annual report artwork systems groupSynergistic one for everyone at Artwork Systems. Our move to a brand new headquarters in Ghent has afforded us not only a new beautiful view, but

annual report artwork systems group

MISSION STATEMENT

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.

The Ghent skyline, seen from the Artwork Systems headquarters.

�

00 Mission Statement 02 Letter to the Shareholders 04 Traceability, the other trend of 2006

ARTWORK SYSTEMS BUSINESS 08 Concentric Screening10 Odystar Packaging 12 Grand Opening 14 Enfocus 18 PA:CT 21 IPEX

22 Worldwide Presence

CORPORATE GOVERNANCE & INFORMATION FOR SHAREHOLDERS

26 Corporate Governance31 Information for Shareholders

FINANCIAL STATEMENTS

36 Introduction to the Consolidated Financial Statements :: Selected Summary Financial Data :: Management Discussion and Analysis of Financial Conditions and Results of Operations

44 Consolidated Financial Statements in accordance with IFRS

:: Auditor’s Report :: Consolidated Balance Sheet :: Consolidated Income Statements :: Consolidated Statement of Shareholders’ Equity :: Consolidated Statement of Cash Flows :: Notes to the Financial Statements

73 Financial Statements in accordance with Belgian Accounting Standards

:: Statutory Accounts :: Report of the Board of Directors to the General Meeting

Content // Annual Report 2006

index_annual2006.pdf 12/18/06 11:55:37 AM

annual report /// 2006

2

Letter to the shareholders

In business, synergy is a state we seek to attain. It is a

marvelous ideal to shoot for, whether it is developed and

nurtured or, as is the case more rarely, occurs naturally.

There are so many great ideas out there, but what does

it take to turn a gem of a thought into a viable business

success? Good leadership, sound financials, a solid

team of professionals and staff, and a clever marketing

strategy are some of the most critical factors. And while

all of these are crucial to developing and maintaining a

sound business, synergy is often the element that propels

a company to truly achieve greatness.

When there is synergy, everything clicks, aligns, and

matches… like pieces of a puzzle, things fall in place,

fit, and work perfectly together…. This year has been a

Synergistic one for everyone at Artwork Systems. Our

move to a brand new headquarters in Ghent has afforded

us not only a new beautiful view, but also has brought

both Enfocus and Artwork Systems truly under one roof,

together. This physical move solidified our family and has

afforded us a real opportunity to share our very important

resources and talents. From Support through Sales,

Marketing and R&D; our capabilities have strengthened.

Throughout this year, Artwork Systems’ employees,

shareholders and customers have continued to reap the

benefits of this great synergy. While much of the work

to combine the infrastructure is still being done behind

the scenes, we started to share our united operations

with what has turned out to be a highly appreciative

marketplace in 2006. In fact, we combined exhibits at

two of the major international industry events: IPEX (U.K.)

and Graph Expo & Converting Expo (U.S.).

Something interesting is happening while we meticulously

work through the process of merging our people and

processes. The synergistic spark so many work so

hard to achieve has, in the case of Artwork Systems

and Enfocus, taken on a life of its own, in the form of a

company-wide mission called Certified Automation.

Artwork Systems and Enfocus have a track record in

providing both of these critical solutions, and now we’ve

combined them into a single entity that is present in

virtually all of our technologies; and has become our

overriding, development, sales, and marketing mission.

Certified Automation will be the hallmark of our portfolio.

The Board of Directors

From left to right: Guy M. Warlop, Bart Denoo, Hildegard Verhoeven, Guido Van der Schueren, Guido Kestens, Peter Denoo & Hubert Ooghe

�

Automation – an industry objective shared among

graphic arts organizations the world-over -- streamlines

routine tasks, enables remote process and job control,

collaboration, data sharing, and more; thereby empowering

work groups, streamlining business, improving decision-

making, and saving costs. Fortunately for the graphic

arts communities, more and more automation solutions

are becoming available.

But what is automation without quality control? Without

traceability?

The reality is that automation without quality control and

traceability is dangerous and costly.

Automation with quality control and traceability – i.e.,

Certified Automation, is security printers, packagers and

publishers can’t get anywhere else.

Our customers know that Certified Automation is a

guarantee that their files will be the way they should be,

the way the file creator intended them to be, and the way

the brand owners demand them to be.

Certified Automation can be achieved using any one or

combination of our own products, from the flagship Nexus

workflow and PitStop Professional, to the increasingly

popular PA:CT (Packaging Certified Technology) and

lauded Concentric screening; through to our newest

solutions such as the recently announced Equinox, a

breakthrough in expanded color gamut printing.

Exemplifying the power of Certified Automation in a true

melding of Artwork Systems and Enfocus technologies are

the Odystar workflows for high-end commercial printing

and packaging applications, and its “younger sister”,

PitStop Automate, the high-powered yet affordable and

easy-to-use task-based production automation tool

that allows design studios, ad agencies, printers and

publishers to introduce automation at an affordable

price. Four companies as of this writing have announced

plug-in solutions for PitStop Automate.

Certified Automation has enough spark to fuel

partnerships and OEM agreements, as well! Our partner

list grows, and just this year we’ve added or expanded

alliances with prestigious firms such as Stork Prints,

Punch Graphix, EFI and Screen.

This positive energy is charging the air in our new offices,

the Artwork Tower on Bellevue, in Ghent. Officially

inaugurated in the fall by Mr. Yves Leterme, Minister-

President for the Flemish Government, the prestigious

building is a well-known landmark in the area. Now

home to over �00 employees, this new office location

has not only allowed the two sets of colleagues to come

together under one roof, but has also provided the group

with extra space including brand new, expanded training

rooms and demonstration areas. Here, both customers

and partners can experience the breadth and depth of

the Artwork Systems Group’s award-winning solutions.

Please know that you have an open invitation to visit us

here at anytime! In the meantime, we look forward to

sharing more success with you this coming year.

syn - er - gy

1. The interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects. 2. Cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of a corporation, that creates an enhanced combined effect.

n. pl. syn·er·gies

Bart Denoo Guido Van der Schueren Peter Denoo


�

Traceability - the other trend of 2006

All major exhibitions in recent years have had a theme and

Ipex 2006 is being firmly hailed as the ‘JDF show’. How

significant JDF will be to the general commercial printer

by April on a day to day basis has yet to be seen, but

there is no doubt that it has great long term importance.

Research and development teams here in Belgium

are working away at extending the implementation of

JDF within our systems, just like most other pre-press

vendors.

But I believe that a need of equal importance to the

industry, and which is significant right now, is traceability.

It is a word that will be heard with greater frequency

during 2006 because traceability creates the process

control for a job throughout each stage of production.

Lack of process control is a worldwide problem for

the graphic arts industry, which, for all its advanced

technology, retains much of the artisan culture of its roots.

If you compare printing to most other manufacturing

industries the huge difference in expectations is

frightening. For example, imagine a car production line

where the parts are frequently wrong for the model being

made. It simply wouldn’t happen. Every nut and bolt is

precisely specified and made to fit. In the food industry

traceability has been developed to such an extent that

a retailer selling a bag of crisps can find out in which

particular field the potatoes were grown that were used

in the product, even if it is in another country.

Yet we accept (often expect) that as part of the process of

printing there will quite regularly be elements between the

designer, the pre-press, press and finishing departments

that do not fit. We are not altogether surprised when the

‘nuts and bolts’ are wrong. The consequence of this is

generally that the job has to go back several stages, either

to the press, the pre-press department or the designer.

Perhaps even to the print buyer or customer.

The loss in terms of cost, materials and time is phenomenal.

Opportunities are missed because products cannot

be brought to market when required and the strain on

loyalty can be immense, particularly when mistakes lead

to disputes over who pays for corrections. This scenario

is not unavoidable and the industry has to change the

way it operates to duplicate the degree of accuracy and

traceability found today in other manufacturing sectors.

I believe that certified PDF is the missing link between

the different stages of production. Certified PDF

provides a standard method of working, where jobs do

not progress to the next stage unless they meet agreed

criteria. It ensures that when a job has finally stopped

going back and forward between the designer and the

�

customer, that the file sent to the pre-press department

can actually move through the subsequent processes

without incurring a problem, or worse still, a reprint.

A certified PDF file should provide comprehensive data

about who did what to a job and when it was done. It

creates responsibility and transparency, and the more

complex the job the greater is the need for it.

If the industry could reduce errors by as little as two

percent, the savings worldwide would be, indeed, global

in size. One Artwork Systems customer, a manufacturer

of gravure cylinders, was experiencing a failure rate of six

percent until he introduced automatic traceability within

the workflow. Within six months he reduced the remake

rate by two percent, which equates to 600 cylinders over

the year – a colossal saving for the company.

In the packaging sector reprinting work in different

countries and languages accounts for around 60 per cent

of all jobs produced.

However, ensuring that the correct images etc are used is

a major headache, particularly when the job incorporates

languages that the operators have no knowledge of.

Again, automatic and detailed traceability in this situation

would have massive benefits in reducing errors.

This is why we launched PA:CT – Certified PDF for

Packaging – earlier in the year and this is quietly but

surely bringing together major retailers, designers and

packaging printers across Europe. PA:CT provides total

traceability of the job from design to packaging.

Reducing wastage in the industry is the challenge facing

us all. JDF will do much to improve efficiency long term,

but certified PDF will also have a major impact on the

industry. Even though this is probably not a banner that

will be flown on many stands at Ipex 2006, certified PDF

is a growing trend that will take on increasing importance

in the coming months and years.

FlexoTechNouvelles GraphiquesGrafisch NieuwsGraphic Repro & PrintIndian Printer & PublisherIn-PublishCaractereIl Poligrafico ItalianoDeutscher DruckerPrint & Paper Monthly

This opinion piece byGuido Van der Schueren, has appeared in many graphical industry magazines all over the world. Most of them are well known for professionals in the industry:


6

�

Artwork Systems Business


�

Concentric Screening:“The halftone dot will never be the same.”

The conventional halftone dot was invented the late ��00’s and has remained virtually unchanged ever

since - a solid geometric object designed to carry ink.

Our new Concentric Screening™ is a revolutionary halftone screening technology in which the solid

geometric object, or halftone dot, is divided into thin “concentric” rings.

These rings limit ink film thickness on the offset plate, thereby providing greater stability on press and

increased color saturation.

With Concentric Screening™ printers are able to increase —even double— screen rulings without

experiencing the traditional problems of mottle, dot gain, and variability typically associated with high

screen rulings.

�

Thomas J. Stevenson

“Concentric Screening has provided a significant increase in print quality. I can’t recall a technology in this price range that has had as major of a direct impact on product quality.Since May, we have been using Concentric on a consistent basis. The results are exceptional. It’s the HDTV of the print world and has exceeded our expectations.”

Thomas J. Stevenson, Vice President of Stevenson, The

Color Company – Cincinnati - USA, offers this testimony

to the benefits of Concentric Screening:

“Concentric Screening™ has provided a significant

increase in print quality at Stevenson and helped us further

differentiate our product in the competitive environment

of sheetfed offset printing. I can’t recall a technology in

this price range that has had as major of a direct impact

on product quality as Concentric Screening™.”

