Corporate Governance and Financial Report€¦ · and Financial Report Fiscal Year 2005 - when it has to beright A Year of Success. Three-Year ... fully “paid-in” on 19 February

Corporate Governanceand Financial Report Fiscal Year 2005

- when it has to be right

A Year of Success

Three-Year Overview

EBITDA(Continuing)

Net income(Continuing)

Sales by divisionSales(Continuing)

Sales in CHF million

Currency-adjusted sales growth in %

Sales growth in %

EBITDA in CHF million

EBITDA of sales in %

In CHF million

FY03 FY04 FY05 FY03 FY04 FY05 FY03 FY04 FY05

773

689

650

0

900

750

600

450

300

150

0 128

99

80

0

120

100

80

60

40

20

0

515

–14

60

50

40

30

20

10

0

10

20

16.6

12.3

14.3

12.26.0–2.0

7.915.5

–8.8

Surveying & Engineering 64%

GIS & Mapping 12%

Metrology 9%

Consumer Products 8%

High-Definition Surveying 4%Special Products 3%

Profit & lossUnless otherwise stated amounts for Continuing Operations in CHF million/Year ended March 31 2005 2004 2003Sales 773.2 689.1 650.3Year-on-Year Growth 12.2% 6.0% (8.8%)Currency-Adjusted Growth 15.5% 7.9% (2.0%)Gross-Profit 409.9 352.6 336.3Gross-Profit Margin 53.0% 51.2% 51.7%Total Operating Expenses (338.7) (324.8) (326.5)Earnings before Interest and Taxes (EBIT) 71.6 29.5 7.3EBIT Margin 9.3% 4.3% 1.1%Net Income/(Loss) – Continuing Operations 50.6 5.2 (13.7)Depreciation of Fixed Assets 18.8 18.0 21.1IAS 38 Amortization 37.6 34.4 31.1Goodwill Amortization1 – 16.9 21.9EBITDA 128.1 98.7 80.3EBITDA Margin 16.6% 14.3% 12.3%Adjusted EBITDA2 102.3 60.4 39.1Adjusted EBITDA Margin 13.2% 8.8% 6.0%Net Income from Discontinued Operations – 0.4 35.6Total Net Income 50.6 5.6 21.9Basic EPS (in CHF) 22.27 2.54 9.80Fully Diluted EPS (in CHF) 21.57 2.48 9.78

Balance sheet & cash flowNet Working Capital 127.9 121.1 112.1Net Working Capital/Sales 15.8% 16.4% 16.0%Total Assets 697.4 683.6 683.1Net Debt3 107.7 152.0 154.0Net Equity 369.2 319.0 313.6Debt/Equity 29% 48% 49%Cash Flow from Operating Activities 93.8 59.7 59.1Tangible Capital Expenditures (24.0) (16.0) (19.6)Intangible Capital Expenditures (28.8) (39.2) (40.9)Total Employees 2,398 2,461 2,388

1 Goodwill amortization was discontinued in fiscal year 20052 Calculated as EBITDA less the amount of internally generated and

capitalized development costs during the period

3 Net debt is calculated as total debt, net of cash and unamortized debt issue costs

1Contents

Contents

Corporate Governance

Structure of Leica Geosystems Group and Shareholders 3Capital Structure of Leica Geosystems Holdings AG 4Board of Directors 6Corporate Management Team 10Compensation, Share and Option Ownership 12Voting Rights and Shareholders´ Meeting 13Opting-out and Defensive Measures 14Independent Auditors 14Information Policy 14

Financial Results

Overview of Financial Results 17

General Information 19Consolidated Income Statements 20Consolidated Balance Sheets 21Consolidated Statements of Shareholders’ Equity 22Consolidated Cash Flow Statements 23Summary of Risk Management Objective and Significant

Accounting Policies 24Notes to the Consolidated Financial Statements 29Report of the Group Auditors 50

Balance Sheets 51Income Statements 52Notes to the Financial Statements 53Report of the Statutory Auditors 55

Executive Summary

Consolidated FinancialStatements

Financial Statements(Statutory Accounts)

2Leica GeosystemsAnnual Report

3Corporate Governance

related financial business plans, which are approvedby the Board of Directors on an annual basis. Forfurther details regarding the Corporate Management,please refer to pages 8 and 9 in the accompanyingfiscal year 2005 Annual Report.

Leica Geosystems Holdings AG is the ultimate hold-ing company of the Leica Geosystems Group. Forfurther details regarding the legal structure of LeicaGeosystems Group and all consolidated entitiesincluding the full company names, their domiciles,their share capital and the percentage of sharesheld by us, please refer to Note 24 in the Consoli-dated Financial Statements, page 49.

Leica Geosystems Holdings AG was incorporatedwith unlimited duration on July 30, 1998, as a stockcompany with limited liability under the laws of Switzerland and registered in the Commercial Register of the Canton of St. Gallen. The registeredoffice is in Balgach and the principal business address of the Company is at Heinrich-Wild-Strassein CH-9435 Heerbrugg, Canton of St. Gallen.

The registered shares of Leica Geosystems HoldingsAG are listed and have been traded on the SWXSwiss Exchange since July 12, 2000, under the Sym-bol “LGSN.” The Swiss security number (Valoren-nummer) is 1087 048 and ISIN is CH 0 010 870 480.The market capitalization of the Company as perMarch 31, 2005, was CHF 820,954,200, based on the fourth quarter average share price of CHF359.5 with 2,283,600 shares outstanding (sharesoutstanding excludes 37,872 treasury shares and25,110 contingency shares related to the Cyra op-tion plans). None of the other consolidated enti-ties is listed on any exchange.

1.2 Significant shareholdersAs of March 31, 2005, we are aware of three share-holders holding more than 5% of the outstandingshares (see table below).

We are not aware of any shareholders’ agreementsand there are no cross-shareholdings.

At Leica Geosystems, we are fully committed toand compliant with the highest standards of corpo-rate governance. Our policies are in accordancewith the Swiss Code of Obligations (Obligationen-recht), Swiss Stock Exchange regulations, and the Swiss Code of Best Practice. Leica Geosystems’principles and rules on corporate governance aredocumented in the Company’s Articles of Incorpo-ration and the Internal Regulations.

It is very important to the Board, Managementand employees of our Company that we provide ourshareholders with full access to key informationconcerning corporate governance at Leica Geo-systems. Accordingly, in the following pages youwill find all relevant corporate governance infor-mation about our company.

In the following Corporate Governance Report wewill use the terms “Leica Geosystems” or the“Company” or “we” or “us” for Leica GeosystemsHoldings AG and its group companies, unless thecontext requires otherwise.

1 Structure of Leica Geosystems Group and Shareholders

1.1 Group structureLeica Geosystems is organized into five primaryoperating divisions, each with its own dedicatedmanagement teams headed by a divisional presi-dent. All divisional presidents are members of theCorporate Management Team and report directly to the Chief Executive Officer. The remaining mem-bers of the Corporate Management Team includethe Chief Executive Officer, the Chief Financial Offi-cer, the Chief Business Development Officer andthe Chief Human Resources Officer. Together, theCorporate Management Team is responsible formanaging all operational aspects of the Company.The Corporate Management Team is also respon-sible for formulating the Company’s strategy and

Corporate Governance

Significant shareholders

Number Percent of out- Date ofName of shareholder of shares standing shares last notification

K-Capital Partners, Boston, USA 226,637 9.92 Oct 18, 2004Fidelity International Limited (FIL), Hamilton, Bermuda 126,849 5.55 Jan 19, 2004FMR Corp., Boston, USA 122,132 5.35 Feb 6, 2004


the underlying shares is excluded. Subject to cer-tain limitations, all options vested under the1998 Plan may be exercised at any time prior toOctober 2005 at an exercise price of CHF 100or, in certain cases, CHF 120.The Company’s share capital may be increasedby a maximum aggregate amount of CHF6,627,200 through the issuance of a maximumof 132,544 fully paid-in registered shares with apar value of CHF 50 per share by the exercise ofoption rights which employees, consultants andmembers of the Board of Directors of the Com-pany or companies belonging to the same groupare granted pursuant to the “2000 EmployeeStock Option Plan” (ESOP). The right of share-holders to exercise their statutory preemptiverights on such option rights or the underlyingshares is excluded. The issuance of option rightsshall be based on a resolution of the Board ofDirectors. The Board of Directors determines theissue price of the shares and the exercise priceof the option rights, which may be lower thanthe market price. Furthermore, the Board of Directors determines the terms and conditions,which may be changed at any later time.The Company’s share capital may be increasedby a maximum aggregate amount of CHF7,000,000 through the issuance of a maximumof 140,000 fully paid-in registered shares with a par value of CHF 50 per share by the exerciseof option rights which employees of the Com-pany or affiliated companies belonging to thesame group are granted pursuant to the “2005Employee Stock Option Plan” (ESOP 2005). Theright of shareholders to exercise their statutorypreemptive rights on such option rights or theunderlying shares is excluded. The issuance of option rights shall be based on a resolution ofthe Board of Directors. The Board of Directorsdetermines the issue price of the shares and theexercise price of the option rights, which maynot be lower than the market price. Furthermore,the Board of Directors determines the terms andconditions of the option plan.

Any shares newly issued under the conditional capi-tal shall be subject to the transfer restrictions ofArt. 5 Paragraph 2 of the Articles of Incorporation.

The information relating to conditional capital re-flects the reduction by new shares that have beenissued in the course of fiscal year 2005 under theconditional capital through the exercise of optionsof the ESOP 1998 and ESOP 2000. The share capi-tal and the number of outstanding shares as shownin the Commercial Register as at March 31, 2005,does not correspond with the above actual numbersbecause the Commercial Register and the Articlesof Incorporation are usually updated shortly afterthe close of each fiscal year (see above Share Capi-tal section).

2 Capital Structureof Leica Geosystems Holdings AG

2.1 Share capitalAs of March 31, 2005, the share capital of LeicaGeosystems Holdings AG as recorded in the Com-mercial Register amounted to CHF 115,284,550 rep-resenting 2,305,691 registered shares of CHF 50par value each. These shares com-prise 25,110contingency shares related to the roll-over of Cyraoptions and warrants that were subscribed andfully “paid-in” on 19 February 2001 by Credit Suisseas trustee in order to hedge the Company’s poten-tial obligations with respect to assumption of CyraTechnologies’ options and warrants; such shareshave been subscribed for and are being held byCredit Suisse who committed to transfer such sharesto the eligible holder of options or warrants againstpayment of the exercise price exclusively in accor-dance with instructions given by the Board (seeConvertible Bonds & Options section for further in-formation).

The increase of the ordinary share capital by40,891 shares (from 2,305,691 to 2,346,582) rep-resenting options that were exercised through fiscal year 2005 has been recorded in the Com-mercial Register on May 26, 2005. There havebeen no other changes to the share capital sincethat time.

The Company has no participation certificates orprofit-sharing certificates outstanding.

2.2 Authorized share capital The remaining authorized capital of the Companycreated at the time of the IPO in July 2000 was not used and expired on July 10, 2002. The Boardresolved not to renew it, and as such, on September10, 2002, deleted the respective clause in the Arti-cles of Incorporation.

2.3 Conditional capitalCurrently, the Company has the following con-ditional capital to serve three employee optionschemes:

The Company’s share capital may be increased bya maximum aggregate amount of CHF 1,453,550through the issuance of a maximum of 29,071fully paid-in registered shares with a par valueof CHF 50 per share by exercise of option rightswhich employees, consultants and members ofthe Board of Directors of the Company or com-panies belonging to the same group are grantedpursuant to the “1998 Employee Incentive EquityParticipation Plan” (1998 Plan), as amended. Theright of the shareholders to exercise their stat-utory preemptive rights on such option rights or


The transfer of the Company’s shares is affectedby a corresponding entry in the books of a bank ordepository institution following an assignment inwriting by the selling shareholder and notificationof such assignment to the Company by the bank or depository institution. The transferee must file ashare registration form in order to be registered inthe Company’s share register as a shareholder withvoting rights. Without such registration, the trans-feree may not vote at, or participate in, the share-holders’ meeting, but will still be entitled to divi-dends and other rights with a financial value. Sharesmay only be pledged to the bank that administersthe book entries of such shares for the account ofthe shareholder pledge.

2.6 Nominees A transferee of shares will be recorded in the Com-pany’s share register if such transferee disclosesits name, citizenship or registered office, and ad-dress, and gives a declaration that it has acquiredthe shares in its own name and for its own account.The Articles of Incorporation provide that share-holders may register their shares in the name of anominee approved by the Company (a “Nominee”)and may exercise their voting rights by giving in-structions to the Nominee to vote on their behalf.However, a Nominee holding more than 3% of theIssuer’s share capital may be registered as a Nomi-nee for shareholders with voting rights only if theNominee discloses the identity of those ultimatebeneficial owners of shares claiming 0.5% or moreof the Issuer’s share capital.

The Board has resolved that Nominees holdingmore than 0.5% of the outstanding shares will berecorded as shareholders only if and when theyhave entered into a Nominee Agreement with theCompany. The Nominees must undertake to periodi-cally provide the Company with generic informationrelating to their customers (beneficial owners)without disclosing their individual identity to theCompany, in particular at year-end and immediatelyafter the invitation to the annual shareholders’meeting. Nominees must provide the Companywith such information at its request and within areasonable period of time. In addition, Nomineesshall undertake that communications to our share-holders reach those beneficial owners whosenames and addresses are not disclosed to the Com-pany and Nominees should endeavor to receivevoting instructions from the beneficial owner onthe motions presented to the ordinary and extra-ordinary shareholders’ meetings, in order for No-minees to actively participate in such shareholders’meetings.

2.7 Convertible bonds and optionsThe Company has not issued any convertible bondsor similar equity-linked debt instruments.

2.4 Capital changes for the last three fiscal years

On June 27, 2002, the share capital increased by19,729 shares representing options that were exer-cised in fiscal year 2002, plus a capital increase of 62,762 shares (from 2,264,927 to 2,347,418).

On June 16, 2003, the share capital increased byanother 2,433 shares (from 2,347,418 to 2,349,851)representing options that were exercised in fiscalyear 2003.

On June 9, 2004, the share capital was increasedby another 15,374 shares (from 2,349,851 to2,365,225) representing options that were exer-cised in fiscal year 2004.

On June 9, 2004, the conditional capital was reducedby an additional 26,800 shares due to the Board’sresolution to terminate the Performance Stock Option Plan (PSOP) 2001 and to cancel all outstand-ing options under this plan.

The Annual Shareholders’ Meeting of July 7, 2004,resolved to cancel the 59,534 reserved shares thatwere subscribed and fully “paid-in” by Credit Suisse,St. Gallen, in February 2001 as trustee, in order tohedge the Company’s potential obligations underthe Cyra earn-out. The earn-out milestones werenot achieved and the trustee tendered the remain-ing shares to Leica Geosystems Holdings AG andtherefore, the shareholders resolved to reduce theoutstanding share capital accordingly. The capitaldecrease was completed and recorded in the Com-mercial Registry on October 20, 2004, and the sharecapital of the Company was reduced by 59,534shares (from 2,365,225 to 2,305,691 shares).

On May 26, 2005, the share capital increased byanother 40,891 shares (from 2,305,691 to2,346,582 shares) representing options that wereexercised in fiscal year 2005.

There have been no changes to the share capital asrecorded in the Commercial Register since that time.

For further details regarding changes in sharehold-ers’ equity, please refer to Note 19 to the Consoli-dated Financial Statements, page 45.

2.5 Restriction on transferability of sharesShares will not be issued in definitive certificatesand will be held in collective custody at SegaInter-Settle AG (“SIS”). Shareholders will not have theright to request printing and delivery of share certif-icates (“aufgehobener Titeldruck”). The Companyhas the sole discretion to print and deliver sharecertificates. Any shareholder may, however, at anytime request the Company to issue a confirmationregarding its shareholdings. Such confirmation isnot a negotiable instrument.


engineering at the Federal Institute of Technologyin Zurich and at the Georgia Institute of Technologyin Atlanta, Mario Fontana started his career in 1970with IBM Switzerland, as a Marketing Representa-tive and International Account Manager. In 1977 hemoved to Brazil and worked 3 years for BrownBoveri. Back in Switzerland he founded the Swisssubsidiary of Storage Technology and managed itfor 3 years. After that he served over 15 years asGeneral Manager for Hewlett-Packard, 10 yearsmanaging HP Switzerland, then Germany and Europeand at the end was responsible for the worldwideBusiness Unit Financial Services. Since the begin-ning of 1999 Mario Fontana serves on the followingboards: Swissquote and Amazys as chairman andwith the Swiss Railway Company SBB, Sulzer andInficon as Nonexecutive Director.

Dr. Markus Rauh Vice-Chairman of the BoardChairman of the Personnel and OrganizationCommittee and Member of the Audit CommitteeSwiss national

Markus Rauh (born 1939) became a NonexecutiveDirector of Leica Geosystems in 1998 and waselected as Vice-Chairman of the Board in November2000. He joined the Leica Group (at that time Wild Leitz) in 1988 as Chief Executive Officer andbecame the Executive Director of the Board in1990, serving in this capacity until the Leica busi-nesses were separated into three fully independentcompanies in 1998. Prior to joining the Leica Group,Markus Rauh served as a Sales Manager withSperry Univac from 1971 to 1978 and was Head ofthe Data Systems Department with Philips AG,Switzerland, from 1978 to 1983. In 1983 he becamea member of the Corporate Executive Committeeof Philips Kommunikations Industrie AG, Nuremberg,and served as its CEO from 1985 until 1988.Markus Rauh currently serves as Chairman of theBoard of Directors of Swisscom AG, Synthes AG,Anova Holding AG and Vice-Chairman of the Board of Directors of Unaxis Holding AG, DietikerSwitzerland AG as well as Member of the Board of St. Galler Kantonalbank AG, Generics Group AG and Madison Management AG. Markus Rauh holdsa degree in Mechanical Engineering and a PhD in Physics, both from the Swiss Federal Institute ofTechnology, Zurich.

