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 September 30, 2004

or

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

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 October 31, 2004, the number of issued ordinary shares was 95,859,241, €0.10 nominal value, (including 29,781,307 American depositary shares, each corresponding to one ordinary share, 3,067,675 treasury shares and 4,089,891 shares held by Business Objects Option LLC). As of October 31, 2004, we had issued and outstanding 91,769,350 ordinary shares of €0.10 nominal value.

Business Objects S.A.

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

BUSINESS OBJECTS S.A.

See accompanying notes to Condensed Consolidated Financial Statements

(1) The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date.

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BUSINESS OBJECTS S.A.

See accompanying notes to Condensed Consolidated Financial Statements

4

BUSINESS OBJECTS S.A.

See accompanying notes to Condensed Consolidated Financial Statements

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Business Objects S.A.

1. Basis of Presentation and Significant Accounting Policies

     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 annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited interim 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, 2003 as filed with the SEC on March 12, 2004, as amended on Form 10-K/A as filed with the SEC on April 29, 2004.

     The consolidated financial statements reflect, in the opinion of the Company, 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. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 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 net income as previously reported.

Use of Estimates

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

Revenue Recognition

     The Company enters into arrangements for the sale of: 1) licenses of software products and related maintenance contracts; 2) bundled license, maintenance and services; and 3) 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 such undelivered elements and the residual amount of revenues are allocated to the delivered elements.

     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

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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, training and/or consulting services. 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 service revenues under the arrangement are recognized under the percentage of completion method of contract accounting, based on input measures of hours. For those 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 services is based upon average daily rates. When the Company enters into contracts to provide services only, revenues are recognized on a time and materials basis.

     For sales to resellers, value added resellers and system integrators (“partners”), there is no right 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 of an amount equal to the Company’s estimate of all products subject to rights of return to approximate net sell-through. Some of the factors that are considered in determining this estimate include historical experience of returns received and level of inventory in the distribution channels. The reserve reduces the revenues and the related receivables. 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 is probable. Some OEM arrangements include the payment of an upfront arrangement fee which is deferred and recognized either ratably over the contractual period 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. These amounts relate primarily to customer support services with future deliverables and arrangements where specified customer acceptance has not yet occurred.

Other Current Liabilities

     Other current liabilities include accruals for sales, use and value added taxes, 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 and other accruals, none of which individually account for more than five percent of total current liabilities.

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Derivative Financial Instruments

     The Company previously entered into forward contracts to hedge certain forecasted Canadian dollar expenses against U.S. and Canadian currency fluctuations. The purchase of these forward contracts was to protect the Company from the risk that the dollar cash flows resulting from Canadian dollar (“Cdn $”) expenses would be adversely affected by changes in the exchange rates. As of September 30, 2004, all contracts had either matured or were accelerated to maturity. As of December 31, 2003, the Company held Canadian dollar foreign exchange forward contracts to purchase Cdn $40.3 million with U.S. dollars at a future date. These forward contracts did not qualify for hedge accounting; therefore, the change in the fair value of the forward contracts at each period end was reflected in other income (expense) and partially offset the foreign exchange variation in the corresponding Canadian dollar operating expense during the same period. During the three and nine months ended September 30, 2004, the Company realized foreign exchange gains of $680,000 and $1.8 million, respectively. At December 31, 2003, a forward contract asset of $2.2 million was recorded in other current assets on the balance sheet.

     During the nine months ended September 30, 2004, the Company entered into various euro-denominated foreign exchange 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 September 30, 2004 had maturity dates that coincide with the payment of intercompany loan obligations. During the three months ended September 30, 2004, the Company entered into a forward contract to purchase U.S. $7.4 million against the euro. At September 30, 2004, the Company held forward contracts to purchase U.S. $158.4 million, Cdn $9.9 million and £25.3 million against the euro to settle obligations under intercompany loans. These forward contracts do not qualify for hedge accounting. During the three and nine months ended September 30, 2004, the Company realized foreign exchange losses of $3.9 million and $7.7 million, respectively. At September 30, 2004, a forward contract liability of $7.9 million was recorded in other current liabilities on the balance sheet. There was no forward contract asset or liability at December 31, 2003 related to these forward contracts.

Ordinary Shares, Treasury Shares and Business Objects Option LLC Shares

     Included in the 91.328 million issued and outstanding number of shares on the face of the balance sheet are 3.067 million shares which are held by the Company in treasury. These shares are also included in the caption “Treasury and Business Objects Option LLC Shares.” As the Company has not retired the treasury shares, and in accordance with French law, they are considered outstanding. Also included in this caption are 4.441 million shares issued by the Company in connection with the acquisition of Crystal Decisions which are currently held by the Company’s indirect wholly-owned subsidiary Business Objects Option LLC. These shares are not deemed to be outstanding and will not be entitled to voting rights until such time as the option holders exercise their options. The shares held by Business Objects Option LLC account for the difference between the number of issued shares of 95.769 million and the number of issued and outstanding shares of 91.328 million on the face of the balance sheet.

Accounting for Stock-based Compensation

     The Company issues stock options to its employees and provides employees the right to purchase its stock pursuant to shareholder approved stock option and employee stock purchase programs. The Company issues share 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.

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     The following table provides pro forma disclosures of the effect on net income and net income per ordinary share and American depositary share (“ADS”) as if the fair-value based method had been applied in measuring 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”).

     The stock-based compensation expense included in reported net income for the three and nine months ended September 30, 2004 represented amortization of unearned compensation on unvested stock options that arose as a result of the acquisition of Crystal Decisions and compensation expense on the modification of terms of certain stock option agreements.

     The tax benefit for stock-based employee compensation was calculated on the total pro forma stock-based employee compensation expense at an effective tax rate of 38% for all periods presented. As this calculation is based on certain assumptions about the deductibility of the expense, the timing of the deduction and the Company’s ability to use it, the actual tax benefit could vary materially from this estimate. If no amount of the tax benefit was available on estimated stock-based employee compensation expense, pro forma basic and diluted net income (loss) per share would have been $0.01 and $(0.01) for the three months ended September 30, 2004 and 2003, respectively. If no amount of the tax benefit was available on estimated stock-based employee compensation expense, pro forma basic and diluted net income per share would have been $0.01 for the nine months ended September 30, 2004 and 2003.

     Pro forma information regarding net income and net income per ordinary share and ADS is required by FAS 123, as amended by FAS 148, and has been determined as if the Company had accounted for its employee stock options under the fair-value method. For purposes of the pro forma disclosure, management estimates the fair value of stock options issued to employees and warrants to nonemployee directors using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions, are fully transferable and do not have employment or trading restrictions. The model requires the input of highly subjective assumptions including the expected stock price volatility. Employee stock options have characteristics

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significantly different from those of traded options and the changes in the subjective input assumptions can materially affect the fair value estimate.

     The pro forma effects of applying FAS 123 for the periods presented are not likely to be representative of the pro forma effects of future periods as stock options usually vest over a period of four years, the number of stock options granted or warrants issued varies from period to period, and the Black-Scholes fair value of each grant depends on the assumptions at the grant date. In addition, as the stock options and warrants are issued in euros, the conversion of the compensation expense amortized to each period fluctuates based on the exchange rate applicable for the period reported. For purposes of the pro forma disclosures, the estimated stock-based employee compensation expense was amortized over the vesting periods associated with the equity instrument.