“Since May, we have been using Concentric on a

consistent basis. The results are exceptional. It’s the

HDTV of the print world. We’ve rerun several jobs with

Concentric to provide side by side comparisons; the

difference is night and day. Concentric has exceeded our

expectations.”

“The benefits we have seen with Concentric Screening™

include:

1. higherscreenrulings,

2. greaterpressstability

3. moresaturatedcolors.

With Concentric, we now run 340 lpi screens regularly

– screen ruling comes with even greater press stability.

Our pressmen love it.”

“In summary, Concentric Screening ™, combined with

good QC practices and materials, enables us to provide

our customers with a superior product. That’s what

Stevenson, The Color Company, is all about.”


�0

Odystar,thenativePDFworkflowsystemtargetedtothelabelsand

packaging audience, was introduced just before the beginning of

financialyear2005andcelebratesitsfirstyearoflife.Inaccordance

withtheexpectations,Odystarimmediatelyfounditswayintoimportant

labelprintingplants,butequallysettleddowninotherenvironments

suchaspackagingconverters,printersandrepro-shops.

Odystar Packaging

Odystar is a native PDF workflow, running on a Macintosh,

which provides an extensive range of automatic pre-

press production tools including preflighting, correcting,

advanced trapping, step and repeat, proofing, screening

and printing.

The target audiences for Odystar Packaging are, first

of all, non-ArtPro using companies producing labels &

packaging today.

In today’s environment one can assume that if the front-

end application used to prepare the label or the package

is not ArtPro, it is probably Adobe® Illustrator®. Until today,

automation for the operator-manned workstations was

mainly implemented in high-end and complex packaging

production. In the field the automation with the Nexus

workflow serving the ArtPro workstations has settled

in quite successfully, but automation behind Illustrator

workstations in many companies is still in its infancy.

However, automated processes are essential for

any operation that wants to fortify its position facing

competition; therefore, automating the Illustrator

workstations is the evident way to proceed. Odystar

Packaging is targeted especially to make this happen.

The workflow is therefore specifically premeditated to be

more accessible for Illustrator users who tend to be less

involved in exploring automation processes compared to

e.g. ArtPro/Nexus environments.

Crucial to Odystar’s success is the fact that operators

never need to exit their preferred front-end Adobe®

Illustrator® to exchange information with the workflow.

The Odystar Shuttle technology enables Illustrator users

to monitor the workflow and the jobs going through

the workflow from within Illustrator itself. Shuttle is

indispensable to the operator who will use this tool

to submit, retrieve and monitor jobs and control job

parameters. The new communication layer that Shuttle

brings to the workstation has equally been made available

to ArtPro or Neo users as built-in technology and exists

as a standalone utility for users of other applications (e.g.

Adobe® Indesign® or QuarkXPress®) or administrative

users (e.g. account managers).

In the aim to make Illustrator function seamlessly in

a Certified PDF or PA:CT (Packaging Certified PDF)

environment and to make it possible to exchange native

PDF data with Illustrator, Artwork Systems installed

another key technology inside Illustrator named inPDF.

InPDF encloses Artwork Systems’ renowned PDF library

and takes care of the constant native PDF file exchange

to and from the workflow. inPDF is also the carrier to

support PA:CT, the indispensable packaging traceability

for this workflow.

��

In the label and packaging market, automation is in full

progression. Being able to trace what changes have or

have not been executed on the file, and who has done

what, are of vital importance to support the automation

emerging in this industry. PA:CT, Artwork Systems’

packaging implementation of Enfocus’ Certified PDF, is

exactly that automation enabler this market is waiting for.

Odystar is a workflow which does not just concentrate on

features and functions alone, but brings a new approach

of transparency to the shop floor that extends into the

brand owner’s world. With PA:CT integrated in as well

the Illustrator/Odystar environment as in the ArtPro/

Nexus environment, the production becomes completely

transparent and the Illustrator workstations enjoy the

same traceability and transparency as the ‘high-end’.

PA:CT is undoubtedly what distinguishes the Odystar

workflow from other competitive solutions and will prove

to become essential in the graphic supply chain.

PA:CT TrAPPing deCorATe

sTeP & rePeAT riP

Data check of the incoming document.

Packaging traceability starts here!

Compensation for possible

misregistration in print.

Preparation of a job for good-for-print

approval by the customer.

Definition of plate layout. How

many single jobs can be printed

together?

Generating digital plates per

printing separation tailored for

press.

A grAsP ouT of odysTAr’s feATure PorTfolio


�2

1

7 8

6

Grand Opening 14.09.2006

��

1 & 2. guido Van der schueren welcomes the attendees of the grand opening. 3 & 4. A relaxed atmos-phere at the reception 5. small demo of the Artwork systems software. 6. live first-class Cuban music 7. Minister-President yves leterme talks about the need for innovation. 8. Bart & Peter denoo give yves leterme a tour of the offices. 9. Petra Tant gives an explanation about new software features.

3

5

9

4

2


��

Enfocus: building the futureDuring 2006, Enfocus further strengthened its world-leading role as a developer of PDF

workflow tools with the release of major upgrades and new technologies. From creative

designallthewaythroughtotheprinterpre-pressworkflowsystem,theEnfocustechnologies

takeanewmajor leapin increasingquality,reliability, traceabilityandautomationofPDF

fileexchange.2006markedthereleaseofamajorPitStopProfessional7update,Enfocus’

flagshipproduct,andnewproductslikeInstantBarcode1andPitStopAutomate1.

PITSTOP PROFESSIONAL 7Released in June 2006, PitStop Professional � offers vast improvements which were immediately recognized by our

loyal PitStop Professional users. Even though only on the market for one quarter in fiscal 2006, the upgrade proved to

be a major contribution to the financial results of Enfocus in that last quarter. Users purchasing the upgrade will greatly

benefit from its major user interface improvements as well as several new features that facilitate more advanced

editing and correction of PDF files.

INSTANT BARCODE 1Taking advantage of Artwork Systems’ existing barcode technologies,

Enfocus Instant Barcode, a new plug-in tool for Adobe® Illustrator®, was

created and released in June 2006. This plug-in allows creative professionals

to easily create, read, verify and fix barcodes directly from within their familiar

editing environment. The most commonly used barcodes are supported, and

Instant Barcode automatically ensures the barcode is of good quality placing

it on a white rectangle when needed or warning if it is not properly scaled.

Additionally the barcode preflighting capabilities within Instant Barcode allow

to check the number and type of barcodes used in the document, while

verifying their validity.

1 2

1. Pitstop Professional Wizard

2. global Change panel, which makes it

very easy to change multiple characteris-

tics of a Pdf at the same time.

��

PITSTOP AUTOMATE 1Born from the powerful combination of Artwork

Systems’ Odystar workflow technology and Enfocus’

preflight and PDF technologies, PitStop Automate was

released in May 2006. Combining an unprecedented

flexibility in workflow automation with an easy-to-use

graphical interface, PitStop Automate extends the

PitStop product line towards process control, quality assurance and process automation. PitStop Automate allows

design studios, ad agencies, printers and publishers to increase productivity and output consistency by introducing

advanced automation at an affordable price. Built to streamline graphic arts processes, PitStop Automate extends the

power of Enfocus’ automation-enabling technologies such as PDF preflight & editing and the award-winning Certified

PDF®.

Katrin Dierickx, Promedia

“PitStop Automate provides us with an interactive, on-screen method of checking our PDF workflow and enables us to simply and quickly check for any problems and to fix these problems with little manual intervention. We have been using it with great success for over � months.”

Promedia chooses Enfocus Pitstop Automate to streamline workflow in its demanding production department

PitStopAutomatehasbeenwellreceivedinthegraphic

artscommunity.Asanexample,Promedia,thehighly

successful, Belgium-based member of the World

DirectoriesGroupresponsibleforproducingBelgium’s

“Gouden Gids/Pages d’Or” and many other yellow

andwhitepagedirectories,selectedEnfocusPitStop

AutomatetoassistinitsBook,Planning&Production

department, where over 50.000 pages this year have

been turned into reliable and production-ready PDF

files.


�6

PITSTOP AUTOMATE TECHNOLOGY PARTNERSHIPSContinuing its philosophy of opening its technology to �rd party developers,

Enfocus also introduced the PitStop Automate Technology Partner Program in

the course of 2006. Within this program other vendors can seamlessly integrate

their own technologies within the PitStop Automate workflow, offering an even

broader scope of solutions to users. Several well respected manufacturers in the

industry like Alwan, I.C.S., PerfectProof and Ultimate have already signed up for

the partnership program and are currently developing versions of their technology

within the PitStop Automate environment.

BUILDING FOR THE FUTUREAlthough 2006 marked the release of major new versions and new

products, Enfocus has again heavily invested in innovation for the future.

As a result, many new products and versions are already well underway

to be released in the course of 200�. As such, the graphic arts industry

will continue to benefit from an ongoing reliability in file exchange and

automation.

��


��

complete traceabilityTheofficial launchofPA:CTinMarch2005broughttogetherpeoplefromeverystageoftheproductionchain,

fromtheindividualdesignertothegiantinthepharmaceuticalworld.TheyhadtraveledfromacrossEuropeto

Brusselswithoneaim–tolearnhowthenewArtworkSystemsconceptofCertifiedPDFforthepackagingsector

couldhelpthemimproveproductivityandprofits.

Thatonemeetingwaslikeapebblethrownintoapondanditsetinmotionaseriesofdiscussionsanddebatesin

awiderangeoforganisationsinmanydifferentcountries.TheresultisthatPA:CThasbeenincreasinglyadopted

inEuropebythose involved inproducingprintedpackaging:designers,pre-presshouses,printers,packaging

companies,manufacturersandretailers.Today,PA:CTisusedinsectorsrangingfrompharmaceuticalandfood

packagingtofastrotatingconsumergoods.Thelistisgrowing.

One of the companies that has implemented PA:CT is

Copapharm Europe, which is the parent company of

August Faller in Germany, Icesa, Pans and Cartonplex

in Spain, Packart and Rotanotice in France, Palladio/

Zannini in Italy, Storey Evans in the UK and Goldprint in

Belgium.

Sylvia Wieloch is marketing and sales coordinator at

Copapharm Europe. “With the implementation of PA:

CT at Copapharm Europe we aim to meet several key

requirements in the pharmaceutical pre-press packaging

workflow. These include providing security (a secure data

process) and traceability of all processes in the workflow.

We plan to use extended preflighting to achieve greater

quality assurance and the increased level of automation

to reduce or avoid errors. Of course, cost-effectiveness

is also an important requirement.

“We want to have this technology in all our European

production sites to provide the best service to our

customers eg ALCON, GSK, Pfizer, Schering-Phlough,

Novartis, Johnson & Johnson, Baxter, Abott Labs, Bayer,

and Roche,” says Mrs Wieloch.

Thomas Wahl, pre-press specialist at August Faller in

Waldkirch, explains his involvement in implementing

the process. “The project stated in the spring of 200�

and the first step was to define our internal setup and

guidelines then start using PA:CT with a limited number

of customers,” says Mr Wahl.

��

“After a thorough investigation and analysis the results

were distributed to other Copapharm production plants

and the number of customers and users extended. This is

an ongoing process during which Copapharm continues

to implement PA:CT technology.”