As of March 31, 2005, the Company has in total196,971 options outstanding, of which 178,957were granted under the employee participationschemes. This total number of options is allocatedto the individual plans as follows:

Exercise ExerciseTotal number period priceof options Plan/Year of allocation in years in CHF

19,189 ’98 Equity Plan-1998 7 1006,025 ’98 Equity Plan-1998 7 120

30,931 ’00 ESOP-2000 7 375 35,655 ’00 ESOP-2001 7 366 33,184 ’00 ESOP-2002 7 17518,998 ’00 ESOP-2003 7 7734,975 ’00 ESOP-2004 7 198

In addition, there are 18,014 options outstanding,which stem from the rollover of Cyra options andwarrants. These options have an exercise period of 10 years, which expires in December 2010 andFebruary 2011. The exercise price of 15,506 optionsis CHF 81 and the remaining 2,508 options have an exercise price of CHF 429.

Each option gives the right to subscribe for oneshare and as a consequence the maximum amountof the covered share capital amounts to CHF8,947,850 for 178,957 shares. However, the obli-gations under the options stemming from the roll-over of Cyra options are covered by the contingencyshares held by a trustee (see Share Capital sectionfor more detailed information).

3 Board of Directors

3.1 Members of the Board of DirectorsDuring fiscal year 2005, the Board of Directorsconsisted of the following five members:

Mario Fontana Chairman of the BoardMember of the Audit Committee and the Personnel and Organization CommitteeSwiss national

Mario Fontana (born 1946) became a NonexecutiveDirector of Leica Geosystems in June 2000 andserves as Chairman of the Board. After studying


and Director of the Institute for Photogrammetryof the Universität Stuttgart. Before this appoint-ment, he held several research functions at theUniversities of Bonn and Munich as well as at theFederal Polytechnical Institute of Lausanne. DieterFritsch is known for his extensive research and development activities with numerous publicationsand projects, particularly in the areas of sensortechnology, data processing and e-commerce.Dieter Fritsch also chaired (1996–2000) the Commission IV “Mapping and GIS” of the Inter-national Society for Photogrammetry and RemoteSensing, ISPRS. He holds a doctor degree in geodesy of the University of Bonn and a doctor habilitatus degree in GIS of the Technical Universityof Munich. With Dieter Fritsch continuous accessto research and development in the area of geo-desy and geoinformatics is ensured and he sup-ports the Board to better understand the geomaticsmarkets and its trends. Dieter Fritsch is a memberof several boards in industry, science and technol-ogy transfer institutions, including Chairman of theManagement Board Universität Stuttgart, Chair-man of the Senate Universität Stuttgart and Chair-man of the Board Technology Transfer Initiative(TTI) GmbH.

Hans Hess Swiss National

Hans Hess (born 1955) is the Delegate of theBoard of Directors (Executive Director) since 1999and has been the Chief Executive Officer of theCompany since 1996. Mr. Hess’ full curriculum vitaecan be found in section 4, Corporate ManagementTeam, of this report.

3.2 Other activities or cross-involvementFor an overview of the activities performed by theDirectors outside of their duties as members of theBoard of Leica Geosystems, please refer to thecurriculum vitae of each Board member listed above.These activities are not directly related to the Com-pany, and therefore do not affect the independenceof the Directors.

None of the Company’s nonexecutive Board mem-bers or any company or organization that is rep-resented by one of our Board members maintainsbusiness relationships that could compromise the

Simon BallChairman of the Audit CommitteeBritish national

Simon Ball (born 1960) has a broad experience incorporate governance. He has been elected to theLeica Geosystems Board of Directors at the AnnualShareholder’s Assembly on 5 September 2001. Heis a British citizen and serves as an Executive Di-rector on the Board of 3i Group plc since February2005. Previously, he served as Director General ofFinance for the Department of Constitutional Affairs,a part of the UK Government (2003–2005). From1998 until 2000 he served as an Executive Directorof Robert Fleming Holdings Limited which includedresponsibilities for strategy, finance and risk man-agement and the group’s Investment Banking andAsset Management activities in the US. Prior to that,he served in various management and executivefunctions at Dresdner Kleinwort Benson (1985–1998) and Price Waterhouse (1981–1985). Mr. Ballholds a BSc degree in Economics from UniversityCollege, London, and since 1984 has been an Asso-ciate of the Institute of Chartered Accountants inEngland & Wales.

Prof. Dr. Dieter FritschMember of the Personnel and OrganizationCommitteeGerman national

Dieter Fritsch (born 1950) is a German citizen andbrings with him broad experience in the industrialdevelopment in photogrammetry, GIS, remotesensing and optical inspection (geodesy and geo-informatics). He is currently Rector (CEO) of Uni-versität Stuttgart and was Chairman of the Boardof University Rectors of Baden-Württemberg (2002–2004). Since 1992 he has been Full Professor


not to check the appropriateness of each resolu-tion of the Committees. The Committees must re-port to the Board on a regular basis, and at leastonce a year.

The Board has established two permanent Com-mittees: the Audit Committee and the Personnel &Organization Committee. The respective duties andresponsibilities of these committees are outlinedin the Internal Regulations and can be summarizedas follows:

During fiscal year 2005, the Audit Committee con-sisted of Simon Ball (Chairman), Mario Fontanaand Markus Rauh. The principal duties of the AuditCommittee are the monitoring of the accountingand financial reporting, the external audit functionand the internal control systems including risk man-agement and compliance with law. The Audit Com-mittee met three times during fiscal year 2005 toassess the quality of the auditors and their work,which includes a review of the audit plan, checkingthe interplay between the auditors and internalcontrol functions, checking the independence of theauditors, a review of the audit results and checkingthe actions taken by Corporate Management basedon the auditors management letters. Furthermore,the Audit Committee reviews the financial perfor-mance and financing of the Company including thequality and integrity of the Company’s financialstatements as well as the presentation of the fi-nancial statements and the format of financial re-porting. It is also the Audit Committee that reviewsthe annual and quarterly financial statements andrecommends to the Board whether or not to ap-prove such financial statements. Finally, the AuditCommittee is also responsible for the internal con-trol systems including approval of internal controlplans, periodic reviews of the risk management sys-tems and policies, assessing the interplay betweeninternal and external audit, as well as all risk man-agement functions. The Audit Committee also en-sures that procedures are established for the propertreatment of complaints regarding accounting, financial controls and auditing matters, and also re-views compliance with requirements and best prac-tice of corporate governance. The Audit Committeereports its findings to the Board, who takes therequired actions.

During fiscal year 2005, the Personnel & Organi-zation Committee (P&O Committee) consisted ofMarkus Rauh (Chairman), Mario Fontana and DieterFritsch. The principal duties of the P&O Committeeare the monitoring of contracts with Board andCorporate Management, defining attractive andmarket-competitive compensation of Board andCorporate Management, and reviewing the perfor-mance evaluation, management development andsuccession-planning processes. The P&O Committeemet three times during fiscal year 2005 to deter-

independence and decision-making freedom ofthe Board members, the Company or any of itsgoverning bodies.

3.3 Elections and terms of officeThe Board of Directors shall, as a rule, consist of aminimum of five and a maximum of nine members.All Board members must be shareholders of theCompany.

The term of office of the Directors shall not exceedthree years. The individual terms of office shall becoordinated in such a way that, every year, approxi-mately one third of the Directors shall be subjectto reelection or replacement by new members. Themembers of the Board of Directors shall automati-cally retire after the lapse of the twelfth year ofoffice (allowing an additional eight years as Chair-man) or, if earlier, after the expiry of the seventiethyear of age, whereby the retirement shall becomeeffective on the date of the next ordinary Share-holders’ Meeting following such event. The time offirst election and the remaining term of office foreach Director is presented below:

Board Term ofName Age Nationality member since office

Mario Fontana 58 Swiss 2000 2006Markus Rauh 65 Swiss 1998 2005Simon Ball 45 British 2001 2007Dieter Fritsch 55 German 2002 2005Hans Hess 50 Swiss 1999 2006

3.4 Internal organization of the Board of Directors

Role of the ChairmanThe Board shall constitute itself. It appoints itsChairman and Vice-Chairman and CEO and decidesabout signatory rights of each member of theBoard. The Chairman chairs the meeting of theBoard and the Shareholders’ Meeting and he rep-resents the Board vis-à-vis the public at large,public officials and the shareholders. The Chairmansupervises the execution of measures that theBoard has enacted. He also supervises the CEO andhis activities and he conducts periodic performancereviews with the CEO.

Board CommitteesThe Board may form one or several Committeesthat are in charge of certain specific duties of theBoard. The Committees will consist of members ofthe Board, with a Chairman appointed by the Board.Generally, the Committees are in charge of the prep-aration of the decision-making process and there-after the execution and supervision of the Board’sresolutions. Insofar, these Committees have thepower to pass resolutions. The duty of the Boardis limited to the supervision of the Committees but


The adoption of resolutions concerning the in-crease of share capital, to the extent that suchpower is vested in the Board, as well as resolu-tions concerning the confirmation of capitalincreases and the respective amendments ofthe Articles of Incorporation; andThe verification of the professional qualificationof independent auditors.

All executive functions within the Company notunder the remit of the Board or Chairman are dele-gated to the CEO. The CEO issues business regula-tions that allocate the scope of competencies andduties between the CEO and Corporate Manage-ment (Authorization Policy). The Board shall be in-formed on such Authorization Policy and on any sub-sequent changes at its next meeting at the latest.

3.6 Information and control instrumentsWithin four weeks of the end of each month, Cor-porate Management provides each member of theBoard with (i) a copy of the Monthly Report & Fore-cast (MRF), including a consolidated income state-ment, balance sheet and cash flow statement andadditional key data by segment covering the pre-vious month and the current fiscal year to date, and(ii) within six weeks after the end of each quarterwith a copy of the Quarterly Report & Forecast (QRF),including a consolidated income statement, balancesheet and cash flow statement, additional keydata by segment supported by a discussion andanalysis of major trends and extraordinary effects,covering the previous quarter and the current fiscalyear to date, and (iii) within two months after the end of the fiscal year with an audited annualreport. Furthermore, the Board shall be updatedwith regular reports on the trading volumes, shareprice movements and shareholder structure.

In addition to this regular reporting, CorporateManagement shall inform the Board of all relevantmatters, extraordinary events and deviation of thebudget on its Board Meeting.

In addition to the establishment of Board Commit-tees (Audit Committee and Personnel & Organiza-tion Committee; see description of functions above)the Board has established Risk Management andInternal Audit processes.

Risk Management is based on a formal process that isdetailed in a Risk Management Handbook. The for-mal risk management process covers all divisions andrisks identified in the corporate Risk Map. The riskmanagement process is managed on a groupwidebasis with divisional Risk Champions who ensure abottom-up risk review process. The Audit Committeeregularly reviews the risk assessment, and an actionplan is approved and monitored by the Audit Com-mittee. The appointment of the Corporate Risk Man-ager requires the approval of the Audit Committee.

mine the compensation of the Board of Directorsand Corporate Management, to determine the termsand conditions of share option plans and the cor-responding option grants, to determine adequateinsurance coverage for the Board and CorporateManagement, to review the performance of theBoard, the CEO and the Corporate ManagementTeam, to review the organizational structure of theCompany, to assess succession plans for the Boardand Corporate Management, to search and pro-pose new members of the Board, and to provideguidance for overall management development.

Work Method of the Board and its CommitteesDuring fiscal year 2005, the Board held six formalmeetings and five telephone conferences in thecontext of above-stated responsibilities. Typically,meetings of the Board last approximately four tofive hours. Regular Board meeting usually cover thefollowing standard agenda items: informal businessupdate of the CEO, specific Board matters, reviewof financial performance, review of certain opera-tional issues, review of one of the divisions andreview of open issues from previous meetings. Fur-thermore, the Board conducted discussions withofficers of the Company to review relevant mattersat hand, visited operating locations of the Company,and provided counsel to Corporate Management asneeded.

As indicated above, the Audit Committee and theP&O Committee met each three times in fiscal year2005 and on average, the meetings of the twoBoard Committees lasted approximately three tofour hours.

3.5 Responsibilities and authority of theBoard of Directors

The primary functions of the Board, as definedunder the Swiss Code of Obligations (Article 716a),and reflected in the Company’s Articles of Incorpo-ration, are as follows:

Ultimate management responsibility for LeicaGeosystems’ operations and the issue of neces-sary regulations and directives;Organization of Leica Geosystems;The structuring of the accounting systems, finan-cial controls and the financial planning requiredto manage Leica Geosystems;The appointment and removal of the officersentrusted with the management of Leica Geo-systems, specifically in view of their compliancewith the law, the Articles of Incorporation, andthe regulations and directives;Preparation of Business Reports for Shareholders’Meetings, organization of such meetings andthe implementation of resolutions adopted atthe Shareholders’ Meetings;To notify the courts in cases of overindebted-ness;


Development Engineer with Sulzer Brothers andlater as a Production Manager and Business UnitManager with Huber & Suhner. He holds a Mastersdegree in Material Science and Engineering fromthe Swiss Federal Institute of Technology in Zurich(Dipl. Werkstoff Ing. ETH Zurich) and a Masters degree in Business Administration (MBA) from theUniversity of Southern California. In May 2001, hewas awarded an Honorary Doctorate of Business &Industry by the Ferris State University in Michigan.Hans Hess holds the rank of Full Colonel in the SwissArmy and is a former commander of an infantryregiment of the Swiss Army.

Christian LeuChief Financial Officer (CFO) and CorporateVice PresidentSwiss national

Christian Leu (born 1965), Corporate Vice Presidentand Chief Financial Officer, joined Leica Geosystemsin this capacity in 1999. Before working for LeicaGeosystems Christian Leu served as Chief FinancialOfficer with Compaq Germany (1997–1999) andCFO Compaq Switzerland (1994–1997). Prior tothat, he held various financial and consulting posi-tions. Christian Leu holds an MBA from the Uni-versity of St. Gallen.

Eric Poll Corporate Vice President Strategic Marketing Dutch national

Eric Poll (born 1949) is the acting Corporate VicePresident of Strategic Marketing and is, besidesStrategic Marketing, responsible for IT and Corpo-rate Quality. Eric Poll joined Leica Geosystems asChief Human Resources Officer (CHRO) in 1995 andhas served in this capacity until March 2005. Priorto joining Leica Geosystems, Eric Poll worked withDow Chemical in the Netherlands and Switzerland,where he was involved in management trainingand development as well as strategy developmentfor Dow Chemical’s various businesses. Eric Pollholds a Bachelors degree in Social Science from theInstitute for Higher Education, Markendaal, Breda,the Netherlands, and a degree in Business Admin-istration from the Institute for Business Educationin Zeist, the Netherlands. Mr. Poll is a faculty mem-ber of one of the larger European Training Or-ganizations and also teaches at a number of Tech-nical Colleges of Higher Education on behalf ofLeica Geosystems.

Aad van Vliet Chief Human Resources Officer (CHRO) andCorporate Vice PresidentDutch national

Aad van Vliet (born 1955), Corporate Vice Presidentand Chief Human Resources Officer, joined LeicaGeosystems in March 2005. He has more than 25years of international experience in human resourceswith global blue-chip companies in increasing senior

Additionally, the Board has established an internalaudit process designed to ensure that internalinformation is sufficiently reliable to measure theCompany’s objectives. The Audit Committee ap-points the Internal Auditor, who reports directly tothe Audit Committee, and approves the InternalAudit plan and the resources allocated to this pro-cess. All Internal Audit reports are submitted to theAudit Committee and are classified according totheir priority and significance.

4 Corporate Management Team

4.1 Members of the Corporate Management Team

During the fiscal year 2005 the Corporate Manage-ment Team consisted of the following members:

Member ofCorp. Manage-

Name Age Nationality ment since

Hans Hess 50 Swiss 1996Christian Leu 40 Swiss 1999Eric Poll 56 Dutch 19961

Aad van Vliet 49 Dutch 2005Scott Bartlett 51 American 20042

Hans Grunditz 53 Swedish 20013

Clement Woon 45 Singaporean 1997/2001Robert Morris 50 American 2001Klaus Brammertz 46 German 2001Walter Mittelholzer 47 Swiss 1997/2001Erwin Frei 48 Swiss 19964

1 Effective February 3, 2005, Eric Poll assumed the responsibilities ofScott Bartlett, who resigned from the company (see Note below). Mr. Poll’s duties as Chief Human Resources Officer have been assumedby Mr. Aad van Vliet, Chief Human Resources Officer.

2 As of February 3, 2005, Scott Bartlett resigned from the Company. The Company is in the process of searching for a new CorporateBusiness Development Officer.

3 Hans Grunditz resigned from the Company on October 29, 2004. Thisposition will not be replaced.

4 Erwin Frei resigned from the Company effective May 10, 2005. Thecompany is in the process of searching for a replacement.

Hans Hess Chief Executive Officer (CEO) and ExecutiveDirector of the BoardSwiss national

Hans Hess (born 1955), Executive Director and ChiefExecutive Officer (CEO) of Leica Geosystems, joinedthe Leica Group in 1989 as General Manager of the Business Unit Medical and Stereo Microscopy.From 1993 to 1996, he served as President of LeicaGeosystems’ Optronics Group. Since 1996, HansHess has been the Chief Executive Officer of LeicaGeosystems, carving out the Company from theformer Leica Group in 1997, leading the Companythrough a leveraged buyout with Investcorp in 1998, and ultimately taking the Company public in 2000 on the Swiss Stock Exchange (SWX). Since 1999, Hans Hess is the only executive member of the Board of Leica Geosystems. Prior to joining theLeica Group, Hans Hess served as a Research and


various senior positions in marketing, sales andmanagement within STORA and the Wolf Gartengroup. Before joining Leica Geosystems, KlausBrammertz was the Vice President of InternationalMarketing for Wolf Garten GmbH, Germany. KlausBrammertz holds a Bachelors degree in BusinessAdministration.

Walter MittelholzerPresident Metrology division and Member of the Corporate Management TeamSwiss national

Walter Mittelholzer (born 1957) joined the Leicagroup in 1989 as a Product Manager for industryproducts. In 1991, he became the Marketing Manager for the Industrial Measurement division(today Metrology division), where he was mainlyinvolved in the product and market development of the first generation of Leica laser trackers. In1995, Walter Mittelholzer was promoted to Cor-porate Vice President and General Manager of theIndustrial Measurement Business Area. In 2001,Walter Mittelholzer was promoted President of the Metrology division. Prior to joining Leica Geo-systems, Walter Mittelholzer worked with Brown &Sharpe’s Swiss subsidiary, and held different po-sitions in product development, product manage-ment, marketing and sales management in the Coordinate Measuring Systems division. WalterMittelholzer holds a Bachelor of Science in Mechan-ical Engineering and a Master of EngineeringTechnology from the Interstate Institute for Tech-nology (Interstaatliche Hochschule für Technik NTB)in Buchs, Switzerland.

