2004ANNUAL REPORT
2004
1 Letter to the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3 Drupa 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4 Software Innnovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 Enfocus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6 Shareholders’ Information & Investor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 • Corporate Governance (Boards of Directors, Management, Auditors)
• Nature and extent of the Trading Market
• Signifi cant Shareholders
• Dividends
• Current structure of Artwork Systems Group
Corporate Offi ces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
FINANCIAL STATEMENTS
1 Introduction to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 • Selected Summary Financial Data
• Management’s Discussion and Analysis of Financial Conditions and Results of Operations
2 Consolidated Financial Statements in accordance with U.S. GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 • Auditor’s Report
• Consolidated Balance Sheet
• Consolidated Income Statements
• Consolidated Statement of Shareholders’ Equity
• Consolidated Statement of Cash Flows
• Notes to the Financial Statements
3 Financial Statements in accordance with Belgian Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 • Statutory Accounts
• Report of the Board of Directors to the General Meeting
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
52
2 Consolidated Financial Statements • Auditor’s Report
• Consolidated Balance Sheet
• Consolidated
• Consolidated Statement of Shareholders’ Equity
• Consolidated Statement of Cash Flows
• Notes to the Financial Statements
3 Financial Statements• Statutory Accounts
• Report of the Board of Directors to the General Meeting
2004BEST YEAR EVER
Wow, it’s been quite a year! If you’ve been along for the ride
with Artwork Systems in 2004, you’re no doubt still wondering
if you should unbuckle your seat belt! Artwork Systems was
clearly strong in this Drupa year, progressing simultaneously
on several internal and external fronts. Buoyed by a strong
product offering and a strengthened worldwide economy
overall; we mapped-out an exciting 2004 fiscal year. Like the
built-in intelligence found in the computers of today’s most
sophisticated automobiles; our sales, marketing, operations,
and award-winning R&D teams worked together to keep
Artwork Systems on the right road.
As a result, in fiscal 2004 we further perfected our abilities to
anticipate trends, avoid bumps in the road and take advantage
of opportunities – keeping our customers riding comfortably
with the company they’ve come to rely on for the safest, cost-
effective, yet fastest journey to long-term profitability.
Our outward focus centered on the graphic arts industry’s
defining global event, Drupa. We’d been preparing for months;
and it was crucial that we feature the most advanced versions
of our best solutions for the hundreds of thousands of visitors
who visit this world trade showcase every four years.
We stepped up the pace on internal activities, as well: workflow
management and certification of the production process
showed themselves to be important considerations for graphic
arts industry professionals, and we were ready.
We expanded our pool of core competencies by embracing our
Enfocus subsidiary’s fundamental Certified PDF technology
as a key Artwork Systems differentiator for the long-term. We
had watched Certified PDF become a de facto standard for
reliable PDF file exchange the world-over, and begin impacting
the full design-through-output range of the workflow. The
time was right to start cross-pollinating Certified PDF with
our technologies, for the benefit of both companies and the
industry at-large.
Another increased focus was digital printing, which continues
to gain significant ground as a standard print process for
the future. Artwork Systems has proven that its workflows
flawlessly facilitate this emerging trend, and our collaboration
with HP-Indigo, announced in the early spring, serves as a
prime example of our capabilities in this arena.
It was an invigorating way to begin a season that would
culminate in Düsseldorf, and we shifted into a higher gear as
we began positioning our new PDF/JDF powerhouse workflow,
Odystar, to take center stage at Drupa.
Older, pieced-together technologies were falling by the
wayside. PDF contenders were trying to keep up, but they
fell victim to the inevitable drag resulting from continued
reliance on heavier, dated, expensive technologies. Odystar
was – and is – light and modern, a hybrid of the best Artwork
Systems workflow engineering and unique, Enfocus Certified
PDF know-how. Together with Artwork Systems’ current,
“best in class” versions of ArtPro and Nexus; Odystar answered
the Drupa 2004 call for flexible, easy workflow management
coupled with reliable processing and high-end functionality.
Over three thousand on-site demonstrations and more than
three million euros worth of orders later, we knew we had
surpassed even our own goals for the products, and the show.
The balance of the year followed suit. Artwork Systems had
further strengthened its position in the packaging industry;
and we began gaining traction with existing and new products
in the commercial and publishing categories.
Of note in this regard is another significant milestone reached
in 2004: a partnership with Kodak Polychrome Graphics. In
one of our most strategic moves in commercial print solution
integration and market reach to date, we believe this alliance
may result in over two million euros in orders during the
coming year.
LETTER TO OUR
SHAREHOLDERS
3
Some of us didn’t want the excitement to end, but we finally
reached the finish line and the rewards of this year’s journey...
the best fiscal year ever!
Now is the time to reflect and plan for the future. In 2004, we
made significant progress in achieving strategic goals for 2004,
as laid out in my letter to you at this time last year. They are:
• Extending our leadership in new markets including
publishing and commercial color.
• Continuing to strengthen our organization in development,
marketing, sales, training and customer support.
• Expanding our presence in the United States, in Europe and
in emerging markets where there are great opportunities.
• Being one of the most admired companies in our industry.
• Enhancing the value of our stock by managing costs
and risks and by continuing to increase earnings and
shareholder returns.
• Becoming the undisputed leader in professional pre-press
software for labels and packaging.
These goals, always in the context of our customer-first
mission, put us in the winner’s circle in 2004. In fiscal 2005
we will continue on the road to success by seeking to outdo
ourselves yet again – and we invite you to join us once more as
we pursue these same, proven, objectives.
But be warned: we’ve gotten pretty competitive at these speeds,
so don’t be surprised if we kick it up a notch – or two – in 2005 !
You may want to keep that seat belt fastened after all.
Sincerely,
Bart Denoo Guido Van der Schueren Peter Denoo
As a “Member of the Graphic Valley”, Artwork Systems is dedicated to its mission as an industry-leading, global,
pre-production software company to service the needs of the label, packaging, publication, and commercial
color printing markets. Artwork Systems will continue to deliver the “best of all worlds” on all levels, functionality,
productivity, profitability, and growth, for our customers, partners, and shareholders.
MISSION STATEMENT
ARTWORK SYSTEMS @ DRUPA 2004THE INDEPENDENTS
Drupa is the most important exhibition for the graphic arts
industry and is held every four years in Düsseldorf, Germany.
Drupa 2004 took place from May 6 until May 19. This edition
was definitely a success for Artwork Systems. There were
over 3000 visitors on the booth and over 2000 personalized
demonstrations were given. To top it all, there was over three
million euro order intake on the show floor. Although Drupa
is not typically an order intake exhibition, this splendid result
gives Artwork Systems an excellent outlook for strong business
in the next year.
The interest from the visitors was nicely balanced over the
existing and new products, which gives the company an
excellent product market mix to build a strong business on in
the next coming years.
At Drupa, it became equally clear that Artwork Systems has
further strengthened its position in the packaging industry
while the continued efforts to promote the existing and new
products in the commercial and publishing environments now
start to pay off. Over 20 new Odystar systems were sold on the
show floor, with main interest from countries like Germany,
France, and the United States.
Drupa 2004 has indeed put Artwork Systems on a new level
of customer acceptance. But, Digital printing gains more and
more importance as print process and Artwork Systems has
proven at the show that its workflows flawlessly facilitate this
emerging trend, the collaboration with HP-Indigo being the
example. During Drupa, the new connectivity was on display as
a working solution on the HP booth.
At Drupa, Artwork Systems and Kodak Polychrome Graphics
(KPG) announced a strategic partnership under which KPG will
distribute Artwork Systems’ Nexus product line in conjunction
with its own technology. Partnering with KPG helps Artwork
Systems fulfill its mission of providing the best quality solutions
for customers as independent software suppliers.
Enfocus was equally present at Drupa. With a great visibility
over 1000 visitors came to their booth, clearly illustrating the
importance of PDF as preferred format in the graphic arts
industry and beyond.
The general climate at Drupa showed an industry that is
moderately optimistic with a “back to reality” mentality. With
its results during the exhibition, Artwork Systems has proven to
be an important player. In fact, Artwork Systems is a beacon of
stability in a world full of change.
5
From top to bottom:
• Mark Samworth, VP of Technology (US Office), giving a
presentation about the lastest of Artwork Systems’ screening
technologies.
• Visitors get to see samples of actual printed designs,
demonstrating the benefits of our software.
• Mike Rottenborn, VP of Technical Marketing (US Office), during
a personalised demonstration.
• Mark De Mey, Product Specialist Flexocal (Belgian Office).
In 2004, a new edition of both ArtPro and Nexus continues to set the standard in the world of professional
packaging. Version 8 marks without doubt the most innovative upgrade yet to these highly professional prepress
suites from Artwork Systems.
SOFTWARE INNOVATIONS
BREAKING BOUNDARIES
GOODBYE FLATTENING!Supplying PDF software for labels and packaging environments
means more than simply supporting PDF as an input and output
format. Users expect full editability and control over the designs
they import from applications such as Adobe Illustrator CS or
Adobe Acrobat. Any object in a design should always retain its
original settings, such as blend modes, transparencies, glows
or shadows. ArtPro’s new Paint Style pallet can handle them all
with ease.
For the fi rst time in history, every element of a professional
prepress workfl ow is 100% compatible with all the diff erent
kinds and fl avours of PDF: being 1.3, 1.4 and 1.5. In the past, a
PDF containing transparent objects or blend modes had to be
‘fl attened’ to PDF 1.3 in order to deal with it in the workfl ow.
Unfortunately, the original settings of the design were lost in
the process, greatly reducing the possibility to manipulate or
change the contents of a fi le later on. ArtPro and Nexus 8.0
consider transparencies, blend modes and even PDF 1.5 layers
as their second nature.
In a true native PDF workflow, the PDF native RIP (which
uses no fl attening at all) of this 8.0 upgrade will turn out to
be indispensable. Without even considering possible time
penalties, fl attening greatly reduces editability, fl exibility and
reliability of the entire prepress process.
TRACEABILITY, CONSISTENCY, RELIABILITYPDF is here to stay. The format is changing the face of the entire
grapic arts industry. However, because of its huge popularity,
many applications can now read, write, open and sometimes
even edit PDF fi les. This forms a serious threat to fi le exchange
in packaging. What happened to a file since the designer
sent it over to the printer? Who is responsible for that tiny, yet
disastrous, little change in the layout? And are the fi les you
receive ready for print altogether or do they need extra work?
These are questions that face every operator in the world, every
day and again. This is why we have implemented Enfocus’
Certifi ed PDF technology also in ArtPro and Nexus 8.0. We want
our customers to work in confi dence with the PDF format.
4STAGE TRAPPING ArtPro and Nexus 8.0 include the new ‘4Stage’ trapping
technology. This highly modern trapper is similarly fully
compatible with every PDF 1.4/1.5 object in your designs. In
any situation, trapping results will remain editable. This wasn’t
always the case in the past.
JOB DEFINITION FORMATJDF is a technology, based on ‘job tickets’ to describe for
example how to handle a repetition or an imposition. ArtPro
and Nexus 8.0 both can generate, read and use JDF jobtickets.
Just drop a fi le on your workfl ow with JDF and Nexus turns it
into fully ripped proofs, plates or fi lms. Sit back and relax (or use
the extra time to get even more work done)!
ArtPro and Nexus (especially IMPORT and PROCESSOR) have
adopted many small wishes from our customers. These smaller
changes can however make a huge diff erence.
ArtPro and Nexus
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MAJOR LEAP FORWARDOdystar now presents a major leap forward in true system
scaleability, accomodating for any level of workload that has to
go through the system. On all Odystar configurations, the system
can be distributed over any number of hardware stations in a
fully flexible manner, drastically increasing system throughput at
no addditional cost. And for even more demanding production
environments, the Odystar Full Configuration can be equipped
with the MultiGateway Extension, allowing to effectively
duplicate all processing gateways (excluding RIP), meaning that
for a limited investment, the throughput of the system can be
doubled with fully automated load balancing.
WIth the runlist technology introduced in Odystar version 2.0,
one job can now consist of multiple documents, each being
processed independently but automatically collected when
required, such as for imposition purposes or for recreating one
PDF document e.g. to email for approval. This technology greatly
streamlines the automated production workflow as it allows to
setup an imposition job ticket prior to production, even if all the
different source documents are not yet available.
PDF 1.5 NATIVE RIPOdystar 2.0 now equally marks the availability of a true PDF
1.5 native RIP, migrating Artwork Systems’ unrivaled RIPping,
screening and proofing technologies into the Odystar product
line. This RIP is optionally available for all Odystar Configurations,
or can be made available as an Odystar RIP Workflow
configuration, offering next to the RIPping technology, the
ability to verify if incoming PDF files are Certified, JDF based
imposition and sophisticated trapping.
MORE GATEWAYSBased on valuable feedback from existing Odystar 1.0 users,
this new version equally features an impressive set of new
functionality. Depending on the configuration, several new
gateways have been made available, and even more new
gateways will become available in the near future. Additionally
operating Odystar 2.0 is even easier than before, through the
use of a new operator client which only lists the jobs submitted
by that specific operator, or through the ability to simply “print”
to any workflow, just as it would be any regular printer on the
network.
INTEGRATIONOdystar now features tight links into WebWay, Artwork Systems’
secure, cost-effective and internet based communication
platform between print buyer, marketing and production
plant or between departmens within one company. Inside a
user-friendly collaboration space, project managers can create,
view and discuss projects, jobs can be submitted to Odystar
workflows, or results from Odystar can be made available on
the internet through WebWay. Using WebWay, PDF files can be
viewed online and annotated, and projects can be approved.
Odystar 2.0 is clearly the leading workflow solution in the
industry, increasing productivity, reducing costs, and bringing
the automation of pre-press departments to levels previously
unseen. Its ease of use, support of industry standards like PDF
1.5 and JDF, integrated Certified PDF technology and broad and
complete suite of pre-press production tools make Odystar the
preferred workflow solution for commercial applications.