     The weighted average assumptions used and the resulting estimates of weighted average fair value of stock options granted under the Company’s stock option plans and warrants issued during the following periods were as follows:

     In addition, the Company issued stock under the International and French Employee Stock Purchase Plans during the six month offering periods ended March 31, 2004 and 2003, and September 30, 2004 and 2003. The weighted average fair value of shares sold under the employee stock purchase plans for the offering periods ended September 30, 2004 and 2003, respectively, were $7.34 and $5.46. The weighted average fair value of shares sold under the employee stock purchase plans for the offering periods ended during the nine months ended September 30, 2004 and 2003, respectively, was $7.09 and $4.59. The weighted average assumptions for the nine months ended September 30, 2004 and 2003, respectively, include an expected life of six months for each offering period, volatility of 49% and 63%, and a risk-free interest rate of 1.0% and 1.4%. For the six month offering period ended September 30, 2004 and 2003, respectively, assumptions used include an expected life of six months, volatility of 56% and 54%, and a risk-free interest rate of 1.0% and 1.2%. For the six month offering period ended March 31, 2004 and 2003, respectively, assumptions used include an expected life of six months, volatility of 42% and 72%, and a risk-free interest rate of 1.0% and 1.6%. The associated expense calculated in accordance with FAS 123 is amortized over the expected life of these shares and is pa rt of the FAS 123 pro forma presentation.

Recent Pronouncements

     Share Based Payments. On March 31, 2004, the Financial Accounting Standards Board (“FASB”) published an Exposure Draft, “Share-Based Payment, an Amendment of FASB Statements No. 123 and 95” (“FAS 123R”). The proposed change in accounting would replace the existing requirements under FAS 123 and APB 25. Under the proposal, all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, would be treated the same as other forms of compensation by recognizing the related cost in the statements of income. This proposed Statement would eliminate the ability to account for stock-based compensation transactions using APB 25 and generally would require instead that such transactions be accounted for using a fair-value based method. The comment period for the exposure draft ended on June 30, 2004. In October 2004, the FASB proposed that the effective date of FAS 123R be applicable for interim or annual periods beginning after June 15, 2005 and allow companies to restate the full year of 2005 to reflect the impact of expensing under FAS 123R as

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reported in the footnotes to the financial statements for the first half of 2005. In accordance with International Financial Reporting Standards, IFRS 2, “Share-Based Payment” (“IFRS 2”), the Company will be required to expense the costs associated with stock awards commencing on January 1, 2005 for its French financial reporting requirements. IFRS 2 requires restatement of stock-based compensation expense into the Company’s 2004 financial statements.

     Pending final rules from the FASB on FAS 123R and approval from the European Commission on IFRS 2, the Company continues to investigate the impact that the adoption of FAS 123R and IFRS 2 will have on its financial position and results of operations.

     Disclosure Requirements Related to Pensions and Other Postretirement Benefits. In December 2003, the FASB issued FAS No. 132 (Revised), “Employers’ Disclosures about Pensions and Other Postretirement Benefit — an amendment of FASB Statements No. 87, 88 and 106” (“FAS 132R”). A revision of the pronouncement originally issued in 1998, FAS 132R expands employers’ disclosure requirements for pension and postretirement benefits to enhance information about plan assets, obligations, benefit payments, contributions, and net benefit cost. The statement does not change the measurement or recognition provisions for pensions and other postretirement benefits. This statement was effective for fiscal years ended after December 15, 2003, except in cases where a company only has foreign plans, in which case the statement is effective for fiscal years ending after June 15, 2004. The Company only has foreign plans.

2. Acquisition of Crystal Decisions, Inc.

     On December 11, 2003, Business Objects, Crystal Decisions, Inc. (“Crystal Decisions”), Seagate Software (Cayman) Holdings Corporation (“SSCH”) and three wholly owned subsidiaries of Business Objects merged in accordance with an Agreement and Plan of Merger, dated as of July 18, 2003, as amended August 29, 2003 (the “Merger Agreement”). Pursuant to the Merger Agreement, Crystal Decisions and SSCH merged with and into wholly owned subsidiaries of Business Objects and ceased to exist as separate entities on December 11, 2003 (the “Crystal Decisions Acquisition”). The results of Crystal Decisions’ operations were included in the consolidated financial statements after that date. The Crystal Decisions Acquisition was accounted for under the purchase method of accounting.

     The total purchase price of $1.2 billion for the Crystal Decisions Acquisition consisted of $307.6 million in cash, approximately 23.3 million newly issued ordinary shares or ADSs, the fair value of stock options assumed in connection with the transaction and estimated transaction costs. The allocation of the purchase price resulted in the recording of $978.0 million of goodwill. The purchase price under the Merger Agreement was fixed and there was no contingent consideration. At December 31, 2003, the Company had not identified any pre-acquisition contingencies where the related asset, liability or impairment was probable or could be reasonably estimated.

     The purchase price allocation set forth above is preliminary. The final amount of these costs may change within the purchase price allocation period if information becomes known that results in a change in estimate of the transaction costs or liabilities assumed on the date of purchase. For example, during the nine months ended September 30, 2004, there was a $10.1 million increase in goodwill. This increase was the result of increases in estimates of liabilities that existed at the date of the purchase, consisting mainly of a $9.0 million increase in income taxes payable and a $1.1 million increase in various liabilities and certain restructuring costs (see note 8). The Company expects that the purchase price allocation period will end prior to December 31, 2004, with the exception of items related to open tax years.

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3. Goodwill and Other Intangible Assets

     In accordance with FAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), the Company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill or other intangible assets may not be recoverable, or at least annually at June 30 of each year. These tests are performed at the reporting unit level using a two step, fair-value based approach. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, a second step is performed to measure the amount of impairment loss. The second step allocates the fair value of the reporting unit to the Company’s tangible and intangible assets and liabilities. This derives an implied fair value for the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized equal to that excess. The Company has determined that it has only one reporting unit and completed the annual impairment tests and concluded that no impairment existed at June 30, 2004. No subsequent changes in circumstances occurred prior to September 30, 2004 that caused the Company to analyze any goodwill or intangible asset for impairment.

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

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

     Certain intangible assets are held by the Company’s foreign subsidiaries in local currencies and are revalued at each reporting period which may result in a higher or lower cost basis than originally recorded. Total intangible asset amortization expense was $7.7 million for the three months ended September 30, 2004 and $668,000 for the three months ended September 30, 2003. Total intangible asset amortization expense was $23.1 million for the nine months ended September 30, 2004 and $2.1 million for the nine months ended September 30, 2003.

     Intangible asset amortization of $5.0 million and $15.2 million was included in cost of net license fees for the three and nine months ended September 30, 2004, respectively, compared to $469,000 and $1.4 million for the three and nine months ended September 30, 2003. Intangible asset amortization of $2.3 million and $7.0 million is included in cost of services revenues for the three and nine months ended September 30, 2004, respectively, compared to $199,000 and $597,000 for the three and nine months ended September 30, 2003. Intangible asset amortization of $310,000 and $931,000 is included in

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general and administrative expenses for the three and nine months ended September 30, 2004, respectively, with no equivalent expense in 2003. Intangible assets are amortized on a straight-line basis over their respective estimated useful lives, which are generally five years.

     The estimated amortization expense for the next five years on other intangible assets was as follows. The estimated amortization expense is presented in dollars and does not take into account the foreign exchange fluctuations in amortization expense of foreign-owned intangible assets.

4. Accounts Receivable

     Accounts receivable are stated net of allowance for doubtful accounts and distribution channel returns totaling $13.3 million at September 30, 2004 and $9.9 million at December 31, 2003. Of these balances, allowance for doubtful accounts represents $8.9 million at September 30, 2004 and $6.2 million at December 31, 2003.

5. Net Income per Ordinary Share and ADS

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

     In December 2003, the Company issued approximately 23.3 million ordinary shares as partial consideration for the purchase of Crystal Decisions. For the three and nine months ended September 30, 2004, respectively, approximately 471,000 and 2.2 million shares were issued or became outstanding on the exercise of stock options or were issued under employee stock purchase plans. For the three months ended September 30, 2004 and 2003, respectively, 9.2 million and 4.4 million ordinary shares or ADSs were excluded from the calculation of diluted net income per share because they were anti-dilutive.

