##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


Commission file number 0-28121





RETEK INC.


(Exact name of Registrant as Specified in its Charter)


|                                                                                |  |                                                                                      |  |                                                        
|------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | -------------------------------------------------------
|Delaware
    (State or Other Jurisdiction of
    Incorporation or Organization) |  | Retek on the Mall
    950 Nicollet Mall
    Minneapolis, MN 55403
    (612) 587-5000 |  | 51-0392671
    (I.R.S. Employer
    Identification No.)

(Address, including zip code, and telephone number, including
area code,


of Registrants Principal Executive Offices)


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


None


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


Common Stock, par value $0.01 per share


(Title of Class)





x


x


x














---










RETEK INC.


FORM 10-K


For the Fiscal Year Ended December 31, 2004


INDEX


|                                              |                                                                                                                              |  |    |    | 
|--------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  | -- | -- | 
|PART I                                        |                                                                                                                              |  | 3  |   
|                                              | Item 1: Business                                                                                                             |  |    | 3  | 
|                                              | Item 2: Property                                                                                                             |  |    | 12 | 
|                                              | Item 3: Legal Proceedings                                                                                                    |  |    | 12 | 
|                                              | Item 4: Submission of Matters to a
    Vote of Security Holders                                                              |  |    | 15 | 
|PART II                                       |                                                                                                                              |  | 15 |   
|                                              | Item 5: Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |  |    | 15 | 
|                                              | Item 6: Selected Consolidated
    Financial Data                                                                             |  |    | 16 | 
|                                              | Item 7: Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |  |    | 16 | 
|                                              | Item 7A: Qualitative and Quantitative
    Disclosures About Market Risk                                                      |  |    | 38 | 
|                                              | Item 8: Financial Statements and
    Supplementary Data                                                                      |  |    | 39 | 
|                                              | Item 9: Changes in and Disagreements
    With Accountants on Accounting and Financial Disclosure                             |  |    | 39 | 
|                                              | Item 9A: Controls and Procedures                                                                                             |  |    | 39 | 
|                                              | Item 9B: Other Information                                                                                                   |  |    | 41 | 
|PART III                                      |                                                                                                                              |  | 42 |   
|                                              | Item 10: Directors and Executive
    Officers of the Registrant                                                              |  |    | 42 | 
|                                              | Item 11: Executive Compensation                                                                                              |  |    | 45 | 
|                                              | Item 12: Security Ownership of Certain
    Beneficial Owners and Management                                                  |  |    | 53 | 
|                                              | Item 13: Certain Relationships and
    Related Transactions                                                                  |  |    | 54 | 
|                                              | Item 14: Principal Accountant Fees and
    Services                                                                          |  |    | 54 | 
|PART IV                                       |                                                                                                                              |  | 55 |   
|                                              | Item 15: Exhibits and Financial
    Statement Schedules                                                                      |  |    | 55 | 
|Consent of PricewaterhouseCoopers LLP        
|Rule 13a-14(a)/15d-14(a) Certification of CEO
|Rule 13a-14(a)/15d-14(a) Certification of CFO
|Section 1350 Certification of CEO and CFO    



1



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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION






2



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PART I





Item 1:     Business


General












Reteks Solutions






| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | understand customers better than anyone else and then tailor
    differentiated and superior offers to them;                 
|
| |  | shape, sense, and respond to customer demand and strengthen ties
    to store operations, actual costs, and the supply chain;
|
| |  | integrate the value chain from supplier to customer and
    implement lean retailing processes; and                          

3



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| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | integrate the channels, seamlessly connect the supply chain and
    enterprise, and optimize associates and customer experiences
    with enabling technology and efficient processes.





| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | respond with rapid implementations of targeted solutions that
    render the return on investment (ROI) the business
    demands; and
|
| |  | avoid a proliferation of technologies and complex integration.                                                                       





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Value  Our modular architecture helps
    retailers meet ROI objectives by allowing them to implement the
    most critical and valuable applications first. This modular
    architecture eliminates the need for large scale implementations
    and decreases migration path risk for the replacement of legacy
    systems.                                                                                                                                                            
|
| |  | Scientific  To help retailers make smarter and
    better decisions, we embed predictive and optimization
    technology into many solutions, including planning, assortments,
    allocation and replenishment. Our research labs have dedicated
    professionals focused on applying complex scientific solutions
    to retail challenges. This is embedded within our applications
    in a manner that enhances relevance to and adoption by business
    users.                     
|
| |  | Application Integration  By integrating our
    applications, we reduce the processing required to share data,
    enable real-time access to information where appropriate, and
    improve performance. Coupled with our modular architecture, the
    integration we deliver simplifies implementation project
    complexities and gives retailers the opportunity to select
    modules that can be implemented independently, in combination,
    or as a complete enterprise system.
|
| |  | Proven  We are a leading provider of retail
    infrastructure software and services. We understand the complex
    needs of retailers and have designed our solutions and
    integration approaches specifically for the retail industry.                                                                                                                                                                                                                                                
|
| |  | Scalable  Our solutions are engineered to
    provide scalability to efficiently handle large volumes of
    transactions and users.                                                                                                                                                                                                                                                                                                                                                       



Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase our market share of retail packaged applications and
    services. We believe we can continue to build and expand our
    position of leadership within the retail packaged software
    applications market as the retail industry increasingly turns to
    packaged software applications as an alternative to expensive
    in-house and custom developed applications.
|
| |  | Provide high customer satisfaction. The retail industry
    is strongly influenced by formal and informal references. We
    believe we have the opportunity to expand market share by
    obtaining high                                                                                                                                                                           

4



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | levels of customer satisfaction for our current customers,
    thereby fostering strong customer references to support sales
    activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Provide tangible, measurable ROI (deliver value to our
    customers). We believe that maximizing our customers
    measurable ROI will help us compete in our market space and
    increase our market share.                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Become the preferred application and technology architecture
    for the retail industry on a global basis. By leveraging
    both our success within the Tier 1 retail market and a
    renewed focus on retails mid-market, we believe we are
    uniquely positioned to become the preferred application and
    technology architecture provider for retail software and
    associated services. We believe our strong market share within
    the core backbone of a retailers application architecture
    can be leveraged to develop a leading technology and best in
    business standard.

Products






| |                                        
| | ---------------------------------------
| | Retek Merchandise Operations Management









| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Merchandising System  A flexible, proven and
    scalable foundation that records and controls virtually all data
    in the retail enterprise and ensures data integrity across all
    integrated systems. This system includes key functions such as
    foundation and item management, purchasing, costing, price
    execution, inventory management, inventory valuation and
    replenishment.
|
| | Retek Price Management  Provides a well-defined and
    efficient rules-based price change recommendation process that
    allows for aggregated permanent, promotion and clearance price
    change execution.                                                                                                                                                                                             
|
| | Retek Trade Management  Automates the international
    procurement process, linking partners in the supply chain and
    consolidating information as products move through the sourcing,
    buying and delivery processes.                                                                                                                                                                               
|
| | Retek Invoice Matching  Supports efficient processes
    for verification of invoice accuracy and resolution of
    discrepancies prior to payment.                                                                                                                                                                                                                                                         
|
| | Retek Sales Audit  Evaluates point-of-sale data for
    accuracy and completeness, providing a single version of
    the truth across downstream systems. This highly
    configurable solution allows retailers to tailor the auditing
    process to their particular business needs.                                                                                                                   
|
| | Retek Design  Enables real-time, visual collaboration
    to support new product development.                                                                                                                                                                                                                                                                                                               
|
| | Retek WebTrack  Links retailers and their trading
    partners via the Internet to collaboratively manage the process
    of sourcing goods.                                                                                                                                                                                                                                                                



| |                                        
| | ---------------------------------------
| | Retek Store and Multi-Channel Retailing



5



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Point-of-Sale  In addition to the basic
    capabilities that handle customer transactions, Retek
    Point-of-Sale delivers store cash management, labor management,
    available biometric security, dynamic online help, deal pricing
    and coupons, tax exempt and VAT support, foreign tender and
    multi-language support, and electronic signature capture. The
    labor management capabilities include clock-in and clock-out,
    online time card auditing and optimal schedules based on
    required staff levels and employees availability                  
|
| | Retek Store Inventory Management  Provides
    instantaneous, real-time data communications between stores and
    the corporate office. This application supports store level
    activities such as item look-up, stock counts and transfers,
    which improves the accuracy of inventory information, in-store
    efficiency and sell-through.                                                                                                                                                                                                                                     
|
| | Retek Multi-Channel Customer, Retek Multi-Channel Operations and
    Retek Multi-Channel Inventory  A comprehensive set of
    services that enable key business functions for multi-channel
    retailing, including customer profiling, order capture and
    management of direct-to-customer retail transactions such as
    multiple tenders, ship-to-locations and fulfillment sources. The
    services-based architecture provides a set of common business
    logic for incorporation into legacy order capture environments
    including web, call center and point-of-sale.



| |                                             
| | --------------------------------------------
| | Retek Supply Chain Planning and Optimization



.






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Advanced Inventory Planning  Enables the
    creation of realistic, forward-looking, constraint based
    replenishment and allocation plans across the supply chain and
    converts these plans into orders, transfers, load builds and
    transportation schedules. It combines time-phased replenishment
    and allocation algorithms to produce an actionable receipt plan
    over time based on demand forecasts, replenishment parameters
    and inventory availability at the numerous points within the
    supply chain.
|
| | Retek Syncra Exchange  A web-based and collaborative
    solution, which supports standard best practices for
    Collaborative Planning, Forecasting and Replenishment (CPFR).
    This enables retailers to share sales trends and inventory
    information directly with suppliers.                                                                                                                                                                                                                                                     
|
| | Retek Co-Managed Inventory  A highly flexible,
    web-based planning engine that allows retailers and
    manufacturers to work together to improve order planning and
    delivery. The tool utilizes current inventory, safety stock,
    transit times and other supply chain data to plan future
    shipments, while allowing both retailers and manufacturers to
    contribute to the planning process.                                                                                                                             
|
| | Retek Inventory Optimization  Uses advanced
    forecasting and simulation techniques to determine the optimal
    parameters for a retailers supply chain. These parameters
    include vendor minimums, pack size, how often an item should be
    ordered and whether it should be stocked in a warehouse,
    cross-docked or shipped directly from a supplier. This solution
    is available as both a service and a product.                                                                                                        

6



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| |                             
| | ----------------------------
| | Retek Supply Chain Execution









| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Labor Management  Provides review and reporting
    capabilities to manage labor productivity and performance in the
    warehouse.                                                                                                      
|
| | Retek Warehouse Management System  A best-of-breed
    warehouse management system that plans, manages and optimizes
    distribution center operations while extending execution
    capabilities across the supply chain to trading partners.



| |                                            
| | -------------------------------------------
| | Retek Merchandise Planning and Optimization









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Merchandise Financial Planning  Provides highly
    flexible financial product, channel and location planning with
    the ability to fully reconcile and approve plans.                                                                                                                                                                                                                                                                                                                             
|
| | Retek Item Planning  Provides full life cycle,
    item level planning capabilities to produce a bottom-up plan in
    support of, and in conjunction with, an overall financial plan.                                                                                                                                                                                                                                                                                                                     
|
| | Retek Assortment Management  Incorporates industry
    best practices to determine proper product mix through both
    category management assortment rationalization methodologies and
    traditional depth and breadth wedge planning. The
    assortment management process takes into account financial and
    space constraints as well as optimization routines to produce
    realistic assortment plans and space allocation recommendations
    based on customer demand and profit potential.
|
| | Retek Allocation  Supports the process of allocating
    products to individual stores and manages multiple types of
    allocation, ensuring the right quantity of product in the right
    location at the right time to maximize sales, profits and
    customer satisfaction.                                                                                                                                                                                                                          
|
| | Retek Promotion Planning  Manages the lifecycle of
    promotions and other special events that dramatically impact
    demand and improves the accuracy and efficiency of the
    promotions planning and execution process. Automates the
    promotion planning process to increase effectiveness, eliminate
    errors and reduce out-of-stocks.                                                                                                                                                       
|
| | Retek Markdown Optimization  Provides the timing of,
    and price recommendations for, first and further clearance
    markdowns within the boundaries of global and business specific
    rules to maximize revenue and profit.                                                                                                                                                                                                                                                                          
|
| | Retek Regular Price Optimization  Leverages science
    to optimize prices for everyday retail prices,
    driving sales and improving profits.                                                                                                                                                                                                                                                                                                                                                          

7



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| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Space Optimization  Provides optimal space,
    fixture and item on shelf space allocation recommendations based
    on business rules, forecasted demand and profit potential to
    maximize revenues and profit.



| |                      
| | ---------------------
| | Retek Demand Planning









| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Demand Forecasting  Utilizes advanced
    scientific formulas to produce highly accurate forecasts that
    can be used across the enterprise.                                                            
|
| | Retek Promotional Forecasting  Uses causal
    forecasting science to determine the stock keeping unit
    (SKU)/store demand lift based on any causal variable such as
    promotion price, placement or media.



| |                         
| | ------------------------
| | Retek Enterprise Drivers









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Customer Insight and Intelligence  Creates a
    single data repository for all customer interactions across
    multiple touch points. Profiling tools identify customer
    clusters based on customer/retailer interactions, in addition to
    layered demographic information. This comprehensive customer
    data allows for better refinement in consumer centric demand
    management activities.                                      
|
| | Retek Demand Management and Intelligence 
    Reteks solutions collect and manage significant detail
    about demand history and historical demand influencers. Using
    Reteks science-based modeling tools helps determine the
    most effective means to impact demand. When used across the
    retail enterprise, this intelligence can increase Gross Margin
    Return on Investment (GMROI), service levels and customer
    satisfaction.



| |                                
| | -------------------------------
| | Retek Enterprise Infrastructure









| |                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retek Events and Intelligence  (Retek Active Retail
    Intelligence and Retek Data Warehouse)  Delivers
    tools to collect enterprise data, as well as provide analytics
    and work flow event management across systems. Reteks
    single sign-on and portal-enabled applications fit within
    existing enterprise portals.
|
| | Retek Integration and Collaboration  (Retek
    Integration Solution and Retek Syncra Exchange) 
    Creates enterprise-wide visibility to plans and enables
    collaboration on decisions for all parties                                                                                                                          

8



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| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | involved in trade transactions. Ensures that data is not only
    shared across internal systems, but is shared in an appropriate
    manner with external parties as well.



| |               
| | --------------
| | Retek In-a-Box





| |   |                                                    
| | - | ---------------------------------------------------
| |  | Merchandising,                                     
|
| |  | Point-of-Sale,                                     
|
| |  | Store Inventory Management,                        
|
| |  | Sales Audit,                                       
|
| |  | Invoice Matching,                                  
|
| |  | Performance Reporting and Exception Management, and
|
| |  | Integration.                                       



Retek Professional Services






| |   |                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consulting services consist primarily of business and technical
    implementation services and customization of our products for a
    customers specific needs. These services are customarily
    billed on a time and materials basis plus out-of-pocket expenses.                                        
|
| |  | Business optimization services are provided for inventory and
    markdown optimization. These services are typically billed as
    time and material consulting engagements plus a fixed fee
    component for the data analysis and modeling efforts.                                                        
|
| |  | We provide a range of service packs and Fast Track
    implementation tools that aid customers in reducing the overall
    effort involved in an implementation by providing pre-configured
    templates and tool-kits. There is typically a flat fee
    associated with each service pack.                
|
| |  | Additionally, we also provide a number of training programs.
    Courses cover topics such as technical architecture and
    development standards, and business use of the application
    functionality. Private courses are billed on a per class basis,
    while public courses are billed by participant.

