Annual Report 2002 - Software AG

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Currency translation
The annual financial statements of the subsidiaries
prepared in the relevant local currency are translated
as follows for the consolidated financial statements:
Balance sheet items have been translated at the
rates prevailing on the balance sheet date, with
the exception of shareholders’ equity and of the
equity interests.
Shareholders’ equity of subsidiaries included in
consolidation is translated at historic rates. The
gains and losses in equity of consolidated subsidiaries
resulting from currency variations are
aggregated and included as part of the foreign
currency translation adjustment. This results in
the profit brought forward deviating from the retained
earnings of the previous year.
In 2002, gains and losses on subsidiaries’ income
statements resulting from currency variations are,
for the first time, aggregated and included as
part of the adjustment for currency translation
differences. This complies with the draft DRS standard
18 (currency translation) of the German Accounting
Standards Committee. This led to a reduction
in the group equity of 2.494 million
euros. In 2001, they totaled 1.010 million euros
and were reported as other operating income.
In the statement of fixed-asset movements, additions,
write-ups, transfers, disposals and writedowns
for the year are calculated at the average
rates for 2002, starting from the previous year’s
acquisition and manufacturing costs (as of December
31, 2001), with the year-end positions
being translated at the rate prevailing at the balance
sheet date. Any resulting exchange rate differences
in fixed asset movements are carried on
the face of the statement of fixed asset movements.
Consolidation methods
Statutory full consolidation pursuant to sections 300 ff.
of the German Commercial Code was applied to the
preparation of the consolidated financial statements.
As a result, all intercompany assets and liabilities
and all intercompany income and expenses were
eliminated.
Software AG consolidates subsidiaries which
it founded itself on the date of formation.
However, with respect to Softinterest Holding
AG and its subsidiaries – which were consolidated
for the first time in 1994 – as well as
the Asian subsidiaries, SQL and SAG-IRL, firsttime
consolidation occurred after the date of
formation.
In the case of all other companies included in
the consolidated financial statements, the date
of acquisition was chosen as the consolidation
date.
The first-time consolidation of all companies was
undertaken using the book value method (section
301 (1) sentence 2 clause 1 of the German
Commercial Code). Subsequent consolidation is
based on the figures stated at the time of firsttime
consolidation.
Debit balances arising from capital consolidation
and relating solely to goodwill from acquisitions
from 2001 onwards were carried as assets and
will be amortized over ten years. In previous
years, goodwill was netted against capital reserves,
with the exception of goodwill from the
SAG-USA Group.
In the consolidation of debt, translation differences
were included in foreign currency translation
adjustment, without affecting the income
statement. Other netting differences were treated
as income or expense.
As of December 31, 2002, all outstanding material
intercompany services rendered had already
been invoiced to customers. This obviated the
need to eliminate inter-company profits. In contrast,
intercompany sales of intangible assets are
corrected through elimination of intercompany
profits.