Dr. Erwin Frei President HDS division and Member of theCorporate Management TeamSwiss national

Erwin Frei (born 1957) joined Leica Geosystems in 1985 as a Research and Development Engineerfor GPS products. After serving in different manage-ment positions within Leica Geosystems’ Surveyingand Engineering business, he was appointed General Manager of the Business Unit Terrestrial Surveying in 1996. Erwin Frei joined the CorporateManagement Team as Vice President of StrategicBusiness Management in 1999. In May 2001, herelocated to California in his new role as the CEO ofCyra Technologies Inc., San Ramon. He is a memberof the Corporate Management Team of Leica Geo-systems in the position of President of the HDS division (High-Definition Surveying). Erwin Freiholds a Master of Science degree from the SwissFederal Institute of Technology in Zurich (ETHZ), aPhD in Astronomy from the University of Bern andan Executive MBA from the University of St. Gallen.Erwin Frei resigned from Leica Geosystems on May10, 2005.

positions. Aad van Vliet worked with Unilever, basedin the Netherlands, SmithKline Beecham, also basedin the Netherlands as well as in the UK, and lastlywith Novartis Pharmaceuticals, based in Germany,where he was responsible for Human Resources inthe regions Europe, Middle East and Africa. He holdsa Bachelor’s Degree in Human Resources.

Clement WoonPresident Surveying & Engineering division andMember of the Corporate Management TeamSingaporean national

Clement Woon (born 1959) started his career in1984 as an engineer in the Ministry of Defense in Singapore. Between 1986 and 1992, he gainedexperience in quality and operations managementin AT&T Consumer Products and Thomson ConsumerElectronics. He joined Leica Instruments (Singapore)Pty Ltd in 1992 and served as Quality and Opera-tions Manager before he was transferred to LeicaGeosystems, Heerbrugg, in 1996, where he contin-ued his career as Project Manager, Business Direc-tor and Business Area Manager. He was appointedto his current position in April 2001. Clement Woonholds a Graduate degree in E/E Engineering and a Master of Science in Industrial Engineering from the National University of Singapore and a MBA from the Nanyang Technological University inSingapore, where he was awarded the NationalScience and Technology Board Gold Medal for aca-demic performance.

Robert MorrisPresident GIS & Mapping division and Memberof the Corporate Management TeamUnited States national

Robert Morris (born 1954) began his career in forestry where he was responsible for various tech-nical production and engineering tasks. He contin-ued his career in the private-surveying and civil-engineering sector until 1990, when he moved intoproduct development for surveying, mapping andGIS solutions. Robert Morris has held various seniorpositions in development, marketing and manage-ment with industry manufacturers such as Trimbleand Sokkia. He joined Leica Geosystems in Novem-ber 2000 as Vice President of GIS & Mapping.Robert Morris holds a Bachelor of Science degreein Forestry from Humboldt State University inArcata, California.

Klaus BrammertzPresident Consumer Products division andMember of the Corporate Management TeamGerman national

Klaus Brammertz (born 1959) joined Leica Geo-systems in September 2001 as President of theConsumer Products division. He started his careeras assistant to the CEO of Tarkett/Pegulan, part ofSTORA, an international forest products companybased in Sweden. Thereafter Klaus Brammertz held


and the other members of Corporate Management(9 in total at March 31, 2005) received compen-sation in the aggregate amount of CHF 3,486,961in salaries and pension contributions, and CHF3,067,762 in cash bonuses.

The highest compensation paid to a single Boardmember in fiscal year 2005 was CHF 1,600,101,comprising CHF 1,472,151 in cash compensationincluding cash bonuses and pension contribu-tions and CHF 127,950 in options and discountedshares.

5.3 Compensation – former members of corporate bodies

During fiscal year 2005 no compensation paymentswere made to former nonexecutive members of theBoard of Directors.

During fiscal year 2005 there were no formermembers of Corporate Management who receivedcompensation.

During fiscal year 2005, no material severancepackages were granted to former members of theBoard or Corporate Management.

5.4 Allocation of shares and options In fiscal year 2005, an aggregate of 37 shares weresubscribed to by the Corporate Management Teamunder the Discounted Share Purchase Plan (DSPP),with a discount of 15% to the prevailing marketprice and a transfer restriction of one year.

In fiscal year 2005, an aggregate number of 5,100options were granted to the Executive Director andCorporate Management under the 2000 Employ-ee Stock Option Plan, with a strike price of CHF 198and an exercise period of seven years, which vest25% per year over a four-year period. Each optiongives the right to subscribe for one share.

In fiscal year 2005 no options or shares have beengranted to nonexecutive members of the Board ofDirectors.

5.5 Equity interest As of March 31, 2005, the Nonexecutive Directorsheld an aggregate number of 6,689 shares in LeicaGeosystems Holdings AG.

Furthermore, they held 7,789 options on shares inLeica Geosystems Holdings AG which are allocatedto the various plans as follows:

Exercise ExerciseTotal no. period price Optionof options Plan/Year of allocation in years in CHF ratio

2,902 ’98 Equity Plan-1998 7 100 1:11,241 ’00 ESOP-2000 7 375 1:11,446 ’00 ESOP-2001 7 366 1:12,200 ’00 ESOP-2002 7 175 1:1

4.2 Other activities outside the Company or vested interests

During fiscal year 2005, the members of CorporateManagement did not hold any position outside of the Leica Geosystems Group that could be of significance to the Company, except as disclosedabove.

5 Compensation, Share andOption Ownership

5.1 General compensation policy Leica Geosystems’ compensation policy is designedto attract, develop, motivate and retain employeesof the highest caliber. Our compensation structureconsists of a competitive basic salary equivalent tothe average amount paid by companies of a compa-rable size and type in that market. Furthermore, it is the Company’s general policy to weight 25% ofmanagement’s compensation in the form of annualcash incentives tied to individual and companyperformance The criteria relevant to measure suchindividual or company performance are determinedby the P&O Committee and adjusted annually inorder to support the prevailing short-term targetsof the Company best.

Furthermore, the Company has an Employee StockOption Plan designed as a long-term incentiveprogram for Corporate Management and selectedmanagers of the Company (approximately 100Senior Managers).

Members of the Corporate Management Team alsoparticipate in a Long-Term Incentive plan (LTI). This is a 3-year cash plan linked to individual economicvalue added targets established by the Board of Di-rectors. Incentives generated under the plan, whichcan be up to 200% of the participant's annual basesalary over the three year period of the current plan,are banked and paid on a deferred basis, designedto reward long-term creation of economic value.

The Personnel and Organization Committee (“P&OCommittee") is responsible to determine the com-pensation of the Corporate Management Team andit proposes to the Board of Directors the terms and conditions of employee participation plans andnew profit-sharing, bonus or incentive schemes.

5.2 Compensation for acting members of corporate bodies

For fiscal year 2005, the four Nonexecutive Direc-tors of the Company received compensation in theaggregate amount of CHF 509,931. Additionally,Nonexecutive Directors are reimbursed for traveland other related expenses associated with theexecution of their duties as members of the Board.In fiscal year 2005, the Executive Director and CEO,


Subject to the registration of shares, the Articles ofIncorporation do not impose any restriction on thevoting rights of shareholders. Specifically, there is no limitation on the number of voting rights pershareholder.

A shareholder may only be represented at the Share-holders’ Meeting by either of the following: a legalrepresentative, another shareholder with the rightto vote, a proxy by a member of the corporatebodies of the Company (Organvertreter), indepen-dent proxies (unabhängige Stimmrechtsvertreter)or a proxy of a depository (Depotvertreter).

6.2 Shareholders’ Meeting Shareholders’ Meetings shall be convened by theBoard of Directors at the latest twenty days beforethe date of the meeting. The meeting shall be convened by way of one notice in the official meansof publication of the Company being the SwissOfficial Gazette of Commerce. Shareholders thatare recorded in the share register shall be informedin writing.

The notice of a Shareholders’ Meeting shall statethe items on the agenda and the motions of theBoard of Directors and, as the case may be, of theshareholders who requested that a Shareholders’Meeting be convened or that an item be includedin the agenda and, in case of elections, the namesof the candidates nominated for such election.

Shareholders recorded in the share register withvoting rights whose combined shareholdings rep-resent an aggregate nominal value of at least CHF 1 million may request that an item be includedin the agenda of a Shareholders’ Meeting. Suchrequest shall be made in writing at the latest sixtydays before the meeting and shall specify the itemsand the motions to be included in the agenda.

Resolutions in the Shareholders’ Meeting are gen-erally taken with simple majority (einfaches Mehr)of the votes cast, with abstentions having no ef-fect on the resolutions. There is no provision in theArticles of Incorporation requiring a quorum forShareholders’ Meetings and there is also no provi-sion which requires a qualified majority which dif-fers from the mandatory Swiss corporate law pro-visions.

At the annual Shareholders’ Meeting held on July 7, 2004, those shareholders were entitled tovote their shares if they were registered at least 9business days prior to the Shareholders’ Meeting.It is the Company’s intention to maintain this dead-line for future Shareholders’ Meetings.

As of March 31, 2005, the Executive Director andCorporate Management, including related parties,held an aggregate number of 25,752 shares ofLeica Geosystems Holdings AG.

Furthermore, in total, the Executive Director andCorporate Management held 13,287 vested and11,766 nonvested options on Leica GeosystemsHoldings AG shares at the end of fiscal year 2005, which are allocated to the various plans as follows:

Exercise ExerciseTotal no. period price Optionof options Plan/Year of allocation in years in CHF ratio

4,319 ’98 Equity Plan-1998 7 100 1:13,953 ’00 ESOP-2000 7 375 1:13,556 ’00 ESOP-2001 7 366 1:14,125 ’00 ESOP-2002 7 175 1:14,000 ’00 ESOP-2003 7 77 1:1 5,100 ’00 ESOP-2004 7 198 1:1

5.6 Loans and additional fees and remuneration

No loans were granted to members of the Board or Corporate Management during the year, and asof March 31, 2005, there were no loans outstand-ing to the members of the Board of Directors orCorporate Management.

No additional fees and remuneration were paid to any of the members of the Board of Directors orthe Corporate Management.

6 Voting Rights and Shareholders’ Meeting

6.1 Voting rightsVoting rights may be exercised only after a share-holder has been recorded in the Company’s shareregister (“Aktienregister”) as a shareholder withvoting rights.

As of March 31, 2005, the Company held 37,872as treasury shares. The voting rights of such shareswill not be exercised.

The voting rights of the 25,110 contingency sharescurrently held by a trustee will not be exercised,and no dividend will be paid as long as the trusteeholds these shares.

Each registered share entitles the holder to onevote at the Shareholders’ Meeting. There are nopreferential voting shares. Shareholders also havethe right to receive dividends, convene a Share-holders’ Meeting, to place items on the agenda ofa shareholders’ meeting and have all other rightsas defined in the Swiss Code of Obligations.


Auditors are up to election by the shareholders on an annual basis. A competitive audit proposal process was last conducted in 1999, in which Price-waterhouseCoopers was appointed. The Audit Com-mittee and the Board have reviewed the engage-ment of the external auditors in early 2005 andagreed to continue the engagement of Pricewater-houseCoopers on terms fixed for a period of threeyears, subject to shareholders’ approval. Since 1999,a competitive audit proposal has not been under-taken. Alternatively, the company routinely makesbenchmark studies of audit fees for listed companiesof its size and complexity in Switzerland and be-lieves the fees charged by PricewaterhouseCoopersand the current fee proposal remain competitive.The Audit Committee reviews the external auditor’swork on an annual basis and reassesses whetherthe author should be proposed for appointment.The Audit Committee last performed such assess-ment in October 2004 and was satisfied with thework of PricewaterhouseCoopers.

9 Information Policy

9.1 Financial disclosure policyThe Board has issued guidelines in order to ensurethe timely and orderly dissemination of informationto our shareholders and the general investmentcommunity. The Company is committed to provid-ing this information in accordance with legal andregulatory requirements, and as such, has developeda comprehensive financial disclosure policy. Withthis policy, we aim to provide the financial marketswith consistent, accurate and complete informationat all times to ensure that our shareholders andthe investment community have fair access to suchinformation. Adherence to this policy is the re-sponsibility of the Chief Executive Officer. A sum-mary of this policy is presented below.

9.2 Regular reporting cycleThe announcement of our quarterly results is nor-mally scheduled for the fifth Wednesday followingthe end of each fiscal quarter, except in the fourthquarter. Our quarterly results are published in theform of a press release and quarterly report to share-holders, immediately after the Board of Directorshas approved the nonaudited quarterly results. Weconduct a quarterly conference call with researchanalysts the day following the release of our re-sults. All financial communications are publishedsimultaneously on our company web site.

We announce our annual results in the form of anAnnual Report available to all registered shareholders,and a press release immediately after the Board ofDirectors has approved the audited annual reports.This announcement is normally scheduled nine weeksafter closing of the year. Our Annual General Meetingshall normally take place in the second week of July.

7 Opting-out and DefensiveMeasures

The Company has neither an opting-out nor anopting-up provision in its Articles of Incorporationmeaning that the mandatory bid obligation of theSwiss Stock Exchange Act is triggered if a share-holder or a group of shareholders acting in concertacquire more than one third of the outstandingshares of the Company.

There are no specific clauses included in agreementsand schemes benefiting members of the Board ofDirectors or Corporate Management in the event ofa change of control situation.

8 Independent Auditors

PricewaterhouseCoopers AG have been our auditorssince October 1998. The partner in charge of theLeica Geosystems AG engagement assumed thisposition in 1999.

8.1 Audit feesIn fiscal year 2005, the Company paid Pricewater-houseCoopers a total of CHF 1.1 million for profes-sional services rendered in connection with theaudits of our financial statements.

8.2 Other feesWe have paid PricewaterhouseCoopers approxi-mately CHF 0.3 million for all other professionalservices rendered which are primarily related to tax and assurance services.

8.3 Relationship with independent auditorsThe Audit Committee is, without limitation, respon-sible for assessing the quality of the independentauditors and audit work, reviewing the audit plan,checking the interplay between external auditors andinternal control functions (internal audit and riskmanagement), assessing the independence of theauditors, proposing to the Board the appointmentof new auditors, if necessary, (the Board must thendecide on the proposal to the Shareholders’ Meet-ing), reviewing the audit results and supervising theactions taken by Management based on the auditor’smanagement letters, proposing accounting stan-dards (the choice of which is a matter of the entireBoard), reviewing certain accounting issues, andoverseeing the entire financial reporting process.

The engagement (scope and terms) of the externalauditors for nonaudit-related services requires theapproval of the Audit Committee.

During fiscal year 2005, the external auditors par-ticipated in two meetings of the Audit Committeeand in one Board meeting.


In order to avoid the untimely release of price-sensitive information ahead of regular disclosuredates, we maintain Quiet Periods in the course ofwhich we refrain from any communication with the investment community in relation to qualitativeand quantitative information that might give anindication as to the expected sales or results. TheQuiet Periods cover the period between the internalavailability of the quarterly and annual results, andthe public disclosure of such information, includingthe day of the announcement.

It is our general policy not to release explicit earn-ings projections, but rather provide certain guidanceto analysts and investors in their efforts to developearnings estimates, and to enable the investmentcommunity to better evaluate the Company and itsbusiness prospects for performance.

9.3 Insider-trading policyIn order to prevent trading based upon insiderknowledge of confidential information, the Boardhas issued guidelines with respect to the safeguard-ing of the confidential information, and to preventcorporate insiders and outside consultants fromtrading on such information.

9.4 ContactsFor additional information about Leica GeosystemsHoldings AG, please visit our web site or contact ourInvestor Relations Department:

Mr. George Aase Director Investor RelationsLeica Geosystems AGHeinrich-Wild StrasseCH-9435 HeerbruggSwitzerland

Phone +41 71 727 30 64Fax +41 71 726 50 [email protected]

www.leica-geosystems.com

Share informationThe registered shares of Leica Geosystems HoldingsAG are listed and have been traded on the SWXSwiss Exchange since July 12, 2000, under the Sym-bol “LGSN.” The Swiss security number (Valoren-nummer) is 1087 048 and ISIN is CH 0010870480.The market capitalization of the Company as perMarch 31, 2005, was CHF 820,954,200 based onthe fourth quarter average share price of CHF 359.5with 2,283,600 shares outstanding (shares out-standing exclude 37,872 treasury shares and 25,110shares related to the Cyra option plans).


17Executive Summary

handheld measurement products. Beginning withquarter three, enthusiasm in the automotive sectorfor the new handheld products led to a sharprebound in revenue, with growth in the second se-mester of over 11%.

Despite nearing the end of the DISTO™ 5 life cycle,sales in Consumer Products exceeded the prior yearby 6.2%. Shortly before the issuance of this annualreport, the division announced that it had joinedforces with The Stanley Works to develop a laserdistance meter. The new product, to be sold underthe Stanley® FatMax™ brand name, will be custom-ized for the US home improvement retail market,and will be differentiated from Leica Geosystemsprofessional grade laser distance meters throughspecification, functionality and price.

Lastly, in GIS and Mapping, demand for imaging so-lutions was healthy throughout the year, althoughdelays in customer deliveries in quarter four ulti-mately depressed full-year revenue growth. For thefull year, revenues declined by 0.7%, but increasedby 5.5% when measured in local currencies.

Steady margin improvement with moderateoperating expense growthConsolidated gross margins increased steadilythroughout fiscal 2005, closing at 53% for the fullyear. Margins were positively influenced by increasedsales of top-end TPS and GPS equipment, greatersoftware revenues, and lower manufacturing costs.

In terms of operating expenses, we continued tomake investments in marketing and key manage-ment positions during the year. Additionally, as a result of IAS 38 accounting treatment, our netresearch and development expenses increased,although cash research and development expendi-tures actually declined. In fiscal 2005 we stoppedamortizing goodwill, which had a favorable impacton earnings. All together, goodwill-adjusted oper-ating expenses as a percentage of sales fell by closeto 100 basis points during the year, from 44.7%down to 43.8%.