The unique feature in the Copapharm pharmaceutical

pre-press workflow is the facility for complete traceability

of work. Certified PDF technology is used in many

different workflows from a variety of vendors but only with

Artwork Systems applications and workflow solutions,

in combination with PA:CT, is complete traceability

achieved.

From the creation process, carried out in Adobe Illustrator,

through the validation phase by the brand owner using

Adobe Acrobat with Enfocus Pitstop Professional, to the

pre-press (ArtPro and Nexus) and printing process, every

action is logged in a complete audit trail.

All the information that is required by the brand owner to

ensure a secure and safe production process is readily

available eg date/timestamps, overview of each action,

job information, comments, hardware data, quality report

etc. This facility is unique and it is vitally important in the

pharmaceutical industry.

“PA:CT has broken down the boundaries between

design and production and created a controlled and

consistent workflow,” says Thomas Wahl. “We are able

to optimise and secure the entire pre-press process for

us, our suppliers and the brand owners. According to our

customers – the largest pharmaceutical brand owners in

the world – this enhanced security and traceability aspect

is key in the relationship and the choice of Copapharm as

a preferred supplier. This choice becomes even more

important in an industry where errors could have life or

death consequences.”


20

2�

Theworld’slargestEnglish-speakingprintandpublishingevent.

4-11April2006//Morethan1,200exhibitors//52,432uniquevisitorsin8days

NECBirminghham-UnitedKingdom

ArtworkSystemsandEnfocuswerepresenttogetherwithonebooth...

IPEX 2006


22

Worldwide presence 2006

BELGIUM

Research and Development ��

Sales and Marketing 2�

Support ��

General and Administrative �6

�0� staff

UNITED KINGDOM

Research and Development �

Sales and Marketing �

Support �

General and Administrative �

2� staff

IRELAND

Research and Development �2

�2 staff

UNITED STATES

Research and Development �

Sales and Marketing 2�

Support ��


�� staff

BRAZIL


� staff

MEXICO


� staff

ARGENTINA


� staff

TOTAL WORLDWIDE

Research and Development 78

Sales and Marketing 72

Support 62

General and Administrative 34

246 staff

2�

Worldwide presence 2006

GERMANY

Sales and Marketing 6

Support ��


2� staff

FRANCE


Support �


�� staff JAPAN

Research and Development 2


� staff

AUSTRALIA



2 staff

HONGKONG


� staff


2�

Artwork Systems Corporate Governance & Information for Shareholders


26

Corporate governanCeOn December 21, 2006 the Board of Directors adopted a Corporate Governance Charter which can be found at the

website of the company www.artwork-systems.com under the investor relations section. This charter describes the

way the company implemented the Belgian Code of Corporate Governance, published by the Belgian Corporate

Governance Committee on December 9, 2004.

1. BoardofDirectors

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. The Board of Directors is

composed of seven members; four executive and three non-executive independent directors. Three of the executive

directors represent the majority shareholders.

Name Age Position

Executive Directors:

Guido Van der Schueren 54 Chairman of the Board

Peter Denoo 46 President and CEO

Bart Denoo 42 Chief Software Architect

Hildegard Verhoeven 37 Chief Financial Officer

Non-executive Independent Directors:

Ratio Plus NV, represented by Hubert Ooghe 60 Director

De Bist Bvba, represented by Guido Kestens 66 Director

Advisam NV, represented by Guy M. Warlop 68 Director

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 Esko 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.

27

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 and as

Managing Director since February 23, 2005. 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).

Em. Prof. dr. Hubert Ooghe has served as a director of Artwork Systems Group NV since October 17, 2001. Mr.

Ooghe is Emeritus 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, and as board member of

several companies and organisations. Mr. Kestens is a former president of the KVIV (Koninklijke Vlaamse Ingenieurs

Vereniging). Mr. Kestens 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.

termsofofficeThe directors’ term of office will end immediately after the annual General Shareholders’ Meeting of January 2007.


28

meetingsoftheBoarDofDirectorsThe Board of Directors had 6 meetings during the year ended September 30, 2006. At 4 of these meetings all

directors were present. At the other 2 meetings 6 directors were present.

During these meetings the following topics were on the agenda:

• Reporting on the commercial activities

• Financial report: approval of the consolidated quarterly, half-year and year numbers, approval of the

consolidated budget

• Reporting on the software development

• Corporate Governance Charter and Dealing Code

• The move to the new building and changing the seat of the Company

One of the meetings was organized around the statutory events and the annual report: approval of the annual

report, statutory accounts, report of the Board of Directors and the agenda of the annual shareholders’ meeting.

2. committeesoftheBoardofDirectors

The Board of Directors has set up a Nomination and Remuneration Committee and an Audit Committee. These

committees assist the Board of Directors in specific matters, the final decision is taken by the Board of Directors.

The operation of the Committees is described in the Corporate Governance Charter of the Company.

2.1nominationanDremunerationcommitteeThe Nomination and Remuneration Committee is composed of the following three non-executive independent

directors:

• Ratio Plus NV, represented by Hubert Ooghe

• De Bist Bvba, represented by Guido Kestens

• Advisam NV, represented by Guy M. Warlop

The Executive Directors are present at the meetings of the Nomination and Remuneration Committee when invited.

The Nomination and Remuneration Committee organized one meeting during the year ended September 30, 2006.

The main topic was the remuneration policy for employees with annual compensation above a certain treshhold.

2.2auDitcommitteeThe Audit Committee is composed of the following three non-executive independent directors.

• Ratio Plus NV, represented by Hubert Ooghe

• De Bist Bvba, represented by Guido Kestens

• Advisam NV, represented by Guy M. Warlop

The President & CEO, the Chief Financial Officer and the external auditor are present when invited. During the year

ended September 30, 2006 the Audit Committee held 2 meetings dealing with the following topics:

• Audit for the year ended September 30, 2005

• Limited review half year ended March 31, 2006

29

3. executivemanagement

The executive management is composed of the following executive directors:

Guido Van der Schueren Chairman of the Board

Peter Denoo President and CEO

Bart Denoo Chief Software Architect

Hildegard Verhoeven Chief Financial Officer

4. remunerationofnonexecutivedirectors

Non – executive directors receive a compensation of Euro 15,000 per year. This compensation is approved by the

Annual Shareholders’ meeting together with the nomination of the Directors.

The following table gives an overview of the compensation paid to the non-executive directors for the year ended

September 30, 2006:

Ratio Plus NV, represented by Hubert Ooghe 15,000 Euro

De Bist Bvba, represented by Guido Kestens 15,000 Euro

Advisam NV, represented by Guy M. Warlop 15,000 Euro

5. remunerationofexecutivedirectorsandexecutivemanagement

Executive directors receive a compensation of Euro 7,500 per year for their membership of the Board. This

compensation is approved by the annual shareholders’ meeting together with the nomination of the Directors.

The following table gives an overview of the remuneration of the President & CEO and the other members of the

executive management for the year ended September 30, 2006:

Fixed Annual bonus Total

President & CEO 269,672 90,123 359,795

Other Members Executive Management 655,674 109,728 765,402

The executive directors have company cars at their disposal or receive a compensation when using their own car.

No stock options, shares, pension plans or other advantages were granted to the managing directors.

There are no out of the ordinary contractual agreements with executive directors or executive management in terms

of hiring or departure.


30

6. Policyregardingtransactionsbetweendirector(s)andartworksystemsgroupnVoranyofitssubsidiaries

The Company has in its Coporate Governance Code a provision regarding conflicts of interest between director(s)

and Artwork Systems Group NV or any of its subsidiaries. In accordance with Article 523 of the Belgian Company

law, the director with a possible conflict of interest informs the Board of Directors and the auditor about the possible

conflict of interest and does not take part in the decision making.

7. Policytopreventinsidertrading

The Board of Directors has adopted a policy regarding insider trading and market abuse. The goal of this policy is

to make insiders aware of the Belgian legislation regarding insider trading and to prevent the illegal use of inside

information by insiders in the company (directors, shareholders, management or employees).

The Board of Directors has appointed a Compliance Officer who’s duties include the monitoring of the compliance

of insiders with this policy.

31

InformatIon for shareholders

1. 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 General Shareholders’

Meeting held on January 27, 2006.

The consolidated and statutory financial statements of the Company up to September 30, 2006 have been audited

by the statutory auditor of the Company.

2. significantshareholders

The following overview is based on the notification received by Artwork Systems Group NV on June 6, 2005.

The table below provides an overview of the Company’s significant shareholders:

Identity of the Shareholder Number of financial instruments held Percentage of financial instruments held

Parana Management Corporation BVBA 4,294,608 25.19%

Kroy Finance Corporation BVBA 4,388,108 25.74%

Widmer Development Corporation BVBA 4,388,109 25.74%

Total 13,070,825 76.67%

3. Dividends

The following table sets forth the dividends paid during the years ended September 30, 2005 and 2004. The

dividend for the year ended September 30, 2006 will be proposed to the annual shareholders’ meeting to be held

on January 26, 2007:

Years ended September 30

Financial year Per share Total dividend Date of payment

2006 0.65 10,979,563 To be approved

2005 1.00 16,952,125 April 3, 2006

2004 1.00 17,048,650 February 28, 2005 (closing dividend)

September 24, 2004 (interim dividend)


32

4. sharebuy-backprogram

During the month of July 2005, Artwork Systems Group started implementing the share buy back program approved

by the annual shareholders’ meeting of January 28, 2005 and extended by the annual shareholders’ meeting of

January 27, 2006. At September 30, 2006 Euro 1,638,200 is accounted for as Treasury Shares (deducted from

equity), representing 157,015 shares.

5. informationconcerningthenatureandextentofthetradingmarket

The Company is quoted on Euronext under the symbol “ARTS”.

The shares are quoted in Euro. The following table sets forth the low and high price for the periods indicated.

In Euro

Low High

First quarter 2006 (ended December 31, 2005) 9.75 10.85

Second quarter 2006 (ended March 31, 2006) 10.76 12.40

Third quarter 2006 (ended June 30, 2006) 10.00 11.81

Fourth quarter 2006 (ended September 30, 2006) 9.25 10.43

Low High





Low High





12.50

12.00

11.50

11.00

10.50

10.00

9.50

9.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

28/03/06 Euro 12.40

25/08/06 Euro 9.25

33

6. outlook2007

The board of directors expects for the financial year 2007 a consolidated revenue between 46 and 47 million euro

and a net profit between 11 and 11.5 million euro.

7. financialcalendar2007

General Shareholders’ meeting 2006 26/01/2007

Q1/2007 16/02/2007

Q2/2007 25/05/2007

Q3/2007 24/08/2007

FY 2007 30/11/2007

8. currentstructureofartworksystemsgroup

Artwork Systems Group N.V. has eleven 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 Software Inc, Dimensional CAD/CAM Systems Inc and DI Asia.

artworksystemsgroupnV

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 Asia

Enfocus Software Inc


34

ARTWORK SYSTEMS NV

Seat of company Bellevue 5/1101 B-9050 Gent, BelgiumField of activity Development, sales and support

of software for printing industryYear of Incorporation 1992Share capital 74,368 EuroManaging Director(s) Guido Van der Schueren, Peter

Denoo, Bart Denoo and Hildegard Verhoeven

Ownership percentage 100%Number of Employees 113

ARTWORK SYSTEMS INC.

