UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

BUSINESS OBJECTS S.A.

(Exact name of Registrant as specified in its charter)

157-159 Rue Anatole France, 92300 Levallois-Perret, France

(Address of principal executive offices)

(408) 953-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

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.     þ Yes       o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).     þ Yes          o No

      As of June 30, 2004, the last business day of our most recently completed second fiscal quarter, there were 95,380,793 ordinary shares of €0.10 nominal value issued (including 32,681,296 American depositary shares each corresponding to one ordinary share and 2,067,675 treasury shares). The aggregate market value of our common equity held by non-affiliates, based upon the closing sale price of our American depositary shares on June 30, 2004 as reported on the Nasdaq National Market, was $1,482,374,448. Ordinary shares and American depositary shares held by each of our officers and directors and by each person owning, to our knowledge, 5% or more of our common equity were excluded because such persons may be deemed to be affiliates of Business Objects. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

      As of February 28, 2005, the number of issued ordinary shares was 96,015,926 of €0.10 nominal value (including 30,107,702 American depositary shares, 3,067,675 treasury shares and 3,405,102 shares held by Business Objects Option LLC). As of February 28, 2005, we had issued and outstanding 92,610,824 ordinary shares of €0.10 nominal value (including 30,107,702 American depositary shares and 3,067,675 treasury shares). Of the number of issued shares 6,310,234 represented shares issued by us on December 11, 2003 to Business Objects Option LLC, our indirectly, wholly owned subsidiary. These shares represent shares issuable upon exercise of the stock options held by former Crystal Decisions’ optionees. Since Business Objects Option LLC is an indirect, wholly owned subsidiary of Business Objects, the shares are not deemed to be outstanding and will not be entitled to voting rights. In the event any such shares are not needed to satisfy obligations under stock options, such as if stock options expire prior to exercise, Business Objects may cause such shares to be sold in the market or to be used for other corporate purposes. These shares are not considered outstanding until such time as the option holders exercise the stock options.

Documents Incorporated by Reference

      We have incorporated by reference into Part III of this Form 10-K, portions of our Proxy Statement for our 2005 Annual Meeting of Shareholders.

Trademarks

      References in this Form 10-K to the “Company,” “Business Objects,” “we,” “our,” and “us” refer to Business Objects S.A. and our consolidated subsidiaries. Business Objects, the Business Objects logo, BusinessQuery, WebIntelligence, Crystal Reports, Crystal Enterprise, Crystal Analysis, and Rapidmarts are trademarks or registered trademarks of Business Objects S.A. in the U.S. and /or other countries. All other trademarks or trade names referenced in this Form 10-K may be the property of their respective owners.

Reporting Currency

      All financial information contained in this document is expressed in United States dollars, unless otherwise stated.

American Depositary Shares

      We sponsor a program that provides for the trading of our ordinary shares in the United States in the form of American depositary shares (“ADSs”). Each ADS represents one ordinary share placed on deposit with The Bank of New York, as depositary (the “Depositary”) and is issued and delivered by the Depositary through its principal office in New York City at 101 Barclay Street, New York, New York, 10286. Under the terms of the Deposit Agreement (the “Deposit Agreement”) as amended and restated October 15, 2003, ordinary shares may be deposited with the Paris office of BNP Paribas Securities Services, as custodian (the “Custodian”), or any successor or successors to such Custodian. The Depositary provides a variety of services to our investors. A form of the Deposit Agreement is incorporated by reference as an exhibit to this Form 10-K.

BUSINESS OBJECTS S.A.

TABLE OF CONTENTS

PART I

      This discussion contains forward-looking statements based on our expectations, assumptions, estimates and projections about Business Objects and our industry as of the filing date of this Form 10-K. These statements include, but are not limited to, statements concerning: our strategy, including the company’s expected financial performance, continued sales of our existing products and services as well as sales of the company’s BusinessObjects XI product offering. Actual events or results may differ materially from those described in this document due to a number of risks and uncertainties. The potential risks and uncertainties include, among others, the company’s ability to attract and retain customer support for BusinessObjects XI; the realization of revenues from new OEM and reseller agreements; the introduction of new products by competitors or the entry of new competitors into the markets for Business Objects’ products; the impact of the pricing of competing technologies; and economic and political conditions in the U.S. and abroad. These forward-looking statements involve risks and uncertainties. Business Objects’ actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the section captioned “Factors Affecting Future Operating Results” and elsewhere in this Form 10-K. Business Objects undertakes 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.

Our Company

      We are the world’s leading independent provider of business intelligence software and services, which we refer to in this document as “Business Intelligence” or “BI” solutions. We develop, market, distribute and provide services for software that enables organizations to track, understand and manage enterprise performance within and beyond the enterprise. Organizations use our software to gain better insight into their business, improve decision making and optimize enterprise performance. Our business intelligence platform, BusinessObjects XI, offers a single platform for enterprise reporting, query and analysis, performance management and data integration. We have also built one of the industry’s largest partner communities, with more than 3,000 partners worldwide. In addition, we offer consulting and education services to help customers effectively deploy their business intelligence projects.

      On December 11, 2003, we acquired Crystal Decisions, Inc., the industry standard for enterprise reporting, and several related entities (“Crystal Decisions”), and subsequent to December 11, 2003, the former operations of Crystal Decisions became part of our consolidated business and financial results.

      We were incorporated in France in 1990. Our principal executive offices are located at 157-159, rue Anatole France, Levallois-Perret, France and 3030 Orchard Parkway, San Jose, California. Our website is www.businessobjects.com.

Industry Background

     Business Strategy

      Our business strategy is focused on four key Business Intelligence opportunities:

      Enterprise standardization. Increasingly, companies are selecting a single business intelligence solution for enterprise standardization to replace multiple instances of disparate BI technologies in their company. As enterprises realize the benefits of deploying business intelligence software, they look to standardize on a single enterprise wide solution to reduce their total cost of ownership and rationalize their BI strategy under one vendor.

      To meet this demand, we design software that can be used throughout the enterprise by the maximum number of users and ensure that companies can obtain all the components necessary for their business intelligence deployment from a single supplier.

      Enterprise Performance Management (“EPM”). One significant application of BI technology is EPM. EPM is the combination of BI, metrics and methodologies to track enterprise performance and measure it against company and industry goals. EPM has become a significant force in the market due to a number of factors. Management teams need operational dashboards and scorecards to help them focus their companies more closely set metrics and monitor their performance. There is a general increase in demand for financial transparency and control. There is pressure for companies to show a real return on their investments in Enterprise Resource Planning, (“ERP”), and Customer Relationship Management, (“CRM”) systems. While the concepts of EPM are not new, the ability for companies to implement EPM applications has been rapidly developing. Today, the enabling infrastructure of data warehouses and ERP/ CRM systems are in place to make EPM meaningful. We offer a suite of EPM applications that addresses this opportunity.

      Mid-market organizations. According to software industry analysts such as Gartner, small and medium-size organizations represent a growing share of the BI software market. We have served this market for many years and, in 2004, announced an expansion of our initiative to deliver BI solutions to mid-market organizations. Building upon our existing BI strength in the partner channels, the expansion includes a new product offering called Crystal Reports Server XI. This initiative includes special licensing, services and support for mid-market organizations.

      Developer Business Intelligence. Another significant application of BI is the use of BI technology embedded within other enterprise software applications. Customers of numerous independent software vendors (“ISVs”) require that the ISVs offer reporting functionality as an embedded complement to the ISV’s primary software applications. Corporate application developers often need to embed reports into custom applications and require the use of object-oriented reporting technology to efficiently address this need. Business Objects’ Crystal Reports is a leading product in the developer business intelligence space.

Products

      Our software helps customers track performance, understand business information and manage their organizations.

      In December 2004, we released BusinessObjects XI, which delivers a complete set of BI capabilities: reporting, query and analysis, performance management and data integration. BusinessObjects XI completed the integration of the Crystal Decisions and Business Objects product lines and we believe will deliver BI in new ways to a broader set of users and that this platform will promote wider adoption of BI by allowing organizations to standardize on a single advanced platform for all of their BI needs.

      Our BI platform provides a set of common services to simplify deployment and management of BI tools, reports and EPM applications. BusinessObjects Enterprise is a BI platform that powers the management and secure deployment of specialized end user tools for reporting, query and analysis, and performance management — on a proven, scalable, and open services-oriented architecture. BusinessObjects Enterprise also delivers an end-user insight environment with flexible system management to allow administrators to deploy and standardize their BI implementations.

Reporting

      Reporting is the process of accessing data, formatting it and delivering it as information to users inside and outside the organization.

      Crystal Reports is a reporting tool that helps customers create flexible, feature-rich reports and integrate them into web and Windows applications.

      Crystal Reports Server is a reporting solution for creating, managing and delivering reports to end users over the web or embedded in enterprise applications. Crystal Reports Server addresses the complete reporting process, from data access, report design, report management and delivery and report integration with portals and applications. This product is specifically targeted at our mid-market organizations.

Query and Analysis

      Our query and analysis products allow end users to interact with business information and answer ad hoc questions themselves — with minimal knowledge of the underlying data sources and structures. A range of users — from experienced data analysts to mainstream business users — can create queries and perform calculations without having to understand complex database languages or structures. Users can then share the information they create with others across the organization and beyond.

      BusinessObjects Web Intelligence provides a thin-client interface for powerful ad hoc queries and sophisticated analysis. It allows users to easily access and interact with business information over intranets and extranets, while maintaining tight information technology administrator control over user roles and privileges.

      BusinessObjects OLAP Intelligence is a powerful and easy to use client product for leading multidimensional database servers. It allows power users to perform ad hoc analysis and gain insight through an easy to use drill, slice and dice interface.

      BusinessObjects is a web enabled full client solution that allows users to easily track, understand and manage the wealth of information stored in multiple data sources within and beyond the customer’s organization.

Performance Management Products and Enterprise Analytic Applications

      Our EPM products help organizations assess their achievement of their strategies and company goals by tracking and analyzing key business metrics and goals via management dashboards, scorecards and alerts. Customers can set goals around metrics and assign them to users or groups of users. Groups can then analyze information, collaborate with others and take recommended actions. Our EPM applications build on our core products and embed industry best practices for business analysis. The performance management products can also accommodate an organization’s management methodologies, including Balanced Scorecard, Six Sigma, Total Quality Management or a custom discipline. Performance management applications provide industry best practices for business analysis, supported by a framework that can be customized and adapted to unique customer needs. We deliver a set of focused applications that provide prepackaged metrics and reports across the enterprise. In addition, we provide a series of enterprise analytic applications which allow organizations to better understand their customers, products, people and operations.

      BusinessObjects Dashboard Manager assists users to monitor critical business metrics, be alerted about issues that need attention and manage dashboards to help the user to take action faster. Dashboard Manager helps organizations understand business drivers and deploy personalized dashboards.

      BusinessObjects Performance Manager is a scorecard product that helps organizations communicate strategy and manage group decisions. It lets users develop and manage goals, track performance through scorecards, collaborate with others and follow recommended actions to improve organizational performance.

      BusinessObjects Customer Intelligence helps organizations build and grow more profitable customer relationships. With Customer Intelligence, clients can analyze volumes of complex customer, sales and marketing data, and gain insight into how to develop the most profitable customer relationships. Customer Intelligence consists of four modules: Campaign Analytics, Contact Center Analytics, Customer Analytics, and Sales Analytics.

      BusinessObjects Finance Intelligence enables companies to gain critical insight into their financial operations. Finance Intelligence consists of six modules designed to help managers analyze a variety of financial activities including compliance management, cashflow analysis, company cost structures and financial statement metrics and ratios.

      BusinessObjects Human Resource Intelligence streamlines a variety of HR processes, and provides HR managers with a complete view of employee resources, costs, and performance across all areas of an organization. This analytic application highlights the key factors that HR managers need to consider to lower turnover, control personnel costs and improve employee performance.

      BusinessObjects Products & Service Intelligence contains several pre-built metrics and best-practice analytics that help organizations make sense of the dynamics behind product performance. Product & Service Intelligence consists of six modules designed to help managers improve product performance, including product profitability, product mix, pricing and promotions and cross-sell and upsell opportunities.

      BusinessObjects Supply Chain Intelligence provides customers with a single view across their supply chain. It contains prepackaged key performance indicators, analytics, and alerts to help customers zero in on the primary drivers behind supply chain processes — planning, procurement, manufacturing, logistics, and returns, so customers can analyze and act to increase supply chain efficiency.

      Analytic Engines are designed to address customers’ analytic needs including segmentation analysis, predicting future customer profiles and monitoring processes for continuous improvement. Set Analysis, Predictive Analysis and Statistical Process Control are powerful engines that enhance dashboards and scorecards to provide more insight into an organization’s data.

Data Integration Products

      Business Objects data integration products allow customers to extract, transform and move data into data marts or warehouses, at any frequency. Extraction, transformation, and load (“ETL”) technology and packaged data integration solutions for enterprise applications, such as SAP, Siebel and Oracle, assist customers to deliver accurate, timely and integrated data that BI software users trust.