Executive Summary

Fiscal year 2005 was a benchmark year for LeicaGeosystems financially. Consolidated revenues increased by 12.2% to CHF 773.2 million, and roseby 15.5% when measured in local currencies. Grossmargins increased 170 basis points while operatingexpenses increased only moderately, leading togrowth in operating earnings at a multiple of salesgrowth. We made further improvements in the management of our net working capital, which to-gether with strong operating earnings, resulted inoperating cash flow of CHF 93.8 million. As a con-sequence of the strong cash flow performance, ournet debt position declined to CHF 107.7 million.The financial markets reacted positively to the de-velopments in our business during the year, asevidenced by an appreciation in our share price of76% over the twelve-month period.

Above-market sales performance in Surveying & EngineeringPerformance in our Surveying & Engineering oper-ations was particularly robust this year, where salesincreased 16.3% in Swiss francs and by 19% in localcurrency. Strong demand for our many new products,together with ongoing penetration of key geographi-cal and product markets, were the primary catalystsfor growth. In a market that has historically grownat rates below 10%, we believe these results indi-cate market share gains in our targeted segments.

In our other divisions, performance was generallysolid, with the pace of sales growth gaining mo-mentum throughout the year. The HDS businessgained traction this year, as 3-D laser scanninggained acceptance with the early majority playersas a value-enhancing technology for surveying. Revenues in HDS more than doubled, reaching CHF 31.8 million.

In Metrology, revenues in the first half of the yearfell below the previous year, largely due to the extended market introduction of the division’s new

Divisional sales growth

Financial Results

CurrencyGrowth adj. growth

In CHF million/Year ended March 31 2005 2004 (in %) (in %)

Surveying & Engineering 492.4 423.4 16.3 19.0GIS & Mapping 94.2 94.9 (0.7) 5.5Consumer Products 62.3 58.6 6.2 7.9Metrology 65.8 66.4 (0.9) 3.2High-Definition Surveying 31.8 12.8 148.9 159.3Special Products 26.7 33.0 (19.0) (17.6)Total 773.2 689.1 12.2 15.5


Guidance for upcoming fiscal year 2006Leica Geosystems has been on a steady revenueand earnings growth path for the past two years,which it expects to continue. In line with our previ-ously communicated midterm targets, we expectrevenues to increase by 10% in fiscal year 2006. Asin previous years, the company’s revenue stream is seasonal, with around 47% of sales expected tobe generated in the first half of the fiscal year and53% in the second half. Due to the base effects ofthe many product launches in the first half of theprevious fiscal year, and the expected new productslaunches in autumn 2005, sales growth rates willlikely be below 10% in the first half of the fiscal yearand above 10% in the second half.

We expect an EBITDA margin of 17% for the fullyear. In line with the expected revenue distributi-on, the EBITDA margin will be below 17% in thefirst half of the year, and above 17% in the secondhalf of the year. Net income for fiscal year 2006 isexpected to be in the area of CHF 60 million.

Thank you for your continued interest in LeicaGeosystems.

Sincerely,

Christian LeuChief Financial Officer Leica Geosystems

Heerbrugg, June 9, 2005

Significant earnings growthEarnings rose significantly in fiscal year 2005. Fa-cilitated by the operating leverage in our businessmodel, EBIT increased by 143%, reaching CHF 71.6million; EBITDA rose 30%, totaling CHF 128.1 mil-lion, or 16.6% of sales. Adjusted EBITDA, which re-moves the impact of IAS 38 from our earnings, wasCHF 102.3 million, or 13.2% of sales comparedwith CHF 60.4 million, or 8.8% of sales in the pre-vious year. On the bottom line, net income for theyear increased nearly tenfold to CHF 50.6 million,or CHF 22.27 per share, compared with CHF 5.6million, or CHF 2.54 per share.

At the end of the year, our net working capital in-vestments were CHF 127.9 million, or 15.8% ofannualized sales, compared with CHF 121.1 million,or 16.4%, in the previous year. Net working capitalinvestments are currently in our target range ofbelow 16%, which we believe is sustainable goingforward. The positive development in earnings and working capital led to operating cash flow of CHF 93.8 million. Net of CHF 52.8 million in capital expenditures, we generated CHF 41.0 million in free operating cash flow. Our debt level declinedsteadily during the year, and was at year-end CHF 107.7 million.

In June 2004, we retired our EUR 65 million 97/8%notes. As part of this transaction we extended the life of our existing CHF 150 million revolvingcredit facility for an additional 2 years, which willnow expire on May 7, 2008, and entered into anew CHF 80 million, 4-year amortizing term loan at a significantly lower interest rate than the 97/8%notes.

Company to pay first dividendIn the 2004 Annual Shareholders’ Meeting, we stat-ed that any proposal to pay dividends would de-pend upon several factors, including the operatingresults of our business, the overall business climate,as well as the financial condition and future capitalrequirements of our company. We informed share-holders at that time that the Board of Directorswould consider paying a dividend when the finan-cial situation of the company and the economicenvironment had improved to a point that wouldallow sustainable dividend payments. Reflecting thecurrent positive momentum in the company's per-formance and the encouraging business outlook,while at the same time leaving sufficient financialresources to make other value-generating invest-ments for our shareholders, the Board of Directorsnow proposes the payment of a dividend of CHF 4per share.

19Consolidated Financial Statements

As part of the strategic alignment, the Companysold 75% of its wholly owned manufacturing subsid-iary SwissOptic AG, effective on July 1, 2001. Theremaining 25% ownership interest in SwissOpticwas sold in January of fiscal year 2004.

The continuing streamlining of the Company’s port-folio also led to the sale of 75% of its interest inthe Wiltronic entities on January 1, 2003. EscatecSwitzerland AG is the successor name of WiltronicAG. The remaining 25% ownership interest was soldin January of fiscal year 2004.

Effective February 3, 2003, Leica Geosystems soldits wholly owned subsidiaries Leica Vectronix AG(Heerbrugg, Switzerland) and Leica Technologies Inc.(Dover, Delaware, USA) as part of the streamliningof the Company’s portfolio.

On October 12, 2003, the Company completed theacquisition of the assets and liabilities of Tritronics(Australia) Pty Ltd, expanding the Company’s cur-rent mining-segment product offering.

On February 9, 2004, the Company acquired theGeodesy business of Van Hopplynus, formerly thesale distributor of Leica in Belgium.

The subsidiaries of Leica Geosystems as of March31, 2005, are shown in Note 24.

The Board of Directors of Leica Geosystems HoldingsAG authorized these financial statements for issueon June 7, 2005. A resolution to approve the fi-nancial statements will be proposed at the GeneralMeeting of Shareholders on July 6, 2005.

The accompanying notes form an integral part of these consolidatedfinancial statements.

Consolidated Financial Statements

General Information

Leica Geosystems Holdings AG (“Leica Geosystems”or the “Company”) and its consolidated subsidi-aries (together the “Group”) are primarily engagedin the development, manufacture and distributionof surveying, positioning and guidance systems, con-struction laser technology-based products, hand-held laser-measuring systems, industrial measure-ment systems, laser-scanning systems and otherspecial products. The Company maintains its prima-ry manufacturing facilities in Switzerland, Singaporeand the United States with distribution and salesthroughout the world.

The Company is a limited liability company incor-porated and domiciled in Balgach/Heerbrugg. Theaddress of its registered office is Heinrich-Wild-Strasse, 9435 Heerbrugg, Switzerland.

Prior to October 2, 1998, the Company’s businesswas conducted by the Geosystems division ofLancet Investment B.V., formerly Leica Holdings B.V.

On October 2, 1998, Leica Geosystems HoldingsAG, a company owned by Investcorp S.A., itsclients and management purchased the variouscompanies that conducted their business fromLeica Beheer B.V. The purchase of the shares of the Leica Geosystems Group (the “Acquisition”)was recorded under the purchase-accountingmethod.

On July 12, 2000, the Company completed its ini-tial public offering (IPO) and the shares (listed asLGSN) began trading publicly on the SWX Swiss Ex-change.

In fiscal year 2001, the Company acquired LeicaGeosystems GR, LLC (former Laser Alignment Inc.),based in Grand Rapids, Michigan (USA), by a cashtransaction as well as Cyra Technologies Inc., locatednow in San Ramon, California (USA), in a combinedcash and share transaction. As a result, significantgoodwill and intangible assets were capitalized.

The Company acquired Erdas and the remaining50% of interest in LH Systems, effective April 1,2001. These acquisitions led to significant goodwilland intangible assets as well. In December 2002,Erdas Inc. and LH Systems LLC were merged to formLeica Geosystems GIS & Mapping LLC, creating oneconsolidated company with maximum integrationof all divisional functions.


Consolidated Income Statements

In CHF 1,000 except share data/Year ended March 31 Note 2005 2004Sales 1 773,175 689,097Cost of sales (363,282) (336,483)Gross profit 409,893 352,614

Research and development costs (79,013) (69,172)Selling and marketing costs (175,967) (162,502)General and administrative costs (81,607) (78,264)Other operating income/(expense) net* (1,835) (14,773)Gain/(loss) on disposal of property, plant and equipment net (247) 422Operating profit 1 71,224 28,325

Income/(loss) from associated companies 11 384 1,691Finance costs 3 (17,115) (15,845)Income before tax 54,492 14,170Income tax expense* 4 (3,927) (8,537)Net income 50,565 5,633

Basic earnings per share (in CHF) 5 22.27 2.54

Diluted earnings per share (in CHF) 5 21.57 2.48

* In fiscal year 2004 Other operating income/(expense) net includesgoodwill amortization of CHF 16.9 million as well as the operatingresult from discontinued operations of CHF 0.6 million.

Income tax expense includes the income tax expenses from dis-continued operations of CHF 0.1 million in fiscal year 2004.



Consolidated Balance Sheets

AssetsCurrent assetsIn CHF 1,000/March 31 Note 2005 2004Cash and cash equivalents 1,199 992Trade accounts receivable 6 159,171 149,836Inventories 7 123,260 111,326Prepayments and accrued income 7,220 6,240Other current assets 13,954 13,890Total current assets 304,804 282,284

Noncurrent assetsProperty, plant and equipment 8 91,890 91,465Goodwill 9 171,007 174,964Other intangible assets 10 86,906 97,274Investments in associates 11 4,818 3,451Deferred taxes 18 35,813 32,149Other noncurrent assets 2,198 1,999Total noncurrent assets 392,632 401,302Total assets 697,436 683,586

Liabilities and shareholder’ equityCurrent liabilitiesBank overdrafts 63 480Loans and borrowings 14 2,324 1,432Trade accounts payable 12 77,745 68,958Advance payments 500 989Accrued compensation 34,508 32,943Deferred income 19,254 17,622Other accrued liabilities 15,566 14,922Provisions 16 6,112 6,911Corporate tax, current 10,656 5,914Other current liabilities 13 11,343 11,894Total current liabilities 178,071 162,064

Noncurrent liabilitiesLoans and borrowings

Revolving credit facility 14 105,409 49,73097/8% notes 14 – 99,499Other loans & borrowings 14 1,135 1,842

Pension obligations 17 8,086 11,147Deferred taxes 18 33,736 36,730Other noncurrent liabilities 1,776 3,597Total noncurrent liabilities 150,142 202,543Total liabilities 328,213 364,608

Shareholders’ equityShare capital 19 114,180 111,764Share premium 19 67,573 63,939Reserves 250,788 250,788Accumulated deficit (20,402) (70,969)Hedging and currency translation adjustment (42,916) (36,544)Total shareholders’ equity 369,223 318,978Total liabilities and shareholders’ equity 697,436 683,586



Consolidated Statements of Shareholders’ Equity

Number Hedging andof registered currency

In CHF 1,000 unless otherwise stated/ shares Share Share Accumulated translationYear ended March 31 outstanding capital premium Reserves deficit adjustment Total

Balance at April 1, 2003 2,209,554 110,478 59,918 250,788 (76,602) (30,962) 313,620Issuance of common stock 21,791 1,090 3,405 4,495Treasury shares movement 3,928 196 615 812Net income 5,633 5,633Cash flow hedging adjustment(net of tax) (137) (137)Currency translation adjustment (5,444) (5,444)Balance at March 31, 2004 2,235,273 111,764 63,939 250,788 (70,969) (36,544) 318,978

Issuance of common stock 45,193 2,260 3,060 5,320Treasury shares movement 3,134 157 573 730Net income 50,565 50,565Cash flow hedging adjustment(net of tax) (244) (244)Currency translation adjustment (6,127) (6,127)Balance at March 31, 2005 2,283,600 114,180 67,573 250,788 (20,402) 42,916 369,223

Information with respect to hedging is disclosed in Note 15 (Financialinstruments).



Consolidated Cash Flow Statements

Cash flows from operating activitiesIn CHF 1,000/Year ended March 31 Note 2005 2004Operating profit 71,224 28,325Net interest expense paid (9,647) (13,998)Taxes paid (6,006) (19,362)Depreciation and amortization 56,453 69,243Other noncash items 247 (1,001)Changes in assets and liabilities

Trade accounts receivable (15,223) (7,508)Inventories (17,276) (6,992)Prepayments and accrued income (1,166) (220)Other assets (5,319) 4,219Trade accounts payable 10,818 11,156Advance payments (455) 394Accruals and deferred income 11,160 (97)Pension obligations (2,942) (1,985)Other liabilities 1,917 (2,473)

Cash provided by operating activities 93,785 59,701

Cash flows from investing activitiesPurchase of property, plant and equipment 8 (24,013) (16,025)Cash expended on intangible assets 10 (28,751) (39,209)Cash expended on acquisitions 11/23 (1,647) (16,305)Disposal of subsidiary and interests in associates 23 4,443 14,050Sale of assets 1,408 2,948Cash used in investing activities (48,560) (54,540)

Cash flows from financing activitiesLoans and borrowings (48,078) (2,454)Proceeds from credit facility less debt issuance costs 102,592 (1,536)Repayment of 97/8% notes (104,224) –Sale/(purchase) of treasury shares (net) 730 812Proceeds from issue of ordinary shares 5,101 1,941Finance lease principal payments (1,087) (4,518)Cash used in financing activities (44,967) (5,756)

Effect of exchange rate changes on cash and cash equivalents (51) (114)Net increase/(decrease) in cash and cash equivalents 207 (709)Cash and cash equivalents at beginning of specified period 992 1,701Cash and cash equivalents at end of specified period 1,199 992



net.” The discontinuation of this goodwill amortiza-tion has increased the Company’s operating result,net income, as well as related figures (e.g. EBIT)and ratios (e.g. Earnings per share) in fiscal year2005.

The company has reassessed the useful lives of itsintangible assets in accordance with the provi-sions of IAS 38. No adjustment resulted from thisreassessment.

There was no impact on opening retained earn-ings at April 1, 2004, from the adoption of IFRS 3,revised IAS 36 and revised IAS 38.

Recently issued IFRSs/IASsIn fiscal year 2006 various new (IFRS 2, 4 and 5)and revised accounting standards (IASB improve-ment project issued on December 2003 as well asIAS 32 and IAS 39 revised including amendments)become effective. The implementation of IFRS 2share-based payments will result in employee stockoptions being recognized in personnel expenses in the income statement.

B Principles of consolidationThe consolidated financial statements include LeicaGeosystems Holdings AG, a corporation registeredin Switzerland, and its majority-owned subsidiariesheld either directly or indirectly. All subsidiary under-takings over which the Company has the power toexercise control have been consolidated. Subsidi-aries are consolidated from the date on which effec-tive control is transferred to the Company and areno longer consolidated from the date of disposal.All significant intercompany transactions and bal-ances are eliminated. Any intercompany profits orlosses included in a subsidiary’s income statement,which were not realized at the balance sheet date,are eliminated. The Company’s investments in enti-ties in which it has the ability to exercise significantinfluence over operating and financial policies, nor-mally those of which the Company owns between20% and 50%, are accounted for using the equitymethod.

C Financial risk managementThe Company’s activities expose it to a variety offinancial risks, including the effects of: changes in debt and equity market prices, foreign currencyexchange rates and interest rates. The Company’soverall risk management program focuses on theunpredictability of financial markets and seeks tominimize potential adverse effects on the financialperformance of the Company. The Company usesderivative financial instruments such as foreign-ex-change contracts.

Risk management is carried out by a central trea-sury department (Group Treasury) under policiesapproved by the Board of Directors. Group Treasury

Summary of Risk ManagementObjectives and SignificantAccounting Policies

A Basis of presentationThe consolidated financial statements have beenprepared in accordance with International FinancialReporting Standards (IFRS) (formerly InternationalAccounting Standards, IAS) and under the historicalcost convention except as disclosed in the account-ing policies below (for example, derivative financialinstruments are shown at fair value).

The preparation of financial statements in accor-dance with IFRS requires management to make estimates and assumptions that affect the amountsreported in the financial statements and relatednotes. Actual results may differ from those esti-mates. Areas involving a higher degree of judge-ment or complexity, or areas where assumptionsand estimates are significant to the consolidatedfinancial statements, are disclosed under section D.Critical accounting estimates and judgements below.

The term “CHF” in these consolidated financialstatements refers to Swiss francs.

Adoption of new IFRSs/IASsIn fiscal year 2005, the Group adopted the IFRSsand revised IASs below, which are relevant to itsoperations:

IFRS 3 (issued 2004) Business CombinationsIAS 36 (revised 2004) Impairment of AssetsIAS 38 (revised 2004) Intangible Assets

The adoption of these standards resulted in achange in the accounting policy for goodwill. UntilMarch 31, 2004, goodwill was:

Amortized on a straight-line basis over a periodranging from ten to twenty years; andAssessed for an indication of impairment ateach balance sheet date.

In accordance with the transitional provisions ofthe above-mentioned standards:

The Company ceased amortization of goodwillfrom April 1, 2004;The accumulated amortization balance of CHF 114.9 million, as at March 31, 2004, hasbeen eliminated with a corresponding decreasein the cost of goodwill from CHF 289.9 millionto CHF 175.0 million;From the year ended at March 31, 2004, onwards,goodwill is tested annually for impairment, aswell as when there are indications of impairment.