Customers




9



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Government Contracts




Sales, Marketing and Distribution








Research and Development












10



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Competition






| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | the ease of use, performance, features, price and reliability of
    our solutions as compared to those of our competitors;          
|
| |  | the timing and market acceptance of new solutions and
    enhancements to existing solutions developed by us and our
    competitors;
|
| |  | the quality of our customer service; and                                                                                             
|
| |  | the effectiveness of our sales and marketing efforts.                                                                                





Proprietary Rights and Licensing






11



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Environmental Matters




Employees







Item 2:     Property









Item 3:     Legal
Proceedings




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Federal Litigation in the U.S. District Court for the
    Southern District of New York





12



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| |                                                                                
| | -------------------------------------------------------------------------------
| | Federal Litigation in the U.S. District Court for the
    District of Minnesota





13



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| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | State Derivative Litigation in the State of Minnesota,
    District Court, Hennepin County





| |                                                                       
| | ----------------------------------------------------------------------
| | Litigation Relating to Proposed Transaction With SAP America,
    Inc.

Braverman v.
Leestma et al.


Blakstad v. Retek, Inc. et al.


14



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| |                                                                    
| | -------------------------------------------------------------------
| | Legal Proceedings that Arise in the Ordinary Course of
    Business








|        |                                                    
|------- | ---------------------------------------------------
|Item 4: | Submission of Matters to a Vote of Security Holders



PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5: | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities





|               |  |      |       |  |     |   |      | 
|-------------- |  | ---- | ----- |  | --- | - | ---- | 
|               |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|2004:          |  |      |       |  |     |   |      | 
|First Quarter  |  | $    | 11.99 |  |     | $ | 6.57 | 
|Second Quarter |  | $    | 8.35  |  |     | $ | 5.28 | 
|Third Quarter  |  | $    | 6.15  |  |     | $ | 3.40 | 
|Fourth Quarter |  | $    | 6.86  |  |     | $ | 4.42 | 
|2003:          |  |      |       |  |     |   |      | 
|First Quarter  |  | $    | 6.17  |  |     | $ | 2.62 | 
|Second Quarter |  | $    | 8.50  |  |     | $ | 5.02 | 
|Third Quarter  |  | $    | 7.89  |  |     | $ | 6.00 | 
|Fourth Quarter |  | $    | 11.49 |  |     | $ | 6.75 | 







Equity Compensation Plan Information


|                                                           |       |                   |           |           |                   |   |                      |                           |  |  |           |           | 
|---------------------------------------------------------- | ----- | ----------------- | --------- | --------- | ----------------- | - | -------------------- | ------------------------- |  |  | --------- | --------- | 
|                                                           |       | Number of         |           |           |                   |   |                     
|                                                           |       | securities to be  |           |           |                   |   | Number of securities |                          
|                                                           |       | issued upon       |           |           | Weighted-average  |   |                      | remaining available for   | 
|                                                           |       | exercise of       |           |           | exercise price of |   |                      | future issuance under     | 
|                                                           |       | outstanding       |           |           | outstanding       |   |                      | equity compensation plans | 
|                                                           |       | options, warrants |           |           | options, warrants |   |                      | (excluding securities     | 
|                                                           |       | and rights as of  |           |           | and rights as of  |   |                      | reflected in column (a))  | 
|                                                           |       | December 31, 2004 |           |           | December 31, 2004 |   |                      | as of December 31, 2004   | 
|Plan Category                                              |       | (a)               |           |           | (b)               |   |                      | (c)                       | 
|                                                           |       |                   |           |           |                   |   |                      |                           | 
|Equity compensation plans approved by security holders     |       |                   | 9,825,637 |           |                   | $ | 10.06                |                           |  |  | 5,160,171 |          
|Equity compensation plans not approved by security holders |       |                   |          |           |                   |   |                     |                           |  |  |          |          
|                                                           | Total |                   |           | 9,825,637 |                   |   | $                    | 10.06                     |  |  |           | 5,160,171 | 

15



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|        |                                     
|------- | ------------------------------------
|Item 6: | Selected Consolidated Financial Data



|                                           |  |                         |         |                                       |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|------------------------------------------ |  | ----------------------- | ------- | ------------------------------------- | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                           |  | Year Ended December 31, |        
|                                           |  |                         |        
|                                           |  | 2004                    |         |                                       | 2003 |   |         | 2002 |  |   | 2001     |   |  | 2000 |        
|                                           |  |                         |         |                                       |      |   |         |      |  |   |          |   |  |      |        
|                                           |  |                         |         | (In thousands, except per share data) |      |   |        
|Consolidated Statement of Operations Data: |  |                         |         |                                       |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Total revenue                              |  | $                       | 174,235 |                                       |      | $ | 168,329 |      |  | $ | 191,832  |   |  | $    | 179,474 |   |  | $ | 91,957  |  
|Gross profit                               |  |                         | 89,693  |                                       |      |   | 79,657  |      |  |   | 107,299  |   |  |      | 104,449 |   |  |   | 38,212  |  
|Operating income (loss)                    |  |                         | 6,507   |                                       |      |   | (20,227 | )    |  |   | (46,742  | ) |  |      | (23,319 | ) |  |   | (65,598 | )
|Net income (loss)                          |  |                         | 7,044   |                                       |      |   | (20,533 | )    |  |   | (123,583 | ) |  |      | (14,310 | ) |  |   | (42,905 | )
|Basic net income (loss) per common share   |  | $                       | 0.13    |                                       |      | $ | (0.38   | )    |  | $ | (2.35    | ) |  | $    | (0.29   | ) |  | $ | (0.91   | )
|Diluted net income (loss) per common share |  |                         | 0.12    |                                       |      | $ | (0.38   | )    |  | $ | (2.35    | ) |  | $    | (0.29   | ) |  | $ | (0.91   | )
|Cash dividend declared per common share    |  |                         |        |                                       |      |   |        |      |  |   |         |   |  |      |        |   |  |   |        |  

|                                 |  |                |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|-------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                 |  | December 31,   |        
|                                 |  |                |        
|                                 |  | 2004           |         |  | 2003 |   |         | 2002 |  |   | 2001    |  |  | 2000 |        
|                                 |  |                |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                 |  | (In thousands) |        
|Consolidated Balance Sheet Data: |  |                |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash and cash equivalents        |  | $              | 41,599  |  |      | $ | 54,275  |      |  | $ | 56,464  |  |  | $    | 70,166  |  |  | $ | 31,058  | 
|Working capital                  |  |                | 69,952  |  |      |   | 69,104  |      |  |   | 46,857  |  |  |      | 59,309  |  |  |   | 35,069  | 
|Total assets                     |  |                | 172,535 |  |      |   | 178,229 |      |  |   | 198,567 |  |  |      | 299,370 |  |  |   | 195,183 | 
|Payable to HNC Software Inc.     |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   | 598     | 
|Debt obligations                 |  |                |        |  |      |   | 78      |      |  |   | 159     |  |  |      | 236     |  |  |   | 453     | 
|Total stockholders equity       |  |                | 102,698 |  |      |   | 88,911  |      |  |   | 101,448 |  |  |      | 203,523 |  |  |   | 124,595 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7: | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview




16



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Significant Trends and Developments in our Business


Economic Conditions in the Retail Industry.


New Products and Markets.


17



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Mix of Domestic and International Business.


Growth in our Customer Base.


Customer Funded Product Development.


Development Relationship with Accenture






Critical Accounting Policies and Estimates




18



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| |                    
| | -------------------
| | Revenue Recognition











| |                    
| | -------------------
| | Deferred Tax Assets



19



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| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                                                           
| | ----------------------------------------------------------
| | Valuation of Long-Lived and Intangible Assets and Goodwill









| |                            
| | ---------------------------
| | Accrued Restructuring Costs



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Results of Operations




| |                                              
| | ---------------------------------------------
| | Understanding Our Major Revenues and Expenses



| |         
| | --------
| | Revenues





| |    |                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | On a percentage of completion basis where revenue is recognized
    over the technical advisory service period,                             
|
| | 2. | On a percentage of completion basis where revenue is recognized
    as consulting services essential to the functionality are
    performed,
|
| | 3. | Over the term of the license where the software is not purchased
    on a perpetual basis, or                                               
|
| | 4. | Upon delivery.                                                                                                                              







| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The length of the technical advisory service periods. Technical
    advisory periods generally run from 12 to 24 months
    depending on the goals of the customer. If a license contract
    has a shorter advisory period, the amount of revenue recognized
    will be higher on a monthly basis, whereas if the technical
    advisory period is longer, the amount of license revenue
    recognized on a monthly basis will be less.
|
| | 2. | Increases or decreases in license revenue may be dependent upon
    the number of license contracts being recognized. Because we
    recognize revenue in monthly amounts over a period of time there
    are layers of revenue being recognized. Thus, an
    increase or decrease in revenues is not only                                                                                                                             

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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | dependent upon the size of the contracts but the number of
    contracts concurrently being recognized. Fluctuations in our
    revenues may result from the rate at which we add more
    contracts, or layers of revenue, as others are taken
    away when they become fully recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 3. | Timing of contract consummation. Depending on when a contract is
    consummated, it may not have an impact on the reported
    periods results. Many of our contracts are consummated in
    the last month of the quarter. Thus, major contracts may not
    impact reported revenues during the period in which they are
    consummated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 4. | The mix of license revenues recognized upon delivery or a
    percentage of completion basis may impact our revenues. If
    proportionately more contracts are consummated without technical
    advisory services or other significant consulting services, this
    may materially affect our revenue recognition during the
    quarter. In the case of recognition based on delivery, this may
    materially increase the period revenues. An increase in percent
    complete license revenues would cause revenues to fluctuate
    depending on the amount of work that could be completed on those
    projects. If there is a shift in license contracts that adds
    proportionately more or less percent complete arrangements or
    more or less software revenues that are recognized upon
    delivery, revenue streams may be materially affected both in the
    current period and in the outlook of the future periods.





| |         
| | --------
| | Expenses





| |   |                                 
| | - | --------------------------------
| |  | Cost of License and Maintenance,
|
| |  | Cost of Services and Other,     
|
| |  | Research and Development and    
|
| |  | Sales and Marketing.            





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Key
Performance Indicators






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue, which is an overall indicator of business growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Gross profit, which is an indicator of a mix of license,
    maintenance, services and other revenues, competitive pressures
    and the efficiency of our sales delivery.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Operating cash flow, which is an indicator of our ability to
    generate cash to fund future operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Deferred revenue, which is an indicator of our ability to
    collect cash on revenue streams to be recognized in future
    periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Accounts receivable ratio of quarterly days sales outstanding,
    which indicates our ability to collect cash from our customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Non-GAAP operational income and non-GAAP operational income per
    share, which indicates the growth of our business excluding
    certain non-cash charges. Operational income has been adjusted
    to exclude the effects of non-cash expenses for stock-based
    compensation, amortization of intangibles, accelerated
    depreciation and non-operational accrual adjustments. We believe
    operational income per share provides useful information to
    investors regarding certain additional financial and business
    trends relating to our financial condition and results of
    operations.

23



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|                                                                                                |                                                 |                                               |    |    |      |  |     |      |     |  |     |    |     | 
|----------------------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------- | -- | -- | ---- |  | --- | ---- | --- |  | --- | -- | --- | 
|                                                                                                |                                                 | As a Percentage of                            |   
|                                                                                                |                                                 | Total Revenue Year                            |   
|                                                                                                |                                                 | Ended December 31,                            |   
|                                                                                                |                                                 |                                               |   
|                                                                                                |                                                 | 2004                                          |    |    | 2003 |  |     | 2002 |    
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Revenue:                                                                                        |                                                 |                                               |    |    |      |  |     |      |     |  |     |   
|                                                                                                | License                                         |                                               |    | 34 | %    |  |     | 36   | %   |  |     | 53 | %  
|                                                                                                | Maintenance                                     |                                               |    | 22 |      |  |     | 18   |     |  |     | 16 |    
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|                                                                                                |                                                 | Total license and maintenance                 |    |    | 56   |  |     |      | 54  |  |     |    | 69  | 
|                                                                                                | Services and other                              |                                               |    | 44 |      |  |     | 46   |     |  |     | 31 |    
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|                                                                                                |                                                 | Total revenue                                 |    |    | 100  |  |     |      | 100 |  |     |    | 100 | 
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Cost of revenue:                                                                                |                                                 |                                               |    |    |      |  |     |      |     |  |     |   
|                                                                                                | License                                         |                                               |    | 9  |      |  |     | 11   |     |  |     | 17 |    
|                                                                                                | Maintenance                                     |                                               |    | 10 |      |  |     | 7    |     |  |     | 4  |    
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|                                                                                                |                                                 | Total license and maintenance cost of revenue |    |    | 19   |  |     |      | 18  |  |     |    | 21  | 
|                                                                                                | Services and other                              |                                               |    | 30 |      |  |     | 34   |     |  |     | 23 |    
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|                                                                                                |                                                 | Total cost of revenue                         |    |    | 49   |  |     |      | 53  |  |     |    | 44  | 
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Gross margin                                                                                    |                                                 |                                               | 51 |    |      |  | 47  |      |     |  | 56  |   
|Operating expenses:                                                                             |                                                 |                                               |    |    |      |  |     |      |     |  |     |   
|                                                                                                | Research and development                        |                                               |    | 19 |      |  |     | 26   |     |  |     | 25 |    
|                                                                                                | Sales and marketing                             |                                               |    | 18 |      |  |     | 20   |     |  |     | 27 |    
|                                                                                                | General and administrative                      |                                               |    | 7  |      |  |     | 9    |     |  |     | 10 |    
|                                                                                                | Acquisition related amortization of intangibles |                                               |    | 3  |      |  |     | 4    |     |  |     | 5  |    
|                                                                                                | Impairment of intangible asset                  |                                               |    |   |      |  |     |     |     |  |     | 4  |    
|                                                                                                | Restructuring expense                           |                                               |    |   |      |  |     |     |     |  |     | 10 |    
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|                                                                                                |                                                 | Total operating expenses                      |    |    | 47   |  |     |      | 59  |  |     |    | 80  | 
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Operating income ( loss)                                                                        |                                                 |                                               | 4  |    |      |  | (12 | )    |     |  | (24 | ) 
|Other income, net                                                                               |                                                 |                                               | 1  |    |      |  | 1   |      |     |  | 1   |   
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Income (loss) before income tax provision                                                       |                                                 |                                               | 5  |    |      |  | (11 | )    |     |  | (23 | ) 
|Income tax provision                                                                            |                                                 |                                               | 1  |    |      |  | 1   |      |     |  | 41  |   
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Net income ( loss)                                                                              |                                                 |                                               | 4  | %  |      |  | (12 | )%   |     |  | (64 | )%
|                                                                                                |                                                 |                                               |    |    |      |  |     |      |    
|Cost of license and maintenance revenue, as a percentage of
    license and maintenance revenue |                                                 |                                               | 33 | %  |      |  | 34  | %    |     |  | 30  | % 
|Cost of services and other revenue, as a percentage of services
    and other revenue           |                                                 |                                               | 68 | %  |      |  | 74  | %    |     |  | 75  | % 

Years Ended
December 31, 2004, 2003 and 2002


Revenue


Total revenue.