Seat of company 1209 Orange Street, Wilmington, Delaware 19801, USA

Field of activity Development, 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 Ganz

Ownership percentage 100%Number of Employees 23

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 12

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


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


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


ENFOCUS SOFTWARE INC

Seat of company 16000 Ventura Blvd, Suite 910, Encino, CA 91436, USA

Field of activity Sales of software for the PDF market

Year of Incorporation 1998Share Capital 50,000 USD Managing Directors Peter Denoo, Bart Denoo and

Guido Van der SchuerenOwnership percentage 100%Number of Employees 5

Artwork Systems Financial Statements


36

1. SelectedSummaryFinancialData

The selected financial data presented below has been extracted and derived from the consolidated financial

statements of Artwork systems Group N.V. included in section 3 of this document.

2006 2005 2004

Net revenue 46,484,207 46,217,096 47,136,330

Cost of revenues 7,611,720 8,000,038 8,131,052

Gross margin 38,872,487 38,217,058 39,005,278

Operating expenses

Research and development 6,082,876 5,527,441 4,842,907

Sales and marketing 13,415,447 13,709,031 13,147,096

General and administrative 2,580,849 2,568,545 2,559,773

Depreciation 839,785 721,318 643,919

(*) Income from operations 15,953,530 15,690,722 17,811,583

Non-operating expenses 0 0 151,064

Financial income (expense) -1,098,777 669,610 -268,647

(*) Profit before income taxes 14,854,754 16,360,331 17,391,872

Provision for income taxes 3,788,399 4,958,550 4,741,116

(*) Net income 11,066,354 11,401,781 12,650,757

(**) Amortization 0 49,537 714,733

Net income after goodwill 11,066,354 11,352,244 11,936,023

(*) before amortization of other intangibles from acquisitions(**) and other intangibles from acquisitions

introduction to theConsolidated FinanCial statements

IncomeStatement

37

2. Management’sDiscussionandAnalysis

ofFinancialConditionsandResultsofOperations

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, 2006.

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.

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 and Dublin (Ireland) and Los Angeles (California, US). The Company’s

headquarters are located in Belgium. Total staff is 246.


38

2.1FINANCIAlRePORtINgCONSIDeRAtIONS

The Company reports its consolidated financial statements in accordance with IFRS (International Financial

Reporting Standards).

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 Reserves”, a component of shareholders’ equity in the balance sheets.

Exchange rates (USD/Euro) applied in the financial statements are as follows:

Period Income Statement (average rate) Balance Sheet (end of period rate)

Financial Year 2006 1.2303 1.2660

Financial Year 2005 1.2739 1.2402

Financial Year 2004 1.2181 1.2409

Amounts not derived from the consolidated financial statements and included in this “Management’s Discussion

and Analysis” are translated at historic exchange rates.

2.2ReSultSOFOPeRAtIONS

Key figures for the year, expressed as a percentage of net revenue, compare with last year’s figures as follows:

2006 2005 2004

Cost of Revenues 16.4% 17.3% 17.2%

Gross Margin 83.6% 82.7% 82.8%

Research and Development 13.1% 12.0% 10.3%

Sales and Marketing 28.9% 29.7% 27.9%

General and Administrative 5.6% 5.6% 5.4%

(*) Depreciation and Amortization 1.8% 1.6% 1.4%

(*) Operating Margin 34.3% 34.0% 37.8%

Non-operating expenses 0.0% 0.0% 0.3%

(*) After Tax Margin 23.8% 24.7% 26.8%

(*) before amortization of other intangibles from acquisitions

39

The following table compares income statement data with last year:

% increase

Revenue 0.6%

Revenue from products -1.9%

Revenue from services 6.0%

Cost of revenues -4.9%

Gross margin 1.7%

Research and development 10.1%

Sales and marketing -2.1%

General and administrative 0.5%

Depreciation and amortization 16.4%

(*) Income from operations 2.0%

Net income after amortization -2.5%

(*) before amortization of other intangibles from acquisitions

2.3NetReveNueS

The Group’s net revenue has increased by 0.6% from the year ended September 30, 2005 to the year ended

September 30, 2006. The increase of the USD has a positive impact of 1.3% 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:

2006 2005 2004

Europe 54% 52% 51%

Americas 39% 41% 43%

Asia 5% 4% 4%

Rest 2% 3% 2%


40

2.4COStOFReveNueS

For software sales, cost of revenues consists of the costs of the software protection keys 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.

2.5OPeRAtINgexPeNSeS

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 and to the allocation of overhead expenses based on the number of employees per department.

The Company is committed to continuously invest in development of new products and to maintaine and optimize

existing products.

The evolution in sales & marketing expenses is mainly related to the number of people employed and the provisions

for bad debt.

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.

2.6FINANCIAlINCOMeANDexPeNSe

Financial 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.

At September 30, 2006, the Company incorporated an existing intercompany loan of USD 9,152,011.01, outstanding

for many years, in additional paid-in capital of the subsidiary owing the loan. The translation difference related to

this loan used to be included in equity, not affecting the profit and loss of the related periods. By incorporating the

loan, the translation difference on the USD was realized having a negative impact of Euro 1,122,665.57 Euro on net

exchange loss in the consolidated income statement.

41

2.7FOReIgNCuRReNCyexChANgeRAteRISk

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.

2.8tAxRAte

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.

2.9lIquIDItyANDCAPItAlReSOuRCeS

As of September 30, 2006, the Group had Euro 9,276,387 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, 2006.

At the Annual Shareholders’ Meeting of Artwork Systems Group NV, held on January 27, 2006, a dividend of 1 euro

per share has been approved. This dividend was paid April 3, 2006.

On March 30, 2006 the Company entered into a straight loan of Euro 2,000,000 with one of its banks for an

indetermined period of time. To date, none of this creditline has been used.

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.

2.10ShARebuybACkPROgRAM


by the annual shareholders’ meeting of January 28, 2005 and extended by the annual shareholder’s meeting of




42

2.11NewheADquARteRSANDMeRgeR

On March 31, 2006 Artwork Systems NV and Enfocus Software NV merged retroactively on October 1, 2005. As

a consequence Enfocus Software NV stopped to exist and all assets and liabilities were taken over by Artwork

Systems NV.

During April 2006, the Company moved to new headquarters in Gent, Belgium. The new adress is:

Artwork Systems

Artwork Tower

Bellevue 5/1101

9050 Gent

Belgium

All employees of Artwork Systems NV and the former Enfocus Software NV are based in the new headquarters.

2.12IPex

From April 4-11, 2006 the Company participated at Ipex, an important exhibition for the grafical market, which takes

place every 4 year at Birmingham, UK. The impact on the sales and marketing expenses for the year amounts to

Euro 195,639. This includes the booth, marketing expenses, printed matter and travel and lodging of employees.

2.13ReSeARCh&DevelOPMeNtexPeNSeS

During the year ended September 30, 2006, research & development expenses of Euro 6,082,876 were included in

operating expenses.

2.14ChANgeSINCOMMONStOCk

No changes in common stock took place during the year ended September 30, 2006.

2.15FeeStOAFFIlIAteDCOMPANIeStOtheStAtutORyAuDItOR

During the year ended September 30, 2006 the Company paid Euro 50,169 to companies that are affiliated to the

statutory auditor.

43


44

Consolidated FinanCial statementsin accordance with iFrS

45

1. IndependentAuditor’sReport

tOtheShARehOlDeRS’MeetINgOFARtwORkSySteMSgROuPNv

In accordance with the legal and statutory requirements, we report to you on the performance of the audit mandate

which has been entrusted to us.

We have audited the consolidated financial statements for the year ended September 30, 2006 prepared in

accordance with International Financial Reporting Standards, as adopted for application in the European Union, and

with the legal and regulatory requirements applicable in Belgium, which show a balance sheet total of thousands of

EUR 35.739 and a profit for the year of thousands of EUR 11.066. We have also carried out the specific additional

audit procedures required by law.

The preparation of the consolidated financial statements and the assessment of the information to be included in

the consolidated directors’ report, are the responsibility of the board of directors.

Our audit of the consolidated financial statements was carried out in accordance with the auditing standards

applicable in Belgium, as issued by the Institut des Reviseurs d’Entreprises / Instituut der Bedrijfsrevisoren.

Unqualified audit opinion on the consolidated financial statements

The above mentioned auditing standards require that we plan and perform our 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. Company officials have responded clearly to our requests for explanations and

information. We have examined, on a test basis, the evidence supporting the amounts included in the consolidated

financial statements. We have assessed the accounting policies, the consolidation principles, the significant

accounting estimates made by the company and 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 for the year ended September 30, 2006 give a true and fair

view of the group’s assets, liabilities, financial position, results of operations and cash flows, in accordance with

International Financial Reporting Standards, as adopted for application in the European Union, and with the legal

and regulatory requirements applicable in Belgium.

Additional certifications and information

We supplement our report with the following certifications and information which do not modify our audit opinion on

the consolidated financial statements:

• The consolidated directors’ report includes the information required by law and is consistent with the

consolidated financial statements. We are, however, unable to comment on the description of the principal

risks and uncertainties which the group is facing, and of its situation, its foreseeable evolution or the significant

influence of certain facts on its future development. We can nevertheless confirm that the matters disclosed do

not present any obvious contradictions with the information of which we became aware during our audit.

• As disclosed in the notes to the consolidated financial statements, the accounting policies applied when

preparing these consolidated financial statements have been modified compared to the previous year.

