

Deferred income
Deferred income consists of advance payments by customers relating to revenues from maintenance. The deferred income is released and the income realized during the period in which Software AG renders performance.

Shareholders’ Equity
The development of equity is shown in the Statement of Changes in Equity, which precedes the notes to the consolidated financial statements.

In addition, the contingent capital existing as of March 31, 2005 comprised the following amounts:

1.) Up to €3,357 thousand divided into a maximum of 1,118,962 bearer shares, reserved to cover subscription rights under the first share option plan (Management Incentive Plan I, MIP I) for Executive Board members and executive staff members of the Group. The requirements of this program, the status of allocations/exercises is set forth under other disclosures/stock-based compensation.

2.) Up to €3,000 thousand divided into a maximum of 1,000,000 bearer shares, reserved to cover subscription rights under the second share option plan (Management Incentive Plan II, MIP II) for Executive Board members and executive staff members of the SOFTWARE AG Group. The requirements of this program, the status of allocations/exercises is set forth under other disclosures/stock-based compensation.

3.) Up to €36,000 thousand divided into a maximum of 12,000,000 bearer shares, each with a proportional share in the registered share capital €3, in order to grant option rights and to agree option obligations from cum-warrant bonds or, vis-à-vis convertible bond holders, to grant conversion rights and agree conversion obligations according to the bond terms as resolved at the General Shareholders’ Meeting held on April 30, 2004. Pursuant to this authorization, the Executive Board, with the consent of the Supervisory Board, may resolve until April 29, 2009 that the aforementioned rights will 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 with the exception of the following cases:

  The Executive Board is authorized to exclude fractional amounts from the 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 that, after having conducted a review in accordance with its professional duties, it has come to the conclusion that the issue price of the cum-warrant bonds or convertible bonds is not significantly lower than its hypothetical market value, which was arrived at by using accepted, in particular financial calculation methods. However, this authorization regarding the exclusion of the subscription right applies only to cum-warrant bonds and convertible bonds with a warrant or conversion right or a warrant and conversion obligation in relation to shares representing a proportional amount of registered share capital of up to €8,180 thousand in total or, in the event of this being a lower amount, of 10 percent of registered share capital in existence at the time the authorization is acted upon.

The Executive Board had not made use of this authorization prior to March 31, 2005.

As of March 31, 2005 the Executive Board is furthermore authorized, with the consent of the Supervisory Board, to increase the Company’s registered share capital on one or more occasions on or before April 27, 2006, by up to a total of €37,989 thousand by issuing up to 12,663,036 new bearer shares against cash and/or non-cash capital contributions (Authorized Capital). In this respect, the shareholders are to be granted subscription rights with the exception of the following cases:

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

  Subject to the consent of the Supervisory Board, the Executive Board is further authorized to exclude subscription rights for capital increases against non-cash contributions for purposes of acquiring equity investments, companies or parts of companies.

  Subject to the consent of the Supervisory Board, the Executive Board is also authorized to exclude subscription rights for capital increases against cash contributions, if the capital increases resolved on the basis of this authorization do not, in total, exceed 10 percent of the registered share capital at the time the authorization is first acted upon and if the issue price is not significantly lower than the stock market price.

  Finally, the Executive Board is authorized, with the consent of the Supervisory Board, to exclude subscription rights to a nominal amount not exceeding €6,503 thousand in total, for the purpose of offering the new shares to the employees of the Company and its affiliated enterprises as defined in §§ 15 et seq. of the German Stock Corporation Act (“AktG”) as part of an employee share participation scheme. The new shares can also be transferred to a bank subject to the condition that they will exclusively be held for the acquisition of entitled employees in accordance with the Company’s instructions.

The Executive Board had not made use of its authorization to increase the registered share capital prior to March 31, 2005.

The Executive Board and the Supervisory Board propose to the General Shareholders’ meeting on May 13, 2005, that from the 2004 balance sheet profit amounting to €62,955 thousand of the Group controlling company, Software AG, a dividend of €20,450 thousand should be distributed and €42,505 thousand should be carried forward to new account. This corresponds to a dividend of €0.75 euro per share.

Other reserves
Other reserves include differences resulting from the currency translation of the financial statements of economically independent foreign subsidiaries into the reporting currency. The effects from the valuation of financial instruments not affecting income are also recognized under this item. Translation differences from monetary items primarily consisting of net investments in economically independent foreign sub-units are also recorded under this item. The amounts are recognized on an after tax basis.

  Interim Report Q1/05 (PDF)
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