In the prior fiscal year the Company recognized agoodwill amortization charge of CHF 16.9 millionreported under “Other operating income/(expense)


Liquidity riskPrudent liquidity risk management implies main-taining sufficient cash and the availability of fund-ing through an adequate amount of committedcredit facilities. Due to the dynamic nature of theunderlying businesses, Group Treasury aims atmaintaining flexibility in funding by keeping com-mitted credit lines available.

Foreign-currency translationThe reporting currency for the Company’s financialstatements is the Swiss franc (CHF). The functionalcurrencies for the Company’s operations are thelocal currencies of each of its subsidiary companies.On consolidation, assets and liabilities of non-Swisscompanies are translated into CHF at the year-endexchange rates. The income statements are trans-lated at the average rates of exchange for theperiod. Exchange differences arising on consolida-tion are shown under “Cumulative foreign currencytranslation adjustment,” which is a separate com-ponent of Shareholders’ Equity. Foreign exchangedifferences arising from the retranslation of borrowings denominated in foreign currencies arereported in the income statements under “Financecosts,” unless specific borrowings are designatedas a hedging instrument and hedge accounting fornet investment or cash flow hedges is applied.

Foreign-currency transactions are accounted for atthe exchange rates prevailing at the dates of thetransactions. Gains and losses resulting from thesettlement of foreign-currency transactions andfrom the translation of monetary assets and liabili-ties that are denominated in foreign currencies arerecognized in the income statements within theoperating section (except those arising on foreign-currency borrowings, referred to above). Foreign-currency balances are translated at period end ex-change rates and revaluation gains and losses arerecognized in the income statements except whendeferred in equity as relating to qualifying cash flowor net investment hedges.

Accounting for derivative financial instruments and hedging activitiesDerivative financial instruments are initially recog-nized in the balance sheet as cost and subsequentlyare remeasured at their fair value. The fair value of forward foreign-exchange contracts is determinedusing forward exchange market rates at the balancesheet date. With the exception of financial instru-ments which hedge a forecasted transaction or afirm commitment (cash flow hedge) or hedge for-eign-currency net asset translation exposure (hedgeof net investment in a foreign entity), all adjust-ments to fair value are included in the income state-ment. Changes in the fair value of derivatives orcurrency borrowings that are designated and qualifyas cash flow hedges or as hedge of a net invest-ment and that are highly effective, are recognized

identifies, evaluates and hedges financial risks inclose cooperation with the operating units. TheCompany complies with guidance provided by theBoard and Audit Committee for overall risk man-agement, as well as policies covering specific areas,such as foreign-exchange risk, interest rate risk,credit risk, use of derivative financial instrumentsand investing excess liquidity.

Foreign-exchange riskThe Company operates internationally and is ex-posed to foreign-exchange risk arising from variouscurrency exposures primarily with respect to USdollars and euro. Foreign-exchange risk arises fromfuture commercial transactions, recognized assetsand liabilities and net investments in foreign oper-ations.

Companies of the Group use forward contracts,transacted with Group Treasury, to hedge their ex-posure to foreign-currency risk in the local-report-ing currency. Group Treasury is responsible forhedging the net position in each currency by usingcurrency borrowings and external forward currencycontracts. For financial reporting purposes, eachsubsidiary designates contracts with Group Treasuryas fair value hedges or cash flow hedges, as appro-priate. At the group level, external foreign exchangecontracts are designated as hedges of foreign ex-change risk on specific assets, liabilities or futuretransactions.

The Company hedges between 40% and 100% ofthe projected net cash flows in each major currencyfor the upcoming 12 months. Hedge accounting is used when hedging highly probable anticipatedsales in foreign currencies with currency borrowingsor foreign exchange forward contracts.

The Company has a number of investments in for-eign subsidiaries, whose net assets are exposed tocurrency translation risk. Currency exposure to thenet assets of the Group’s subsidiaries is managedpartially through borrowings denominated in therelevant foreign currencies or by entering into for-eign exchange swaps.

Interest rate riskThe Company’s income and operating cash floware partially dependent on changes in market inter-est rates. The Company has no significant interest-bearing assets. The Company policy is to maxi-mize borrowings in competitive variable-rate instru-ments.

Credit riskThe Company has no significant concentrations of credit risk. The Company has policies in place to ensure that sales of products and services aremade to customers with an appropriate credithistory.


of the products concerned, which generally is threeto five years from the product release date. Man-agement’s judgements regarding the useful lives ofcapitalized development costs are based on theproduct life cycle of the respective developed prod-ucts, that means on estimated market (sales) fig-ures, industry trends, as well as the Group’s long-range development project master plan. Those es-timates are a compulsory element of the milestoneswithin the Company’s innovation process and arereviewed regularly as part of the business plans.Future circumstances could result in a modificationof the useful lives, which could have an adverse af-fect on the operating results. Historically only mini-mal amounts have been impaired. Capitalized de-velopment costs amount to CHF 86.9 million as perMarch 31, 2005 (2004: CHF 97.3 million).

Realizability of deferred tax assetsDeferred tax assets are recognized in accordancewith IAS 12 to the extent that realization is probablebased on the estimated future tax effects of tem-porary differences between the tax bases of assetsand liabilities and amounts reported in the consol-idated balance sheets, as well as based on tax losscarryforwards and tax credit carry-forwards. Spe-cific and detailed guidelines regarding the recover-ability of any deferred tax assets recorded on thebalance sheet are followed. Deferred tax assetsamount to CHF 35.8 million as per March 31, 2005(2004: CHF 32.1 million).

E Cash and cash equivalentsCash and cash equivalents include cash in handand interest-bearing deposits with an original ma-turity of three months or less.

F Trade accounts receivableTrade accounts receivable are presented net ofappropriate provisions for impairment. Bad debtsare fully provided in the period in which they areidentified.

G InventoriesInventories are valued at the lower of cost or netrealizable value based upon the average cost meth-od. In the case of finished goods, work in progressand subassemblies, costs include an appropriateportion of manufacturing overhead (based on nor-mal operating capacity), but exclude any borrowingcost. Subassemblies are included in the line “Rawmaterials and subassemblies” in Note 7 to the accounts. Net realizable value is the estimate of theselling price in the ordinary course of business,less the costs of completion and selling expenses.

H Property, plant and equipmentProperty, plant and equipment are stated at historicalcost less accumulated depreciation. Depreciationexpense is calculated using the straight-line meth-od based on the following estimated useful lives:

in equity. Where the forecasted transaction or firmcommitment results in the recognition of an assetor a liability, the gains and losses previously deferredin equity are transferred from equity and includedin the initial measurement of the cost of the assetor liability. Otherwise, amounts deferred in equityare transferred to the income statement in thesame periods during which the hedged forecastedtransaction affects the income statement. When a hedging instrument expires or is sold, or when ahedge no longer meets the criteria for hedge ac-counting under IAS 39, any cumulative gain or lossdeferred in equity remains in equity until the fore-casted transaction ultimately is recognized in theincome statement. However, if a forecasted trans-action or firm commitment is no longer expected tooccur, the gains and losses deferred in equity areimmediately transferred to the income statement.Foreign exchange gains and losses related to cur-rency borrowings or foreign exchange forward con-tracts that are designated as hedging instrumentsand qualify for the hedge of a net investment in aforeign entity are included in equity until disposalof the net investment.

D Critical accounting estimates and judgementsEstimates and judgements are continually evaluatedand are based on historical experience and otherfactors, including expectations of future events thatare believed to be reasonable under the circum-stances.

The Group makes estimates and assumptions con-cerning the future. The resulting accounting estimateswill, by definition, seldom equal the related actualresults. The estimates and assumptions that mighthave a significant risk of causing a material adjust-ment to the carrying amounts of assets and liabilitieswithin the next financial year are discussed below.

Estimated impairment of goodwillThe Group tests annually whether goodwill has suf-fered any impairment, in accordance with the ac-counting policy stated below (section K “Impairmentof assets”). The recoverable amounts of cash-gen-erating units have been determined based on value-in-use calculations. These calculations require theuse of estimates. The net carrying amount of good-will is CHF 171.0 million as of March 31, 2005 (2004:CHF 175.0 million).

Capitalized development costsResearch costs are expensed in the income state-ment. Development costs of hardware and softwareproducts are capitalized in accordance with the cri-teria established under International Financial Re-porting Standards (IAS 38), from the point at whichtheir technical feasibility, profitability and paybackare established up to the date of product releaseto the market. Capitalized development costs areamortized on a straight-line basis over the lifetime


Research and development costsResearch costs are expensed in the income state-ment. Development costs of hardware and softwareproducts are capitalized in accordance with the cri-teria established under IAS 38, from the point atwhich their technical feasibility, profitability and pay-back are established up to the date of product re-lease to the market. Capitalized development costsare amortized on a straight-line basis over the life-time of the products concerned, which generally isthree to five years from the product release date.Cost of materials, services, salaries, and overheadsthat can be allocated on a reasonable and consistentbasis are capitalized. Marketing costs are excludedfrom capitalization. Costs which have been expensedin prior periods are not capitalized in later periods.

Amortization of product development costs is in-cluded in the “Research and development costs” inthe income statement.

GoodwillGoodwill represents the excess of the costs of anacquisition over the fair value of the Group’s shareof the net identifiable assets of the acquired sub-sidiary/associate at the date of the acquisition.Goodwill on acquisitions of subsidiaries is includedin intangible assets. Goodwill on acquisitions ofassociates is included in investments in associates.In accordance with IFRS 3 as well as IAS 36 revisedand IAS 38 revised Goodwill is tested annually forimpairment and carried at cost less accumulatedimpairment losses.

K Impairment of assetsAssets that have an indefinite useful life are notsubject to amortization and are tested annually forimpairment. Assets that are subject to amortizationare reviewed for impairment whenever events orchanges in circumstances indicate that the carryingamount may not be recoverable. An impairment lossis recognized for the amount by which the asset’scarrying amount exceeds its recoverable amount.The recoverable amount is the higher of an asset’sfair value less costs to sell and value in use. For thepurpose of assessing impairment, assets are groupedat the lowest levels for which there are separatelyidentifiable cash flows (cash-generating units).

L Loans and borrowingsLoans and borrowings are recognized initially at fairvalue, net of transaction costs incurred and sub-sequently stated at amortized cost. Any differencebetween the proceeds (net of transaction costs)and the redemption value is recognized in the in-come statement over the period of the borrowingsusing the effective-interest method.

M ProvisionsProvisions are recognized when the Group has apresent legal or constructive obligation as a result

Land Not depreciatedBuildings 50 yearsMachinery and equipment 4–15 yearsComputer and software 2–5 yearsFurniture and fixtures 5–10 yearsMotor vehicles and trucks 3–10 yearsSpecial tools and jigs 3 yearsOther 3–10 years

The carrying values of assets with longer lives arereviewed whenever events or changes in circum-stances indicate that they may not be recoverable.If such an event occurs, the Company prepares an analysis to determine whether an impairmentexists.

Repairs and maintenance costs are expensed asincurred. Interest expense is not capitalized, butexpensed in the period to which it relates.

Gains and losses on the sale of property, plant andequipment are recorded at the difference betweentheir carrying value and the proceeds of sale.

I Accounting for leasesThe lease of assets under which substantially allthe risks and benefits of ownership are effectivelyretained by the lessor are classified as operatingleases. Payments made under operating leases are charged to the income statement on a straight-line basis as incurred over the period of the lease.When an operating lease is terminated before thelease period has expired, any payment required tobe made to the lessor by way of penalty is recog-nized as an expense in the period in which the ter-mination took place.

The lease of property, plant and equipment wherethe Company has substantially all the risks and re-wards of ownership are classified as finance leases.Finance leases are capitalized at the inception ofthe lease at the lower of the fair value of the leasedproperty or the present value of the minimum leasepayments. Each lease payment is allocated betweenthe liability and finance charges so as to achieve aconstant rate on the finance balance outstanding.The corresponding rental obligations, distinguishedbetween current and non-current portion, are included in loans and borrowings. The interest ele-ment of the finance cost is charged to the incomestatement over the lease period. The property,plant and equipment acquired under finance leasesis depreciated over the shorter of the useful life ofthe asset or the lease term.

J Intangible assetsIntangible assets include goodwill and capitalizedproduct development costs. All intangible assetsare subject to adjustment in the event of impair-ment.


are exercisable at that price, no compensation costis recognized. When the options are exercised, theproceeds received net of any transaction costs arecredited to share capital (nominal value) and sharepremium.

P TaxationDeferred tax assets and liabilities are recognizedfor the future tax consequences of differences be-tween the financial-statement-carrying amounts ofexisting assets and liabilities and their respectivetax bases. Deferred tax assets and liabilities aremeasured using enacted tax rates in the respectivejurisdictions in which the Company operates. Inassessing the probability of realization of deferredtax assets, management considers whether it isprobable that profits will be generated against whichthe deferred tax assets will be realized.

Generally, deferred taxes are not provided on theunremitted earnings of subsidiaries because it isexpected that these earnings will be permanentlyreinvested and such determination is not practicable.Such earnings may become taxable upon the saleor liquidation of these subsidiaries or upon the re-mittance of dividends.

Q Shareholders’ equityExternal costs directly attributable to the issue ofnew shares, other than on a business combination,are shown as a deduction, net of tax, in equity fromthe proceeds. Share issue costs incurred directly in connection with a business combination are in-cluded in the cost of acquisition. Where the Com-pany or its subsidiaries purchases the Company’sequity share capital, the consideration paid includ-ing any attributable transaction costs net of incometax is deducted from total shareholders’ equity as treasury shares until they are cancelled. Wheresuch shares are subsequently sold or reissued,any consideration received is included in sharehold-ers’ equity.

R Revenue recognitionRevenue is recognized when significant risks andrewards of ownership of goods have been trans-ferred to a third party. This would normally occurfollowing delivery of the products or services andacceptance by the customers.

Advance payments received from customers aredeferred, and recorded as income when the relatedproduct has been delivered or services performed,e.g. revenues from maintenance contracts paid bycustomers in advance are recognized over the pe-riod of the contract in accordance with the termsspecified therein.

of past events and it is probable that an outflow of resources will occur and the amount can be rea-sonably estimated.

Future warranty costs are accrued, based on histor-ical experience, when goods are supplied or ser-vices rendered. Actual warranty costs incurred arecharged against the accrual when paid.

Restructuring costs may include lease terminationpenalties and employee termination payments. Anycosts relating to the restructuring of the Group arecharged to the income statement in the year inwhich the Group becomes legally or constructivelycommitted to payment. Employee termination liabilities are recognized when there is a written announcement in place, specifying the terms in accordance with IAS 37.

N Pension and other retirement benefit obligations

Leica Geosystems provides retirement benefits toits employees in line with local customs and require-ments. Contributions are, where appropriate, basedon periodic actuarial calculations and are chargedagainst the income statement over the periods benefiting from the employees’ service. Pensionschemes are generally funded through paymentsto insurance companies or other independentlyadministered funds. In respect of defined benefitplans, according to the definition of IAS 19 (revised),pension costs are calculated using the projectedunit credit method. Under this method the costs ofproviding pensions are charged to the incomestatements in order to spread the regular costs overthe service lives of employees in accordance withthe advice of qualified actuaries. The pension ob-ligation is the actuarially computed present value of the estimated future net cash outflow using interest rate assumptions in line with long-term gov-ernment securities. All actuarial gains and lossesexceeding the 10% corridor are spread forward overthe average remaining service lives of employees.The Group’s contributions to the defined contri-bution plans are charged to the income statementsin the year to which they relate. In the case of on-going early retirement plans, actuarial calculationsare performed to determine the necessary provisionbased on reasonable assumptions regarding thepercentage of staff who are expected to take ad-vantage of the plan. The provision results in the costof the early-retirement plan being recognized overthe service periods of the related employees. Priorservice costs arising on inception of the plans areamortized over the remaining service period of therelated employees.

O Equity compensation benefitsShare options are granted to directors and to em-ployees. If the options are granted at the marketprice of the shares on the date of the grant and


ments, as well as direct sales to external customers.In addition, the Special Products divisions includesthe marine business providing GPS marine naviga-tion applications.

Central ServicesCentral Services represents corporate expensesand unallocated costs related to shared services.

Business segment assets consist primarily of prop-erty, plant and equipment, goodwill (except good-will from the Leica Geosystems Group acquisitionin 1998), intangible assets, investment in associates,inventories and receivables.

The reconciliation in business assets reflects good-will from the Leica Geosystems Group acquisitionin 1998 as well as the deferred tax asset.

Business segment current liabilities consist mainlyof short-term loans, accounts payable, deferredincome, accrued liabilities, provisions and currenttaxes.

Capital expenditure comprises additions to prop-erty, plant and equipment (Note 8), goodwill(Note 9) and other intangible assets (Note 10).

Notes to the ConsolidatedFinancial Statements

1. Segment informationIn accordance with IAS 14 (Segment Reporting), a breakdown of certain data in the financial state-ments is given by business segments (primary reporting format) and geographical regions. Thebusiness segments are the same as those used forinternal reporting, allowing a reliable assessmentof risks and returns. The aim is to provide users ofthe financial statements with information regard-ing the profitability and future prospects of theCompany’s various activities. The Company recordsthe sales and related operating results within thefollowing business segments:

Surveying & Engineering divisionThis division is largely comprised of terrestrial po-sitioning systems, including levels (instruments thatmeasure height differences), theodolites (instru-ments that measure horizontal and vertical angles)and total stations (instruments that combine the-odolites and distancers together with associatedsoftware). In addition GPS satellite receivers andsystems that use GPS technology for surveying andother applications are reported within this division.

GIS & Mapping divisionThe GIS & Mapping division is focused on the man-agement of spatial data (three-dimensional coor-dinates) and attributes (the object captured, such as buildings, rivers or forests) for a diverse range ofapplications including, most importantly, utilities,communities, local government land registries andplanning agencies, forestry and environmental auditand cleanup.

Consumer Products divisionThe main products of the Consumer Products divi-sion are the handheld laser-measuring systems thatemploy high-precision, reflectorless laser-measur-ing technology.

Metrology divisionThe Metrology division is largely comprised of high-precision portable measurement systems, e.g.mobile laser trackers, high-precision theodolitesand related software.