Antwerp, November 30, 2006

Ernst & Young Reviseurs d’Entreprises SCC (B 160)

Statutory auditor, represented by Patrick Rottiers, Partner


46

2. ConsolidatedbalanceSheets

2006 2005 2004

Non-Current Assets

Property, Plant and Equipment Note 3 2,272,312 1,547,229 1,519,347

Goodwill Note 4 8,220,025 8,343,875 8,268,839

Intangible Assets Note 5 553,158 510,526 683,497

Deferred Tax Assets Note 13 2,506,435 2,667,611 2,639,731

Total Non-Current Assets 13,551,930 13,069,241 13,111,414

Current Assets

Inventories Note 6 247,144 355,709 488,824

Trade Receivables Note 7 10,870,828 9,900,687 10,075,493

Other Current Assets 1,792,714 1,067,769 1,190,459

Cash and Cash Equivalents Note 8 9,276,387 17,299,530 22,613,121

Total Current Assets 22,187,073 28,623,695 34,367,896

Total Assets 35,739,003 41,692,936 47,479,311

Equity

Share Capital 6,871,544 6,871,544 6,871,544

Other Capital Reserves 548,545 548,545 548,545

Treasury Shares Note 9 -1,638,200 -559,795 0

Retained Earnings 20,378,486 26,306,906 23,478,987

Other Reserves 323,880 -666,644 -640,451

Total Equity 26,484,255 32,500,557 30,258,625

Non-Current Liabilities

Deferred Tax Liability Note 13 168,663 564,256 542,508

Total Non-Current Liabilities 168,663 564,256 542,508

Current Liabilities

Dividend Payable 15,570 0 8,524,325

Trade and Other Payables Note 10 4,392,111 3,820,149 3,843,772

Related Party Payable Note 11 95,773 93,719 91,756

Current Tax Payable Note 13 285,294 642,808 606,955

Deferred Revenue 4,297,337 4,071,448 3,611,370

Total Current Liabilities 9,086,086 8,626,124 16,678,178

Total Liabilities 9,254,748 9,192,379 17,220,686

Total Liabilities and Shareholders’ Equity 35,739,003 41,692,936 47,479,311

Assets

liabilitiesandShareholders’

equity

47

3. ConsolidatedIncomeStatements

2006 2005 2004

Net Revenue

Products 30,933,407 31,543,704 34,477,203

Services 15,550,800 14,673,392 12,659,127

46,484,207 46,217,096 47,136,330

Cost of Revenues

Products 2,886,454 3,318,410 3,652,683

Services 4,725,265 4,681,629 4,478,369

7,611,720 8,000,038 8,131,052

Gross Margin 38,872,487 38,217,058 39,005,278

Operating Expenses

Research and Development 6,082,876 5,527,441 4,842,907

Sales and Marketing 13,415,447 13,709,031 13,147,096

General and Administrative 2,580,849 2,568,545 2,559,773

Depreciation 839,785 721,318 643,919

Amortization 0 49,537 714,733

22,918,957 22,575,873 21,908,428

Income from Operations 15,953,530 15,641,185 17,096,850

Other Operating Expenses 0 0 151,064

Financial Income 264,619 278,819 434,494

Financial Expense 2,214 4,612 13,341

Net Exchange Gain/(loss) Note 14 -1,361,182 395,403 -689,800

Profit before Income Taxes 14,854,754 16,310,794 16,677,139

Provision for Income Taxes Note 13 3,788,399 4,958,550 4,741,116

Net Income 11,066,354 11,352,244 11,936,023

Net Income excl Amortization 11,066,354 11,401,781 12,650,757

Basic/diluted earnings per Share Note 15 0.66 0.67 0.70

Basic/diluted earnings per Share, before amortization Note 15 0.66 0.67 0.74


48

4. ConsolidatedStatementsofShareholders’equity

Balances, September 30, 2005 17,048,650 6,871,544 548,545 -559,795 26,306,906 -666,644 32,500,557

Foreign Currency Translation 0 0 0 0 0 990,524 990,524

Net Income 0 0 0 0 11,066,354 0 11,066,354

Dividend Paid Out 0 0 0 0 -16,994,774 0 -16,994,774

Treasury Shares 0 0 0 -1,078,405 0 0 -1,078,405

Balances, September 30, 2006 17,048,650 6,871,544 548,545 -1,638,200 20,378,486 323,880 26,484,255

Balances, September 30, 2004 17,048,650 6,871,544 548,545 0 23,478,987 -640,451 30,258,625

Foreign Currency Translation 0 0 0 0 0 -26,193 -26,193

Net Income 0 0 0 0 11,352,244 0 11,352,244


Treasury Shares 0 0 0 -559,795 0 0 -559,795

Balances, September 30, 2005 17,048,650 6,871,544 548,545 -559,795 26,306,906 -666,644 32,500,557


Foreign Currency Translation 0 0 0 0 0 -488,522 -488,522

Net Income 0 0 0 0 11,936,023 0 11,936,023


Treasury Shares 0 0 0 0 0 0 0


(*) no par value

2006

2005

2004

49

5. ConsolidatedStatementsofCashFlows

5.1OPeRAtINgACtIvItIeS

2006 2005 2004

Net Income 11,066,354 11,352,244 11,936,023

Adjustments to reconcile Net Income to Net Cash provided by Operating

Activities

Deferred taxes Note 13 -337,440 57,432 494,380

Depreciation and Amortization Note 3 839,785 770,855 1,358,651

(Gain)/Loss on Sale of Equipment 33,346 -7,489 -19,681

Provision for Losses on Accounts Receivable Note 7 266,999 703,681 134,669

Changes in Operating Assets and Liabilities

Intangible Assets Note 5 -79,020 128,195 126,688

Inventories Note 6 992,781 148,125 252,888

Trade Receivables Note 7 -1,561,079 -425,864 -1,664,907

Other Current Assets -1,238,381 284,700 -481,599

Settlement of the Tax Claim 0 0 -12,005,863

Trade and Other Payables Note 10 1,186,008 -618,172 655,357

Current Tax Payable Note 13 -354,776 30,531 -62,814

Deffered Revenue 608,600 617,603 548,881

Net Cash provided by Operating Activities 11,423,177 13,041,841 1,272,673


50

5.2INveStINgACtIvItIeS

2006 2005 2004

Purchases of Property and Equipment Note 3 -1,621,571 -812,056 -921,430

Proceeds from Sales of Equipment 44,526 75,242 32,867

Net Cash used in Investing Activities -1,577,045 -736,814 -888,563

Free operating cash flow 9,846,132 12,305,029 384,109

5.3FINANCINgACtIvItIeS

2006 2005 2004

Dividend payment Note 16 -16,979,204 -17,048,650 0

Treasury Shares Note 9 -1,078,405 -559,795 0

Related party Loan 0 0 1,023,769

Net Cash used in and provided by Financing Activities -18,057,609 -17,608,445 1,023,769

Effect of Exchange Rate Changes on Cash 188,334 -10,175 -136,719

Net Increase (Decrease) in Cash and Cash Equivalents -8,023,143 -5,313,591 1,271,159

Cash and Cash Equivalents at Beginning of Period Note 8 17,299,530 22,613,121 21,341,962

Cash and Cash Equivalents at End of Period Note 8 9,276,387 17,299,530 22,613,121

51

6. NotestotheConsolidatedFinancialStatements

1CORPORAteINFORMAtION

The consolidated financial statements of Artwork Systems Group NV for the year ended September 30, 2006 were

authorized for issue in accordance with a resolution of the board of directors on November 24, 2006.

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 are publicly traded on Euronext under the symbol “ARTS”.

According to the Company’s bylaws, shareholders owing more than 3%, 5% or a multiple thereof, of the total

outstanding shares have to notify Artwork Systems Group NV. The last notification received indicates the following

shareholders’ structure:

Identity of the Shareholders # of financ. instruments held % of financ. instruments held

Parana Management Corporation BVBA 4,294,608 25.19%

Kroy Finance Corporation BVBA 4,388,108 25.74%

Widmer Development Corporation BVBA 4,388,109 25.74%

2bASISOFPRePARAtION,SIgNIFICANtACCOuNtINgeStIMAteSANDASSuMPtIONSANDSuMMARyOFACCOuNtINgPOlICIeS

2.1bASISOFPRePARAtIONThe consolidated financial statements are presented in euros, the functional currency of Artwork Systems Group

NV.

StAteMeNtOFCOMPlIANCe

The consolidated financial statements of Artwork Systems Group NV and all its subsidiaries have been prepared in

accordance with International Financial Reporting Standards (IFRS).

bASISOFCONSOlIDAtION

The consolidated financial statements comprise the financial statements of Artwork Systems Group NV and its

subsidiaries as at September 30 of each year. The financial statements of the subsidiaries are prepared for the

same reporting year as the parent company, using consistent accounting policies.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group

transactions that are recognized in assets are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control,

and continue to be consolidated until the date that such control ceases.


52

tRANSItIONtOIFRS

Artwork Systems started applying IFRS (International Financial Reporting Standards) on October 1, 2005, when its

new financial year began. The opening balance sheet for IFRS is September 30, 2004.

Until the adoption of IFRS (International Financial Reporting Standards) the Group’s financial statements were

based on US GAAP (accounting principles generally accepted in the United States). The Group evaluated the new

accounting rules to be applied and came to the conclusion that the transition to IFRS did not lead to changes in the

opening balance sheet. As a consequence no reconciliation was needed.

In applying IFRS for its fiscal year 2006, the Company did not make use of the excemptions for first time adoption

provided by IFRS 1.

2.2SIgNIFICANtACCOuNtINgeStIMAteSANDASSuMPtIONS

eStIMAteSANDASSuMPtIONS

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet

date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities

within the next financial year are discussed below.

2.2.1IMPAIRMeNtOFgOODwIll

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the

‘value in use’ of the cash-generating units to which the goodwill is allocated. Estimating a value in use amount

requires management to make an estimate of the expected future cash flows from the cash-generating unit and

also to choose a suitable discount rate in order to calculate the present value of those cash flows. Further details

are given in Note 4.

2.2.2DeFeRReDtAxASSetS

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will

be available against which the losses can be utilized. Significant management judgment is required to determine

the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable

profits. Further details are contained in Note 13.

2.3SuMMARyOFSIgNIFICANtACCOuNtINgPOlICIeS

2.3.1PROPeRty,PlANtANDequIPMeNt

Plant and equipment is stated at cost, excluding the costs of day to day servicing, less accumulated depreciation

and accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment

when that cost is incurred, if the recognition criteria are met.

Depreciation is calculated on a straight-line basis over the useful life of the assets. The useful lives are as follows:

Computer equipment 3 years

Office equipment 3 - 9 years

Furniture 3 - 5 years

Automobiles 5 years

53

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially

from its carrying amount.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits

are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the

difference between the net disposal proceeds and the carrying amount of the asset) is included in the income

statement in the year the asset is derecognized.

The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at

each financial year end.

2.3.2buSINeSSCOMbINAtIONSANDgOODwIll

Business combinations are accounted for using the acquisition accounting method. This involves recognizing

identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities

and excluding future restructuring) of the acquired business at fair value.

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the

business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and

contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment

losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition

date, allocated to each of the Group’s cash generating units, or groups of cash generating units, that are expected

to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are

assigned to those units or groups of units.

Where goodwill forms part of a cash-generating unit (group of cash generating units) and part of the operation

within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying

amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in

this circumstance is measured based on the relative values of the operation disposed of and the portion of the

cash-generating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation

differences and unamortized goodwill is recognized in the income statement.

2.3.3INtANgIbleASSetS

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets

acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible

assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally

generated intangible assets are not capitalized and expenditure is reflected in the income statement in the year in

which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives

are amortized over the useful economic life and assessed for impairment whenever there is an indication that the

intangible asset may be impaired. The amortization period and the amortization method for an intangible asset

with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the

expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing

the amortization period or method, as appropriate, and treated as changes in accounting estimates.

The amortization expense on intangible assets with finite lives is recognized in the income statement in the expense

category consistent with the function of the intangible asset.


54

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash

generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life

is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change

in the useful life assessment from indefinite to finite is made on a prospective basis.

ReSeARChANDDevelOPMeNtCOStS

Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual

project is recognized only when the Group can demonstrate the technical feasibility of completing the intangible

asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how

the asset will generate future economic benefits, the availability of resources to complete the asset and the ability

to measure reliably the expenditure during the development.

2.3.4IMPAIRMeNtOFNON-FINANCIAlASSetS

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any

such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of

the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s

fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does

not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the

carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down

to its recoverable amount.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication

that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists,

the Group makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only

if there has been a change in the estimates used to determine the asset’s recoverable amount since the last

impairment loss was recognized. If that is the case the carrying amount of the asset is increased to its recoverable

amount. That increased amount cannot exceed the carrying amount that would have been determined, net of

depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized

in the income statement unless the asset is carried at revalued amount, in which case the reversal is treated as a

revaluation increase.

