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Notes to the Consolidated Income Statement


The revenue of Software AG primarily consists of revenue from the granting of software licenses of generally unlimited periods of usage, maintenance revenue and revenue from services. Revenue from the granting of perpetual licenses is only recognized when a signed contract exists with the customer, any rights of return which were granted have expired, the software has been supplied in accordance with the contract, a price has been agreed or can be determined and there is a sufficient probability of payment.

Revenue from pure maintenance is prorated over the period in which the service is rendered.

Service agreements which are invoiced on the basis of hours performed are recognized based on the services performed by the Software AG companies.

Service agreements for which a fixed price has been agreed are recognized under to the percentage- of completion method pursuant to IAS 11 and IAS 18 if the amount of the revenue can be reliably determined, there is sufficient probability that Software AG will receive the economic benefit from the transaction and all related costs expected by completion of the service can be reliably established.

Revenues are reported net of discounts, price rebates, customer bonuses and allowances.

Cost of sales
Cost of sales includes all production-related full costs based on normal utilization of capacity. In particular, cost of sales includes the individual costs directly allocable to orders as well as fixed and variable overheads. Financing costs are not capitalized as part of the costs of acquisition or manufacture. No non-scheduled write-downs on inventories were required during the reporting period.

Research and development costs
Research and development costs are recorded as an expense in the income statement as they are incurred.

The production and further development of software requires the use of closely linked iterative processes between the research and development phases. This means that an exact delineation of the expenses incurred in both phases is not possible. The delineation criteria required to capitalize development expenses in accordance with IAS 38 § 41 in conjunction with § 42 are, therefore, not fulfilled.

Selling expenses
The selling expenses include costs for personnel, materials, depreciation allocated to the sales sector as well as advertising costs.

Administrative expenses
Administrative expenses include costs for personnel, materials and depreciation allocated to the area of administration.

Earnings per share
The earnings per share were calculated by dividing the net income for the period allocable to the shareholders by the weighted average number of shares outstanding during the reporting period and presented accordingly. Software AG has only issued common stock.

  Interim Report Q1/05 (PDF)
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