UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ____ to ____

Commission File Number 0-24720

Business Objects S.A.

157-159 Rue Anatole France, 92300 Levallois-Perret, France
(Address of principal executive offices)

(408) 953-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes [X]  No [  ]

As of April 30, 2005, the number of issued ordinary shares was 96,380,063, €0.10 nominal value, (including 30,481,388 American depositary shares, each corresponding to one ordinary share, 3,067,675 treasury shares and 3,344,193 shares held by Business Objects Option LLC). As of April 30, 2005, we had issued and outstanding 93,035,870 ordinary shares of €0.10 nominal value.

Business Objects S.A.
Index

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PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

BUSINESS OBJECTS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except nominal value per ordinary share)

See accompanying notes to Condensed Consolidated Financial Statements

(1) The balance sheet at December 31, 2004 has been derived from the audited consolidated financial statements at that date.

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BUSINESS OBJECTS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per ordinary share and ADS data)

See accompanying notes to Condensed Consolidated Financial Statements

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BUSINESS OBJECTS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

See accompanying notes to Condensed Consolidated Financial Statements

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Business Objects S.A.
Notes to Condensed Consolidated Financial Statements
March 31, 2005

1.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of Business Objects S.A. (the “Company” or “Business Objects”) have been prepared by the Company in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These interim unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes of the Company in its Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the SEC on March 16, 2005.

     The condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows. All significant intercompany accounts and transactions have been eliminated. Results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005 or future operating periods. All information is stated in U.S. dollars unless otherwise noted. Certain comparative period figures have been reclassified to conform to the current basis of presentation. Such reclassifications had no effect on revenues, operating income or net income as previously reported.

     On December 11, 2003, the Company acquired Crystal Decisions, Inc. (“Crystal Decisions”), and its majority stockholder, Seagate Software (Cayman) Holdings, for aggregate consideration of $1.2 billion consisting of $307.6 million of cash, approximately 23.3 million newly issued ordinary shares and American depositary shares (“ADSs”), and the fair value of approximately 6.3 million stock options assumed entitling holders to purchase approximately 6.3 million Business Objects’ ADSs. This transaction is referred to herein as the “Crystal Decisions Acquisition”.

Use of Estimates

     The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but are not limited to, revenue recognition, valuation assumptions utilized in business combinations, restructuring accruals, impairment of goodwill and other intangible assets, contingencies and litigation, allowances for doubtful accounts, stock-based compensation and income and other taxes. Actual results could differ from those estimates.

Other Current Liabilities

     Other current liabilities include balances related to: accruals for sales, use and value added taxes, current portion of accrued rent, accrued professional fees, deferred compensation under the Company’s deferred compensation plan, payroll deductions from international employee stock purchase plan participants, current deferred tax liabilities, forward contract liabilities, and both acquisition and non-acquisition related restructuring liabilities, none of which individually account for more than five percent of total current liabilities.

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Ordinary Shares, Treasury Shares and Business Objects Option LLC Shares

     At March 31, 2005, the difference between the 96.349 million issued ordinary shares and the 92.971 million issued and outstanding ordinary shares presented on the face of the condensed consolidated balance sheet represents the 3.378 million shares held by Business Objects Option LLC. Shares held by Business Objects Option LLC, which were issued by the Company in connection with the Crystal Decisions Acquisition, are not deemed to be outstanding, will not be entitled to voting rights, and will not be included in the calculation of net income per ordinary share and ADS until such time as the option holders exercise their options.

     The Company issues ordinary shares or ADSs upon the exercise of stock options or share warrants and under employee stock purchase plans. A holder of the Company’s ordinary shares may exchange them for ADSs on a one for one basis at any time. The ADSs may also be surrendered for ordinary shares on a one for one basis. The ordinary shares are traded on the Eurolist of Euronext Paris S.A. and the ADSs are traded on the Nasdaq National Market. For the convenience of the reader in this document, net income (loss) per ordinary share and ADS will be referenced as net income (loss) per share, as applicable.

Significant Accounting Policies

Revenue Recognition

     The Company enters into arrangements for the sale of: (i) licenses of software products and related maintenance contracts; (ii) bundled license, maintenance and services; and (iii) services on a time and material basis. In instances where maintenance is bundled with a license of software products, such maintenance terms are typically one year.

     For each arrangement, the Company determines whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is probable. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria are met. In software arrangements that include rights to multiple software products and/or services, the Company uses the residual method, under which revenues are allocated to the undelivered elements based on vendor-specific objective evidence of fair value of the undelivered elements and the residual amount of revenues are allocated to the delivered elements, which in some cases may result in license revenues being amortized over the related maintenance term or the license term for a non-perpetual license.

     For those contracts that consist solely of licenses and maintenance, the Company recognizes net license revenues based upon the residual method after all licensed software product has been delivered as prescribed by Statement of Position 98-9, “Modification of SOP No. 97-2 with Respect to Certain Transactions.” The Company recognizes maintenance revenues over the term of the maintenance contract. The maintenance rates for both license agreements with and without stated renewal rates are based upon the Company’s price list. Vendor-specific objective evidence of the fair value of maintenance for license agreements that do not include stated renewal rates is determined by reference to the price paid by the Company’s customers when maintenance is sold separately (i.e. the prices paid by customers in connection with renewals). Past history has shown that the rate the Company charges for maintenance on license agreements with a stated renewal rate is similar to the rate the Company charges for maintenance on license agreements without a stated renewal rate.

     Services consist of maintenance, consulting and training. In all cases, the Company assesses whether the service element of the arrangement is essential to the functionality of the other elements of the arrangement. When software services are considered essential or the arrangement involves customization or modification of the software, both the net license and services revenues under the arrangement are recognized under the percentage of completion method of contract accounting, based on input measures of hours. For those

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arrangements for which the Company has concluded that the service element is not essential to the other elements of the arrangement, the Company determines whether: (i) the services are available from other vendors; (ii) the services involve a significant degree of risk or unique acceptance criteria; and (iii) whether the Company has sufficient experience in providing the service to be able to separately account for the service. When the service qualifies for separate accounting, the Company uses vendor-specific objective evidence of fair value for the services and the maintenance to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Revenues allocable to services are recognized as the services are performed. Vendor-specific objective evidence of fair value of consulting and training services is based upon average daily rates. When the Company provides services only, typically the contracts are structured on a time and materials basis.

     For sales to resellers, value added resellers and system integrators (“partners”), the Company does not provide rights of return or price protection. The Company does not accept orders from these partners when the Company is aware that the partner does not have a purchase order from an end user. For sales to distributors that have a right of return, revenues are recognized as the products are sold to the distributor, net of reserves to approximate net sell-through. Some of the factors that are considered in determining the reserves include historical experience of returns received and the level of inventory in the distribution channels. The reserve reduces the revenues and the related accounts receivable. For sales to original equipment manufacturers (“OEMs”), revenues are recognized when the OEM reports sales that have occurred to an end user customer, provided that collection from the OEM is probable. Some OEM arrangements include the payment of an upfront arrangement fee, which is deferred and recognized ratably over the contractual period of distribution of the OEM or when the OEM reports sales that have occurred to an end user customer.

     Deferred revenues represent amounts under license and services arrangements for which the earnings process has not been completed. Deferred revenues relate primarily to maintenance contracts, which are amortized ratably to revenues over the term of the maintenance contracts. In addition, deferred revenues also include amounts under arrangements where there are unspecified future deliverables or where specified customer acceptance has not yet occurred.

Accounting for Stock-based Compensation

     The Company grants stock options to its employees pursuant to shareholder approved stock option plans and provides employees the right to purchase its shares pursuant to shareholder approved employee stock purchase plans. The Company also issues warrants to its nonemployee directors. The Company accounts for its stock-based compensation plans under the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations.

     The following table provides pro forma disclosures of the effect on net income and net income per share if the fair-value based method had been applied in measuring stock-based compensation expense. The fair-value based method is in accordance with FAS No. 123, “Accounting for Stock-Based Compensation,” (“FAS 123”) which was amended by FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“FAS 148”). FAS 148 sets forth the requirement to provide prominent disclosure of pro forma information regarding net income (loss) and net income (loss) per share as calculated under the provisions of FAS 123. For purposes of the pro forma disclosure, management estimates the fair value of stock-based compensation using the Black-Scholes option valuation model.

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     The amortization of stock-based compensation expense included in reported net income for the three months ended March 31, 2005 and March 31, 2004 represented amortization of unearned compensation related to stock options assumed in the Crystal Decisions Acquisition which were unvested at the time of the acquisition. Unearned compensation represented the difference between the exercise price of the options and the deemed fair value of the Company’s ordinary shares on the date the options were assumed, which is amortized over the original vesting period of the underlying stock options. Amortization of stock-based compensation expense was tax effected at the actual rates included in the computation of net income.

     The stock-based compensation expense determined under the fair-value based method, were tax effected at the effective tax rate for the applicable three month period, which was 42% for the three months ended March 31, 2005 and 38% for the three months ended March 31, 2004. The calculated tax benefit at the effective rate for the applicable three month period may not be equal to, and could vary materially from, the actual tax deduction that the Company will be entitled to receive for these expenses. This is the result of uncertainty about deductibility and timing of this deduction to reduce net income. If no tax deduction was available on pro forma stock-based compensation expense determined under the fair-value based method, basic and diluted pro forma net income (loss) per share would have been $0.10 and $(0.05) for the three months ended March 31, 2005 and 2004, respectively.

     There were no stock options granted or share warrants issued by the Company during the three months ended March 31, 2005. For stock options granted and share warrants issued during the three months ended March 31, 2004, a weighted average fair value of $13.69 was calculated based on weighted average assumptions which included: expected life of 3 years, volatility of 61%, risk-free interest rate of 2.3% and zero dividend yields.

     The weighted average assumptions used for the six-month offering periods ended below and the resulting estimates of the weighted average fair value of ordinary shares issued under employee stock purchase plans were as follows:

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Recent Pronouncements

     Share Based Payments. In December 2004, the Financial Accounting Standards Board (“FASB”) issued FAS No. 123R, “Share-Based Payment, an Amendment of FASB Statements No. 123 and 95” (“FAS 123R”). This final standard replaces the existing requirements under FAS 123 and APB 25 and requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the statements of income. FAS 123R eliminates the ability to account for stock-based compensation transactions using APB 25 and requires instead that such transactions be accounted for using a fair-value based method. On April 15, 2005, the SEC issued a final rule delaying the implementation of FAS 123R. FAS 123R is now effective for annual periods beginning after June 15, 2005 and for interim periods in the annual periods thereafter.

     The Company has determined that there will be a significant impact on its results of operations as the result of accounting for previously granted or issued stock-based awards in accordance with FAS 123R. Commencing with the three months ending March 31, 2006, a pro rata portion of the expense calculated under FAS 123R will be expensed to the statements of income over the remaining requisite service period for options (currently estimated at three years) and the remaining term of office for nonemployee director warrants (currently estimated at one and one-half years). Based on the calculation provisions of FAS 123R, the Company currently anticipates approximately $50 million in total pre-tax expenses associated with stock options and share warrants which existed at March 31, 2005 and are expected to be unvested at January 1, 2006. This cost estimate has been reduced from the cost estimate as of December 31, 2004 of approximately $72 million to reflect the six-month delay in implementation of FAS 123R, which effectively reduces the number of unvested options outstanding on which the expense will be calculated. The cost estimate was also reduced as the result of stock option and share warrant exercises and cancellations during the three months ended March 31, 2005 which resulted in fewer outstanding stock options and share warrants at March 31, 2005. This total estimated expense will be impacted by factors which may include, but are not limited to: (i) individuals leaving the Company who forfeit unvested stock options for which no charge will be taken; (ii) changes to the exchange rate between the U.S. dollar and the euro as the Company’s options were issued in euros (other than those assumed in the Crystal Decisions Acquisition) but the expense will be reflected in U.S. dollars; and (iii) additional stock-based awards granted or issued after March 31, 2005.

     The transitional provisions of FAS 123R allow companies to select either a modified-prospective or modified-retrospective transition method which effectively dictates in which period the actual expense will be reported in the statements of income. The Company is in the process of determining which transitional method it will apply. In addition, the Company is in the process of determining the impact that FAS 123R will have on its cash flow from operations as a result of the change in the treatment of tax benefits. The Company cannot currently estimate the amount of stock-based compensation expense or the amount of associated tax benefit, if any, which will relate to stock-based awards granted or issued subsequent to March 31, 2005 and thereafter.

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2.	Derivative Financial Instruments

     The Company accounts for derivatives in accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”), as amended, and related interpretations. The Company’s derivative financial instruments are summarized in the table below.

(1) In April 2004, the Company began to enter into various euro-denominated forward contracts to purchase U.S. dollars, Canadian dollars and British pounds at a future date to enable its Irish subsidiary to settle intercompany loan obligations in those currencies. The forward contracts held at March 31, 2005 and December 31, 2004 had maturity dates ranging from April to October 2005 that coincided with due dates of intercompany loan obligations. These forward contracts did not qualify for hedge accounting; therefore, the change in the fair value of each forward contract at each period-end was recorded in interest and other income (expense), net. The changes in the fair value of the forward contracts were materially offset by the revaluation of the intercompany loan obligations for the three months ended March 31, 2005.

(2) In January 2005, certain of the Company’s subsidiaries entered into contracts for the option to purchase Canadian dollars against the euro and the U.S. dollar in order to meet certain expense requirements of these subsidiaries. In accordance with FAS 133, these option contracts have been designated as cash flow hedges and qualify for hedge accounting. At March 31, 2005, the option contracts outstanding had maturity dates ranging from April to October 2005. The goal of entering into a cash flow hedge is to minimize the impact on expenses of exchange rate fluctuations over the contract period. At March 31, 2005, in accordance with hedge accounting, mark-to-market gains of approximately $0.4 million on the revaluation of these option contracts were recorded in accumulated other comprehensive income with a corresponding entry to the option contract asset. There was no charge to the statement of income for the three months ended March 31, 2005.

     To receive hedge accounting treatment, cash flow hedges must be highly effective in achieving offsetting changes to expected future cash flows on hedged transactions. A hedge is considered effective if the expected amount, currency and timing of the cash flow hedge match anticipated cash outflows for which the cash flow hedge relates. Upon maturity or settlement of an option contract, hedge effectiveness is measured and the realized gain or loss attributable to the portion of the hedge which is determined to be effective is recorded in interest and other income (expense), net. In addition, the amount previously set up in accumulated other comprehensive income and the option contract asset or liability related to the previously unrealized portion of the exchange gain or loss is reversed. Should some portion of the hedge be determined to be ineffective, the

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portion of the unrealized gain or loss is realized in the period of determination. No option contracts matured in the three months ended March 31, 2005. At March 31, 2005, the Company had assessed that the option contracts still matched probable future cash flows for Canadian dollar intercompany cash flows, and therefore, still met the criteria to be classified as cash flow hedges. On April 15, 2005, certain of the option contracts matured and were assessed to be effective.

3.	Accounts Receivable

     Accounts receivable were stated net of allowance for doubtful accounts, distribution channel and other reserves of $12.5 million at March 31, 2005 and December 31, 2004. The allowance for doubtful accounts balance represented $8.0 million of the $12.5 million balance at March 31, 2005 and December 31, 2004.

4.	Goodwill and Other Intangible Assets

     The Company completed the annual impairment tests and concluded that no impairment existed at June 30, 2004. No subsequent events or changes in circumstances including, but not limited to, an adverse change in market capitalization, occurred to March 31, 2005 that caused the Company to perform an additional impairment analysis. No indicators of impairment were identified as of March 31, 2005.