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License and maintenance revenue.


Services and other revenue.




Cost
of Revenue


Cost of license and maintenance revenue.


25



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Cost of services and other revenue.


Operating
Expenses


Research and development.


26



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Sales and marketing.


General and administrative.


Impairment of intangible asset.


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Acquisition-related amortization of intangibles.




Restructuring and other.








|                                |  |                   |        |   |                  |   |        |       |  |   |        |  
|------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | ----- |  | - | ------ | -
|                                |  | Lease obligations |        |   | Severance and    |   |        |      
|                                |  | and terminations  |        |   | related benefits |   |        | Total | 
|                                |  |                   |        |   |                  |   |        |       | 
|Restructuring charges           |  | $                 | 17,019 |   |                  | $ | 2,623  |       |  | $ | 19,642 |  
|Cash usage                      |  |                   |       |   |                  |   | (940   | )     |  |   | (940   | )
|                                |  |                   |        |   |                  |   |        |       | 
|Balance as of December 31, 2002 |  |                   | 17,019 |   |                  |   | 1,683  |       |  |   | 18,702 |  
|Adjustments to provision        |  |                   | (113   | ) |                  |   | 281    |       |  |   | 168    |  
|Cash usage                      |  |                   | (2,432 | ) |                  |   | (1,964 | )     |  |   | (4,396 | )
|                                |  |                   |        |   |                  |   |        |       | 
|Balance as of December 31,2003  |  |                   | 14,474 |   |                  |   |       |       |  |   | 14,474 |  
|Adjustments to provision        |  |                   | (570   | ) |                  |   |        |       |  |   | (570   | )
|Cash usage                      |  |                   | (2,777 | ) |                  |   |        |       |  |   | (2,777 | )
|                                |  |                   |        |   |                  |   |        |       | 
|Balance as of December 31, 2004 |  | $                 | 11,127 |   |                  | $ |       |       |  | $ | 11,127 |  



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Interest and other income, net.


Income tax provision.




Liquidity and Capital Resources






29



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|                        |       |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |   |       |       |  |   |        |        | 
|----------------------- | ----- | ---- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | ----- | ----- | ---- | - | ----- | ----- |  | - | ------ | ------ | 
|                        |       |      |       |       |      |   |       |       |  |   |       | After | 
|Contractual Obligations |       | 2005 |       |       | 2006 |   |       | 2007  |  |   | 2008  |       |  | 2009 |       |       | 2009 |  
|                        |       |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |  
|Operating leases        |       | $    | 6,297 |       |      | $ | 5,698 |       |  | $ | 5,742 |       |  | $    | 5,741 |       |      | $ | 5,741 |       |  | $ | 26,869 |       
|Contract Commitments    |       |      | 2,384 |       |      |   |      |       |  |   |      |       |  |      |      |       |      |   |      |       |  |   |       |       
|                        |       |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |  
|                        | Total |      | $     | 8,681 |      |   | $     | 5,698 |  |   | $     | 5,742 |  |      | $     | 5,741 |      |   | $     | 5,741 |  |   | $      | 26,869 | 
|                        |       |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |  

|                             |       |      |       |       |      |   |   |      |  |   |       |       |  |      |   |   |      |   |   |   |  |   |   |   | 
|---------------------------- | ----- | ---- | ----- | ----- | ---- | - | - | ---- |  | - | ----- | ----- |  | ---- | - | - | ---- | - | - | - |  | - | - | - | 
|                             |       |      |       |       |      |   |   |      |  |   |       | After | 
|Other Commercial Commitments |       | 2005 |       |       | 2006 |   |   | 2007 |  |   | 2008  |       |  | 2009 |   |   | 2009 |  
|                             |       |      |       |       |      |   |   |      |  |   |       |       |  |      |   |   |      |  
|Standby letters of credit    |       | $    | 2,000 |       |      | $ |  |      |  | $ | 2,258 |       |  | $    |  |   |      | $ |  |   |  | $ |  |  
|                             |       |      |       |       |      |   |   |      |  |   |       |       |  |      |   |   |      |  
|                             | Total |      | $     | 2,000 |      |   | $ | 0    |  |   | $     | 2,258 |  |      | $ | 0 |      |   | $ | 0 |  |   | $ | 0 | 
|                             |       |      |       |       |      |   |   |      |  |   |       |       |  |      |   |   |      |  

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Recent Accounting Pronouncements


Share Based Payments.  Share-Based Payment ,




American Jobs Creation Act.








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Factors That May Impact Future Results of Operations


An investment in our common stock involves a high degree of
risk. Investors evaluating us and our business should carefully
consider the factors described below and all other information
contained in this Annual Report on Form 10-K before
purchasing our common stock. Any of the following factors could
materially harm our business, operating results and financial
condition. Additional factors and uncertainties not currently
known to us or that we currently consider immaterial could also
harm our business, operating results and financial condition.
Investors could lose all or part of their investment as a result
of these factors. The matters discussed in this Annual Report on
Form 10-K regarding future events are forward looking
statements as defined in the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, that are
subject to risks and uncertainties. The following factors, among
others, could cause actual results to differ materially from
those described by such statements.










| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our day-to-day operations may be disrupted due to the
    substantial time and effort our management must devote to
    completing the transaction;                                                                                                                                              
|
| |  | if the transaction with SAP America is terminated under certain
    conditions, we may be required to pay SAP America termination
    fees and expenses;                                                                                                                                         
|
| |  | the market price of our common stock may decline to the extent
    that the current market price of such shares reflects a market
    assumption that a transaction will be completed;                                                                                                           
|
| |  | we must pay various costs related to a transaction, such as our
    legal, investment advisor and accounting fees; and                                                                                                                                                                           
|
| |  | if our board of directors determines to seek another merger or
    business combination, we may not be able to find a partner
    willing to enter into a transaction with more favorable terms
    and conditions than that agreed to by SAP America or proposed by
    Oracle or another party.



32



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| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | the size and timing of customer orders, which can be affected by
    customer budgeting and purchasing cycles;                            
|
| |  | the demand for and market acceptance of our software solutions;                                                                           
|
| |  | pricing pressures within the software industry;                                                                                           
|
| |  | competitors announcements or introductions of new software
    solutions, alliance agreements, services or technological
    innovations;
|
| |  | our ability to develop, introduce and market new products on a
    timely basis;                                                          
|
| |  | customer deferral of material orders in anticipation of new
    releases or new product introductions;                                    
|
| |  | our success in expanding our sales and marketing programs;                                                                                
|
| |  | technological changes or problems in computer systems;                                                                                    
|
| |  | general economic conditions which may affect our customers
    capital investment levels; and                                            
|
| |  | our ability to reduce expense levels if our revenues decline.                                                                             





33



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| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fail to respond to technological changes in a timely or
    cost-effective manner;                                                                                                                                      
|
| |  | encounter products, capabilities or technologies developed by
    others that render our products and services obsolete or
    noncompetitive or that shorten the life cycles of our existing
    products and services;
|
| |  | experience difficulties that could delay or prevent the
    successful development, introduction and marketing of these new
    products and services; or                                                               
|
| |  | fail to achieve market acceptance of our products and services.                                                                                                                                                         







34



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| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop and market new technologies that render our existing or
    future products obsolete, unmarketable or less competitive;                                                                                                
|
| |  | make strategic acquisitions or establish cooperative
    relationships among themselves or with other solution providers,
    which would increase the ability of their products to address
    the needs of our customers; and
|
| |  | establish or strengthen cooperative relationships with our
    current or future strategic partners, which would limit our
    ability to sell products through these channels.                                                



35



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As described in Item 3:


36



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37



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| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | changes in foreign currency exchange rates;                                                                               
|
| |  | greater risk of uncollectible accounts and longer accounts
    receivable payment cycles;                                 
|
| |  | changes in a specific countrys or regions political,
    legal or economic conditions, particularly in emerging markets;
|
| |  | trade protection measures and import or export licensing
    requirements;                                                
|
| |  | potentially negative consequences from changes in tax laws or
    other localization legal requirements;                  
|
| |  | cost of and difficulty in staffing and managing widespread
    operations and foreign language skill limitations;         
|
| |  | international variations in technology standards;                                                                         
|
| |  | differing levels of protection of intellectual property; and                                                              
|
| |  | unexpected changes in regulatory requirements.                                                                            










|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A: | Qualitative and Quantitative Disclosures About Market
    Risk



Interest Rate Risk




38



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##### Table of Contents





Foreign Currency Exchange Rate Risk




Equity Price Risk









|        |                                            
|------- | -------------------------------------------
|Item 8: | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9: | Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A: | Controls and Procedures

Disclosure Control and Procedures






Managements Report on Internal Control over Financial
Reporting




39



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Internal Control-Integrated Framework






Internal Control  Integrated
Framework.




Remediation Steps to Address the Material Weaknesses






| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We will hire an additional employee with adequate training and
    experience in software revenue recognition, to assist in
    developing the determinations regarding license revenue
    arrangements. These license revenue determinations will be
    subjected to an independent review by our current decision maker
    for license revenue transactions.
|
| |  | We will train and assign a resource to assist in the preparation
    or review of the restructuring accrual balance.                                                                                                                                                                                                                                             



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Changes in Internal Control over Financial Reporting













|         |                  
|-------- | -----------------
|Item 9B: | Other Information



41



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PART III





Item 10.     Directors and
Executive Officers of the Registrant


Directors and Executive Officers




|                   |  |     |    |  |          |                                                                                                        |       |  |      | 
|------------------ |  | --- | -- |  | -------- | ------------------------------------------------------------------------------------------------------ | ----- |  | ---- | 
|                   |  |     |    |  |          | Director                                                                                               |      
|Name               |  | Age |    |  | Position |                                                                                                        | Since | 
|                   |  |     |    |  |          |                                                                                                        |       | 
|Martin J. Leestma  |  |     | 46 |  |          | President, Chief Executive Officer and Director                                                        |       |  | 2003 | 
|John L. Goedert    |  |     | 39 |  |          | Chief Operating Officer                                                                                |       |  |     | 
|Gregory A. Effertz |  |     | 42 |  |          | Senior Vice President, Finance & Administration, Chief
    Financial Officer, Treasurer, and Secretary |       |  |     | 
|Jerome Dolinsky    |  |     | 39 |  |          | Senior Vice President, Worldwide Sales                                                                 |       |  |     | 
|Thomas F. Carretta |  |     | 46 |  |          | General Counsel                                                                                        |       |  |     | 
|Duncan B. Angove   |  |     | 38 |  |          | Chief Strategy Officer                                                                                 |       |  |     | 
|John R. Gray       |  |     | 40 |  |          | Chief Technology Officer                                                                               |       |  |     | 
|James B. Murdy     |  |     | 42 |  |          | Corporate Controller                                                                                   |       |  |     | 
|John Buchanan      |  |     | 48 |  |          | Chairman of the Board of Directors                                                                     |       |  | 1995 | 
|N. Ross Buckenham  |  |     | 47 |  |          | Director                                                                                               |       |  | 1999 | 
|Ward Carey         |  |     | 40 |  |          | Director                                                                                               |       |  | 1999 | 
|Chris Sang         |  |     | 46 |  |          | Director                                                                                               |       |  | 2003 | 
|Glen A. Terbeek    |  |     | 62 |  |          | Director                                                                                               |       |  | 1999 | 
|Stephen E. Watson  |  |     | 60 |  |          | Director                                                                                               |       |  | 1999 | 
|William Walsh      |  |     | 41 |  |          | Director                                                                                               |       |  | 2002 | 

Martin J. Leestma


John L. Goedert


Gregory A. Effertz


Jerome Dolinsky


Thomas F. Carretta


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Duncan B. Angove


John Gray


James B. Murdy


John Buchanan


N. Ross Buckenham


Ward Carey


Chris Sang


Glen A. Terbeek


43



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Stephen E. Watson


William Walsh


Audit Committee






| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | selecting the independent accountants to conduct the annual
    audit of our accounts;                                                                                                                                                
|
| |  | reviewing the proposed scope of such audit and pre-approving all
    fees to be paid to our independent accountants, including audit,
    audit-related, tax and any other permitted non-audit fees;                                  
|
| |  | reviewing and discussing with our chief executive officer and
    chief financial officer the procedures they followed to complete
    their certifications in connection with our periodic filings
    with the SEC;                 
|
| |  | reviewing and discussing with management and the independent
    public accountants the critical accounting policies and the
    financial statements to be included in the quarterly and annual
    reports we file with the SEC; and
|
| |  | reviewing the adequacy and effectiveness of our internal
    auditing, accounting, disclosure and financial controls with the
    independent public accountants and our financial and accounting
    staff.                          