      BusinessObjects Data Integrator is a scalable data integration platform that provides data integrity, improves information technology productivity, and accelerates reporting, query and analysis and EPM projects.

      BusinessObjects Rapid Marts are built with Data Integrator and provide packaged ETL for building analytic solutions including predesigned data models, transformation logic and data flows for extracting data from enterprise applications like SAP, PeopleSoft, Oracle, J.D. Edwards and Siebel.

Services

      Post-Sales Customer Support and Software Maintenance. Our networks of customer support centers around the world are staffed by trained support engineers who answer customer inquiries by telephone and email. Our customer support centers are equipped with a global case tracking system and a knowledge base and problem reporting system. These systems are designed to help engineers share their knowledge and experience, improve the quality of responses and reduce response time for customer inquiries. Our value-added resellers, systems integrators, consulting partners and distributors, supported by our regional support centers, may also provide technical support.

      At December 31, 2004, we offered three levels of customer support programs — Standard, Elite and Premium — to better meet customers’ needs. All registered support customers who are current on a maintenance plan have access 24 hours a day, 7 days a week to our online customer support website. Online support provides customers with access to up to date technical information and helps customers independently resolve inquiries. Customers can query multiple technical repositories to find a solution to their inquiries, participate in online forums to discuss their BI strategies or issues with other users, download service packs and documentation or log a case directly to their local support center. Elite and Premium Support customers are assigned a specific team of support engineers who focus on the customer’s individual deployment and provide extended service hours for live in person and telephone support.

      Software maintenance releases and post-sales technical support are provided to customers for an annual maintenance fee, which is an additional charge to the initial product license fee.

      Customer Education and Training. Business Objects Education Services offers training from certified experts, with authorized curriculums and course materials. Our team and network of authorized education partners focus on helping customers achieve better business value via training plan development services, comprehensive offerings and flexible delivery.

      Through training plan development services, representatives of our customers are trained to assess user requirements within their companies and provide an action plan to ensure there are competencies in place for success. The plan includes the best way to train implementation teams — to set up, maintain and optimize their BI system — and the best way to train business users to avoid pitfalls and incorrect interpretation and use of information. We offer comprehensive training for architects, systems administrators, developers, report designers and data managers. Information technology teams can train in a variety of flexible ways including public classes, on site classes, or eLearning. We offer business user training in single courses, eLearning packs and the BusinessObjects Knowledge Accelerator. Knowledge Accelerator is an on demand training and support product deployed via corporate intranets to help users embrace the software, use data in their decision making and drilldown when and as needed.

      As users become proficient with our products, they can benefit from continuous learning on a variety of topics to keep up with the enhancements to the products and continue to maximize the value they get from BI. These courses are offered as a series of webcasts on specific topics such as technical updates, migration training, optimization best practices and custom sessions.

      Consulting Services. Our consulting services provide expertise in the design, development and deployment of enterprise BI systems that meet the technical and business requirements of our customers. Our consulting resources are located in major countries around the world and we supplement our resources with certified third party consulting partners. With knowledge of enterprise BI systems, reporting, EPM, analytic applications and data integration, our consultants can help customers benefit rapidly from the business value that BI systems can provide.

      To help customers succeed with their BI initiatives, we invested in the development of a comprehensive approach toward BI deployments: the BI Solution Accelerator. This methodology integrates technical and strategic consulting, life cycle learning and post implementation support to provide customers with a flexible deployment strategy. Our consultants have implemented BI systems into multiple vertical markets. Consulting services are generally charged to a customer on a per consultant per day basis.

Sales and Marketing

      We market and sell our products and services directly through our direct sales organizations and indirectly through sales channels, such as value-added resellers, original equipment manufacturers (“OEMs”), system integrators, consulting partners and distributors. Our sales and marketing organization is comprised of sales teams, each consisting of employees engaged in field sales, field technical support, inside sales and field marketing. Each sales and marketing organization is responsible for the coordination of both direct and indirect sales in its assigned territory. We believe that focusing direct sales efforts on identified customers, while supporting indirect sales channels to service our channel partners’ customers, maximizes the utilization of our direct sales personnel.

      Our sales cycle varies from customer to customer, typically requiring several months from the time of initial contact until closing a sale. For large customers or larger deals, the sales cycle can be greater than one year.

      To support our sales efforts, we conduct marketing programs, including advertising, direct mail, public relations, web based and face to face seminars and demonstrations at customer sites and at our offices, appearances at trade shows and ongoing customer communications programs and events.

Strategic Relationships

      We develop Global Alliance partnerships with ISVs, hardware vendors and system integrators to create new revenue opportunities and to further extend our deployment capacity. Our Global Alliance partners incorporate our technology within their own product solutions and/or sell it or recommend it, along with their own products and services.

      We also have over 750 OEM partners who integrate, and in some cases also resell, our licenses around the world. Our partnering strategy is instrumental in meeting and delivering on our overall corporate objectives.

      We believe these relationships generate new sales opportunities, increase our deployment capacity and enhance our products’ features.

Product Development

      We believe that innovation, timeliness of product releases and high product quality are essential to maintain a competitive position. Consequently, we dedicate considerable resources to development efforts to enhance existing products and to develop new products. To date, we have relied primarily on internal development of our products, but have in the past and may in the future continue to license or acquire technology or products from third parties. The product development group is responsible for the design, development and release of product enhancements, upgrades and new products and has two large development centers located in Levallois-Perret, France and Vancouver, Canada. We also have development teams located in San Jose, California and the U.K., as well as a site in India, which is facilitated by an independent third party. Research and development expenses were $150.6 million in 2004, $95.4 million in 2003 and $75.0 million in 2002.

Customers

      As of December 31, 2004, we had sold licenses for our products to more than 30,000 customers in over 80 countries, which included product licenses previously sold by Crystal Decisions. Our customers represent a wide, cross-industry spectrum of corporations and governmental and educational institutions. During each of the last three years, no customer accounted for 10% or more of our consolidated revenues.

Competition

      The market for our BI solutions is highly competitive, constantly evolving and subject to rapidly changing technology. We compete principally with providers of BI software, analytic applications, query and reporting software, ETL software and data warehousing software, as well as providers of consulting and support services for BI applications. Our direct competitors for our BI software and services include Actuate Corporation, Cognos Incorporated, Hyperion Solutions Corporation, Information Builders, MicroStrategy, Inc., and Microsoft Corporation. We also indirectly compete with suppliers of enterprise application software encompassing both ERP and CRM, including Microsoft Corporation, Oracle Corporation, Siebel Systems, Inc. and SAP AG. Competitors for analytic applications include Cognos Incorporated, Hyperion Solutions Corporation, SAP AG and SAS Institute. Competitors for ETL products include Ascential Software Corporation and Informatica Corporation. A number of our competitors and potential competitors have significantly greater financial and other resources than we have, which may enable them to more effectively address new competitive opportunities. In addition, some of our competitors, particularly companies that offer relational database management software systems and ERP software systems, have well established relations with some of our existing and targeted customers.

      We believe that the principal competitive factors that impact the market we serve include: performance, scalability, ease of use, functionality, product architecture, product quality, reliability, price, scope of distribution, customer support and name recognition. We believe that we are successfully addressing each of these competitive factors. Nonetheless, we expect to face increasing competitive pressures from both current and future competitors in the markets we serve.

Patents and Intellectual Property Protection

      Our success depends in part on our ability to protect our intellectual property rights. To protect our proprietary information, we use a combination of patents, copyrights and trademark laws, trade secret laws, employee and third-party nondisclosure agreements and licensing arrangements, including confidentiality provisions.

      We currently have eight patents issued in the United States including those acquired from Crystal Decisions. In addition, we have 22 patent applications pending in the United States, three filings pursuant to the Patent Cooperation Treaty and two foreign patent applications pending. However, despite our efforts, our

registration may not be successful or may be rejected by applicable patent or trademark offices. We also have an ongoing trademark registration program. Despite our efforts, we may not successfully protect our proprietary rights from misappropriation. While our competitive position may be affected by our ability to protect our proprietary information, we believe that factors such as the technical expertise and innovation skills of our personnel, our name recognition and ongoing product support and enhancement may be more significant in maintaining our competitive position.

      Litigation may be necessary to defend and protect our proprietary rights. From time to time we may use the courts to protect our intellectual property. We are currently involved in patent litigation with each of MicroStrategy Incorporated and Informatica Corporation. Litigating claims relating to our intellectual property can be very expensive in terms of management time, resources and professional fees for litigation.

      We filed a lawsuit against a competitor, MicroStrategy, in October 2001 in the United States District Court for the Northern District of California, which alleged patent infringement under U.S. Patent No. 5,555,403. On August 29, 2003, the Court ruled that our patent was not literally infringed and that we were estopped from asserting the doctrine of equivalents and dismissed the case. We appealed the Court’s judgment to the Court of Appeals for the Federal Circuit. On January 6, 2005, the Court of Appeals for the Federal Circuit decided that the lower Court incorrectly concluded that MicroStrategy’s products did not violate our patent and determined that we were not precluded from arguing that MicroStrategy’s products were equivalent to claim 4 of our patent. As a result, a trial date is expected to be set for later in 2005 or early 2006. We cannot reasonably estimate at this time whether a monetary settlement will be reached or a favorable judgment will be obtained in this case.

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

      On December 10, 2003, MicroStrategy filed an action for patent infringement against Crystal Decisions in the United States District Court for the District of Delaware. We became a party to this action when we acquired Crystal Decisions. The complaint alleged that Crystal Decisions’ software products Crystal Enterprise, Crystal Reports, Crystal Analysis and Crystal Applications infringed MicroStrategy’s U.S. Patent Nos. 6,279,033, 6,567,796 and 6,658,432. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. The parties are currently engaged in extensive discovery and trial is scheduled to start on November 7, 2005. We intend 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 our liquidity, financial position or 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 Technology, Inc. (“Acta Technology” or “Acta”). We became a party to this action when we acquired Acta in August 2002. The complaint alleged that the Acta Technology software products infringed Informatica’s U.S. Patent Nos. 6,014,670, 6,339,775 and 6,208,990. On July 17, 2002, Informatica filed an amended complaint that alleged the Acta software products also infringed U.S. Patent No. 6,044,374. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. We have answered the suit, denying infringement and asserting that the patents are invalid and other defenses. The parties are engaged in discovery and are awaiting a claim construction order to be issued by the Court. The Court vacated the August  16, 2004 trial date previously set and a new trial date will probably not be set until the Court issues

its claim construction order. We intend 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 our liquidity, financial position or results of operations.

Employees

      As of December 31, 2004, we had 3,834 employees including:

      Our employees in France have been represented by the Confédération Francaise Démocratique du Travail since October 2002 and by the Confédération Générale du Travail since November 2002. Our employees in France represented 16% of our labor force at December 31, 2004. The collective bargaining agreements we have entered into with the unions have been renewed annually. We have never experienced any work stoppage.

      Under French law, our management is required to hold monthly meetings with a delegation of elected employee representatives, called the comité d’entreprise, to discuss employment matters and our economic condition and to provide appropriate information and documents relating to these matters. As required under French law, two employee representatives are entitled to be present at meetings of our board of directors but do not have any voting rights.

Philanthropy

      We consider our philanthropic programs a way of attracting, engaging and developing employees. In late 2004, we launched a new program called Business Objects Community. The focus is on motivating our employees to make a difference in their communities through a balanced approach of giving time, technology and funds.

Directors and Executive Officers

      The following are our directors and executive officers and certain information about them:

Where You Can Find Additional Information

      The reports and other information we file with the U.S. Securities and Exchange Commission (the “SEC”) can be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the SEC at the principal offices of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549. You may obtain information regarding the operation of the public reference room by calling 1(800) SEC-0330. The SEC also maintains a website at (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

      We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance, therewith, file periodic reports, proxy statements and other information with the SEC. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports available in English without charge through our website, www.businessobjects.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Alternatively, you may contact our Investor Relations Department in writing for a copy of our Form 10-K. Please contact our Vice President of Investor Relations at 3030 Orchard Parkway, San Jose, California, 95134.

      As a French company quoted on the Eurolist of Euronext Paris S.A., we are subject to periodic information disclosures about our annual financial statements and our quarterly results which are published in the Bulletin des Announces Légales Obligatoires, a French legal newspaper. Such publications are available in the French language only on the French Journal Officiel website at (http://balo.journal-officiel.gouv.fr/). Moreover, since 2003, we file our annual report with the Autorité des Marches Financiers (“AMF”) under a “Document de Référence” format. The document is available in the French language on the AMF website www.amf-france.org, as soon as it is approved by the AMF.

      In addition, we file with the AMF press releases, prospectus and notes of information relating to our shares repurchase programs or any forms relating to special operations impacting our shares. Such filings are available in the French language only on the AMF website. Our press releases and our French annual reports are available in French without charge through our website, www.france.businessobjects.com.