Odystar 2.0
With an unprecedented ease of use and a level of flexibility previously unseen in the industry, the Odystar 1.0
workflow offers an elaborate toolset to automate the typical production work in a pre-press environment.
With version 2.0 even more innovative technology for the Odystar workflow environment is made available for
existing and new users.
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ENFOCUS
In 2004 Enfocus Software maintained and reinforced its world-leading role as a developer of PDF workflow tools.
Enfocus’ engineering objective is centered on the automation of inter-company PDF quality control, reducing the
amount of “live” interaction between print and advertisement vendors and their customers to a strict minimum.
The growth of Enfocus has paralleled the widespread acceptance of PDF-based workflows in the print and
publishing markets over the past few years. The further adoption of Enfocus’ Certified PDF® technology has
proven to be a key driver in making these workflows even more reliable and has had a major impact on Enfocus’
continued success.
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ENFOCUS PDF WORKFLOW SUITEBuilding on the success of its Certified PDF workflow concept,
Enfocus has combined Instant PDF 3, PitStop Professional 6,
PitStop Server 3 and CertifiedPDF.net 2 into the Enfocus PDF
Workflow Suite. Launched at Drupa 2004, the PDF Workflow
Suite gives publishers and printers all the tools needed to set-
up, communicate and implement PDF quality specifications as
well as check and correct incoming PDF files.
INSTANT PDFAlso at Drupa 2004, Enfocus Software unveiled Instant PDF
3, the company’s next step in achieving total PDF quality
management for graphic arts file exchange. Enfocus Instant
PDF 3 moves flawless PDF creation upstream to the document
creator. It removes the uncertainty and technical complexity
from the PDF creation process by producing Certified PDF
files that comply with any print or ad vendors’ specifications.
It closely integrates with industry-leading page layout and PDF
tools Adobe InDesign, QuarkXPress and Adobe Acrobat as well
as the Apple Macintosh OS X operating system.
PITSTOP PROFESSIONAL AND PITSTOP SERVERThe vast majority of our PitStop Professional users purchased
the upgrade from PitStop Professional 6.0 to PitStop Professional
6.1 proving the loyalty of our Enfocus customer base
Enfocus’ geographical expansion is supported by the in
September 2004 announced release of PitStop Professional
6.1J. This release provides the Japanese market with the latest
product benefits and resources. It includes Mac OS X and PDF
1.5 compatibility, Pantone Colour Libraries, generic ICC profiles
and integration with CertifiedPDF.net.
This reach into the Asian market is further supported by the
first-ever Japanese language version of PitStop Server. The
Japanese version of PitStop Server is functionally identical to
the latest version of PitStop Server v3.1, featuring full PDF 1.5
compatibility.
CERTIFIEDPDF.NETEnfocus CertifiedPDF.net, has become the central
communications hub for creators, printers and publishers
seeking reliable, inter-company PDF file exchange and error-
free print production. New to CertifiedPDF.net 2 is automatic
synchronization of Enfocus PDF Queues with Instant PDF 3;
as well as integration functionality allowing CertifiedPDF.net
2 features and benefits to be incorporated into any website.
Printers and publishers can now set up their websites as single,
interactive sources of information about their companies and
its production processes.
OEMIn related news to the Japanese version of PitStop Professional
and PitStop Server, Enfocus Software also announced the release
of a Japanese-language version of PitStop Library, the engine
that is used by its OEM partners to integrate Enfocus editing,
preflight and Certified PDF technology in their workflows
solutions. Furthermore Enfocus announced a new partnership
with VIO. VIO provides managed services for the intelligent
distribution and collaborative management of advertising and
digital media.
At the beginning of the new fiscal year, Artwork Systems
announces strong progress in their ongoing integration with
Enfocus Software. The R & D departments from both companies
will be working more closely together on future product
development. This will enable both firms to better serve the key
business communities serving the graphic arts industry, as well
as the large enterprise market.
Enfocus Software has passed on its presidency of the Ghent
PDF Workgroup and is now part of the Executive Committee.
This close cooperation resulted in new 2004 specifications,
a baseline format for PDF Packaging and the set up of some
additional subcommittees such as the Office Document
Printing subcommittee and the Rip/Output subcommittee.
During the past year 10 new vendors have joined the Ghent
PDF Workgroup amongst others Artwork Systems.
SHAREHOLDERS’ INFORMATION AND INVESTOR RELATIONS
1. Board of Directors
In accordance with Belgian Company Law and the Articles of Association of the Company, the Company is administered by its
Board of Directors, which is granted the broadest powers. The Board is authorized to take any action not expressly reserved to the
shareholders by law or by the Articles of Association.
BOARD OF DIRECTORS
Name Age Position
Guido Van der Schueren 52 Chairman of the Board
Peter Denoo (*) 44 President and CEO
Bart Denoo (until December 3, 2003 and from January 23, 2004) 40 Chief Software Architect
Hildegard Verhoeven (*)(from January 23, 2004) 35 Chief Financial Officer
Ratio Plus, represented by Hubert Ooghe (*) 58 Director
De Bist BVBA, represented by Guido Kestens 64 Director
Advisam NV, represented by Guy M. Warlop (*)(as of December 3, 2003) 66 Director
(*) Member of the Audit Committee and the Remuneration Committee.
Ratio Plus, represented by Mr. Hubert Ooghe, De Bist BVBA , represented by ir. Guido Kestens and Advisam NV represented by ir. Guy
M. Warlop, act as Independent Directors. The members of the Board of Directors can be reached at the Company’s address.
Guido Van der Schueren, a co-founder of the Company, has served as a Managing Director of Artwork Systems Group NV and
its subsidiaries since their incorporation or their acquisition. Mr. Guido Van der Schueren presently is Chairman of the Board. From
1982 to April 1992, Mr. Van der Schueren served in various positions, including Sales and Marketing Director, with DISC NV (now
Barco Graphics NV), a company that develops and markets pre-press systems. From 1974 to 1982, Mr. Van der Schueren was Sales
Manager ‘’Compugraphic’’ with Bonte NV, a distributor of graphic arts equipment. Mr. Van der Schueren received degrees in Graphic
Arts, Education and Marketing.
Ir. Peter Denoo, a co-founder of the Company, has served as a Managing Director of Artwork Systems Group NV and its subsidiaries
since their incorporation or their acquisition. Mr Peter Denoo presently is President and CEO. From 1983 to January 1992, Mr. Peter
Denoo served in various engineering positions, including R&D manager ‘’Digi’’ products, with DISC NV Mr. Peter Denoo received a
degree in Electrical Engineering (Burgerlijk Ingenieur Electrotechniek richting Zwakstroom RUG) and a degree in Computer Science
(Licentiaat Informatica RUG) from the State University of Gent.
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Ir. Bart Denoo, a co-founder of the Company, has served as a Managing Director of Artwork Systems Group NV and several
subsidiaries since their incorporation or their acquisition. Mr. Bart Denoo is presently Chief Software Architect. From 1987 to January
1992, Mr. Bart Denoo served in various engineering positions with DISC NV Mr. Bart Denoo received a degree in Electrical Engineering
(Burgerlijk Ingenieur Electrotechniek richting Zwakstroom RUG) and a degree in Computer Science (“Licentiaat Informatica RUG”)
from the State University of Gent.
Hildegard Verhoeven has served as a director of Artwork Systems Group NV since January 23, 2004. Ms. Verhoeven joined
the Company in February 1998 as Financial Controller. Since January 2001, Ms. Verhoeven serves as Chief Financial Officer. From
1993 to 1998, Ms. Verhoeven served as an auditor with KPMG Bedrijfsrevisoren, an international accounting firm. Ms. Verhoeven
received a degree in Commercial and Financial Sciences from the St. Aloysius College of Brussel (Licenciaat Handels- en Financiële
Wetenschappen EHSAL).
Prof. dr. Hubert Ooghe has served as a director of Artwork Systems Group NV since October 17, 2001. Mr. Ooghe is a professor
(“Buitengewoon Hoogleraar”) at the Vlerick Leuven Gent Management School and at the Gent University, Belgium. Mr. Ooghe is
the author and co-author of many books and articles and is active as a director in several organizations and companies. Mr. Ooghe
received the degree of Doctor in applied economic sciences of the Gent University in 1972.
Ir. Guido Kestens has served as a director of Artwork Systems Group NV since July 08, 2003. He retired, following the rules of the
company, at the age of sixty as General Manager of retailer C&A Belgium-Luxemburg. His main position outside the Company is
the one of Chairman of SD WORX, market leader in payroll services and human resource consultancy. Guido Kestens is active as
Chairman of Red Cross-Flanders, of the KVIV (Koninklijke Vlaamse Ingenieurs Vereniging) and as board member of several companies
and organisations. He received the degree of Master of Science in metallurgical engineering from the Catholic University of Leuven,
a MBA of the IPO Management School and IMD Lausanne.
Ir. Guy M. Warlop has served as a director of Artwork Systems Group NV since December 3, 2003. Mr. Warlop holds an engineering
degree in Metallurgy and a MBA degree of INSEAD.He has been a CEO on European and Belgian level of companies covering
transportation, electrical protection equipment, consumer goods – detergents and food. Mr. Warlop is presently and has been a
board member of a series of companies and non profit organisations and he is the author of a book on the Zaventem airport.
TERMS OF OFFICE. The directors’ term of office will end immediately after the annual General Shareholders’ Meeting of January 2007.
REMUNERATION OF DIRECTORSDuring Financial Year 2004, the Company accrued an aggregate compensation of Euro 70,118 for its directors. In addition, the
managing directors have company cars at their disposal. No stock options, pension plan or other benefits were granted to the
managing directors.
During Financial Year 2004 an aggregate amount of Euro 852,047 was paid to the service companies PowerGraph NV, Ir. Peter
Denoo BVBA, Bart Denoo Engineering BVBA and G.M.F.A. BVBA for the commercial, financial and software development services of
Guido Van der Schueren, Peter Denoo, Bart Denoo and Hildegard Verhoeven.
2. Auditors
The Company’s auditors are Ernst & Young Bedrijfsrevisoren B.C.V, Moutstraat 54, B-9000 Gent, Belgium, represented by
Patrick Rottiers, Partner, who was appointed for a three year term at the extraordinary General Shareholders’ Meeting held on
January 24, 2003.
The consolidated and statutory financial statements of the Company up to September 30, 2004 have been audited by the statutory
auditor of the Company.
3. Information concerning the nature and extent of the trading market
In December 1996, the Company completed an initial public offering, when a total of 16,978,000 shares of the Company (“Shares”)
were admitted to EASDAQ under the symbol “AWSG”.
As a result of the decision of the extraordinary shareholders’ meeting of Nasdaq Europe to discontinue its operations, the decision
has been taken to quote the shares of AWSG on Euronext. Since October 6, 2003 the shares of Artwork Systems Group NV are
traded on Euronext Brussels. The last trading day on Nasdaq Europe was November 7, 2003.
SHARE PRICES In Euro
FY 2004 Low High
First quarter 2004 (ended December 31, 2003) 4.40 7.75
Second quarter 2004 (ended March 31, 2004) 6.99 8.84
Third Quarter 2004 (ended June 30, 2004) 7.41 10.44
Fourth quarter 2004 (ended September 30, 2004) 8.75 11.50
FY 2003 Low High
First quarter 2003 (ended December 31, 2002) 1.20 4.25
Second quarter 2003 (ended March 31, 2003) 1.45 2.20
Third Quarter 2003 (ended June 30, 2003) 1.85 2.95
Fourth quarter 2003 (ended September 30, 2003) 2.50 5.50
FY 2002 Low High
First quarter 2002 (ended December 31, 2001) 5.45 7.05
Second quarter 2002 (ended March 31, 2002) 5.6 7.08
Third Quarter 2002 (ended June 30, 2002) 5.0 5.6
Fourth quarter 2002 (ended September 30, 2002) 2.71 5.0
15
4. Significant shareholders
The following overview is based on the notification received by Artwork Systems Group NV on December 4, 2002.
Stichting Administratiekantoor Artwork Systems (hereafter “the Foundation”) holds an aggregate of 12,546,825 Shares, representing
73.59% of the Company’s Shares.
The Foundation was incorporated by Guido Van der Schueren, Peter Denoo and Bart Denoo (the “Founders”) under the laws of the
Netherlands on November 21, 1996.
THE COMPANY’S SIGNIFICANT SHAREHOLDERS
Identity of the Shareholder Number of financial instruments held Percentageof financial Instruments held
Stichting Administratiekantoor Artwork Systems 12,546,825 73.59%
(1) Abacus Holding NV 236,767 1.39%
(2) Graphicus NV 87,333 0.51%
Total 12,870,925 75.50%
(1) As a result of the dissolution of Abacus Holding NV, its legal successors, Kroy Finance Corporation BVBA and Widmer Development Corporation Bvba each hold 50% of the financial instruments formerly held by Abacus Holding NV.
(2) As a result of the dissolution of Graphicus NV, its legal successor, Parana Management Corporation BVBA holds the financial instruments formerly held by Graphicus NV.
5. Dividends
The following table sets forth the dividends paid during the years ended September 30, 2004, 2003 and 2002.
During 2004 a “double” dividend was paid since no dividend was distributed during 2003.
DIVIDENDS PAIDYears ended September 30
Financial year Per share Total dividend
2004 0.50 8,524,325
2003 0 0
2002 0.22 3,749,196
6. Current Structure of Artwork Systems Group
Artwork Systems Group N.V. has twelve subsidiaries. It owns, directly or indirectly, all issued shares of Artwork Systems N.V. (the
“Belgian Subsidiary”), Artwork Systems Inc., Artwork Systems GmbH & Co. KG, Artwork Systems Beteiligungs-GmbH, Artwork
Systems Verwaltungs-GmbH, Artwork Systems Ltd, Artwork Systems SA, AWSG Limited, Enfocus NV, Enfocus Inc, Dimensional CAD/
CAM Systems Inc and DI Asia.