Section 16(a) Beneficial Ownership Reporting
Compliance




44



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##### Table of Contents





Code of Ethics







Item 11.     Executive
Compensation




| |                           
| | --------------------------
| | Summary Compensation Table



|                             |                                                                  |                     |      |           |            |  |         |           |  |              |           |         |  |         |   |   |  |  |        |           | 
|---------------------------- | ---------------------------------------------------------------- | ------------------- | ---- | --------- | ---------- |  | ------- | --------- |  | ------------ | --------- | ------- |  | ------- | - | - |  |  | ------ | --------- | 
|                             |                                                                  |                     |      |           |            |  |         |           |  | Long-Term    |          
|                             |                                                                  |                     |      |           |            |  |         |           |  | Compensation |          
|                             |                                                                  |                     |      | Number of |           
|                             |                                                                  | Annual Compensation |      |           | Securities | 
|                             |                                                                  |                     |      |           | Underlying | 
|Name and Principal Positions |                                                                  | Year                |      |           | Salary ($) |  |         | Bonus ($) |  |              | Other ($) |         |  | Options |  
|                             |                                                                  |                     |      |           |            |  |         |           |  |              |           |         |  |         |  
|Martin J. Leestma            |                                                                  |                     | 2004 |           |            |  | 380,000 |           |  |              | 250,000   |         |  |         | 0 |   |  |  | 0      |          
|                             | President, Chief Executive Officer and Director(1)               |                     |      | 2003      |            |  |         | 303,095   |  |              |           | 228,000 |  |         |   | 0 |  |  |        | 1,000,000 | 
|John L. Goedert              |                                                                  |                     | 2004 |           |            |  | 240,000 |           |  |              | 144,000   |         |  |         | 0 |   |  |  | 0      |          
|                             | Chief Operating Officer                                          |                     |      | 2003      |            |  |         | 230,000   |  |              |           | 60,375  |  |         |   | 0 |  |  |        | 150,000   | 
|                             |                                                                  |                     | 2002 |           |            |  | 230,000 |           |  |              | 34,500    |         |  |         | 0 |   |  |  | 50,000 |          
|Jerome Dolinsky              |                                                                  |                     | 2004 |           |            |  | 250,000 |           |  |              | 145,000   |         |  |         | 0 |   |  |  | 60,000 |          
|                             | Senior Vice President, World Wide Sales                          |                     |      | 2003      |            |  |         | 204,167   |  |              |           | 141,200 |  |         |   | 0 |  |  |        | 135,000   | 
|                             |                                                                  |                     |      | 2002      |            |  |         | 200,000   |  |              |           | 30,000  |  |         |   | 0 |  |  |        | 20,000    | 
|Duncan B. Angove             |                                                                  |                     | 2004 |           |            |  | 220,000 |           |  |              | 99,740    |         |  |         | 0 |   |  |  | 75,000 |          
|                             | Vice President, Strategy and Marketing                           |                     |      | 2003      |            |  |         | 210,000   |  |              |           | 55,125  |  |         |   | 0 |  |  |        | 150,000   | 
|                             |                                                                  |                     |      | 2002      |            |  |         | 186,667   |  |              |           | 23,750  |  |         |   | 0 |  |  |        | 40,000    | 
|Gregory A. Effertz           |                                                                  |                     | 2004 |           |            |  | 220,000 |           |  |              | 115,500   |         |  |         | 0 |   |  |  | 50,000 |          
|                             | Senior Vice President, Finance &                                 |                     |      | 2003      |            |  |         | 210,000   |  |              |           | 55,125  |  |         |   | 0 |  |  |        | 150,000   | 
|                             | Administration, Chief Financial Officer, Treasurer and Secretary |                     |      | 2002      |            |  |         | 210,000   |  |              |           | 31,500  |  |         |   | 0 |  |  |        | 50,000    | 






|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(1) | Mr. Leestma became President, Chief Executive Officer and a
    director in March 2003.



| |                            
| | ---------------------------
| | Stock Option Grants in 2004



45



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|                   |  |            |        |                   |            |  |      |             |  |  |                               |                               |         |    |         |  |    |  |   |     |  |  |         |  |  |  |           | 
|------------------ |  | ---------- | ------ | ----------------- | ---------- |  | ---- | ----------- |  |  | ----------------------------- | ----------------------------- | ------- | -- | ------- |  | -- |  | - | --- |  |  | ------- |  |  |  | --------- | 
|                   |  |            |        | Individual Grants |            |  |      |             |  |  |                               |                               |        
|                   |  |            |        |                   |            |  |      |             | 
|                   |  |            |        | % of Total        |            |  |      |             |  |  | Potential Realizable Value at |                              
|                   |  | Number of  |        |                   | Options    |  |      |             |  |  |                               | Assumed Annual Rates of Stock |        
|                   |  | Securities |        |                   | Granted to |  |      |             |  |  |                               | Price Appreciation for Option |        
|                   |  | Underlying |        |                   | Employees  |  |      | Exercise or |  |  |                               |                               | Term($) |   
|                   |  | Options    |        |                   | in Fiscal  |  |      | Base Price  |  |  | Expiration                    |                               |         |    |        
|Name               |  | Granted    |        |                   | Year       |  |      | ($/Share)   |  |  | Date                          |                               |         | 0% |         |  | 5% |  |   | 10% | 
|                   |  |            |        |                   |            |  |      |             |  |  |                               |                               |         |    |         |  |    |  |   |     | 
|Martin Leestma     |  |            | 0      |                   |            |  | 0    |             |  |  |                              |                               |         |    |        |  |    |  | 0 |     |  |  | 0       |  |  |  | 0         | 
|John L. Goedert    |  |            | 60,000 |                   |            |  | 3.75 |             |  |  | 9.73                          |                               |         |    | 1/29/14 |  |    |  | 0 |     |  |  | 367,149 |  |  |  | 930,427   | 
|Jerome Dolinsky    |  |            | 0      |                   |            |  | 0    |             |  |  |                              |                               |         |    |        |  |    |  | 0 |     |  |  | 0       |  |  |  | 0         | 
|Duncan B. Angove   |  |            | 75,000 |                   |            |  | 4.68 |             |  |  | 9.73                          |                               |         |    | 1/29/14 |  |    |  | 0 |     |  |  | 458,936 |  |  |  | 1,163,034 | 
|Gregory A. Effertz |  |            | 50,000 |                   |            |  | 3.12 |             |  |  | 9.73                          |                               |         |    | 1/29/14 |  |    |  | 0 |     |  |  | 305,957 |  |  |  | 775,356   | 



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Aggregated Option Exercises in Last Fiscal Year and Fiscal
    Year-End Option Values



|                   |  |                           |   |                      |                        |  |   |                          |  |  |               |  |  |             |         |  |               |  |         |  |  |  |         | 
|------------------ |  | ------------------------- | - | -------------------- | ---------------------- |  | - | ------------------------ |  |  | ------------- |  |  | ----------- | ------- |  | ------------- |  | ------- |  |  |  | ------- | 
|                   |  |                           |   | Number of Securities |                        |  |  
|                   |  | Number of Shares Acquired |   |                      | Underlying Unexercised |  |   | Value of Unexercised In- | 
|                   |  | on Exercise               |   |                      | Options at             |  |   | The-Money Options at     | 
|                   |  |                           |   |                      | December 31, 2004(#)   |  |   | December 31, 2004($)     | 
|                   |  | Exercised                 |   |                      | Value Realized         |  |   |                          |  |  |               | 
|Name               |  | (#)                       |   |                      | ($)                    |  |   | Exercisable              |  |  | Unexercisable |  |  | Exercisable |         |  | Unexercisable | 
|                   |  |                           |   |                      |                        |  |   |                          |  |  |               |  |  |             |         |  |               | 
|Martin Leestma     |  |                           | 0 |                      |                        |  | 0 |                          |  |  | 625,000       |  |  |             | 375,000 |  |               |  | 912,500 |  |  |  | 547,500 | 
|Duncan B. Angove   |  |                           | 0 |                      |                        |  | 0 |                          |  |  | 200,118       |  |  |             | 156,250 |  |               |  | 182,875 |  |  |  | 216,125 | 
|Jerome Dolinsky    |  |                           | 0 |                      |                        |  | 0 |                          |  |  | 206,450       |  |  |             | 88,750  |  |               |  | 73,150  |  |  |  | 86,450  | 
|Gregory A. Effertz |  |                           | 0 |                      |                        |  | 0 |                          |  |  | 252,750       |  |  |             | 131,250 |  |               |  | 182,875 |  |  |  | 216,125 | 
|John L. Goedert    |  |                           | 0 |                      |                        |  | 0 |                          |  |  | 331,801       |  |  |             | 141,250 |  |               |  | 182,875 |  |  |  | 216,125 | 

Employment and Change in Control Arrangements




| |                      
| | ---------------------
| | Employment Agreements





46



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| |                                       
| | --------------------------------------
| | Change-in-Control/Retention Agreements





| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | immediate vesting of all options held on the date of the change
    in control;                                                                             
|
| |  | a lump-sum cash payment equal to his base salary multiplied by
    two, plus his target annual bonus multiplied by two;                                     
|
| |  | continued participation in all benefit plans for a two-year
    period; and                                                                                 
|
| |  | a full gross up for any excise taxes imposed on the executive
    for payments deemed to be excess parachute payments
    under the Internal Revenue Code.





| |                                              
| | ---------------------------------------------
| | Retention Agreements with Other Key Employees



47



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Director Compensation




Compensation Committee Interlocks and Insider
Participation




Report of the Compensation Committee of the Board




Composition of the
Committee




Executive Compensation Philosophy




48



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| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | To support a pay-for-performance policy that differentiates
    bonus amounts among all executives based on both the performance
    of the Company and their individual performance;                                                            
|
| |  | To align the interests of executives with the long-term
    interests of stockholders through equity awards whose value over
    time depends upon the market value of the Companys common
    stock;                                           
|
| |  | To provide compensation comparable to that offered by other
    leading companies in the Companys industry, enabling the
    Company to compete for and retain talented executives who are
    critical to the Companys long- term success; and
|
| |  | To motivate key executives to achieve strategic business
    initiatives and to reward them for their achievement.                                                                                                                               



Executive
Compensation


Base Salary.


Incentive Compensation.




49



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Equity Program.




Chief Executive Officer
Compensation




Compliance with
Section 162(m) of the Internal Revenue Code






Conclusion




50



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| |                       
| | ----------------------
| | Compensation Committee
|
| | N. Ross Buckenham     
| | Ward Carey III        

51



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Performance Graph




COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*


AMONG RETEK INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,


AND THE RDG INTERNET COMPOSITE INDEX





|                                 |  |  |            |        |  |            |  |   |            |  |  |            |   |       |            |  |  |            |       |  |  |  |   |       |  |  |  |   |       |  | 
|-------------------------------- |  |  | ---------- | ------ |  | ---------- |  | - | ---------- |  |  | ---------- | - | ----- | ---------- |  |  | ---------- | ----- |  |  |  | - | ----- |  |  |  | - | ----- |  | 
|                                 |  |  |            |        |  |            |  |   |            |  |  |            |   |       |            |  |  |            |       |  |  |  |   |       | 
|Company/Index Name               |  |  | 12/31/1999 |        |  | 12/31/2000 |  |   | 12/31/2001 |  |  | 12/31/2002 |   |       | 12/31/2003 |  |  | 12/31/2004 |      
|                                 |  |  |            |        |  |            |  |   |            |  |  |            |   |       |            |  |  |            |       |  |  |  |   |       | 
|RETEK INC.                       |  |  | $          | 100.00 |  |            |  | $ | 32.39      |  |  |            | $ | 39.69 |            |  |  | $          | 3.61  |  |  |  | $ | 12.33 |  |  |  | $ | 8.17  |  | 
|                                 |  |  |            |        |  |            |  |   |            |  |  |            |   |       |            |  |  |            |       |  |  |  |   |       | 
|NASDAQ STOCK MARKET (U.S.) INDEX |  |  |            | 100.00 |  |            |  |   | 60.30      |  |  |            |   | 45.49 |            |  |  |            | 26.40 |  |  |  |   | 38.36 |  |  |  |   | 40.51 |  | 
|                                 |  |  |            |        |  |            |  |   |            |  |  |            |   |       |            |  |  |            |       |  |  |  |   |       | 
|RDG INTERNET COMPOSITE INDEX     |  |  |            | 100.00 |  |            |  |   | 57.26      |  |  |            |   | 40.00 |            |  |  |            | 27.91 |  |  |  |   | 38.25 |  |  |  |   | 41.67 |  | 
|                                 |  |  |            |        |  |            |  |   |            |  |  |            |   |       |            |  |  |            |       |  |  |  |   |       | 




* $100 INVESTED ON 12/31/1999 IN STOCK OR IN
INDEX  INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL
YEAR ENDING DECEMBER 31.


52



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Item 12. Security Ownership of Certain Beneficial Owners
and Management




|                                                                              |                                                         |                      |           |  |                  |  |     |   | 
|----------------------------------------------------------------------------- | ------------------------------------------------------- | -------------------- | --------- |  | ---------------- |  | --- | - | 
|                                                                              |                                                         | Amount And Nature Of |           |  |                 
|Name of Beneficial Owner                                                      |                                                         | Beneficial Ownership |           |  | Percent Of Class | 
|                                                                              |                                                         |                      |           |  |                  | 
|Kopp Investment Advisors, Inc. (1)(2)                                         |                                                         |                      | 4,299,289 |  |                  |  | 7.7 | %
|                                                                              | 7701 France Avenue South, Suite 500
    Edina, MN 55435 |                      |           |  |                  |  |     |   | 
|Entities Affiliated with Barclays Global Investors, N.A. (1)(3)               |                                                         |                      | 5,428,165 |  |                  |  | 9.7 | %
|                                                                              | 45 Fremont Street
    San Francisco, CA 94105           |                      |           |  |                  |  |     |   | 
|Paradigm Capital Management, Inc. (1)                                         |                                                         |                      | 2,925,100 |  |                  |  | 5.2 | %
|                                                                              | Nine Elk Street
    Albany, NY 12207                    |                      |           |  |                  |  |     |   | 
|FMR Corp. (1)                                                                 |                                                         |                      | 3,117,707 |  |                  |  | 5.6 | %
|                                                                              | 82 Devonshire Street
    Boston, MA 02109               |                      |           |  |                  |  |     |   | 
|John Buchanan (4)                                                             |                                                         |                      | 524,516   |  |                  |  | *   |  
|Martin Leestma (5)                                                            |                                                         |                      | 711,944   |  |                  |  | 1.3 | %
|John L. Goedert (6)                                                           |                                                         |                      | 363,070   |  |                  |  | *   |  
|Gregory A. Effertz (7)                                                        |                                                         |                      | 279,416   |  |                  |  | *   |  
|Jerome Dolinsky (8)                                                           |                                                         |                      | 219,026   |  |                  |  | *   |  
|Duncan Angove (9)                                                             |                                                         |                      | 232,546   |  |                  |  | *   |  
|John Gray (10)                                                                |                                                         |                      | 99,862    |  |                  |  | *   |  
|N. Ross Buckenham (11)                                                        |                                                         |                      | 60,000    |  |                  |  | *   |  
|Ward Carey (12)                                                               |                                                         |                      | 65,000    |  |                  |  | *   |  
|Chris Sang (13)                                                               |                                                         |                      | 25,000    |  |                  |  | *   |  
|Glen A. Terbeek (14)                                                          |                                                         |                      | 80,000    |  |                  |  | *   |  
|William J. Walsh (15)                                                         |                                                         |                      | 32,500    |  |                  |  | *   |  
|Stephen E. Watson (16)                                                        |                                                         |                      | 80,000    |  |                  |  | *   |  
|All current executive officers and directors as a group
    (15 persons) (17) |                                                         |                      | 2,983,433 |  |                  |  | 5.1 | %








|    |                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The information on number of shares beneficially owned was
    obtained from filings made with the Securities and Exchange
    Commission pursuant to Section 13(d) or 13(g) of the
    Exchange Act.                                                                                                                   
|   
|(2) | Represents 3,186,615 shares held by Kopp Investment Advisors,
    Inc. with sole voting power, 1,000,000 shares with sole
    dispositive power, and 2,882,359 shares with shared dispositive
    power and 416,930 shares held by Leroy C. Kopp with sole
    dispositive power.                                       
|   
|(3) | Includes 4,016,286 shares held by Barclays Global Investors,
    N.A. with sole voting and dispositive power, 846,760 shares held
    by Barclays Global Fund Advisors with sole voting and
    dispositive power and 565,119 shares held by Barclays Global
    Investors, Ltd. with sole voting and dispositive power.
|   
|(4) | Includes options to purchase 514,300 shares of common stock
    exercisable within 60 days.                                                                                                                                                                                                                             

53



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|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|(5) | Includes options to purchase 708,333 shares of common stock
    exercisable within 60 days.
|   
|(6) | Includes options to purchase 359,300 shares of common stock
    exercisable within 60 days.
|   
|(7) | Includes options to purchase 277,749 shares of common stock
    exercisable within 60 days.
|   
|(8) | Includes options to purchase 217,699 shares of common stock
    exercisable within 60 days.
|   
|(9) | Includes options to purchase 231,368 shares of common stock
    exercisable within 60 days.



|     |                                                                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes options to purchase 98,332 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(11) | Includes options to purchase 60,000 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(12) | Includes options to purchase 65,000 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(13) | Includes options to purchase 25,000 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(14) | Includes options to purchase 80,000 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(15) | Includes options to purchase 32,500 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(16) | Includes options to purchase 80,000 shares of common stock
    exercisable within 60 days.                                                                                                                                    
|    
|(17) | Includes 100,417 shares beneficially owned by Thomas Carretta
    and 110,136 shares by James Murdy. Includes options to purchase
    100,417 and 108,665 shares of common stock exercisable within
    60 days, respectively.