      Our corporate headquarters are in Levallois-Perret, France, a suburb of Paris. We lease approximately 159,000 square feet of office space pursuant to a lease which terminates in 2009. We have an option to cancel the lease in 2006 without penalty. We are subleasing approximately 29,000 square feet of this facility to a third party. Our U.S. headquarters are in San Jose, California. We lease approximately 126,000 square feet of office space pursuant to a lease which terminates in 2011. We have a right to extend the lease term for a six-year period. We lease approximately 320,000 square feet of office space in Vancouver, Canada under various leases expiring between 2005 and 2014. At December 31, 2004, there was approximately 74,000 square feet of excess capacity at one of our Vancouver locations, which we are currently in the process of refurbishing to accommodate our expansion.

      We also lease a facility in Maidenhead, England, consisting of approximately 54,000 square feet, under a lease expiring in 2020. We have additional smaller leased field sales and software development offices in the Americas, Europe, and Asia Pacific regions including Japan.

      We believe that our existing facilities are adequate to meet our current needs. If additional space is needed in the future, we believe that suitable space will be available on commercially reasonable terms.

      On October 17, 2001, we filed a lawsuit in the United States District Court for the Northern District of California against MicroStrategy for alleged patent infringement. The lawsuit alleged that MicroStrategy infringes on our U.S. Patent No. 5,555,403 by making, using, offering to sell and selling MicroStrategy Versions 6.0, 7.0 and 7i. Our complaint requests 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 our patent. On August 29, 2003, the Court ruled that our patent was not literally infringed and that we were estopped from asserting the doctrine of equivalents and dismissed the case. We appealed the Court’s judgment to the Court of Appeals for the Federal Circuit. On January 6, 2005, the Court of Appeals for the Federal Circuit decided that the lower Court incorrectly concluded that MicroStrategy’s products did not violate our patent and determined that we were not precluded from arguing that MicroStrategy’s products were equivalent to claim 4 of our patent. As a result, a trial date is expected to be set for later in 2005 or early 2006. We cannot reasonably estimate at this time whether a monetary settlement will be reached or a favorable judgment will be obtained in this case.

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

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

      On December 10, 2003, MicroStrategy filed an action for patent infringement against Crystal Decisions in the United States District Court for the District of Delaware. We became a party to this action when we acquired Crystal Decisions. The complaint alleged that the Crystal Decisions’ software products: Crystal Enterprise, Crystal Reports, Crystal Analysis and Crystal Applications, 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 parties are currently engaged in extensive discovery and trial is scheduled to start on November 7, 2005. We intend 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 our 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. We became party to the action when we 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 the Court.

      In October 2003, Vedatech and Mani Subramanian filed an action against Crystal Decisions, Crystal Decisions (UK) Limited and Susan J. Wolfe, then Vice President, General Counsel and Secretary of Crystal Decisions, in the United States District Court, Northern District of California, San Jose Division, that alleged 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 requested 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 United Kingdom 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 that may be pending. An application has been made for permission to appeal the orders of August 3, 2004 granting the anti-suit injunction. Vedatech has since submitted a supplemental request that its application be heard before a panel of three judges. The outcome of the application is not yet known.

      Although we believe that Vedatech’s basis for seeking to set aside the mediated settlement and its claims in the October 2003 complaint is without merit, the outcome cannot be determined at this time. If the mediated settlement were to be set aside an ultimate damage award could adversely affect our financial position, liquidity and results of operations.

      On July 15, 2002, Informatica filed an action for alleged patent infringement in the United States District Court for the Northern District of California against Acta. We became a party to this action when we 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 that alleged that the Acta software products also infringe U.S. Patent No. 6,044,374. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees. We have answered the suit, denying infringement and asserting that the patents are invalid and other defenses. The parties are engaged in discovery and are awaiting a claim construction order to be issued by the Court. The Court vacated the August 16, 2004 trial date previously set and a new trial date will not likely be set until the Court issues its claim construction order. We are vigorously defending the action. Should an unfavorable outcome arise, there can be no assurance that such outcome would not have a material adverse affect on our 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 us and certain of our current and former officers and directors. The complaint alleged violations of the Exchange Act, and Rule 10b-5 promulgated thereunder. The plaintiffs seek to represent a putative class of investors in our ADSs who purchased ADSs between April 23, 2003 and May 5,

2004 (the “Class Period”). The complaints have been consolidated into the Northern District of California and a consolidated amended complaint has been filed. The complaints generally alleged that, during that Class Period, we and the individual defendants made false or misleading statements in press releases and SEC filings regarding, among other things, our acquisition of Crystal Decisions, our Enterprise 6 product and our forecasts and financial results for the three months ended March 31, 2004. The action is in the early stages, and we and the other defendants have moved to dismiss the complaint. We are unable to predict the outcome of these actions. Were an unfavorable outcome to arise, such outcome could have a material adverse effect on our 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 our current and former officers and directors, styled Bryan Aronoff, et al. v. Bernard Liautaud, et al. and Ken Dahms v. Bernard Liautaud, et al. The derivative complaints alleged violations of California Corporations Code Sections 25402 and 25502.5, breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. The complaints are based on the same facts and events alleged in the purported class action. The derivative plaintiffs seek damages, disgorgement of profits, equitable, injunctive, restitutionary and other relief. The matter is in its very early stage. Defendants have moved to dismiss the action. We intend vigorously to contest these actions, but are unable to predict the outcome.

      We are also involved in various other legal proceedings in the ordinary course of business, none of which are believed to be material to our financial condition and results of operations.

      During the fourth quarter of 2004, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.

Exemptions from Certain Nasdaq Corporate Governance Rules

      Section 4350(a)(1) of the Nasdaq Stock Market, Inc. Marketplace Rules permit Nasdaq to provide exemptions from the Nasdaq corporate governance standards to a foreign issuer when those standards are contrary to a law, rule or regulation of any public authority exercising jurisdiction over the issuer or contrary to generally accepted business practices in the issuer’s country of domicile. In connection with our June 1994 initial public offering in the United States, Nasdaq granted us an exemption from compliance with Section 4350(f) of the Marketplace Rules, which require issuers to provide for a quorum of not less than 33¹/3% of the issuer’s outstanding shares. We obtained the exemption as our quorum requirements comply with French law and are consistent with the practices of public companies domiciled in France.

      Pursuant to the requirements of the French Commercial Code and generally accepted business practices in France, our charter documents provide that the presence in person or by proxy or by any means of telecommunications of shareholders holding not less than 25%, in the case of an ordinary general meeting, or 33¹/3%, in the case of an extraordinary general meeting, of the shares entitled to vote is necessary for a quorum on first call. If a quorum is not present, then the meeting is postponed. There is no quorum requirement in the case of a reconvened ordinary general meeting; however, the presence in person or by proxy or by any means of telecommunications of shareholders holding not less than 25% of the shares entitled to vote is necessary for a quorum in the case of a reconvened extraordinary general meeting. At an ordinary general meeting, a simple majority of the votes cast is required to pass a resolution. At an extraordinary general meeting, a two-thirds majority of the votes cast is required. A simple majority of shareholders’ vote present may pass a resolution concerning a capital increase by incorporation of reserves, profits or premiums at an extraordinary general meeting. However, a unanimous vote is required to increase the liabilities of shareholders. Abstention by those present or represented by proxy is deemed a vote against the resolution submitted to a vote.

PART II

U.S. Market Information

      We sponsor a program that provides for the trading of our ordinary shares in the United States in the form of ADSs. Each ADS represents one ordinary share placed on deposit with The Bank of New York, as Depositary, and is issued and delivered by the Depositary through its principal office in New York City at 101 Barclay Street, New York, New York, 10286. Under the terms of our deposit agreement with the Depositary, ordinary shares may also be deposited with the Paris office of BNP Paribas Securities Services, as Custodian, or any successor or successors to such Custodian. Our ADSs have been quoted on the Nasdaq National Market since September 1994 under the symbol “BOBJ.”

French Market Information

      In February 2005, the Euronext Paris S.A. restructured its organization. Our ordinary shares were previously listed on the Premier Marché of Euronext Paris S.A. since November 1999. The Premier Marché was a regulated market which was managed and operated by Euronext Paris S.A. Our ordinary shares are listed under the ISIN code FR0004026250, symbol “BOB”.

      Since February 21, 2005, all securities previously traded on the Premier, Second and Nouveau Marchés are listed and traded on a single market known as the “Eurolist by Euronext” which is operated by Euronext Paris S.A. The indices have been designed to be used alongside each other on a single regulated market. Euronext transferred securities listed on the Premier, Second and Nouveau Marchés to its unique list on the evening of February 18, 2005. The companies listed on Euronext’s single market are now displayed in alphabetical order, further organized by market capitalization. In accordance with Euronext Paris S.A. rules, as modified, the shares issued by French and other companies will be classified in three capitalization groups, according to set criteria:

      Our ordinary shares were classified in Compartment A of the Eurolist.

      All trading on the Eurolist market is performed on a cash settlement basis on the third day following the trade. However, a Deferred Settlement Service (Service à Règlement Différé or “SRD”) allows investors who elect this service to benefit from leverage and other special features of the previous monthly settlement market. The service is only available for trades in securities which have both a total market capitalization of at least €1.0 billion and represent a minimum daily average trading volume of €1.0 million. Investors in shares eligible for SRD can elect on the determination date (date de liquidation), which is, at the latest, the fifth trading day before the end of the month, either to settle the trade by the last trading day of the month or to pay an additional fee and postpone the settlement decision to the determination date of the following month. Our ordinary shares are eligible for the SRD.

      Ownership of equity securities traded on a deferred settlement basis is considered to have been transferred only after they have been registered in the purchaser’s account. In accordance with French securities regulations, any sale of securities executed on a deferred settlement basis during the month of a dividend is deemed to occur after payment of the dividend. The account of the purchaser having purchased the securities prior to the date of the dividend payment, but during the month of a dividend payment date, is credited with an amount equal to the dividend paid and the seller’s account is debited by the same amount.

      Prior to any transfer of securities held in registered form on Eurolist, the securities must be converted into bearer form and accordingly inscribed in an account maintained by an accredited intermediary with Euroclear France S.A., a registered clearing agency. Transactions in securities are initiated by the owner giving instructions (through an agent, if appropriate) to the relevant accredited intermediary. Trades of securities listed on Eurolist are cleared and settled through Euroclear France and using Clearing 21 (the common clearing platform). A fee or commission is payable to the broker-dealer or other agent involved in the transaction.

High and Low Price Ranges

      The following table sets forth the ranges of quarterly high and low closing sales prices in U.S. dollars for our ADSs on the Nasdaq National Market and in euros for our ordinary shares on the Eurolist of Euronext Paris S.A. (or its predecessor) for each quarterly period within the two most recent fiscal years.

      As of December 31, 2004, there were 95,921,766 ordinary shares of €0.10 nominal value, issued (including 30,063,776 ADSs, 3,067,675 treasury shares and 3,701,520 shares held by Business Objects Option LLC). Of these issued shares, there were 92,220,246 ordinary shares outstanding (including 30,063,776 ADSs, and 3,067,675 treasury shares). Of the number of issued shares 6,310,234 represented shares issued by us on December 11, 2003 to Business Objects Option LLC, our indirectly, wholly owned subsidiary. These shares represent shares issuable upon exercise of the stock options held by former Crystal Decisions’ optionees. As Business Objects Option LLC is an indirect, wholly owned subsidiary of Business Objects, the shares are not deemed to be outstanding and are not entitled to voting rights. In the event any such shares are not deemed to satisfy obligations under stock options, such as if stock options expire prior to exercise, Business Objects may cause such shares to be sold in the market or be used for other corporate purposes. These shares are not considered outstanding until such time as the option holders exercise the stock options. At February 28, 2005, there were 160 shareholders of record holding our ordinary shares registered by our French Depositary, BNP Paribas and 130 shareholders of record holding ADSs registered by our U.S. Depositary, The Bank of New York. The number of shareholders of record does not include stock held in street name, which represents the majority of our shareholders.

      Dividends. We have not declared or distributed any cash dividends on our ordinary shares or ADSs. Payment of dividends is fixed by the ordinary general meeting of shareholders at which the annual accounts are approved following recommendations of the board of directors. Net income in each fiscal year after deduction for legal reserves is available for distribution to our shareholders as dividends, subject to the requirements of French law and our bylaws. We currently intend to retain our earnings to finance future growth and, therefore, do not anticipate paying any cash dividends on our ordinary shares or ADSs in the foreseeable future.

Equity Compensation Plan Information

      The following table provides information as of December 31, 2004 with respect to ordinary shares or ADSs that may be issued upon the exercise of stock options, warrants and rights granted to employees, consultants or members of our Board of Directors under all of our existing equity compensation plans, including the Business Objects 1995 International Employee Stock Purchase Plan (“1995 IESPP”), the Business Objects 2004 International Employee Stock Purchase Plan (“2004 IESPP”), the French Employee Savings Plan (the “French ESPP”), the 1994 Stock Option Plan (the “1994 Plan”), the 1999 Stock Option Plan (the “1999 Plan”), the 1999 BOSA Stock Option Plan (the “BOSA 1999 Plan”) and the 2001 Stock Incentive Plan and related sub-plans (the “2001 Plan”), as well as warrants issued to members of our Board of Directors.