Artwork Systems Group NV
Artwork SystemsVerwaltungs Gmbh
Artwork SystemsGmbh & Co KG
AWSG LimitedArtwork Systems SA Artwork Systems LtdArtwork Systems IncArtwork Systems Beteiligungs GmbhArtwork Systems NV
Dimensional CAD/CAM Systems Inc
DI AsiaEnfocus Inc
Enfocus NV
17
ARTWORK SYSTEMS NV
Seat of company Handelsdokcenter, Stapelplein 70/300, Gent, B-9000 Gent, Belgium
Field of activity Development, sales and support of software for printing industry
Year of Incorporation 1992Share capital 74,368 EuroManaging Director(s) Guido Van der Schueren, Peter Denoo,
Bart Denoo and Hildegard VerhoevenOwnership percentage 100%Number of Employees 71
ARTWORK SYSTEMS INC.
Seat of company 1209 Orange Street, Wilmington, Delaware 19801, USA
Field of activity Sales and support of software for printing industry
Year of Incorporation 1996Share capital 50,000 USD (not paid up)Managing Director(s) Guido Van der Schueren, Peter Denoo
and Bart DenooOwnership percentage 100%Number of Employees 42
ARTWORK SYSTEMS GMBH & CO. KG
Seat of company Burkheimerstraße 3, 79111 Freiburg, Germany
Field of activity Sales and support of software for the printing industry
Year of Incorporation 1994Share Capital 51,129 EuroManaging Director(s) Guido Van der Schueren, Peter Denoo,
Christopher Graf and Peter GanzOwnership percentage 100%Number of Employees 21
AWSG LIMITED
Seat of company Wilton Park House, Wilton Place, Dublin 2
Field of activity Development and sales of software for printing industry
Year of Incorporation 1999Share Capital 3 EuroManaging Directors Peter Denoo and Guido Van der
SchuerenOwnership percentage 100%Number of Employees 7
DIMENSIONAL CAD/CAM SYSTEMS INC
Seat of company 16000 Ventura Blvd, Suite 910, Encino, CA 91436, USA
Field of activity Development, sales and support of software for the CAD market
Year of Incorporation 1993Share Capital 250,000 USD Managing Directors Peter Denoo and Guido Van der
SchuerenOwnership percentage 100%Number of Employees 12
ARTWORK SYSTEMS BETEILIGUNGS-GMBH
Seat of company Burkheimerstraße 3, 79111 Freiburg, Germany
Field of activity Holding companyYear of Incorporation 1998Share capital 51,129 Euro (+766,938 Euro
Kapitalrucklage)Managing Director(s) Guido Van der Schueren and Peter
DenooOwnership percentage(s) 100%Number of Employees none
ARTWORK SYSTEMS LTD.
Seat of company 100, New Bridge Street, London EC4 6JA
Field of activity Development, sales and support of software for printing industry
Year of Incorporation 1999Share Capital 1,000 GBPManaging Directors Peter Denoo and Guido Van der
SchuerenOwnership percentage 100%Number of Employees 21
ARTWORK SYSTEMS SA
Seat of company Paris Nord II, 47 Allée des Impressionistes, 93420 Villepinte, France
Field of activity Sales and support of software for printing industry
Year of Incorporation 1999Share Capital 851,626 EuroManaging Directors) Peter Denoo and Guido Van der
SchuerenOwnership percentage 100%Number of Employees 12
ENFOCUS SOFTWARE NV
Seat of company Antwerpsesteenweg 41-45, 9000 GentField of activity Development and sales of software
for the PDF marketYear of Incorporation 1993Share Capital 1,237,000 Euro Managing Directors Peter Denoo, Bart Denoo and Guido
Van der SchuerenOwnership percentage 100%Number of Employees 34
ENFOCUS SOFTWARE INC
Seat of company 3, Water Park Drive, Suite 210, San Mateo, CA 94403, USA
Field of activity Sales of software for the PDF marketYear of Incorporation 1998Share Capital 50,000 USD Managing Directors Peter Denoo, Bart Denoo and Guido
Van der SchuerenOwnership percentage 100%Number of Employees 7
DIMENSIONAL IMPRESSIONSResearch and Development 4 Sales and Marketing 4 Support 1 General and Administrative 3 12 staff
TOTAL WORLDWIDEResearch and Development 57 Sales and Marketing 74 Support 64 General and Administrative 32 227 staff
ARTWORK SYSTEMSResearch and Development 37 Sales and Marketing 54 Support 57 General and Administrative 26 174 staff
ENFOCUSResearch and Development 16 Sales and Marketing 16 Support 6 General and Administrative 3 41 staff
UNITED STATES
Artwork SystemsResearch and Development 1 Sales and Marketing 23 Support 13 General and Administrative 5 42 staff
EnfocusSales and Marketing 6Support 1 7 staff
Dimensional ImpressionsResearch and Development 2 Sales and Marketing 3 Support 1 General and Administrative 3 9 staff
MEXICOSales and Marketing 1 Support 1 2 staff
IRELANDResearch and Development 7 7 staff
UNITED KINGDOMResearch and Development 9 Sales and Marketing 3 Support 6 General and Administrative 3 21 staff
BRAZILSupport 1 1 staff
AUSTRALIASales and Marketing 1Support 1 2 staff
SINGAPORESupport 1 1 staff
JAPANDimensional ImpressionsResearch and Development 2 Sales and Marketing 1 3 staff
FRANCESales and Marketing 3 Support 6 General and Administrative 3 12 staff
GERMANYSales and Marketing 6 Support 11 General and Administrative 4 21 staff
BELGIUM
Artwork SystemsResearch and Development 20 Sales and Marketing 17 Support 17 General and Administrative 11 Total 65 staff
EnfocusResearch and Development 16 Sales and Marketing 10 Support 5 General and Administrative 3 34 staff
2004FINANCIAL STATEMENTS
1. Selected Summary Financial Data
The selected financial data presented below has been extracted and derived from the consolidated financial statements
of Artwork systems Group N.V.
YEARS ENDED SEPTEMBER 30
In Euro
2004 2003 2002
Net revenue 47,136,330 44,098,201 45,889,312
Cost of revenues 8,131,052 7,902,504 8,242,766
Gross margin 39,005,278 36,195,696 37,646,545
Operating expenses
Research and development 4,842,907 4,357,055 4,229,756
Sales and marketing 13,147,096 12,208,895 13,047,851
General and administrative 2,559,773 2,723,226 2,642,027
Depreciation 643,919 678,154 662,940
(*) Income from operations 17,811,583 16,228,367 17,063,972
Non-operating expenses 151,064 190,225 252,578
Non-operating income 0 0 252,062
Financial income (expense) -268,647 -1,049,975 -606,142
(*) Profit before income taxes 17,391,872 14,988,167 16,457,314
Provision for income taxes 4,741,116 4,603,425 4,976,048
Settlement of the tax claim 0 12,005,863 0
(*) Net income/(loss) 12,650,757 -1,621,121 11,481,266
(**) Amortization of goodwill 714,733 1,098,170 5,658,261
Net income/(loss) after goodwill 11,936,023 -2,719,291 5,823,005
(*) before amortization of goodwill and other intangibles from acquisitions(**) and other intangibles from acquisitions
YEARS ENDED SEPTEMBER 30In Euro
2004 2003 2002
Cash and cash equivalents 22,613,121 21,341,962 9,883,464
Accounts receivable 10,075,493 8,787,131 11,712,653
Goodwill 8,268,839 8,428,792 10,287,411
Settlement of the tax claim 0 12,005,863 0
Shareholders’ equity 30,258,625 27,335,450 31,447,989
INTRODUCTION TO THE
CONSOLIDATED FINANCIAL STATEMENTS
Income Statement
Balance Sheet
23
2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
The following discussion and analysis is based on the audited consolidated financial statements of Artwork Systems Group N.V. and
its subsidiaries (“the Group”) for the year ended September 30, 2004.
Definitions are as follows:
Artwork Systems Group NV and its subsidiaries: “The Group”
Artwork Systems Group NV: “The Company”
Artwork Systems subsidiaries: “Artwork Systems”
Artwork Systems develops and markets software for pre-press and provides training and support for these products. Artwork
Systems’ most important products are:
ArtPro, the interactive editing program for high-end pre-press production with dedicated modules to further optimize the
program towards specific markets in packaging, labels, commercial color and publishing.
Nexus, the workflow management system for automated production, born from the integration of the former workflow
products ArtFlow, PageFlow and PackFlow.
WebWay, allows for internet based communication between print-buyers and production sites through standard internet
browsers.
Odystar, born from the synergy between Artwork Systems’ workflow technology and Enfocus’ PitStop and Certified PDF
technologies, is a highly automated pre-press workflow solution based on PDF 1.5.
Artwork Systems generally sells software only, except for the RIPs (Raster Image Processor) which are sometimes sold together with
the hardware they run on. Artwork Systems offers its customers an annual maintenance contract, that includes telephone support
and minor software updates.
Artwork Systems sells its products directly to end-users in the most important countries and through specialized distributors
in the rest of the world. The Group also sells through OEMs to specific markets. The direct sales area now consists of Belgium,
the Netherlands, Germany, Austria, Switzerland, North America, Canada, the United Kingdom, France, Brazil, Australia and some
countries in South-East Asia.
Enfocus develops software for the PDF market. PDF was developed by Adobe Inc. and continues to evolve into the standard
format in the digital printing and publishing market. The format is also an important standard for the Internet e-paper community.
Enfocus publishes the #1 PDF production tools for powerful, rapid and accurate flow of PDF documents in graphic arts, enterprise
(electronic paper) and internet markets.
Dimensional CAD/CAM Systems Inc., dba Dimensional Impressions, develops software for the CAD and enterprise software for the
corrugated and folding carton markets.
Artwork Systems has offices in Gent (Belgium), Freiburg (Germany), Bristol (Pennsylvania, US), Redditch and Cheltenham (UK), Paris
(France), Limerick (Ireland), San Mateo and Los Angeles (California, US). The Company’s headquarters are located in Belgium. Total
staff is 227.
2.1 FINANCIAL REPORTING CONSIDERATIONS
The Company reports its consolidated financial statements in accordance with generally accepted accounting principles in the
United States (US GAAP).
The reporting currency is the Euro. For subsidiaries outside the Euro-zone, assets and liabilities are translated at exchange rates in
effect at the end of the reporting period, and revenues and expenses are translated at the exchange rate during the period. Equity
is translated at historic exchange rates. Gains and losses resulting from these translations are reflected in “other comprehensive
income”, a component of shareholders’ equity in the balance sheets.
Exchange rates (USD/EUR) applied in the financial statements are as follows:
EXCHANGE RATES USD/EURrounded to 4 digits
Period Income Statement (average rate) Balance Sheet (end of period rate)
Financial Year 2004 1.2181 1.2409
Financial Year 2003 1.0839 1.1652
Financial Year 2002 0.9190 0.9860
Amounts not derived from the consolidated financial statements and included in this “Management’s Discussion and Analysis” are
translated at historic exchange rates.
2.2 RESULTS OF OPERATIONS
Key figures for the year, expressed as a percentage of net revenue, compare with last year’s figures as follows:
YEARS ENDED SEPTEMBER 30in percentages of net revenue
2004 2003 2002
Cost of Revenues 17.2% 17.9% 18.0%
Gross Margin 82.8% 82.1% 82.0%
Research and Development 10.3% 9.9% 9.2%
Sales and Marketing 27.9% 27.7% 28.4%
General and Administrative 5.4% 6.2% 5.8%
(*) Depreciation and Amortization 1.4% 1.5% 1.4%
(*) Operating Margin 37.8% 36.8% 37.2%
Non-operating expenses 0.3% 0.4% 0.6%
(*) After Tax Margin 26.8% -3.7% 25.0%
(*) before amortization of goodwill and other intangibles from acquisitions
25
The following table compares income statement data with last year:
YEARS ENDED SEPTEMBER 30, 2003 AND 2004
% increase
Revenue 6.9%
Revenue from products 6.3%
Revenue from services 8.6%
Cost of revenues 2.9%
Gross margin 7.7%
Research and development 11.2%
Sales and marketing 7.7%
General and administrative -6.0%
Depreciation and amortization 5.0%
(*) Income from operations 9.8%
Net income after amortization 538.9%
(*) before amortization of goodwill and other intangibles from acquisitions
2.3 NET REVENUES
The Group’s net revenue has increased by 6.9% from the year ended September 30, 2003 to the year ended September 30, 2004.
The decrease of the USD has a negative impact of 5% on net revenue.
Revenue from services consist of maintenance contracts and training. As the amount of seats installed increases, the revenue from
maintenance contracts grows and provides the Company with a source of recurring revenue.
The percentages of net revenues for each major regional market were as follows:
YEARS ENDED SEPTEMBER 30in percentages of net revenue
2004 2003 2002
Europe 51% 48% 48%
Americas 43% 46% 45%
Asia 4% 4% 5%
Rest 2% 2% 2%
2.4 COST OF REVENUES
For software sales, cost of revenues consists of the costs of the software protection keys, printing costs for the user’s manuals and
license fees payable to Pantone and Scitex. For RIP sales, cost of revenues also includes the cost of the computer that runs the RIP
software. The cost of revenues can be significantly influenced by the number of computers sold together with the software.
For services the cost of revenues primarily consists of salaries and related costs for the product specialists that provide training and
telephone support.
The cost of revenues for Enfocus products consists of the costs packaging and royalties. The cost of revenues services consists of
salaries and related costs for the product specialists that provide support.
The cost of revenues for Dimensional Impressions consists of hardware and cutting tables. The cost of revenues services consists of
salaries and related costs for the product specialists that provide telephone support.
2.5 OPERATING EXPENSES
Research and development expenses consist primarily of compensation and related costs. Sales and marketing expenses consist of
salaries, travel, participation in trade shows and bad debt provision. General and administrative expenses consist of compensation
and related expenses, and consulting and professional fees.