     The change in the carrying amount of goodwill was as follows (in thousands):

     Other intangible assets consisted of the following (in thousands):

     Certain intangible assets and the related accumulated amortization balances are held by the Company’s foreign subsidiaries in local currencies and are revalued at the end of each reporting period, which may result in a higher or lower cost base for these assets than originally recorded. During the three months ended March 31, 2005, there were no additions or disposals of other intangible assets, with the entire change in cost attributable to currency revaluations.

     Other intangible assets are amortized on a straight-line basis over their respective estimated useful lives, which are generally 5 years. Total intangible amortization expense was $8.1 million for the three months ended March 31, 2005 and $7.8 million for the three months ended March 31, 2004. Amortization of developed technology of $5.5 million was included in cost of net license fees for the three months ended March 31, 2005, compared to $5.2 million for the three months ended March 31, 2004. Amortization of maintenance and support contracts of $2.3 million was included in cost of services revenues for each of the three months ended March 31, 2005 and 2004. Amortization of trade names of $0.3 million was included in general and administrative expenses for each of the three months ended March 31, 2005 and 2004.

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     The estimated future amortization expense on other intangible assets existing at March 31, 2005 is presented in U.S. dollars based on the March 31, 2005 period-end exchange rates and is not necessarily indicative of the exchange rates at which amortization expense for other intangible assets denominated in foreign currencies will be expensed (in thousands):

5.	Net Income per Share

     The components of basic and diluted net income per share were as follows:

     For the three months ended March 31, 2005, approximately 0.4 million stock options were exercised, of which approximately 0.3 million represented exercises of options held by Business Objects Option LLC. On March 31, 2005, approximately 0.3 million shares were issued to employees under employee stock purchase plans. At March 31, 2005 and 2004, respectively, 13.1 million and 16.4 million options and share warrants were outstanding in aggregate.

     For the three months ended March 31, 2005 and 2004, respectively, 6.6 million and 5.0 million outstanding options and share warrants to purchase ordinary shares or ADSs were excluded from the calculation of diluted net income per share because the options’ exercise price during the respective periods was greater than the average market price of the ordinary shares or ADSs and, therefore, the effect would have been anti-dilutive.

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6.	Comprehensive Income

     Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity and are excluded from net income. For the three months ended March 31, 2005, the Company’s other comprehensive income consisted of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency and unrealized gains on outstanding option contracts. For the three months ended March 31, 2004, other comprehensive income consisted solely of foreign currency translation adjustments.

7.	Business Segment Information

     The Company has one reportable segment – business intelligence software products. The Company recognizes its net license fees from three product families: Business Intelligence Platform, Enterprise Performance Management Applications and Data Integration. The Company does not provide services revenues by product family as it does not manage its operations on this basis. The following table summarizes net license fees recognized from each product family (in thousands):

     The following table summarizes the Company’s revenues by geographic region (in thousands):

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8.	Business Restructuring Charges

Crystal Decisions, Inc.

     In December 2003, prior to the Crystal Decisions Acquisition, management began to assess and formulate a plan to restructure the combined operations to eliminate duplicative activities, focus on strategic products and reduce the Company’s cost structure. The Board of Directors and management approved and committed the Company to the plan shortly after the completion of the Crystal Decisions Acquisition. The plan consisted primarily of costs associated with the involuntary termination of certain employees and the exit of certain facilities.

Restructuring Costs Expensed Related to Pre-acquisition Business Objects

     In accordance with FAS No. 146, “Cost Associated with Exit or Disposal Activities” (“FAS 146”), during the three months ended December 31, 2003, the Company accrued $7.8 million of costs related to employee severance and other related benefits. At December 31, 2004, the remaining liability balance of $0.9 million related to employee severance and other payments due to 20 previously terminated employees. The decrease in the liability of $6.9 million resulted from: (i) the payment of severance and benefits of approximately $7.0 million to 134 of the 159 employees who were part of the plan; (ii) a reduction in the liability of less than $0.1 million associated with a change in estimate of anticipated severance costs (which was charged to restructuring costs in the three months ended December 31, 2004); and (iii) an increase of approximately $0.2 million as a result of the impact of foreign currency exchange rates on translation of the accrual. At March 31, 2005, the remaining liability balance of $0.1 million related to payments due to eight employees which are expected to be paid before June 30, 2005. The decrease in the liability of $0.8 million in the three months ended March 31, 2005 resulted from (i) the payment of approximately $0.7 million of severance and benefits; and (ii) a reduction in the liability of less than $0.1 million associated with a change in estimate (which was charged to restructuring costs in the three months ended March 31, 2005). For presentation purposes, restructuring costs were consolidated into general and administrative expenses in the three months ended March 31, 2005.

     Commencing in the three months ended June 30, 2004, the Company recorded approximately $2.2 million of charges for 2004 related to costs incurred on the exit of eight facilities, of which approximately $0.8 million were paid in 2004, resulting in a liability balance of $1.4 million at December 31, 2004. At March 31, 2005, the remaining liability balance of $0.6 million related to costs associated with exiting three facilities. The decrease in the liability of $0.8 million in the three months ended March 31, 2005 primarily resulted from the payment of $0.7 million of exit costs. The remaining liability is expected to be paid on settlement of leases or over the course of the sub-lease.

Restructuring Costs Included as a Cost of the Crystal Decisions Acquisition

     Restructuring costs of $13.5 million related to the Crystal Decisions Acquisition ($10.8 million related to employee severance and $2.7 million related to the cost to abandon facilities) were accounted for under EITF Issue No. 95-3 “Recognition of Liabilities in Connection with Purchase Business Combinations”. These costs were recognized as an assumed liability in the acquisition and were included in the purchase price allocation at December 11, 2003.

     The charge of $10.8 million related to employee severance and other related benefits for 194 employees across all functions worldwide. There were no significant additional terminations associated with the restructuring plan. The Company paid severance and benefits of approximately $1.1 million to five employees during 2003. At March 31, 2005 and December 31, 2004, the remaining liability balance of $0.1 million related to employee severance due to one previously terminated employee. The decrease in the liability of $9.6 million resulted from: (i) the payment of severance and benefits of approximately $9.0 million to 154 of the 194 employees who were part of the plan; and (ii) a reduction in the liability of $0.6

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million associated with the costs not incurred for 34 previously-planned terminations (which was charged to goodwill in the three months ended June 30, 2004). The remaining liability is expected to be paid before June 30, 2005.

     The restructuring charge to abandon facilities of $2.7 million at December 31, 2003 related to estimated costs for future minimum lease payments associated with the planned closure of 11 facilities, net of estimated sublease income to be earned on these premises. At March 31, 2005 and December 31, 2004, the remaining liability balance of $0.7 and $0.8 million, respectively, related to two facilities which the Company is subletting with lease terms extending through 2008. The remainder of the facilities identified as part of the plan had been vacated at December 31, 2004, and the remaining liability balance will be drawn down by net cash payments over the lease terms. The decrease in the liability of $1.9 million from December 31, 2003 to December 31, 2004 resulted from: (i) the payment of $1.6 million of minimum lease payments and settlement costs, net of sublease income of less than $0.1 million; (ii) a reduction in the liability of $0.4 million due to changes in the estimates of costs (which was charged to goodwill in the three months ended December 31, 2004); and (iii) an increase of approximately $0.1 million as a result of the impact of foreign currency exchange rates on translation of the accrual.

Other Acquisitions

     In 2002, the Company was also involved in other acquisition and non-acquisition related restructurings. There was not any material activity related to these restructurings since December 31, 2004. The balances at and activity to December 31, 2004 are presented in Note 14 to the Consolidated Financial Statements included in the Company’s Form 10-K report filed on March 16, 2005 with the SEC.

9.	Commitments and Contingencies

Legal matters

     On October 17, 2001, the Company filed a lawsuit in the United States District Court for the Northern District of California against MicroStrategy Incorporated (“MicroStrategy”) for alleged patent infringement. The lawsuit alleged that MicroStrategy infringed the Company’s U.S. Patent No. 5,555,403 by making, using, offering to sell and selling MicroStrategy Versions 6.0, 7.0 and 7.0i. The Company’s complaint requested that MicroStrategy be enjoined from further infringing the patent and sought an as-yet undetermined amount of damages. On June 27, 2003, MicroStrategy filed a motion for summary judgment that its products do not infringe the Company’s patent. On August 29, 2003, the District Court ruled that the Company’s patent was not literally infringed and that the Company was estopped from asserting the doctrine of equivalents and dismissed the case. The Company appealed the District Court’s judgment to the Court of Appeals for the Federal Circuit. On January 6, 2005, the Court of Appeals for the Federal Circuit decided that the District Court incorrectly concluded that MicroStrategy’s products did not violate the Company’s patent and determined that the Company was not precluded from arguing that MicroStrategy’s products were equivalent to a claim in U.S. Patent No. 5,555,403. The District Court is scheduled to hear summary judgment motions on May 27, 2005. As a result, a trial date is expected to be set for late 2005 or early 2006.

     On October 30, 2001, MicroStrategy filed an action for alleged patent infringement in the United States District Court for the Eastern District of Virginia against the Company and its subsidiary, Business Objects Americas. The complaint alleged that the Company’s software products, BusinessObjects Broadcast Agent Publisher, BusinessObjects Broadcast Agent Scheduler and BusinessObjects Infoview, infringe MicroStrategy’s U.S. Patent Nos. 6,279,033 and 6,260,050. In December 2003, the Court dismissed MicroStrategy’s claim of infringement on U.S. Patent No. 6,279,033 without prejudice. On June 7, 2004, the Court informed the parties that the Court was of the opinion that summary judgment should be granted in the Company’s favor as to non-infringement of MicroStrategy’s U.S. Patent No. 6,260,050 and canceled the trial. On August 6, 2004, the Court entered a formal opinion and order formalizing this decision. On September 3,

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2004, MicroStrategy filed a Notice of Appeal with the Court of Appeals for the Federal Circuit. The Company expects a ruling by the Court of Appeals in late 2005 or early 2006.

     In April 2002, MicroStrategy obtained leave to amend its patent claims against the Company to include claims for misappropriation of trade secrets, violation of the Computer Fraud and Abuse Act, tortious interference with contractual relations and conspiracy in violation of the Virginia Code, seeking injunctive relief and damages. On December 30, 2002, the Court granted the Company’s motion for summary judgment and rejected MicroStrategy’s claims for damages as to the causes of action for misappropriation of trade secrets, Computer Fraud and Abuse Act and conspiracy in violation of the Virginia Code. On October 28, 2003, the Court granted judgment as a matter of law in favor of the Company and dismissed the jury trial on MicroStrategy’s allegations that the Company tortiously interfered with certain employment agreements between MicroStrategy and its former employees. The Court took MicroStrategy’s claim for misappropriation of trade secrets under submission. On August 6, 2004, the Court issued an order rejecting all of MicroStrategy’s claims for misappropriation of trade secrets except for a finding that a former employee of the Company had misappropriated two documents. The Court issued a limited injunction requiring the Company not to possess, use or disclose the two documents as to which it found misappropriation. The Court also denied MicroStrategy’s request for attorneys’ fees. On September 3, 2004, MicroStrategy filed a Notice of Appeal with the Court of Appeals for the Federal Circuit appealing each of the rulings. The Company expects a ruling by the Court of Appeals in late 2005 or early 2006.

     On December 10, 2003, MicroStrategy filed an action for patent infringement against Crystal Decisions in the United States District Court for the District of Delaware. The Company became a party to this action when it acquired Crystal Decisions. The complaint alleged that the Crystal Decisions’ software products: Crystal Enterprise, Crystal Reports, Crystal Analysis and Crystal Applications, infringe MicroStrategy’s U.S. Patent Nos. 6,279,033, 6,567,796 and 6,658,432. MicroStrategy has since alleged that BusinessObjects Enterprise XI, Crystal Reports XI and OLAP Intelligence XI, successors of the products initially accused, also infringe the patents named in the suit. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. The parties are currently engaged in extensive discovery and trial which was scheduled to start on November 7, 2005 has been postponed to May 30, 2006. The Company is defending the action vigorously.

     In November 1997, Vedatech Corporation (“Vedatech”) commenced an action in the Chancery Division of the High Court of Justice in the United Kingdom against Crystal Decisions (UK) Limited, now a wholly owned subsidiary of Business Objects Americas. The liability phase of the trial was completed in March 2002, and Crystal Decisions prevailed on all claims except for the quantum meruit claim. The High Court ordered the parties to mediate the amount of that claim and, in August 2002, the parties came to a mediated settlement. The mediated settlement was not material to Crystal Decisions’ operations and contained no continuing obligations. In September 2002, however, Crystal Decisions received notice that Vedatech was seeking to set aside the settlement. The mediated settlement and related costs were accrued in Crystal Decisions’ consolidated financial statements. In April 2003, Crystal Decisions filed an action in the High Court of Justice seeking a declaration that the mediated settlement agreement is valid and binding. In connection with this request for declaratory relief Crystal Decisions paid the agreed settlement amount into the High Court.

     In October 2003, Vedatech and Mani Subramanian filed an action against Crystal Decisions, Crystal Decisions (UK) Limited and Susan J. Wolfe, then Vice President, General Counsel and Secretary of Crystal Decisions, in the United States District Court, Northern District of California, San Jose Division, alleging that the August 2002 mediated settlement was induced by fraud and that the defendants engaged in negligent misrepresentation and unfair competition. The Company became a party to this action when it acquired Crystal Decisions. In July 2004, the United States District Court, Northern District of California, San Jose Division granted the defendants’ motion to stay any proceedings before such court pending resolution of the matters currently submitted to the English High Court. In October 2003, Crystal Decisions (UK) Limited, Crystal Decisions (Japan) K.K. and Crystal Decisions filed an application with the High Court claiming the

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proceedings in the United States District Court, Northern District of California, San Jose Division were commenced in breach of an exclusive jurisdiction clause in the settlement agreement and requesting injunctive relief to restrain Vedatech from pursuing the United States District Court proceedings. A hearing in the High Court of Justice took place on various dates between January 29, 2004 and March 9, 2004. On August 3, 2004, the High Court granted the anti-suit injunction but provided that the United States District Court, Northern District of California, San Jose Division could complete its determination of any matter that may be pending. Vedatech and Mr. Subramanian made application to the High Court for permission to appeal the orders of August 3, 2004 granting the anti-suit injunction, along with orders which were issued on May 19, 2004. These applications for permission to appeal have been listed before a panel of three judges, with an appeal to follow should the applications for permission to appeal succeed. The hearing has been listed for July 6, 7, 11 and 12, 2005.

     On July 15, 2002, Informatica Corporation (“Informatica”) filed an action for alleged patent infringement in the United States District Court for the Northern District of California against Acta Technology, Inc (“Acta”). The Company became a party to this action when it acquired Acta in August 2002. The complaint alleged that the Acta software products infringed Informatica’s U.S. Patent Nos. 6,014,670, 6,339,775 and 6,208,990. On July 17, 2002, Informatica filed an amended complaint alleging that the Acta software products also infringed U.S. Patent No. 6,044,374. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. The Company has answered the suit, denying infringement and asserting that the patents are invalid and other defenses. The parties are engaged in discovery and are awaiting a claim construction order to be issued by the Court. The Court vacated the August 16, 2004 trial date previously set and a new trial date is not likely to be set until the Court issues its claim construction order. The Company is defending the action vigorously.