Issuer Purchases of Equity Securities

      The following table provides information with respect to purchases we made of our ordinary shares or ADSs during the three months ended December 31, 2004:

      The following selected financial data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto appearing elsewhere in this Form 10-K. We have derived the statement of income data for the years ended December 31, 2004, 2003 and 2002 and the balance sheet data as of December 31, 2004 and December 31, 2003 from the Consolidated Audited Financial Statements included elsewhere in this Form 10-K. The statement of income data for the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2002, 2001 and 2000 were derived from the consolidated audited financial statements that are not included in this Form  10-K. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and adjusted to reflect the three-for-two stock split effected March 12, 2001 and the two-for-one stock split effected January 20, 2000. We have not declared or distributed any cash dividends on our ordinary shares or ADSs. Historical results are not necessarily indicative of results to be expected for future periods, particularly in light of the acquisition of Crystal Decisions, which occurred in December 2003.

      The following discussion and analysis should be read together with our Consolidated Financial Statements and the Notes to those statements included elsewhere in this Form 10-K. This discussion contains forward- looking statements based on our current expectations, assumptions, estimates and projections about Business Objects and our industry. These forward-looking statements involve risks and uncertainties. Business Objects’ 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 Form 10-K. Business Objects undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

OVERVIEW

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

      On December 11, 2003, we acquired Crystal Decisions, for its complementary geographical strengths, products, channels, services and solutions that allow us to provide a more complete suite of BI products to a broader range of business users. Our acquisition of Crystal Decisions did not result in any new reportable segments.

Sources of Revenues and Expenses

      We generate net license fees from the sale of licenses to use our software products. Historically, we have recognized a substantial portion of our revenues in the last month of a quarter. We market our products through our direct sales force and indirectly through channel partners.

      We derive our software license updates and support revenues from selling technical support services and rights to receive product upgrades, if and when we make them available, to customers who have bought software licenses from us. Our maintenance agreements generally have a term of one year and are typically renewed on an annual basis.

      Our professional services organization earns revenues for consulting and training to plan and execute the deployment of our products. In addition, we provide training to our customers’ employees to enhance their ability to fully utilize the features and functionality of the products purchased.

      Our cost of net license fees consists primarily of materials, product packaging, distribution costs, related fulfillment personnel and third party royalties. Our cost of services revenues consists primarily of personnel and related overhead costs for technical support, consulting, training, materials delivered with product upgrades, enhancements, professional services and the related portion of stock-based compensation related to the recognition of unearned compensation expense for stock options assumed in connection with the acquisition of Crystal Decisions.

      Sales and marketing expenses include salaries, benefits, commissions and bonuses earned by sales and marketing personnel, advertising, product promotional campaigns, promotional materials, travel, facilities and other related costs. Research and development expenses are expensed as incurred and consist primarily of personnel and related costs associated with the development of new products, the enhancement of existing products, quality assurance and testing and facilities and other related costs. General and administrative expenses consist primarily of personnel costs for finance, legal, human resources, third party professional services and other administrative costs. Acquired in-process technology expenses represents the fair value of projects of acquired companies that had not reached technological feasibility and had no future alternative use as assessed at the time of the acquisition and thus were written-off. Restructuring expenses include costs to involuntarily terminate employees and exit facilities in accordance with approved restructuring plans. Operating expenses also include costs associated with the recognition of unearned compensation expense for stock options assumed in connection with the acquisition of Crystal Decisions.

      In addition to these normal course operating expenses, commencing in the quarter ending September 30, 2005, we will also record non-cash compensation charges to the statement of income as a result of the adoption of FAS No. 123R, “Share-based Payments” (“FAS 123R”). FAS 123R requires that all forms of share-based payments to employees be treated the same as other forms of compensation by recognizing the related cost in the statements of income. We expect that the adoption of FAS 123R will have a material, negative impact on our reported operating results. See “Recent Accounting Pronouncements” for more information.

Key Performance Indicators

      We recognized record license and services revenues in 2004, in addition to large increases in expenses, which were due to our acquisition of Crystal Decisions. December 2004 marked the one year anniversary of the combination of the two companies. While one-time charges such as the purchase accounting, restructuring and other integration costs are not expected to recur in 2005, we expect the amortization expense of acquired intangible assets will continue until 2008. In 2003, operating income and net income per ordinary share and ADS decreased from 2002, in spite of growth in revenues, largely due to purchase accounting, integration and restructuring costs related to the acquisition of Crystal Decisions.

      As a result of the acquisition of Crystal Decisions, our operating income in 2003 was reduced by $38.0 million, which was the result of a $28.0 million write-off of acquired in-process technology, $2.2 million in amortization of acquired intangible assets and deferred stock-based compensation expense and $7.8 million in restructuring costs for the combined company.

      As a result of the acquisition of Crystal Decisions, our historical results prior to 2004 are not expected to be indicative of our future results. We will incur certain continuing acquisition related charges in the future at levels we have not experienced in the past. The following table shows the actual expenses in 2003 and 2004 and estimated expenses for 2005 to 2008.

      In December 2003, we acquired a suite of leading enterprise reporting products that we believe has strengthened the enterprise reporting capability of our BI product offerings.

      In January 2004, we released the stand-alone version of the Crystal Decisions’ line of reporting products, Crystal 10, which combined Crystal Enterprise with products formerly known as Crystal Analysis and Crystal Reports.

      In June 2004, we released Business Objects Enterprise 6.5, which was a version upgrade to our release of Enterprise 6.0 in the second quarter of 2003, and represented our final major release of the BusinessObjects line of query and analysis reporting products.

      In December 2004, we released our newest product, BusinessObjects XI, which was released on the Windows NT platform. The launch of BusinessObjects XI completed the integration of the Crystal Decisions and Business Objects product lines. We did not recognize any revenues from BusinessObjects XI in 2004. In 2005, we expect to release additional versions of BusinessObjects XI that use additional platforms and languages.

      BusinessObjects XI merges the former Business Objects’ and Crystal Decisions’ product lines into a single platform with new features and functionality. Given that we will transition other Business Objects’ and Crystal Decisions’ products to end of life over the next year or two, we believe that some customers may not purchase those products or may wait before purchasing BusinessObjects XI until further reviews on the product have been established. We cannot predict whether our revenues from our products other than BusinessObjects XI will be consistent with patterns we have previously experienced or whether BusinessObjects XI customer acceptance and purchasing will be similar to our prior product releases. We believe that our success in bringing to market an integrated product with a clear upgrade path has built customer confidence in our business and resulted in additional revenues for our existing software suites during 2004. We expect that our net license fees and services revenues for 2005 are likely to be affected and may vary more significantly during this transition than we have experienced in the past.

      Our strongest quarter each year is typically our fourth quarter, as the sales organization is ending their fiscal year and many of our customers are at the end of their annual budget cycle. Consequently, our revenues are seasonally lower in our first quarter. In addition, our third quarter is a relatively slow quarter primarily due to lower economic activity throughout Europe during the summer months in general.

      The translated U.S. dollar value of our revenues and expenses are impacted by changes in 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 U.S. GAAP financial statements. We generate a significant portion of our revenues and also incur a significant portion of our expenses in euros, British pounds and Japanese yen. Prior to 2004, this structure resulted in a natural hedge of our foreign exchange exposure at an operating income level. As a result of our acquisition of Crystal Decisions, however, in 2004 we incurred a significant portion of our expenses in Canadian dollars without offsetting 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 currency exchange 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 or decrease in costs for a period; however, when the portion of those costs denominated in other currencies are translated into U.S. dollars at the same rate as the comparative quarter or year, the result may be a decrease or increase in cost, with the change being principally the result of fluctuations in the currency exchange rates. Our operating results, excluding the effect of translation of local currency transactions into U.S. dollars (also referred to as constant currency), was calculated by translating current year results at comparative year average currency exchange rates.

      The following table summarizes the impact of fluctuations in currency exchange rates on our income from operations, excluding restructuring costs, represented as an increase (decrease) in income statement activity due to changes in exchange rates compared to the prior year rates (in millions):

      While the net impact on income from operations of currency exchange rate fluctuations was small, the large and fast moving changes in currencies during 2004 contributed to revenue growth associated purely with the change in currency exchange rates. Concurrently, our expenses, as converted to U.S. dollars, also increased with almost an equal and offsetting impact on income from operations. Because our subsidiaries in other countries transact in local currencies, we may also experience mark-to-market exchange gains or losses on consolidation that result in increases or decreases to assets or liabilities which are recorded in other income.

RESULTS OF OPERATIONS

     Revenues

      The following table shows the change in revenues (in millions except percent change):

      Net license fees increased in 2004 by $198.1 million to $473.4 million from $275.2 million in 2003. The increase was the result of the combination of our first full year of revenues from Crystal Decisions’ products, which included both existing products and new version releases of the Crystal Decisions product suite and growth in our other pre-acquisition Business Objects product families.

      Net license fees increased in 2003 by $31.2 million to $275.2 million from $244.0 million in 2002. The increase was primarily due to 20 days of revenues from Crystal Decisions (included in the BI Platform product family), our first full year of data integration revenues compared to only four months in 2002 and favorable fluctuations in currency exchange rates.

      We derive the largest portion of our net license fees from our BI platform products. We expect that the BI platform products will continue to represent not only the largest portion of our net license fees but also the single largest component of our total revenues in 2005. In 2004, we experienced growth in our net license fees which was attributable to the addition of the Crystal Decisions product suites, including Crystal Version 10, and to increased sales of our Business Objects Enterprise 6 products.

      Our net license fees from direct sales have historically comprised a greater percentage of our net license fees than indirect sales. In 2004, direct revenues represented 52% of total net license fees, whereas direct revenues represented 59% in 2003 and 54% in 2002. The decline in direct revenues was due in part to our acquisition of Crystal Decisions, which contributed a strong base of independent distributors in addition to channel partner relationships including original equipment manufacturers, value added resellers and system integrators.

      We continue to enter into and expand our channel partner relationships which will impact the amount of our net license fees from indirect sales. We anticipate that the relative portions of our direct and indirect net license fees 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 years presented.

      Services revenues increased in 2004 by $166.6 million to $452.2 million from $285.6 million in 2003. The majority of the increase was the result of our first full year of revenues from Crystal Decisions’ services and support products. Maintenance and technical support revenues increased in 2004 by $119.9 million, or 57%,

from 2003 and professional services and other revenues in 2004 increased by $46.7 million, or 62%, from 2003. Our continued investment in our professional services teams, with the view to expanding the breadth and depth of solutions we offer our customers, resulted in increased revenues as well as a higher growth rate than experienced for maintenance revenues. Our maintenance renewal rates were strong and increased in 2004.

      Services revenues increased in 2003 by $74.8 million to $285.6 million from $210.8 million in 2002. Maintenance and technical support revenues increased in 2003 by $60.4 million, or 40%, from 2002 and professional services and other revenues in 2003 increased by $14.4 million, or 24%, from 2002. As we continued to increase our installed base in 2003 and gain a higher percentage of renewals, our maintenance and technical support revenues increased. In 2003, the increase in professional services and other revenues was attributable to a $14.8 million increase in consulting revenues offset by decreased training revenues which we attribute to reduced customer spending and travel in response to the general economic slowdown in 2002.

      As a percentage of total revenues, services revenues decreased to 49% of total revenues for 2004 from 51% for 2003, and increased from 46% in 2002. In 2004, the shift to a lower percentage of total revenues from services revenues was primarily attributable to the addition of revenues from Crystal Decisions’ products, which had a lower professional services mix. 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. The increase in the percentage of services revenues to total revenues in 2003 from 2002 was primarily due to growth in maintenance and technical support revenues resulting from greater percentage of customers renewing maintenance contracts year over year and the continued expansion of our installed customer base. Despite the decrease in services revenues in 2004 from 2003, we expect our services revenues to increase as our installed base grows and as we continue to gain new customers as the result of new product offerings.

     Geographic Revenues Mix

      The following shows the geographic mix of our total revenues by major geographic location in millions of dollars, as a percentage of total revenues and as a percentage change between years:

      In the Americas for 2004, the increase in total revenues and percentage of total revenues resulted from: the strong performance of sales teams in the Americas, including 19 transactions over $1 million in net license fees (versus 12 in 2003); the addition of Crystal Decisions’ products of which the Americas historically comprised 70% of total revenues; and, increased sales of pre-acquisition BusinessObjects’ products. For 2003, the release of BusinessObjects Enterprise 6 products resulted in the increase in Americas revenues. In 2003, we recognized 12 transactions over $1 million in net license fees (versus 11 in 2002). The decrease as a percentage of total revenues was primarily associated with currency exchange rate changes related to EMEA revenues as described below.

