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General principles

1_Basis of accounting

Software AG’s condensed and unaudited consolidated financial statements (interim financial statements) as of September 30, 2009, have been prepared in accordance with the International Financial Reporting Standards (IFRS) applicable on the balance sheet date, as endorsed by the EU. The IASs/IFRSs applicable as of September 30, 2009, were observed, as were the corresponding interpretations of the International Financial Reporting Interpretations Committee (IFRIC – formerly SIC).

Software AG is a joint stock corporation under German law with registered offices in darmstadt. The Company is the parent company of a group which is active in the fields of development, licensing, and maintenance of software, as well as IT services.

The consolidated financial statements of Software AG are prepared in thousands of euros unless stated otherwise.

2_Changes in the consolidated group

During the first nine months of fiscal 2009, the consolidated group changed as follows:

Germany

Abroad

Total

January 1, 200947983
Additions54247
Disposals (including mergers)011
September 30, 20099120129

 

The additions result from the acquisitions described in note 4. The disposal refers to the merger of consolidated companies.

3_Accounting policies

The same accounting policies have been applied as in the consolidated financial statements as of december 31, 2008, except for the revised IAS 1. The first-time application of the revised IAS 1 results in changes to the presentation of the statement of changes in equity as well as to the presentation of net income for the period and income and expenses recognized in equity during the period. Prior-year figures were adjusted where necessary. In connection with harmonizing the presentation of the income statement with IdS Scheer, amortization is no longer reported separately, but as part of the related functional costs. The prior-year figures were adjusted accordingly. The new mode of presentation did not result in any changes in either net income or earnings per share. These quarterly financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting.

4_Business acquisitions

In the first nine months of fiscal 2009, Software AG gained control over the following companies by way of share purchases:


in € thousandsCarrying amount before acquisition

Initial carrying amount on the balance sheet

itCampus Software- und Systemhaus Gmbh, Leipzig, Germany (itcampus)
Supplier of software and communication solutions for the call center, energy, medical, and public administration industries
51March 2, 2009
Teconomic AG, Freienbach, Switzerland (Teconomic)
Consulting services and solutions for the European financial market
100July 1, 2009
SAG Beteiligungs Gmbh
Acquisition, management, administration and disposal of companies
100July 9, 2009
IDS Scheer aG, Saarbrücken, Germany (IDS Scheer)
Software and consulting firm; development of BPA (business process analysis) solutions
100*August 20, 2009

 

* On September 30, Software AG held 89.44 percent of all outstanding shares (excluding those shares held by IdS Scheer) on that date. For accounting purposes, however, 100 percent ownership has been assumed in
accordance with IAS 32 in conjunction with IFRS 3 (please refer to the section on “Acquisition of IdS Scheer AG” for further information).

The profit or loss of the acquired companies has been included in the consolidated income statement since the date of acquisition.

In contrast to the acquisition of IdS Scheer, the acquisitions of itCampus and Teconomic were jointly and separately of immaterial significance to the financial position, financial performance, and cash flows of the Software AG Group.

The purchase prices of all acquisitions (excluding the acquisition of IdS Scheer) were settled in cash – except for the contingent purchase price payments not yet due (“earn-out payments”) in the amount of €480 thousand, which were recognized as liabilities – and totaled €5,444 thousand after deducting acquired cash. There were no significant directly attributable costs in connection with the acquisition.

The following table shows the preliminary allocation of the purchase price to net assets acquired in accordance with IFRS 3.62. This purchase price allocation was prepared based on preliminary valuations. As a result of information not yet available and reviews yet to be conducted, the assumptions and estimates used have not been finalized.


in € thousandsCarrying amount before acquisitionAdjustment to
fair value

Initial carrying amount on the balance sheet

Cash and cash equivalents1,75501,755
Inventories4310431
Trade receivables1,51701,517
Other receivables and other assets4060406
Prepaid expenses79079
Intangible assets976,3856,482
Goodwill764,8894,965
Property, plant and equipment4360436
Financial assets1950195
Deferred tax assets05050
Assets4,99211,32416,316
Financial liabilities2,24102,241
Trade payables8010801
Other liabilities1,97501,975
Other provisions282231513
Deferred tax liabilities01,9431,943
Deferred income26026
Liabilities5,3252,1747,499
Net assets-3339,1508,817
of which attributable to minority interests001,618
of which attributable to shareholders of Software aG7,199

Purchase price payments to shareholders

004,099

Payment to the company for capital increase

003,100
Acquisition costs7,199
Less acquired cash and cash equivalents– 1,755
Acquisition costs net of acquired cash5,444

 

Goodwill recognized as an asset within the framework of these acquisitions was fully attributed to the webMethods segment.