The increase in research & development expenses is related to the number of people employed for software development. The
expansion of its research & delevopment capacity is inspired by the Company’s commitment to continuously invest in new products
and maintaining and optimizing existing products.
The evolution in Sales & Marketing expenses is mainly related to the number of people employed, the provisions for bad debt and
Drupa (see below).
The collectibility of trade receivables is evaluated based on a combination of factors. When a certain customer is unable to meet its
financial obligations, such as bankruptcy or the deterioration of its financial position, a reserve for bad debt is recorded to reduce
the related receivable to the amount which is reasonably collectible.
Reserves for bad debt are recorded for other customers based on a variety of factors including the length of time the receivables
are past due and historical experience.
If circumstances related to specific customers change, the reserve is adjusted accordingly.
2.6 NON OPERATING INCOME AND EXPENSE
Non-operating expenses relate to the expenses incurred for legal and other fees related to the tax claim.
2.7 FINANCIAL INCOME AND EXPENSE
Interest income relates to interest and other income received on cash and cash equivalents.
Exchange gains/losses includes realized and unrealized exchange differences based on the translation of foreign currencies to the
Euro.
27
2.8 FOREIGN CURRENCY EXCHANGE RATE RISK
The Company is exposed to foreign currency exchange rate risk inherent in its business. The Company conducts its business
wordwide and transactions not denominated in Euro are sensitive to foreign currency exchange rate risks. The most important
foreign currency is the USD. For the USD the Company is a net receiver and therefore benefits from a strong USD.
2.9 TAX RATE
Since the company operates in countries with different tax rates, the average tax rate may vary from quarter to quarter and from
year to year depending on the relative importance in the profit of those different countries.
As of October 1, 2003, the Belgian entities in the Group benefit from the new and lower tax rate in Belgium (33.99% instead of
40.17%).
2.10 GOODWILL AND OTHER INTANGIBLES FROM ACQUISITIONS
Company Acquired as of Goodwill Amortization period
PCCCompetitor in the United States August 28, 1998 USD 10,347,792 none (*)
Enfocus Software Developer of PDF software technology April 25, 2000 Euro 10,548,417 none (*)
Dimensional CAD/CAMDeveloper of CAD/CAM technology December 6, 2001 USD 919,766 none
(*) Goodwill from the acquisitions of PCC and Enfocus has been amortized until September 30, 2002 and since October 1, 2002 tested for impairment annually or when events or circumstances occur that indicate that goodwill might be impaired.
The purchase agreement for PCC contains an adjustment mechanism (based on the amount of working capital at the date of the
acquisition) as well as an earn-out mechanism (based on the EBITDA amounts for financial years 1999 and 2000). Goodwill resulting
from the acquistion from PCC has increased with USD 2,410,835 at September 30, 1999 and at September 30, 2000 with USD 737,629
as a result of the earn-out mechanism.
The purchase agreement for Enfocus contains an earn-out mechanism based on the consolidated revenue from both Enfocus
Entities. In the third quarter of 2001, the final earn-out has been determined at Euro 3,075,865. This amount has been added to
goodwill in the balance sheet.
On December 6, 2001, the Company acquired all the shares of Dimensional CAD/CAM Systems Inc, dba Dimensional Impressions
for USD 2,000,000. This acquisition adds new software to the product line of the Company (a former “missing link”) and increases its
commitment to the packaging industry. The purchase price is a multiple of EBITDA at the time of the acquisition (5.3 times EBITDA)
and contains an earn-out mechanism based on EBITDA for the calendar years 2002 and 2003. The total earn-out will not exceed
2,000,000 USD.
For calendar years 2002 and 2003, the required EBITDA had not been achieved and as a consequence no earn-out was payable.
The purchase price also contained an adjustment mechanism stating that a portion of the purchase price, 100,000 USD, is repayable
by the sellers if the Company does not achieve a certain EBITDA for 2001. Under this mechanism 100,000 USD has been repaid by
the sellers in April 2002.
In accordance with FAS 141 and FAS 142, the goodwill for the above mentioned acquisitions is not being amortized but is reviewed
annually for impairment.
Independent valuations were obtained to determine the fair value of the net assets acquired and to allocate the purchase price.
The value of the intangibles acquired have been determined as follows:
Company Acquired as ofIntangibles
other than Goodwill Amortization period
Enfocus Software Developer of PDF software technology April 25, 2000 Euro 2,675,000 54 months
Dimensional CAD/CAMDeveloper of CAD/CAM technology December 6, 2001 USD 927,080 2 – 3 years
2.11 DRUPA
From May 6 till 19, 2004 the Company participated at Drupa, the world’s largest exhibition for the graphical market, which takes
place every four years at Düsseldorf, Germany. At the exhibition there was both a very strong interest in the existing products and
new products were introduced. Over 3,000 visitors were noted on the booth.
Over 1,000 visitors came to the Enfocus’ booth. This clearly demonstrates that the importance of PDF for the graphic arts industry
and beyond is growing.
The impact on Drupa on the sales and marketing expenses for the year amounts to 546.978 Euro. This includes the booth, marketing
expenses, printed matter and travel and lodging of employees.
2.12 LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004, the Group had Euro 22,613,121 of cash and cash equivalents. These funds are invested in short-term bank
deposits. The Group had no debt towards its bank at September 30, 2004.
At September 24, 2004 the Group distributed a dividend of Euro 0.50 gross per share. Since the paying agent did not debit any
amounts before September 30, 2004, the total amount of the dividend of Euro 8,524,325 is recorded as a payable on the balance
sheet.
Management believes that it will be able to satisfy the Group’s operating cash requirements for the foreseeable future from cash
flow operations and short term borrowings.
2.13 RELATED PARTY RECEIVABLE
During the year ended September 30, 2003, the Company granted a loan of Euro 1,000,000 to Graphicus NV, a company of which
Guido Van der Schueren is a director, for a period of 18 months and at an interest rate of 4.35%.
The loan, including the accrued interest of Euro 66,544, has been repaid by the debtor at September 27, 2004.
29
2.14 TAX CLAIM
At September 14, 2004, the Court of Appeal of Ghent ratified the settlement dd. 19 December 2003 between Artwork Systems
Group NV and the Special Tax Inspection regarding the tax dispute concerning the acquisition of the shares in Artwork Systems NV.
Earlier the Court of First Instance had ruled in favor of the Belgian State. The parties,however, concluded a settlement, subject to
its ratification by the Court of Appeal of Ghent, whereby Artwork Systems Group NV would pay a total tax of Euro 12,005,863. As a
result of the ratification of the settlement by the Court of Appeal of Ghent, the taxdispute has ended definitely. The company has
withdrawn its appeal pending before the Council of State regarding the annulment of the opinion 126/17 of the Commission for
Accounting Standards.
The amount of Euro 12,005,863 has been paid at September 30, 2004.
2.15 RESEARCH & DEVELOPMENT EXPENSES
During the year ended September 30, 2004, Research & Development expenses of Euro 4,842,907 were included in operating
expenses.
2.16 CHANGES IN COMMON STOCK
No changes in common stock took place during the year ended September 30, 2004.
2.17 FEES TO AFFILIATED COMPANIES TO THE STATUTORY AUDITOR
During financial year 2004, The Company paid Euro 107,619 to companies that are affiliated to our statutory auditor.
CONSOLIDATED FINANCIAL STATEMENTSIN ACCORDANCE WITH U.S. GAAP
31
1. Independent Auditor’s Report
TO THE SHAREHOLDERS’ MEETING OF ARTWORK SYSTEMS GROUP NV
In accordance with legal and regulatory requirements, we are pleased to report to you on the performance of the audit mandate,
which you have entrusted to us.
We have audited the consolidated financial statements as of and for the year ended September 30, 2004, which have been prepared
under the responsibility of the board of directors and are prepared in accordance with accounting principles generally accepted in
the US and show a balance sheet total of 47.479.311,00 EUR and a consolidated profit for the year of 11.936.023,00 EUR. We have also
examined the consolidated directors’ report, for compliance with the Belgian Company Code.
Unqualified audit opinion on the consolidated financial statements
We conducted our audit in accordance with the standards of the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement.
In accordance with those standards, we considered the group’s administrative and accounting organisation, as well as its internal
control procedures. We have obtained explanations and information required for our audit. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing
accounting principles used, the basis for consolidation and significant accounting estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion the consolidated financial statements give a true and fair view of the group’s assets, liabilities, consolidated financial
position as of September 30, 2004 and the consolidated results of its operations for the year then ended, in accordance with
accounting principles generally accepted in the United States of America.
Other certification and information
We supplement our report with the following certification (and information) which do not modify our audit opinion on the
consolidated financial statements:
• The consolidated directors’ report, referred to as Management’s discussion and analysis, contains the information required by
the Belgian Company Code and is consistent with the consolidated financial statements.
• As has been indicated, under a special derogation obtained form the Ministry of Economy, the consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the US and the regulations of the Seventh
Directive have been complied with.
Antwerp, December 2, 2004
Ernst & Young Reviseurs d’Entreprises SCC (B 160)
Statutory auditor, represented by Patrick Rottiers, Partner
2. Consolidated Balance Sheets
YEARS ENDED SEPTEMBER 30In Euro
2004 2003 2002
Current Assets
Cash and Cash Equivalents 22,613,121 21,341,962 9,883,464
(*) Accounts Receivable 10,075,493 8,787,131 11,712,653
Value Added Taxes 398,897 276,947 216,266
Other Current Assets 791,562 634,822 469,716
Related party receivable 0 1,023,769 0
Inventory, net 488,824 808,240 1,331,961
Deferred Tax Asset, net 845,528 884,359 1,334,088
35,213,425 33,757,230 24,948,148
Property and Equipment, net 1,519,347 1,266,504 1,193,126
Prepaid License Costs 584,197 695,821 874,167
Intangible Assets, net 99,299 852,478 544,424
Goodwill, net 8,268,839 8,428,792 10,287,411
Non- current Deferred Tax Asset 1,794,203 2,173,878 2,460,401
Total Assets 47,479,311 47,174,703 40,307,676
Current Liabilities
Dividend Payable 8,524,325 0 0
Accounts Payable 1,064,593 1,020,204 1,253,313
Related Party Payable 91,756 77,885 77,220
Accrued Payroll and Related Taxes 1,316,843 1,112,684 944,987
Accrued License Fees 0 9,640 2,496
Accrued Fees and Other Expenses 1,444,280 1,337,197 1,637,694
Income Taxes Payable 606,955 667,328 1,499,083
Settlement of the tax claim 0 12,005,863 0
Deferred Income 3,611,370 3,247,189 3,141,717
Deferred Tax Liability 542,508 323,984 119,944
Other Amounts Payable 18,056 37,279 183,233
17,220,686 19,839,253 8,859,687
Shareholders’ Equity
(**) Common Stock 6,871,544 6,871,544 6,871,544
Additional Paid-in Capital 548,545 548,545 548,545
Retained Earnings, restricted 993,994 888,303 802,825
Retained Earnings, unrestricted 31,009,318 19,178,986 25,732,950
Dividend Paid Out -8,524,325 0 -3,749,196
Other Accumulated Comprehensive Income -640,451 -151,929 1,241,320
30,258,625 27,335,450 31,447,988
Total Liabilities and Shareholders’ Equity 47,479,311 47,174,703 40,307,676
(*) net of allowance for uncollectible amounts of Euro 1,047,281, Euro 1,293,939 and Euro 2,128,819 at Sept 30, 2004, 2003 and 2002 respectively(**) no par value, 17,048,650, 17,048,650 and 17,048,650 shares authorized and outstanding at Sept 30, 2004, 2003 and 2002 respectively
Assets
Liabilities and Shareholders’
Equity
33
3. Consolidated Income Statements
YEARS ENDED SEPTEMBER 30In Euro, except per share data
2004 2003 2002
Net Revenue
Products 34,477,203 32,441,180 35,950,652
Services 12,659,127 11,657,021 9,938,660
47,136,330 44,098,201 45,889,312
Cost of Revenues
Products 3,652,683 3,515,679 3,963,759
Services 4,478,369 4,386,825 4,279,007
8,131,052 7,902,504 8,242,766
Gross Margin 39,005,278 36,195,696 37,646,546
Operating Expenses
Research and Development 4,842,907 4,357,055 4,229,756
Sales and Marketing 13,147,096 12,208,895 13,047,851
General and Administrative 2,559,773 2,723,226 2,642,027
Depreciation 643,919 678,154 662,940
Amortization 714,733 1,098,170 5,658,261
21,908,428 21,065,499 26,240,835
Income from Operations 17,096,850 15,130,197 11,405,711
Non-operating Expenses 151,064 190,225 252,578
Non-operating Income 0 0 252,062
Financial Income 434,494 180,202 100,943
Financial Expense 13,341 28,854 74,672
Net Exchange Gain/(loss) -689,800 -1,201,323 -632,413
Profit before Income Taxes 16,677,139 13,889,997 10,799,053
Provision for Income Taxes 4,741,116 4,603,425 4,976,048
Settlement of the tax claim 0 12,005,863 0
Net Income 11,936,023 -2,719,291 5,823,005
Net Income excl Amortization 12,650,757 -1,621,121 11,481,266
Basic/diluted earnings per Share 0.70 -0.16 0.34
Basic/diluted earnings per Share, before amortization 0.74 -0.10 0.67
4. Consolidated Statements of Shareholders’ Equity
Common stock
shares
Common stock
amount
Additional paid
in capitalRetained earnings
Accumulated other
comprehensive income
Total shareholders’
equity
Balances, September 30, 2003 17,048,650 6,871,544 548,546 20,067,289 -151,929 27,335,450