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For the nine months ended September 30, 2004 and 2003, respectively, 7.3 million and 4.4 million ordinary shares or ADSs were excluded from the calculation of diluted net income per share because they were anti-dilutive.

     During December 2003, Business Objects assumed the outstanding options of former Crystal Decisions optionees. An aggregate of 6.3 million ordinary shares were issued to Business Objects Option LLC, which are issuable upon exercise of the options held at December 11, 2003 by former Crystal Decisions optionees. During the nine months ended September 30, 2004, optionees acquired approximately 1.4 million ADSs upon exercise of these options.

     Treasury Stock. On May 14, 2004, the Company’s Board of Directors approved a share repurchase of up to 3.5 million ordinary shares at or below €25.00 per share in accordance with a share repurchase program authorized by shareholders on May 15, 2003. During May 2004, the Company repurchased 1.0 million of its ordinary shares under this program. The total U.S. dollar equivalent purchase price was approximately $21.0 million with the average share price at purchase of €17.51. On August 20, 2004, the Company’s Board of Directors approved a share repurchase of up to 2.0 million ordinary shares at or below €25.00 per share in accordance with a share repurchase program authorized by shareholders on June 10, 2004. During August 2004, the Company repurchased 1.0 million of its ordinary shares under this program. The total U.S. dollar equivalent purchase price was approximately $19.3 million with the average share price at purchase of €15.91.

     These repurchases resulted in 2.0 million additional treasury shares.

6. Comprehensive Income

     Comprehensive income includes foreign currency translation gains and losses that have been excluded from net income and reflected instead in shareholders’ equity (in thousands):

7. Business Segment and Geographic Information

     The Company has one reportable segment — business intelligence software products.

     The following is a summary of the Company’s revenues by geographic region (in thousands):

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8. Business Restructuring Charge

Acquisition-related Restructuring Liabilities

Crystal Decisions Acquisition

     In December 2003, prior to the Crystal Decisions Acquisition, management began to assess and formulate a plan to restructure the combined company’s 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 the involuntary termination of employees and the exit of certain facilities.

Restructuring Costs Expensed Related to Pre-acquisition Business Objects

     Accrued restructuring costs of $7.8 million related to the pre-acquisition Business Objects organization were expensed in accordance with FAS No. 146, “Cost Associated with Exit or Disposal Activities” (“FAS 146”). The charge consisted of estimated severance and other related benefit costs for 159 employees across all functions worldwide. During the nine months ended September 30, 2004, the Company paid severance and other related benefits of $6.1 million to 126 employees. Of the remaining 33 employees originally included as part of the restructuring plan, the Company anticipates that approximately 28 employees may still receive payments under the restructuring plan. The Company expects to pay the majority of the remaining balance of the restructuring accrual related to employee severance and other benefits during the three months ending December 31, 2004 in accordance with this restructuring plan.

     In addition to the $7.8 million of restructuring charges expensed in the three months ended December 31, 2003, the Company incurred approximately $1.5 million of additional charges in the nine months ended September 30, 2004. The amount of $1.7 million relates to costs incurred on the exit of certain facilities. The Company anticipates that there will be additional charges related to exiting certain facilities previously leased by Business Objects prior to the Crystal Decisions Acquisition, which are estimated at approximately $1.2 million and will be expensed as the facilities are vacated during the three months ending December 31, 2004.

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     The balance of accrued restructuring charges associated with Business Objects employees and facilities exits prior to the Crystal Decisions Acquisition was as follows at September 30, 2004 (in thousands):

Restructuring Costs Included as a Cost of the Crystal Decisions Acquisition

     Restructuring costs of $13.5 million related to Crystal Decisions were accounted for under EITF Issue No. 95-3 “Recognition of Liabilities in Connection with Purchase Business Combinations” (“EITF 95-3”). These costs were recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire Crystal Decisions.

     The charge of $10.8 million related primarily to employee severance and other related benefits for 194 employees across all functions worldwide. The Company paid benefits of approximately $9.0 million to 151 employees across all regions during the nine months ended September 30, 2004. Of the remaining 38 employees originally included as part of the restructuring plan, the Company anticipates that a substantial portion of the remaining number of employees will not ultimately be terminated. This determination, and a change in estimate if necessary, will be made in the three months ending December 31, 2004 and, if required, goodwill will be decreased equal to the reduction in the accrual. The Company expects to pay the remaining restructuring liability or revised estimated costs for employee severance and other related benefits during the three months ending December 31, 2004. There are no significant additional expected terminations associated with this restructuring plan.

     The cost to abandon facilities restructuring charge of $2.7 million at December 31, 2003, related to estimated costs for future minimum lease payments once the planned closure of 11 facilities had been vacated, net of estimated sublease income to be earned on these premises. The facilities for planned closure are under leases with terms to 2008. Cash payments during the three and nine months ended September 30, 2004, of $651,000 and $1.3 million, respectively, related to minimum lease payments and settlement costs on vacated premises and are presented net of sublease income.

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     The balances of accrued restructuring charges capitalized as a cost of acquisition related to Crystal Decisions were as follows at September 30, 2004 (in thousands):

     Acta Technology, Inc. Acquisition

     In August 2002, the management and Board of Directors of Acta Technology, Inc. (“Acta”) initiated and approved plans to restructure Acta’s operations immediately prior to the Company’s acquisition of Acta. The restructuring plan reduced Acta’s cost structure and better aligned product and operating expenses with then existing general economic conditions. Acta recorded approximately $13.5 million of restructuring costs in connection with restructuring the pre-acquisition Acta organization. Costs to restructure pre-acquisition Acta were accounted for under EITF 95-3. These costs were recorded as liabilities assumed as part of the purchase price allocation.

     This restructuring liability consisted primarily of severance and other employee benefits and costs of vacating duplicate facilities. The severance and other employee benefits related to the planned termination of approximately 50 employees worldwide. Other related restructuring charges consisted primarily of the cost of vacating duplicate facilities of $7.9 million and a $1.2 million write-down of excess equipment. The charge for lease abandonment of $7.9 million, represented total future minimum lease payments and settlement costs due through 2007, net of projected sublease income of $4.2 million for Acta’s Mountain View, California headquarters and other smaller European offices.

     The balances of accrued restructuring charges were capitalized as a cost of acquisition and were as follows at September 30, 2004 (in thousands):

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     Upon termination of Acta’s Mountain View lease, the remaining $2.8 million accrual related to this property was reversed to goodwill. The remaining accrual of $441,000 at September 30, 2004 and $677,000 at December 31, 2003, represented the estimated future minimum lease payments for Acta’s U.K. facility which includes payments until the end of 2005 and related settlement costs.

Non-Acquisition-related Restructuring Liabilities

     During the three months ended June 30, 2002, the Company implemented a restructuring plan to eliminate certain positions and facilities related to its European field operations. The Company has completed the implementation of this restructuring plan at September 30, 2004, with $556,000 of the restructuring liability remaining which relates to estimated remaining legal costs or payments to terminated employees who have initiated legal action against the Company. The Company does not expect a resolution in these claims until some time in 2005. No amounts were paid during the three or nine months ended September 30, 2004. The change in the balance of $43,000 from $513,000 at December 31, 2003 to $556,000 at September 30, 2004 was due solely to the translation of this euro denominated liability into U.S. dollars.

9. 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 infringes on the Company’s U.S. Patent No. 5,555,403 by making, using, offering to sell and selling its product known as MicroStrategy Version 7.0. The Company’s complaint requested that MicroStrategy be enjoined from further infringing the patent and seeks 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 Court ruled that the Company’s patent is not literally infringed and that the Company was estopped from asserting the doctrine of equivalents and dismissed the case. The Company has appealed the Court’s judgment to the Court of Appeals for the Federal Circuit. Oral arguments on the appeal were heard by the Court on September 9, 2004 and the Company anticipates a ruling on the appeal in early 2005. The Company 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 the Company and its subsidiary, Business Objects Americas. The complaint alleges 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. Trial on U.S. Patent No. 6,260,050 was scheduled to begin on June 14, 2004. On June 7, 2004, the Court sent a letter to all counsel informing the parties that the Court was of the opinion that summary judgment should

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be granted in the Company’s favor as to infringement 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.