High-Definition Surveying (HDS) divisionThe HDS division is comprised of the Company’slaser-scanning and three-dimensional visualizationbusiness, which we believe is the next emergingtechnology in our industry.

Special Products divisionThe Special Product division includes third-partymanufacturing comprising the manufacturing ofcomponents and products for other business seg-


Fiscal year 2004 includes goodwill amortization oftotal CHF 16.9 million resulting from CHF 2.5 mil-lion in Surveying & Engineering, CHF 6.3 million inGIS & Mapping, CHF 1.8 million in High-Definition

Surveying (HDS) and CHF 6.2 million in Central Services (not allocated to segments). In the Spe-cial Products division, the operating result includesCHF 0.6 million from discontinued operations.

Business segments

Sales to external customers by segmentIn CHF 1,000/Year ended March 31 2005 2004Surveying & Engineering 492,404 423,414GIS & Mapping 94,242 94,860Consumer Products 62,279 58,640Metrology 65,781 66,389High-Definition Surveying (HDS) 31,772 12,766Total segments 746,478 656,069Special Products 26,697 33,028Total sales 773,175 689,097

Operating profit/(loss) by segmentSurveying & Engineering 69,460 57,938GIS & Mapping 6,976 (3,705)Consumer Products 9,706 3,447Metrology 1,780 5,389High-Definition Surveying (HDS) (5,985) (17,723)Total segments 81,937 45,347Special Products 8,929 7,387Central Services (19,642) (24,409)Total operating profit 71,224 28,325

Income/(loss) from associated companies by segmentIn CHF 1,000/Year ended March 31 2005 2004GIS & Mapping (33) 162Special Products – 1,500Central Services 417 29Total net income from associated companies 384 1,691

Depreciation and amortization by segmentSurveying & Engineering (27,671) (20,289)GIS & Mapping (3,812) (13,822)Consumer Products (5,185) (5,020)Metrology (5,807) (7,175)High-Definition Surveying (HDS) (6,114) (7,996)Total segments (48,589) (54,303)Special Products (2,522) (2,911)Central Services (5,342) (12,030)Total depreciation and amortization (56,453) (69,243)


Business segments (continued)

Assets by segmentIn CHF 1,000/March 31 2005 2004Surveying & Engineering 297,695 274,939GIS & Mapping 91,192 93,861Consumer Products 28,600 27,641Metrology 43,129 41,277High-Definition Surveying (HDS) 35,081 36,525Total segments 495,697 474,243Special Products 52,722 63,584Central Services 22,424 22,831Total assets by segment 570,844 560,658

Reconciliation of segment assets to consolidated balance sheetsFinancing assetsGoodwill (not allocated to segments) 90,779 90,779Deferred tax assets 35,813 32,149Total consolidated assets 697,436 683,586

Business segment current liabilities by segmentIn CHF 1,000/March 31 2005 2004Surveying & Engineering 89,406 77,147GIS & Mapping 20,484 26,387Consumer Products 12,494 8,523Metrology 12,676 11,204High-Definition Surveying (HDS) 5,421 3,824Total segments 140,481 127,085Special Products 6,919 13,394Central Services 30,671 21,585Total consolidated current liabilities 178,071 162,064

Capital expenditure by segmentIn CHF 1,000/Year ended March 31 2005 2004Surveying & Engineering 23,046 26,391GIS & Mapping 7,760 4,579Consumer Products 8,794 3,066Metrology 1,933 6,187High-Definition Surveying (HDS) 2,258 7,273Total Segments 43,791 47,496Special Products 3,089 2,576Central Services 5,884 7,427Total consolidated capital expenditure 52,764 57,499

The above table includes capital expenditure onplant, property and equipment, product develop-ment costs and goodwill.


2. Income statementThe income statement has been prepared usingthe presentation by function method. The costs ofsales, research and development costs, selling

Depreciation and amortization in fiscal year 2004includes goodwill amortization of CHF 16,9 million.

and marketing costs as well as general and administrative expenses include the following ex-penses by nature:

In CHF 1,000/Year ended March 31 2005 2004Personnel expenses 253,482 232,841Depreciation and amortization 56,453 69,243

Geographic segments

Sales by geographic segmentIn CHF 1,000/Year ended March 31 2005 2004Switzerland 36,168 37,381Rest of Europe 359,237 310,549United States 167,797 150,748Rest of Americas 36,793 33,522Asia Pacific 112,708 110,642Japan & Korea 44,816 41,348Other 15,655 4,907Total sales by geographic segment 773,175 689,097

Assets by geographic segmentIn CHF 1,000/March 31 2005 2004Switzerland 223,133 254,760Rest of Europe 130,449 107,850United States 161,562 155,976Rest of Americas 5,752 6,090Asia Pacific 33,306 22,011Japan & Korea 16,642 13,971Total assets by geographic segments 570,844 560,658

Reconciliation of segment assets to consolidated balance sheetsFinancing assetsGoodwill (not allocated to segments) 90,779 90,779Deferred tax 35,813 32,149Total consolidated assets 697,436 683,586

Capital expenditure by geographic segmentIn CHF 1,000/Year ended March 31 2005 2004Switzerland 35,600 42,254Rest of Europe 1,325 1,166United States 10,732 13,041Rest of America 23 54Asia Pacific 4,850 892Japan & Korea 234 92Total consolidated capital expenditure 52,764 57,499

The above table includes capital expenditure onplant, property and equipment, product develop-ment costs and goodwill.


3. Finance costs

4. Taxes on income

The tax on the Group’s profit before tax differs fromthe theoretical amount that would arise using themaximum tax rate applicable at the Company’s head-quarters location in Heerbrugg:

In fiscal year 2005 the Group has legally restructuredits holding in Leica Geosystems HDS, LLC (formerlyCyra Technologies Inc.). The Group has integratedLeica Geosystems HDS, LLC into the U.S. tax groupand has transformed this company from an Inc.into a LLC. This integration as well as this transfor-

mation into a LLC have resulted in a reassessmentof the tax loss carryforwards considering the prob-ability of the realization through future taxable profits. The positive tax effect of this integration isshown in “Change in valuation allowances on de-ferred tax assets” above.

In CHF 1,000/Year ended March 31 2005 2004Interest income 115 85

Interest expenseRevolving Credit Facility (5,960) (4,791)97/8% notes* (8,745) (10,575)Other (91) (158)Total interest expense (14,796) (15,524)Foreign exchange gains/(losses) on borrowings (2,434) (406)Total finance costs (17,115) (15,845)

* In fiscal year 2005 the position includes amortization and costs relatedto early repayment of CHF 6.6 million

Previously separately shown amortization of debtacquisition cost is included in interest expenses.Comparatives were adjusted accordingly.

Current taxesIn CHF 1,000/Year ended March 31 2005 2004Domestic (3,477) (500)Foreign (8,682) (4,798)Total current taxes (12,159) (5,298)

Deferred taxesDomestic 2,649 (1,824)Foreign 5,583 (1,415)Total deferred taxes 8,232 (3,239)Total income tax expense (3,927) (8,537)

In CHF 1,000 unless otherwise stated/Year ended March 31 2005 2004Profit before tax 54,492 14,170Maximum tax rate for Heerbrugg, Switzerland (in %) 25 25Income tax expense, at maximum rate (13,623) (3,543)Effect of taxes at rates other than maximum rate 1,716 4,121Income not subject to tax 1,166 –Tax effect of nondeductible expenses (incl. goodwill amortization in fiscal year 2004) (1,227) (8,553)Change in valuation allowances on deferred tax assets 8,264 (4,241)Tax related to other periods (278) 984Other 55 2,695Income tax expense (3,927) (8,537)


5. Earnings per shareBasic earnings per share are calculated by dividingthe net profit available for shareholders by theweighted average number of ordinary shares out-

standing and issued during the year, excluding thenumber of shares purchased by the Company andheld as treasury shares.

For the share options, a calculation is performed to determine the number of shares that couldhave been acquired at market price. This serves to

For the diluted earnings per share the weightedaverage number of ordinary shares in issue is adjusted to assume conversion of all potentiallydilutive ordinary shares (see Note 20). The Com-

6. Trade accounts receivableAccounts receivable consisted of the following:

pany has share options granted to managementand employees that qualify as potentially dilutiveordinary shares.

calculate the extent of the dilutive effect. No ad-justments are made to net profit for this optionscalculation.

7. InventoriesInventories consisted of the following:

The gross values represent the purchase or produc-tion costs of inventories at the balance sheet date.The allowances are for excess quantities, as wellas slow-moving and obsolete items.

In CHF 1,000 unless otherwise stated/Year ended March 31 2005 2004Net income attributable to shareholders 50,565 5,633Weighted average number of ordinary shares in issue (in 1,000 pieces) 2,270 2,220Adjustment for share options (in 1,000 pieces) 74 47Weighted average number of ordinary shares for diluted earnings per share (in 1,000 pieces) 2,344 2,267Diluted earnings per share (single CHF per individual share) 21.57 2.48

In CHF 1,000/March 31 2005 2004Raw materials and subassemblies 41,071 30,554Work-in-progress 13,462 12,320Finished goods 84,848 84,498Gross inventories 139,381 127,372Allowances (16,121) (16,046)Total inventories 123,260 111,326

In CHF 1,000/March 31 2005 2004Gross trade receivables 164,436 155,348Allowance for doubtful accounts (5,345) (5,565)Net trade receivables 159,091 149,783Receivables from associated companies 80 53Total trade accounts receivables 159,171 149,836

In CHF 1,000 unless otherwise stated/Year ended March 31 2005 2004Net income attributable to shareholders 50,565 5,633Weighted average number of ordinary shares in issue (in 1,000 pieces) 2,270 2,220Basic earnings per share (single CHF per individual share) 22.27 2.54


8. Property, plant and equipment

Gross values

Land & Machinery & OtherIn CHF 1,000 buildings installations equipment Total

Value at April 1, 2003 99,735 92,961 65,268 257,964Acquisition of subsidiaries – 161 26 187Additions 3,580 5,238 9,472 18,290Disposals (1,155) (696) (7,229) (9,080)Exchange rate adjustments (71) (730) (341) (1,142)Value at March 31, 2004 102,089 96,934 67,196 266,219Additions 7,540 8,885 7,587 24,013Disposals (6,496) (30,786) (11,283) (48,565)Transfer from/to other categories 1,324 7,317 (8,642) –Exchange rate adjustments (544) (1,577) (970) (3,091)Value at March 31, 2005 103,914 80,772 53,889 238,575

Accumulated depreciationValue at April 1, 2003 (44,197) (74,018) (46,204) (164,419)Depreciation expense (2,820) (6,023) (9,208) (18,051)Disposals 340 970 5,541 6,851Exchange rate adjustments 34 566 265 865Value at March 31, 2004 (46,643) (78,505) (49,606) (174,754)Depreciation expense (2,995) (9,582) (6,261) (18,839)Disposals 3,792 29,960 10,698 44,450Transfer from/to other categories (276) (3,975) 4,251 –Exchange rate adjustments 318 1,400 740 2,458Value at March 31, 2005 (45,805) (60,702) (40,178) (146,685)

Net book values atApril 1, 2003 55,538 18,943 19,064 93,545March 31, 2004 55,446 18,429 17,590 91,465March 31, 2005 58,109 20,070 13,711 91,890

A breakdown of the leased assets included in theabove table where the Company is a lessee undera finance lease, is presented below:

According to Swiss accounting regulations, theCompany is also required to present the followingamounts, which do not necessarily represent fairvalues according to IFRS:


Gross values

Land & Machinery & OtherIn CHF 1,000 buildings installations equipment Total

Value at April 1, 2003 – 8,237 2,181 10,418Additions 1,000 744 521 2,265Other movements – (1,381) (1,161) (2,542)Value at March 31, 2004 1,000 7,600 1,541 10,141Additions – – 178 178Other movements – (5,158) (247) (5,405)Value at March 31, 2005 1,000 2,442 1,472 4,914

Accumulated depreciationValue at April 1, 2003 – (2,446) (711) (3,157)Depreciation expense (67) (2,448) (497) (3,012)Other movements _ 843 261 1,104Value at March 31, 2004 (67) (4,051) (947) (5,065)Depreciation expense (67) (709) (421) (1,197)Other movements – 3,402 217 3,619Value at March 31, 2005 (133) (1,358) (1,151) (2,642)

Net book values atApril 1, 2003 – 5,791 1,470 7,261March 31, 2004 933 3,549 594 5,076March 31, 2005 867 1,084 321 2,272

Fire insurance value of property, plant and equipmentIn CHF 1,000/March 31 2005 2004Buildings 118,927 121,428Machinery, equipment and other fixed assets 122,576 158,797Total insurance value of property, plant and equipment 241,503 280,225


9. Goodwill

On October 13, 2003 (fiscal year 2004), LeicaGeosystems completed the acquisition of Tritronics(Australia) assets and liabilities in a cash transactionfor CHF 11.1 million (AUD 12 million), plus a maxi-mum earn-out of an additional CHF 5.5 million (AUD6 million) payable over three years if certain targets,which is considered very likely, are met. Based onthis earn-out model CHF 0.6 million (AUD 0.7 million)were paid in cash in fiscal year 2005 for which arespective provision existed. Also in fiscal year 2004,the Company acquired the Geodesy business of VanHopplynus SA in Belgium via asset deal.

On April 2004, the Company simultaneously adopt-ed IFRS 3 – Business Combinations, IAS 36 (revised2004) – Impairment of Assets, and IAS 38 (revised2004) – Intangible Assets, which resulted in achange in the accounting policy for goodwill. UntilMarch 31, 2004, goodwill was:

Amortized on a straight-line basis over a periodranging from ten to twenty years; and

Impairment tests for goodwillAll goodwill has been allocated for impairment test-ing purposes to five individual cash-generatingunits which are equal to the business segments ofthe Group. The carrying amount of goodwill fromthe leveraged buy-out in 1998 (CHF 90.8 million)

is allocated to several cash-generating units. Thegoodwill in Surveying & Engineering and GIS &Mapping is significant in comparison with the totalcarrying amount of goodwill, but the carryingamount of goodwill allocated to the other cash-generating units is not.

Surveying & EngineeringThe recoverable amount of Surveying & Engineer-ing has been determined on a “value-in-use” calcu-lation. That calculation uses cash flow projectionsbased on midterm financial plans approved byManagement and the Board covering a three-yearperiod, and a pretax discount rate of 11.1%. Cashflows beyond that three-year period have beenextrapolated using a steady 2% growth rate. This

growth rate does not exceed the long-term averagegrowth rate for the market in which Surveying &Engineering operates. Management believes thatany reasonable possible change in the key assump-tions on which Surveying & Engineering’s recov-erable amount is based would not cause Surveying& Engineering’s carrying amount to exceed its re-coverable amount.

Assessed for an indication of impairment at eachbalance sheet date.

In accordance with the transitional provisions ofthe above-mentioned standards:

The company ceased amortization of goodwillfrom April 1, 2004;The accumulated amortization balance of CHF 114.9 million, as at March 31, 2004, hasbeen eliminated with a corresponding decreasein the cost of goodwill from CHF 289.9 millionto CHF 175.0 million;From the year ended at March 31, 2004, onwards, goodwill is tested annually for impair-ment, as well as when there are indications ofimpairment.

In fiscal year 2004 the Company recognized agoodwill amortization charge of CHF 16.9 millionreported under “Other operating income/(ex-pense) net.”

In CHF 1,000 Total goodwillNet book value at April 1, 2003 177‚484Acquisition of subsidiaries 19‚096Amortization charge (16‚891)Exchange differences (4‚725)Net book value at March 31, 2004 174‚964Exchange differences (3‚957)Net book value at March 31, 2005 171‚007

In CHF 1,000/March 31 2005Surveying & Engineering 99,670GIS & Mapping 39,961Consumer Products 7,716Metrology 12,255High-Definition Surveying (HDS) 11,405Total goodwill 171‚007


10. Other intangible assets

GIS & Mapping The recoverable amount of GIS & Mapping has alsobeen determined on a “value-in-use” calculation.That calculation uses cash flow projections basedon midterm financial plans approved by Manage-ment and the Board covering a four-year period,and a pretax discount rate of 11.1%. Cash flowsbeyond that four-year period have been extrapo-lated using a steady 2% growth rate. This growthrate does not exceed the long-term average growthrate for the market in which GIS & Mapping oper-ates. Management believes that any reasonablepossible change in the key assumptions on whichGIS & Mapping’s recoverable amount is based wouldnot cause GIS & Mapping’s carrying amount to ex-ceed its recoverable amount.

Key assumptions The key assumptions used in the “value-in-use”calculations for the cash-generating units notedabove were individually projected sales growth andgross margin. The projected sales growth is basedon Management’s knowledge of the industry andits expectations for the market development. Pro-jected gross margins are slightly lower than achievedin fiscal year 2005 and represent a conservative butreasonable outlook for the business for this im-pairment test.

Based on these impairment tests performed by ex-ternal consultants it was confirmed goodwill is notimpaired as of March 31, 2005.

Gross valuesProduct SAP

development developmentIn CHF 1,000 costs costs Total

Value at April 1, 2003 157,790 7,960 165,750Acquisition of subsidiaries 2,395 – 2,395Additions 39,209 – 39,209Retirements (27,211) (7,960) (35,171)Other movements (297) – (297)Exchange rate adjustments (3,727) – (3,727)Value at March 31, 2004 168,159 – 168,159Additions 28,751 – 28,751Retirements (26,877) – (26,877)Exchange rate adjustments (3,268) – (3,268)Value at March 31, 2005 166,765 – 166,765

Accumulated amortizationValue at April 1, 2003 (66,243) (7,441) (73,684)Amortization charge (33,782) (519) (34,301)Retirements 27,201 7,960 35,161Exchange rate adjustments 1,939 – 1,939Value at March 31, 2004 (70,885) – (70,885)Amortization charge (37,614) – (37,614)Retirements 26,878 – 26,878Exchange rate adjustments 1,762 – 1,762Value at March 31, 2005 (79,859) – (79,859)

Net book values atApril 1, 2003 91,547 519 92,066March 31, 2004 97,274 – 97,274March 31, 2005 86,906 – 86,906


11. Investments in associatesInvestments in associated companies accountedfor using the equity method comprised of thefollowing:

An interest of 20% in Geonova AG, Switzerlandwas acquired in July 2004.