Exercise of employee stock options 0 0 0 0 0 0
Employee stockholders plan net 0 0 0 0 0 0
Components of comprehensive income
Foreign currency translation 0 0 0 0 -488,522 -488,522
Net income/(loss) 0 0 0 11,936,023 0 11,936,023
Total comprehensive income 0 0 0 11,936,023 -488,522 11,936,023
Dividend paid out 0 0 0 -8,524,325 0 -8,524,325
Balances, September 30, 2004 17,048,650 6,871,544 548,546 23,478,987 -640,451 30,258,625
Balances, September 30, 2002 17,048,650 6,871,544 548,546 22,786,579 1,241,320 31,447,989
Exercise of employee stock options 0 0 0 0 0 0
Employee stockholders plan net 0 0 0 0 0 0
Components of comprehensive income
Foreign currency translation 0 0 0 0 -1,393,249 -1,393,249
Net income/(loss) 0 0 0 -2,719,291 0 -2,719,291
Total comprehensive income 0 0 0 -2,719,291 -1,393,249 -4,112,540
Dividend paid out 0 0 0 0 0 0
Balances, September 30, 2003 17,048,650 6,871,544 548,546 20,067,289 -151,929 27,335,450
Balances, September 30, 2001 17,041,800 6,868,390 535,080 20,712,770 2,417,270 30,533,511
Exercise of employee stock options 6,850 3,154 242 0 0 3,396
Employee stockholders plan net 0 0 13,224 0 0 13,224
Components of comprehensive income
Foreign currency translation 0 0 0 0 -1,175,950 -1,175,950
Net income/(loss) 0 0 0 5,823,005 0 5,823,005
Total comprehensive income 0 0 0 5,823,005 -1,175,950 4,647,055
Dividend paid out 0 0 0 -3,749,196 0 -3,749,196
Balances, September 30, 2002 17,048,650 6,871,544 548,546 22,786,579 1,241,320 31,447,989
2004
2003
2002
35
5. Consolidated Statements of Cash Flows
5.1 OPERATING ACTIVITIES
YEARS ENDED SEPTEMBER 30
In Euro
2004 2003 2002
Net Income 11,936,023 -2,719,291 5,823,005
Adjustments to reconcile Net Income to Net Cash provided by Operating Activities
Deferred taxes 494,380 463,056 -908,842
Depreciation and Amortization 1,358,651 1,776,324 6,321,324
(Gain)/Loss on Sale of Equipment -19,681 -33,829 -21,105
Provision for Losses on Accounts Receivable 134,669 -125,021 1,217,858
Compensation Expense (ESOP) 0 0 13,224
Changes in Operating Assets and Liabilities
Accounts Receivable -1,664,907 2,146,175 3,204,769
Prepaid Taxes 297,998 -275,983 415,467
Prepaid license costs 98,228 -88,953 -462,980
Other intangibles 28,460 104,037 0
Value Added Taxes 43,996 -65,397 52,049
Other Current Assets -525,595 -684,331 -208,661
Inventory 252,888 177,213 -477,209
Accounts Payable 172,626 6,323 -640,785
Accrued Payroll and Related Taxes 206,057 181,496 -223,187
Accrued License Fees -9,640 7,144 -14,843
Accrued Fees and Other Expenses 146,774 -159,755 -228,670
Income Taxes Payable -360,812 -556,503 221,111
Settlement of the tax claim -12,005,863 12,005,863 0
Deferred Income 548,881 -791,316 -826,596
Other current liabilities 139,539 2,263,853 1,216,538
Net Cash provided by Operating Activities 1,272,672 13,631,105 14,472,467
5.2 INVESTING ACTIVITIES
YEARS ENDED SEPTEMBER 30
In Euro
2004 2003 2002
Purchases of Property and Equipment -921,430 -830,026 -734,392
Proceeds from Sales of Equipment 32,867 68,718 76,682
Investment In Dimensional CAD/CAM Systems Inc 0 0 -2,028,041
Net Cash used in Investing Activities -888,563 -761,308 -2,685,751
Free operating cash flow 384,109 12,869,797 11,786,716
5.3 FINANCING ACTIVITIES
YEARS ENDED SEPTEMBER 30
In Euro
2004 2003 2002
Exercise of stock options for cash 0 0 3,397
Dividend payment 0 0 -3,749,196
Short term debt from bank 0 0 -2,610,000
Related party Loan 1,023,769 -1,023,769 0
Net Cash used in and provided by Financing Activities 1,023,769 -1,023,769 -6,355,799
Effect of Exchange Rate Changes on Cash -136,719 -387,530 -106,991
Net Increase (Decrease) in Cash and Cash Equivalents 1,271,159 11,458,498 5,323,926
Cash and Cash Equivalents at Beginning of Period 21,341,962 9,883,464 4,559,537
Cash and Cash Equivalents at End of Period 22,613,121 21,341,962 9,883,463
Taxes Paid 3,193,841 5,139,251 4,417,938
Intrest paid 13,341 28,854 67,111
37
6. Notes to the Consolidated Financial Statements
6.1 ORGANIZATION & DESCRIPTION OF BUSINESS
Artwork Systems Group NV was incorporated on November 20, 1996 as a naamloze vennootschap, or limited liability Company,
under the laws of the Kingdom of Belgium to develop software for pre-press applications in the graphic arts industry. The
Company’s shares began trading publicly on NASDAQ Europe (formerly EASDAQ), December 9, 1996. As a result of the decision of
the extraordinary shareholders’ meeting of Nasdaq Europe to discontinue its operations, the decision has been taken to quote the
shares of AWSG on Euronext. Since October 6, 2003 the shares of Artwork Systems Group NV are traded on Euronext Brussels. The
last trading day on Nasdaq Europe was November 7, 2003.
The Company is 73.59% owned by Stichting Administratiekantoor Artwork Systems (the Foundation), a holding company
incorporated under the laws of the Netherlands on November 21, 1996. The Foundation’s role is exclusively to function as a vehicle
for holding shares of the Company and is not entitled to carry out any other activities.
6.2 ACQUISITIONS
Artwork Systems Group NV and its consolidated subsidiaries are hereafter referred to as ‘the Group’.
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill
and Other Intangible Assets” (“FAS 141” and “FAS 142”, respectively). The Company adopted FAS 141 and FAS 142 on October 1, 2002
when its new fiscal year began.
In accordance with SFAS No. 141, the Company allocates the purchase price of our acquisitions to the tangible assets, liabilities and
intangible assets acquired, based on their estimated fair values. The excess purchase price over those fair values is recorded as
goodwill. In accordance with SFAS No. 142, goodwill and purchased intangible assets with indefinite useful lives acquired after June
30, 2001 are not amortized but will be reviewed at least annually for impairment. Purchased intangible assets with finite lives are
amortized on a straight-line basis over their respective estimated useful lives.
YEAR ENDED SEPTEMBER 30, 2004No acquisitions took place during the year ended September 30, 2004.
YEAR ENDED SEPTEMBER 30, 2003No acquisitions took place during the year ended September 30, 2003.
YEAR ENDED SEPTEMBER 30, 2002On December 6, 2001, Artwork Systems Inc acquired all the shares of Dimensional CAD/CAM Systems Inc, dba Dimensional
Impressions for USD 2,000,000 cash. The purchase price was based on a multiple of EBITDA (earnings before interest, taxes,
depreciation and amortization) at the time of the acquisition. This acquisition provides new software which complements the
existing product line of the Company and increases its commitment to the packaging industry.
This acquisition was accounted for by the purchase method of accounting and accordingly, the results of operations have been
included in the consolidated financial statements starting on the day of acquisition. The assets acquired and liabilities assumed as
part of the transaction were recorded at estimated fair values. Independent valuations were obtained to determine the fair value of
the net assets acquired and to allocate the purchase price. The estimated fair values of the assets acquired and liabilities assumed
at the acquisition date are as follows:
in Euro
Other current assets 125,958
Accounts receivable 913,144
Other intangibles 940,243
Fixed assets 143,738
Accounts payable (254,767)
Unearned revenues (472,619)
Net Assets Acquired 209,806
In accordance with SFAS 141 and SFAS 142, USD 919,766 (Euro 741,209) of excess purchase price over the fair value of the assets
acquired and liabilities assumed was allocated to goodwill. None of this amount will be deductible for tax purposes. The purchase
agreement contains an earn-out mechanism based on EBITDA for the calendar years 2002 and 2003. Under this agreement the total
earn-out cannot exceed 2,000,000 USD. The purchase agreement also contained an adjustment mechanism stating that a portion
of the purchase price, 100,000 USD, is repayable by the sellers if the Company does not achieve a certain EBITDA for 2001. Under this
mechanism 100,000 USD has been repaid by the sellers in April 2002. For calendar years 2002 and 2003, the required EBITDA had
not been achieved and as a consequence no earn-out was payable.
The following unaudited pro forma financial information presents a summary of the consolidated results of operations of the
Company as if the acquisition of Dimensional CAD/CAM Systems Inc had occurred at the beginning of the year ended September
30, 2001. This pro forma information is not necessarily indicative of the combined results of operations which would have actually
occurred had the transactions been consummated on that date or which may be obtained in the future.
YEARS ENDED SEPTEMBER 30Unaudited, in Euro, except per share data
2002 2001
Revenue 46,466,798 51,850,405
Net income 5,731,855 7,631,497
Earnings per share 0.34 0.45
YEAR ENDED SEPTEMBER 30, 2000On April 25, 2000, the Company acquired Enfocus Software, a leading software provider in the PDF market, for Euro 10,000,000. The
Company accounted for the acquisition under the purchase method of accounting and, accordingly, the results of the operations
of the acquired business have been included in the Company’s consolidated results since the date of acquisition. The excess
of purchase price over the estimated fair value of net liabilities acquired of approximately Euro 10,147,551 has been recorded as
goodwill and has been amortized using the straight line method over five years.
The purchase agreement for Enfocus contains an earn-out mechanism based on the consolidated revenue from both Enfocus
entities. On May 31, 2001 the earn-out has been determined at Euro 3,075,865. This amount has been accounted for as additional
purchase price and is being amortized over the remaining amortization period.
Independent valuations have been obtained and as a result Euro 2,675,000 has been identified as acquired intangible assets other
than goodwill. These intangibles are being amortized on a straight-line basis over 4.5 years.
39
YEAR ENDED SEPTEMBER 30, 1998Effective August 28, 1998 Artwork Systems Group NV acquired Professional Software Technologies Inc.(PST) and PCC International
Ltd., operating under the name Professional Computer Cooperation (PCC) for USD 8 million (Euro 6,446,934) in cash plus an earn-
out over the following two years based on EBITDA. PST and PCC International Ltd. were software developers and system integrators
for the packaging and commercial offset pre-press industries.
In accordance with the purchase agreement, the Company has paid USD 2,543,100 (Euro 2,049,400) and USD 737,629 (Euro 594,431),
respectively, representing additional purchase price based on the operating results of the years ended September 30, 1999 and
2000.
GOODWILLGoodwill results from the acquisition of PCC, Enfocus Software and Dimensional CAD/CAM Systems Inc.
Goodwill consist of the following:
SEPTEMBER 30In Euro
2004 2003 2002
Goodwill PCC 8,338,941 8,880,700 10,494,717
Goodwill Enfocus 10,548,417 10,548,417 13,223,417
Goodwill Dimensional Impressions 741,209 789,363 932,826
Total Goodwill 19,628,567 20,218,480 24,650,960
Less accumulated amortization -11,359,728 -11,789,688 -14,363,547
Balances at the end of the year 8,268,839 8,428,792 10,287,411
The changes in the carrying amount of goodwill from September 30, 2002 through September 30, 2004 are as follows:
SEPTEMBER 30In Euro
2004 2003 2002
Balances of the beginning of the year 8,428,792 10,287,411 14,777,033
Add: goodwill for current year transactions 0 0 932,826
Add: earn-out 0 0 0
Less: amortization of goodwill 0 0 -5,233,584
Less:impairment of goodwill 0 0 0
Adjustments of goodwill and other intangibles for previous year acquisitions 0 -1,382,083 0
Impact of foreign currency fluctuations -159,953 -476,536 -188,864
Balances at the end of the year 8,268,839 8,428,792 10,287,411
Net income excluding goodwill amortization expense for the years ended September 30, 2004, 2003 and 2002 is as follows:
YEARS ENDED SEPTEMBER 30In Euro, except per share data
2004 2003 2002
Reported net income/(loss) 11,936,023 -2,719,291 5,823,005
Goodwill amortization 0 0 5,233,584
Net income/(loss) excluding goodwill amortization 11,936,023 -2,719,291 11,056,589
Basic earnings/(loss) per share of common stock
Reported net income/(loss) 11,936,023 -2,719,291 5,823,005
Goodwill amortization 0 0 5,233,584
Adjusted basic earnings/(loss) per share of common stock 0.70 -0.16 0.65
In November 2002 and January 2003, the Company performed the required annual impairment tests of goodwill, which resulted in
a finding that no impairment to goodwill existed. This test consisted of a comparison of the fair value of the company’s reporting
units with its respective carrying amount, including the goodwill. The fair value of the reporting units was determined based
on the income approach, which estimates the fair value based on the future discounted cash flows. Based on the analysis, the
Company determined that the fair value was in excess of the carrying amount of the reporting units.
In October 2004, the Company performed the required annual impairment tests of goodwill, which resulted in a finding that no
impairment to goodwill existed. This test consisted of a comparison of the fair value of the company’s reporting units with its
respective carrying amount, including the goodwill. The fair value of the reporting units was determined based on the income
approach, which estimates the fair value based on the future discounted cash flows. Based on the analysis, the Company determined
that the fair value was in excess of the carrying amount of the reporting units.
6.3 SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATIONThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States and therefore reflect adjustments which are not recorded in the Company’s statutory accounts.
The consolidated financial statements comprise the accounts of Artwork Systems Group NV, Artwork Systems NV, Artwork Systems
Inc., Artwork Systems GmbH & Co KG, Artwork Systems Beteiligungs-GmbH, Artwork Systems Verwaltungs-GmbH, Artwork Systems
Ltd., Artwork Systems SA, AWSG Ltd., Enfocus Software NV, Enfocus Software Inc and Dimensional CAD/CAM Systems Inc. Artwork
Systems Group NV owns directly or indirectly 100 % of all subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidation.