     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. The Court’s finding and injunction as to the two documents will not affect in any manner the Company’s ability to sell or support its products. On September 3, 2004, MicroStrategy filed a Notice of Appeal with the Court of Appeals for the Federal Circuit.

     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 alleges 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. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. The Company’s investigation of this matter and discovery are at a preliminary stage. Trial is scheduled to start on November 7, 2005. MicroStrategy had informed the Company of its intent to amend the complaint to add U.S. Patent No. 6,691,100 but subsequently stated that they would not seek to do so. The Court’s deadline for filing motions to amend the complaint has now passed. The Company intends vigorously to defend the action. Should an unfavorable outcome arise, there can be no assurance that such outcome would not have a material adverse affect on Business Objects’ liquidity, financial position or results of operations.

     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 Company became party to the following action when it acquired Crystal Decisions in December 2003. 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 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 a notice that Vedatech was seeking to set aside the settlement. The mediated settlement and related costs were accrued in the 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 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,

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alleging that the August 2002 mediated settlement was induced by fraud and that the defendants engaged in negligent misrepresentation and unfair competition. 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 Court. In October 2003, Crystal Decisions (UK) Limited, Crystal Decisions (Japan) K.K. and Crystal Decisions filed an application with the High Court of Justice claiming the 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 U.K. High Court of Justice 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 than may be pending.

     Although Business Objects believes 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 Business Objects’ financial position, liquidity and results of operations.

     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. The Company became a party to this action when it acquired Acta in August 2002. The complaint alleged that the Acta software products infringe 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 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. The Company has 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 trial date will probably not be set again until the Court issues its claim construction order. The Company intends vigorously to defend the action. Should an unfavorable outcome arise, there can be no assurance that such outcome would not have a material adverse affect on Business Objects’ liquidity, financial position or results of operations.

     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 officers and directors. The complaints allege 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 complaints generally allege 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 complaints have all been transferred to United States District Court for the Northern District of California. The actions are in the early stages, and the Company’s time to respond to the various complaints has not yet expired. The Company intends vigorously to contest these actions. The Company is unable to predict the outcome of these actions, however, were an unfavorable outcome to arise, such outcome could have a material adverse effect on the Company’s liquidity, financial position or results of operations.

     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 derivative complaints allege 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. The

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derivative complaints are based on the same facts and events alleged in the purported class action complaints. The derivative plaintiffs seek damages, disgorgement of profits, equitable, injunctive, restitutionary and other relief. The actions are in the very early stages. The Company intends vigorously to contest these actions, but is unable to predict the outcome of these actions, however, where an unfavorable outcome to arise, such outcome could have a material adverse effect on the Company’s liquidity, financial position or results of operations.

     The Company is also involved in various other legal proceedings in the ordinary course of business and none is believed to be material to its financial condition and results of operations. Where the Company believes a loss is probable and can be reasonably estimated, the estimated loss is accrued in the consolidated financial statements. Where the outcome of these matters is not determinable, no provision is made in the financial statements until the loss, if any, is probable and can be reasonably estimated or the outcome becomes known.

10. Escrows Payable and Restricted Cash

     At December 31, 2003, the Company held an aggregate of $9.7 million 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 in February 2004. In July 2002, Informatica filed an action for alleged patent infringement against Acta, which was not resolved at September 30, 2004. 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.

     During April 2004, the Company entered into a Pledge and Security Agreement, as amended on July 28, 2004, pursuant to which a bank provides foreign exchange contract services to the Company. The Company is required to hold a balance equal to 10% of the aggregate amount of all foreign exchange contracts entered into with the bank. At September 30, 2004, this calculated balance totaled $21.1 million, which was recorded as restricted cash. Restricted cash as of September 30, 2004 also included $628,000 for bonuses payable to Acta employees subject to employment related contingencies and withdrawal restrictions, $2.0 million securing an overdraft credit facility and $7.0 million securing leased office space in San Jose, California.

11. Credit Line

     In November 2003, Business Objects executed a line of credit for one year ending November 25, 2004. The line provides up to €60 million which can be drawn in euros, U.S. dollars or Canadian dollars for general working capital requirements. The available amount is reduced by the aggregate of all outstanding drawings against the line of credit. 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 is calculated dependent on the currency in which the draw originally occurs. The line 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 bank. The Company has the option to reduce the credit available in multiples of €5 million, without penalty. No drawings were made by the Company at September 30, 2004 or at December 31, 2003. The 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.

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12. Accounting for and Disclosure of Guarantees

     Guarantor’s Accounting for Guarantees. The Company from time-to-time enters into certain types of contracts that contingently 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 and employees and third parties, under which the Company may be required to indemnify such persons for liabilities arising out of their duties to the Company, and (iii) agreements under which the Company indemnifies customers and partners for claims arising from intellectual property infringement. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obliged to make significant payments for these obligations, and as such no liabilities aside from detailed following were recorded for these obligations on its balance sheet as of September 30, 2004 and December 31, 2003.

     During the quarter ended September 30, 2004, the Company guaranteed the obligations of three separate lease agreements on behalf of one of its subsidiaries in order to secure premises in the United States without the requirement to pay a substantial deposit. The minimum lease terms of the leases range between three and four years and require that in the event of default by the subsidiary, the Company guarantees to fully and timely perform any and all monetary and non-monetary obligations under the lease. The total potential annual obligation under these leases approximates $623,000 per annum. No liability related to this guarantee exists as of September 30, 2004.

     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 but may vary depending upon the country in which the product is sold. 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. Due to extensive product testing, the short time between product shipments and the detection and correction of product failures, no history of material warranty claims, and the fact that no significant warranty issues have been identified, the Company has not recorded a warranty accrual to date.

     Environmental Liabilities. The Company engages in the development, marketing and distribution of software, and has never had any environmental related claim. As such, the likelihood of incurring a material loss related to environmental indemnifications is remote and the Company is unable to reasonably estimate the amount of any unknown or future claim. As a result, the Company has 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. The Company is responsible for certain costs of restoring leased premises to their original condition in accordance with the recognition and measurement provisions of FAS 143, and measured the fair value of these obligations at September 30, 2004. At September 30, 2004, a total of $807,000 was included in liabilities related to the restoration of leased premises that qualify as operating leases. These liabilities were not associated with the Crystal Decisions restructuring plan.

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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 most jurisdictions.

     The Company’s effective tax rate was 38% for the three and nine months ended September 30, 2004 and 2003. The Company provides for income taxes for each interim period based on the estimated annual effective tax rate for the year.

14. Subsequent Events

     On October 8, 2004, the Company filed a registration statement with the SEC on behalf of its largest shareholder, New SAC, for the sale from time to time of 14.4 million shares or ADSs (the “Shares”) held by New SAC. The Shares represented approximately 15% of Business Objects’ issued and outstanding shares at September 30, 2004. The Company will not receive any proceeds on the sale of the Shares and the Company is not seeking to sell any of the Shares for its own account pursuant to the registration statement. In connection with the Crystal Decisions Acquisition, the Company committed to paying the costs, other than underwriting commissions and discounts or sales commissions, if any, associated with this registration statement. As of the date of this filing, the registration statement had not been declared effective by the SEC and the sale of the Shares had not commenced.

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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 us and our industry. 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

     Business Objects is a worldwide provider of business intelligence solutions. We develop, market and distribute software that enables organizations to track, understand and manage enterprise performance within and beyond the enterprise. This allows organizations to make better, more informed business decisions. Users can view and interact with key performance indicators in a dashboard, create queries or reports, access catalogs of reports and do simple or complex analysis of the data. We have one reportable segment – business intelligence software products.