     Between June 2 and July 1, 2004, four purported class action complaints were filed in the United States District Courts for the Northern District of California, the Southern District of California, and the Southern District of New York against the Company and certain of its current and former officers and directors. The actions commenced in the courts for the Southern District of California and the Southern District of New York were transferred to the Northern District of California. All four actions were consolidated into one action in the Northern District of California and a consolidated amended compliant (“CAC”) was filed in January 2005 seeking unspecified damages. The CAC alleged violations of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The plaintiffs seek to represent a putative class of investors in the Company’s American depositary receipts (“ADRs”) who purchased the ADRs between April 23, 2003 and May 5, 2004 (the “Class Period”). The complaint alleged that during that Class Period, the Company and the individual defendants made false or misleading statements in press releases and SEC filings regarding, among other things, the Company’s acquisition of Crystal Decisions, its Enterprise 6 product and the Company’s forecasts and financial results for the three months ended March 31, 2004. The actions are in the early stages and, in February 2005, the Company and other defendants moved to dismiss the CAC. The Company intends vigorously to contest these actions.

     On July 23, 2004, two purported shareholder derivative actions were filed in Santa Clara County Superior Court against certain of the Company’s current and former officers and directors, styled Bryan Aronoff, et al. v. Bernard Liautaud, et al. and Ken Dahms v. Bernard Liautaud, et al. The Company is named as a nominal defendant. The actions were consolidated into an action on August 16, 2004 and in September 2004, derivative plaintiffs filed a consolidated complaint. The complaint is based on the same facts and events alleged in the class action complaints and alleged violations of California Corporations Code Sections 25402 and 25502.5, breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment by certain of the Company’s current and former officers and directors.

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The derivative plaintiffs seek damages, disgorgement of profits, equitable, injunctive, restitutionary and other relief. In December 2004, defendants filed a motion to dismiss the complaint. On April 28, 2005, plaintiffs voluntarily dismissed the case without prejudice and this matter is concluded.

     On September 29, 2004, Decision Warehouse Consultoria E Importacao Ltda. filed an action in the Superior Court for the State of California, County of Santa Clara against Business Objects Americas and Business Objects Do Brasil, Ltda. for unspecified damages alleging breach of contract, intentional interference with prospective economic advantage and contract relationships, misappropriation of trade secrets, promissory fraud and unlawful business practices. The parties are currently engaged in discovery. No trial date has been set. The Company intends vigorously to defend this action.

     On December 22, 2004 Business Objects Americas and Business Objects Do Brasil, Ltda. filed a lawsuit in the Superior Court for the State of California, County of Santa Clara against Decision Warehouse Consultoria E Importacao Ltda. The lawsuit alleges violations of Brazilian copyright law, breach of contract, unfair business practices, account stated, open book account and for an accounting. The Company’s complaint requested damages according to proof, “moral” damages under Brazilian law and award of sums found due after accounting.

     The Company is also involved in various other legal proceedings in the ordinary course of business in addition to the items discussed above, none of which is believed to be material to its results of operations, liquidity or financial condition at this time. In accordance with FAS No. 5, “Accounting for Contingencies”, when the Company believes a loss is probable and can be reasonably estimated, the estimated loss is accrued in the consolidated financial statements. No provision is made in the consolidated financial statements until the loss, if any, is probable and can be reasonably estimated or the outcome becomes known. Unless otherwise noted, the Company cannot reasonably estimate at this time whether a monetary settlement will be reached or predict the outcome of these legal matters. Should an unfavorable outcome arise in any of these legal matters, there can be no assurance that such outcome would not have a material adverse affect on the Company’s results of operations, liquidity or financial position.

Commitments

     The Company leases its facilities and certain equipment under operating leases that expire at various times through 2020. At December 31, 2004, the Company estimated that the total future minimum lease payments under non-cancelable operating leases at $245.3 million in aggregate. During the three months ended March 31, 2005, the Company amended its lease agreement for its premises in Paris, France which resulted in an increase in the total commitment of approximately $13.8 million. The increase resulted from the 3-year term extension from the original termination date in July 2009 to July 2012, partially offset by a decrease in annual rent effective April 2005.

10.	Escrows Payable and Restricted Cash

     The Company held an aggregate of $6.7 million at March 31, 2005 and December 31, 2004 in escrows payable related to its August 2002 purchase of Acta, which were secured by restricted cash. These amounts are subject to indemnification obligations and were originally due to be released to the former Acta shareholders and employees in February 2004. In July 2002, Informatica filed an action for alleged patent infringement against Acta, which remained unresolved as of March 31, 2005. In accordance with the escrow agreement, one-third of the total amount in the escrow available to former Acta shareholders and employees was paid during the three months ended June 30, 2004. The remaining balance will be distributed once all claims related to the Informatica action are resolved. The escrow agreement provides that the remaining two-thirds in the escrow account may be used by the Company to offset costs incurred in defending itself against the Informatica action and any damages arising therefrom. At March 31, 2005, the Company had incurred $2.2 million of costs to defend the Informatica case, which the Company believes are eligible to be paid from

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the remaining amount in escrow. The costs associated with defending the case were included in the prepaid and other current assets balance.

     In addition, the Company’s obligations under its San Jose, California facility lease are collateralized by letters of credit totaling $7.0 million. The letters of credit are renewable and are secured by restricted cash.

11.	Credit Agreement

     On December 8, 2004, Business Objects entered into an unsecured credit facility (the “Credit Agreement”) which terminates on December 2, 2005. The Credit Agreement provides for borrowings of up to €100 million which can be drawn in euros, U.S. dollars or Canadian dollars. The Credit Agreement consists of €60 million to satisfy general corporate financing requirements and a €40 million bridge loan for the purpose of acquiring companies and/or for medium- and long-term financings. The Credit Agreement restricts certain of the Company’s activities including the extension of a mortgage, lien, pledge, security interest or other rights related to all or part of its existing or future assets or revenues, as security for any existing or future debt for money borrowed. This Credit Agreement replaces a credit agreement dated November 25, 2003 for €60 million that expired on November 25, 2004, at which time there were no borrowings outstanding. At March 31, 2005 and December 31, 2004, there were no drawings against or balances due related to the new Credit Agreement.

     Pursuant to the Credit Agreement, the amount available will be reduced by the aggregate of all outstanding drawings. Drawings are limited to advances in duration of 10 days to 12 months and must be at least equal to €1 million or the converted currency equivalent in U.S. dollars or Canadian dollars or a whole number multiple of these amounts. All drawings and interest amounts are due on the agreed upon credit repayment date determined at the time of the drawing. Interest will be calculated dependent on the currency in which the draw originally occurs. The Credit Agreement is subject to a commitment fee on the available funds, payable on the first day of each quarter. The terms of the agreement do not allow for the prepayment of any drawings without the prior approval of the lender. The Company has the option to reduce the credit available in multiples of €5 million, without penalty.

12.	Accounting for and Disclosure of Guarantees

     Guarantor’s Accounting for Guarantees. The Company enters into certain types of contracts from time to time that require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; (ii) certain agreements with the Company’s officers, directors, employees and third parties, under which the Company may be required to indemnify such persons for liabilities arising out of their efforts on behalf of the Company; and (iii) agreements under which the Company has agreed to indemnify customers and partners for claims arising from intellectual property infringement. The conditions of these obligations vary and generally a maximum obligation is not explicitly stated. Because the obligated amounts under these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Except as detailed below, the Company has not recorded any associated obligations at March 31, 2005 or December 31, 2004. The Company carries coverage under certain insurance policies to protect itself in the case of any unexpected liability; however, this coverage may not be sufficient.

     During the three months ended March 31, 2005, the Company entered into a guarantee agreement to guarantee the obligations of two subsidiaries to fulfill their performance and payment of all indebtedness related to all foreign exchange contracts with the bank. The guarantee, which provides for maximum liability coverage of $120 million, was approved by Board resolution on March 10, 2005 and executed thereafter. At March 31, 2005, there were three outstanding option contracts with the bank under this guarantee in the aggregate notional amount of Canadian $24.8 million. There was no liability related to these option contracts at March 31, 2005.

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     In order to secure a cash management arrangement with a certain bank, the Company guaranteed the obligations of its Canadian subsidiary to fulfill their payment of all debts and liabilities to the bank. At March 31, 2005 and December 31, 2004, there were no outstanding amounts due to this bank and thus no related liability associated with this guarantee.

     Product Warranties. The Company warrants to its customers that its software products will operate substantially in conformity with product documentation and that the physical media will be free from defect. The specific terms and conditions of the warranties are generally 30 days. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified warranty claims based on historical activity. The Company has not recorded a warranty accrual to date as there is no history of material warranty claims and no significant warranty issues have been identified.

     Environmental Liabilities. The Company engages in the development, marketing and distribution of software, and has never had any environmental related claims. The Company believes the likelihood of incurring a material loss related to environmental indemnification is remote due to the nature of its operations. The Company is unable to reasonably estimate the amount of any unknown or future claim and as such has not recorded any liability in accordance with the recognition and measurement provisions of FAS No. 143, “Accounting for Asset Retirement Obligations” (“FAS 143”).

     Other Liabilities and Other Claims. The Company is liable for certain costs of restoring leased premises to their original condition. In accordance with FAS 143, the Company measured and recorded the fair value of these obligations at March 31, 2005 and December 31, 2004 and such amounts were included in other current liabilities in the condensed consolidated balance sheets. These liabilities were not associated with the Crystal Decisions restructuring plan.

13.	Income Taxes

     The Company is subject to income taxes in numerous jurisdictions and the use of estimates is required in determining the Company’s provision for income taxes. Although the Company believes its tax estimates are reasonable, the ultimate tax determination involves significant judgment that could become subject to audit by tax authorities in the ordinary course of business. Due to the Company’s size, it contemplates it will regularly be audited by tax authorities in many jurisdictions.

     The Company provides for income taxes for each interim period based on the estimated annual effective tax rate for the year, adjusted for changes in estimates which occur during the period. During the three months ended March 31, 2005, the Company recorded approximately $1.8 million of net charges which impacted the quarterly rate, of which a significant component was a change in estimate related to research and development tax credits and non-creditable withholding taxes. As a result of these charges, the Company’s effective tax rate for the three months ended March 31, 2005 was 42%. The effective tax rate for the three months ended March 31, 2004 was 38%.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis should be read together with our Condensed Consolidated Financial Statements and the Notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about Business Objects and our industry. These forward-looking statements include, but are not limited to, statements concerning risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in the “Factors Affecting Future Operating Results” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Overview

     We are the world’s leading independent provider of Business Intelligence (“BI”) solutions. We develop, market and distribute software and provide services that enable organizations to track, understand and manage enterprise performance within and beyond the enterprise. We believe that data provided by the use of a BI solution allows organizations to make better and more informed business decisions. Users can view and interact with key performance indicators in a dashboard, create queries and reports, access catalogs of reports and do simple or complex analysis of data. We have one reportable segment – BI software products.

Key Performance Indicators

Results of Operations

     The following table shows each line item on our condensed consolidated statements of income as a percentage of total revenues (as calculated based on amounts in thousands rounded to the nearest percentage):

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Impact of Foreign Currency Exchange Rate Fluctuations on Results of Operations

     As we conduct a significant number of transactions in currencies other than the U.S. dollar, we have presented constant currency information, where meaningful, to provide information for assessing our underlying business performance excluding the effect of currency exchange rate fluctuations. As currency rates change from quarter to quarter and year over year, our results of operations may be impacted. For example, our results may show an increase or decrease in costs for a period; however, when the portion of those costs denominated in other currencies is translated into U.S. dollars at the same rate as the comparative quarter or year, the results may indicate a different change in balance, with the change being principally the result of fluctuations in the currency exchange rates. In order to present changes to our operating results in constant currency, our operating results were calculated by translating the results for the three months ended March 31, 2005 using the average rates in effect for the three months ended March 31, 2004. On a constant currency basis for the three months ended March 31, 2005, total revenues would have been $7.4 million lower than reported results and total cost of revenues and operating expenses in aggregate would have been $9.2 million lower than reported results, which would have resulted in $1.8 million of lower income from operations.

     From time to time, we and our subsidiaries transact in currencies other than the local currency of that entity. As a result, the asset and liability balances may be denominated in another currency than that of the local countries' and on settlement of these asset or liability balances, we may experience mark-to-market exchange gains or losses, which are recorded in interest and other income (expense), net.

Revenues

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     Net License Fees. Net license fees increased by $0.7 million, or less than 1%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (decrease of $3.1 million in constant currency). In December 2004, we released our newest product, BusinessObjects XI on the Windows NT platform. The launch of BusinessObjects XI completed the integration of the Crystal Decisions’ and Business Objects’ product lines. We did not recognize any revenues from BusinessObjects XI in 2004. During the three months ended March 31, 2005, we recorded over $15.0 million of net license fees from this product. In 2005, we expect to continue to release additional versions of BusinessObjects XI and related products for additional platforms and in additional languages.

     We expect the adoption of the newest release of our core products to be gradual and increase over several quarters. While the revenues recognized to date from BusinessObjects XI clearly indicate demand, we believe that some customers may wait to purchase BusinessObjects XI until further versions or platforms of this product have been released. Given the nature of software product transitions and considering the fact that certain current Business Objects’ and Crystal Decisions’ products will transition to end of life over the next two years, we experienced during the three months ended March 31, 2005 and expect to continue to experience a decrease in revenues from older product offerings. We cannot predict whether revenues from our products other than BusinessObjects XI will be consistent with patterns we have previously experienced or whether customer acceptance of BusinessObjects XI will be similar to our prior product releases. While we believe that our success in bringing to market an integrated product with a clear upgrade path has built customer confidence in our business, we anticipate that our net license fees and associated services revenues for 2005 will depend on the adoption rate of this new release.

     For the three months ended March 31, 2005, 47% of our net license fees were generated through our direct sales force and 53% were generated from channel partners, including original equipment manufacturers, value added resellers and system integrators. For the three months ended March 31, 2004, 53% of our net license fees were generated through our direct sales force and 47% were generated from channel partners. Historically, net license fees from direct sales comprised a greater percentage of total net license revenues. During 2004, as a result of the strengthening of our independent distributors and channel partners, our direct sales revenues were approximately the same as our indirect sales revenues. For the three months ended March 31, 2005, net license sales with revenues of more than $1.0 million were primarily from indirect sources. Large license sales can disproportionately affect the percentage of our total revenues derived from direct or indirect sales from one period to another. Large transactions are neither predictable nor consistent in size or timing. For example, during the three months ended March 31, 2005 we recognized nine net license fee transactions greater than $1.0 million (representing 19% of net license fees of which 38% were direct) versus seven transactions greater than $1.0 million in the three months ended March 31, 2004 (representing 10% of net license fees of which 75% were direct). No single customer or single channel partner represented more than 10% of total revenues during the periods presented.

     Services Revenues. Services revenues increased by $30.9 million, or 30%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (increase of $27.3 million in constant currency).

     Of the $30.9 million increase in services revenues, $26.3 million, or 36%, (increase of $23.6 million in constant currency) related to maintenance and technical support revenues. During the three months ended March 31, 2004, and directly associated with accounting for the acquisition of Crystal Decisions, we were required to exclude $12.6 million of certain maintenance revenues which would have otherwise been recognized from Crystal Decisions’ deferred maintenance revenues existing at the time of the acquisition. If we had been able to recognize those maintenance revenues, the increase in maintenance and technical support revenues in the three months ended March 31, 2005 would have been $13.7 million. The remainder of the increase in our maintenance and technical support services revenues results from: (i) increased installed base; (ii) strong maintenance renewal rates from existing customers; (iii) the addition of revenues associated with new customers; and (iv) changes to our pricing structure related to these services.