Item 13.     Certain
Relationships and Related Transactions







Item 14.     Principal
Accountant Fees and Services




|                       |  |      |         |  |      |   |         | 
|---------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                       |  | 2004 |         |  | 2003 |  
|                       |  |      |         |  |      |  
|Audit fees             |  | $    | 679,742 |  |      | $ | 227,685 | 
|Audit-related fees (1) |  |      | 172,013 |  |      |   | 13,803  | 
|Tax fees (2)           |  |      | 488,497 |  |      |   | 365,019 | 
|All other fees (3)     |  |      |        |  |      |   | 3,707   | 






|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit-related fees consisted principally of audits of financial
    statements of acquired companies and certain employee benefits
    plans and other consultations concerning financial accounting
    and reporting standards.         
|   
|(2) | Tax fees consisted primarily of tax compliance, tax advice and
    tax planning. For 2004, $359,957 of the $488,497 in tax fees
    were tax compliance fees. For 2003, $233,264 of the $365,019 in
    tax fees were tax compliance fees.
|   
|(3) | All other fees consist primarily of non-audit related consulting
    fees, and customer software development fees, but do not include
    financial information systems design and implementation fees.                                   

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PART IV





Item 15.     Exhibits and
Financial Statement Schedules


Documents filed as part of this Annual Report:


Financial Statements.


|                                                                                                                                                        |  |        |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                                                                                        |  | Page   |   
|                                                                                                                                                        |  | Number |   
|                                                                                                                                                        |  |        |   
|Retek Inc.:                                                                                                                                             |  |        |    | 
|Report of Independent Registered Public Accounting Firm                                                                                                 |  |        | 55 | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                                            |  |        | 57 | 
|Consolidated Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002                                                          |  |        | 58 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002                                                          |  |        | 59 | 
|Consolidated Statements of Changes in Stockholders Equity
    and Comprehensive Income (Loss) for the years ended
    December 31, 2004, 2003 and 2002 |  |        | 60 | 
|Notes to Consolidated Financial Statements                                                                                                              |  |        | 61 | 

Financial Statement Schedules.


Exhibits.


55



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Report of Independent Registered Public Accounting Firm








Consolidated financial statements




Internal control over financial reporting


Internal Control  Integrated Framework






56



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.








57



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Retek Inc.


Consolidated Balance Sheet


(in thousands, except per share data)


|                                                    |                                                                                                                                                                       |                            |              |        |         |         |          |        |         |         | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------ | ------ | ------- | ------- | -------- | ------ | ------- | ------- | 
|                                                    |                                                                                                                                                                       | December 31,               |             
|                                                    |                                                                                                                                                                       |                            |             
|                                                    |                                                                                                                                                                       | 2004                       |              |        | 2003    |        
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|ASSETS                                             
|Current assets:                                     |                                                                                                                                                                       |                            |              |        |         |         |          |       
|                                                    | Cash and cash equivalents                                                                                                                                             |                            | $            | 41,599 |         |         | $        | 54,275 |        
|                                                    | Investments                                                                                                                                                           |                            |              | 49,359 |         |         |          | 36,287 |        
|                                                    | Accounts receivable, net                                                                                                                                              |                            |              | 29,692 |         |         |          | 33,699 |        
|                                                    | Other current assets                                                                                                                                                  |                            |              | 7,129  |         |         |          | 5,827  |        
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|                                                    |                                                                                                                                                                       | Total current assets       |              |        | 127,779 |         |          |        | 130,088 |        
|Investments                                         |                                                                                                                                                                       |                            | 11,647       |        |         |         | 3,658    |       
|Property and equipment, net                         |                                                                                                                                                                       |                            | 8,932        |        |         |         | 12,227   |       
|Intangible assets, net                              |                                                                                                                                                                       |                            | 10,183       |        |         |         | 18,208   |       
|Goodwill                                            |                                                                                                                                                                       |                            | 13,817       |        |         |         | 13,817   |       
|Other assets                                        |                                                                                                                                                                       |                            | 177          |        |         |         | 231      |       
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|                                                    |                                                                                                                                                                       |                            | Total assets |        | $       | 172,535 |          |        | $       | 178,229 | 
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY               
|                                                   
|Current liabilities:                                |                                                                                                                                                                       |                            |              |        |         |         |          |       
|                                                    | Accounts payable                                                                                                                                                      |                            | $            | 10,827 |         |         | $        | 15,739 |        
|                                                    | Accrued liabilities                                                                                                                                                   |                            |              | 5,720  |         |         |          | 10,410 |        
|                                                    | Accrued restructuring costs                                                                                                                                           |                            |              | 2,875  |         |         |          | 2,757  |        
|                                                    | Deferred revenue                                                                                                                                                      |                            |              | 38,405 |         |         |          | 32,000 |        
|                                                    | Note payable                                                                                                                                                          |                            |              |       |         |         |          | 78     |        
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|                                                    |                                                                                                                                                                       | Total current liabilities  |              |        | 57,827  |         |          |        | 60,984  |        
|Accrued restructuring costs, net of current portion |                                                                                                                                                                       |                            | 8,252        |        |         |         | 11,717   |       
|Deferred revenue, net of current portion            |                                                                                                                                                                       |                            | 3,758        |        |         |         | 16,617   |       
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|                                                    |                                                                                                                                                                       | Total liabilities          |              |        | 69,837  |         |          |        | 89,318  |        
|Commitments and Contingencies Stockholders equity: |                                                                                                                                                                       |                            |              |        |         |         |          |       
|                                                    | Preferred stock, $0.01 par value  5,000 shares
    authorized; no shares issued and outstanding                                                                      |                            |              |       |         |         |          |       |        
|                                                    | Common stock, $0.01 par value  150,000 shares
    Authorized, 56,074 shares and 54,658 shares issued and
    outstanding at December 31, 2004 and 2003, respectively |                            |              | 561    |         |         |          | 547    |        
|Paid-in capital                                     |                                                                                                                                                                       |                            | 288,875      |        |         |         | 283,449  |       
|Deferred stock-based compensation                   |                                                                                                                                                                       |                            | (13          | )      |         |         | (45      | )     
|Accumulated other comprehensive income              |                                                                                                                                                                       |                            | 3,581        |        |         |         | 2,310    |       
|Accumulated deficit                                 |                                                                                                                                                                       |                            | (190,306     | )      |         |         | (197,350 | )     
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|                                                    |                                                                                                                                                                       | Total stockholders equity |              |        | 102,698 |         |          |        | 88,911  |        
|                                                    |                                                                                                                                                                       |                            |              |        |         |        
|Total liabilities and stockholders equity          |                                                                                                                                                                       | $                          | 172,535      |        |         | $       | 178,229  |       
|                                                    |                                                                                                                                                                       |                            |              |        |         |        



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Retek Inc.


Consolidated Statements of Operations


(in thousands, except per share data)


|                                                                                         |                                                 |                                               |        |        |         |   |         |         |         |   |         |          |         | 
|---------------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------- | ------ | ------ | ------- | - | ------- | ------- | ------- | - | ------- | -------- | ------- | 
|                                                                                         |                                                 | Year Ended December 31,                       |       
|                                                                                         |                                                 |                                               |       
|                                                                                         |                                                 | 2004                                          |        |        | 2003    |   |         | 2002    |        
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Revenue:                                                                                 |                                                 |                                               |        |        |         |   |         |         |         |   |         |         
|                                                                                         | License                                         |                                               | $      | 58,495 |         |   | $       | 59,907  |         |   | $       | 101,438  |        
|                                                                                         | Maintenance                                     |                                               |        | 39,084 |         |   |         | 30,288  |         |   |         | 31,169   |        
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         |                                                 | Total license and maintenance revenue         |        |        | 97,579  |   |         |         | 90,195  |   |         |          | 132,607 | 
|                                                                                         | Services and other                              |                                               |        | 76,656 |         |   |         | 78,134  |         |   |         | 59,225   |        
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         |                                                 | Total revenue                                 |        |        | 174,235 |   |         |         | 168,329 |   |         |          | 191,832 | 
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Cost of revenue:                                                                         |                                                 |                                               |        |        |         |   |         |         |         |   |         |         
|                                                                                         | License                                         |                                               |        | 15,878 |         |   |         | 19,015  |         |   |         | 31,795   |        
|                                                                                         | Maintenance                                     |                                               |        | 16,542 |         |   |         | 12,032  |         |   |         | 8,271    |        
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         |                                                 | Total license and maintenance cost of revenue |        |        | 32,420  |   |         |         | 31,047  |   |         |          | 40,066  | 
|                                                                                         | Services and other                              |                                               |        | 52,122 |         |   |         | 57,625  |         |   |         | 44,467   |        
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         |                                                 | Total cost of revenue                         |        |        | 84,542  |   |         |         | 88,672  |   |         |          | 84,533  | 
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         |                                                 | Gross profit                                  |        |        | 89,693  |   |         |         | 79,657  |   |         |          | 107,299 | 
|Operating expenses:                                                                      |                                                 |                                               |        |        |         |   |         |         |         |   |         |         
|                                                                                         | Research and development                        |                                               |        | 34,189 |         |   |         | 44,527  |         |   |         | 47,197   |        
|                                                                                         | Sales and marketing                             |                                               |        | 31,492 |         |   |         | 33,685  |         |   |         | 51,507   |        
|                                                                                         | General and administrative                      |                                               |        | 12,399 |         |   |         | 14,913  |         |   |         | 18,260   |        
|                                                                                         | Acquisition related amortization of intangibles |                                               |        | 5,676  |         |   |         | 6,591   |         |   |         | 8,749    |        
|                                                                                         | Impairment of intangible asset                  |                                               |        |       |         |   |         |        |         |   |         | 8,686    |        
|                                                                                         | Restructuring expense                           |                                               |        | (570   | )       |   |         | 168     |         |   |         | 19,642   |        
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         |                                                 | Total operating expenses                      |        |        | 83,186  |   |         |         | 99,884  |   |         |          | 154,041 | 
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Operating income (loss)                                                                  |                                                 |                                               | 6,507  |        |         |   | (20,227 | )       |         |   | (46,742 | )       
|Interest income                                                                          |                                                 |                                               | 1,316  |        |         |   | 1,124   |         |         |   | 1,898   |         
|Interest expense                                                                         |                                                 |                                               | (25    | )      |         |   | (21     | )       |         |   | (41     | )       
|Other income (expense), net                                                              |                                                 |                                               | 575    |        |         |   | 362     |         |         |   | 257     |         
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         | Income (loss) before income tax provision       |                                               |        | 8,373  |         |   |         | (18,762 | )       |   |         | (44,628  | )      
|Income tax provision                                                                     |                                                 |                                               | 1,329  |        |         |   | 1,771   |         |         |   | 78,955  |         
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|                                                                                         | Net income (loss)                               |                                               |        | 7,044  |         |   |         | (20,533 | )       |   |         | (123,583 | )      
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Basic net income (loss) per common share                                                 |                                                 | $                                             | 0.13   |        |         | $ | (0.38   | )       |         | $ | (2.35   | )       
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Weighted average shares used in computing basic net income
    (loss) per common share   |                                                 |                                               | 55,642 |        |         |   | 53,801  |         |         |   | 52,483  |         
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Diluted net income (loss) per common share                                               |                                                 | $                                             | 0.12   |        |         | $ | (0.38   | )       |         | $ | (2.35   | )       
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        
|Weighted average shares used in computing diluted net income
    (loss) per common share |                                                 |                                               | 57,267 |        |         |   | 53,801  |         |         |   | 52,483  |         
|                                                                                         |                                                 |                                               |        |        |         |   |         |         |        



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Retek Inc.


Consolidated Statements of Cash Flows


(in thousands)