Key Performance Indicators

     On December 11, 2003, we acquired Crystal Decisions for its complementary geographical strengths, products, services and solutions that allow us to provide a more complete suite of business intelligence products to a broader range of business users. The acquisition of Crystal Decisions did not result in any new reportable segments, nor do we track the business operations from the former Crystal Decisions or the former Business Objects. We are incurring and expect to continue to incur in the future certain acquisition related charges, the magnitude of which we have not experienced in the past.

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     We estimated the following Crystal Decisions acquisition related expenses for 2004 to 2008 at December 31, 2003 (in millions):

     During the three and nine months ended September 30, 2004, respectively, we amortized $5.0 million and $15.2 million of developed technology, $2.6 million and $7.0 million of intangible assets and $1.5 million and $5.3 million of stock-based compensation. During the nine months ended September 30, 2004, we incurred $1.5 million of restructuring costs of the $5.5 million originally estimated. Any remaining charges, which are currently expected to be approximately $1.2 million, are expected to be incurred during the three months ending December 31, 2004.

     Our results for 2004 or any interim period as reported under generally accepted accounting principles in the United States, or U.S. GAAP, vary considerably from 2003 as a result of our acquisition of Crystal Decisions. The corresponding periods of the prior year do not reflect revenues and expenses related to Crystal Decisions. Our historical results before 2004 are not expected to be indicative of our future results for the combined company. The majority of the changes to the three and nine months ended September 30, 2004 from the three and nine months ended September 30, 2003, are as the result of the addition of revenues and expenses in 2004 from the acquisition of Crystal Decisions. Our operating results for the three months ended September 30, 2004 compared to the three months ended September 30, 2003 appear in our condensed consolidated statements of income. In addition to comparing these periods and in order to provide more meaningful analysis to readers, we have also presented financial information comparing the three months ended September 30, 2004 to the three months ended June 30, 2004 and have provided analysis of the change between these periods.

Impact of Foreign Currency Exchange Rate Fluctuations on Results of Operations

     The translated U.S. dollar value of our revenues and expenses are impacted by changes in foreign currency exchange rates because we conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our financial statements. We generate a significant portion of our revenues and incur a significant portion of our expenses in euros, British pounds and Japanese yen. Historically, this has resulted in a natural hedge of our foreign exchange exposure. As a result of our acquisition of Crystal Decisions, we incur a significant portion of our expenses in Canadian dollars without offsetting amounts of Canadian dollar revenues.

     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 foreign currency rate fluctuations. As currency rates change from quarter-to-quarter and year-over-year, our results of operations may be impacted as a result of these changes. For example, our results may show an increase in costs for a period; however, when the portion of those costs denominated in foreign currencies are translated into U.S. dollars at the same rate as the previous quarter or comparative period, the result may be a decrease in cost, with the change being principally the result of fluctuations in the foreign currency rates. Results excluding the effect of foreign currency translation (also referred to constant currency) may be calculated by translating current period results at prior quarter or prior year average exchange rates. For purposes of the

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disclosures included following, constant currency information is calculated using the applicable rates for each quarter of 2003 and applying these to the results of operations for the nine months ended September 30, 2004.

     On a constant currency basis against the rates for the nine months ended September 30, 2003, total operating income for the nine months ended September 30, 2004 would have been approximately $0.3 million higher than reported results.

Results of Operations

     The following table shows each line item on our condensed consolidated statements of income as a percent of total revenues (as measured in U.S. dollars):

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Revenues

     Net License Fees. We generate net license fees from the sale of licenses to use our software products. We market our products through our direct sales force and indirectly through channel partners. Our revenues from direct sales have historically comprised a greater percentage of our total revenues, with direct revenues representing 57% and 59% in the three and nine months ended September 30, 2003. During the three months ended September 30, 2004, our revenues recognized through channel partners exceeded our direct sales revenues for the first time, with net license fees from partners comprising 51% of total net license fees. This change is in part due to our acquisition of Crystal Decisions which contributed a strong base of channel partner relationships including original equipment manufacturers, value added resellers, system integrators and independent distributors. In addition, this change is the result of the relative weakness in direct sales due to the absence of large direct sales transactions during the three months ended September 30, 2004. We continue to enter into and expand our channel partner relationships. We anticipate that the percentage of our net license fees between direct and indirect channels will fluctuate between periods, as revenues are sensitive to individual large transactions that are neither predictable nor consistent in size or timing. No single customer or single channel partner represented more than 10% of total revenues during any of the periods presented.

     Net license fees increased by $47.7 million, or 82%, to $105.7 million for the three months ended September 30, 2004 from $58.0 million for the three months ended September 30, 2003. Net license fees increased by $160.4 million, or 91%, to $337.4 million for the nine months ended September 30, 2004 from $177.0 million for the nine months ended September 30, 2003. On a constant currency basis, we would have recorded net license fees that were $17.7 million lower than those reported for the nine months ended September 30, 2004.

     We derive the largest portion of our license revenues from our business intelligence platform products, which include all current versions of the Crystal Decisions’ product suites. We continue to see growth in our net license fees which is attributable to the addition of the Crystal Decisions’ product suites, including Crystal Version 10, and to increased sales of our Enterprise 6.0 product, which was released in the three months ended June 30, 2003 and Enterprise 6.5 which was released in the three months ended June 30, 2004.

     Sequentially, net license fees decreased by $11.5 million, or 10%, to $105.7 million for the three months ended September 30, 2004 from $117.2 million for the three months ended June 30, 2004. The sequential decrease in net license revenues was mainly attributable to the $13.4 million decrease in net license fees in Europe which was the result of the soft summer season and the absence of transactions over $1.0 million which occurred in the three months June 30, 2004, partially offset by the $2.8 million sequential increase for the Americas region.

     Services Revenues. Services revenues increased by $42.7 million, or 60%, to $113.8 million for the three months ended September 30, 2004 from $71.1 million for the three months ended September 30, 2003. Services revenues increased by $121.9 million, or 61%, to $321.5 million for the nine months ended September 30, 2004 from $199.6 million for the nine months ended September 30, 2003.

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On a constant currency basis, we would have recorded cost of services revenues that were approximately $16.9 million lower than those reported for the nine months ended September 30, 2004.

     As a percentage of total revenues, services revenues have decreased to 49% of total revenues for the nine months ended September 30, 2004 from 53% for the nine months ended September 30, 2003, while revenues from net license fees increased from 47% to 51% of total revenues for the same period. The shift to a greater percentage of revenues from net license fees was primarily attributable to the addition of revenues from Crystal Decisions’ former business. The historical trend for Crystal Decisions of greater license revenues was the result of a higher percentage of revenues sold through distributors for which no consulting or training services were sold.

     Sequentially, services revenues increased by $8.7 million, or 8%, to $113.8 million for the three months ended September 30, 2004 from $105.1 million for the three months ended June 30, 2004, with the majority of this increase attributable to more maintenance and support revenues. We expect our services revenues to increase as we continue to support a large installed customer base and continue to gain new customers.

     Geographic Revenues Mix

     The following shows the geographic mix of our total revenues:

     Total revenues from the Americas increased 106% and 97% in the three and nine months ended September 30, 2004, respectively, from the three and nine months ended September 30, 2003. As a percentage of total revenues, Americas’ revenues increased to 52% in the three months ended September 30, 2004 from 43% in the three months ended September 30, 2003. Americas’ revenues increased to 49% in the nine months ended September 30, 2004 from 43% in the nine months ended September 30, 2003. The increase in both periods is a result of the strong performance in the Americas, and reflects the fact that Crystal Decisions historically earned approximately 70% of its total revenues from the Americas region.

     Sequentially, total revenues from the Americas increased by $9.5 million, or 9%, to $113.8 million for the three months ended September 30, 2004 from $104.3 million for the three months ended June 30, 2004, as a result of increases in all sources of revenues, with the majority attributable to strong performance in maintenance renewals. Net license fees from the Americas increased by $2.8 million, or 5%, to $58.3 million for the three months ended September 30, 2004 from $55.5 million for the three months ended June 30, 2004.