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     Of the $30.9 million increase in services revenues, $4.6 million, or 16%, (increase of $3.7 million in constant currency) related to professional services revenues including consulting and training. The increase in professional services revenues was due to our continued investment in our professional services teams and a greater number of large engagements during the period. These increases were partially offset by a slight decrease in training revenues.

     Geographic Revenues Mix

     The following shows the geographic mix of our total revenues:

     The following table shows total revenues by geographic mix for the three months ended March 31, 2004 as if we had been able to recognize certain deferred maintenance revenues which would have otherwise been recognized from Crystal Decisions’ deferred maintenance revenues existing at the time of the acquisition.

     Total revenues from the Americas increased 13% in the three months ended March 31, 2005 from the three months ended March 31, 2004, but decreased as a percentage of total revenues by 1%. Including the add-back of certain deferred maintenance revenues in the three months ended March 31, 2004, the increase in total revenues from the Americas was $4.0 million for the three months ended March 31, 2005. The remaining increase in revenues was attributable to the strength of our maintenance and technical support revenues, partially offset by a decline in license revenues from the Americas.

     Total revenues from EMEA increased 15% in the three months ended March 31, 2005 from the three months ended March 31, 2004, and increased as a percentage of total revenues by 1%. Including the add-back of certain deferred maintenance revenues in the three months ended March 31, 2004, the increase in total revenues from EMEA was $12.8 million for the three months ended March 31, 2005. The remaining increase in revenues was primarily the result of both license and consulting revenues associated with large transactions recognized, increased maintenance revenues and $5.8 million in favorable foreign exchange movements.

     Total revenues from Asia Pacific, including Japan, increased 17% in the three months ended March 31, 2005 from the three months ended March 31, 2004, and remained constant as a percentage of total revenues. Including the add-back of certain deferred maintenance revenues in the three months ended March 31, 2004, the increase in total revenues from Asia Pacific, including Japan was $2.2 million for the three months ended March 31, 2005. The remaining increase in revenues was primarily the result of increased maintenance and consulting revenues, partially offset by a decrease in license revenues.

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Cost of Revenues

     Cost of net license fees. Cost of net license fees decreased by $0.5 million, or 7%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (decrease of $0.9 million in constant currency). The majority of the cost of net license fees represented the amortization of developed technology of $5.5 million and $5.2 million for the three months ended March 31, 2005 and 2004, respectively. A large portion of the remaining costs related to costs associated with shipping our products, including major product releases in January 2005 (BusinessObjects XI) and January 2004 (Crystal Version 10 products). The decrease in cost of net license fees resulted from slight decreases in headcount and reduced third-party royalty costs as our product mix dependent on the technologies under royalty agreements declined. Gross margins on net license fees were 94% for the three months ended March 31, 2005 compared to 93% for the three months ended March 31, 2004.

     Cost of services revenues. Cost of services revenues increased $9.8 million, or 23%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (increase of $8.1 million in constant currency). The cost increases were attributable to costs associated with increased headcount, increased use of third-party consultants to support our consulting business, and increased facilities and information technology costs, partially offset by a reduction in non-capitalizable software and equipment costs.

     Gross margins on services revenues were 62% for the three months ended March 31, 2005 compared to 59% for the three months ended March 31, 2004. As part of our acquisition of Crystal Decisions, and as required under purchase accounting, we were required to eliminate and were unable to recognize approximately $12.6 million of deferred maintenance revenues from Crystal Decisions which would have been recorded in the three months ended March 31, 2004, had Crystal Decisions remained a stand alone company. The balance of deferred revenues which remained on the Crystal Decisions’ balance sheet at the date of purchase was equal to the estimate of the fair market value of costs associated with delivering these revenues. As such, the margin we earned in performing the services in 2004 associated with these deferred revenues was less than we earned on providing comparable services for the three months ended March 31, 2005. As a result, we expect gross margins on services revenues to be higher for the quarterly periods ending in 2005 compared to 2004, as was the case in the three months ended March 31 2005.

     In addition to the above, gross margins were impacted in the three months ended March 31, 2005 by: (i) higher margins due to the higher proportion of maintenance revenues versus consulting and training revenues; (ii) the mix of outsourcing used for specific engagements; and (iii) lower margins resulting from lower utilization rates for our internal consulting and training teams as these teams ramp-up to meet our business demands.

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Operating Expenses

     Total operating expenses increased by $10.2 million (increase of $3.1 million in constant currency), but decreased as a percentage of total revenues by 5%, in the three months ended March 31, 2005 compared to the three months ended March 31, 2004. The decrease as a percentage of total revenues was the result of: (i) cost synergies realized in the three months ended March 31, 2005; (ii) the absence of material integration costs associated with our acquisition of Crystal Decisions; and (iii) lower stock-based compensation expense related to assumed options from Crystal Decisions.

     Sales and Marketing Expenses. Sales and marketing expenses increased by $6.5 million, or 7%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (increase of $2.2 million in constant currency). The increase in sales and marketing expenses were associated with increases in headcount and related benefits costs, recruiting fees, and costs associated with the January 2005 launch and advertising campaign for BusinessObjects XI.

     Research and Development Expenses. Research and development expenses increased by $0.6 million, or 1%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (decrease of $1.5 million in constant currency). The three months ended March 31, 2004 was our first full quarter with both companies’ teams collaborating on developing our products. On a constant currency basis, research and development expenses decreased due to reduced headcount resulting from the consolidation of our research and development teams, and lower expenses associated with our off-shore outsourcing to India.

     General and Administrative Expenses. General and administrative expenses increased by $3.1 million, or 14%, in the three months ended March 31, 2005 from the three months ended March 31, 2004 (increase of $2.4 million in constant currency). The increase in the three months ended March 31, 2005 was primarily the result of additional professional, consulting and legal costs, most notably legal costs associated with defending patent infringement litigation that began in the previous year and consulting fees related to a project associated with improving our operational efficiencies, neither of which were significant costs in the three months ended March 31, 2004. In addition, expenses increased due to headcount costs associated with a larger number of temporary personnel required to assist us in complying with our regulatory requirements in both the United States and France. These cost increases were partially offset by a decrease in bad debt expense in the three months ended March 31, 2005 compared to the three months ended March 31, 2004.

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Interest and Other Income (Expense), Net

     Interest and other income (expense), net were comprised of the following:

     Net interest income increased as the average interest earning balances of cash and cash equivalents were higher for the three months ended March 31, 2005 compared to the three months ended March 31, 2004. As our worldwide cash position allows, we intend to invest in short-term investments which typically yield greater rates of return.

     Patent infringement settlement income consisted of quarterly payments from Cognos related to our U.S. Patent No. 5,555,403. Quarterly payments of $1.8 million commenced in September 2002 and concluded with a final quarterly payment in the three months ended June 30, 2004.

     Net foreign exchange gains (losses). During the three months ended March 31, 2005, the majority of the net foreign exchange gains represented gains on the settlement of certain fourth quarter intercompany balances which were settled in January 2005. These intercompany balances were not hedged under our hedging strategy in place at that time. We realized a gain on the settlement of these balances as our U.S. entity was able to purchase euros and Canadian dollars to settle these transactions at a time when the U.S. dollar had strengthened against the euro and the Canadian dollar. Additionally, part of this gain related to our Irish entity purchasing Canadian dollars to settle an intercompany balance at a time when the Canadian dollar had weakened against the euro.

     In January 2005, we expanded our hedging strategy and therefore do not anticipate that we will recognize this magnitude of gains or losses in future periods as we have covered the majority of our exposure via the use of either forward contracts or option contracts designated as cash flow hedges as further explained in Note 2 to the condensed consolidated financial statements.

     During the three months ended March 31, 2004, the majority of the net foreign exchange loss represented non-operating net currency exchange losses which were primarily caused by the effect of a stronger U.S. dollar on our euro-denominated intercompany U.S. dollar loans, which arose as part of the Crystal Decisions Acquisition and integration process. These intercompany loans and the interest thereon were eliminated on consolidation; however, we incurred mark-to-market non-cash foreign exchange losses on the revaluation of these loans from U.S. dollars to euros on the euro-denominated statutory books. Since April 2004, we have mitigated the majority of the impact on the statement of income by entering into forward contracts whereby the mark-to-market adjustments on the forward contracts generally offset the gains or losses on the revaluation of the intercompany loans.

Income Taxes

     We provide for income taxes for each interim period based on our estimated annual effective tax rate for the year, adjusted for changes in estimates which occur during the period. During the three months ended March 31, 2005, we recorded approximately $1.8 million of net charges which impacted the quarterly rate, of which a significant component was a change in estimate related to research and development tax credits and non-creditable withholding taxes. As a result of these charges, our effective tax rate for the three months ended March 31, 2005 was 42%. The effective tax rate for the three months ended March 31, 2004 was 38%.

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Liquidity and Capital Resources

     The following table summarizes our statements of cash flows and changes in cash and cash equivalents:

     Cash and cash equivalents totaled $374.5 million at March 31, 2005, an increase of $81.0 million from December 31, 2004. In addition to the cash and cash equivalents balance at March 31, 2005, we held $17.8 million in restricted cash and short-term investments. Our principal source of liquidity has been our operating cash flow and funds provided by stock option exercises and the issuance of shares under our employee stock purchase plans.

     Operating Activities. During the three months ended March 31, 2005, we generated greater cash resources than we used from operations. These cash resources resulted from net income of $15.0 million, payments received associated with the net decrease of $61.0 million in accounts receivables, partially offset by the payment of approximately $1.5 million against the restructuring liability and $6.1 million in payments against our liability under our French legal profit sharing plan. The net decrease in accounts receivables was due to the high level of collections made during the three months ended March 31, 2005. Given our strong fourth quarter of 2004, the significant amount of billings for maintenance renewals which generally are billed in the fourth quarter of the year, and efforts by our accounts receivable teams to collect receivables, our days sales outstanding decreased to 66 days at March 31, 2005 from 84 days at December 31, 2004. Given the seasonality of our revenues and related collection of receivables, we may not maintain this number of days sales outstanding in future quarters.

     During the three months ended March 31, 2004, we used more cash than we generated due to the payment of restructuring costs of $7.9 million and a net use of cash of $24.4 million in accrued payroll and related expenses, which included severance payments to former Crystal Decisions’ employees. We experienced a delay in the collection of accounts receivables as a result of a newly integrated collections team, which contributed to the net use of cash during the three months ended March 31, 2004. This slow down in collections resulted in an increase in days sales outstanding to 75 days at March 31, 2004 from 66 days at December 31, 2003.

     Investing Activities. Net cash used in investing activities of $7.5 million in the three months ended March 31, 2005 primarily related to the purchase of computer hardware and software and related infrastructure costs to support our growth, and to a lesser extent, costs associated with facilities improvements. Net cash used in investing activities of $7.7 million in the three months ended March 31, 2004 related to capital expenditures and other equipment costs, including costs related to the continued implementation of financial systems and information technology infrastructure.

     Financing Activities. Net cash provided by financing activities of $12.3 million in the three months ended March 31, 2005 and $13.9 million in the three months ended March 31, 2004, were each attributable to the issuance of ordinary shares or ADSs under our stock option and employee stock purchase plans. We expect the monies received on the exercise of options and purchase of shares to vary as we cannot predict

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when our employees will exercise their stock options or to what extent they will participate in our employee stock purchase plans.

Future Liquidity Requirements

     Changes in the demand for our products and services could impact our operating cash flow. We believe that our existing cash and cash equivalents will be sufficient to meet our consolidated cash requirements including but not limited to working capital, capital expenditures and operating lease commitments for at least the next 12 months. Although we expect to continue to generate cash from operations, we may seek additional financing from debt or equity issuances. In order to provide flexibility to obtain cash on a short-term basis, we entered into a €100.0 million credit agreement in the three months ended December 31, 2004, which can be drawn in euros, U.S. dollars or Canadian dollars, with €60.0 million to satisfy general corporate financing requirements and a €40.0 million bridge loan for the purpose of acquiring companies and/or for medium- and long-term financing. The credit agreement restricts certain of our activities including the extension of a mortgage, lien, pledge, security interest or other rights related to all or part of our existing or future assets or revenues, as security for any existing or future debt for drawings under the credit agreement. At March 31, 2005 and December 31, 2004, there were no drawings against or balances due related to this credit agreement.

Contractual Obligations

     Our contractual obligations have not changed materially from those presented as of December 31, 2004 in our Annual Report on Form 10-K, except for an amendment to a lease agreement which we entered into on March 29, 2005 for our Paris, France facility. The lease amendment will result in an increase of approximately $13.8 million of operating lease commitments over the duration of the lease. The increase in operating lease commitments resulted from the 3-year term extension to July 2012, partially offset by a decrease in annual rent effective April 2005. At December 31, 2004, our estimated commitment related to operating leases was $245.3 million, which included rent commitments related to our Paris, France facility through the original lease termination date of July 2009.

Guarantees

     Guarantor’s Accounting for Guarantees. From time to time, we enter into certain types of contracts that require us to indemnify parties against third party claims. These contracts primarily relate to: (i) certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities, and other claims arising from our use of the applicable premises; (ii) certain agreements with our officers, directors, employees and third parties, under which we may be required to indemnify such persons for liabilities arising out of their efforts on our behalf; and (iii) agreements under which we have agreed to indemnify customers and partners for claims arising from intellectual property infringement. The conditions of these obligations vary and generally a maximum obligation is not explicitly stated. Because the obligated amounts under these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Except as detailed below, we had not recorded any associated obligations on our balance sheets as of March 31, 2005 or December 31, 2004. We carry coverage under certain insurance policies to protect us in the case of any unexpected liability; however, this coverage may not be sufficient.

     During the three months ended March 31, 2005, we entered into a guarantee agreement to guarantee the obligations of two of our subsidiaries to fulfill their performance and payment of all indebtedness related to all foreign exchange contracts with the bank. The guarantee, which provides for maximum liability coverage of $120 million, was approved by Board resolution on March 10, 2005 and executed thereafter. At March 31, 2005, there were three outstanding option contracts with the bank under this guarantee in the aggregate notional amount of Canadian $24.8 million. There was no liability related to these option contracts at March 31, 2005.

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     In order to secure a cash management arrangement with a certain bank, we guaranteed the obligations of our Canadian subsidiary to fulfill their payment of all debts and liabilities to the bank. At March 31, 2005 and December 31, 2004, there were no outstanding amounts due to this bank and thus no related liability associated with this guarantee.

     Product Warranties. We warrant that our software products will operate substantially in conformity with product documentation and that the physical media will be free from defect. The specific terms and conditions of the warranties are generally 30 days. We accrue for known warranty issues if a loss is probable and can be reasonably estimated, and accrue for estimated incurred but unidentified warranty issues based on historical activity. We have not recorded a warranty accrual to date as there is no history of material warranty claims and no significant warranty issues have been identified.

     Environmental Liabilities. We engage in the development, marketing and distribution of software, and have never had an environmental related claim. We believe the likelihood of incurring a material loss related to environmental indemnification is remote due to the nature of our business. We are unable to reasonably estimate the amount of any unknown or future claim and as such we have not recorded a related liability in accordance with the recognition and measurement provisions of FAS No. 143, “Accounting for Asset Retirement Obligations” (“FAS 143”).