CASH AND CASH EQUIVALENTSThe Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash
equivalents. Cash and cash equivalents consist primarily of deposits with banks.
INVENTORYInventory primarily consists of finished goods and is stated at the lower of cost or market on a first-in, first-out basis. Management
performs periodic reviews of inventories and provides for obsolete items.
41
PROPERTY AND EQUIPMENTProperty and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight line method
and depreciated over the estimated useful lives of the assets. The cost of maintenance and repairs is charged against income as
incurred. Estimated useful lives for financial reporting purposes are as follows:
Computer equipment 3 years
Office equipment 3 – 5 years
Furniture 3 – 5 years
Automobiles 5 years
PURCHASED INTANGIBLE ASSETS Purchased intangible assets consist of identifiable assets acquired in business combinations in which the Group has entered. They
are amortized over their estimated useful lives as from their respective acquisition dates by the Company as follows:
Software technology 2 – 4.5 years
The amortization expense is recorded as an operating expense.
IMPAIRMENT OF LONG LIVED ASSETSIn October 2001, the FASB issued SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS 144 supersedes
SFAS 121 “Accounting for the impairment of Long-Lived assets and for Long-Lived Assets to be disposed of. SFAS 144 also supersedes
APB 30, for the disposal of a segment of the business.
The Company adopted SFAS 144 on October 1, 2002, when its new fiscal year began. The adoption of SFAS 144 did not have a
material impact on the Company’s financial position or results of operations.
INCOME TAXESIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded to reduce the deferred tax asset if it is more likely than
not that some portion of the asset will not be realized. Deferred taxes are not provided for the undistributed earnings of foreign
subsidiaries if those earnings have been permanently reinvested in foreign operations.
FAIR VALUE OF FINANCIAL INSTRUMENTSThe Company considers cash and cash equivalents, accounts receivable, accounts payable, certain accrued expenses and short
term debt to be financial instruments as defined by FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments.
The carrying values of these assets and liabilities approximated their fair values as of September 30, 2004, 2003 and 2002, based on
the short-term maturities of these instruments.
FOREIGN CURRENCY TRANSLATIONThe reporting currency of the Company is the Euro. The financial statements of foreign subsidiaries with differing functional
currencies have been converted into Euro in accordance with FASB Statement No. 52, Foreign Currency Translation. All balance
sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Equity accounts have been
translated at historical rates. Income statement amounts have been translated using the average exchange rate for the year. The
gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive
income. Foreign currency transaction gains and losses are included in net income.
The component other comprehensive income included in equity consists of the following translation differences:
SEPTEMBER 30In Euro
2004 2003 2002
Intercompany -955,297 -483,710 846,550
Third parties 314,848 331,780 394,770
Total -640,451 -151,930 1,241,320
SOFTWARE DEVELOPMENT COSTSSoftware development costs are accounted for in accordance with FASB Statement No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed (SFAS 86). Costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility has been established. Costs incurred subsequent to establishment
of technological feasibility and prior to general release to customers are capitalized. To date, the establishment of technological
feasibility (as defined by FAS 86) and general release substantially coincide. As a result, the Company has not capitalized any
software development costs, since such costs have not been significant.
REVENUE RECOGNITIONRevenue is recognized in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2,
Software Revenue Recognition, as amended. Revenue from software sales is recognized upon delivery of the software and the
protection key, or, in the case where installation is required, upon completion of the installation, provided that the fee is fixed
and determinable, that there is evidence of an arrangement and that the collection of the receivable is considered probable.
Maintenance revenue is recognized on a straight-line basis over the maintenance period. Revenue from training and other services
is recognized at the time the actual services are performed.
Revenues from sales to distributors are recorded net of discounts and in the same manner as all other software license, maintenance
and training.
The Group’s customers generally do not have the right to return products for credit or refund. Any potential sales returns are
covered by the Company’s allowance for sales returns and doubtful accounts.
In software arrangements that include multiple software products, maintenance and/or other services, the Company recognizes
net license revenues based upon the residual method after all license software product has been delivered and prescribed by the
statement of Position 98-9 “Modification of SOP 97-2 with Respect to certain Transactions”.
ALLOWANCE FOR DOUBTFUL ACCOUNTSWe make judgements as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a variety of factors including the length of time the receivables are
past due and historical experience.
If circumstances related to specific customers change, the reserve is adjusted accordingly.
SHIPPING AND HANDLINGShipping and handling costs are included in Costs of Revenues products, for all periods presented.
43
USE OF ESTIMATESThe preparation of financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISKThe Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents and
trade receivables.
The Company maintains cash and cash equivalents with various major financial institutions. The Company limits the amount of
credit exposure with any institution.
The Company’s trade accounts receivables result primarily from its sales of software and hardware to end users, Original Equipment
Manufacturers (OEMs) and independent graphic arts distributors throughout the world. The Company does not require collateral
from its customers. The direct sales force offices are located in Gent (Belgium), Freiburg (Germany), Bristol (Pennsylvania, USA),
Redditch (United Kingdom), Paris (France), San Mateo (California, USA), Los Angeles (California, USA). Revenues generated by
independent dealers represent 47% of the Company’s revenue for the year ended September 30, 2004, direct sales 48% and OEMs
5%.
Concentrations of credit risk with respect to end user and OEM trade accounts receivable are limited due to the large number of
customers and their dispersion across many geographic areas. Concentrations of credit risk with respect to independent distributors
is mitigated by periodic evaluations of the relative credit standing of these entities. One major customer, an independent distributor,
represents approximately 12% of total net revenue for the year ended September 30, 2004 and approximately 11% and 13% of total
net revenue for the years ended September 2003 and 2002. The distributor mentioned represents 18%, 14% and 14% of the total
outstanding receivables for the years ended September 30, 2004, 2003 and 2002 respectively.
EARNINGS PER SHAREBasic and diluted earnings per share is calculated in accordance with FASB Statement No. 128, Earnings per Share. Basic earnings per
share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that could occur if outstanding options were exercised or
converted into common stock. The dilutive effect of outstanding options are reflected in dilutive earnings per share by application
of the treasury stock method. The following represents a reconciliation from basic earnings per share to diluted earnings per
share:
YEARS ENDED SEPTEMBER 30In Euro, except per share data
2004 2003 2002
Numerator
Net income/(loss) 11,936,023 -2,719,291 5,823,005
Denominator
Weighted average common shares outstanding 17,048,650 17,048,650 17,046,079
Dilutive stock options 0 0
Weighted average common shares outstanding - assuming dilution 17,048,650 17,048,650 17,046,079
Basic earnings/(loss) per share 0.70 -0.16 0.34
Diluted earnings/(loss) per share 0.70 -0.16 0.34
EMPLOYEE STOCK OPTIONSThe Company accounts for stock options granted to employees in accordance with the provisions of Accounting Principles Board
Statement No. 25, Accounting for Stock Issued to Employees (APB 25) because the Company believes the alternative fair value
accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation requires the use of option
valuation models that were not developed for use in valuing employee stock options. Under APB 25, compensation expense is
measured when the exercise price of the stock option is less than the market price of the underlying stock at the date of grant. Such
compensation expense is equal to the difference between the market price of the underlying stock price on the date of grant and
the exercise price of the stock option and is recognized over the vesting period of the respective stock option.
FASB Statement No. 123, Accounting for Stock Based Compensation (SFAS 123) requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for its employee stock options under the fair
value method set forth in SFAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option
pricing model assuming no dividends, risk free weighted average interest rate of 4%, volatility factor of 65%, and a weighted
average expected option life of 2.5 and 2.9 years for 1999 and 1998, respectively. There were no stock options granted during the
year ended September 30, 2004, 2003 and 2002.
45
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting
period. Because options vest over several years and additional grants are expected, the effects of these hypothetical calculations
are not likely to be representative of similar future calculations. The Company’s pro forma information as required by SFAS 123 and
SFAS 148 for the years ended September 30 is as follows:
YEARS ENDED SEPTEMBER 30In thousands of Euro, except for the net income and pro forma per share information
2004 2003 2002
Net income/(loss), as reported 11,936 -2,719 5,823
Add: Stock-based employee compensation expense included in reported net income 0 0 13
Deduct: Stock-based employee compensation expense determined under fair value method for all stock option grants (SFAS 123 expense) 0 23 27
Pro forma net income/(loss) 11,936 -2,696 5,863
Basic net earnings/(loss) per share, as reported 0.70 -0.16 0.34
Pro forma basic earnings/(loss) per share 0.70 -0.16 0.34
Diluted earnings/(loss) per share, as reported 0.70 -0.16 0.34
Pro forma diluted earnings/(loss) per share 0.70 -0.16 0.34
OTHER COMPREHENSIVE INCOMEComprehensive income includes net income and “other comprehensive income.” Other comprehensive income refers to changes
in net assets from transactions and other events, and circumstances other than transactions with stockholders. These changes are
recorded directly as a separate component of Shareholders’ Equity and excluded from net income. The only other comprehensive
income item for the Company relates to foreign currency translation adjustments pertaining to those subsidiaries not using the
Euro as their functional currency.
DERIVATIVE INSTRUMENTS AND HEDGINGThe Group complies with the Financial Accounting Statements Board Statement No.133, Accounting for Derivative Instruments
and Hedging Activities, as amended. Statement 133, as amended, requires that all derivatives be recognized as either assets or
liabilities at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives will either be off-set against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or recognised in other comprehensive income until the
hedged item is recognised in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognised
in earnings. For the years ended September 30, 2004, 2003, and 2002 the Company did not have any hedging activity.
CHANGES IN PRESENTATIONCertain reclassifications have been made to prior years’ balances to conform with the 2004 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS No new accounting pronouncements with a possible material impact on our financial position, results of operations or cash flows
have been issued during the reporting period.
6.4 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are maintained on deposit with large financial institutions and they consist of the following:
SEPTEMBER 30In thousands Euro
2004 2003 2002
Bank Accounts 22,613 21,342 9,883
At September 30, 2004, 58% of such amounts were denominated in euro (2003: 56%, 2002: 70%), 41% in US dollars (2003: 42%, 2002:
27%) and 1% in GBP (2003:2%, 2002: 3%).
6.5 PREPAID LICENSE COSTS
In March 1997, the Company made a lump sum payment of USD 830,000 (Euro 718,433) to Scitex Corporation Ltd., in connection
with a license agreement. This amount is amortized using the straight-line method over 14 years, the estimated useful life of the
license.
On January 4, 2002 the Company has entered into an additional agreement with Creoscitex regarding an extension to the current
license agreement and has paid an additional amount of 500,000 USD (Euro 402,933). This amount is amortized over the remaining
life of the license agreement.
Prepaid license cost consists of the following:
SEPTEMBER 30In Euro
2004 2003 2002
Prepaid license costs 1,121,367 1,147,544 1,225,532
Accumulated amortization -537,170 -451,723 -351,365
Prepaid license costs, net 584,197 695,821 874,167
6.6 PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
SEPTEMBER 30In Euro
2004 2003 2002
Computer equipment 2,417,069 2,310,795 2,327,323
Office equipment 422,235 425,770 327,649
Furniture 368,143 307,651 271,727
Automobiles 1,545,298 1,243,471 1,052,306
Total property and equipment 4,752,746 4,287,459 3,979,005
Accumulated depreciation 3,233,398 -3,021,185 -2,785,879
Property and equipment, net 1,519,347 1,266,504 1,193,126
47
6.7 BANK LOAN
In conjunction with the acquisition of Enfocus Software in April 2000, the Company entered into a three year line of credit for which
the total available borrowings decreased each year. At September 30, 2002 the available borrowings under the credit line were
Euro 3,300,000 and there were no outstanding borrowings under the line. The weighted average interest rates for the year ended
September 30, 2002 related to these short term facilities in Euro was 4.34%. For USD facilities the weighted average interest rate was
2.87% for the year ended September 30, 2002. During the year ended September 30, 2002 the Company incurred and charged to
interest expense, Euro 60,770.
During the years ended September 30, 2004 and 2003 no credit lines were needed.
6.8 RELATED PARTY TRANSACTIONS
MANAGEMENT SERVICES FEES AND DIRECTORS’ COMPENSATIONCertain commercial, financial and software development services are provided by the companies PowerGraph NV, Ir. Peter
Denoo BVBA, Bart Denoo Engineering BVBA and G.M.F.A. BVBA which are owned by Directors of the Company, Guido Van der
Schueren, Peter Denoo, Bart Denoo and Hildegard Verhoeven respectively. During the years ended September 30, 2004, 2003 and
2002, the Company paid these companies a total amount of Euro 852,047, Euro 769,253 and Euro 757,984, respectively.
The balances of accounts payable to these companies was Euro 97,756, Euro 77,885 and Euro 77,220 at September 30, 2004, 2003
and 2002 respectively.
During the years ended September 30, 2004, 2003 and 2002, the Company accrued an aggregate compensation of Euro 70,118,
Euro 51,805 and Euro 52,058 respectively for its directors. In addition, the managing directors have company cars at their disposal.
No stock options, pension plan or other benefits were granted to the managing directors.
LOANIn March 2003, the Company granted a loan of Euro 1,000,000 to Graphicus NV, a company of which Guido Van der Schueren is a
director, for a period of 18 months and at an interest rate of 4.35%. At September 30, 2003 the receivable amounted Euro 1,023,769,
ie the principal amount including the interest accrued.
The loan, including the accrued interest of Euro 66,544, has been repaid by the debtor at September 27, 2004.
6.9 OPTION PLAN
In December 1996, the Company adopted an employee stock option plan in order to provide long-term incentives and rewards
to the Company’s employees. Under the plan, the Company has issued 161,000 options, each incorporating the right to purchase
a share of the Company’s stock at net book value for options granted before the IPO, and, for options granted after the IPO, at the
average closing price of the Company’s shares over the previous 120 days of trading.