     Total revenues from EMEA increased 38% and 54% in the three and nine months ended September 30, 2004, respectively, from the three and nine months ended September 30, 2003. Total revenues from EMEA decreased as a percentage of total revenues from 49% of total revenues for both the three and nine months ended September 30, 2003 to 40% and 43% of total revenues for the three and nine months ended September 30, 2004, respectively.

     Sequentially, total revenues from EMEA decreased by $12.1 million, or 12%, to $87.5 million for the three months ended September 30, 2004 from $99.6 million in the three months ended June 30, 2004, mainly as the result of the absence of large license transactions signed in the three months ended

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September 30, 2004 compared to five transactions over $1.0 million in net license fees for the three months ended June 30, 2004. In addition, activity in the EMEA region generally slows in the summer months. In euros, total revenues from EMEA decreased by 13% in the three months ended September 30, 2004 from the three months ended June 30, 2004.

     Total revenues from Asia Pacific, including Japan, increased 72% and 84% in the three and nine months ended September 30, 2004, respectively, from the three and nine months ended September 30, 2003, and remained constant as a percentage of total revenues at 8% for all periods. Sequentially, revenues from the Asia Pacific region decreased by $0.2 million, or 1%, to $18.1 million for the three months ended September 30, 2004 from $18.3 million the three months ended June 30, 2004. The overall sequential net decrease of $0.2 million is partially offset by an increase in revenues in Japan and Greater China of $1.5 million.

Additional Revenues Information

     We have previously announced that in late December 2004, we expect to commercially release the first of a series of new products, including the BusinessObjects 11. We also expect to release editions of Business Objects 11 that use additional platforms and languages during the early part of 2005.

     We anticipate that the release of BusinessObjects 11 will be particularly susceptible to deferred or delayed orders. Business Objects 11 will merge the former Business Objects and Crystal Decisions product lines and we expect it to be the primary platform for new features and functionality in the future. Given the nature of this product transition and considering the fact that current Business Objects and Crystal Decisions products will transition to end of life over the next year or two, some customers may delay purchasing older products or may wait before purchasing BusinessObjects 11 until reviews on the product have been established. We therefore cannot predict whether our revenues from our currently released products will be consistent with patterns we have previously experienced. As such, we expect that both our net license fees and service revenues for the three months ending December 31, 2004 are likely to be affected and to vary more significantly during this transition than we have experienced in past. While we expect some fluctuation in revenues and are accordingly putting in place programs and incentives to try to mitigate these fluctuations, we cannot provide any assurance that these programs will be effective.

Cost of Revenues

     Cost of revenues as a percentage of total revenues increased to 23% for the three months ended September 30, 2004 from 18% for the three months ended September 30, 2003. Cost of revenues as a percentage of total revenues increased to 22% for the nine months ended September 30, 2004 from 17% for the nine months ended September 30, 2003. The majority of the increases for the three and nine months ended September 30, 2004 were attributable to the non-cash amortization of intangible assets including developed technology and maintenance and support contracts acquired in our acquisition of Crystal Decisions. The majority of the remaining increase in cost of revenues was the result of the addition of costs associated with revenues for Crystal Decisions’ products and services, which have lower services margins than those of other Business Objects’ products. In addition, on a constant currency basis, total cost of revenues would have been $7.8 million lower than those reported for the nine months ended September 30, 2004. Sequentially, total costs of revenues increased by $2.2 million, or 5%, to $49.6 million for the three months ended September 30, 2004 from $47.4 million for the three months ended June 30, 2004.

     Cost of net license fees. Our cost of net license fees consists primarily of materials, product packaging, distribution costs, related fulfillment personnel, third-party royalties and developed technology amortization. Cost of net license fees increased by $6.0 million to $7.1 million for the three months ended September 30, 2004 from $1.1 million for the three months ended September 30, 2003, primarily due to $5.0 million in developed technology amortization. Cost of net license fees increased by $17.9 million to $20.8 million for the nine months ended September 30, 2004 from $2.8 million for the three months ended September 30, 2003, primarily due to $15.2 million in developed technology amortization.

     Gross margins on net license fees were 93% and 94% for the three and nine months ended September 30, 2004, respectively, compared to 98% for both the three and nine months ended September 30, 2003. The increase in costs not associated with developed technology amortization was the result of the costs associated with higher license revenues and additional costs related to the release of new versions of our products, offset in part by savings in third party royalty costs as a result in changes in relationships. Approximately 70% of the cost of net license fees in the three and nine months ended September 30, 2004 represented amortization of developed technology, which is fixed.

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     Sequentially, cost of net license fees increased by $1.1 million, or 18%, to $7.1 million for the three months ended September 30, 2004 from $6.0 million for the three months ended June 30, 2004. The increase in costs was partly attributable to additional costs for freight media and manuals.

     Cost of services revenues. Our cost of services revenues consist primarily of personnel and related overhead costs for technical support, training, consulting and the cost of materials delivered with product upgrades and enhancements. Cost of services revenues increased $20.9 million, or 97%, to $42.5 million for the three months ended September 30, 2004 from $21.6 million for the three months ended September 30, 2003. Cost of services revenues increased $63.2 million, or 101%, to $125.5 million or 39% of services revenues in the nine months ended September 30, 2004 from $62.3 million, or 31% of services revenues in the nine months ended September 30, 2003. The majority of the increase from the three and nine months ended September 30, 2003 to the three and nine months ended September 30, 2004 was the result of increased headcount and associated costs in connection with our acquisition of Crystal Decisions. In addition, approximately $2.2 million and $6.6 million of the increase for the three and nine months ended September 30, 2004, respectively, represents amortization of intangible assets related to maintenance and support contracts acquired in connection with our acquisition of Crystal Decisions.

     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 $5.1 million and $26.4 million of deferred revenues from Crystal Decisions which would have been recorded in the three and nine months ended September 30, 2004, respectively, 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, we earned no margin in performing the services associated with the deferred revenues, and as such costs of services revenues as a percentage of services revenues have increased.

     Gross margin on services revenues were 63% for the three months ended September 30, 2004 compared to 70% for the three months ended September 30, 2003. Gross margin on services revenues were 61% for the nine months ended September 30, 2004 compared to 69% for the nine months ended September 30, 2003. The decrease in gross margin was primarily due to the absence of normal margins on the remaining balance of recognized deferred revenues from Crystal Decisions as described above, the mix of required outsourcing for our consulting and training group, and the increase in intangible asset amortization expense.

     Sequentially, cost of services revenues increased by $1.0 million, or 2%, to $42.4 million for the three months ended September 30, 2004 from $41.4 million for the three months ended June 30, 2004, mainly as a result of additional consultants used in the Americas to serve our customers while we continue to expand our consulting team. Gross margin on services revenues increased to 63% for the three months ended September 30, 2004 from 61% for the three months ended June 30, 2004, mainly due to a reduction in integration related costs.

OPERATING EXPENSES

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     Total operating expenses decreased as a percentage of total revenues by 1% in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, despite the additional costs associated with the merger integration.

     For the three and nine months ended September 30, 2004, respectively, total operating expenses included $1.2 million and $4.4 million of stock-based compensation amortization related to the options assumed in conjunction with our acquisition of Crystal Decisions. The stock-based compensation expense represented the realization of the benefit to the employee on the vesting of a portion of these stock options, and was expensed to the operating expense line associated with the employees’ department. There was no comparable expense during the three or nine months ended September 30, 2003.

     Sequentially, total operating costs decreased by $3.3 million, or 2%, to $153.2 million for the three months ended September 30, 2004 from $156.5 million for the three months ended June 30, 2004.