     Other Liabilities and Other Claims. We are liable for certain costs of restoring leased premises to their original condition. In accordance with FAS 143, we measured and recorded the fair value of these obligations at March 31, 2005 and December 31, 2004 and such amounts were included in other current liabilities in the condensed consolidated balance sheets. These liabilities were not associated with the Crystal Decisions restructuring plan.

Off-Balance Sheet Arrangements

     We did not have any off-balance sheet arrangements as of March 31, 2005 or December 31, 2004. In accordance with FAS No. 87, “Employers’ Accounting for Pensions” (“FAS 87”), our French pension plan which is managed by a third party is not consolidated into our condensed consolidated balance sheets, except for the net liability due to the plan which was zero at March 31, 2005 and approximately $0.1 million at December 31, 2004. In accordance with FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51”, employers are not required to apply the interpretation provisions of FIN 46 to their employee benefit plans that are accounted for under FAS 87. We have not provided the full disclosure under FAS No. 132R, “Employers’ Disclosures about Pensions and Other Postretirement benefit – an amendment of FASB Statements No. 87, 88, and 106” as this plan is not material to our operations.

Critical Accounting Policies

     Our audited consolidated financial statements and accompanying notes included in our 2004 Annual Report on Form 10-K and our unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates, judgments and assumptions are based upon information available to us at the time that they are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. We believe the following critical accounting policies reflect our most significant estimates, judgments and assumptions used in the preparation of our consolidated financial statements. We have reviewed these critical accounting policies and related disclosures, which appear in our 2004 Form 10-K, with our Audit Committee.

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	•	Recognition of revenues
	•	Business combinations
	•	Restructuring accruals
	•	Impairment of goodwill, intangible assets and long-lived assets
	•	Derivative instruments
	•	Contingencies and litigation
	•	Allowances for doubtful accounts
	•	Deferred income tax assets
	•	Stock-based compensation

     There have been no significant changes in our critical accounting policies during the three months ended March 31, 2005 compared to what was previously disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2004.

Recent Pronouncements

     Share Based Payments. In December 2004, the Financial Accounting Standards Board (“FASB”) issued the FAS No. 123R, “Share-Based Payment, an Amendment of FASB Statements No. 123 and 95” (“FAS 123R”). This final standard replaces the existing requirements under FAS 123 and APB 25 and requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the statements of income. FAS 123R eliminates the ability to account for stock-based compensation transactions using APB 25 and requires instead that such transactions be accounted for using a fair-value based method. On April 15, 2005, the SEC issued a final rule delaying the implementation of FAS 123R. FAS 123R is now effective for annual periods beginning after June 15, 2005 and for interim periods in the annual periods thereafter.

     We have determined that there will be a significant impact on our results of operations as a result of accounting for our previously granted or issued stock-based awards in accordance with FAS 123R. Commencing with the three months ending March 31, 2006, a pro rata portion of the expense calculated under FAS 123R will be expensed to the statements of income over the remaining requisite service period for options (currently estimated at three years) and the remaining term of office for nonemployee director warrants (currently estimated at one and one-half years). Based on the calculation provisions of FAS 123R, we currently anticipate approximately $50 million in total pre-tax expenses associated with stock options and share warrants which existed at March 31, 2005 and are expected to be unvested at January 1, 2006. This cost estimate has been reduced from the cost estimate as of December 31, 2004 of approximately $72 million to reflect the six-month delay in implementation of FAS 123R, which effectively reduces the number of unvested options outstanding on which the expense will be calculated. The cost estimate was also reduced as the result of stock option and share warrant exercises and cancellations during the three months ended March 31, 2005 which resulted in fewer outstanding stock options and share warrants at March 31, 2005. This total estimated expense will be impacted by factors which may include, but are not limited to: (i) individuals leaving us who forfeit unvested stock options for which no charge will be taken; (ii) changes to the exchange rate between the U.S. dollar and the euro as a our options were issued in euros (other than those assumed in the acquisition of Crystal Decisions) but the expense will be reflected in U.S. dollars; and (iii) additional stock-based awards granted or issued after March 31, 2005.

     The transitional provisions of FAS 123R allow companies to select either a modified-prospective or modified-retrospective transition method which effectively dictates in which period the actual expense will be reported in the statements of income. We are in the process of determining which transitional method we will apply. In addition, we are in the process of determining the impact that FAS 123R will have on our cash flow from operations as a result of the change in the treatment of tax benefits. We cannot currently estimate the amount of stock-based compensation expense or the amount of associated tax benefit, if any, which will relate to stock-based awards granted or issued subsequent to March 31, 2005 and thereafter.

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Factors Affecting Future Operating Results

     We operate in a rapidly changing environment that involves numerous uncertainties and risks. The following section describes some, but not all, of these risks and uncertainties that may adversely affect our business, financial condition or results of operations. This section should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying condensed notes thereto, and the other parts of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results and financial condition. We may make forward-looking statements from time to time, both written and oral. We undertake no obligation to revise or publicly release the results of any revisions to these forward looking statements based on circumstances or events which occur in the future. Our actual results may materially differ from those projected in any such forward looking statements due to a number of factors, including those set forth below and elsewhere in this Form 10-Q.

Risks Related to Our Business

Our quarterly operating results have been and will continue to be subject to fluctuations.

     Historically, our quarterly operating results varied substantially from quarter to quarter, and we anticipate that this will continue. This fluctuation occurs principally because our net license fees vary from quarter to quarter, while a high percentage of our operating expenses are relatively fixed and are based on anticipated levels of revenues. While the variability of our net license fees is partially due to factors that would influence the quarterly results of any company, our business is particularly susceptible to quarterly variations because:

	•	we typically receive a substantial amount of our revenues in the last weeks of the last month of a quarter, rather than evenly throughout the quarter;
	•	our customers typically wait until their fourth quarter, the end of their annual budget cycle, before deciding whether to purchase new software;
	•	economic activity in Europe generally slows during the summer months;
	•	customers may delay purchasing decisions in anticipation of changes to our product line, other new products, product enhancements or platforms or in response to announced pricing changes by us or our competitors;
	•	we expect our revenues to vary based on the mix of products and services and the amount of consulting services that our customers order;
	•	we depend, in part, on large orders and any delay in closing a large order may result in the realization of potentially significant net license fees being postponed from one quarter to the next; and
	•	we expect our revenues to be sensitive to the timing of offers of new products that successfully compete with our products on the basis of functionality, price or otherwise.

     General market conditions and other domestic or international macroeconomic and geopolitical factors unrelated to our performance also affect our quarterly revenues and operating results. For these reasons, quarter to quarter comparisons of our revenues and operating results may not be meaningful and you should not rely on them to be indicative of our future performance.

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We may be unable to sustain or increase our profitability.

     While we were profitable in our most recent quarter and fiscal year, our ability to sustain or increase profitability on a quarterly or annual basis will be affected by changes in our business and the demand for our products. We expect our operating expenses to increase as our business grows, and we anticipate that we will make investments in our business. Therefore, our results of operations will be harmed if our revenues do not increase at a rate equal to or greater than increases in our expenses or are insufficient for us to sustain profitability.

Our revenues may be unpredictable due to the recent release of our BusinessObjects XI product, which integrates our existing Business Objects and Crystal Decisions product lines, and the expected end of life of our existing Business Objects and Crystal Decisions products.

     In the past, customers have deferred purchasing decisions as the expected release date of our new products have approached, and have delayed making purchases of the new product to permit them to undertake a more complete evaluation or until industry analysts have commented upon the products. We released the Windows NT version of BusinessObjects XI in December 2004. BusinessObjects XI could be particularly susceptible to deferred or delayed orders, since it represents the integration of our former stand-alone Business Objects and Crystal Decisions product lines. Before purchasing BusinessObjects XI, some customers may delay purchasing until the new product is available in their desired configuration, until later releases or until industry analysts have commented on the product.

     The customer hesitation could result in delays in purchasing from one quarter to the next, causing quarterly orders and associated shipments and revenues to vary more significantly during this transition than we have previously experienced. The impact on revenues of the introduction of BusinessObjects XI may be exacerbated or reduced by normal seasonal spending patterns. Our customers can elect to continue to use stand-alone products for some time and we may not be able to convince them to adopt our combined product. As a result, we may have to continue to support multiple products for a period of time.

     In addition, we anticipate that the pattern of adoption of BusinessObjects XI by existing customers, and the impact on our revenues, may not be consistent with the patterns we have previously experienced because we have announced that the old Business Objects and Crystal Decisions’ products will transition to end of life over the next two years. Existing customers will be deciding whether and when to transition to the integrated BusinessObjects XI product, which may be viewed by them as a more significant decision about how to manage their BI platform. We cannot anticipate whether the product transition will result in a prolonged adoption cycle for BusinessObjects XI or what the impact will be on maintenance revenues for the existing Business Objects and Crystal Decisions’ products prior to their end of life.

Charges to earnings resulting from our acquisition of Crystal Decisions and additional restructuring and operating expenses may adversely affect the market value of our shares.

     We have accounted for our acquisition of Crystal Decisions using the purchase method of accounting in accordance with U.S. GAAP. The portion of the estimated purchase price allocated to acquired in-process research and development was expensed in the three months ended December 31, 2003.

     We expect to incur additional amortization expense over the useful lives of certain other intangible assets acquired in connection with the acquisition, which will reduce our operating results through 2008. In addition, we recorded goodwill of $978.0 million in connection with the acquisition. If this goodwill, other intangible assets with indefinite lives or other assets acquired in the acquisition become impaired, we may be required to incur material charges. Any significant impairment charges will have a negative effect on our operating results and could reduce the market price of our shares.

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     We incurred $2.2 million in restructuring expenses during 2004, and do not expect to incur any significant additional restructuring expenses in 2005. We cannot be sure that these expenses and charges will not be higher than we currently anticipate. These and any additional restructuring or operating expenses and charges could adversely affect our results of operations.

If we overestimate revenues, we may be unable to reduce our expenses to avoid or minimize a negative impact on our quarterly results of operations.

     Our revenues are difficult to forecast and are likely to fluctuate significantly from quarter to quarter. Our estimates of sales trends may not correlate with actual revenues in a particular quarter or over a longer period of time. Variations in the rate and timing of conversion of our sales prospects into actual licensing revenues could cause us to plan or budget inaccurately and those variations could adversely affect our financial results. In particular, delays, reductions in amount or cancellation of customers’ purchases would adversely affect the overall level and timing of our revenues, which could then harm our business, results of operations and financial condition.

     In addition, because our costs will be relatively fixed in the short term, we may be unable to reduce our expenses to avoid or minimize the negative impact on our quarterly results of operations if anticipated revenues are not realized. As a result, our quarterly results of operations could be worse than anticipated.

Changes to current accounting policies could have a significant effect on our reported financial results or the way in which we conduct our business.

     We prepare our financial statements in conformity with U.S. GAAP, which is a body of guidance that is subject to interpretation or influence by the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC and various bodies formed to interpret and create appropriate accounting policies. Until and including 2004, we also prepared financial statements in accordance with French GAAP according to French law. Effective January 1, 2005, our statutory and consolidated French financial statements will be prepared in conformity with International Financial Reporting Standards (“IFRS”). The International Accounting Standards Board, which is the body formed to create the international standards, has undertaken a convergence program to eliminate a variety of differences between IFRS and U.S. GAAP. The most significant differences for us between U.S. GAAP and IFRS relate to the treatment of stock-based compensation expense and the accounting for treasury shares related to a prior acquisition. For our consolidated financial statements prepared in accordance with IFRS, our previously reported results were required to be restated in accordance with IFRS. The opening balance sheet as of January 1, 2004 in accordance with IFRS was filed on April 26, 2005 with the Autorité des Marchés Financiers in France in our 2004 Document de Référence. Our accounting policies that recently have been or may in the future be affected by the changes in the accounting rules are as follows:

	•	software revenue recognition;
	•	accounting for stock-based compensation;
	•	accounting for variable interest entities; and
	•	accounting for goodwill and other intangible assets.

     Changes in these or other rules, or the questioning of current practices, may have a significant adverse effect on our reported operating results or in the way in which we conduct our business.

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Our market is highly competitive, which could harm our ability to sell products and services and reduce our market share.

     The market in which we compete is intensely competitive, highly fragmented and characterized by changing technology and evolving standards. Our competitors may announce new products, services or enhancements that better meet the needs of customers. Increased competition may cause price reductions or a loss of market share, either of which could have a material adverse effect on our business, results of operations and financial condition.

     Additionally, we may face competition from many companies with whom we have strategic relationships, including Hyperion Solutions Corporation, International Business Machines Corporation, Lawson Software, Inc., Microsoft Corporation, Oracle Corporation, PeopleSoft, Inc. and SAP AG, all of whom offer business intelligence products that compete with our products. For example, Microsoft has extended its SQL server business intelligence platform to include reporting capabilities which compete with our enterprise reporting solutions. These companies could bundle their business intelligence software with their other products at little or no cost, giving them a potential competitive advantage over us. Because our products will be specifically designed and targeted to the business intelligence software market, we may lose sales to competitors offering a broader range of products.

Some of our competitors may have greater financial, technical, sales, marketing and other resources than we do. In addition, acquisitions of or other strategic transactions by our competitors could weaken our competitive position or reduce our revenues.

     Some of our competitors may have greater financial, technical, sales, marketing and other resources than we do. In addition, some of these competitors may enjoy greater name recognition and a larger installed customer base than we do. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion, sale and support of their products. In addition, some of our competitors may be more successful than we are in attracting and retaining customers. Moreover, some of our competitors, particularly companies that offer relational database management software systems, enterprise resource planning software systems and customer relationship management systems may have well established relationships with some of our existing and targeted customers. This competition could harm our ability to sell products and services, which may lead to lower prices for our products, reduced revenues, reduced gross margins and, ultimately, reduced market share.

     If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Furthermore, companies larger than ours could enter the market through internal expansion or by strategically aligning themselves with one of our competitors and providing products that cost less than our products. Our competitors may also establish or strengthen cooperative relationships with our current or future distributors, resellers, original equipment manufacturers or other parties with whom we have relationships, thereby limiting our ability to sell through these channels and reducing promotion of our products.

We may pursue strategic acquisitions and investments that could have an adverse effect on our business if they are unsuccessful.

     As part of our business strategy, we have acquired companies, technologies and product lines to complement our internally developed products. We expect that we will have a similar business strategy going forward. There is the risk that the contemplated benefits of an acquisition may not materialize within the time periods or to the extent anticipated. Critical to the success of this strategy in the future and, ultimately, our business as a whole, is the orderly, effective integration of acquired businesses, technologies, product lines and employees into our organization. If our integration of future acquisitions is unsuccessful, our business

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will suffer. There is also the risk that our valuation assumptions and models for an acquired product or business may be overly optimistic or incorrect if customers do not demand the acquired company’s products to the extent we expect, the technology does not function as we expect or the technology we acquire is the subject of infringement or trade secret claims by third parties.

We have strategic relationships with Microsoft and SAP which, if terminated, could reduce our revenues and harm our operating results.

     We have strategic relationships with Microsoft and SAP that enable us to bundle our products with those of Microsoft and SAP, and we are also developing certain utilities and products to be a part of Microsoft’s and SAP’s products. We will have limited control, if any, as to whether Microsoft or SAP will devote adequate resources to promoting and selling our products. In addition, Microsoft and SAP have designed their own BI software. If either Microsoft or SAP reduces its efforts on our behalf or discontinues its relationship with us and instead develops a relationship with one of our competitors or increases its selling efforts of its own business intelligence software, our revenues and operating results may be reduced. For example, Microsoft is actively marketing its reporting product for its SQL server BI platform.