      In 2004, total revenues from EMEA increased as the result of the addition of Crystal Decisions’ revenues and 14 transactions over $1 million in net license fees (versus seven in 2003). Total revenues in EMEA are

significantly impacted by changes in currency rates. EMEA revenues translated in euros increased by 32% to €319.7 million in 2004 from €242.4 million in 2003, which indicates that 13% of the 2004 growth in EMEA translated to U.S. dollars was attributable to favorable changes in currency exchange rates. Total revenues from EMEA increased 29% in 2003 from 2002, the result of increased sales of our products, favorable fluctuations in the euro and the British pound and a rebound in the European economy. EMEA revenues translated in euros increased by 8% to €242.4 million in 2003, from €224.2 million for 2002, which indicated that 21% of the 2003 growth was attributable to favorable exchange rates.

      In 2004, the increase in total revenues from Asia Pacific, including Japan, was primarily the result of the addition of Crystal Decisions’ revenues and also strength in Greater China markets as we continued to penetrate this market. In 2003, all revenue categories increased over 2002, which were positively impacted by the release of new products and by currency rate fluctuations.

     Cost of Revenues

      As a percentage of total revenues, cost of revenues were 22% in 2004, 17% in 2003 and 16% in 2002. The majority of the increase in 2004 was 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 historically had lower services margins than those of other Business Objects’ products. In addition, certain costs allocated to all operational units, such as facilities and information technology costs, contributed to the increased costs.

      Cost of net license fees. Cost of net license fees in 2004 increased by $22.3 million from 2003, and increased by $2.9 million in 2003 from 2002. The increase in 2004 was primarily due to $18.4 million in developed technology amortization on Crystal Decisions’ products, as well as the additional costs associated with the higher license revenues and to the release of new product versions during the year, offset in part by savings in third party royalty costs. The increase in 2003 was primarily due to $1.4 million in developed technology amortization related to the acquisitions of Crystal Decisions and Acta Technology, Inc. (“Acta” or “Acta Technology”).

      Gross margins on net license fees were 94% in 2004, 98% in 2003 and 99% in 2002. Excluding the impact of the increase in costs associated with developed technology amortization, gross margins on net license fees remained consistent with 2003.

      Cost of services revenues. Cost of services revenues in 2004 increased $83.1 million from 2003, and increased $17.5 million in 2003 from $71.5 million in 2002. The increase in 2004 was primarily due to headcount and related costs associated with the Crystal Decisions’ services organizations and the growth we continued to experience, especially in our Americas consulting business during 2004. In addition, $8.7 million of the increase related to amortization expense on maintenance and support contracts related to the Crystal Decisions acquisition. The increase in 2003 from 2002 was associated with the costs of additional revenues and, to a lesser extent, an increase of $0.7 million in amortization of intangible assets related to the acquisitions of Crystal Decisions and Acta.

      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 $28.0 million of deferred revenues for services which would have been recorded in 2004 had Crystal Decisions remained a stand alone company. The balance of deferred revenues which remained on the Crystal Decisions’ balance sheet at the date the acquisition occurred was approximately equal to the estimate of the fair market value of costs associated with

delivering these revenues. Accordingly, we did not report a typical margin from performing the services associated with these deferred maintenance revenues, so the costs of services revenues as a percentage of services revenues increased in 2004. To the extent that we entered into agreements to provide services relating to Crystal Decisions’ products after the closing of the acquisition, we accounted for those services revenues and the cost of those services in accordance with our applicable accounting policies.

      Gross margins on services revenues were 62% in 2004, 69% in 2003 and 66% in 2002. Cost of services revenues increased to 38% of services revenues in 2004 compared to 31% in 2003 due to the accounting treatment of deferred revenues from Crystal Decisions as of the date of the acquisition, the increased mix of outsourcing for our consulting and training departments, and the increase in non-revenue generating intangible asset amortization expense, which represented 2% of the decrease in gross margin in 2004. We expect in the future, and have evidenced in sequential 2004 quarters, that our gross margins on services revenues will increase; however, these margins will still be impacted by amortization of intangible assets from prior year acquisitions through the end of 2008.

      Cost of services revenues decreased to 31% of services revenues in 2003 from 34% in 2002 primarily because we better utilized our existing capacity as services revenues increased and higher margin maintenance revenues represented a larger percentage of total services revenues.

Operating Income Margin

      Income from operations increased to 9% of total revenues in 2004 from 7% in 2003, and in 2003 decreased from 11% of total revenues in 2002. The increase in operating margin in 2004 was a result of the absence of the one-time charges in 2003 as described below. This increase was offset by the charge in 2004 of $6.7 million of deferred stock-based compensation expense related to the unvested stock options assumed in connection with the Crystal Decisions acquisition. This total was allocated to each operating expense line based on the classification of the employees who vest in these stock options.

      The decrease in operating margin in 2003 from 2002 was primarily due to the result of a one-time, non-cash $28.0 million write-off of acquired in-process technology in December 2003 resulting from the acquisition of Crystal Decisions, which represented 5% of total revenues in 2003.

      The following table shows operating expenses as a percentage of total revenues:

      Sales and marketing expenses in 2004 increased by $155.9 million, or 62%, to $406.8 million from $250.9 million in 2003, and increased by $28.7 million in 2003, or 13%, from $222.2 million in 2002. The increase in 2004 compared to 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, offset in part by the net decrease in headcount throughout 2004. The timing and nature of individuals joining or leaving our sales force impacts our sales expenses.

      During 2004, the sales teams across the world were combined and cross-trained on Crystal Decisions and Business Objects’ products, which resulted in additional costs during the year. The combination of the sales teams was substantially completed in the second quarter of 2004. While our quota-carrying headcount on a combined company basis had only increased slightly since the end of 2003, we continued to grow revenues, which we believe indicated that our sales teams became more productive over the course of the year.

      Sales and marketing expenses increased in 2003 from 2002 as a result of increased costs associated with increased generation of revenues. As a percentage of total revenues, sales and marketing expenses decreased primarily because a lower amount of sales and marketing expenses than revenues were denominated in foreign currencies.

      Research and development expenses in 2004 increased by $55.2 million, or 58%, to $150.6 million from $95.4 million in 2003, and increased by $20.4 million in 2003, or 27%, from $75.0 million in 2002. The majority of research and development expenses relate to employee compensation. The majority of the increase in costs in 2004 related to the addition of approximately 450 research and development employees in connection with the acquisition of Crystal Decisions. During 2004, we increased our investment in an outsourced development center in India, which includes a team of approximately 300 engineers and support staff at December 31, 2004. As a percentage of total revenues in 2004, research and development expenses decreased as a result of the combination of the expenditure levels of the combined companies. The increase in 2003 from 2002 primarily resulted from a full year of costs associated with the development of data integration products subsequent to our acquisition of Acta in August 2002.

      General and administrative expenses in 2004 increased by $39.2 million, or 88%, to $83.9 million from $44.7 million in 2003, and increased by $15.3 million in 2003, or 52%, from $29.4 million in 2002. General and administrative expenses in 2004 increased as a percentage of total revenues to 9% from 8% in 2003 and 6% in 2002.

      Expenses increased in 2004 from 2003 as the result of the expenses of the combined company which included increased levels of costs for: headcount, professional fees (including costs associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002), consulting and legal fees, bad debts, and amortization of trade names and a portion of deferred stock-based compensation expense associated with our acquisition of Crystal Decisions. The increases in costs were partially offset by a $1.0 million insurance reimbursement of legal fees related to our case against MicroStrategy.

      Expenses increased in 2003 from 2002 primarily due to increased employee related costs, integration expenses related to our acquisition of Crystal Decisions, and expenses related to the former Crystal Decisions business during the 20 days that we operated as a combined company in 2003. In addition, during 2002, general and administrative expenses were offset by a reversal of bad debt expense due to a change in estimate resulting from the application of our policy that was based on a review of outstanding invoices and the age of receivables.

      Acquired in-process technology (“IPR&D”) represents projects that had not reached technological feasibility and had no future alternative uses at the date the assessment was made in conjunction with the acquisition of a company.

      At December 11, 2003, the date we acquired Crystal Decisions, we classified certain Crystal Decisions’ products in development as IPR&D in accordance with FIN No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method,” (“FIN 4”). Subsequent to the closing of the acquisition and in December 2003, we wrote-off $28.0 million of IPR&D valued as part of the acquisition. The majority of the value of IPR&D related to the development and completion of versions 10 and 11 of Crystal

Decisions’ products. At December 31, 2004, both versions of these products had been completed and released to market either on a stand-alone basis, as was the case with Crystal 10 products in January 2004, or as part of a combined product, as was the case with version 11, which was included in the December 2004 release of BusinessObjects XI. These results are consistent with management’s previous expectations as to the timing of releases.

      In August 2002, we wrote-off $2.0 million of IPR&D valued as part of the acquisition of Acta. The majority of costs related to the development of the K2 version ActaWorks Engine which was completed by December 31, 2002.

      From time to time, we incur restructuring costs which may be either acquisition or non-acquisition related. We account for restructuring costs in accordance with FAS No. 146, “Cost Associated with Exit or Disposal Activities”(“FAS 146”) and Emerging Issues Task Force (“EITF”) Issue No. 95-3 “Recognition of Liabilities in Connection with Purchase Business Combinations” (“EITF 95-3”). These statements dictate which costs will be recorded in our statements of income and which costs will be recorded as a liability assumed in a purchase business combination. The original liability resulting from approved restructuring plans and the changes to this balance, including the impact on our statements of income are detailed in tabular format in Note 14 to our financial statements in Item 8 of this Form 10-K.

      The restructuring costs and associated accruals were based on our best estimates. If actual amounts paid for restructuring activities differ from those we estimated or our estimates change, then either the purchase price allocation, through goodwill, or the restructuring liability, though an increase or decrease to expense, may be adjusted in the period in which we determine a change in estimate.

      Crystal Decisions. In December 2003, our board of directors approved and committed the Company to restructuring plans to eliminate duplicative activities, focus on strategic products and reduce the Company’s cost structure as a result of our acquisition of Crystal Decisions.

      Restructuring Costs Expensed to Pre-acquisition Business Objects. In accordance with FAS 146, we expensed $7.8 million of costs in December 2003 related to estimated severance and other related benefit costs for 159 employees across all functions worldwide. During 2004, we paid severance and other related benefits of $7.0 million to 134 employees. The remaining liability balance of $0.9 million was due to 20 individuals, which we expect to pay in the first half of 2005. We made a net adjustment of less than $0.1 million to expense in 2004 as a result of a change in estimate for the amount of estimated severance and related benefits.

      In addition to the $7.8 million of restructuring costs related to employee severance, we incurred approximately $2.3 million of additional charges in 2004 that primarily related to costs incurred on the exit of eight facilities. We made cash payments resulting in a reduction of this liability. The remaining liability relates to the exit of five facilities completed prior to December 31, 2004, which are either pending settlement or have been subleased for the duration of the lease periods. Although, we have not completed the exit of various facilities, we do not expect additional charges related to restructuring to be material in 2005.

      Restructuring Costs Included as a Cost of the Crystal Decisions Acquisition. In accordance with EITF 95-3, in December 2003, $13.5 million of restructuring costs were recorded as a liability assumed in the purchase business combination. The restructuring liability consisted primarily of: a charge of $10.8 million related primarily to employee severance and other related benefits for 194 employees across all functions worldwide; and, $2.7 million related to estimated costs for future minimum lease payments associated with the planned closure of 11 facilities, net of estimated sublease income to be earned on these premises. At December 31, 2004, we had vacated all identified facilities under the restructuring plan, with two locations still under lease. These locations have been subleased and have lease terms extending to 2008. During 2004, we paid $1.6 million of minimum lease payments and settlement costs, net of sublease income of less than $0.1 million.

      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 $10.1 million to

159 employees across all regions as at December 31, 2004, with $9.0 million of this amount paid in 2004. In executing the restructuring plan the Company reduced the number of planned employee terminations by approximately 34 employees which resulted in the reduction of approximately $0.6 million to the restructuring liability and goodwill balances. The remaining liability as of December 31, 2004 reflects employee severance for one employee and the Company expects to pay the remaining restructuring liability in the first half of 2005. There were no significant additional terminations associated with this restructuring plan.

      Acta Technology. In August 2002, we acquired Acta, a privately held data integration software vendor. Prior to the completion of the acquisition, Acta adopted a restructuring plan. The restructuring plan reduced Acta’s cost structure and better aligned product and operating expenses with existing general economic conditions. We capitalized as a cost of the acquisition approximately $13.5 million of restructuring costs, which were recorded as liabilities as part of the purchase price allocation. The restructuring liability consisted primarily of: $4.4 million of severance and other employee benefits related to the planned termination of approximately 50 employees worldwide; $7.9 million of costs for vacating duplicate facilities; and, $1.2 million for a 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. On termination of the lease for Acta’s California headquarters, $2.7 million of the original liability was reversed to goodwill. In addition to this change in estimate, the liability balance has been reduced by cash payments against these obligations. We did not recognize any additional restructuring costs and there were no material plan amendments related to this acquisition. The remaining liability accrual of $0.3 million at December 31, 2004 is expected to be paid by the end of 2005 as the lease of Acta’s former U.K. location is completed.