Impairment losses recognized in relation to goodwill are not reversed for subsequent increases in its recoverable

amount.

The following criteria are also applied in assessing impairment of specific assets:

gOODwIll

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that

the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit (or group

of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit

(or group of cash-generating units) is less than the carrying amount of the cash-generating unit (group of cash-

generating units) to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating

to Goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as at

September 30.

INtANgIbleASSetS

Intangible assets with indefinite useful lives are tested for impairment annually as of September 30 either individually

or at the cash generating unit level, as appropriate.

55

2.3.5INveNtORIeS

Inventory primarily consists of finished goods and is valued at the lower of cost and net realizable value. Management

performs periodic reviews of inventories and provides for obsolete items.

2.3.6CAShANDCAShequIvAleNtS

Cash and short term deposits in the balance sheet comprise cash at banks and at hand and short term deposits

with an original maturity of three months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash

equivalents as defined above.

2.3.7tReASuRyShAReS

Own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss

is recognized in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity

instruments.

2.3.8FOReIgNCuRReNCytRANSlAtION

The consolidated financial statements are presented in euros, which is the Company’s functional and presentation

currency. Each entity in the group determines its own functional currency and items included in the financial

statements of each entity are measured using that functional currency. Transactions in foreign currencies are

initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities

denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance

sheet date. All differences are taken to profit or loss with the exception of differences on foreign currency borrowings

that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal

of the net investment, at which time they are recognized in profit or loss. Tax charges and credits attributable to

exchange differences on those borrowings are also dealt with in equity. Non monetary items that are measured in

terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial

transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange

rates at the date when the fair value was determined. Any goodwill arising on the acquisition of a foreign operation

and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated

as assets and liabilities of the foreign operation and translated at the closing rate.

The functional currency of the foreign operations, Artwork Systems Inc, Enfocus Software Inc and Dimensional CAD/

CAM Systems Inc is the United States Dollar. The functional currency of the foreign operation, Artwork Systems

Ltd is the Pound Sterling. As at the reporting date, the assets and liabilities of these subsidiaries are translated into

the presentation currency of Artwork Systems Group NV (the euro) at the rate of exchange ruling at the balance

sheet date and their income statements are translated at the weighted average exchange rates for the year. The

exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of

a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is

recognized in the income statement.

2.3.9PROvISIONS

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event,

it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and

a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision

to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset

but only when the reimbursement is virtually certain.


56

The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect

of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where

appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the

passage of time is recognized as a finance cost.

2.3.10ReveNueReCOgNItION

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the

revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding

discounts, rebates, and other sales taxes or duty.

The following specific recognition criteria must also be met before revenue is recognized:

SAleOFSOFtwARe

Today IFRS does not provide specific guidance on Software Revenue Recognition. As a consequence, the Company

has decided to continue to follow the revenue recognition policies under USGAAP until IFRS provides specific

guidance on Software Revenue Recognition.

Revenue 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”.

INteReStINCOMe

Revenue is recognized as interest accrues (using the effective interest method that is the rate that exactly discounts

estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of

the financial asset).

57

2.3.11tAxeS

CuRReNtINCOMetAx

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to

be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are

those that are enacted or substantively enacted by the balance sheet date. Current income tax relating to items

recognized directly in equity is recognized in equity and not in the income statement.

DeFeRReDINCOMetAx

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date

between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences.

Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax

credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which

the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be

utilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the

extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred

income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet

date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred

tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year

when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or

substantively enacted at the balance sheet date.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the income

statement. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right

exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the

same taxable entity and the same taxation authority.


58

3PROPeRty,PlANtANDequIPMeNt

The following gives an overview of Property, Plant & Equipment:

ComputersOffice Equipment and

Furniture Vehicles Total

Cost at October 1, 2005 2,691,251 770,690 1,719,852 5,181,793

Additions 278,824 1,015,458 328,041 1,622,323

Disposals 340,300 392,401 205,315 938,016

Exchange rate diff -53,942 -11,156 1,655 -63,442

At September 30, 2006 2,575,832 1,382,592 1,844,233 5,802,658

Amortization at October 1, 2005 2,172,864 529,719 931,981 3,634,564

Additions 318,714 207,536 280,353 806,603

Disposals 329,352 317,969 220,672 867,994


At September 30, 2006 2,126,150 411,160 993,036 3,530,345

Net Book Value 449,682 971,432 851,197 2,272,312



Cost at October 1, 2004 2,402,890 722,742 1,627,114 4,752,746

Additions 411,302 47,542 384,027 842,871

Disposals 157,979 5,473 294,668 458,120

Exchange rate diff 35,038 5,879 3,379 44,296

At September 30, 2005 2,691,251 770,690 1,719,852 5,181,793


Additions 344,769 74,223 293,193 712,185

Disposals 88,984 5,473 249,809 344,266

Exchange rate diff 28,015 3,979 1,250 33,247

At September 30, 2005 2,172,864 529,719 931,981 3,634,564

Net Book Value 518,386 240,972 787,871 1,547,229

59



Cost at October 1, 2003 2,222,640 682,955 1,306,089 4,211,684

Additions 433,253 74,509 393,655 901,417

Disposals 191,530 23,663 76,009 291,203


At September 30, 2004 2,402,890 722,742 1,627,114 4,752,746


Additions 308,254 63,258 237,337 608,850

Disposals 176,938 18,848 67,198 262,984


At September 30, 2004 1,889,063 456,989 887,345 3,233,399

Net Book Value 513,826 265,753 739,768 1,519,347

4buSINeSSCOMbINAtIONS

No acquisitions took place during the years ended September 30, 2006, 2005 and 2004.

PRevIOuSACquISItIONSANDRelAteDgOODwIll

Year ended September 30, 2002

On 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. USD 919,766 (Euro 726,513) of excess purchase price over

the fair value of the assets acquired and liabilities assumed was allocated to goodwill. None of this amount is

deductible for tax purposes.

The purchase agreement contained an earn-out mechanism based on EBITDA for the calendar years 2002 and

2003. The purchase agreement also contained an adjustment mechanism stating that a portion of the purchase

price, 100,000 USD, was repayable by the sellers if the Company did 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.

yeAReNDeDSePteMbeR30,2000

On April 25, 2000, the Company acquired Enfocus Software, a leading software provider in the PDF market, for Euro

10,000,000. 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 until the year ended September 30, 2002.

The purchase agreement for Enfocus contained 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 was amortized over the remaining amortization period until the year

ended September 30, 2002.

Based on independent valuations Euro 2,675,000 has been identified as acquired intangible assets other than

goodwill. These intangibles were amortized on a straight-line basis over 4.5 years.


60

yeAReNDeDSePteMbeR30,1998

Effective 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

6,319,115) 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 2,008,768) and USD

737,629 (Euro 582,645), respectively, representing additional purchase price based on the operating results of the

years ended September 30, 1999 and 2000. The goodwill related to this acquistion has been amortized until the

year ended September 30, 2002.

gOODwIll

Goodwill results from the acquisition of PCC, Enfocus Software and Dimensional CAD/CAM Systems Inc.

Goodwill consists of the following:

2006 2005 2004

Goodwill PCC 8,173,611 8,593,084 8,338,941

Goodwill Enfocus 10,548,417 10,548,417 10,548,417

Goodwill Dimensional Impressions 726,514 763,799 741,209

Total Goodwill 19,448,542 19,905,299 19,628,567

Less accumulated amortization -11,228,517 -11,561,425 -11,359,728

Balances at the end of the year 8,220,025 8,343,875 8,268,839

The changes in the carrying amount of goodwill from September 30, 2004 through September 30, 2006 are as

follows:

2006 2005 2004

Balances of the beginning of the year 8,343,875 8,268,839 8,428,792

Add: goodwill for current year transactions 0 0 0

Add: earn-out 0 0 0

Less: amortization of goodwill 0 0 0

Less: impairment of goodwill 0 0 0

Adjustments of goodwill and other intangibles for previous year acquisitions 0 0 0

Impact of foreign currency fluctuations -123,850 75,036 -159,953

Balances at the end of the year 8,220,025 8,343,875 8,268,839

The company performs annual impairment test on goodwill in accordance with 2.3.4. These tests resulted in the

finding that no impairment losses had to be recorded.

61

5INtANgIbleASSetS

The following gives an overview of the intangible assest excluding intangible assets from acquisitions:

Scitex Other Total

Cost at October 1, 2005 1,133,646 103,803 1,237,450

Additions 0 200,442 200,442

Disposals 0 0 0

Exchange Rate Diff -20,269 -5,067 -25,336

At September 30, 2006 1,113,378 299,179 1,412,556

Amortization at October 1, 2005 639,799 87,126 726,924

Additions 96,454 48,961 145,414

Disposals 0 0 0

Exchange Rate Diff - 8,687 -4,253 - 12,940

At September 30, 2006 727,565 131,834 859,399

Net Book Value 385,813 167,345 553,158

Scitex Other Total

Cost at October 1, 2004 1,121,366 100,733 1,222,100

Additions 0 0 0

Disposals 0 0 0

Exchange Rate Diff 12,280 3,070 15,350

At September 30, 2005 1,133,646 103,803 1,237,450


Additions 97,367 34,601 131,967

Disposals 0 0 0

Exchange Rate Diff 5,263 1,553 6,816

At September 30, 2005 639,799 87,126 726,924

Net Book Value 493,848 16,678 510,526


62

Scitex Other Total

Cost at October 1, 2003 1,147,544 102,128 1,249,672

Additions 0 4,835 4,835

Disposals 0 0 0


At September 30, 2004 1,121,366 100,733 1,222,100


Additions 97,367 32,772 130,139

Disposals 0 0 0


At September 30, 2006 537,169 50,971 588,140

Net Book Value 584,197 49,762 633,959

6INveNtORIeS

Inventories consist of finished goods for the years ended September 30, 2006, 2005 and 2004 respectively.

7tRADeReCeIvAbleS

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) and Los

Angeles (California, USA). Revenues generated by independent dealers represent 47% of the Company’s revenue

for the year ended September 30, 2006, 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 6% of total net revenue for the

year ended September 30, 2006 and approximately 7% and 12% of total net revenue for the years ended September

2005 and 2004. The distributor mentioned represents 9 %, 12% and 18% of the total outstanding receivables for

the years ended September 30, 2006, 2005 and 2004 respectively.

Management makes judgments as to the Group’s 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.

During the years ended September 30, 2006, 2005 and 2004, the accounts receivable on the balance sheet were

net of allowances for uncollectible amounts of Euro 1,066,917, Euro 1,005,281 and Euro 1,293,939 respectively.

63

8CAShANDShORtteRMDePOSItS

Cash and cash equivalents are maintained on deposit with large financial institutions and they consist of the

following:

2006 2005 2004

Bank accounts 9,276 17,300 22,613

At September 30, 2006, 72% of such amounts were denominated in euro (2005: 80%, 2004: 58%), 22% in US

dollars (2005: 18%, 2004: 41%) and 6% in GBP (2005:2%, 2004: 1%).