We sell products only in the business intelligence software market; if sales of our products in this market decline, our operating results will be harmed.

     We generate substantially all of our revenues from licensing, support and services in conjunction with the sale of our products in the business intelligence software market. Accordingly, our future revenues and profits will depend significantly on our ability to further penetrate the business intelligence software market. If we are not successful in selling our products in our targeted market due to competitive pressures, technological advances by others or other reasons, our operating results would suffer.

If the market in which we sell business intelligence software does not grow as anticipated, our future profitability could be negatively affected.

     The BI software market is still emerging, and our success depends upon the growth of this market. Our potential customers may:

	•	not fully value the benefits of using BI products;
	•	not achieve favorable results using BI products;
	•	experience technical difficulty in implementing BI products; or
	•	use alternative methods to solve the problems addressed by BI software.

     These factors may cause the market for BI software not to grow as quickly or become as large as we anticipate, which may adversely affect our revenues.

Our software may have defects and errors that may lead to a loss of revenues or product liability claims.

     Our products and platforms are internally complex and may contain defects or errors, especially when first introduced or when new versions or enhancements are released. Despite extensive testing, we may not detect errors in our new products, platforms or product enhancements until after we have commenced commercial shipments. If defects and errors are discovered after commercial release of either new versions or enhancements of our products and platforms:

•

potential customers may delay purchases;

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	•	customers may react negatively, which could reduce further sales;
	•	our reputation in the marketplace may be damaged;
	•	we may have to defend product liability claims;
	•	we may be required to indemnify our customers, distributors, original equipment manufacturers or other resellers;
	•	we may incur additional service and warranty costs; and
	•	we may have to divert additional development resources to correct the defects and errors, which may result in delay of new product releases or upgrades.

     If any or all of the foregoing occur, we may lose revenues, incur higher operating expenses and lose market share, any of which could severely harm our financial condition and operating results.

We may have difficulties providing and managing large scale deployments, which could cause a decline or delay in recognition of our revenues and an increase in our expenses.

     We may have difficulty managing the timeliness of our large scale deployments and our internal allocation of personnel and resources. Any difficulty could cause us to lose existing customers, face potential customer disputes or limit the number of new customers who purchase our products or services, which could cause a decline in or delay in recognition of revenues, and could cause us to increase our research and development and technical support costs, either of which could adversely affect our operating results.

     In addition, we generally have long sales cycles for our large scale deployments. During a long sales cycle, events may occur that could affect the size, timing or completion of the order. For example, the potential customer’s budget and purchasing priorities may change, the economy may experience a downturn or new competing technology may enter the marketplace, any of which could reduce our revenues.

While we believe that we currently have adequate internal control over financial reporting, we are exposed to risks from recent legislation requiring companies to evaluate internal control over financial reporting.

     Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on and our independent registered public accounting firm to attest to the effectiveness of our internal control over financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements. This requirement has only recently become effective and neither we nor our independent registered public accounting firm has significant experience in complying or assessing compliance.

     We expect to continue to incur significant expenses and to devote additional resources to Section 404 compliance on an ongoing basis. In addition, it is difficult for us to predict how long it will take to complete the assessment of the effectiveness of our internal control over financial reporting each year and we may not be able to complete the process on a timely basis. In the event that our chief executive officer, chief financial officer or independent registered public accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected.

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We cannot be certain that our internal control over financial reporting will be effective or sufficient in the future.

     It may be difficult to design and implement effective internal control over financial reporting for combined operations and differences in existing controls of acquired businesses may result in weaknesses that require remediation when internal controls over financial reporting are combined. For example, we were required to integrate the financial reporting systems of Crystal Decisions with our existing systems in 2004. The integration of two compliant systems could result in a noncompliant system or an acquired company may not have compliant systems at all. In either case, the effectiveness of our internal control may be impaired. Our ability to manage our operations and growth will require us to improve our operations, financial and management controls, as well as our internal control over financial reporting. We may not be able to implement improvements to our internal control over financial reporting in an efficient and timely manner and may discover deficiencies and weaknesses in existing systems and controls; especially when such systems and controls are tested by increased scale of growth or the impact of acquisitions.

The software market in which we operate is subject to rapid technological change and new product introductions, which could negatively affect our product sales.

     The market for BI software is characterized by rapid technological advances, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. The emergence of new industry standards in related fields may adversely affect the demand for our products. To be successful, we must develop new products, platforms and enhancements to our existing products that keep pace with technological developments, changing industry standards and the increasingly sophisticated requirements of our customers. Introducing new products into our market has inherent risks including those associated with:

	•	adapting third-party technology, including open source software;
	•	successful education and training of sales, marketing and consulting personnel;
	•	effective marketing and market acceptance;
	•	proper positioning and pricing; and
	•	product quality, including possible defects.

     If we are unable to respond quickly and successfully to these developments and changes, we may lose our competitive position. In addition, even if we are able to develop new products, platforms or enhancements to our existing products, these products, platforms and product enhancements may not be accepted in the marketplace. Further, if we do not adequately time the introduction or the announcement of new products or enhancements to our existing products, or if our competitors introduce or announce new products, platforms and product enhancements, our customers may defer or forego purchases of our existing products. In addition, we will have expended substantial resources without realizing the anticipated revenues which would have an adverse effect on our results of operations and financial condition.

We are currently a party to several lawsuits with MicroStrategy. The prosecution of these lawsuits could have a substantial negative impact on our business. Should MicroStrategy prevail, we may be required to pay substantial monetary damages or be prevented from selling some of our products.

     On October 17, 2001, we filed a lawsuit in the United States District Court for the Northern District of California against MicroStrategy for alleged patent infringement. The lawsuit alleged that MicroStrategy infringed our U.S. Patent No. 5,555,403 by making, using, offering to sell and selling MicroStrategy Versions 6.0, 7.0 and 7.0i. Our complaint requested that MicroStrategy be enjoined from further infringing the patent

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and sought an as-yet undetermined amount of damages. On June 27, 2003, MicroStrategy filed a motion for summary judgment that its products do not infringe our patent. On August 29, 2003, the District Court ruled that our patent was not literally infringed and that we were estopped from asserting the doctrine of equivalents and dismissed the case. We appealed the District Court’s judgment to the Court of Appeals for the Federal Circuit. On January 6, 2005, the Court of Appeals for the Federal Circuit decided that the District Court incorrectly concluded that MicroStrategy’s products did not violate our patent and determined that we were not precluded from arguing that MicroStrategy’s products were equivalent to claim in U.S. Patent No. 5,555,403. The District Court is scheduled to hear summary judgment motions on May 27, 2005. As a result, a trial date is expected to be set for late 2005 or early 2006. We cannot reasonably estimate at this time whether a monetary settlement will be reached.

     On October 30, 2001, MicroStrategy filed an action for alleged patent infringement in the United States District Court for the Eastern District of Virginia against us and our subsidiary, Business Objects Americas. The complaint alleged that our software products, BusinessObjects Broadcast Agent Publisher, BusinessObjects Broadcast Agent Scheduler and BusinessObjects Infoview, infringed MicroStrategy’s U.S. Patent Nos. 6,279,033 and 6,260,050. In December 2003, the Court dismissed MicroStrategy’s claim of infringement on U.S. Patent No. 6,279,033 without prejudice. Trial on U.S. Patent No. 6,260,050 was scheduled to begin June 14, 2004. On June 7, 2004, the Court informed the parties that the Court was of the opinion that summary judgment should be granted in our favor as to non-infringement of MicroStrategy’s Patent No. 6,260,050 and canceled the trial. On August 6, 2004, the Court entered a formal opinion and order formalizing this decision. On September 3, 2004, MicroStrategy filed a Notice of Appeal with the Court of Appeals for the Federal Circuit. We expect a ruling by the Court of Appeals in late 2005 or in 2006.

     In April 2002, MicroStrategy obtained leave to amend its patent claims against us to include claims for misappropriation of trade secrets, violation of the Computer Fraud and Abuse Act, tortious interference with contractual relations and conspiracy in violation of the Virginia Code seeking injunctive relief and damages. On December 30, 2002 the Court granted our motion for summary judgment and rejected MicroStrategy’s claims for damages as to the causes of action for misappropriation of trade secrets, Computer Fraud and Abuse Act and conspiracy in violation of the Virginia Code. On October 28, 2003, the Court granted judgment as a matter of law in our favor and dismissed the jury trial on MicroStrategy’s allegations that we tortiously interfered with certain employment agreements between MicroStrategy and its former employees. The Court took MicroStrategy’s claim for misappropriation of trade secrets under submission. On August 6, 2004, the Court issued an order rejecting all of MicroStrategy’s claims for misappropriation of trade secrets except for a finding a former employee of ours had misappropriated two documents. The Court issued a limited injunction requiring us not to possess, use or disclose the two documents as to which it found misappropriation. The Court also denied MicroStrategy’s request for attorneys’ fees. On September 3, 2004 MicroStrategy filed a Notice of Appeal with the Court of Appeals for the Federal Circuit appealing each of the rulings. We expect a ruling by the Court of Appeals in late 2005 or early 2006.

     On December 10, 2003, MicroStrategy filed an action for patent infringement against Crystal Decisions in the United States District Court for the District of Delaware. We became a party to this action when we acquired Crystal Decisions. The complaint alleged that the Crystal Decisions’ software products: Crystal Enterprise, Crystal Reports, Crystal Analysis and Crystal Applications, infringed MicroStrategy’s U.S. Patent Nos. 6,279,033, 6,567,796 and 6,658,432. MicroStrategy has since alleged that BusinessObjects XI, Crystal Reports XI and OLAP Intelligence XI, successors of the products initially accused, also infringe the patents named in the suit. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. The parties are currently engaged in extensive discovery and trial which was scheduled to begin on November 7, 2005 has been postponed to May 30, 2006. We are defending this action vigorously. Should an unfavorable outcome arise, there can be no assurance that such outcome would not have a material adverse affect on our results of operations, liquidity or financial position.

     We believe that we have meritorious defenses to MicroStrategy’s various allegations and claims in each of the suits and we intend to continue vigorously to defend the actions. However, because of the

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inherent uncertainty of litigation in general, and the fact that the discovery related to certain of these suits is ongoing, we cannot assure you that we will ultimately prevail. Should MicroStrategy ultimately succeed in the prosecution of its claims, we could be permanently enjoined from selling some of our products and deriving related maintenance revenues. In addition, we could be required to pay substantial monetary damages to MicroStrategy.

     Litigation such as the suits MicroStrategy has brought against us can take years to resolve and can be expensive to defend. An adverse judgment, if entered in favor of any MicroStrategy claim, could seriously harm our business, results of operations and financial position and cause our stock price to decline substantially. In addition, the MicroStrategy litigation, even if ultimately determined to be without merit, will be time consuming to defend, divert our management’s attention and resources and could cause product shipment delays or require us to enter into royalty or license agreements. These royalty or license agreements may not be available on terms acceptable to us, if at all, and the prosecution of the MicroStrategy allegations and claims could significantly harm our business, financial position and results of operations and cause our stock price to decline substantially.

We are a party to litigation with Vedatech Corporation and, in the event of an adverse judgment against us, we may have to pay damages, which could adversely affect our financial position and results of operations.

     In November 1997, Vedatech commenced an action in the Chancery Division of the High Court of Justice in the United Kingdom against Crystal Decisions (UK) Limited, now a wholly owned subsidiary of Business Objects Americas. The liability phase of the trial was completed in March 2002, and Crystal Decisions prevailed on all claims except for the quantum meruit claim. The High Court ordered the parties to mediate the amount of that claim and, in August 2002, the parties came to a mediated settlement. The mediated settlement was not material to Crystal Decisions’ operations and contained no continuing obligations. In September 2002, however, Crystal Decisions received notice that Vedatech was seeking to set aside the settlement. The mediated settlement and related costs were accrued in Crystal Decisions’ consolidated financial statements. In April 2003, Crystal Decisions filed an action in the High Court of Justice seeking a declaration that the mediated settlement agreement is valid and binding. In connection with this request for declaratory relief Crystal Decisions paid the agreed settlement amount into the High Court.

     In October 2003, Vedatech and Mani Subramanian filed an action against Crystal Decisions, Crystal Decisions (UK) Limited and Susan J. Wolfe, then Vice President, General Counsel and Secretary of Crystal Decisions, in the United States District Court, Northern District of California, San Jose Division, that alleged that the August 2002 mediated settlement was induced by fraud and that the defendants engaged in negligent misrepresentation and unfair competition. We became a party to this action when we acquired Crystal Decisions. In July 2004, the United States District Court, Northern District of California, San Jose Division granted the defendants’ motion to stay any proceedings before such court pending resolution of the matters currently submitted to the English High Court. In October 2003, Crystal Decisions (UK) Limited, Crystal Decisions (Japan) K.K. and Crystal Decisions filed an application with the High Court claiming the proceedings in United States District Court, Northern District of California, San Jose Division were commenced in breach of an exclusive jurisdiction clause in the settlement agreement and requesting injunctive relief to restrain Vedatech from pursuing the United States District Court proceedings. A hearing in the High Court of Justice took place on various dates between January 29 and March 9, 2004. On August 3, 2004, the High Court granted the anti-suit injunction but provided that the United States District Court, Northern District of California, San Jose Division could complete its determination of any matter that may be pending. Vedatech and Mr. Subramanian made application to the High Court for permission to appeal the orders of August 3, 2004 granting the anti-suit injunction, along with orders which were issued on May 19, 2004. These applications for permission to appeal have been listed before a panel of three judges, with an appeal to follow should the applications for permission to appeal succeed. The hearing has been listed for July 6, 7, 11 and 12, 2005.

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     Although we believe that Vedatech’s basis for seeking to set aside the mediated settlement and its claims in the October 2003 complaint is meritless, the outcome cannot be determined at this time. If the mediated settlement were to be set aside, an ultimate damage award could adversely affect our results of operations, liquidity or financial position.

We are a party to litigation with Informatica and, in the event of an adverse judgment against us, we may have to pay damages or be prevented from selling some of our products, which could adversely affect our financial position and results of operations.

     On July 15, 2002, Informatica filed an action for alleged patent infringement in the United States District Court for the Northern District of California against Acta Technology, Inc. We became a party to this action when we acquired Acta in August 2002. The complaint alleged that the Acta software products infringed Informatica’s U.S. Patent Nos. 6,014,670, 6,339,775 and 6,208,990. On July 17, 2002, Informatica filed an amended complaint that alleged that the Acta software products also infringe U.S. Patent No. 6,044,374. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. We have answered the suit, denying infringement and asserting that the patents are invalid and other defenses. The parties are currently engaged in discovery and are awaiting a claim construction order to be issued by the Court. The Court vacated the August 16, 2004 trial date previously set and a new trial date is not expected to be set until the Court issues its claim construction order. We are defending the action vigorously. Were an unfavorable outcome to arise, there can be no assurance that such outcome would not have a material adverse affect on our results of operations, liquidity or financial position.

     Although we believe that Informatica’s basis for its suit is meritless, the outcome cannot be determined at this time. Because of the inherent uncertainty of litigation in general and that fact that this litigation is ongoing, we cannot assure you that we will prevail. Should Informatica ultimately succeed in the prosecution of its claims, we could be permanently enjoined from selling some of our products and be required to pay damages.

