UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2005

or

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

Commission File Number 0-24720

Business Objects S.A.

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

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

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

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

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

Business Objects S.A.
Index

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PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

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

See accompanying notes to Condensed Consolidated Financial Statements

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

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

See accompanying notes to Condensed Consolidated Financial Statements

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

See accompanying notes to Condensed Consolidated Financial Statements

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

1.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

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

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

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

Use of Estimates

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

Other Current Liabilities

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

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Ordinary Shares, Treasury Shares and Business Objects Option LLC Shares

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

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

Significant Accounting Policies

Revenue Recognition

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

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

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

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

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

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

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

Accounting for Stock-based Compensation

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

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

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

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

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

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

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Recent Pronouncements

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

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

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

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2.	Derivative Financial Instruments

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

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

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

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

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

3.	Accounts Receivable

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

4.	Goodwill and Other Intangible Assets

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

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

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

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

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

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