|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |          |        |         |         |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- | --------------------- | --------------------------------------------------- | ---- | ------ | ------- | ------- | - | ------ | ------- | -------- | ------ | ------- | ------- | -
|                                                         |                                                                                                        | Year Ended December 31,                                                           |                      
|                                                         |                                                                                                        |                                                                                   |                      
|                                                         |                                                                                                        | 2004                                                                              |                       |                                                     | 2003 |        |         | 2002    |  
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|Cash flows from operating activities:                    |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |         
|                                                         | Net income (loss)                                                                                      |                                                                                   | $                     | 7,044                                               |      |        | $       | (20,533 | ) |        | $       | (123,583 | )     
|                                                         | Adjustments to reconcile net income (loss) to net cash
    (used in) provided by operating activities: |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |          |       
|                                                         | Deferred income tax provision                                                                          |                                                                                   |                       |                                                    |      |        |         |        |   |        |         | 74,227   |       
|                                                         | Depreciation and amortization expense                                                                  |                                                                                   |                       | 13,751                                              |      |        |         | 18,888  |   |        |         | 29,252   |       
|                                                         | Intellectual property exchanged for consulting services                                                |                                                                                   |                       | 2,500                                               |      |        |         |        |   |        |         |         |       
|                                                         | Amortization of stock-based compensation                                                               |                                                                                   |                       | 29                                                  |      |        |         | 1,356   |   |        |         | 3,141    |       
|                                                         | Provision for doubtful accounts                                                                        |                                                                                   |                       | (100                                                | )    |        |         | 1,600   |   |        |         | 2,500    |       
|                                                         | Write-off of note receivable                                                                           |                                                                                   |                       |                                                    |      |        |         |        |   |        |         | 1,579    |       
|                                                         | Impairment of intangible asset                                                                         |                                                                                   |                       |                                                    |      |        |         |        |   |        |         | 8,686    |       
|                                                         | Tax benefit from stock option transactions                                                             |                                                                                   |                       |                                                    |      |        |         |        |   |        |         | 3,702    |       
|                                                         | Restructuring expense                                                                                  |                                                                                   |                       | (570                                                | )    |        |         | 168     |   |        |         | 19,642   |       
|                                                         | Changes in assets and liabilities, excluding impact of
    acquisitions:                               |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |          |       
|                                                         |                                                                                                        |                                                                                   | Accounts receivable   |                                                     |      | 3,484  |         |         |   | 6,574  |         |          |        | (5,508  | )      
|                                                         |                                                                                                        |                                                                                   | Other assets          |                                                     |      | (1,115 | )       |         |   | 2,198  |         |          |        | (1,460  | )      
|                                                         |                                                                                                        |                                                                                   | Accounts payable      |                                                     |      | (5,467 | )       |         |   | 31     |         |          |        | 4,970   |        
|                                                         |                                                                                                        |                                                                                   | Accrued liabilities   |                                                     |      | (4,690 | )       |         |   | (3,103 | )       |          |        | (1,941  | )      
|                                                         |                                                                                                        |                                                                                   | Accrued restructuring |                                                     |      | (2,777 | )       |         |   | (4,228 | )       |          |        |        |        
|                                                         |                                                                                                        |                                                                                   | Deferred revenue      |                                                     |      | (6,696 | )       |         |   | (588   | )       |          |        | (17,524 | )      
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         |                                                                                                        |                                                                                   |                       | Net cash provided by (used in) operating activities |      |        | 5,393   |         |   |        | 2,363   |          |        |         | (2,317  | )
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|Cash flows from investing activities:                    |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |         
|                                                         | Net cash paid for acquisition (Note 4)                                                                 |                                                                                   |                       | (4,472                                              | )    |        |         |        |   |        |         | (8,890   | )     
|                                                         | Cash received for return of intellectual property                                                      |                                                                                   |                       | 2,000                                               |      |        |         |        |   |        |         |         |       
|                                                         | Purchases of investments                                                                               |                                                                                   |                       | (71,747                                             | )    |        |         | (45,593 | ) |        |         | (66,380  | )     
|                                                         | Sales of investments                                                                                   |                                                                                   |                       | 50,479                                              |      |        |         | 34,677  |   |        |         | 52,742   |       
|                                                         | Acquisitions of property and equipment                                                                 |                                                                                   |                       | (1,795                                              | )    |        |         | (1,523  | ) |        |         | (4,751   | )     
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         |                                                                                                        |                                                                                   |                       | Net cash used in investing activities               |      |        | (25,535 | )       |   |        | (12,439 | )        |        |         | (27,279 | )
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|Cash flows from financing activities:                    |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |         
|                                                         | Net proceeds from the issuance of common stock                                                         |                                                                                   |                       | 5,443                                               |      |        |         | 4,834   |   |        |         | 13,135   |       
|                                                         | Repayment of debt                                                                                      |                                                                                   |                       | (78                                                 | )    |        |         | (81     | ) |        |         | (77      | )     
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         |                                                                                                        |                                                                                   |                       | Net cash provided by financing activities           |      |        | 5,365   |         |   |        | 4,753   |          |        |         | 13,058  |  
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         | Effect of exchange rate changes on cash                                                                |                                                                                   |                       | 2,101                                               |      |        |         | 3,134   |   |        |         | 2,836    |       
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         | Net (decrease) in cash and cash equivalents                                                            |                                                                                   |                       | (12,676                                             | )    |        |         | (2,189  | ) |        |         | (13,702  | )     
|                                                         | Cash and cash equivalents at beginning of period                                                       |                                                                                   |                       | 54,275                                              |      |        |         | 56,464  |   |        |         | 70,166   |       
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         | Cash and cash equivalents at end of period                                                             |                                                                                   | $                     | 41,599                                              |      |        | $       | 54,275  |   |        | $       | 56,464   |       
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|Significant non-cash investing and financing activities: |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |         
|                                                         |                                                                                                        | Removal of cost method investment obtained from exchange of
    software products |                       | $                                                   |     |        |         | $       |  |        |         | $        | (4,000 | )      
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|Supplemental cash flow disclosure:                       |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |   |        |         |         
|                                                         | Interest paid                                                                                          |                                                                                   | $                     | 25                                                  |      |        | $       | 9       |   |        | $       | 14       |       
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  
|                                                         | Income taxes paid                                                                                      |                                                                                   | $                     | 1,210                                               |      |        | $       | 924     |   |        | $       | 929      |       
|                                                         |                                                                                                        |                                                                                   |                       |                                                     |      |        |         |         |  



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Retek Inc.


Consolidated Statements of Changes in Stockholders
Equity


and Comprehensive Income (Loss)


(in thousands)


|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   |          |   |  |   |          |  
|------------------------------------------------------ |  | ------------ | ------ |  | ------- | - | -------- | ----------- |  | ----- | ------------- | - |  | ------------- | ------ | - | ------------- | - | ------ | ------------- |  | - | ------------- | - |  | - | -------- | - |  | - | -------- | -
|                                                       |  |              |        |  |         |   |          | Accumulated |  |       |               |   |  |               |       
|                                                       |  | Common stock |        |  |         |   | Deferred |             |  | other |               |   |  |               | Total  |   |               |  
|                                                       |  |              |        |  | Paid-in |   |          | stock-based |  |       | comprehensive |   |  | Accumulated   |        |   | stockholders |   |        | Comprehensive | 
|                                                       |  | Shares       |        |  | Amount  |   |          | capital     |  |       | compensation  |   |  | income (loss) |        |   | Deficit       |   |        | equity        |  |   | income (loss) |  
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Balance at December 31, 2001                           |  |              | 51,739 |  |         | $ | 518      |             |  | $     | 262,021       |   |  | $             | (4,756 | ) |               | $ | (1,026 | )             |  | $ | (53,234       | ) |  | $ | 203,523  |   |  |   |          |  
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Tax benefit from stock options                         |  |              |        |  |         |   |          |             |  |       | 3,702         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 3,702    |   |  |   |          |  
|Common stock issued under Employee Stock Purchase Plan |  |              | 666    |  |         |   | 6        |             |  |       | 4,289         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 4,295    |   |  |   |          |  
|Common stock options exercised                         |  |              | 772    |  |         |   | 8        |             |  |       | 8,832         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 8,840    |   |  |   |          |  
|Cancellation of stock options                          |  |              |        |  |         |   |          |             |  |       | (164          | ) |  |               | 164    |   |               |   |        |               |  |   |               |   |  |   |          |   |  |   |          |  
|Amortization of stock-based compensation               |  |              |        |  |         |   |          |             |  |       |               |   |  |               | 3,141  |   |               |   |        |               |  |   |               |   |  |   | 3,141    |   |  |   |          |  
|Unrealized loss on investments                         |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   | 11     |               |  |   |               |   |  |   | 11       |   |  |   | 11       |  
|Foreign currency translation adjustment                |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   | 1,519  |               |  |   |               |   |  |   | 1,519    |   |  |   | 1,519    |  
|Net loss                                               |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   | (123,583      | ) |  |   | (123,583 | ) |  |   | (123,583 | )
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Balance at December 31, 2002                           |  |              | 53,177 |  |         |   | 532      |             |  |       | 278,680       |   |  |               | (1,451 | ) |               |   | 504    |               |  |   | (176,817      | ) |  |   | 101,448  |   |  |   | (122,053 | )
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Common stock issued under Employee Stock Purchase Plan |  |              | 1,278  |  |         |   | 13       |             |  |       | 3,725         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 3,738    |   |  |   |          |  
|Common stock options exercised                         |  |              | 203    |  |         |   | 2        |             |  |       | 1,094         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 1,096    |   |  |   |          |  
|Amortization of stock-based compensation               |  |              |        |  |         |   |          |             |  |       |               |   |  |               | 1,356  |   |               |   |        |               |  |   |               |   |  |   | 1,356    |   |  |   |          |  
|Cancellation of stock options                          |  |              |        |  |         |   |          |             |  |       | (50           | ) |  |               | 50     |   |               |   |        |               |  |   |               |   |  |   |          |   |  |   |          |  
|Unrealized gain on investments                         |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   | (16    | )             |  |   |               |   |  |   | (16      | ) |  |   | (16      | )
|Foreign currency translation adjustment                |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   | 1,822  |               |  |   |               |   |  |   | 1,822    |   |  |   | 1,822    |  
|Net loss                                               |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   | (20,533       | ) |  |   | (20,533  | ) |  |   | (20,533  | )
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Balance at December 31, 2003                           |  |              | 54,658 |  |         |   | 547      |             |  |       | 283,449       |   |  |               | (45    | ) |               |   | 2,310  |               |  |   | (197,350      | ) |  |   | 88,911   |   |  |   | (18,727  | )
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Common stock issued under Employee Stock Purchase Plan |  |              | 622    |  |         |   | 6        |             |  |       | 1,881         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 1,887    |   |  |   |          |  
|Common stock options exercised                         |  |              | 794    |  |         |   | 8        |             |  |       | 3,548         |   |  |               |        |   |               |   |        |               |  |   |               |   |  |   | 3,556    |   |  |   |          |  
|Amortization of stock-based compensation               |  |              |        |  |         |   |          |             |  |       |               |   |  |               | 29     |   |               |   |        |               |  |   |               |   |  |   | 29       |   |  |   |          |  
|Cancellation of stock options                          |  |              |        |  |         |   |          |             |  |       | (3            | ) |  |               | 3      |   |               |   |        |               |  |   |               |   |  |   |          |   |  |   |          |  
|Unrealized loss on Investments                         |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   | (207   | )             |  |   |               |   |  |   | (207     | ) |  |   | (207     | )
|Foreign currency translation Adjustment                |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   | 1,478  |               |  |   |               |   |  |   | 1,478    |   |  |   | 1,478    |  
|Net income                                             |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   | 7,044         |   |  |   | 7,044    |   |  |   | 7,044    |  
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  
|Balance at December 31, 2004                           |  |              | 56,074 |  |         | $ | 561      |             |  | $     | 288,875       |   |  | $             | (13    | ) |               | $ | 3,581  |               |  | $ | (190,306      | ) |  | $ | 102,698  |   |  | $ | 8,315    |  
|                                                       |  |              |        |  |         |   |          |             |  |       |               |   |  |               |        |   |               |   |        |               |  |   |               |  



61



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial Statements


(unless otherwise noted, in thousands, except for share and
per share amounts)




|         |                                                    
|-------- | ---------------------------------------------------
|Note 1  | The Company and its Significant Accounting Policies

The Company






Basis of Presentation




Financial Statement Preparation




Cash Equivalents




Investments




62



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




|                                    |  |      |        |           |            |   |            |       |  |            |        |  |  |   |      |  
|----------------------------------- |  | ---- | ------ | --------- | ---------- | - | ---------- | ----- |  | ---------- | ------ |  |  | - | ---- | -
|                                    |  |      |        | Aggregate |            |   | Unrealized |       |  | Unrealized |       
|                                    |  | Cost |        |           | Fair Value |   |            | gains |  |            | losses | 
|                                    |  |      |        |           |            |   |            |       |  |            |        | 
|As of December 31, 2004:            |  |      |        |           |            |   |            |       |  |            |        |  |  |   |      |  
|Government agencies                 |  | $    | 45,312 |           |            | $ | 45,187     |       |  | $          |        |  |  | $ | (125 | )
|Corporate debt                      |  |      | 15,885 |           |            |   | 15,819     |       |  |            | 6      |  |  |   | (72  | )
|                                    |  |      |        |           |            |   |            |       |  |            |        | 
|                                    |  | $    | 61,197 |           |            | $ | 61,006     |       |  | $          | 6      |  |  | $ | (197 | )
|                                    |  |      |        |           |            |   |            |       |  |            |        | 
|As of December 31, 2003:            |  |      |        |           |            |   |            |       |  |            |        |  |  |   |      |  
|Commercial paper                    |  | $    | 1,499  |           |            | $ | 1,499      |       |  | $          |       |  |  | $ |     |  
|Government agencies                 |  |      | 28,252 |           |            |   | 28,272     |       |  |            | 20     |  |  |   |     |  
|State and local municipalities debt |  |      | 4,991  |           |            |   | 4,987      |       |  |            |       |  |  |   | (4   | )
|Corporate debt                      |  |      | 5,187  |           |            |   | 5,187      |       |  |            |       |  |  |   |     |  
|                                    |  |      |        |           |            |   |            |       |  |            |        | 
|                                    |  | $    | 39,929 |           |            | $ | 39,945     |       |  | $          | 20     |  |  | $ | (4   | )
|                                    |  |      |        |           |            |   |            |       |  |            |        | 

Accounts receivable




Property and Equipment




Research and Development




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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


Intangible Assets




Goodwill


Goodwill and Other Intangible Assets,


Impairment of Long-Lived Assets and Intangibles






Impairment of Goodwill


Goodwill and Other
Intangible Assets,


64



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




Advertising




Stock-Based Compensation


Accounting for
Stock-Based Compensation, Accounting for Stock Issued to Employees, Accounting for Stock-Based
Compensation  Transition and Disclosure.




|                                                                                            |             |      |         |       |      |   |         |       |   |   |          |       |  
|------------------------------------------------------------------------------------------- | ----------- | ---- | ------- | ----- | ---- | - | ------- | ----- | - | - | -------- | ----- | -
|                                                                                            |             | 2004 |         |       | 2003 |   |         | 2002  |  
|                                                                                            |             |      |         |       |      |   |         |       |  
|Net income (loss), as reported                                                              |             | $    | 7,044   |       |      | $ | (20,533 | )     |   | $ | (123,583 | )    
|Add: Stock-based employee compensation expense included in
    reported net income (loss)   |             |      | 29      |       |      |   | 1,356   |       |   |   | 3,141    |      
|Deduct: Total stock-based compensation expense determined under
    fair value based method |             |      | (12,113 | )     |      |   | (1,137  | )     |   |   | (50,028  | )    
|                                                                                            |             |      |         |       |      |   |         |       |  
|Pro forma net (loss)                                                                        |             | $    | (5,040  | )     |      | $ | (20,314 | )     |   | $ | (170,470 | )    
|                                                                                            |             |      |         |       |      |   |         |       |  
|Net income (loss) per common and common equivalent share:                                   |             |      |         |       |      |   |         |       |   |   |          |      
|Basic earnings (loss) per share:                                                            |             |      |         |       |      |   |         |       |   |   |          |      
|                                                                                            | As reported |      | $       | 0.13  |      |   | $       | (0.38 | ) |   | $        | (2.35 | )
|                                                                                            | Pro forma   |      | $       | (0.09 | )    |   | $       | (0.38 | ) |   | $        | (3.25 | )
|Diluted earnings (loss) per share:                                                          |             |      |         |       |      |   |         |       |   |   |          |      
|                                                                                            | As reported |      | $       | 0.12  |      |   | $       | (0.38 | ) |   | $        | (2.35 | )
|                                                                                            | Pro forma   |      | $       | (0.09 | )    |   | $       | (0.38 | ) |   | $        | (3.25 | )

65



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


|                                          |                                                   |      |   |            |      |  |   |           |   |  |   |              |  
|----------------------------------------- | ------------------------------------------------- | ---- | - | ---------- | ---- |  | - | --------- | - |  | - | ------------ | -
|                                          |                                                   | 2004 |   |            | 2003 |  |   | 2002      |  
|                                          |                                                   |      |   |            |      |  |   |           |  
|Weighted average assumptions and results: |                                                   |      |   |            |      |  |   |           |   |  |   |             
|Option plans:                             |                                                   |      |   |            |      |  |   |           |   |  |   |             
|                                          | Dividend yield                                    |      |   |           |      |  |   |          |   |  |   |             |  
|                                          | Risk free interest rate                           |      |   | 1.63       | %    |  |   | 1.64      | % |  |   | 2.64         | %
|                                          | Expected life                                     |      |   | 3.44 years |      |  |   | 4.10 year |   |  |   | s 4.45 years |  
|                                          | Expected volatility                               |      |   | 114        | %    |  |   | 133       | % |  |   | 165          | %
|                                          | Estimated fair value of options granted per share |      | $ | 5.02       |      |  | $ | 3.47      |   |  | $ | 19.19        |  
|Employee stock purchase plan:             |                                                   |      |   |            |      |  |   |           |   |  |   |             
|                                          | Dividend yield                                    |      |   |           |      |  |   |          |   |  |   |             |  
|                                          | Risk free interest rate                           |      |   | 1.16       | %    |  |   | 1.02      | % |  |   | 1.72         | %
|                                          | Expected life                                     |      |   | 6 months   |      |  |   | 6 months  |   |  |   | 6 months     |  
|                                          | Expected volatility                               |      |   | 69         | %    |  |   | 71        | % |  |   | 165          | %
|                                          | Estimated fair value of purchase rights per share |      | $ | 1.73       |      |  | $ | 1.63      |   |  | $ | 12.76        |  



Revenue Recognition








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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)






Income Taxes




Foreign Currency Translation




Diversification of Credit Risk




Disclosures about Fair Value of Financial Instruments




Comprehensive Income (Loss)




67



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


New Accounting Pronouncements


Share Based Payments. Share-Based Payment ,




American Jobs Creation Act.