We are a party to litigation with Decisions Warehouse. The prosecution of this lawsuit could have a substantial negative impact on our business. Should Decisions Warehouse prevail, we may be required to pay substantial monetary damages.

     On September 29, 2004, Decision Warehouse Consultoria E Importacao Ltda. filed an action in the Superior Court for the State of California, County of Santa Clara against Business Objects Americas and Business Objects Do Brasil, Ltda. for unspecified damages alleging breach of contract, intentional interference with prospective economic advantage and contract relationships, misappropriation of trade secrets, promissory fraud and unlawful business practices. The parties are currently engaged in discovery. No trial date has been set. We intend vigorously to defend this action. Should an unfavorable outcome arise, there can be no assurance such outcome would not have a material adverse affect on our results of operations, liquidity or financial position.

     On December 22, 2004 Business Objects Americas and Business Objects Do Brasil, Ltda. filed a lawsuit in the Superior Court for the State of California, County of Santa Clara against Decision Warehouse Consultoria E Importacao Ltda. The lawsuit alleges violations of Brazilian copyright law, breach of contract, unfair business practices, account stated, open book account and for an accounting. Our complaint requested damages according to proof, “moral” damages under Brazilian law and award of sums found due after accounting.

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The protection of our intellectual property rights is crucial to our business and, if third parties use our intellectual property without our consent, our business could be damaged.

     Our success is heavily dependent on protecting intellectual property rights in our proprietary technology, which is primarily our software. It is difficult for us to protect and enforce our intellectual property rights for a number of reasons, including:

	•	policing unauthorized copying or use of our products is difficult and expensive;
	•	software piracy is a persistent problem in the software industry;
	•	our patents may be challenged, invalidated or circumvented; and
	•	our shrink-wrap licenses may be unenforceable under the laws of certain jurisdictions.

     In addition, the laws of many countries do not protect intellectual property rights to as great an extent as those of the United States and France. We believe that effective protection of intellectual property rights is unavailable or limited in certain foreign countries, creating an increased risk of potential loss of proprietary technology due to piracy and misappropriation. For example, we are currently doing business in the People’s Republic of China where the status of intellectual property law is unclear and we may expand our presence there in the future.

     Although our name, together with our previous logo, is registered as a trademark in France, the United States and a number of other countries, we may have difficulty asserting our trademark rights in the name “Business Objects” because some jurisdictions consider the name “Business Objects” to be generic or descriptive in nature. As a result, we may be unable to effectively police the unauthorized use of our name or otherwise prevent our name from becoming a part of the public domain. We also have other trademarks or service marks in use around the world, and we may have difficulty registering or maintaining these marks in some countries, which may require us to change our marks or obtain new marks.

     We also seek to protect our confidential information and trade secrets through the use of non-disclosure agreements with our contractors, vendors, and partners. However, there is a risk that our trade secrets may be disclosed or published without our authorization, and in these situations it may be difficult or costly for us to enforce our rights and retrieve published trade secrets.

     We sometimes use open source software in our product development. Open source software carries certain special risks, which could include, for example, license terms which could limit our ability to enforce our intellectual property rights. In addition, open source software does not provide any warranties, including warranties against infringement of third party rights. We may not be successful in our attempts to avoid the use of open source software which could have these problems.

     We sometimes contract with third parties to provide development services to us, and we routinely ask them to sign agreements which require them to assign intellectual property to us which is developed on our behalf. However, there is a risk that they will fail to disclose to us such intellectual property, or that they may have inadequate rights to such intellectual property. This could happen, for example, if they failed to obtain the necessary invention assignment agreements with their own employees.

     We are involved in litigation to protect our intellectual property rights, and we may become involved in further litigation in the future. This type of litigation is costly and could negatively impact our operating results.

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Third parties have asserted that our technology infringes upon their proprietary rights, and others may do so in the future, which has resulted, and may in the future result, in costly litigation and could adversely affect our ability to distribute our products.

     From time to time, companies in the industry in which we compete receive claims that they are infringing upon the intellectual property rights of third parties. We believe that software products that are offered in our target markets will increasingly be subject to infringement claims as the number of products and competitors in the industry segment grows and product functionalities begin to overlap. For example, we are defending one patent infringement suit brought by Informatica, one brought by MicroStrategy against us and one brought by MicroStrategy against Crystal Decisions.

     The potential effects on our business operations resulting from third party infringement claims that have been filed against us and may be filed against us in the future include the following:

	•	we could be forced to cease selling or delay shipping our products;
	•	we would be forced to commit management resources in defense of the claim;
	•	we may incur substantial litigation costs in defense of the claim;
	•	we may have to expend significant development resources to redesign our products; and
	•	we may be required to enter into royalty and licensing agreements with such third party under unfavorable terms.

     We may also be required to indemnify customers, distributors, original equipment manufacturers and other resellers for third-party products incorporated in our products if such third party’s products infringe upon the intellectual property rights of others. Although many of these third parties who are commercial vendors will be obligated to indemnify us if their products infringe the intellectual property rights of others, the indemnification may not be adequate.

     In addition, from time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. We use selected open source software in our products and may use more open source software in the future. As a result, we could be subject to suits by parties challenging ownership of what we believe to be our proprietary software. We may also be subject to claims that we have failed to comply with all the requirements of the open source licenses. Open source licenses are more likely than commercial licenses to contain vague, ambiguous, or legally untested provisions, which increase the risks of such litigation. In addition, third parties may assert that the open source software itself infringes upon the intellectual property of others. Because open source providers seldom provide warranties or indemnification to us, in such event we may not have an adequate remedy against the open source provider.

     Any of this litigation could be costly for us to defend, have a negative effect on our results of operations and financial condition or require us to devote additional research and development resources to redesign our products or obtain licenses from third parties.

Our loss of rights to use software licensed from third parties could harm our business.

     We license software from third parties and sublicense this software to our customers. In addition, we license software from third parties and incorporate it into our products. In the future, we may be forced to obtain additional third party software licenses to enhance our product offerings and compete more effectively. By utilizing third party software in our business, we incur risks that are not associated with developing software internally. For example, third party licensors may discontinue or modify their operations, terminate

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their relationships with us, or generally become unable to fulfill their obligations to us. If any of these circumstances were to occur, we might be forced to seek alternative technology of inferior quality, which has lower performance standards or which might not be available on commercially reasonable terms. If we are unable to maintain our existing licenses or obtain alternate third party software licenses on commercially reasonably terms, our revenues could be reduced, our costs could increase and our business could suffer.

We depend on strategic relationships and business alliances for continued growth of our business.

     Our development, marketing and distribution strategies depend on our success to create and maintain long-term strategic relationships with major vendors, many of whom are substantially larger than us. These business relationships often consist of joint marketing programs or partnerships with original equipment manufacturers or value added resellers. Although certain aspects of these relationships are contractual in nature, many important aspects of these relationships depend on the continued cooperation of each party. Divergence in strategy, change in focus, competitive product offerings or contract defaults by any of these companies might interfere with our ability to develop, market, sell or support our products, which in turn could harm our business.

     No customer accounted for 10% or more of our total revenues in the three months ended March 31, 2005 or in any quarter in 2004. Although no single reseller currently accounts for more than 10% of our total revenues, if one or more of our large resellers were to terminate their co-marketing agreements with us it could have an adverse effect on our business, financial condition and results of operations. In addition, our business, financial condition and results of operations could be adversely affected if major distributors were to materially reduce their purchases from us.

     Our distributors and other resellers generally carry and sell product lines that are competitive with ours. Because distributors and other resellers generally are not required to make a specified level of purchases from us, we cannot be sure that they will prioritize selling our products. We rely on our distributors and other resellers to sell our products, report the results of these sales to us and to provide services to certain of the end user customers of our products. If the distributors and other resellers do not sell our products, report sales accurately and in a timely manner and adequately service those end user customers, our revenues and the adoption rates of our products could be harmed.

Our executive officers and key employees are crucial to our business, and we may not be able to recruit, integrate and retain the personnel we need to succeed.

     Our success depends upon a number of key management, sales, technical and other critical personnel, including our co-founder, Bernard Liautaud, who is our chairman of the board of directors and chief executive officer, the loss of whom could adversely affect our business. The loss of the services of any key personnel or the inability to attract, integrate and retain highly skilled technical, management, sales and marketing personnel could result in significant disruption to our operations, including affecting the timeliness of new product introductions, hindrance of product development and sales efforts, degradation of customer service, as well as the successful completion of company initiatives and the results of our operations. For example, John Olsen, our chief operating officer, left the company in the third quarter of 2004 and we have not yet found a qualified replacement for him. Competition for such personnel in the computer software industry is intense, and we may be unable to attract, integrate and retain such personnel successfully.

We have multinational operations that are subject to risks inherent in international operations.

     We have significant operations outside of France and the United States including development facilities, sales personnel and customer support operations. For example, we rely on approximately 370 software developers in India through a contract development agreement. Our international operations are subject to certain inherent risks including:

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	•	technical difficulties and costs associated with product localization;
	•	challenges associated with coordinating product development efforts among geographically dispersed development centers;
	•	potential loss of proprietary information due to piracy, misappropriation, or laws that may be less protective of our intellectual property rights;
	•	lack of experience in certain geographic markets;
	•	longer payment cycles for sales in certain foreign countries;
	•	seasonal reductions in business activity in the summer months in Europe and certain other countries;
	•	the significant presence of some of our competitors in some international markets;
	•	potentially adverse tax consequences;
	•	import and export restrictions and tariffs;
	•	foreign laws and other government controls, such as trade and employment restrictions;
	•	management, staffing, legal and other costs of operating an enterprise spread over various countries;
	•	political instability in the countries where we are doing business; and
	•	fears concerning travel or health risks that may adversely affect our ability to sell our products and services in any country in which the business sales culture encourages face-to-face interactions.

     These factors could have an adverse effect on our business, results of operations and financial condition.

The requirement to expense stock options in our income statement could have a significant adverse effect on our reported results, and we do not know how the market will react to reduced earnings.

     In December 2004, the final statement FAS 123R, Share-Based Payment, was issued. This final standard replaces the existing requirements and requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the statements of income. FAS 123R requires that such transactions be accounted for using a fair-value based method. On April 15, 2005, the SEC issued a final rule delaying the implementation of FAS 123R. FAS 123R is now effective for annual periods beginning after June 15, 2005, and for interim periods in the annual periods thereafter. In accordance with International Financial Reporting Standard, IFRS 2, “Share-Based Payment”, we are required for our French consolidated and statutory financial reporting requirements to report the expense associated with stock-based compensation in our statements of income commencing on January 1, 2005.

     We continue to investigate the impact that the adoption of FAS 123R will have on our results of operations and financial position. In addition, our effective tax rate will be adversely affected by the adoption of the final standard to the extent to which we are unable to record a tax benefit on the stock-based compensation expense. While most forms of stock-based compensation are non-cash charges and the

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expensing of stock-based awards will impact all companies who have stock-based compensation plans, we cannot predict how investors will view this additional expense or our management of this expense via our compensation policy related to stock-based awards and, as such, our stock price may decline.

Fluctuations in exchange rates between the euro, the U.S. dollar and the Canadian dollar, as well as other currencies in which we do business, may adversely affect our operating results.

     We may experience substantial foreign exchange gains or losses due to the volatility of other currencies compared to the U.S. dollar. We incur Canadian dollar expenses that are substantially larger than our Canadian dollar revenues, and we generate a substantial portion of our revenues and expenses in currencies other than the U.S. dollar. We may experience foreign exchange gains and losses on a combination of events including revaluation of foreign denominated amounts to the local currencies, forward exchange and option contract gains or losses settled during and outstanding at period end and other transactions involving the purchase of currencies.

     While we believe we have put certain strategies in place to mitigate risks related to the impact of fluctuations in exchange rates, we cannot ensure that we will not recognize gains or losses from other transactions, as this is part of transacting business in an international environment. Not every exposure is or can be hedged, and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts which will vary or which may later prove to have been inaccurate. Failure to hedge successfully or anticipate currency risks properly could adversely affect our operating results. We cannot predict the change in currency exchange rates in the future.

Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

     Our effective tax rate could be adversely affected by several factors, many of which are outside of our control. Our effective tax rate may be affected by the proportion of our revenues and income before taxes in the various domestic and international jurisdictions in which we operate. Our revenues and operating results are difficult to predict and may fluctuate substantially from quarter to quarter. We are also subject to changing tax laws, regulations and interpretations in multiple jurisdictions in which we operate, as well as the requirements of certain tax and other accounting body rulings. Since we must estimate our annual effective tax rate each quarter based on a combination of actual results and forecasted results of subsequent quarters, any significant change in our actual quarterly or forecasted annual results may adversely impact the computation of the estimated effective tax rate for the year. Our estimated annual effective tax rate may increase or fluctuate for a variety of reasons, including:

	•	changes in forecasted annual operating income;
	•	changes in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate;
	•	changes to the valuation allowance on net deferred tax assets;
	•	changes to actual or forecasted permanent differences between book and tax reporting, including the tax effects of purchase accounting for acquisitions and non-recurring charges which may cause fluctuations between reporting periods;
	•	impacts from any future tax settlements with state, federal or foreign tax authorities;
	•	impacts from changes in tax laws, regulations and interpretations in the jurisdictions in which we operate, as well as the requirements of certain tax rulings; or

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•

impacts from new FASB or IFRS requirements.

     Although we believe our estimates are reasonable, the ultimate outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period.

We are subject to frequent tax audits where the ultimate resolution may result in additional taxes.

     As a matter of course, we are regularly audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution may result in our owing additional taxes. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. Despite our belief that our tax return positions are appropriate and supportable under local tax law, we believe certain positions may be challenged and that we may not succeed in realizing the anticipated tax benefit. We establish specific reserves, when it is our belief that we may not be likely to succeed in realizing a tax benefit. We also evaluate these reserves each quarter and adjust the reserves and the related interest in light of changing facts and circumstances regarding the probability of realizing tax benefits, such as the progress of a tax audit or the expiration of a statute of limitations. Although we believe our estimates are reasonable, that our tax positions comply with applicable tax law, and that we have adequately provided for any known tax contingencies, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results for either the period of our original estimate or for the period in which the determination of an unfavorable outcome is made.

     In addition, as a result of tax audits, we may become aware of required adjustments to previous tax provisions set up in connection with the acquisition of businesses. These balances are generally recorded as part of goodwill as part of the price purchase allocation and are adjusted in future periods to goodwill instead of charges against the current statements of income. This treatment does not preclude the payment of additional taxes due, if assessed. For example, during April 2005, we received a notice of proposed adjustment from the Internal Revenue Service for the 2001 and 2002 fiscal year tax returns of Crystal Decisions. Income taxes related to the issues under audit were fully reserved as part of the original purchase price allocation, and are included in the income taxes payable balance on the condensed consolidated balance sheets at March 31, 2005 and December 31, 2004. We intend to defend our position vigorously. If we prevail, we will reverse the tax reserves and record a credit to goodwill. If we are not successful in defending our position, we expect this to have a negative impact on our cash and cash equivalents balance as the result of the payment of income taxes, but no material impact on our net income.

Business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.

     A number of factors, including natural disasters, computer viruses or failure to successfully upgrade and improve operational systems to meet evolving business conditions, could disrupt our business, which could seriously harm our revenues or financial condition and increase our costs and expenses. For example, some of our offices are located in potential earthquake or flood zones that could subject these offices, product development facilities and associated computer systems to disruption.