9tReASuRyShAReS


by the annual shareholders’ meeting of January 28, 2005 and extended by the annual shareholders’ meeting of



10tRADeANDOtheRPAyAbleS(CuRReNt)

2006 2005 2004

Accounts payable 845,874 782,707 1,064,593

Accrued fees and other expenses 1,800,472 1,740,564 1,444,280

Accrued Payroll and Related Taxes 1,730,100 1,280,408 1,316,843

Other payables 15,665 16,470 18,056

Total 4,392,111 3,820,149 3,843,772


64

11RelAteDPARtytRANSACtIONS

MANAgeMeNtSeRvICeSFeeSANDDIReCtORS’COMPeNSAtION

Certain 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, 2006, 2005 and 2004, the Company expensed for these companies a total amount of

Euro 1,133,432, Euro 968,053 and Euro 852,047, respectively.

For the year ended September 30, 2006 and 2005 respectively the amount mentioned above included Euro 220,000

and Euro 60,000 accrual for bonusses based on EBITA.

The balances of accounts payable to these companies was Euro 95,773, Euro 93,719 and Euro 97,756 at September

30, 2006, 2005 and 2004 respectively.

During the years ended September 30, 2006, 2005 and 2004, the Company accrued an aggregate compensation of

Euro 75,000, Euro 75,000 and Euro 70,118 for its directors. In addition, the managing directors have company cars

at their disposal or receive a compensation for using their own car. No stock options, pension plan or other benefits

were granted to the managing directors.

12OPeRAtIONSbyINDuStRySegMeNtANDgeOgRAPhICAReA

The Company has evaluated IAS 14, Segment Reporting and has concluded that its primary segment is reported

geographically. The secondary segment is based on one business segment; the development, marketing, sales and

support of pre-press software and related hardware.

Primary segment information:

The following geographic area data includes net revenues based on customer location.

2006 2005 2004

United States 17,256,474 18,315,329 19,688,072

Germany 6,530,771 6,089,254 6,221,496

United Kingdom 3,302,758 3,163,112 3,075,681

France 3,491,940 3,208,623 3,066,127

Rest of Europe 11,772,018 11,531,449 11,505,833

Rest of World 4,130,246 3,909,329 3,579,121

Total 46,484,207 46,217,096 47,136,330

65

The following geographic area data includes property and equipment based on physical location.

2006 2005 2004

United States 118,132 204,571 278,065

Belgium 1,509,499 739,036 814,285

Germany 301,490 274,878 183,998

United Kingdom 140,713 133,389 125,138

France 193,162 176,871 100,929

Ireland 9,316 18,483 16,932

Total 2,272,312 1,547,229 1,519,347

The following geographic area data includes trade and other payables based on physical location.

2006 2005 2004

United States 1,316,778 1,356,371 1,362,875

Belgium 2,067,083 1,524,045 1,723,258

Germany 260,330 255,346 280,351

United Kingdom 161,686 168,129 150,273

France 449,069 392,657 292,609

Ireland 137,166 123,600 34,405

Total 4,392,111 3,820,149 3,843,772

The following geographic area data includes deferred revenue based on physical location.

2006 2005 2004

United States 2,077,103 2,075,766 1,709,796

Belgium 1,318,591 1,135,305 1,070,561

Germany 52,439 27,768 47,885

United Kingdom 639,438 661,438 632,589

France 141,747 118,409 112,614

Ireland 68,020 52,763 37,925

Total 4,297,337 4,071,448 3,611,370


66

The following geographic area data includes fixed asset additions based on physical location.

2006 2005 2004

United States 36,630 68,270 236,952

Belgium 1,293,887 319,464 499,111

Germany 135,816 204,611 50,719

United Kingdom 68,703 82,589 87,305

France 83,049 153,124 21,822

Ireland 4,239 14,813 5,508

Total 1,622,323 842,871 901,417

The following geographic area data includes fixed asset depreciations (at average exchange rates) based on

physical location.

2006 2005 2004

United States 143,786 159,863 154,260

Belgium 453,309 334,262 263,525

Germany 106,720 91,698 101,319

United Kingdom 58,489 61,854 47,214

France 66,758 60,380 63,404

Ireland 10,724 13,261 14,197

Total 839,785 721,318 643,919

13INCOMetAx

The provision for income taxes consists of the following (in Euro):

2006 2005 2004

Current 4,100,524 4,901,118 4,466,969

Deferred -312,125 57,432 274,147

Total 3,788,399 4,958,550 4,741,116

A reconciliation of income taxes computed at the average local statutory rate (29%, 27% and 30% for the years

ended September 30, 2005, 2004 and 2003 respectively) to the provision for income taxes is as follows:

2006 2005 2004

Income taxes computed at the local statutory rate 3,624,658 4,786,095 4,469,473

Amortization of otherIntangible assets 0 14,514 191,549

Disallowed expenses 158,150 156,261 67,280

Other items, net 5,592 1,680 12,814

Total 3,788,399 4,958,550 4,741,116

67

Deferred tax assets and liabilities are comprised of the following:

2006 2005 2004

Current

Goodwill Amortization 1,230,149 1,566,225 1,794,203

Receivable allowances 246,111 209,305 185,764

Interest expenses 170,092 174,687 157,938

Accrued expenses 204,236 329,763 119,346

Intragroup eliminations 72,962 101,764 114,064

Tax loss carry forward 230,946 133,292 162,479

Deferred Revenue 58,667 0 0

Other items, net 293,272 152,575 105,938

Deferred tax assets 2,506,435 2,667,611 2,639,731

Translation differences 705 -426,745 -427,848

Deferred revenue 0 55,291 73,420

Expensed prepaid license costs 167,958 -192,800 -188,080

Other items, net 0 0 0

Deferred tax liabilities 168,663 564,256 542,508

14NetexChANgegAIN/(lOSS)

At September 30, 2006, the Company incorporated an existing intercompany loan of USD 9,152,011.01, outstanding

for many years, in additional paid-in capital of the subsidiary owing the loan. The translation difference related to

this loan used to be included in equity, not affecting the profit and loss of the related periods. By incorporating the

loan, the translation difference on the USD was realized having a negative impact of Euro 1,122,665.57 Euro on net

exchange loss in the consolidated income statement for the year ended September 30, 2006.

15eARNINgSPeRShARe

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity

holders of the parent by the weighted average number of ordinary shares outstanding during the year, excluding the

number of treasury shares.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders

of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted

average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary

shares into ordinary shares, excluding the number of treasury shares.


68

2006 2005 2004

Numerator

Net income/(loss) 11,066,354 11,352,244 11,936,023

Denominator

Weighted average common shares outstanding 17,048,650 17,048,650 17,048,650

Dilutive stock options 0 0 0

Treasury Shares -157,015 -53,876 0

Weighted average common shares outstanding - assuming dilution 16,891,635 16,994,774 17,048,650

Basic earnings/(loss) per share 0.66 0.67 0.70

Diluted earnings/(loss) per share 0.66 0.67 0.70

16DIvIDeNDSPAID

The following table sets forth the dividends paid during the years ended September 30 2005 and 2004. The dividend

for the year ended September 30, 2006 will be proposed to the annual shareholders’ meeting to be held on January

26, 2007.

Financial year Per share Total Dividend Date of payment

2006 0.65 10.979.563 To be approved

2005 1.00 16,952,125 April 3, 2006

2004 1.00 17,048,650 February 28, 2005 (closing dividend)

September 24, 2004 (interim dividend)

17OPtIONPlAN

Two equity-settled stock-options were granted to employees respectively in 1996 and in 1999.

The first plan was granted in 1996 at the time of the IPO. A total of 161,000 options were created, each incorporting

the right to purchase a share of the company at an exercise price equal to the net book value before the IPO and

equal to the average closing price over the previous 120 days trading after the IPO (13.19 €). The stock-options from

this plan were vested in December 1998.

They can be exercised every year between December 15 and 31 and they expire in december 2007. When the

grantees leave the company, they lose their right to the options.

In April 1999, a separate stock option plan was created for the former owner of PCC. 61,788 options were created,

each incorporating the right to purchase a share of the Company at the value determined at the acquisition date of

PCC (15.375 USD). Options 1 to 32,250 are exercisable til Dec 31, 2007. The other ones expire when the employment

contract is terminated but before December 31, 2007.

69

The number of outstanding options since 09/30/2003 is the following:

Number of options Remaining residual life

Outstanding September 30, 2003 126,288 2.25

Granted -

Exercised -

Forfeited -3,000 2.25


Granted -

Exercised -

Forfeited -3,000 2.25


Granted -

Exercised -

Forfeited -


18FINANCIAlRISkMANAgeMeNtObjeCtIveSANDPOlICIeS

FOReIgNCuRReNCyexChANgeRAteRISk

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.

The Group’s balance sheet and income statement can be affected significantly by the movements in Euro/USD

exchange rates.

The Group also has transactional currency exposures. Such exposures arise from sales and purchases by an

operating unit in a currency other than its functional currency.

The Group does not use financial instruments to cover the foreign currency exchange rate risk.

CReDItRISk

The Group’s credit risk is discussed in note 7 “Trade Receivables”.


70

19COMMItMeNtS

PANtONelICeNSe

In 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 20,760). 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, 2006, 2005 and 2004 the total license fee amounted of Euro 77,492, Euro

70,855 and Euro 62,474, respectively.

OPeRAtINgleASeOblIgAtIONS

The Company leases its facilities and office equipment under operating lease agreements with varying expiry dates.

As of September 30, 2006 future minimum lease payments for the next five fiscal years are as follows:

In Euro

2007 746,080

2008 501,671

2009 495,995

2010 495,822

2011 436,324

Rental expenses for the years ending September 30 were as follows:

In Euro

2006 738,665

2005 613,616

2004 558,384

20CONtINgeNCIeS

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.