In April 1999, the Company adopted a stock option plan for the former owner of Professional Software Technologies. Under the
plan the Company has issued 61,788 options, each incorporating the right to purchase a share of the Company’s stock at the value
determined at acquisition date.
In connection with the issuance of these options, the Company has recognized compensation expense in the consolidated income
statements resulting from the amortization of unearned compensation for the year ended September 30, 2002 of Euro 13,224. At
September 30, 2002, no unearned compensation expense remained unamortized.
Stock option transactions for the three years ended September 30, 2004 are summarized below:
2004, WEIGHTED AVERAGEEXERCISE PRICE
2003, WEIGHTED AVERAGEEXERCISE PRICE
2002, WEIGHTED AVERAGEEXERCISE PRICE
Options Price Options Price Options Price
Options outstandingbeginning of year 126,288 12.80 130,788 12.81 142,638 12.24
Options exercised 0 0 0 0 -6,850 0.50
Options forfeited -3,000 13.19 -4,500 13.19 -5,000 13.19
Options outstandingat end of year 123,288 12.79 126,288 12.80 130,788 12.81
Options exercisable at end of year 123,288 12.79 126,288 12.80 130,788 12.81
Information related to options outstanding at September 30, 2004 is summarized below:
SEPTEMBER, 30 2004
Stock options outstanding
Numberof shares
Weighted remaining contractual life
Average stockoptions exercisable
Euro 12.79 123,288 4.33 123,288
All options 123,288 4.33 123,288
6.10 INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED SEPTEMBER 30In Euro
2004 2003 2002
Current 4,466,969 16,517,985 5,724,253
Deferred 274,147 91,303 -748,205
Total 4,741,116 16,609,288 4,976,048
49
A reconciliation of income taxes computed at the average local statutory rate (27%, 30% and 33% for the years ended September
30, 2004, 2003 and 2002 respectively) to the provision for income taxes is as follows:
SEPTEMBER 30
In Euro
2004 2003 2002
Income taxes computed at the local statutory rate 4,469,473 4,166,999 3,563,687
Goodwill amortization 0 0 1,135,254
Amortization of otherIntangible assets 191,549 329,451 140,143
Unearned Compensation expense 0 0 5,312
Disallowed expenses 67,280 80,168 70,378
Settlement of the tax claim 0 12,005,863 0
Other items, net 12,814 26,807 61,273
Total 4,741,116 16,609,288 4,976,048
Deferred tax assets and liabilities are comprised of the following:
SEPTEMBER 30
In Euro
2004 2003 2002
Current
Receivable allowances 185,764 288,042 587,356
Interest expenses 157,938 156,338 192,681
Accrued expenses 119,346 159,549 224,731
Intragroup eliminations 114,064 144,480 238,717
Tax loss carry forward 162,479 0 0
Other items, net 105,938 135,950 90,603
Deferred tax assets 845,528 884,359 1,334,088
Translation differences -427,848 -199,760 20,242
Deferred revenue 73,420 63,043 50,591
Expensed prepaid license costs -188,080 -183,990 -181,235
Other items, net 0 -3,279 -9,541
Deferred tax liabilities 542,508 323,984 119,944
Net current deferred tax assets 303,021 560,375 1,214,144
Non-current
Goodwill amortization 1,794,203 2,173,878 2,460,401
Non-current deferred tax assets 1,794,203 2,173,878 2,460,401
6.11 COMMITMENTS
PANTONE LICENSEIn 1994, Artwork Systems NV entered into a license agreement with Pantone to use the Pantone Color System. The license fee
amounted to 1% of net sales of products integrating the licensed system with an annual minimum of USD 25,000 (Euro 23,065).
During the year ended September 30, 2004 the Company entered into a new agreement with Pantone. Starting June 1, 2004 the
license fee is a fixed amount of 50,000 USD per year. The new agreement covers all Artwork Systems’ products.
Effective October 1, 2003 Enfocus Software NV entered into a license agreement with Pantone to use the Pantone Color System.
The license fee is a fixed amount per year and amounts to 35,000 USD, 40,000 USD and 45,000 USD for the fiscal years 2004, 2005
and 2006 respectively.
During the years ended September 30, 2004, 2003 and 2002 the total license fee amounted of Euro 62,474, Euro 47,981 and Euro
51,782, respectively.
OPERATING LEASE OBLIGATIONSThe Company leases its facilities, cars and office equipment under operating lease agreements with varying expiry dates. As of
September 30, 2004 future minimum lease payments for the next four fiscal years are as follows:
In Euro
2005 460,238
2006 282,458
2007 170,389
2008 8,412
Rental expense for the years ending September 30 were as follows:
In Euro
2002 583,953
2003 604,155
2004 558,384
6.12 ADVERTISING COSTS
The Company expenses advertising expenses as incurred. Advertising expenses totaled Euro 729,613, Euro 815,439 and Euro 690,022
for the years ended September 30, 2004, 2003, and 2002, respectively.
6.13 CONTINGENCIES
The Company is involved in various legal proceedings arising in the normal course of business. Based on its current knowledge
and the advice of counsel, the Company believes that the ultimate resolution of these matters will not have a material effect on the
Company’s financial position, results of operations, or cash flows.
Artwork Systems Group NV has been named as subject of an investigation relating to the tax claim described below. Based on the
current information available, it is considered that this investigation will not have an impact on the Companies’ results or balance
sheet.
51
6.14 TAX CLAIM
At September 14, 2004, the Court of Appeal of Ghent ratified the settlement dd. 19 December 2003 between Artwork Systems
Group NV and the Special Tax Inspection regarding the tax dispute concerning the acquisition of the shares in Artwork Systems NV.
Earlier the Court of First Instance had ruled in favor of the Belgian State. The parties, however, concluded a settlement, subject to
its ratification by the Court of Appeal of Ghent, whereby Artwork Systems Group NV would pay a total tax of Euro 12,005,863. As a
result of the ratification of the settlement by the Court of Appeal of Ghent, the tax dispute has ended definitely. The company has
withdrawn its appeal pending before the Council of State regarding the annulment of the opinion 126/17 of the Commission for
Accounting Standards.
The amount of Euro 12,005,863 has been paid at September 30, 2004.
6.15 OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company has evaluated FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information and
has concluded that the Company operates in one reportable industry segment, the development, marketing, sales and support of
pre-press software and related hardware.
The following geographic area data includes net revenues based on customer location, and property and equipment based on
physical location.
YEARS ENDED SEPTEMBER 30In Euro
2004 2003 2002
Net revenue
United States 19,688,072 19,644,577 19,573,302
Germany 6,221,496 5,790,483 6,495,464
United Kingdom 3,075,681 3,135,761 3,162,497
France 3,066,127 2,672,043 3,521,258
Rest of Europe 11,505,833 9,774,553 9,042,741
Rest of world 3,579,121 3,080,783 4,094,050
47,136,330 44,098,201 45,889,312
Property and Equipement
United States 278,065 177,094 183,391
Belgium 814,285 593,603 488,513
Germany 183,998 234,751 234,991
United Kingdom 125,138 92,922 153,753
France 100,929 142,512 111,895
Ireland 16,932 25,621 20,583
1,519,347 1,266,504 1,193,126
1. Balance Sheets
YEARS ENDED SEPTEMBER 30In thousands of Euro
2004 2003
Fixed assets 35,836 35,836
IV. Financial assets 35,836 35,836
A. Subsidiaries 35,836 35,836
1. Investments in subsidiaries 35,836 35,836
Current assets 9,337 6,068
VII. Amounts receivable within one year 526 6,013
A. Trade debtors 344 555
B. Other amounts receivable 182 5,458
IX. Cash at bank and in hand 8,676 16
X. Deferred charges and accrued income 135 39
Total Assets 45,173 41,904
Capital and reserves 12,325 29,580
I. Capital
A. Issued capital 7,851 7,851
II. Paid in capital 120 120
IV. Reserves
A. Legal reserve 785 785
V. Profit carried forward 3,569 20,824
Creditors 32,848 12,324
IX. Amounts payable within one year 32,810 12,308
C. Trade debts 258 302
1. Suppliers 258 302
E. Taxes, remuneration and social security 306 12,006
1. Taxes 306 12,006
F. Other amounts payable 32,246 0
X. Accrued charges and deferred income 38 16
Total Liabilities 45,173 41,904
FINANCIAL STATEMENTSIN ACCORDANCE WITH ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN BELGIUM
Assets
Liabilities
53
2. Income statements
YEARS ENDED SEPTEMBER 30In thousands of Euro
2004 2003
I. Operating income 1,170 1,175
A. Turnover 884 893
D. Other operating income 286 282
II. Operating charges -1,434 -1,494
B. Services and other goods 1,434 1,494
III. Operating profit (loss) -264 -319
IV. Financial income 93 96
A. Income from financial fixed assets 0 0
B. Income from current assets 93 95
C. Other financial income 0 1
V. Financial charges -21 -2
A.Interest expense 10 2
C. Other financial expense 11 0
VI. Profit (loss) on ordinary activities before taxes -192 -225
VII. Extraordinary income 0 26,863
E. Other extraordinary income 0 26,863
IX. Profit (loss) for the period before taxes -191 12,008
X. Income taxes 14 12,008
A. Income taxes 0 0
C. Income taxes on previous years 14 12,008
XI. Profit for the period -206 14,630
XIII. Profit for the period available for appropriation -206 14,630
Appropriation account
A. Profit to be appropriated 20,618 20,824
1. Profit/(loss) for the period for appropriation -206 14,630
2. Profit brought forward 20,824 6,194
D. Result to carried forward
1. Profit to be carried forward 3,569 20,824
F. Dividends 17,049 0
3. Notes to the Financial Statements
IV. STATEMENT OF FINANCIAL FIXED ASSETS
1. SUBSIDIARIESNet book value at the end of the preceding period 35,836
Movements during the period
Additions 0
Reimbursements 0
Increase in value 0
Net book value at the end of the period 35,836
VIII. STATEMENT OF SHARE CAPITAL
A. Share capital
1. Share capital 7,851
2. Number of shares, ordinary shares, no par value 17,048,650
D. Options
Number of options 123,288
Maximum number of shares to be issued 123,288
G. Shareholders’ structure at the end of the last financial year, included in shareholders’ notifications received by the Company
Stichting Administratiekantoor Artwork Systems 73.59%
(1) Abacus Holding NV 1.39%
(2) Graphicus NV 0.51%
(1) As a result of the dissolution of Abacus Holding NV, its legal successors, Kroy Finance Corporation BVBA and Widmer Development Corporation Bvba each hold 50% of the financial instruments formerly held by Abacus Holding NV.
(2) As a result of the dissolution of Graphicus NV, its legal successor, Parana Management Corporation BVBA holds the financial instruments formerly held by Graphicus NV.
X. SHORT TERM DEBT
C. Amount payable for taxes, remuneration and social security
1. Income taxes
b. Income taxes, not due 306
XIII. FINANCIAL RESULTS
A. Other financial income
Exchange rate differences 0
Other 0
E. Other financial expense
Exchange rate differences 0
Bank charges 0
55
XV. INCOME TAXES
2. Income taxes on previous periods 14
a. Additional income taxes due or paid 14
XVI. OTHER TAXES AND TAXES BORNE BY THIRD PARTIES
A. The total amount of value added tax, turnover taxes and special taxes charged during the period
1. to the enterprise (deductible) 244
2. by the enterprise 252
B. Amounts withheld from third parties
2. Withholding taxes on dividends 306
XVIII. RELATIONSHIPS WITH AFFILIATED ENTERPRISES AND ENTERPRISES LINKED BY PARTICIPATING INTERESTS
AFFILIATED ENTERPRISES
1. Financial fixed assets
Investments in subsidiaries 35,836
2. Amounts receivable 449
within one year 449
2. Amounts receivable 15,513
within one year 15,513
7. Financial results
Income from current assets 93
Interest expense 9
4. Auditor’s Report
The statutory auditor has issued an unqualified opinion with respect to the statutory accounts of Artwork Systems Group NV
at September 30, 2004.
5. Report of the Board of Directors to the General Meeting
Annexed you will find the draft of the annual accounts for the financial year 2004, which ran from October 1, 2003 to September 30, 2004.
The company called on public savings in December 1996 and since then its shares were listed on Nasdaq Europe (formerly Easdaq).
As a result of the decision of the extraordinary general meeting of Nasdaq Europe to discontinue its activities, the shares of Artwork
Systems Group NV have been listed on the First Market of Euronext Brussels since October 6, 2003. The last day of quotation on
Nasdaq Europe was November 7, 2003.
The company develops software for pre-press and markets this software via offices in Belgium, the United States, Germany, the
United Kingdom and France. The company has no branches.
During the financial year the company received no dividends from its subsidiaries.
In addition to the holding of participating interests, the company is also active in developing software for pre-press. The marketing
of this software is entrusted, via a license agreement, to the subsidiary Artwork Systems NV. The company has no other activities in
the area of research and development.
For the financial year 2004 the company has a profit to be carried forward of 20,617,633.88 Euro. The Board of Directors proposes
the following: (i) to confirm the interim dividend of 8,524,325 Euro, paid September 24, 2004, (ii) to distribute a dividend of Euro
8,524,325 and (iii) to carry forward the balance of 3,568,983.88 Euro.
57
COSTS FOR RESEARCH & DEVELOPMENT
During the financial year the company spent 429,652 euro on Research & Development.
REPORT ON THE CAPITAL INCREASES
No capital increases took place during the financial year 2004.
SPECIAL ASSIGNMENTS OF THE STATUTORY AUDITOR
In accordance with the provisions of article 134 of the Company Law, the company reports that during the financial year 2004 it
gave its Statutory Auditor the following special assignments:
1. review of and assistance in connection with the consolidated annual accounts
for the financial year 2004 in accordance with US GAAP;
2. attendance at the audit committee meetings.