      Interest and other income (expense), net was composed of the following:

      Interest and other income (expense), net decreased in 2004 from 2003 due to $3.5 million fewer payments from Cognos (as described below), additional net foreign exchange losses of $11.2 million, $3.4 million less interest income due to lower cash balances and the decline in interest rates from the comparative periods, and $0.4 million lower other income. Our cash balances were lower in late 2003 and 2004 because we paid $307.6 million in cash using our existing cash balances for the purchase of Crystal Decisions In 2003, interest and other income (expense) net decreased by $4.7 million from 2002 primarily as the result of less settlement income as discussed below.

      Patent infringement settlement income. We have been involved in several patent infringement lawsuits. A settlement was reached in 2002 against Cognos, which required them to pay a total of $24.0 million in exchange for rights to our technology under U.S. Patent No. 5,555,403 with the first $10.0 million installment paid in June 2002, net of $3.1 million of related litigation costs. The remaining balance represented Cognos’ future use of our patented technology and was paid in eight quarterly installments of $1.75 million each which commenced during the three months ended September 30, 2002 and concluded in the three months ended June 30, 2004.

      We settled our patent infringement lawsuit against Brio Software in September 1999. As part of the settlement, we dismissed our pending lawsuit against Brio involving our U.S. Patent No. 5,555,403 and Brio dismissed its pending lawsuit against us involving our U.S. Patent No. 5,915,257 and Brio agreed to pay us an aggregate of $10.0 million, which was payable quarterly in $1.0 million installments beginning September 30, 1999. We received and recognized the full settlement amount as of December 31, 2002, including $1.5 million during 2002.

      Net foreign exchange losses. During 2004, the majority of the amount was the result of the year-end revaluation of assets, the strengthening of the euro compared to the U.S. dollar and mark-to market losses related to large intercompany loans between us and our consolidated subsidiaries before we had adopted a strategy to hedge intercompany loans and mitigate our exposure to these currency variations. Since April 2004, we have purchased forward contracts to mitigate the impact on the statements of income by matching the mark-to-market adjustments on the forward contracts to the gains or losses on revaluation of intercompany loans.

      Our effective tax rate was 39% in 2004, 58% in 2003 and 39% in 2002. The increase in our effective tax rate in 2003 was due primarily to the impact of expensing $28.0 million of IPR&D resulting from the acquisition of Crystal Decisions. IPR&D is not deductible for income tax purposes. There was no IPR&D in 2004 and $2.0 million in 2002.

      During 2004, our effective tax rate was negatively impacted by $11.8 million of net tax expense resulting from our transfer of intercompany intellectual property rights (“IP”) to an affiliated company. The tax expense from the IP transfer is being amortized to income tax expense for book purposes on a straight-line basis over a five-year period beginning in 2004.

      We maintain a full valuation allowance against net deferred tax assets in the U.S. because we have no history of taxable income, largely because of tax deductions attributable to employee stock option exercises. Based on our forecasts and current operating trends, we believe that our existing levels of pre-tax earnings for financial reporting purposes are sufficient to realize the non-U.S. deferred tax assets.

      During 2004, our valuation allowance for deferred tax assets increased by $10.7 million. This increase was primarily the result of purchase price adjustments associated with Crystal Decisions U.S. deferred tax assets and liabilities. The offset of these adjustments was to goodwill and did not impact net income.

      At December 31, 2004, we have U.S. federal and state net operating loss carryforwards of approximately $102.0 million and $15.9 million, respectively. These net operating loss carryforwards will expire at various times from 2018 through 2034 if not utilized. Our future ability to utilize the net operating loss carryforwards of Acta and Crystal Decisions, which are subject to limitation under the Section 382 change of ownership rules of the U.S. Internal Revenue Code of 1986, as amended, approximate $63.8 million and $7.8 million, respectively, of the federal total.

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity

      The following shows our cash flow and changes in cash and cash equivalents:

      Cash and cash equivalents totaled $293.5 million at December 31, 2004, an increase of $58.1 million from December 31, 2003. This balance excluded $17.9 million in restricted cash and short-term investments. Our principal source of liquidity has been our operating cash flow and funds provided by stock option exercises.

      Operating Activities. For all periods presented our operations have funded themselves and we have, at times, used our cash resources to finance business acquisitions as we did in 2003 when we used $307.6 million to pay for the cash portion of the consideration for Crystal Decisions and in 2002 when we used $65.5 million in cash to purchase Acta. Increases in net income were due to increases in revenues, especially in services where our installed customer base continued to expand and due to more customers choosing to renew their support contracts.

      The major uses of cash in 2004 included: cash payments of approximately $18.8 million against the restructuring liability, 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 net cash payments of approximately $54.2 million for taxes due in the ordinary course of business, including taxes on intercompany transfers of intellectual property. In 2004 these uses were offset by a net increase of $58.2 million in deferred revenues and higher net income than in 2003. The increase in net cash provided by operating activities in 2003 from 2002 was primarily due to increased revenues, including cash earned from deferred maintenance revenues.

      Days sales outstanding increased to 84 days at December 31, 2004 from 66 days at December 31, 2003. The increase was due to a combination of factors, most notably the large license and maintenance contracts, which were closed in the last three weeks of 2004.

      Investing Activities. During 2004, our capital expenditures increased to $30.3 million from $12.5 million for 2003. The additional costs in 2004 related to the continued implementation of information technology systems and infrastructure and the continued expansion of our facilities, especially in our Vancouver, Canada location. The decrease in net cash used in investing activities from 2003 was the result of the absence of the impact of the large transaction completed in 2003 for the purchase of Crystal Decisions. In addition, in 2003, we received cash from the sale of our short-term investments. For 2002, investing activities included the purchase of Acta and the purchase of short-term investments for $45.2 million.

      Financing Activities. The net cash and cash equivalents provided by financing activities for 2004, resulted from $40.6 million in cash received from the exercise of options under our stock option plans and the issuance of shares under our employee stock purchase plans and the net transfer of $5.2 million from restricted cash to cash and cash equivalents. These inflows were partially offset by the use of cash of $40.2 million for the repurchase of 2.0 million of our ordinary shares at a weighted average price of €16.71 and payments made from restricted cash of $3.1 million related to amounts held in escrow associated with our acquisition of Acta.

Pursuant to and subject to the limits of shareholder and board approval, we may purchase additional shares in the future.

      During 2003, our main source of cash from financing activities was the $29.7 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. We also received cash of $15.5 million in 2002 from this source. We have seen a large increase in the number of stock options exercised in 2004 as a result of an expanded employee base due to the acquisition of Crystal Decisions. In addition, previous to the acquisition, former optionees of Crystal Decisions did not have the ability to sell their exercised stock options as there was no public market for Crystal Decisions’ shares. We expect the monies received on the exercise or purchase of stock options/shares to vary as we cannot predict when our employees will exercise their stock options or to what extent they will participate in our employee stock purchase plans.

      During 2002, we used cash of $4.1 million for the repurchase of 250,000 of our ordinary shares at a weighted average purchase price of €16.34 per share and also made payments on escrows payable to former Acta shareholders as a result of our acquisition of Acta.

     Dividends

      Our net income after deduction of a required legal reserve is available for distribution to our shareholders as dividends, subject to the requirements of French law and our bylaws. The legal reserve was $1.3 million at December 31, 2004. We have never distributed dividends and we currently intend to retain our earnings to finance future growth and therefore, do not anticipate paying any cash dividends on our ordinary shares or ADSs in the foreseeable future.

     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 entered into a €100.0 million credit agreement in the three months ended December 31, 2004, which can be drawn in euros, U.S. dollars or Canadian dollars, with €60.0 million to satisfy general corporate financing requirements and a €40.0 million bridge loan for the purpose of acquiring companies and/or for medium-and long-term financing. The credit agreement restricts certain of our activities including the extension of a mortgage, lien, pledge, security interest or other rights related to all or part of our existing or future assets or revenues as security for drawings under the credit agreement. At December 31, 2004, no balance was outstanding under this line of credit.

      We currently anticipate that our capital expenditures for 2005 will be approximately $40 million as we continue to invest in our information technology systems, including purchases of hardware and continue to build out our facilities in Vancouver, Canada. We anticipate paying for these capital expenditures with cash on hand.

     Contractual Obligations

      The following table summarizes our outstanding contractual obligations as of December 31, 2004, which we expect to pay using our operating cash flow as amounts become due.

      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 December 31, 2004 or December 31, 2003. We carry coverage under certain insurance policies to protect us in the case of any unexpected liability; however, this coverage may not be sufficient.

      As approved by Board resolution on September 30, 2004 and executed during the three months ended December 31, 2004, we guaranteed the obligations of our Canadian subsidiary in order to secure cash management arrangements. This guarantee replaces the requirement for a restricted cash deposit of $2.0 million which was placed with a bank. At December 31, 2004 there were no outstanding contracts under this arrangement and thus no related liability.

      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 was 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. The balance of the liability related to the restoration

of leased premises that qualify as operating leases was not material for either 2004 or 2003. These liabilities were not associated with the Crystal Decisions restructuring plan.

OFF-BALANCE SHEET ARRANGEMENTS

      We did not have any off-balance sheet arrangements at December 31, 2004 or at December 31, 2003. In accordance with FAS No. 87, “Employers’ Accounting for Pensions”, or FAS 87, our French pension plan which is managed by a third party is not consolidated into our statements of financial position, except for the net liability due to the Plan. In accordance with FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51”, employers are not required to apply the Interpretation provisions to their employee benefit plans that are accounted for under FAS 87.

CRITICAL ACCOUNTING POLICIES

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

      We have reviewed these critical accounting policies and related disclosures with our Audit Committee.

      Our revenue recognition policy is significant because revenues are a key component of our results from operations. In addition, revenue recognition determines the timing of certain expenses, such as incentive compensation. We follow very specific and detailed guidelines in measuring revenue; however, certain judgments and estimates affect the application of the revenue policy. Revenue results are difficult to predict and any shortfall in revenues or delay in recognizing revenues could cause operating results to vary significantly from quarter to quarter and could result in future operating losses or reduced net income.

      We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, as well as IPR&D, based on their estimated fair values. Such a valuation requires us to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer contracts, customer lists, distribution agreements and acquired developed technologies, expected costs to develop IPR&D into commercially viable products and estimating cash flows from projects when

completed and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Other estimates such as restructuring accruals associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

      In 2003 and 2002 we recorded charges to restructure our business in conjunction with acquisitions. These charges included estimated expenses for employee severance and outplacement costs, lease cancellations, and other restructuring costs. The process to estimate these costs is complex and involves periodic reassessments of estimates made at the time the original decisions were made. We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion of provisions already recorded through either the statements of income or through goodwill.

      We evaluate our identifiable goodwill, intangible assets, and other long-lived assets for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. Future impairment evaluations could result in impairment charges, which would result in an expense in the period of impairment and a reduction in the carrying value of these assets.

      We have entered into forward contract arrangements, and in 2005 entered into cash flow hedges, to purchase various currencies in the future with other currencies in order to mitigate our risk of currency exchange rate fluctuations, which could be losses, on our operations. The determination of the appropriate strategy, amounts and timing for both the purchase and maturity of these derivative instruments is a comprehensive process, which involves estimates of the amount and timing of future cash flows related to future expense requirements in a given currency, as well as estimates of expected revenues in that currency.

      We evaluate contingent liabilities including threatened or pending litigation. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates could have a material impact on our results of operations and financial position.

      We make judgments regarding our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and our future results of operations could be materially affected.

      Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate.

      We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. We have considered future taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. A full valuation allowance against net deferred tax assets in the U.S. is maintained because of no history of taxable income, largely because of tax deductions attributable to employee stock option exercises. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment to the deferred tax assets would be charged to net income in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, then the previously provided valuation allowance would be reversed. Our current valuation allowance relates to benefits from the exercise of employee stock options and deferred tax assets of acquired companies. If these tax benefits are realized, the valuation allowance reduction would result in an increase to additional paid-in capital or a decrease to goodwill, respectively.

      No taxes have been provided on undistributed foreign earnings that are planned to be indefinitely reinvested. If future events, including material changes in estimates of cash, working capital and long-term investment requirements necessitate that these earnings be distributed, an additional provision for withholding taxes may apply, which could materially affect our future effective tax rate.

      As a matter of course, we are regularly audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. We establish reserves when, despite our belief that our tax return positions are appropriate and supportable under local tax law, we believe certain positions are likely to be challenged and we may not succeed in realizing the tax benefit. We evaluate these reserves each quarter and adjust the reserves and the related interest in light of changing facts and circumstances regarding the probability of realizing tax benefits, such as the progress of a tax audit or the expiration of a statute of limitations. We believe our tax positions comply with applicable tax law and that we have adequately provided for any known tax contingencies.