71


72

73

1. balancesheets

2006 2005

Fixed assets 43,065 35,836

IV. Financial assets 43,065 35,836

A. Subsidiaries 43,065 35,836

1. Investments in subsidiaries 43,065 35,836

Current assets 3,715 1,725

VII. Amounts receivable within one year 938 878

A. Trade debtors 697 540

B. Other amounts receivable 241 338

VIII. Cash investments 1,638 560

A. Treasury shares 1,638 560

IX. Cash at bank and in hand 1,103 253

X. Deferred charges and accrued income 36 34

Total assets 46,780 37,561

Capital and reserves 11,843 13,290

I. Capital (Notes VIII)

A. Issued capital 7,851 7,851

II. Paid in capital 120 120

IV. Reserves

A. Legal reserve 785 785

B. Reserve unavailable for distribution 1,638 560

1. For treasury shares 1,638 560

V. Profit carried forward 1,449 3,974

Creditors 34,937 24,271

IX. Amounts payable within one year 34,485 24,210

C. Trade debts 450 340

1. Suppliers 450 340

E. Taxes, remuneration and social security 0 0

1. Taxes 0 0

F. Other amounts payable 34,035 23,870

X. Accrued charges and deferred income 452 61

Total liabilities 46,780 37,561

(*) abbreviated version to be approved by the Annual Shareholders’ Meeting to be held January 26, 2007

FinanCial statements(*)

in accordance with

accounting principleS

generally accepted in Belgium

ing

Assets

liabilities


74

2. Incomestatements

2006 2005

I. Operating income 1,546 1,455

A. Turnover 873 878

D. Other operating income 673 577

II. Operating charges -1,545 -1,398

B. Services and other goods -1,545 1,398

III. Operating profit 1 57

IV. Financial income 9,997 18,432

A. Income from financial fixed assets 9,942 18,415

B. Income from current assets 11 3

C. Other financial income 44 14

V. Financial charges 439 518

A.Interest expense 419 501

C. Other financial expense 20 17

VI. Profit on ordinary activities before taxes 9,559 17,971

IX. Profit for the period before taxes 9,559 17,971

X. Income taxes 26 11

A. Income taxes 26 11

C. Income taxes on previous years 0 0

XI. Profit for the period 9,533 17,960

XIII. Profit for the period available for appropriation 9,533 17,960

Appropriation account

A. Profit to be appropriated 13,507 21,529

1. Profit/(loss) for the period for appropriation 9,533 17,960

2. Profit brought forward 3,974 3,569

C. Addition to equity 1,078 560

3. Treasury stock 1,078 560

D. Result to be carried forward

1. Profit to be carried forward 1,449 3,974

F. Dividends 10,980 16,995

75

3. NotestotheFinancialStatements

Iv. StAteMeNtOFFINANCIAlFIxeDASSetS

1. INveStMeNtSNet book value at the end of the preceding period 35,836

Movements during the period

Additions 7,229

Reimbursements 0

Increase in value 0

Net book value at the end of the period 43,065

vIII. StAteMeNtOFShAReCAPItAl

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 120,288

Maximum number of shares to be issued 120,288

G. Shareholders’ structure at the end of the last financial year, included in shareholders’ notifications received by the Company

Parana Management Corporation BVBA 25.19%

Kroy Finance Corporation BVBA 25.74%

Widmer Development Corporation BVBA 25.74%

xIII. FINANCIAlReSultS

A. Other financial income

Exchange rate differences 0

Other 0

E. Other financial expense

Exchange rate differences 0

Bank charges 0

xv. INCOMetAxeS

1. Income taxes 26


76

xvI. OtheRtAxeSANDtAxeSbORNebythIRDPARtIeS

A. The total amount of value added tax, turnover taxes and special taxes charged during the period

1. to the enterprise (deductible) 266

2. by the enterprise 298

B. Amounts withheld from third parties

2. Withholding taxes on dividends 531

xvIII.RelAtIONShIPSwIthAFFIlIAteDeNteRPRISeSANDeNteRPRISeSlINkeDbyPARtICIPAtINgINteReStS

AFFIlIAteDeNteRPRISeS1. Financial fixed assets

Investments in subsidiaries 43,065

2. Amounts receivable 697

within one year 697

4. Amounts payable 23,483

within one year 23,483

7. Financial results

Income from financial assets 9,942

Income from current assets 0

Interest expense 419

4. Auditor’sreport

The statutory auditor has issued an unqualified opinion with respect to the statutory accounts of Artwork Systems Group NV

at September 30, 2006.

77

5. valuationrules

Valuation rules applicable to the annual accounts of Artwork Systems Group NV:

In accordance with the provisions of the Royal Decrees of 8 October 1976 and the law of 17 July 1975 with regard

to accounting and the annual accounts of enterprises, this document sets out the rules to be applied by Artwork

Systems Group NV concerning inventory, amortization, decreases in value and provisions for risks and costs,

taking account of the characteristics of the enterprise.

Iv.FINANCIAlFIxeDASSetS

Financial fixed assets are entered at purchase value, where necessary minus depreciation in the event of permanently

reduced value or devaluation due to condition, profitability and prospects.

Receivables and securities are entered at nominal value.

vANDvII.AMOuNtSReCeIvAbleAFteRMORethAN1yeARANDAMOuNtSReCeIvAblewIthIN1

yeAR:

are booked at their nominal value in accordance with Article 27 bis of the Royal Decree of 8 October 1976.

decreases in value are entered:

• in the event of bankruptcy or creditors’ agreement. The debt is reduced to the proposed dividend.

• in the event of a dispute, if it appears from a judgment or amicable settlement that the debt will not be

recovered in its entirety. The debt is reduced to its actual residual value.

• if at the end of the financial year it appears that the debt will most probably nor be recovered either wholly or in

part. The debt will be reduced accordingly.

vIIIANDIx.INveStMeNtSANDCAShANDCAShequIvAleNtS

Deposits with financial institutions are recorded at their nominal value. Securities are valued at their purchase value.

In accordance with Article 31 of the Royal Decree of 8 October 1976 depreciation is applied where the realization

value at the year end date is lower than the purchase value.

vI.CAPItAlgRANtS

Capital grants are recorded at nominal value, where appropriate reduced by the deferred income tax.

vII.PROvISIONSANDDeFeRReDINCOMetAx

In accordance with Article 19 of the Royal Decree of 8 October 1976 account is taken of all foreseeable risks,

possible losses or depreciation, arising during the financial year or previous financial years.

vIIIANDIx.DebtSAFteRMORethAN1yeARANDDebtSwIthIN1yeAR

In accordance with article 27bis of the Royal Decree of 8 October 1976 debts are recorded at nominal value.

Valuation of deposits and liabilities in foreign currency and financial instruments

The following methods and basis are applied where appropriate for the conversion of assets, debts and liabilities

expressed in foreign currency:

At year end monetary assets and liabilities are recalculated per currency at the closing rate, except for monetary

items covered by future payment agreements. Unrealized negative conversion differences are included in the profit

and loss, positive conversion differences are booked under accrued liabilities.


78

6. ReportoftheboardofDirectorstothegeneral

shareholders’meetingforthefinancialyear2006

Annexed you will find the proposed annual accounts for the financial year 2006, which ran from October 1, 2005 to

September 30, 2006.

The company called on public savings in December 1996 and its shares are listed on the First Market of Euronext

Brussels under the symbol “ARTS”.

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 dividends for 9,942,345.62 Euro 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.

As of July 2005, Artwork Systems Group NV started implementing the share buy-back program approved by the Annual

Shareholders’ Meeting dated 28 January 2005 and extended by the Annual Shareholders’ Meeting dated 27 January

2006. At September 30, 2006, Euro 1,638,200.07 is accounted for as Treasury Shares (deducted from equity) representing

157,015 shares.

For the financial year 2006 the company has a profit to be carried forward of 13,506,702.84 Euro. The Board of Directors

proposes to: (i) transfer 1,078,405.33 Euro to the reserves unavailable for distribution (for treasury shares), (ii) to distribute

a dividend of 10,979,562.75 Euro and (iii) to carry forward the balance of 1,448,734.76 Euro.

79

COStSFORReSeARCh&DevelOPMeNt

During the financial year, the company spent 569,913 Euro on Research & Development.

RePORtONtheCAPItAlINCReASeS

No capital increases took place during the financial year 2006.

SPeCIAlASSIgNMeNtSOFtheStAtutORyAuDItOR

In accordance with the provisions of article 134 of the Company Law, the company notes that during the financial year

2006 it entrusted its Statutory Auditor with the following special assignments:

1. Audit of and assistance relating to the consolidated financial statements for the financial year 2006 in accordance

with IFRS

2. Attendance at the Audit Committee meetings;

3. Report in connection to the half-year audit.

The total compensation for these assignements was 12,000 Euro.

tRANSItIONtOIFRS

As of the financial year 2006, which began on October 1, 2005, Artwork Systems Group NV is reporting its consolidated

financial statements in accordance with IFRS (International Financial Reporting Standards). The transition from US GAAP

to IFRS had no material impact on the financial position, financial results or cash flow.

ChANgeOFRegISteReDOFFICe

By decision of the Board of Directors dated May 22, 2006, the company’s registered office has been changed to:

Bellevue 5/1101

9050 Gent

SIMPlIFICAtIONOFgROuPStRuCtuRe

On March 31, 2006 a merger by takeover took place between the companies Artwork Systems NV and Enfocus Software

NV. This merger is retroactively effective as of October 1, 2005, the beginning of the financial year. As a result of this

merger, all assets and liabilities of the earlier Enfocus Software NV were transferred to Artwork Systems NV.


80

RISkSOFtheCOMPANy

At the level of Artwork Systems Group NV and its subsidiaries (the “Group”) the risks are as follows:

exChANgeRISk

The Group is exposed to risks relating to the exchange rates of foreign currencies, which is inherent to its activities. The

Group is active throughout the world and transactions which are not performed in Euro are sensitive to risks for exchange

rates of foreign currencies. The most important foreign currency is the USD. The Group is a net receiver for this currency

and benefits from a strong USD.

CReDItRISk

The financial instruments of the Group which are exposed to credit risk consist primarily of cash and cash equivalents

and trade receivables.

The Group has cash and cash equivalents at several major financial institutions. The Group limits the risk by working

together with several financial institutions.

The customer receivables of the Group result primarly from the sale of software and hardware to end users, Original

Equipment Manufacturers (OEMs) and independent graphic arts distributors throughout the world. The Group does not

require any collateral from its customers.

The concentrations of credit risks with regard to customer receivables on end users and OEM customers are limited

because of the large number of users and their distribution over many geographic areas. The concentrations of credit

risks with regard to independent distributors are moderated by periodic evaluations of the relative credit status of these

entities.

SIgNIFICANteveNtSAFteRyeAR-eND

No important events have occurred since the end of the financial year.

CONFlICtSOFINteReSt

During the past financial year no Board of Directors’ meetings were held with application of articles 523 and/or 524 of the

Companies Law.

DISChARge

The Board of Directors requests discharge from the General Shareholders’ 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, 2006.

annual report artwork systems group

Artwork Systems Group NV

Artwork Toren

Bellevue 5/1101

B-9050 Gent

Belgium

Tel.: +32 9 265 84 11

Fax: +32 9 265 84 10

[email protected]

www.artwork-systems.com

Artwork Systems SA

Paris 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

[email protected]

Artwork Systems GmbH & Co. KG

Burkheimer Straße 3

D-79111 Freiburg

Germany

Tel.: +49 761 45 29 80

Fax: +49 761 45 29 822

[email protected]

Artwork Systems Ltd.

The Business Centre

Edward Street – Redditch,

Worcestershire B97 6HA

United Kingdom

Tel.: +44 1527 592550

Fax: +44 1527 592466

[email protected]

Artwork Systems Inc.

219A Rittenhouse Circle

Bristol, PA 19007

USA

Tel.: +1 215 826 4500

Fax: +1 215 826 4510

[email protected]

Enfocus Software Inc.

16000 Ventura Blvd.

Suite 910

Encino, CA 91436

USA

Tel.: +1 650 358 1210

Fax: +1 650 358 1211

[email protected]

www.enfocus.com

Dimensional Impressions Inc.

16000 Ventura Blvd.

Suite 910

Encino, CA 91436

USA

Tel.: +1 818 379 7039

Fax: +1 818 379 7041

[email protected]

www.discore.com

Documents

annual report artwork systems groupSynergistic one for everyone at Artwork Systems. Our move to a brand new headquarters in Ghent has afforded us not only a new beautiful view, but