Sales and Marketing Expenses

     Sales and marketing expenses increased $36.6 million, or 61%, to $96.5 million for the three months ended September 30, 2004 from $59.9 million for the three months ended September 30, 2003. Sales and marketing expenses increased $118.3 million, or 68%, to $293.0 million for the nine months ended September 30, 2004 from $174.7 million for the nine months ended September 30, 2003. The increase in absolute dollars for the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003 was primarily due to increased employee expenses, including commissions, resulting from the addition of approximately 650 sales and marketing employees in connection with the acquisition of Crystal Decisions. On a constant currency basis, sales and marketing expenses would have been approximately $15.7 million lower than reported for the nine months ended September 30, 2004.

     Sequentially, sales and marketing expenses decreased by $2.7 million, or 3%, to $96.5 million for the three months ended September 30, 2004 from $99.3 million for the three months ended June 30, 2004. The decrease in sales and marketing expenses for the three months ended September 30, 2004 was primarily as the result of a $2.9 million reduction in marketing expenses associated with reduced marketing campaign spending and related expenses, offset by $0.6 million of additional severance costs not associated with the Crystal Decisions’ restructuring plan, over the three months ended June 30, 2004.

Research and Development Expenses

     Research and development expenses increased by $12.4 million, or 54%, to $35.3 million for the three months ended September 30, 2004 from $22.9 million for the three months ended September 30, 2003. Research and development expenses increased by $42.6 million, or 62%, to $111.6 million for the nine months ended September 30, 2004 from $69.0 million for the nine months ended September 30, 2003. A large portion of our research and development activities are performed in Canada and France. As a result, we may experience either favorable or unfavorable impacts as the result of foreign currency exchange movements related to this expense. As the majority of research and development expenses relate to employee compensation, the majority of the increase in costs relates to the addition of approximately 450 research and development employees in connection with the acquisition of Crystal Decisions. On a constant currency basis, research and development expenses would have been approximately $8.8 million lower than reported for the nine months ended September 30, 2004.

     Sequentially, research and development expenses decreased by $1.2 million, or 54%, to $35.3 million for the three months ended September 30, 2004 from $36.5 million for the three months ended June 30, 2004. While we hired approximately 80 additional research and development employees in various locations throughout the three months ended September 30, 2004, the decrease in expenses for the sequential quarter was the result of the cumulative effect of initial headcount reductions and related

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compensation savings realized as a result of our restructuring plan. We expect to gain further cost savings as we develop one integrated product line, complete the remainder of the planned terminations in certain geographies and continue our integration of research and development activities.

General and Administrative Expenses

     General and administrative expenses increased by $11.2 million, or 110%, to $21.4 million for the three months ended September 30, 2004 from $10.2 million for the three months ended September 30, 2003. General and administrative expenses increased by $33.4 million, or 115%, to $62.3 million for the nine months ended September 30, 2004 from $28.9 million for the nine months ended September 30, 2003. These increases resulted from increased employee related costs, integration expenses, professional fees including costs associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002, consulting and legal fees, and an increase in bad debt expense for accounts receivable identified as doubtful. The increase in costs was offset by a $1.0 million insurance reimbursement of legal fees. On a constant currency basis, general and administrative expenses would have been approximately $2.7 million lower than reported for the nine months ended September 30, 2004.

     For each quarter in 2004 to date, general and administrative expenses also included amortization expense of approximately $0.3 million per quarter, or $0.9 million for the nine months ended September 30, 2004, related to trade names acquired in the acquisition of Crystal Decisions. In addition, total stock-based compensation amortization of $0.2 million and $1.0 million was recorded in the three and nine months ended September 30, 2004.

     Sequentially, general and administrative expenses increased by $2.2 million, or 11%, to $21.4 million for the three months ended September 30, 2004 from $19.2 million for the three months ended June 30, 2004. The increase resulted from an increase in the allowance for doubtful accounts, additional professional services costs, and increased recruiting costs partially offset by lower travel and entertainment expenses.

Restructuring Costs

     As disclosed in the section “-Acquisitions and Restructuring Charges – Crystal Decisions Acquisition “Restructuring Costs Expensed under FAS 146” restructuring costs of $1.5 million were incurred during the nine months ended September 30, 2004 related to charges associated with the planned facility abandonment or closure of specific office locations occupied by Business Objects prior to our acquisition of Crystal Decisions. We currently anticipate that the remaining planned facility closures will be completed in the three months ending December 31, 2004 at an additional cost of approximately $1.2 million.

Interest and Other Income (Expense), Net

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

     Net interest income decreased during the three and nine months ended September 30, 2004 compared to the same periods in 2003, as the result of the combination of lower average balances of invested cash and short-term investments and lower interest rates over the comparative period. Sequentially, net

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interest income for the three months ended September 30, 2004 remained consistent with the three months ended June 30, 2004.

     The patent infringement settlement income resulted from payments received on the settlement of our patent infringement lawsuit against Cognos for use of our patented technology under U.S. Patent No. 5,555,403. The payment terms included the payment of $1.8 million each quarter commencing in the quarter ended September 30, 2002 up to and including the three months ended June 30, 2004. We do not expect any further income from this source.

     Foreign Exchange Gains (Losses)

     For the three and nine months ended September 30, 2003, transaction foreign exchange gains (losses) were minimized by the natural hedge of our revenues and expenses. However, during the nine months ended September 30, 2004, we recognized $8.7 million of net foreign exchange losses, of which $6.8 million were recognized in the three months ended March 31, 2004. The majority of this loss related to the translation of the U.S. dollar denominated intercompany loans into the local currencies of our subsidiaries. In order to mitigate the risk of these foreign exchange losses occurring in the future, in April 2004, we entered into forward contracts for the purchase of U.S. dollars, Canadian dollars and British pounds in exchange for euros at a future date to settle various intercompany loans. This future date coincides with the maturity of these intercompany loans. The majority of the net foreign exchange loss for the three months ended June 30, 2004 was attributable to the reversal of the March 31, 2004 unrealized gain of $3.4 million. At September 30, 2004, we held forward contracts to purchase U.S. $158.4 million, Cdn $9.9 million and £25.3 million against the euro to settle obligations under intercompany loans. Since the implementation of our forward contract strategy in May 2004, we do not anticipate material exchange gains or losses from intercompany loans.

     Our Canadian operations continue to have more expenses than revenues, and we have in the past held forward contracts for the purchase of Canadian dollars. At September 30, 2004, all previous contracts had matured or were accelerated to maturity, and we realized a net gain of $0.7 million for the three months ended September 30, 2004, attributable to the strengthening of the Canadian dollar. Since the acquisition of Crystal Decisions, we have had and expect to continue to have either foreign exchange gains or losses on a combination of events including forward exchange contract gains or losses settled during and outstanding at period end and other transactions involving the purchase of currencies.

Income Taxes

     Our effective tax rate was 38% for the three and nine months ended September 30, 2004 and 2003. We provide for income taxes for each interim period based on the estimated annual effective tax rate for the year.

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Liquidity and Capital Resources

     The following table shows our cash flows and changes in cash and cash equivalents:

     Cash and cash equivalents totaled $222.6 million at September 30, 2004, a decrease of $12.8 million from December 31, 2003. Excluding the transfer of $21.1 million to a restricted cash account in accordance with a pledge and security agreement to collateralize forward contracts, cash and cash equivalents increased by $8.3 million from December 31, 2003. Our principal source of liquidity has been our operating cash flow and funds provided by stock option exercises.

     Operating Activities. During the nine months ended September 30, 2004 and September 30, 2003, we generated greater cash resources than we used from operations. These cash resources resulted from net income for the nine months ended September 30, 2004 and 2003, respectively, of $64.5 million and $47.2 million after adjustments to exclude non-cash charges of $38.7 million and $16.0 million for the nine months ended September 30, 2004 and 2003, respectively.