      We issue stock options to our employees and provide our employees the right to purchase ordinary shares under employee stock purchase plans. We account for our 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. For equity instruments under fixed plans, APB 25 does not require that any amount of expense to be recorded in the statement of income; however, FAS No. 123, “Accounting for Stock-Based Compensation” does require disclosure of these amounts in a pro forma table to the financial statements. In determining this disclosure the value of an option is estimated using the Black Scholes option valuation model. This model requires the input of highly subjective assumptions and a change in our assumptions could materially affect the fair value estimate, and thus the total calculated costs associated with the grant of stock options or issuance of stock under employee stock purchase plans. In addition, in disclosing the fair-value cost of stock-based compensation, we estimate that we will be able to obtain a 38% tax benefit on these costs. There is the potential that this tax benefit will not be obtained to this extent or at all, which directly impacts the level of expenses associated with stock-based compensation. We expect our accounting policies, regarding stock-based compensation to be materially affected by our adoption of FAS123R, which is described under “Recent Accounting Pronouncements.” We have not yet determined what the impact of the adoption of FAS123R will be on our compensation philosophy.

Recent Accounting Pronouncements

      Share-Based Payments. In December 2004, the Financial Accounting Standards Board (“FASB”) issued the FAS No. 123R, “Share-Based Payment, an Amendment of FASB Statements No. 123 and 95” (“FAS 123R”). This final standard replaces the existing requirements under FAS 123 and APB 25 and requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the statements of income. FAS 123R eliminates the ability to account for stock-based compensation transactions using APB 25 and requires instead that such transactions be accounted for using a fair-value based method. FAS 123R is effective for interim or annual periods beginning after June 15, 2005 and allows companies to restate the full year of 2005 to reflect the impact of expensing under FAS 123R as 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”), we will also be required to expense the costs associated with stock awards commencing on January 1, 2005 for our French financial reporting requirements. IFRS 2 will also require restatement of stock-based compensation expense into the comparative 2004 financial statements for our 2005 French financial reporting requirements.

      We continue to research the final Share-Based Payment standards including the transitional provisions of each of FAS 123R and IFRS 2. We have determined that the expensing of our previously granted stock options will have a significant impact on our results of operations. Under the calculation provisions set forth under FAS 123R, we currently anticipate total pre-tax expenses related to existing stock options granted and share warrants issued to December 31, 2004 to be approximately $72 million. These total costs will be amortized to the statements of income over the remaining requisite service period for these options, which is estimated to be approximately three and one-half years, commencing for the three months ending September 30, 2005. This total estimated cost will be impacted by factors which may include, but are not limited to: (i) individuals leaving our employ who forfeit unvested stock options for which no charge will be taken; (ii) changes to the exchange rate between the U.S. dollar and the euro as our stock options are issued in euros but the expense will be reflected in U.S. dollars; and (iii) additional grants made after December 31, 2004. In addition, our effective tax rate will be adversely affected by the adoption of the final standards to the extent which we are unable to record a net tax benefit on the stock-based compensation expense. The transitional provisions of FAS 123R allow companies to select either a modified-prospective or modified-retrospective transition method which effectively impacts in which periods actual expense will be reported in the statements of income. We are in the process of determining the transitional method we will apply. We have not determined how FAS123R will modify, if at all, our compensation philosophy in general or for stock option grants in particular. We cannot currently estimate the amount of stock-based compensation expense which will be related to stock option grants or the issue of warrants in 2005 and thereafter.

Factors Affecting Future Operating Results

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

Risks Related to Our Business

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

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

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

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

      With the commercial release of BusinessObjects XI in January 2005, we believe these factors are likely to materially and substantially affect our revenues and bookings for the three months ending March 31, 2005. The customer hesitation could result in delays in purchasing from one quarter to the next, causing quarterly orders and associated shipments and revenues to vary more significantly during this transition than we have previously experienced. The impact on revenues of the introduction of BusinessObjects XI may be exacerbated or reduced by normal seasonal spending patterns. We are putting in place programs and incentives to try to mitigate these expected fluctuations, but we cannot provide any assurance that these programs will be effective. Our customers can elect to continue to use stand-alone products for some time and we may not be able to convince them to adopt our combined product. As a result, we may have to continue to support multiple products for a period of time.

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

      We have accounted for our acquisition of Crystal Decisions using the purchase method of accounting in accordance with U.S. GAAP. The portion of the estimated purchase price allocated to acquired in-process research and development was expensed in the three months ended December 31, 2003. We expect to incur additional depreciation and amortization expense over the useful lives of certain intangible assets acquired in connection with the acquisition, which will reduce our operating results through 2008. In addition, we recorded goodwill of $978.0 million in connection with the acquisition. If this goodwill, other intangible assets with indefinite lives or other assets acquired in the acquisition become impaired, we may be required to incur material charges relating to the impairment of those assets. Any significant impairment charges will have a negative effect on our operating results and could reduce the market price of our shares.

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

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

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

      We prepare our financial statements in conformity with U.S. GAAP, which is a body of guidance that is subject to interpretation or influence by the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC and various bodies formed to interpret and create appropriate accounting policies. Until and including 2004, we also prepared financial statements in accordance with French GAAP according to French law. Effective January 1, 2005, our French financial statements will be prepared in conformity with the new International Financial Reporting Standards (“IFRS”). The International Accounting Standards Board, which is the body formed to create the international standards, has undertaken a convergence program to eliminate a variety of differences between IFRS and U.S. GAAP. A change in these policies could have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting policies that recently have been or may in the future be affected by the changes in the accounting rules are as follows:

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

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

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

      Some of our competitors may have greater financial, technical, sales, marketing and other resources than we do. In addition, some of these competitors may enjoy greater name recognition and a larger installed customer base than we do. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion, sale and support of their products. In addition, some of our competitors may be more successful than we are in attracting and retaining customers. Moreover, some of our competitors, particularly companies that offer relational database management software systems, ERP software systems and CRM systems may have well established relationships with some of our existing and targeted customers. This competition could

harm our ability to sell products and services, which may lead to lower prices for our products, reduced revenues, reduced gross margins and, ultimately, reduced market share.

      If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. For example, in July 2004, IBM acquired Alphablox. Furthermore, companies larger than ours could enter the market through internal expansion or by strategically aligning themselves with one of our competitors and providing products that cost less than our products. Our competitors may also establish or strengthen cooperative relationships with our current or future distributors, resellers, original equipment manufacturers or other parties with whom we have relationships, thereby limiting our ability to sell through these channels and reducing promotion of our products.

      As part of our business strategy, we have acquired companies, technologies and product lines to complement our internally developed products. We expect that we will have a similar business strategy going forward. Critical to the success of this strategy in the future and, ultimately, our business as a whole, is the orderly, effective integration of acquired businesses, technologies, product lines and employees into our organization. If our integration of future acquisitions is unsuccessful, our business will suffer. Furthermore, there is the risk that our valuation assumptions and models for an acquired product or business may be overly optimistic or incorrect if customers do not demand the acquired company’s products to the extent we expect, the technology does not function as we expect or the technology we acquire is the subject of infringement or trade secret claims by third parties. For example, on December 11, 2003 we acquired Crystal Decisions. The integration effort has been a complex, time-consuming and expensive process.

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

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

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

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

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

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

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

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

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

      As a result, we expect to continue to incur related expenses and to devote additional resources to Section 404 compliance. In addition, it is difficult for us to predict how long it will take to complete the

assessment of the effectiveness of our internal control over financial reporting each year and we may not be able to complete the process on a timely basis. In the event that our chief executive officer, chief financial officer or independent registered public accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected.

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

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

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

      On October 17, 2001, we filed a lawsuit in the United States District Court for the Northern District of California against MicroStrategy for alleged patent infringement. The lawsuit alleged that MicroStrategy

infringed on our U.S. Patent No. 5,555,403 by making, using, offering to sell and selling MicroStrategy Versions 6.0, 7.0 and 7.0i. Our complaint requests 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 our patent. On August 29, 2003, the Court ruled that our patent was not literally infringed and that we were estopped from asserting the doctrine of equivalents and dismissed the case. We have appealed the Court’s judgment to the Court of Appeals for the Federal Circuit. On January 6, 2005, the Court of Appeals for the Federal Circuit decided that the lower Court incorrectly concluded that MicroStrategy’s products did not violate our patent and determined that we were not precluded from arguing that MicroStrategy’s products were equivalent to claim 4 of our patent. As a result, a trial date is expected to be set for later in 2005 or early 2006. We cannot reasonably estimate at this time whether a monetary settlement will be reached.

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

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

      On December 10, 2003, MicroStrategy filed an action for patent infringement against Crystal Decisions in the United States District Court for the District of Delaware. We became a party to this action when we acquired Crystal Decisions. The complaint alleged that the Crystal Decisions’ software products: Crystal Enterprise, Crystal Reports, Crystal Analysis and Crystal Applications, infringed MicroStrategy’s U.S. Patent Nos. 6,279,033, 6,567,796 and 6,658,432. The complaint seeks relief in the form of an injunction, unspecified damages, an award of treble damages and attorneys’ fees.

      The parties are currently engaged in extensive discovery and trial is scheduled to begin on November 7, 2005. We are vigorously defending this action. Should an unfavorable outcome arise, there can be no assurance that such outcome would not have a material adverse affect on our liquidity, financial position or results of operations.

      We believe that we have meritorious defenses to MicroStrategy’s various allegations and claims in each of the suits and we intend to continue vigorously to defend the actions. However, because of the inherent uncertainty of litigation in general, and the fact that the discovery related to certain of these suits is ongoing,

we cannot assure you that we will ultimately prevail. Should MicroStrategy ultimately succeed in the prosecution of its claims, we could be permanently enjoined from selling some of our products and deriving related maintenance revenues. In addition, we could be required to pay substantial monetary damages to MicroStrategy.

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

      In November 1997, Vedatech commenced an action in the Chancery Division of the High Court of Justice in the United Kingdom against Crystal Decisions (UK) Limited, now a wholly owned subsidiary of Business Objects Americas. We became a party to the action when we 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, that alleged 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 United States District Court, Northern District of California, San Jose Division were commenced in breach of an exclusive jurisdiction clause in the settlement agreement and requesting injunctive relief to restrain Vedatech from pursuing the United States District Court proceedings.

      A hearing in the High Court of Justice took place on various dates between January 29 and March 9, 2004. On August 3, 2004, the 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 that may be pending. An application has been made for permission to appeal the orders of August 3, 2004 granting the anti-suit injunction. Vedatech has since submitted a supplemental request that its application be heard before a panel of three judges. The outcome of the application is not yet known.

      Although we believe that Vedatech’s basis for seeking to set aside the mediated settlement and its claims in the October 2003 complaint is meritless, the outcome cannot be determined at this time. If the mediated

settlement were to be set aside, an ultimate damage award could adversely affect our financial position, liquidity and results of operations.

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

      We intend vigorously to defend the action. Were an unfavorable outcome to arise, there can be no assurance that such outcome would not have a material adverse affect on our liquidity, financial position or results of operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

      No customer accounted for 10% or more of our total revenues in 2004, 2003 or 2002. Although no single reseller currently accounts for more than 10% of our total revenues, if one or more of our large resellers were to terminate their co-marketing agreements with us it could have an adverse effect on our business, financial condition and results of operations. In addition, our business, financial condition and results of operations could be adversely affected if major distributors were to materially reduce their purchases from us.

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

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

      We have significant operations outside of France and the United States including development facilities, sales personnel and customer support operations. For example, we rely on over 300 software developers in India through a contract development agreement. Our international operations are subject to certain inherent risks including:

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

      In December 2004, the final statement on Share-Based Payments, FAS 123R, was issued. This final standard replaces the existing requirements and requires that all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, be treated the same as other forms of compensation by recognizing the related cost in the statements of income. FAS 123R requires that such transactions be accounted for using a fair-value based method. FAS 123R is effective for interim or annual periods beginning after June 15, 2005 and allows companies to restate the full year of 2005 to reflect the impact of expensing under FAS 123R as 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”), we will be required to expense the costs associated with stock awards commencing on January 1, 2005 for our French financial reporting requirements. IFRS 2 requires restatement of stock-based compensation expense into our 2004 financial statements.

      We continue to investigate the impact of the adoption of FAS 123R and IFRS 2 will have on our financial position and results of operations. In addition, our effective tax rate will be adversely affected by the adoption of the exposure draft to the extent to which we are unable to record a net tax benefit on the stock-based compensation expense. While this stock-based compensation is a non-cash charge and will impact all companies who issue stock options, we cannot predict how investors will view this additional expense and, as such, our stock price may decline.