Net Income (Loss) Per Share




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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)






Reclassifications and financial statement presentation:




Note 2  Composition of Certain Financial Statement
Captions


|                                     |          |              |        |        |      |   |        |        | 
|------------------------------------ | -------- | ------------ | ------ | ------ | ---- | - | ------ | ------ | 
|                                     |          | December 31, |       
|                                     |          |              |       
|                                     |          | 2004         |        |        | 2003 |  
|                                     |          |              |        |        |      |  
|Accounts receivable, net:            |          |              |        |        |      |   |        |       
|                                     | Billed   |              | $      | 30,031 |      |   | $      | 31,936 | 
|                                     | Unbilled |              |        | 1,204  |      |   |        | 5,304  | 
|                                     |          |              |        |        |      |  
|                                     |          |              | 31,235 |        |      |   | 37,240 |       
|Less allowance for doubtful accounts |          |              | (1,543 | )      |      |   | (3,541 | )     
|                                     |          |              |        |        |      |  
|                                     |          | $            | 29,692 |        |      | $ | 33,699 |       
|                                     |          |              |        |        |      |  





|                               |  |              |        |   |      |   |        |      |  |   |        |  
|------------------------------ |  | ------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                               |  | December 31, |       
|                               |  |              |       
|                               |  | 2004         |        |   | 2003 |   |        | 2002 | 
|                               |  |              |        |   |      |   |        |      | 
|Balance at beginning of period |  | $            | 3,541  |   |      | $ | 5,675  |      |  | $ | 5,124  |  
|Provisions                     |  |              | (100   | ) |      |   | 1,600  |      |  |   | 2,500  |  
|Write-offs                     |  |              | (1,898 | ) |      |   | (3,734 | )    |  |   | (1,949 | )
|                               |  |              |        |   |      |   |        |      | 
|Balance at end of period       |  | $            | 1,543  |   |      | $ | 3,541  |      |  | $ | 5,675  |  
|                               |  |              |        |   |      |   |        |      | 

69



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


|                             |                                                |              |        |         |      |   |        |         |  
|---------------------------- | ---------------------------------------------- | ------------ | ------ | ------- | ---- | - | ------ | ------- | -
|                             |                                                | December 31, |       
|                             |                                                |              |       
|                             |                                                | 2004         |        |         | 2003 |  
|                             |                                                |              |        |         |      |  
|Other current assets:        |                                                |              |        |         |      |   |        |        
|                             | Other receivables                              |              | $      | 601     |      |   | $      | 572     |  
|                             | Prepaid expenses                               |              |        | 6,528   |      |   |        | 5,255   |  
|                             |                                                |              |        |         |      |  
|                             |                                                | $            | 7,129  |         |      | $ | 5,827  |        
|                             |                                                |              |        |         |      |  
|Property and equipment, net: |                                                |              |        |         |      |   |        |        
|                             | Computer equipment                             |              |        | 19,123  |      |   |        | 24,363  |  
|                             | Furniture and fixtures                         |              |        | 11,346  |      |   |        | 11,377  |  
|                             | Leasehold improvements                         |              |        | 3,954   |      |   |        | 3,920   |  
|                             |                                                |              |        |         |      |  
|                             |                                                |              | 34,423 |         |      |   | 39,660 |        
|                             | Less accumulated depreciation and amortization |              |        | (25,491 | )    |   |        | (27,433 | )
|                             |                                                |              |        |         |      |  
|                             |                                                | $            | 8,932  |         |      | $ | 12,227 |        
|                             |                                                |              |        |         |      |  



|                      |                   |          |        |        |              |   |         |          |   |       |          |        |  |              |        |        |          |   |         |         |   |   |        |        | 
|--------------------- | ----------------- | -------- | ------ | ------ | ------------ | - | ------- | -------- | - | ----- | -------- | ------ |  | ------------ | ------ | ------ | -------- | - | ------- | ------- | - | - | ------ | ------ | 
|                      |                   | 2004     |        |        | 2003         |  
|                      |                   |          |        |        |              |  
|                      |                   | Gross    |        |        |              |   | Net     |          |   | Gross |          |        |  |              | Net    |       
|                      |                   | Carrying |        |        | Accumulated  |   |         | Carrying |   |       | Carrying |        |  | Accumulated  |        |        | Carrying |  
|                      |                   | Amount   |        |        | Amortization |   |         | Amount   |   |       | Amount   |        |  | Amortization |        |        | Amount   |  
|                      |                   |          |        |        |              |   |         |          |   |       |          |        |  |              |        |        |          |  
|Purchased software    |                   | $        | 26,836 |        |              | $ | (21,691 | )        |   | $     | 5,145    |        |  | $            | 22,175 |        |          | $ | (18,782 | )       |   | $ | 3,393  |       
|Intellectual property |                   |          | 25,698 |        |              |   | (21,043 | )        |   |       | 4,655    |        |  |              | 30,198 |        |          |   | (15,621 | )       |   |   | 14,577 |       
|Other                 |                   |          | 4,175  |        |              |   | (3,792  | )        |   |       | 383      |        |  |              | 3,775  |        |          |   | (3,537  | )       |   |   | 238    |       
|                      |                   |          |        |        |              |   |         |          |   |       |          |        |  |              |        |        |          |  
|                      | Intangible assets |          | $      | 56,709 |              |   | $       | (46,526  | ) |       | $        | 10,183 |  |              | $      | 56,148 |          |   | $       | (37,940 | ) |   | $      | 18,208 | 
|                      |                   |          |        |        |              |   |         |          |   |       |          |        |  |              |        |        |          |  



|     |  |   |        | 
|---- |  | - | ------ | 
|2005 |  | $ | 5,651  | 
|2006 |  |   | 3,056  | 
|2007 |  |   | 1,476  | 
|     |  |   |       
|     |  | $ | 10,183 | 
|     |  |   |       





|                   |  |        |       |              |        |  |         |        |              |   |        |  |  |  |         | 
|------------------ |  | ------ | ----- | ------------ | ------ |  | ------- | ------ | ------------ | - | ------ |  |  |  | ------- | 
|                   |  | 2004   |       |              | 2002   | 
|                   |  |        |       |              |        | 
|                   |  |        |       | Weighted-    |        |  |         |        | Weighted-    |  
|                   |  |        |       | Average      |        |  |         |        | Average      |  
|                   |  |        |       | Amortization |        |  |         |        | Amortization |  
|                   |  | Amount |       |              | Period |  |         | Amount |              |   | Period | 
|                   |  |        |       |              |        |  |         |        |              |   |        | 
|Purchased software |  | $      | 4,761 |              |        |  | 3 years |        |              | $ | 8,863  |  |  |  | 3 years | 
|Customer list      |  |        | 300   |              |        |  | 3 years |        |              |   |       |  |  |  |        | 
|                   |  |        |       |              |        |  |         |        |              |   |        | 
|Intangible assets  |  | $      | 5,061 |              |        |  | 3 years |        |              | $ | 8,863  |  |  |  | 3 years | 
|                   |  |        |       |              |        |  |         |        |              |   |        | 

70



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




|                                       |                                                 |              |        |        |   |   |        |        | 
|-------------------------------------- | ----------------------------------------------- | ------------ | ------ | ------ | - | - | ------ | ------ | 
|                                       |                                                 | December 31,
|                                       |                                                 |             
|                                       |                                                 | 2004         |        | 2003  
|                                       |                                                 |              |        |       
|Accrued liabilities:                   |                                                 |              |        |        |   |   |        |       
|                                       | Payroll and related benefits                    |              | $      | 4,717  |   |   | $      | 7,696  | 
|                                       | Other                                           |              |        | 1,003  |   |   |        | 2,714  | 
|                                       |                                                 |              |        |        |   |   |        |       
|                                       |                                                 | $            | 5,720  |        |   | $ | 10,410 |       
|                                       |                                                 |              |        |        |   |   |        |       
|Deferred revenue:                      |                                                 |              |        |        |   |   |        |       
|                                       | Maintenance                                     |              | $      | 21,018 |   |   | $      | 23,054 | 
|                                       | License                                         |              |        | 20,215 |   |   |        | 21,872 | 
|                                       | Service                                         |              |        | 930    |   |   |        | 3,691  | 
|                                       |                                                 |              |        |        |   |   |        |       
|                                       |                                                 | $            | 42,163 |        |   | $ | 48,617 |       
|                                       |                                                 |              |        |        |   |   |        |       
|Accumulated other comprehensive income |                                                 |              |        |        |   |   |        |       
|                                       | Foreign currency translation                    |              | $      | 3,772  |   |   | $      | 2,294  | 
|                                       | Unrealized gain (loss) on marketable securities |              |        | (191   | ) |   |        | 16     | 
|                                       |                                                 |              |        |        |   |   |        |       
|                                       |                                                 | $            | 3,581  |        |   | $ | 2,310  |       
|                                       |                                                 |              |        |        |   |   |        |       

Note 3  Commitments




|           |  |                |        | 
|---------- |  | -------------- | ------ | 
|           |  | Future Minimum
|           |  | Lease Payments
|           |  |               
|2005       |  | $              | 6,297  | 
|2006       |  |                | 5,698  | 
|2007       |  |                | 5,742  | 
|2008       |  |                | 5,741  | 
|2009       |  |                | 5,741  | 
|Thereafter |  |                | 26,869 | 







71



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)






Note 4  Acquisitions






|                                                             |                        |   |       |       | 
|------------------------------------------------------------ | ---------------------- | - | ----- | ----- | 
|Current assets                                               |                        | $ | 133   |      
|Computer equipment and related software                      |                        |   | 75    |      
|Identified intangible assets, subject to amortization        |                        |   | 5,061 |      
|Deferred revenue                                             |                        |   | (242  | )    
|Accounts payable                                             |                        |   | (150  | )    
|                                                             |                        |   |      
|                                                             | Total acquisition cost |   |       | 4,877 | 
|Accruals for final purchase price payment due on acquisition |                        |   | (225  | )    
|Accruals for direct costs related to the acquisition         |                        |   | (180  | )    
|                                                             |                        |   |      
|                                                             | Total cash paid        |   | $     | 4,472 | 
|                                                             |                        |   |      



|                                          |  |                         |         |  |      |   |         |  
|----------------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | -
|                                          |  | Year Ended December 31, |        
|                                          |  |                         |        
|                                          |  | 2004                    |         |  | 2003 |  
|                                          |  |                         |         |  |      |  
|Total revenue                             |  | $                       | 176,064 |  |      | $ | 171,820 |  
|Net income (loss)                         |  |                         | 1,009   |  |      |   | (28,794 | )
|Basic and diluted income (loss) per Share |  | $                       | 0.02    |  |      | $ | (0.54   | )



72



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




Note 5  Minority Investments


Henderson Ventures, Inc.






Note 6  Strategic Alliance with Accenture






73



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)








Note 7  Restructuring and other








74



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




|                                |  |                   |        |   |                  |   |        |       |  |   |        |  
|------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | ----- |  | - | ------ | -
|                                |  | Lease obligations |        |   | Severance and    |   |        |      
|                                |  | and terminations  |        |   | related benefits |   |        | Total | 
|                                |  |                   |        |   |                  |   |        |       | 
|Restructuring charges           |  | $                 | 17,019 |   |                  | $ | 2,623  |       |  | $ | 19,642 |  
|Cash usage                      |  |                   |       |   |                  |   | (940   | )     |  |   | (940   | )
|                                |  |                   |        |   |                  |   |        |       | 
|Balance as of December 31, 2002 |  |                   | 17,019 |   |                  |   | 1,683  |       |  |   | 18,702 |  
|Adjustments to provision        |  |                   | (113   | ) |                  |   | 281    |       |  |   | 168    |  
|Cash usage                      |  |                   | (2,432 | ) |                  |   | (1,964 | )     |  |   | (4,396 | )
|                                |  |                   |        |   |                  |   |        |       | 
|Balance as of December 31,2003  |  |                   | 14,474 |   |                  |   |       |       |  |   | 14,474 |  
|Adjustments to provision        |  |                   | (570   | ) |                  |   |        |       |  |   | (570   | )
|Cash usage                      |  |                   | (2,777 | ) |                  |   |        |       |  |   | (2,777 | )
|                                |  |                   |        |   |                  |   |        |       | 
|Balance as of December 31, 2004 |  | $                 | 11,127 |   |                  |   |       |       |  | $ | 11,127 |  



Note 8  Line of Credit






Note 9  Income Taxes




|         |  |                         |       |  |      |   |         |      |  |   |         |  
|-------- |  | ----------------------- | ----- |  | ---- | - | ------- | ---- |  | - | ------- | -
|         |  | Year Ended December 31, |      
|         |  |                         |      
|         |  | 2004                    |       |  | 2003 |   |         | 2002 | 
|         |  |                         |       |  |      |   |         |      | 
|Domestic |  | $                       | 7,312 |  |      | $ | (21,706 | )    |  | $ | (45,453 | )
|Foreign  |  |                         | 1,061 |  |      |   | 2,944   |      |  |   | 825     |  
|         |  |                         |       |  |      |   |         |      | 
|         |  | $                       | 8,373 |  |      | $ | (18,762 | )    |  | $ | (44,628 | )
|         |  |                         |       |  |      |   |         |      | 