The Company has an investment in NovaLIS Tech-nologies Ltd, Canada, that was fully written downin fiscal year 2003 and is not shown above.

12. Trade accounts payableAccounts payable consisted of the following:

13. Other current liabilitiesOther current liabilities consisted of the following:

Other current payables included primarily value-added tax an payroll-related liabilities.

In CHF 1,000/March 31 2005 2004APM Technica AG, Switzerland 828 411AED-SICAD AG, Germany (formerly AED Graphics AG) 3,103 3,040Geonova AG, Switzerland 887 –Total investments in associates 4,818 3,451

In CHF 1,000 APM AED Geonova TotalInvestment at April 1, 2004 411 3,040 – 3,451Additions of interest – – 1,000 1,000Share of profit/(loss) 417 80 (113) 384Exchange difference – (17) – (17)Total at March 31, 2005 828 3,103 887 4,818

Net goodwill included at March 31, 2005 – 1,598 666 2,264

In CHF 1,000/March 31 2005 2004Accrued interest 382 3,067Other current payables 10,961 8,827Total other current liabilities 11,343 11,894

In CHF 1,000/March 31 2005 2004Trade payables 77,404 68,525Payables due to associated companies 341 433Total trade accounts payable 77,745 68,958


14. Loans and borrowingsLoans and borrowings consisted of the following:

There are no finance lease contracts with termsover five years.

Revolving Credit FacilityOn May 7, 2004, the Company concluded an agree-ment with UBS AG Zurich and the MulticurrencyRevolving Credit Facility syndicate (comprised ofseven banks with UBS AG Zurich as acting agent),for the early repayment and subsequent refinanc-ing of the euro 65 million 97/8% notes. As part ofthis transaction the Company extended the life ofthe existing CHF 150 million Multi-Currency Revolv-ing Credit Facility (the “Credit Facility A”) for an additional two years, which now expire on May 7,2008, and entered into an additional CHF 80 mil-lion four-year amortizing loan (“Credit Facility B”).The term loan is reduced semiannually by CHF 10million, beginning March 31, 2005, and bears aninterest rate of LIBOR plus a margin, significantlylower than the 97/8% notes.

The “Credit Facility” contains a number of standardrestrictions on the ability of the borrowers to grantsecurity, declare dividends, make acquisitions anddisposals, etc. The Company is also required to meetvarious financial covenants, the most restrictive of which requires the company to maintain a mini-mum interest cover ratio (equal with interest costdivided by the adjusted EBITDA) of 4.50, as definedby the agreement. The Company was in compliancewith all covenants under this agreement at March31, 2005.

The Credit Facility amounted to CHF 220 million asof March 31, 2005, with a balance outstanding ofCHF 107.5 million (2004: CHF 51.0 million). As perMarch 31, 2005, the Facility bears an interest rateequal to LIBOR plus a margin of 1.1%. The weightedaverage interest rate on the outstanding borrowingswas 3.3% for the fiscal year ended March 31, 2005(2004: 5.0%).

At March 31, 2005, including all available credit facilities and after taking account of amounts usedfor guarantee and letter of credit facilities the Com-pany had CHF 103.8 million available as unusedcredit facilities (2004: CHF 79.7 million).

The 97/8% notes were repaid at 104.938% of theprincipal amount. The one-off impact of CHF 6.6million consists of a cash-relevant premium of CHF 4.9 million and the noncash-accelerated write-off of capitalized finance costs of CHF 1.7 million.The debt acquisition cost of the additional CreditFacility B of CHF 80 million was CHF 1.9 million andis being amortized over the four-year term of theFacility. The unamortized portion of the total debtacquisition cost of CHF 2.1 million at March 31, 2005(2004: CHF 1.3 million), is stated as a reduction ofthe gross debt amount.

On March 31, 2005, the Company had no pledgedassets related to the Credit Facility.

CurrentIn CHF 1,000/March 31 2005 2004Finance lease (current portion) 628 1,046Other current loans 1,697 386Total current 2,324 1,432

NoncurrentRevolving Credit Facility 107,476 51,039Less unamortized debt acquisition cost (2,067) (1,309)Net Revolving Credit Facility 105,409 49,73097/8% notes – 101,335Less unamortized bond issuance cost – (1,836)Net 97/8% notes – 99,499Finance lease (noncurrent portion) 805 1,302Other noncurrent 330 540Total noncurrent loans 106,544 151,070Total loans and borrowings 108,869 152,502


15. Financial instruments

Derivative financial instrumentsIn accordance with the provisions of IAS 39, theCompany recognized all derivative financial instru-ments at fair values. For those instruments qualify-ing as cash flow hedges the Company recorded a

The net fair values of derivative financial instrumentsat the balance sheet date and designated for cashflow hedges were:

The contract value shows the volume (gross nomi-nal value of sales and purchases added together)of the forward foreign-exchange contracts open at the balance sheet date. A negative fair value isthe potential cost required to close the outstandingcontracts at the balance sheet date. A positive fairvalue represents the unrealized profit on the for-ward foreign-exchange transactions at the balancesheet date.

In fiscal year 2005, the contract values decreasedfrom CHF 209.1 million to CHF 117.1 million mainlydue to the repayment of the 97/8% notes and theomission of the respective hedging.

cumulative adjustment of CHF 0.3 million, net of tax(2004: CHF 0.05 million) in equity in fiscal year 2005.

The movement on the cash flow hedging reserveduring fiscal year 2005 was as follows:

At March 31, 2005, the negative fair value of theoutstanding forward foreign-exchange contractsamounts to CHF 0.7 million (2004: positive fair valueCHF 2.6 million), of which CHF 0.3 million (2004:CHF 2.6 million) are included in the income state-ments relating to fair value hedges of balance sheetitems, and CHF 0.4 million (2004: CHF 0.05 million)– reflecting CHF 0.3 million net of tax (2004: CHF0.04 million) – are in respect of cash flow hedgesand therefore included in equity.

Amounts net of taxIn CHF 1,000

Balance at April 1, 2004 (45)Cash flow hedges:Changes in fair value (net of tax) (289)Realized gains or losses transferred to the income statements 45Balance at March 31, 2005 (289)

In CHF 1,000/March 31 2005 2004Contract values 117,076 209,101Fair value (748) 2,595

16. Provisions

Of the above provisions some CHF 0.2 million (2004:CHF 0.2 million) are considered to be long-term(above one year) and the remainder short-term.

WarrantyThe Company provides a twelve-month warrantyperiod on certain products and undertakes to repair or replace items that fail to perform satisfac-torily. The provision reflects recent warranty claimlevels.

RestructuringOn June 30, 2004, the Company announced a pro-gram of comprehensive restructuring at Leica Geo-systems GR LLC located in Grand Rapids, Michigan,USA. As a consequence the Company is consolidat-ing all existing Grand Rapids manufacturing activitiesin Singapore and in Heerbrugg (Switzerland). Leica

Geosystems GR, LLC, became a center focusing onthe design and development of laser-leveling prod-ucts and a service center for laser products.

As a result, according to IFRS, the company recordeda restructuring provision related to a detailed formaland approved plan for severance payments (IAS37). The costs, related to the restructuring in GrandRapids are reported under “Other operating income/(expense) net.” All laser-leveling and alignmentproducts from Leica Geosystems GR, LLC have beentransferred to the newly established entity LeicaGeosystems Technologies Pte. Ltd. Singapore.

OtherOther provisions include various items such as pro-visions for onerous purchase contracts and provi-sions in respect of legal cases.

17. Pension obligationThe most material defined benefit pension plansof Leica Geosystems are offered to its employeesin Switzerland and the United States of America. In addition the Company maintains its early retire-ment plan to allow Swiss employees to elect earlyretirement at their option. This plan is not funded

and a provision has therefore been recorded basedon an actuarial assessment of the plan.

The principal assumptions applied to prepare actu-arial valuations of the defined benefit plans are asfollows:


Warranty Restructuring Other TotalIn CHF 1,000 provisions provisions provisions provisions

Value at April 1, 2004 6,236 103 572 6,911Additional provision recorded 1,120 1,137 212 2,469Utilized during the year (1,828) (363) (363) (2,554)Unused amounts reversed (571) – – (571)Exchange rate adjustments (99) (30) (14) (143)Value at March 31, 2005 4,858 847 407 6,112

Assumptions (weighted average)In %/Year ended March 31 2005 2004Discount rate 3.54 3.79Investment return 5.02 5.02Salary inflation 1.48 1.48Pension increases 0.49 0.49


The components of the benefit obligation are asfollows:

In addition to the above plans, the Company spon-sors defined contribution plans in various othercountries. The employer contribution for such plansamounted to CHF 5.6 million (2004: CHF 6.0 million).

Change in benefit obligationIn CHF 1,000/Year ended March 31 2005 2004Pension Benefit Obligation (PBO) at beginning of the year 378,954 401,728Service cost 14,333 13,278Interest cost 14,311 15,197Amendments and settlements (46) (44)Actuarial (gain)/loss 21,050 (20,527)Benefits paid (28,195) (30,343)Translation differences (495) (336)Pension benefit obligation at end of year 399,912 378,954

Change in plan assetsFair value of plan assets at beginning of year 369,753 354,568Actual return on plan assets 18,996 32,665Employer contribution 8,207 8,020Plan participants‚ contribution 5,489 5,227Amendments and settlements (51) (64)Benefits paid (28,195) (30,343)Translation differences (392) (319)Fair value of plan assets at end of year 373,807 369,753

Funded statusFunded status at year-end (26,105) (9,201)Unrecognized net actuarial (gain)/loss 17,283 (2,121)Unrecognized prior-service cost 3,118 2,533Accrued benefit cost (5,704) (8,789)

Amounts recognized in the balance sheetDefined benefit pension plans (accrual) (5,704) (8,789)Other postretirement benefits (2,382) (2,358)Pension obligations (8,086) (11,147)

Benefit costIn CHF 1,000/Year ended March 31 2005 2004Service cost 14,333 13,278Interest cost 14,311 15,197Expected return on plan assets (18,547) (17,791)Amortization of prior service cost 440 440Amortization of transition obligation 27 31Recognized actuarial (gain)/loss 81 89Plan participants’ contributions (5,489) (5,227)Net periodic pension benefit cost 5,156 6,018


18. Deferred income taxDeferred tax assets and liabilities arise due to dif-ferences between Group and tax valuations in thefollowing balance sheet items:

At March 31 of the respective fiscal years, theCompany had:

Of these, CHF 0.9 million expire by March 2008(2004: 0.1 million by March 2007) and CHF 98.3million by March 2012 (2004: CHF 29.4 million byMarch 2011). The remaining CHF 74.7 million may be utilized after March 2012 (2004: CHF 71.4million after 2011).

The increase in tax losses carried forward mainlyresults from the restructuring of Leica GeosystemsHDS, LLC (see Note 4).

The amount of unused losses and unused tax cred-its for which no deferred tax assets is recognizedin the balance sheet is CHF 87.1 million (2004: CHF23.8 million).

The total deferred tax movement of CHF 6.7 millionis comprised of CHF 8.2 million deferred tax income,minus CHF 0.6 million from tax effects on financialinstruments directly recognized in currency transla-tion reserve (equity) and hedging according to IAS 39and minus CHF 1.0 million exchange differences.

2005 2004In CHF 1,000/March 31 Assets Liabilities Assets LiabilitiesLosses carried forward and tax credits 38,185 – 32,931 –Intangible assets 1,043 20,466 1,409 23,277Property, plant and equipment 623 9,113 775 9,753Inventories 7,313 5,063 6,603 4,101Provisions and pension obligations 6,325 405 8,731 427Other items 2,940 182 6,823 3,322Total 56,429 35,229 57,272 40,880Valuation allowance (19,123) – (20,973) –Offset of assets and liabilities (1,493) (1,493) (4,150) (4,150)Total deferred taxes 35,813 33,736 32,149 36,730

In CHF million/March 31 2005 2004Tax losses carried forward totaling 173.9 100.9With a tax value of 38.2 32.9


19. Shareholders’ equityChanges in the Company’s number of shares issued and outstanding, share capital and sharepremium are as follows:

On March 31, 2005, the total number of outstand-ing shares is 2,283,600 (2004: 2,235,273) with a par value of single Swiss francs 50 per share,amounting to CHF 114.2 million (2004: CHF 111,8million) share capital.

The Company acquired Leica Geosystems HDS, LLC(formerly Cyra Technologies Inc.) in fiscal year 2001,via a combined cash and share transaction result-ing in a Cyra option plan. The issuance of 4,302shares under the Cyra option scheme in fiscal year2005 (2004: 6,417 shares) reflects the exercisingof options from the contingency share pool held bythe trustee. Options exercised during fiscal year2005 under the Company’s other option plans re-sulted in 40,891 shares (2004: 15,374 shares). Intotal 45,193 options were exercised. See also Note20 below.

Shares outstanding excludes 25,110 contingencyshares related to the Cyra option plan (2004:88,946 shares including the shares related to theCyra earn-out), as well as 37,872 (2004: 41,006)treasury shares. Contingency shares related to theCyra earn-out of 59,534 shares were eliminatedthrough a share capital decrease in fiscal year 2005.

Conditional capital, as well as significant share-holders of the Company, are described in Notes 3and 4 to the Statutory Financial Statements.

For the cost of treasury shares please refer to Note 5 within the accompanying Statutory FinancialStatements.

Number of Number of Number ofregistered and treasury reg. shares Share Shareissued shares shares outstanding capital premium

in units in units in units in CHF 1,000 in CHF 1,000

Balance at April 1, 2003 2,254,488 (44,934) 2,209,554 110,478 59,918Issuance of shares – Cyra option scheme 6,417 – 6,417 321 2,554Issuance of shares – share option scheme 15,374 – 15,374 769 851Treasury shares movement – 3,928 3,928 196 616Balance at March 31, 2004 2,276,279 (41,006) 2,235,273 111,764 63,939Issuance of shares – Cyra option scheme 4,302 – 4,302 215 133Issuance of shares – share option scheme 40,891 – 40,891 2,045 2,928Treasury shares movement – 3,134 3,134 157 573Balance at March 31, 2005 2,321,472 (37,872) 2,283,600 114,180 67,573Contingency shares related to Cyra 25,110Balance at March 31, 2005 (Statutory) 2,346,582

will either be newly issued by the Company underthe conditional capital or purchased in open-markettransactions.

Pursuant to the 2000 Employee Plan, the Com-pany granted options to directors and employeesas follows:

In April 2000: 40,640 options with an exerciseprice of CHF 375In April 2001: 44,322 options with an exerciseprice of CHF 366In April 2002: 38,040 options with an exerciseprice of CHF 175In April 2003: 21,420 options with an exerciseprice of CHF 77In April 2004: 35,125 options with an exerciseprice of CHF 198

20. Stock option plansThe Company operates the following stock option plans:

In June 2000, the Company adopted an employeeequity incentive plan (the “2000 Employee Plan”).The 2000 Employee Plan is administered by thepersonnel and Organization Committee of the Boardof Directors. Except as otherwise determined bythe Personnel and Organization Committee, underthe 2000 Employee Plan, it is intended to grant,over four years, options to directors and employeesto purchase shares. Each grant will vest in equalannual tranches over a four-year term, will remainin effect for seven years from the date of grantuntil they lapse and will have an exercise price atmarket price of the shares on the date the optionis granted. The 2000 Employee Plan includes cus-tomary provisions in respect of accelerated vestingand lapsing of options upon termination of employ-ment, retirement, death and disability. Shares ac-quired by employees under the 2000 Employee Plan


Exercise price Outstanding options Numbers granted Exercised numbers Lapsed or cancelled Outstanding options Thereof vestedin CHF at March 31, 2004 in fiscal year 2005 in fiscal year 2005 in fiscal year 2005 at March 31, 2005 at March 31, 2005

77 21,340 – (1,592) (750) 18,998 3,616 81 20,171 – (4,302) (363) 15,506 14,303

100 51,208 – (32,019) – 19,189 19,189 120 10,550 – (4,225) (300) 6,025 6,025175 36,280 – (3,055) (41) 33,184 16,109 198 – 35,125 – (150) 34,975 – 366 37,957 – – (2,302) 35,655 26,949 375 32,250 – – (1,319) 30,931 30,931 429 3,036 – – (528) 2,508 2,002

Total 212,792 35,125 (45,193) (5,753) 196,971 119,124


million). These guarantees include guarantees ofCHF 4.3 million on behalf of Group companies andCHF 2.5 million on behalf of associated companies.

Bills of trade discounted with recourseBills of trade discounted with recourse under thenormal course of business in Japan, France andHong Kong amounted to CHF 7.2 million at March31, 2005 (2004: CHF 6.0 million).

Capital expenditure commitments The Company has entered into commitments (pur-chase orders) in respect of items of capital equip-ment totaling CHF 2.5 million at March 31, 2005(2004: CHF 0.9 million).

21. Commitments and contingent liabilities

Operating leasesThe Company leases some of its facilities andequipment under operating leases. Certain of theseleases are subleased to third parties. The futureminimum lease payments under operating leasesat March 31 are as follows:

LitigationFrom time to time the Company is involved in legalactions and claims arising in the ordinary course ofbusiness. While the ultimate result of these claimscannot presently be determined, management doesnot expect that these matters will have a materialadverse effect on the financial position, results ofoperations or cash flows of the Company.

GuaranteesThe Company has entered into agreements issuedby banks on its behalf for various bid bonds, perfor-mance bonds, payment guarantees and guaranteesin connection with office leases amounting to CHF 14.7 million at March 31, 2005 (2004: CHF 13.3

2005 2004Operating Thereof Operating Thereof

In CHF 1,000/March 31 lease subleases lease subleases

Not later than 1 year 14‚232 1‚610 13‚843 958 Later than 1 year and not later than 5 year 31‚574 6‚868 31‚757 3‚832 Later than 5 year 25‚443 8‚672 15‚174 5‚588 Total 71‚249 17‚150 60‚774 10‚378

For fiscal year 2005, aggregate compensation, in-cluding salaries, bonus and pension contributions,to the Executive Director and Corporate Manage-ment was CHF 6.6 million (2004: CHF 4.6 million).This amount is comprised of CHF 2.9 million (2004:CHF 3.4 million) in salaries, and CHF 3.1 million(2004: CHF 0.9 million) in incentive payments andCHF 0.6 million (2004: 0.3) pension contributions.In fiscal year 2005, an aggregate of 37 shares(2004: 193) was allocated to the Executive Directorand Corporate Management under the DiscountedShare Purchase Plan (DSPP), with a discount of 15%,representing CHF 1,474 in total (2004: CHF 3,712),to the prevailing market price and a transfer restric-tion of one year.