3. report in connection with the interim dividend.
The total compensation for special assignments was 24,700 Euro.
EXEMPTION FROM THE CONSOLIDATION REQUIREMENT UNDER BELGIAN LAW
On January 20, 2004 the company received, for a period of 2 financial years beginning with the financial year 2004, authorization
from the “Commissie voor het Bank-, Financie- en Assurantiewezen” on the basis of article 10, § 3, 2nd part of the law of August
2, 2002, concerning the control of the financial sector and the financial markets, to publish its consolidated accounts drawn up in
conformity with US GAAP.
The significant distinction between consolidated financial statements according to Belgian accounting standards and the
consolidated financial statements in accordance with US GAAP is the requalification of:
1. option plans; under US GAAP (APB 25), the difference between the market price on the date of attribution and the exercise
price must be booked as a cost.
2. revenue recognition; SOP97/2 is followed in the consolidated figures.
3. booking of acquisitions (purchase accounting); goodwill is expressed in the consolidated figures.
4. income tax (deferred tax assets); in the consolidated figures deferred taxes are booked on temporary differences.
5. capitalization of development costs for software: SFAS 86 is followed in the consolidated figures.
6. amortization of the license costs for Scitex: in the consolidated figures the Scitex License is amortized over 14 years.
IMPORTANT EVENTS
No importants events have occurred after year-end.
CONFLICTS OF INTEREST
In the following Board of Directors´ meetings, article 523 and/or article 524 of the Companies Law applied:
3 DECEMBER 2003The chairman opened the discussion about the conclusion of a settlement agreement between the company and the Belgian
State with respect to a dispute concerning the levy by the tax authorities of a corporate income tax on the company in the amount
of 2,343,094,326 BEF (EUR 58,083,791.13) (the “Settlement”).
4.1. Declaration by two directors concerning a possible conflict of interest as understood in article 523 of the Companies Code.
Before commencing discussion of the Settlement, Messrs Peter Denoo and Guido Van der Schueren announced that they might,
directly or indirectly, have a financial interest which is or could be in conflict with conclusion of the Settlement.
The existence of such a conflict of interest requires application of the specific procedure set forth in article 523 of the Companies
Code. Messrs Peter Denoo and Guido Van der Schueren thus asked that their declaration, as well as the grounds of justification
concerning the above-mentioned conflicting interest, be included in the minutes of the Board of Directors.
Messrs Peter Denoo and Guido Van der Schueren explained that they might, directly or indirectly, have a financial interest which is
in conflict with the interest of the company, given that the Settlement was negotiated together and will be signed together with
proposed settlements under the Personal Income Tax for assessments relating to connected facts. Given this factual connection,
it is thus possible that the Settlement entails a benefit vis-à-vis the involved directors who will conclude a personal income tax
settlement.
However, Peter Denoo and Guido Van der Schueren further explained that the tax authority was only ready to reach a possible
Settlement under the Corporate Income Tax if the disputes which had arisen under the Personal Income Tax, namely the tax on the
appreciations realized by natural persons, were resolved.
Further, the involved directors believe that the Settlement under the Corporate Income Tax does not generate any financial benefit
for them, given that the settlements under the Personal Income Tax provide that all assessed taxes be paid in full, in other words
that the involved directors abandon their lawsuit against the tax authority, and that their foreign companies be brought to Belgium
subject to payment of the registration fees owed on the move of the registered office to Belgium. The involved directors thus
believe that, with regard to the conclusion of the Settlement, they will receive absolutely no financial benefit; quite the contrary,
thanks to their willingness regarding the question of moving the registered office and the abandonment of their lawsuit, they are
making it possible for the company to arrive at the Settlement.
RESOLVED to inform the Statutory Auditor of the above-mentioned possible conflicting interests and of the application of the
procedure provided for in article 523 of the Companies Code.
4.2. Decision concerning the application of article 524 of the Companies Code.
For the reasons set forth under 4.1 above, the Board of Directors is of the opinion that the conclusion of the Settlement might
generate a direct or indirect financial advantage to Messrs Bart Denoo, Peter Denoo and Guido Van der Schueren, who are
shareholders who exert a decisive influence, or at least a significant influence, on the appointment of the company´s directors.
The Board of Directors thus resolves to apply the procedure provided for in article 524 of the Companies Code.
4.3. Appointment of three directors chosen because of their independence vis-à-vis the decision or considered transaction, assisted
therein by an expert chosen for the same reason, in order to prepare a report under article 524 of the Companies Code.
In accordance with the provisions of article 524 of the Companies Code, the Board of Directors unanimously
RESOLVED to assign the following three directors, chosen because of their independence vis-à-vis the considered decision, to
describe the financial consequences of the considered decision and to give a well-motivated evaluation thereof :
• Ratio Plus NV, represented by Hubert Ooghe
• De Bist BVBA, represented by Guido Kestens
• Advisam NV, represented by Guy Warlop
59
This description and this evaluation must demonstrate the importance of the considered decision for the company and the
shareholders as a whole, as well as the absence of any benefit in the nature of a preferred compensation which would be directly
or indirectly attributed to any particular shareholder.
RESOLVED that, under article 524 of the Companies Code, these directors will submit a report to the Board of Directors before the
Board of Directors deliberates and votes on the conclusion of the Settlement.
After deliberation, the three indicated directors agreed to carry out the assignment proposed by the Board of Directors.
In accordance with article 524 of the Companies Code, these three independent directors will appoint an expert, chosen for his
independence vis-à-vis the considered decision, who will assist them in preparing their report describing the considered decision´s
financial consequences for the company. The report of this expert will be submitted to the Board of Directors.
RESOLVED that the Board of Directors will pay the costs of the appointed expert.
RESOLVED to inform the Statutory Auditor of the above-mentioned possible conflicting interests and of the application of the
procedure provided for in article 524 of the Companies Code.
9 DECEMBER 2003The Board of Directors took cognizance of the report of the appointed expert Atty Luc Vanheeswijck, who read aloud the conclusion
of his report, to wit:
“To the extent that the Settlement is supposed to resolve a legal issue, it is not valid. The Court of Appeal of Ghent will have to
express itself in this case ex officio on this legal issue. The Court will only ratify the Settlement if it gives to the dispute a resolution
which is in compliance with the law. The fact that the company does not further elaborate its arguments might well have an
impact here, since in this way the resolution of this legal issue is left exclusively to the initiative of the Court.
Notwithstanding the opinions obtained by the Company, there is, considering the development in the case-law and the opinion
of the Commission for Accounting Standards no. 126/17, a real chance that this legal issue will be decided to the company´s
disadvantage.
Through the Settlement, however, the taxable basis in principle is limited to a maximum of 26,865,290 EUR by not valuing the
Artwork Systems N.V. shares as at 6 December 1996 on the basis of the introduction price of the Artwork Systems Group N.V.
shares, but on the basis of the value of the Artwork Systems N.V. shares determined in accordance with the discounted cash flow
method. The fact that this method is chosen over other possible methods is the object of the Settlement. The Company and the
shareholders as a whole thus have an interest in concluding the Settlement.
The group to which the Company belongs possesses sufficient funds to pay the amounts owed on the basis of the Settlement
without endangering the continuity of the Company or of the group to which it belongs.
On the basis of the communicated documents, it does not appear that any preferred compensation would accrue to a shareholder
of the Company. The Settlement being considered by the company can stand independent of the Settlements which are being
concluded by the directors/founders.”
Atty Luc Vanheeswijck gave further oral explanations of his report and answered the questions of the directors.
The Board of Directors then took cognizance of the report of the three independent directors, whose conclusion reads:
“The three independent directors find that the company in the past has received various tax and legal opinions on the above-
mentioned tax dispute, from which it appears that the appeal has a good chance of success. Notwithstanding these opinions, the
three independent directors find, on the basis of the expert´s report, that there also exists a real chance of losing.
The three independent directors are therefore of the opinion that the company and the shareholders as a whole have an interest in
concluding the proposed settlement, considering:
1. the commercial handicap deriving from the existence of the dispute;
2. the negative impact on the stock-market price should the tax dispute drag on into the future;
3. the disastrous financial impact which a final conviction to pay the full assessment would have on the company; and
4. the amount which would be owed under the settlement, namely only 20 % of the original tax levy in principal amount, is
acceptable and payable.
On the basis of the foregoing and on the basis of the conclusions of the expert´s report, the three independent directors are of the
opinion that concluding the Settlement is in the interest of the company and of the shareholders as a whole, and that thereby no
benefit in the nature of a preferred compensation is attributed directly or indirectly to any particular shareholder.”
The Board of Directors determined that from the reports it appears that the decision to conclude the Settlement is in the interest
of the company.
The Board of Directors commenced the discussion on the basis of these reports and agreed with the conclusions of these reports.
16 DECEMBER 2003• Resolved to approve the Settlement, given that this Settlement is in the interest of the company and the shareholders as a
whole;
• Determined that no benefit in the nature of a preferred compensation is attributed directly or indirectly to any particular
shareholder within the framework of the Settlement.
22 MARCH 2004Before the meeting began, Peter Denoo, Bart Denoo and Guido Van der Schueren said that there might be a conflict of interest
between themselves and the company.
The specific conflict of interest procedure laid down in Article 523 of the Companies Act therefore applied. Peter Denoo, Bart
Denoo and Guido Van der Schueren also asked that their declaration concerning the abovementioned conflict of interest, and the
legal grounds for this, be noted in the minutes of the board meeting.
Peter Denoo, Bart Denoo and Guido Van der Schueren explained that under property law their interests might be in direct or
indirect conflict with those of the company because both the company and the directors are under suspicion.
Peter Denoo, Bart Denoo and Guido Van der Schueren therefore did not take part in the discussion or decision-making.
It was decided to inform the auditor of the abovementioned possible conflict of interest and the application of the procedure laid
down in Article 523 of the Companies Act.
Discussion:
The document stated that Artwork Systems Group NV was under suspicion. This fact was not known until now.
An adjournment had already been obtained to ask for further investigation and to inspect the dossier until April 23, 2004.
Resolution: the board appointed Mr. Mertens to represent the company’s interests in this case.
15 APRIL 2004Before the meeting began, Peter Denoo, Bart Denoo and Guido Van der Schueren said that there might be a conflict of interest
between themselves and the company.
The specific conflict of interest procedure laid down in Article 523 of the Companies Act therefore applied. Peter Denoo, Bart
Denoo and Guido Van der Schueren also asked that their declaration concerning the abovementioned conflict of interest, and the
legal grounds for this, be noted in the minutes of the board meeting.
Peter Denoo, Bart Denoo and Guido Van der Schueren explained that under property law their interests might be in direct or
indirect conflict with those of the company because both the company and the directors are under suspicion.
Peter Denoo, Bart Denoo and Guido Van der Schueren therefore did not take part in the discussion or decision-making.
61
It was decided to inform the auditor of the abovementioned possible conflict of interest and the application of the procedure laid
down in Article 523 of the Companies Act.
Discussion:
The law that can place companies under suspicion dates from July 2, 1999. The matter that the company is being accused of
occurred before this law came into force, and no continued offence had been committed.
Resolution:
As the dossier is favorable for Artwork Systems Group NV, no additional investigations would be requested.
10 NOVEMBER 2004Before the meeting began, Peter Denoo, Bart Denoo and Guido Van der Schueren said that there might be a conflict of interest
between themselves and the company.
The specific conflict of interest procedure laid down in Article 523 of the Companies Act therefore applied. Peter Denoo, Bart
Denoo and Guido Van der Schueren also asked that their declaration concerning the abovementioned conflict of interest, and the
legal grounds for this, be noted in the minutes of the board meeting.
Peter Denoo, Bart Denoo and Guido Van der Schueren explained that under property law their interests might be in direct or
indirect conflict with those of the company because both the company and the directors are under suspicion.
Peter Denoo, Bart Denoo and Guido Van der Schueren therefore did not take part in the discussion or decision-making.
It was decided to inform the auditor of the abovementioned possible conflict of interest and the application of the procedure laid
down in Article 523 of the Companies Act.
Resolution: Mr. Mertens will send his draft pleading to the board beforehand.
DISCHARGE
The Board of Directors requests discharge from the general meeting for the directors and the Statutory Auditor who were in office
during the financial year.
Drawn up by the Board of Directors on December 21, 2004.
Artwork Systems Ltd.The Business Centre
Edward Street – Redditch,
Worcestershire B97 6HA
United Kingdom
Tel.: +44 1527 592550
Fax: +44 1527 592466
Artwork Systems GmbH & Co. KGBurkheimer Straße 3
D-79111 Freiburg
Germany
Tel.: +49 761 45 29 80
Fax: +49 761 45 29 822
Dimensional Impressions HQ16000 Ventura Blvd.
Suite 910
Encino, CA 91436
USA
Tel.: +1 818 379 7039
Fax: +1 818 379 7041
www.discore.com
Enfocus Software NVAntwerpsesteenweg 41–45
B-9000 Gent
Belgium
Tel.: +32 9 269 16 90
Fax: +32 9 269 16 91
www.enfocus.com
Artwork Systems Group NVStapelplein 70/300
B-9000 Gent
Belgium
Tel.: +32 9 265 84 11
Fax: +32 9 265 84 10
www.artwork-systems.com
Artwork Systems SAParis Nord II
47, Allée des Impressionnistes
BP 52335 Villepinte
F-95941 Roissy CDG Cedex
France
Tel.: +33 148 17 00 90
Fax: +33 149 38 09 78
Artwork Systems Inc.219A Rittenhouse Circle
Bristol, PA 19007
USA
Tel.: +1 215 826 4500
Fax: +1 215 826 4510
Enfocus Software Inc.3 Water Park Drive
Suite 210
San Mateo, CA 94403
USA
Tel.: +1 650 358 1210
Fax: +1 650 358 1211
www.enfocus.com