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

      During 2004, we recognized $11.6 million in net foreign exchange losses, of which $6.8 million were recognized in the three months ended March 31, 2004. While we believe we have put into place a strategy to mitigate these risks in the future, we cannot ensure that we will not recognize gains or losses from other transactions, as this is part of transacting business in an international environment. Not every exposure is or can be hedged, and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts which will vary or which may later prove to have been inaccurate. Failure to hedge successfully or anticipate currency risks properly could adversely affect our operating results. We cannot predict the change in currency exchange rates in the future.

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

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

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

      In addition, experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our confidential information or temporarily disrupt our operations. As a result, we could incur significant expenses in addressing problems created by security breaches of our own network. The

costs to eliminate computer viruses and alleviate other security problems could be significant. The efforts to address these problems could result in interruptions, delays or cessation of our operations.

      Further, we work continually to upgrade and enhance our computer systems and anticipate implementing several system upgrades during the coming years. Failure to smoothly migrate existing systems to newer systems could cause business disruptions.

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

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

      We have received four “class action” complaints that alleged we and some of our current and former officers and directors violated provisions of the Exchange Act and Rule 10b-5 promulgated thereunder. In addition, two purported shareholder derivative actions have been filed against certain of our current and former officers and directors. The derivative actions are based on the same facts and events alleged in the class action complaints. Defending any such litigation is costly and may divert management’s attention from the day to day operations of our business, which could adversely affect our business, results of operations and cash flows. In addition, an unfavorable outcome in, or resolution of, this matter could have a material adverse affect on our liquidity, financial position or results of operations and may result in damage to our reputation among our customers and investors.

Risks Related to Ownership of Our Ordinary Shares or ADSs

      New SAC and certain of its affiliates own a significant percentage of our company as a result of our acquisition of Crystal Decisions. As of February  28, 2005, New SAC and certain of its affiliates beneficially owned approximately 16.6% of our issued ordinary shares. The interests of these shareholders could conflict with those of our other shareholders. As a result of their ownership position, New SAC and these other parties collectively are able to significantly influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of our company.

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

      Provisions of our articles of association and French law may impede the accumulation of our shares by third parties seeking to gain a measure of control over our company. For example, French law provides that any individual or entity (“person”), acting alone or in concert with others, that becomes the owner or ceases to be the owner, holding more than 5%, 10%, 20%, 33¹/3%, 50% or 66²/3% of the share capital or voting rights of our company is required (i) to notify us with a delay that shall be set by decree, and (ii) to notify the AMF within five trading days of crossing any of the applicable percentage thresholds, of the number of shares and voting rights held by it. The AMF makes the notice public. Additionally, any person acquiring more than 10% or 20% of the share capital or voting rights of our company must notify us and the AMF within 10 trading days of crossing any of these thresholds, and file a statement of their intentions relating to future acquisitions or participation in the management of our company for the following 12 month period, including whether or not this person is acting alone or in concert and whether or not they intend to continue their purchases to acquire control of our company or to seek nominations to our board of directors. This person may amend their stated intentions, provided that they do so on the basis of significant changes in their own situation or stockholding. Upon any changes of intentions, they must file a new statement. The AMF makes these statements public. Any shareholder who fails to comply with these requirements shall have voting rights for all shares in excess of the relevant threshold suspended for two years following the completion of the required notification. Moreover this shareholder may have all or part of its voting rights within our company suspended for up to five years by the relevant commercial court at the request of our chairman, any of our shareholders or the AMF. In addition, such shareholders may be subject to a fine of €18,000 for violation of the share ownership notification requirement and up to €1,500,000 for violation of the notification requirement regarding the statement of intentions.

      Furthermore, our articles of association provide that any person, acting alone or in concert with others, that becomes the owner or ceases to be the owner, holding more than 5%, 10%, 20%, 33¹/3%, 50% or 66²/3% of the share capital or voting rights of our company, is required to notify us within five trading days of crossing any of the applicable percentage thresholds, of the number of shares and voting rights held by them.

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

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

      In general, our board of directors may call a meeting of our shareholders. A shareholders’ meeting may also be called by a liquidator or a court appointed agent, in limited circumstances, such as at the request of the holders of 5% or more of our outstanding shares held in the form of ordinary shares. In addition, only shareholders holding a defined number of shares held in the form of ordinary shares or groups of shareholders holding a defined number of voting rights underlying their ordinary shares may submit proposed resolutions for meetings of shareholders. The minimum number of shares required depends on the amount of the share capital of our company and is equal to 2,197,660 ordinary shares based on our share capital as of February 28, 2005. Similarly, a duly qualified association, registered with the AMF and us, of shareholders who have held their ordinary shares in registered form for at least two years and together hold at least a defined percentage of our voting rights, equivalent to 1,790,863 ordinary shares based on our company’s voting rights as of February  28, 2005, may submit proposed resolutions for meetings of shareholders. As a result, the ability of our shareholders to participate in and influence the governance of our company will be limited.

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

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

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

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

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

      Our operating results may be below the expectations of public market analysts and investors’ and therefore, the market price of our shares may fall. In addition, the stock markets in the United States and France have experienced significant price and volume fluctuations in recent periods, which have particularly affected the market prices of many software companies and which have often been unrelated to the operating performance of these companies. The market fluctuations have affected our stock price in the past and could continue to affect our stock price in the future. The market price of our shares may be affected by the following factors:

      For example, the prices of our ADSs on the Nasdaq National Market have ranged from a high of $38.34 to a low of $15.44 for the period of January 1, 2003 to December 31, 2004. If our net revenues and results of operations are below the expectations of investors, significant fluctuations in the market price of our shares could occur. In addition, the securities markets have, from time to time, experienced significant price and volume fluctuations, which have particularly affected the market prices for high technology companies and often are unrelated and disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, political and market conditions, may negatively affect the market price of our shares.

      This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Future Operating Results.” Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates, currency exchange rates and changes to either forward contracts or cash flow hedge derivatives.

Interest Rate Risk

      At December 31, 2004 and 2003, we held no short-term investments, other than those assets classified in the rabbi trust. Our cash and cash equivalents were $293.5 million and $235.4 million at December 31, 2004 and 2003 respectively, which approximate fair value. For 2004 and 2003, our exposure to market rate risk was limited to changes in interest rates over time. Declines in interest rates will reduce our interest income given the same level of cash. We do not attempt to reduce or eliminate our exposure to interest rate risk through the use of derivative financial instruments for our cash and cash equivalent balances, or any short-term investments that we may purchase in the future. The balance of our cash and cash equivalents nor future interest rates is predictive; however, we believe the changes in interest rates in the future will not have a material impact on our operations.

Trading Securities

      We do not issue financial instruments for trading purposes. We do hold certain short-term investments in the form of a rabbi trust which are supported by insurance dedicated mutual funds associated with our U.S. Deferred Compensation Plan. The participants of our U.S. Deferred Compensation Plan, and not the Company, make the decisions as to which funds support the asset recorded on our balance sheet. At December 31, 2004 and 2003, short-term investments held in the rabbi trust were $3.8 million and $3.3 million, respectively. The change in the balance of the asset is the result of additional contributions made by employees impacted by increases or decreases in the value of the mutual funds, the later of which we cannot control. Given the nature of the balance we cannot manage this risk; however, do monitor the difference between the asset and the related liability to ensure it is at an acceptable level. The current liability payable under the U.S. Deferred Compensation Plan is in excess of the short-term investments balance by approximately $0.7 million which represents the unfunded portion of the liability and the amount which we would be required to pay over-and-above the value of the asset if all employees opted out of the Plan. We cannot determine if and when employees will withdraw their contributions from the plan; however, we believe that normal payments against the liability will not have a material impact on our operations.

Foreign Exchange Risk

      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. Assets and liabilities of our subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable balance sheet date and any resulting translation adjustments are included as an adjustment to shareholders’ equity. Revenues and expenses generated from these subsidiaries are translated at average monthly exchange rates during the quarter the transactions occur. Gains and losses from transactions in local currencies are included in net income. Historically, we have generated a significant portion of our revenues and incurred a significant portion of our expenses in euro, British pounds and the Japanese yen. This has resulted in the natural hedge of our operating results. Subsequent to the Crystal Decisions acquisition, we incur a significant portion of our expenses in Canadian dollars. As a result of transacting in multiple currencies and reporting our financial statements in U.S. dollars, our operating results have been in certain years in the past and may be in the future, adversely impacted by currency exchange rate fluctuations upon our future operating results.

      We entered into a credit agreement that has the potential to be drawn in currencies other than the U.S. dollar. This contract does not qualify as the hedge of a net investment in a foreign subsidiary, and thus any drawings under this credit agreement will be remeasured in U.S. dollars in accordance with FAS No. 52, “Foreign Currency Translation” at each balance sheet date.

      We cannot predict the effect of exchange rate fluctuations upon our future results. Although we may use derivative instruments to mitigate our exposure as described below, we cannot be sure that any techniques we implement will be successful or that our business, results of operations, financial condition or cash flows will not be adversely affected by exchange rate fluctuations.

      Further information on the impact of foreign currency exchange rate fluctuations is further described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Impact of Foreign Currency Exchange Rate Fluctuations on Results of Operations.”

Derivatives Risk

      We account for derivative instruments in accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) and related interpretations. Market risk related to derivatives is the risk of changes in either the derivative market or the market for an asset, reference rate or index underlying the derivative. This risk includes the risk that offsetting effects of the group of derivative transactions will not perfectly match the exchange rate gains or losses the transactions are intended to hedge. It also includes the risk that anticipated transactions, which justify the hedge, do not occur. Our policy is to assess carefully the market risk of derivative transactions and only enter into those transactions that are not expected to incur material market risk. In addition, we enter into derivative transactions only as a hedge of an existing or anticipated group of transactions or expenditures. Therefore, any market risk inherent in the derivative transactions should be offset with the market risk inherent in the existing or anticipated transactions. Derivative positions and transactions hedged with the derivative will be regularly marked-to-market in order to assure that unanticipated market risk has not led to unacceptable market risk.

      Credit risk exists as derivative transactions involve a counter-party who must accept the opposite risk for entering into derivative instruments with us. We are exposed to the credit risk of the counter-party not being able to perform. This credit risk is mitigated as we only enter into derivative transactions with counter-parties having and maintaining a long term credit rating of at least A or equivalent with Moody’s and Standard & Poors.

      We enter into foreign currency forward contracts with financial institutions primarily to protect the Company against foreign exchange risks associated with existing assets and liabilities, certain firmly committed transactions, and probable but not firmly committed transactions or expenditures. Depending on the nature of the derivative instrument, the instrument may or may not qualify for hedge accounting. It is currently our strategy to hedge a substantial portion of the costs incurred by our Canadian subsidiary related to expenses of our Irish and U.S. subsidiaries, at least two quarters forward at each period end. We do not hedge certain foreign exchange transaction exposures due to immateriality, prohibitive economic cost of hedging particular exposures or limited availability of appropriate hedging instruments.

      Commencing in April 2004 we entered into forward contracts to offset the foreign gains and losses on intercompany loans which were creating currency exposure. Previous to entering into these hedges, we had market risk related to the revaluation of the intercompany loans balances without an offsetting forward contract in place to mitigate this risk. As of December 31, 2004, we held forward exchange contracts to mitigate our exposure to the risk of changes in currency exchange rates. These forward contracts were not considered hedging instruments.

      The following table provides information about our derivative financial instruments outstanding as of December 31, 2004 and December 31, 2003. For forward currency contracts, the table presents the notional amount (at contract exchange rates) and the weighted-average contractual foreign currency exchange rates.

At December 31, 2004, all forward contracts are scheduled to mature within one year, specifically with maturity dates ranging from May to October 2005.

      All forward contracts were recorded at fair value in the balance sheet as part of other current liabilities in the amount of $25.8 million at December 31, 2004, and in other current assets in the amount of $2.2 million at December 31, 2003.

      In January 2005, we entered into three separate forward contracts to purchase Canadian $22.8 million against the euro with maturity dates ranging from April to October 2005 and a weighted average contract rate of 1.5870%. In addition, we entered into three separate forward contracts to purchase Canadian $24.8 million against the U.S. dollar with maturity dates ranging from April to October 2005 and weighted average contract rate of 1.1995%. All of these forward contracts were designed as cash flow hedges in order to hedge certain of the cash requirements of our Canadian subsidiary.

BUSINESS OBJECTS S.A.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Business Objects, S.A.

      We have audited the accompanying consolidated balance sheets of Business Objects, S.A. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Part IV, Item 15. These financial statements and schedule are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Business Objects, S.A. at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Business Objects, S.A.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion thereon.

San Jose, California

March 14, 2005

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Business Objects, S.A.

      We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting”, that Business Objects, S.A. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Business Objects, S.A.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that Business Objects, S.A. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Business Objects, S.A. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Business Objects, S.A. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004 of Business Objects, S.A. and our report dated March 14, 2005 expressed an unqualified opinion thereon.

San Jose, California

March 14, 2005

BUSINESS OBJECTS S.A.

CONSOLIDATED BALANCE SHEETS