In fiscal year 2005 the Corporate Managementreceived 5,100 options and owned 32,842 (2004:82,530) options of which 21,076 (2004: 44,935)are vested as of March 31, 2005. The reduction ofoptions held by Nonexecutive Directors and Corpo-rate Management is mainly due to the terminationof the performance stock option plan (the “PSOP”).

22. Related-party transactions

Associated companiesIn fiscal year 2005, the Company has effected cer-tain transactions at arms length as follows:

APM Technica AGSales of products and services of CHF 0.8 million(2004: CHF 0.4 million) as well as purchases ofproducts and services of CHF 2.8 million (2004:CHF 2.5 million).

Geonova AGPurchases of products and services of CHF 0.2 million.

Executive officers and directors compensation In fiscal year 2005 nonexecutive members of theBoard of Directors of the Company received directorsfees of CHF 0.5 million (2004: CHF 0.6 million) perannum plus costs and expenses incurred in connec-tion with their serving as members of the Board. Asof March 31, 2005, 7,789 (2004: also 7,789) op-tions held by Board members had vested. No optionswere granted to the nonexecutive members of theBoard of Directors in fiscal year 2005 and 2004. Cer-tain restrictions apply to the Board members’ rightsto sell their shares or exercise or sell their options.

23. Acquisition and disposal of subsidiaries

Sale of investment in Leica Instruments (Singapore) Ptd Ltd (termination of joint venture)Leica Instruments (S) Pte Ltd was a 50:50 joint ven-ture company between Leica Geosystems and LeicaMicrosystems, based in Wetzlar Germany. On De-cember 31, 2004, Leica Geosystems has effectivelycompleted the sale of the 50% share of its owner-ship in Leica Instruments (S) Pte Ltd to its partnerLeica Microsystems.

Simultaneously most of Leica Geosystems share ofassets of Leica Instruments (S) Pte Ltd were trans-ferred to the newly established Singapore subsidiaryLeica Geosystems Technologies Pte. Ltd, which isfully owned by Leica Geosystems.

The final net cash consideration of the sale of theinvestment is CHF 4.4 million. As the share salesprice was based on the reported carrying amountof net assets, no gain or loss resulted from thistransaction.

The new company Leica Geosystems TechnologiesPte. Ltd now combines the carved-out business ofLeica Instruments (S) Pte Ltd with those from theUS operations in Grand Rapids, Michigan. Conse-quently starting in quarter four of fiscal year 2005,the respective operations are reported in the Sur-veying & Engineering division whereas Leica Instru-ments (S) Pte Ltd previously was reported under theSpecial Products division.

Acquisition of Tritronics (Australia)In fiscal year 2004 Leica Geosystems has acquiredTritronics (Australia) assets and liabilities in a cashtransaction for AUD 12.0 million (CHF 11.1 million),plus a maximum earn-out of an additional AUD 6.0million (CHF 5.5 million) payable over three years if certain targets are met, which is considered verylikely. Based on this earn-out model AUD 0.7 mil-lion (CHF 0.6 million) were paid in cash in fiscalyear 2005.



24. List of companies included in the consoli-dated accounts at March 31, 2005

25. Post balance sheet eventsThere are no events to report that could have asignificant influence on the financial statementsfor the year ended March 31, 2005.

Shares held Nominal capital inCompany Registered seat (in %) 1,000 of local currency

Leica Geosystems Holdings AG Heerbrugg, Switzerland Holding CHF 115,284 Leica Geosystems Holdings B.V. Rijswijk, The Netherlands 100 EUR 91 Leica Geosystems Holdings, Inc. Wilmington, USA 100 USD 10 Leica Geosystems Finance plc.in liquidation Milton Keynes, United Kingdom 100 GBP 60 Leica Geosystems Interholding AG Heerbrugg, Switzerland 100 CHF 10,000 Leica Geosystems AG Heerbrugg, Switzerland 100 CHF 30,000 Leica Geosystems Ltd. Milton Keynes, United Kingdom 100 GBP 1,275 Leica Geosystems SARL Le Pecq, France 100 EUR 457 Leica Geosystems GmbH Vertrieb Munich, Germany 100 EUR 26 Leica Geosystems B.V. Rijswijk, The Netherlands 100 EUR 23 Leica Geosystems N.V. Diegem, Belgium 100 EUR 500 MX Marine Limited Milton Keynes, United Kingdom 100 GBP 50 Leica Geosystems S.p.A. Cornegliano, Italy 100 EUR 612 Leica Geosystems SL Barcelona, Spain 100 EUR 141 Leica Geosystems Lda Aboboda, Portugal 100 EUR 100 Leica Geosystems A/S Herlev, Denmark 100 DKK 1,500 Leica Geosystems AB Stockholm, Sweden 100 SEK 1,700 Leica Geosystems AS Oslo, Norway 100 NOK 1,377 Leica Geosystems Inc. Wilmington, USA 100 USD 94,051 Leica Geosystems Ltd. Willowdale, Ontario, Canada 100 CAD 3,060 Leica Geosystems S.A. de C.V. Mexico D.F., Mexico 100 MXN 60 Leica Geosystems Ltd. Hong Kong, China 100 HKD 6,100 Leica Geosystems (Shanghai) Co. Ltd. Shanghai, PRC, China 100 USD 140 Leica Geosystems (Wuhan) Co. Ltd. Wuhan, China 100 USD 630 Leica Geosystems K.K. Tokyo, Japan 100 JPY 300,000 Leica Geosystems Pty Ltd. Chatswood, Australia 100 AUD 5,050 Leica Geosystems OOO Moscow, Russia 100 RUB 1,139 Leica Geosystems GR, LLC Grand Rapids, Michigan, USA 100 USD *Leica Geosystems Technologies Pte Ltd Singapore, Singapore 100 SGD 6,500 Leica Geosystems (Singapore) Pte Ltd Singapore, Singapore 100 SGD 10 Leica Geosystems GIS & Mapping LLC Atlanta, Georgia, USA 100 no par value Leica Geosystems GIS & Mapping GmbH Heerbrugg, Switzerland 100 CHF 51 Leica Geosystems GIS & Mapping Pty.Ltd. Penrith, Australia 100 AUD 10 Leica Geosystems HDS, LLC (formerly Cyra Technologies Inc.) Wilmington, Delaware, USA 100 USD *Cable Detection Ltd. Milton Keynes, United Kingdom 100 GBP *Polymeca AG Heerbrugg, Switzerland 100 CHF 1,000

APM Technica AG Heerbrugg, Switzerland 49 CHF 260 NovaLIS Technologies Ltd. Halifax, Nova Scotia, Canada 42 no par value AED-SICAD AG Bonn, Germany 20 EUR 860 Geonova AG Muttenz, Switzerland 20 CHF 667

* Below 1,000

Report of the group auditors


ments. We have also assessed the accounting prin-ciples used, significant estimates made and theoverall consolidated financial statement presenta-tion. We believe that our audit provides a reason-able basis for our opinion.

In our opinion, the consolidated financial state-ments give a true and fair view of the financial po-sition, the results of operations and the cash flowsin accordance with the International Financial Re-porting Standards (IFRS) and comply with Swiss law.

We recommend that the consolidated financialstatements submitted to you be approved.

PricewaterhouseCoopers AG

Wanda Eriksen Beat Inauen

Zürich, June 8, 2005

Report of the group auditorsto the General Meeting of Leica Geosystems Holdings AG Heerbrugg, Switzerland

As auditors of the Group, we have audited the con-solidated financial statements (balance sheet, in-come statement, cash flow statement, statementof changes in equity and notes on pages 19 to 49)of Leica Geosystems Holdings AG for the year end-ed March 31, 2005.

These consolidated financial statements are theresponsibility of the Board of Directors. Our re-sponsibility is to express an opinion on these con-solidated financial statements based on our audit.We confirm that we meet the legal requirementsconcerning professional qualification and indepen-dence.

Our audit was conducted in accordance with audit-ing standards promulgated by the Swiss professionand with the International Standards on Auditing,which require that an audit be planned and performed to obtain reasonable assurance aboutwhether the consolidated financial statements arefree from material misstatement. We have examinedon a test basis evidence supporting the amountsand disclosures in the consolidated financial state-

51Statutory Financial Statements

Statutory Financial Statements

Balance Sheets

AssetsCurrent assetsIn CHF 1,000/March 31 2005 2004Banks 78 16Own shares 3,281 3,662Total current assets 3,359 3,678

Noncurrent assetsFinancial assetsInvestments 196,503 191,417Loans to Group companies 280,873 274,613Other loans 1,256 4,447Other assets 1,024 555Total noncurrent assets 479,656 471,032Total assets 483,015 474,710

Liabilities and shareholders’ equityCurrent liabilitiesAccruals and deferred income 315 5Other short-term liabilities third parties 170 –Total current liabilities 485 5

Noncurrent liabilitiesLoansThird parties 94,000 41,000Group companies 9,108 25,729Total noncurrent liabilities 103,108 66,729Total liabilities 103,593 66,734

Shareholders’ equityShare capital 117,329 118,261Share premium 33,424 23,425Legal reserves 22,649 22,649Reserve treasury shares 3,290 3,710Free reserves 224,849 224,430(Accumulated deficit)/Retained earnings (22,119) 15,502Total shareholders’ equity 379,422 407,976Total liabilities and shareholders’ equity 483,015 474,710


Income Statements

IncomeIn CHF 1,000/Year ended March 31 2005 2004Other financial income 14,530 12,640Other income 300 1,668Total income 14,830 14,308

ExpenseFinancial expense (3,101) (1,232)Administrative expense (177) (65)Realized exchange loss (248) (3,622)Write-off of investments (48,406) –Amortization of other assets (447) (355)Tax expenses (72) (76)Total expense (52,451) (5,350)Net (loss)/income (37,621) 8,958


There is a guarantee to the landlords of Leica Geo-systems HDS LLC, USA (formerly Cyra TechnologiesInc.), and of Leica Geosystems GIS & Mapping, LLC,USA, for any outstanding base rent. The amountunder the guarantee varies and corresponds to theremaining outstanding installments.

2. Significant investments

Leica Geosystems AG and Leica Geosystems Inc.comprises development, production and selling activities. Leica Geosystems Finance plc., a formerfinance company, is now in liquidation.

Leica Geosystems Finance B.V., a holding and fi-nancing company has been liquidated in fiscal year

2005. As a consequence investments formerly heldby Leica Geosystems Finance B.V. are now held byLeica Geosystems Holdings AG.

Leica Geosystems HDS LLC has been sold to an-other Group company in fiscal year 2005.

3. Conditional capitalArt. 4b of the Articles of Association of LGSHoldings AG stipulates:

Through the exercise of option rights for the pur-pose of the participation of employees, consultantsor Board members of the Leica Geosystems Group,the share capital of the Company shall be increasedwithout any time limitation under the exclusion ofthe subscription rights of the shareholders throughthe issue of a maximum of 301,615 fully paid in

registered shares with a nominal value of CHF 50each up to a maximum amount of CHF 15,080,750.The Board determines the strike price of the options.For options issued as part of the 2005 EmployeeStock Option Plan, the strike price of the optionsmay not be below the market price; for earlier plans,the strike price could be below the market price.The conditions of participation shall be decided bythe Board of Directors.

Notes in Accordance withArticle 663B or the Swiss Code of Obligations

1. Contingent liabilitiesUnder the terms of the Revolving Credit FacilityAgreement, amended and restated on May 7,2004, Leica Geosystems Holdings AG is a joint andseveral guarantor for the repayment of borrowingsof the subsidiaries up to a maximum amount ofCHF 220 million (2004: CHF 150.0 million).

Number of Nominal valueshares in CHF

Outstanding conditional capital as of March 31, 2003 244‚680 12‚234Conditional capital issued in FY04 (15‚374) (769)Outstanding conditional capital as of March 31, 2004 229‚306 11‚465Termination of Performance Stock Option Plan (PSOP) (26‚800) (1‚340)Shares issued in FY05 (40‚891) (2‚045)Increase of conditional capital on July 7, 2004 140‚000 7‚000Outstanding conditional capital as of March 31, 2005 301‚615 15‚081

Interest in Capital (in %) Capital (in 1,000)March 31 2005 2004 Currency 2005 2004

Leica Geosystems AG, Heerbrugg, Switzerland 100.0 – CHF 30,000 –Leica Geosystems Inc., Wilmington, USA 27.8 – USD 94,051 –Leica Geosystems Finance plc. in liquidation, Milton Keynes, United Kingdom 99.9 – GBP 60 –Leica Geosystems Finance BV, Rijswijk, The Netherlands – 100.0 EUR – 18Leica Geosystems HDS LLC, San Ramon, USA – 100.0 USD – *

* Below 1,000


4. Significant shareholdersAccording to the information available to the Boardof Directors the following shareholders held sharesentitling them to more than 5% of the total votingrights:

5. Transactions with treasury shares

6. Proposed appropriation of the available profit

The Board of Directors proposes to set-off theaccumulated deficit against the Company’s freereserves, and to pay a dividend from the freereserves as follows:

The dividend payment is subject to deduction of35% withholding tax. The proposed dividend pay-ment is based on the number of shares entitled fordividend payment as per March 31, 2005 (2,283,600shares). The shares held by the Company as per thepayment date will not receive dividend paymentsand the number of outstanding shares may increasedue to the exercise of options under the employee

participations schemes. As a consequence, thefinal motion may need to be adjusted with respectto the total amount of the dividend payment. Underthe assumption that the proposal of the Board ofDirectors for the allocation of the available profitwill be approved, payment shall be made with effectfrom July 11, 2005.

In %/March 31 2005 2004K Capital Partners, Boston, MA, USA 9.6 14.9Fidelity International Limited, Hamilton, Bermuda 5.4 5.4FMR Corp., Boston, MA, USA 5.2 5.2

Number At an averageof shares price of CHF

Treasury shares as of April 1, 2003 44,934 80Purchased 35,909 143Sold (39,837) 150Treasury shares as of March 31, 2004 41,006 89Purchased 13,636 270Sold (16,770) 255Treasury shares as of March 31, 2005 37,872 87

In CHF 1,000

Retained earnings as per April 1, 2004 15,502Net loss for the period (37,621)Accumulated deficit as per March 31, 2005 (22,119)

In CHF 1,000 except amount per share

Dividend payment of CHF 4.00 per registered share 9,134


Report of the statutory auditors

estimates made and the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, the accounting records and financialstatements and the proposed appropriation ofavailable earnings comply with Swiss law and thecompany’s articles of incorporation.

We recommend that the financial statements sub-mitted to you be approved.

PricewaterhouseCoopers AG

Lorenz Lipp Beat Inauen

St. Gallen, June 8, 2005

Report of the statutory auditors to the General Meeting of Leica Geosystems Holdings AGHeerbrugg, Switzerland

As statutory auditors, we have audited the account-ing records and the financial statements (balancesheet, income statement and notes on pages 51to 54) of Leica Geosystems Holdings AG for theyear ended March 31, 2005.

These financial statements are the responsibilityof the Board of Directors. Our responsibility is toexpress an opinion on these financial statementsbased on our audit. We confirm that we meet thelegal requirements concerning professional qualifi-cation and independence.

Our audit was conducted in accordance with audit-ing standards promulgated by the Swiss profession,which require that an audit be planned and performed to obtain reasonable assurance aboutwhether the financial statements are free from ma-terial misstatement. We have examined on a testbasis evidence supporting the amounts and disclo-sures in the financial statements. We have also as-sessed the accounting principles used, significant


Disclaimer

Under the safe harbor provisions of the U.S. PrivateSecurities Litigation ReformAct of 1995, we caution investors that all statements otherthan statements of historical fact included in this document,including without limitation, those regarding our financialposition, business strategy, plans and objectives of manage-ment for future operations (including development plans andobjectives relating to our existing and future products), areforward-looking statements. Such forward-looking statementsinvolve known and unknown risks, uncertainties and otherfactors, which may cause our actual results, performance orachievements, or industry results, to be materially differentfrom any future results, performance or achievements ex-pressed or implied by such forward-looking statements. Suchforward-looking statements are based on numerous assump-tions regarding our present and future business strategies andthe environment in which we expect to operate in the future.Important factors that could cause our actual results, perform-ance or achievements to differ materially from those in theforward-looking statements include, among other factors: (i) our ability to develop and introduce new products andtechnologies that gain market acceptance on a timely basis;(ii) our ability to respond to competitive challenges, such asthe introduction of innovative products or technologies by our competitors; (iii) our ability to identify and realize growthopportunities; and (iv) overall levels of investment in infra-structure and capital spending in our markets. Additionally,any forward-looking statements speak only as of the date ofthis document. We expressly disclaim any obligation or under-taking to release publicly any update of or revisions to anyforward-looking statement contained herein to reflect anychange in our expectations with regard hereto or any changein events, conditions or circumstances on which any suchstatement is based.

Publishing Details

EditorGeorge Aase, Director Investor Relations,Leica Geosystems AG, Heerbrugg, Switzerland

Concept & designRamstein Ehinger Associates AG, Basel/Zurich, Switzerland

LithographyBlue Horizon AG, Winterthur, Switzerland

PrintingPrintlink AG, Wetzikon, Switzerland

This Corporate Governance and Financial Report is publishedin English and German. In the case of inconsistencies in theGerman translation, the English original version shall prevail.

Photo Credits

IllustrationAndré Wetter, Fislisbach, Switzerland; Ramstein EhingerAssociates, Basel/Zurich, Switzerland: cover

PhotographyHoward Brundrett, Meilen, Switzerland: pp. 6, 7Getty Images: coverOpus, Copenhagen, Denmark: cover

- when it has to be right

Leica Geosystems AGHeinrich-Wild-StrasseCH-9435 HeerbruggSwitzerlandPhone +41 71 727 31 31

www.leica-geosystems.com

Investor & Financial Media ContactGeorge Aase

Director Investor Relations

Phone +41 71 727 30 64

[email protected]

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