     The decrease in cash provided by operations of $27.2 million from the nine months ended September 30, 2003 to the nine months ended September 30, 2004, was comprised of the $17.3 million increase in net income after non-cash adjustments, an increase in deferred revenues of $15.3 million, offset by $10.9 million less in cash collected from accounts receivable, and $48.9 million greater use of cash for other operating assets and liabilities. The major uses of cash in the nine months ended September 30, 2004 included: cash payments of approximately $17.0 million for restructuring charges; cash payments for accrued payroll and related expense accruals, which included severance payments to former employees that were not accounted for as part of the restructuring, and cash payments of approximately $41.8 million for taxes due in the ordinary course of business.

     Days sales outstanding increased to 75 days at September 30, 2004 from 66 days at December 31, 2003. The increase was in part due to system and processing delays related to the integration of our collections teams which occurred in the three months ended June 30, 2004. Sequentially, days sales outstanding decreased from 81 days at June 30, 2004 to 75 days at September 30, 2004, resulting in a net increase in cash provided by operations in the three months ended September 30, 2004 of $18.4 million.

     Investing Activities. During the nine months ended September 30, 2004, we did not purchase any short-term investments, whereas in the nine months ended September 30, 2003, we purchased $31.9 million of investments which reduced our cash and cash equivalents balance. During the nine months ended September 30, 2004, our capital expenditures substantially increased to $24.2 million from $7.6 million for the nine months ended September 30, 2003. These additional costs related to the continued implementation of information technology systems and infrastructure and the continued expansion of our facilities, especially in our Vancouver, Canada location.

     Financing Activities. The net use in cash and cash equivalents for the nine months ended September 30, 2004, resulted from the use of cash of $40.2 million for the repurchase of 2.0 million of our ordinary shares, the transfer of $21.1 million of cash to a restricted account in accordance with a pledge and

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security agreement to collateralize forward contracts, payments of $3.1 million related to the Acta escrow funded with $3.2 million out of restricted cash, offset in part by cash received of $28.2 million from the exercise of options under our stock option plans and the issuance of shares under our employee stock purchase plans.

     During the nine months ended September 30, 2003, our only source of cash from financing activities was the $14.7 million cash we received from the exercise of options under our stock option plans and the issuance of shares under our employee stock purchase plans. Cash provided from this source alone increased by $13.5 million in the nine months ended September 30, 2004, mainly as a result of exercises and purchases by former Crystal Decisions’ optionees. We expect the monies received on the exercise or purchase of options/shares to vary because we cannot predict 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 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 obtained a €60 million line of credit in the three months ended December 31, 2003, which can be drawn in euros, U.S. dollars or Canadian dollars, to support our cash management activities. At September 30, 2004 and December 31, 2003, no balance was outstanding under this line of credit.

     On April 28, 2004, we entered into a pledge and security agreement covering certain forward contract services. On July 28, 2004, we signed a first amendment to this agreement that changed the requirement to hold a fixed amount of funds, which was $33.3 million. On July 28, 2004 and thereafter, the agreement requires us to hold a balance equal to 10% of the aggregate amount of all foreign exchange transactions entered into with the bank. This agreement grants the bank a security interest in the deposit as security for the prompt performance of all obligations with respect to, or arising out of, the foreign exchange agreements. In accordance with the agreement, we were required to maintain $21.1 million at September 30, 2004 in a money market fund with the bank as collateral.

     Our other contractual obligations have not changed materially from those presented as of December 31, 2003 in our Annual Report on Form 10-K.

Guarantees

     Guarantor’s Accounting for Guarantees. From time to time, we enter into certain types of contracts that require us to indemnify parties contingently 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 and employees and third parties, under which we may be required to indemnify such persons for liabilities arising out of their duties to us; and (iii) agreements under which we indemnify customers and partners for claims arising from intellectual property infringement. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, we have not been obligated to make significant payments for these obligations, and as such no liabilities aside from detailed following were recorded for these obligations on our balance sheets as of September 30, 2004 or December 31, 2003.

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     During the three months ended September 30, 2004, we guaranteed the obligations of three separate lease agreements on behalf of one of our subsidiaries in order to secure premises in the United States without the requirement to pay a substantial deposit. The minimum lease terms range between three and four years and require in the event of default by the subsidiary that we guarantee to fully and timely perform any and all monetary and non-monetary obligations under the lease. The total potential annual obligation under these leases approximates $623,000 per annum. No liability related to this guarantee existed at September 30, 2004.

     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 but may vary depending upon the country in which the software is sold. 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. To date we have had no material warranty claims. Due to extensive product testing, the short time between product shipments and the detection and correction of product failures, no history of material warranty claims, and the fact that no significant warranty issues have been identified, we have not recorded a warranty accrual to date.

     Environmental Liabilities. We engage in the development, marketing and distribution of software, and have never had an environmental related claim. As such, the likelihood of incurring a material loss related to environmental indemnifications of any unknown or future claim is remote and we are unable to reasonably estimate the amount of any unknown or future claim. As a result, 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 responsible for certain costs of restoring leased premises to their original condition, and in accordance with the recognition and measurement provisions of FAS 143, we measured the fair value of these obligations at period end. At September 30, 2004, a total of $0.8 million was included in liabilities related to the restoration of leased premises that qualify as operating leases. These liabilities were not associated with the Crystal Decisions restructuring plan.

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Acquisitions and Restructuring Charges

Crystal Decisions Acquisition

     Transaction. The total purchase price of $1.229 billion consisted of $307.6 million in cash, $768.6 million in newly issued shares, $139.1 million in stock options assumed and $13.9 million in estimated direct transaction costs. The total purchase price was allocated to the following fair values of Crystal Decisions’ assets and liabilities as of December 11, 2003 (in millions):

     During the nine months ended September 30, 2004, an adjustment was made to the net tangible assets acquired to increase goodwill. This increase was the result of increases in estimates of liabilities that existed at the date of purchase consisting mainly of a $9.0 million increase in income taxes payable and a $1.1 million increase in various liabilities and certain restructuring costs. The purchase price allocation is preliminary and the final amounts of net tangible assets and estimated transaction costs may change based on new information during the purchase price allocation period. We expect that the purchase price allocation period will end prior to December 31, 2004, with the exception of items related to open tax years.

     Restructuring. Prior to the acquisition of Crystal Decisions, we began to assess and formulate a plan to restructure the combined company’s operations to eliminate duplicative activities, focus on strategic products and reduce the company’s cost structure. Our board of directors approved and committed to the plan shortly after we completed the acquisition. The restructuring charge is discussed in detail in Note 8 to the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

     The restructuring accruals were based on our best estimates. However, if actual amounts paid for Crystal Decisions restructuring activities differ from those we estimated, then the purchase price allocation may be adjusted in future periods. If actual amounts paid for the restructuring related to the pre-acquisition Business Objects organization differ from those we estimated, then our liability would be adjusted as an increase or decrease to expense in the period that we change the estimate.

     Restructuring Costs Included as a Cost of the Crystal Decisions Acquisition

     In December 2003, we accrued severance and other related benefits in connection with the involuntary termination of 194 Crystal Decisions’ employees and other restructuring costs in connection with the abandonment of facilities. Qualifying restructuring costs related to Crystal Decisions were accounted for in the purchase price allocation. During the nine months ended September 30, 2004, we paid approximately $9.0 million in severance and other related benefits to 151 employees across all regions. We anticipate that a substantial portion of the remaining number of employees will not ultimately be terminated. This determination, and a change in estimate if necessary, will be made in the three months ending December 31, 2004 and, if required, goodwill will be decreased equal to the reduction in the accrual. We expect to pay the remaining restructuring liability or revised estimated costs for employee severance and other related benefits during the three months ending December 31, 2004. There are no significant additional expected terminations associated with this restructuring plan.

     The cost to abandon facilities restructuring charge of $2.7 million at December 31, 2003, related to estimated costs for future minimum lease payments once we had vacated 11 facilities which we had

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