Due to company mergers within the Group, the share in the Software AG’s Group revenues and net income attributable to these acquisitions since the date of acquisition cannot be determined with exactitude. It is, however, of immaterial significance to the Group’s financial position, financial performance, and cash flows.

Acquisition of IDS Scheer AG:

IDS Scheer Group is a software and consulting firm operating worldwide. The company generates its revenue from licensing its technologically leading software solutions and related maintenance services as well as from industry-specific, method-based consulting services. Its core business is the development of BPA (business process analysis) solutions on the basis of the ARIS platform for process excellence. BPA is a sub-sector of the business process management (BPM) industry.

In addition, the IdS Scheer Group offers industry-specific, method-based consulting services and implementation, operation, and maintenance of its software solutions. Based on the “business process excellence” approach, the IdS Scheer Group supports its customers across the entire process life cycle, from strategic process consulting and design and implementation services to the management of business processes in day-to-day operations.

Until September 30, 2009, Software AG, via SAG Beteiligungs Gmbh (a wholly-owned subsidiary of Software AG), had acquired 89.44 percent of the shares in IdS Scheer AG. The acquisition of 69.20 percent or 21,986,748 shares was effected by way of a takeover offer published on August 17, 2009 for the acquisition of shares at a price of €15 per share. A further 20.25 percent or 6,432,877 shares were purchased outside the takeover offer.

The takeover offer existing as of August 20, 2009 (the date of initial consolidation) was equivalent to a put option for the IdS Scheer shareholders to sell their shares at a price of €15 per share. In accordance with IAS 32 in conjunction with IFRS 3, a liability was recognized in the amount of €405.3 million (27,021,580 shares multiplied by €15), which was taken into account as an increase of the purchase price. Accordingly, the purchase price for all the shares was as follows (as of August 20, 2009):

in € thousands
Costs for 4,665,000 shares acquired before august 20, 2009 outside the takeover offer69,845
Fair value of the liability to shareholders as a result of the put option as of August 20, 2009405,324
Directly attributable transaction costs5,201
Total480,370
Less acquired cash and cash equivalents–120,328
Acquisition costs net of acquired cash360,042

 

The following table shows the preliminary allocation of the purchase price to net assets acquired in accordance with IFRS 3.62. This purchase price allocation was based on preliminary valuations. As a result of information not yet available and reviews yet to be conducted, the assumptions and estimates used have not been finalized.

in € thousandsCarrying amount before acquisitionAdjustment to
fair value

Initial carrying amount on the balance sheet

Cash and cash equivalents120,3280120,328
Inventories1380138
Trade receivables95,715-1,98093,735
Other receivables and other assets15,126015,126
Prepaid expenses6,24106,241
Intangible assets2,398113,524115,922
Goodwill78,098188,262266,360
Property, plant and equipment21,8395,46527,304
Financial assets52052
Deferred tax assets8,557–2,1336,424
Assets348,492303,138651,630
Financial liabilities33,00148333,484
Trade payables22,532022,532
Other liabilities23,4432,04025,483
Other provisions20,5171,50022,017
Pension provision7202,5003,220
Tax provisions4,74204,742
Deferred tax liabilities10,35238,52848,880
Deferred income15,358– 5,6709,688
Liabilities130,66539,381170,046
Net assets217,827263,757481,584
of which attributable to minority interests– 1,214
Acquisition costs480,370
Less acquired cash and cash equivalents– 120,328
Acquisition costs net of acquired cash360,042

 

In the period between the date of initial consolidation and September 30, 2009, the exercise of employee stock options led to a capital increase at IDS Scheer. This resulted in an increase of our liability in connection with the offer by €1,317 thousand and an increase of goodwill by €914 thousand. The difference is equivalent to the receipt of payments from the exercise of the employee stock options.

Goodwill increased by €30 thousand as a result of share purchases at an average price slightly higher than €15 in the period between the date of initial consolidation and September 30, 2009.

All shares acquired by September 30, 2009 were purchased at a maximum price of €15. due to transaction fees being included in the purchase price, the price was sometimes over €15 per share.

Accordingly, goodwill resulting from the acquisition of IdS Scheer amounted to €267,304 thousand as of September 30, 2009. This goodwill was provisionally allocated to the “IDS” segment. The segmentation as presented in these quarterly financial statements is provisional as the future Group structure has not been defined yet.

Since the date of acquisition, the IdS Group has contributed €38,569 thousand to Software AG’s Group revenue and €396 thousand to its net income. These figures take into account the effects from the amortization of the acquired intangible assets as well as the revaluation of deferred income.

If all the acquisitions during the period under review had been conducted as of January 1, 2009, Group revenues for the first nine months of fiscal 2009 would have been approx. €220,916 thousand higher and would have amounted to €776,168 thousand. net income for the same period would have been €4,787 thousand lower and would have totaled €87,907 thousand.