     We currently have proprietary applications running key pieces of our manufacturing systems. These technologies were developed internally and we have only a small number of people that know and understand them. Should we lose those individuals before these systems can be replaced with non-proprietary solutions, we may experience business disruption resulting from an inability to manufacture and ship product.

     In addition, experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our confidential information or temporarily disrupt our operations. As a result, we could incur significant expenses in addressing problems created by security breaches of our own network. The costs to eliminate computer viruses and alleviate other security problems could be significant. The efforts to address these problems could result in interruptions, delays or cessation of our operations.

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     We work continually to upgrade and enhance our computer systems and anticipate implementing several system upgrades during the coming years. For example, we expect to implement new worldwide case and order management systems. Delay of the projects or the launch of a faulty application could have a material impact on our customer service levels. Failure to smoothly migrate existing systems to newer systems could cause business disruptions.

     Even short-term disruptions from any of the above mentioned causes or other causes could result in revenue disruptions, delayed product deliveries or customer service disruptions, which could result in decreases in revenues or increases in costs of operations.

An SEC inquiry has required, and may continue to require, management time and legal expense.

     On August 3, 2004, we received a letter from the Staff of the SEC, commonly referred to as a “Wells letter”, notifying us that it intends to recommend that an action be brought against us for violations of periodic reporting provisions of the securities laws including, Section 13(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-1. The Staff has indicated to us that it does not intend to pursue an action based on the anti-fraud provisions of the securities laws, nor does the Staff intend to recommend an action be brought against any of our officers or directors. We previously disclosed the existence of an informal SEC inquiry concerning our backlog practices and we believe the proposed action relates to our disclosure practices concerning our backlog of unshipped orders. We responded to this notice and intend vigorously to defend the action. While we believe our practices are proper and in accordance with U.S. GAAP and the securities laws, we can give no assurance as to the outcome of this inquiry. An unfavorable outcome in, or resolution of, this matter may result in damage to our reputation among our customers and investors.

We have been named as a party to several class action lawsuits and shareholder derivative actions which could result in significant management time and attention, result in significant legal expenses and have a material adverse effect on our business, financial condition, results of operations and cash flows.

     Between June 2 and July1, 2004, four purported class action complaints were filed in the United States District Courts for the Northern District of California, the Southern District of California, and the Southern District of New York against us and certain of our current and former officers and directors. The actions commenced in the courts for the Southern District of California and the Southern District of New York were transferred to the Northern District of California. All four actions were consolidated into one action in the Northern District of California and a consolidated amended complaint (“CAC”) was filed in January 2005 seeking unspecified damages. The CAC alleged violations of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The plaintiffs seek to represent a putative class of investors in our American depositary receipts (“ADRs”) who purchased the ADRs between April 23, 2003 and May 5, 2004 (the “Class Period”). The complaint alleged that during that Class Period, we and the individual defendants made false or misleading statements in press releases and SEC filings regarding, among other things, our acquisition of Crystal Decisions, our Enterprise 6 product and our forecasts and financial results for the three months ended March 31, 2004. The actions are in the early stages and, in February 2005, we and other defendants moved to dismiss the CAC. The hearing on that motion is scheduled for May 17, 2005. We intend vigorously to contest these actions. We are unable to predict the outcome of these actions, however, were an unfavorable outcome to arise, such outcome could have a material adverse effect on our results of operations, liquidity or financial position.

     On July 23 2004, two purported shareholder derivative actions were filed in Santa Clara County Superior Court against certain of our current and former officers and directors, styled Bryan Aronoff, et al. v. Bernard Liautaud, et al. and Ken Dahms v. Bernard Liautaud, et al. We are named as a nominal defendant. These actions were consolidated into one action August 16, 2004 and in September 2004, derivative plaintiffs filed the consolidated complaint. The complaint is based on the same facts and events alleged in the class

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action complaints and alleged violations of California Corporations Code Sections 25402 and 25502.5, breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment by certain of our current and former officers and directors. The derivative plaintiffs seek damages, disgorgement of profits, equitable, injunctive, restitutionary and other relief. In December 2004, defendants filed a motion to dismiss the complaint. On April 28, 2005, plaintiffs voluntarily dismissed the case without prejudice and this matter is concluded.

     We believe that the allegations of the CAC are without merit. Defending any such litigation is costly and may divert management’s attention from the day to day operations of our business, which could adversely affect our business, results of operations and cash flows. An adverse resolution of these actions could have a material adverse effect on our liquidity, financial position or results of operations in the quarter in which any such adverse resolution were to occur and may result in damage to our reputation among our customers and investors.

Risks Related to Ownership of Our Ordinary Shares or ADSs

New SAC and certain of its affiliates own a substantial percentage of our shares and their interests could conflict with those of our other shareholders.

     New SAC and certain of its affiliates own a significant percentage of our company as a result of our acquisition of Crystal Decisions. As of April 30, 2005, New SAC and certain of its affiliates owned approximately 16.5% of our issued ordinary shares. The interests of these shareholders could conflict with those of our other shareholders. As a result of their ownership position, New SAC and these other parties collectively are able to significantly influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of our company.

Additional sales of our shares by New SAC and certain of its affiliates, our employees or issuances by us in connection with future acquisitions could adversely affect the market price of our shares.

     If New SAC or, after any distribution to its shareholders of our shares by New SAC, certain of its affiliates sell a substantial number of our shares in the future, the market price of our shares could decline. The perception among investors that these sales may occur could produce the same effect. New SAC and certain of its affiliates have rights, subject to specified conditions, to require us to file registration statements covering shares or to include shares in registration statements we may file. In addition, New SAC can unilaterally distribute its shares in us to its shareholders. By exercising its registration rights or distribution rights and selling a large number of shares, New SAC or any of its affiliates could cause the price of our shares to decline. In October 2004, we filed a registration statement on Form S-3 with the SEC for the purpose of enabling New SAC to sell up to 14.4 million of our ordinary shares or ADSs from time to time. Furthermore, if we were to include shares in a registration statement initiated by us, those additional shares could impair our ability to raise needed capital by depressing the price at which we could sell our shares. Any sale by New SAC of a large number of the shares pursuant to an exemption from the registration requirements of the Securities Act, such as through Rule 144, may cause the price of our common shares to decline.

Provisions of our articles of association and French law could have anti-takeover effects and could deprive shareholders who do not comply with such provisions of some or all of their voting rights.

     Provisions of our articles of association and French law may impede the accumulation of our shares by third parties seeking to gain a measure of control over our company. For example, French law provides that any individual or entity (“person”), acting alone or in concert with others, that becomes the owner or

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ceases to be the owner, holding more than 5%, 10%, 20%, 33 1/3%, 50% or 66 2/3% of the share capital or voting rights of our company is required to notify us and the AMF within five trading days of crossing any of the applicable percentage thresholds, of the number of shares and voting rights held by it. The AMF makes the notice public. Additionally, any person acquiring more than 10% or 20% of the share capital or voting rights of our company must notify us and the AMF within 10 trading days of crossing any of these thresholds, and file a statement of their intentions relating to future acquisitions or participation in the management of our company for the following 12 month period, including whether or not this person is acting alone or in concert and whether or not they intend to continue their purchases to acquire control of our company or to seek nominations to our board of directors. This person may amend their stated intentions, provided that they do so on the basis of significant changes in their own situation or stockholding. Upon any changes of intentions, they must file a new statement. The AMF makes these statements public. Any shareholder who fails to comply with these requirements shall have voting rights for all shares in excess of the relevant threshold suspended for two years following the completion of the required notification. Moreover this shareholder may have all or part of its voting rights within our company suspended for up to five years by the relevant commercial court at the request of our chairman, any of our shareholders or the AMF. In addition, such shareholders may be subject to a fine of €18,000 for violation of the share ownership notification requirement and up to €1,500,000 for violation of the notification requirement regarding the statement of intentions.

     Under the terms of the deposit agreement relating to our ADSs, if a holder of ADSs fails to instruct the depositary in a timely and valid manner how to vote such holder’s ADSs with respect to a particular matter, the depositary will deem that such holder has given a proxy to the chairman of the meeting to vote in favor of each proposal recommended by our board of directors and against each proposal opposed by our board of directors and will vote the ordinary shares underlying the ADSs accordingly.

     This provision of the depositary agreement could deter or delay hostile takeovers, proxy contests and changes in control or management of our company.

Holders of our shares have limited rights to call shareholders’ meetings or submit shareholder proposals, which could adversely affect their ability to participate in governance of our company.

     In general, our board of directors may call a meeting of our shareholders. A shareholders’ meeting may also be called by a liquidator or a court appointed agent, in limited circumstances, such as at the request of the holders of 5% or more of our outstanding shares held in the form of ordinary shares. In addition, only shareholders holding a defined number of shares held in the form of ordinary shares or groups of shareholders holding a defined number of voting rights underlying their ordinary shares may submit proposed resolutions for meetings of shareholders. The minimum number of shares required depends on the amount of the share capital of our company and is equal to 2,201,301 ordinary shares based on our share capital as of April 30, 2005. Similarly, a duly qualified association, registered with the AMF and us, of shareholders who have held their ordinary shares in registered form for at least two years and together hold at least a defined percentage of our voting rights, equivalent to 1,799,364 ordinary shares based on our company’s voting rights as of April 30, 2005, may submit proposed resolutions for meetings of shareholders. As a result, the ability of our shareholders to participate in and influence the governance of our company will be limited.

Interests of our shareholders will be diluted if they are not able to exercise preferential subscription rights for our shares.

     Under French law, shareholders have preferential subscription rights (droits préférentiels de souscription) to subscribe for cash for issuances of new shares or other securities with preferential subscription rights, directly or indirectly, to acquire additional shares on a pro rata basis. Shareholders may waive their rights specifically in respect of any offering, either individually or collectively, at an extraordinary general meeting. Preferential subscription rights, if not previously waived, are transferable during the subscription period relating to a particular offering of shares and may be quoted on the exchange for such securities on Euronext Paris S.A. Holders of our ADSs may not be able to exercise preferential subscription

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rights for these shares unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration requirements is available.

     If these preferential subscription rights cannot be exercised by holders of ADSs, we will make arrangements to have the preferential subscription rights sold and the net proceeds of the sale paid to such holders. If such rights cannot be sold for any reason, we may allow such rights to lapse. In either case, the interest of holders of ADSs in our company will be diluted, and, if the rights lapse, such holders will not realize any value from the granting of preferential subscription rights.

It may be difficult for holders of our ADSs rather than our ordinary shares to exercise some of their rights as shareholders.

     It may be more difficult for holders of our ADSs to exercise their rights as shareholders than it would be if they directly held our ordinary shares. For example, if we offer new ordinary shares and a holder of our ADSs has the right to subscribe for a portion of them, the Bank of New York, as the depositary, is allowed, in its own discretion, to sell for such ADS holder’s benefit that right to subscribe for new ordinary shares of our company instead of making it available to such holder. Also, to exercise their voting rights, holders of our ADSs must instruct the depositary how to vote their shares. Because of this extra procedural step involving the depositary, the process for exercising voting rights will take longer for a holder of our ADSs than it would for holders of our ordinary shares.

Fluctuation in the value of the U.S. dollar relative to the euro may cause the price of our ordinary shares to deviate from the price of our ADSs.

     Our ADSs trade in U.S. dollars and our ordinary shares trade in euros. Fluctuations in the exchange rates between the U.S. dollar and the euro may result in temporary differences between the value of our ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences.

We have not distributed dividends to our shareholders and do not anticipate doing so in the near future.

     We currently intend to use all of our operating cash flow to finance our business for the foreseeable future. We have never distributed cash dividends to our shareholders, and we do not anticipate that we will distribute cash dividends in the near term. Although we may in the future distribute a portion of our earnings as dividends to shareholders, the determination of whether to declare dividends and, if so, the amount of such dividends will be based on facts and circumstances existing at the time of determination. We may not distribute dividends in the near future, or at all.

The market price of our shares will be susceptible to changes in our operating results and to stock market fluctuations.

     Our operating results may be below the expectations of public market analysts and investors’ and therefore, the market price of our shares may fall. In addition, the stock markets in the United States and France have experienced significant price and volume fluctuations in recent periods, which have particularly affected the market prices of many high technology companies and often are unrelated and disproportionate to the operating performance of these particular companies. These broad market fluctuations, as well as general economic, political and market conditions, may negatively affect the market price of our shares. The market fluctuations have affected our stock price in the past and could continue to affect our stock price in the future. The market price of our shares may be affected by the following factors:

•

quarterly variations in our results of operations;

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	•	announcements of technological innovations or new products by us, our customers or competitors;
	•	announcements of our quarterly operating results and expected results of the future periods;
	•	our failure to achieve the operating results anticipated by analysts or investors;
	•	sales or the perception in the market of possible sales of a large number of our shares by our directors, officers, employees or principal stockholders;
	•	announcements of our competitors or customers’ quarterly operating results, and expected results of future periods;
	•	addition of significant new customers or loss of current customers;
	•	international political, socioeconomic and financial instability, including instability associated with military action in Afghanistan and Iraq or other conflicts;
	•	releases or reports by or changes in security analysts’ recommendations; and
	•	developments or disputes concerning patents or proprietary rights or other events.

     The price of our ADSs on the Nasdaq National Market for the period of January 1, 2003 to April 30, 2005 has ranged from a low of $15.44 to a high of $38.34.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk

     Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates, changes to certain short-term investments, fluctuations in foreign currency exchange rates and changes in the fair market value of forward or option contracts. We believe there have been no significant changes in our market risk during the three months ended March 31, 2005 compared to what was previously disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report for the year ended December 31, 2004. Further information on the impact of foreign currency exchange rate fluctuations is further described in Item 2, “Management Discussion and Analysis of Financial Condition and Results of Operations” to this Form 10-Q.

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Item 4.	Controls and Procedures

     Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded these disclosure controls and procedures are effective.

     There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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* Attached as Exhibit 100 to this Form 10-Q for the quarter ended March 31, 2005, are the: (i) condensed consolidated balance sheets at March 31, 2005 and December 31, 2004, (ii) condensed consolidated statements of income for the three months ended March 31, 2005 and 2004, and (iii) condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2004, formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 401 of Regulation S-T that the financial information contained in the XBRL documents are unaudited and these are not official publicly filed financial statements of the Company. In accordance with Rule 402 of Regulation S-T, Exhibit 100 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. The purpose of submitting these XBRL formatted documents is to test the related format and technology and, as a result, investors should continue to rely on the official filed version of our condensed consolidated financial statements included in Part I, Financial Information to this Form 10-Q and not rely on the XBRL format documents in making investment decisions.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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EXHIBIT INDEX

* Attached as Exhibit 100 to this Form 10-Q for the quarter ended March 31, 2005, are the: (i) condensed consolidated balance sheets at March 31, 2005 and December 31, 2004, (ii) condensed consolidated statements of income for the three months ended March 31, 2005 and 2004, and (iii) condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2004, formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 401 of Regulation S-T that the financial information contained in the XBRL documents are unaudited and these are not official publicly filed financial statements of the Company. In accordance with Rule 402 of Regulation S-T, Exhibit 100 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. The purpose of submitting these XBRL formatted documents is to test the related format and technology and, as a result, investors should continue to rely on the official filed version of our condensed consolidated financial statements included in Part I, Financial Information to this Form 10-Q and not rely on the XBRL format documents in making investment decisions.