75



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Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




|          |         |                         |       |       |      |   |       |       |   |   |        |        | 
|--------- | ------- | ----------------------- | ----- | ----- | ---- | - | ----- | ----- | - | - | ------ | ------ | 
|          |         | Year Ended December 31, |      
|          |         |                         |      
|          |         | 2004                    |       |       | 2003 |   |       | 2002  |  
|          |         |                         |       |       |      |   |       |       |  
|Current:  |         |                         |       |       |      |   |       |       |   |   |        |       
|          | Federal |                         | $     |      |      |   | $     |      |   |   | $      |       | 
|          | State   |                         |       | 64    |      |   |       | (180  | ) |   |        |       | 
|          | Foreign |                         |       | 1,265 |      |   |       | 1,951 |   |   |        | 1,026  | 
|Deferred: |         |                         |       |       |      |   |       |       |   |   |        |       
|          | Federal |                         |       |      |      |   |       |      |   |   |        | 66,933 | 
|          | State   |                         |       |      |      |   |       |      |   |   |        | 10,996 | 
|          | Foreign |                         |       |      |      |   |       |      |   |   |        |       | 
|          |         |                         |       |       |      |   |       |       |  
|          |         | $                       | 1,329 |       |      | $ | 1,771 |       |   | $ | 78,955 |       
|          |         |                         |       |       |      |   |       |       |  



|                                              |                        |              |          |   |      |   |          |   | 
|--------------------------------------------- | ---------------------- | ------------ | -------- | - | ---- | - | -------- | - | 
|                                              |                        | December 31, |         
|                                              |                        |              |         
|                                              |                        | 2004         |          |   | 2003 |  
|                                              |                        |              |          |   |      |  
|Net operating loss carryforwards              |                        | $            | 74,064   |   |      | $ | 70,585   |  
|Taxable pooling-of-interests basis difference |                        |              | 8,724    |   |      |   | 9,971    |  
|Tax credit carryforwards                      |                        |              | 14,333   |   |      |   | 7,981    |  
|Allowance for doubtful accounts               |                        |              | 747      |   |      |   | 1,198    |  
|Depreciation                                  |                        |              | 1,199    |   |      |   | (526     | )
|Intangible assets                             |                        |              | 3,358    |   |      |   | 4,112    |  
|Deferred revenue                              |                        |              | 5,520    |   |      |   | 6,679    |  
|Accrued restructuring                         |                        |              | 4,494    |   |      |   | 5,787    |  
|Accrued liabilities and other                 |                        |              | 1,722    |   |      |   | 995      |  
|                                              |                        |              |          |   |      |  
|Total deferred tax assets                     |                        |              | 114,161  |   |      |   | 106,782  |  
|Valuation allowance                           |                        |              | (114,161 | ) |      |   | (106,782 | )
|                                              |                        |              |          |   |      |  
|                                              | Net deferred tax asset |              | $        |  |      |   | $        |  | 
|                                              |                        |              |          |   |      |  



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Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




|                                           |                                            |                         |       |        |      |   |        |        |   |   |         |        |  
|------------------------------------------ | ------------------------------------------ | ----------------------- | ----- | ------ | ---- | - | ------ | ------ | - | - | ------- | ------ | -
|                                           |                                            | Year Ended December 31, |      
|                                           |                                            |                         |      
|                                           |                                            | 2004                    |       |        | 2003 |   |        | 2002   |  
|                                           |                                            |                         |       |        |      |   |        |        |  
|Amounts computed at statutory federal rate |                                            | $                       | 2,930 |        |      | $ | (6,567 | )      |   |   | (15,620 | )     
|                                           | State income taxes, net of federal benefit |                         |       | 507    |      |   |        | (1,248 | ) |   |         | (2,526 | )
|                                           | Tax credit carryforwards generated         |                         |       | (1,146 | )    |   |        | (1,937 | ) |   |         | (2,686 | )
|                                           | Foreign income taxes                       |                         |       | 893    |      |   |        | 1,951  |   |   |         | 1,026  |  
|                                           | Stock based compensation                   |                         |       | 10     |      |   |        | 171    |   |   |         | 1,423  |  
|                                           | Extraterritorial income (ETI)              |                         |       | (656   | )    |   |        | (651   | ) |   |         | (293   | )
|                                           | Stock option exercises                     |                         |       | (916   | )    |   |        | (554   | ) |   |         | (721   | )
|                                           | Other, net                                 |                         |       | (706   | )    |   |        | (883   | ) |   |         | 3,059  |  
|Valuation allowance                        |                                            |                         | 413   |        |      |   | 11,489 |        |   |   | 95,293  |       
|                                           |                                            |                         |       |        |      |   |        |        |  
|Income tax provision (benefit)             |                                            | $                       | 1,329 |        |      | $ | 1,771  |        |   | $ | 78,955  |       
|                                           |                                            |                         |       |        |      |   |        |        |  











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Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


Note 10  Segment Information and Major
Customers




|                            |                |                         |   |         |         |  |   |         |         |  |   |         |         | 
|--------------------------- | -------------- | ----------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                            |                | Year Ended December 31, |  
|                            |                |                         |  
|                            |                | 2004                    |   |         | 2003    |  |   | 2002    |        
|                            |                |                         |   |         |         |  |   |         |        
|Revenue by geographic area: |                |                         |   |         |         |  |   |         |         |  |   |        
|                            | United States  |                         | $ | 110,362 |         |  | $ | 101,708 |         |  | $ | 117,153 |        
|                            | United Kingdom |                         |   | 29,340  |         |  |   | 27,175  |         |  |   | 45,614  |        
|                            | Other          |                         |   | 34,533  |         |  |   | 39,446  |         |  |   | 29,065  |        
|                            |                |                         |   |         |         |  |   |         |        
|                            |                | Total revenue           |   | $       | 174,235 |  |   | $       | 168,329 |  |   | $       | 191,832 | 
|                            |                |                         |   |         |         |  |   |         |        



|                                      |               |                         |   |        |        |  |   |        |        |  |   |        |        | 
|------------------------------------- | ------------- | ----------------------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                      |               | December 31,            |  
|                                      |               |                         |  
|                                      |               | 2004                    |   |        | 2003   |  |   | 2002   |       
|                                      |               |                         |   |        |        |  |   |        |       
|Long-lived assets by geographic area: |               |                         |   |        |        |  |   |        |        |  |   |       
|                                      | United States |                         | $ | 32,119 |        |  | $ | 43,378 |        |  | $ | 60,400 |       
|                                      | Foreign       |                         |   | 813    |        |  |   | 874    |        |  |   | 1,217  |       
|                                      |               |                         |   |        |        |  |   |        |       
|                                      |               | Total long-lived assets |   | $      | 32,932 |  |   | $      | 44,252 |  |   | $      | 61,617 | 
|                                      |               |                         |   |        |        |  |   |        |       





|                     |            |               |  |    |      |  |  |      |   |  |  |    |  
|-------------------- | ---------- | ------------- |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|                     |            | ?December 31, | 
|                     |            |               | 
|                     |            | 2004          |  |    | 2003 |  |  | 2002 |  
|                     |            |               |  |    |      |  |  |      |  
|Accounts Receivable: |            |               |  |    |      |  |  |      |   |  |  |   
|                     | Customer A |               |  | 19 | %    |  |  | 29   | % |  |  |   |  
|                     | Customer B |               |  | 11 | %    |  |  |     |   |  |  |   |  
|                     | Customer C |               |  |   |      |  |  |     |   |  |  | 15 | %



|         |            |              |  |    |      |  |  |      |   |  |  |    |  
|-------- | ---------- | ------------ |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|         |            | Year Ending  | 
|         |            | December 31, | 
|         |            |              | 
|         |            | 2004         |  |    | 2003 |  |  | 2002 |  
|         |            |              |  |    |      |  |  |      |  
|Revenue: |            |              |  |    |      |  |  |      |   |  |  |   
|         | Customer A |              |  | 13 | %    |  |  |     |   |  |  |   |  
|         | Customer B |              |  |   |      |  |  | 14   | % |  |  | 12 | %
|         | Customer C |              |  |   |      |  |  |     |   |  |  | 10 | %

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Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


Note 11  Employee Benefit Plans


Retek Inc. Sponsored Plans














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Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)








|                                                               |                                 |              |        |          |                |   |       |        |          |   |                |        |   |          |       |       |                |   |       |        |   |   |       |       | 
|-------------------------------------------------------------- | ------------------------------- | ------------ | ------ | -------- | -------------- | - | ----- | ------ | -------- | - | -------------- | ------ | - | -------- | ----- | ----- | -------------- | - | ----- | ------ | - | - | ----- | ----- | 
|                                                               |                                 | December 31, |       
|                                                               |                                 |              |       
|                                                               |                                 | 2004         |        |          | 2003           |   |       | 2002   |         
|                                                               |                                 |              |        |          |                |   |       |        |         
|                                                               |                                 |              |        | Weighted |                |   |       |        | Weighted |   |                |        |   | Weighted |      
|                                                               |                                 |              |        | Average  |                |   |       |        | Average  |   |                |        |   | Average  |      
|                                                               |                                 | Shares       |        |          | Exercise Price |   |       | Shares |          |   | Exercise Price |        |   | Shares   |       |       | Exercise Price |  
|                                                               |                                 |              |        |          |                |   |       |        |          |   |                |        |   |          |       |       |                |  
|Outstanding at beginning of year                               |                                 |              | 11,650 |          |                | $ | 10.84 |        |          |   | 9,821          |        |   | $        | 18.44 |       |                |   | 8,845 |        |   | $ | 17.27 |      
|                                                               | Options granted at market value |              |        | 1,651    |                |   |       | 7.13   |          |   |                | 6,758  |   |          |       | 4.33  |                |   |       | 2,751  |   |   |       | 21.01 | 
|                                                               | Options exercised               |              |        | (794     | )              |   |       | 4.48   |          |   |                | (203   | ) |          |       | 5.39  |                |   |       | (772   | ) |   |       | 11.44 | 
|                                                               | Options canceled                |              |        | (2,681   | )              |   |       | 13.30  |          |   |                | (4,726 | ) |          |       | 17.56 |                |   |       | (1,003 | ) |   |       | 20.60 | 
|                                                               |                                 |              |        |          |                |   |       |        |          |   |                |        |   |          |       |       |                |  
|Outstanding at end of year                                     |                                 |              | 9,826  |          |                |   | 10.06 |        |          |   | 11,650         |        |   |          | 10.84 |       |                |   | 9,821 |        |   |   | 18.44 |      
|                                                               |                                 |              |        |          |                |   |       |        |          |   |                |        |   |          |       |       |                |  
|Options exercisable at end of year                             |                                 |              | 6,166  |          |                |   | 12.55 |        |          |   | 5,279          |        |   |          | 14.78 |       |                |   | 4,116 |        |   |   | 16.68 |      
|Weighted average fair value of options granted during the year |                                 | $            | 5.02   |          |                |   |       |        |          | $ | 3.47           |        |   |          |       |       |                | $ | 19.19 |        |   |   |       |      

|                |  |                     |       |          |                     |  |      |                |        |   |                |  |  |                |       |  |  |   |       | 
|--------------- |  | ------------------- | ----- | -------- | ------------------- |  | ---- | -------------- | ------ | - | -------------- |  |  | -------------- | ----- |  |  | - | ----- | 
|                |  | Options Outstanding |       |          |                    
|                |  |                     |       |          | Options Exercisable | 
|                |  |                     |       | Weighted |                     |  |      |                |        |  
|                |  |                     |       | Average  |                     |  |      |                | Number |   |                | 
|                |  | Number              |       |          | Remaining           |  |      | Weighted       |        |   | Outstanding at |  |  | Weighted       |      
|Range of        |  | Outstanding at      |       |          | Contractual         |  |      | Average        |        |   | December 31,   |  |  | Average        |      
|Exercise Prices |  | December 31, 2004   |       |          | Life (in years)     |  |      | Exercise Price |        |   | 2004           |  |  | Exercise Price |      
|                |  |                     |       |          |                     |  |      |                |        |   |                |  |  |                |      
|$1.62 to 3.49   |  |                     | 2,297 |          |                     |  | 8.16 |                |        | $ | 3.46           |  |  |                | 862   |  |  | $ | 3.46  | 
|3.50 to 5.49    |  |                     | 1,380 |          |                     |  | 3.61 |                |        |   | 4.60           |  |  |                | 667   |  |  |   | 4.65  | 
|5.55 to 8.50    |  |                     | 1,475 |          |                     |  | 7.67 |                |        |   | 6.67           |  |  |                | 619   |  |  |   | 6.32  | 
|8.68 to 10.00   |  |                     | 2,644 |          |                     |  | 5.77 |                |        |   | 9.91           |  |  |                | 2,091 |  |  |   | 9.99  | 
|10.01 to 23.23  |  |                     | 1,055 |          |                     |  | 6.41 |                |        |   | 17.29          |  |  |                | 994   |  |  |   | 17.45 | 
|23.45 to 72.69  |  |                     | 975   |          |                     |  | 6.69 |                |        |   | 31.06          |  |  |                | 933   |  |  |   | 31.21 | 
|                |  |                     |       |          |                     |  |      |                |        |   |                |  |  |                |      
|                |  |                     | 9,826 |          |                     |  | 6.47 |                |        |   | 10.06          |  |  |                | 6,166 |  |  |   | 12.55 | 
|                |  |                     |       |          |                     |  |      |                |        |   |                |  |  |                |      

Note 12  Preferred Stock




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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


Note 13  Contingencies


Federal Litigation in the U.S. District Court for the
Southern District of New York












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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)






Federal Litigation in the U.S. District Court for the
District of Minnesota








State Derivative Litigation in the State of Minnesota,
District Court, Hennepin County




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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)




Litigation Relating to Proposed Transaction With SAP America,
Inc.


Braverman v.
Leestma et al.


Blakstad
v. Retek, Inc. et al.


Legal Proceedings that Arise in the Ordinary Course of
Business




Note 14  Retirement Savings Plans




83



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##### Table of Contents



Retek Inc.


Notes to Consolidated Financial
Statements  (Continued)


(unless otherwise noted, in thousands, except for share and
per share amounts)


Note 15  Selected Quarterly Financial
Data (Unaudited)


|                         |  |        |        |  |         |   |        |        |  |   |        |  |  |       |        |  |  |   |         | 
|------------------------ |  | ------ | ------ |  | ------- | - | ------ | ------ |  | - | ------ |  |  | ----- | ------ |  |  | - | ------- | 
|2004                     |  | Mar 31 |        |  | June 30 |   |        | Sep 30 |  |   | Dec 31 |  |  | Total |       
|                         |  |        |        |  |         |   |        |        |  |   |        |  |  |       |       
|Revenues                 |  | $      | 47,627 |  |         | $ | 45,522 |        |  | $ | 41,331 |  |  | $     | 39,755 |  |  | $ | 174,235 | 
|Gross profit             |  |        | 22,614 |  |         |   | 23,238 |        |  |   | 21,587 |  |  |       | 22,254 |  |  |   | 89,693  | 
|Net income               |  |        | 357    |  |         |   | 914    |        |  |   | 2,258  |  |  |       | 3,515  |  |  |   | 7,044   | 
|Basic income per share   |  | $      | 0.01   |  |         | $ | 0.02   |        |  | $ | 0.04   |  |  | $     | 0.06   |  |  | $ | 0.13    | 
|Diluted income per share |  | $      | 0.01   |  |         | $ | 0.02   |        |  | $ | 0.04   |  |  | $     | 0.06   |  |  | $ | 0.12    | 

|                                 |  |        |        |   |         |   |        |        |  |   |        |   |  |       |        |   |  |   |         |  
|-------------------------------- |  | ------ | ------ | - | ------- | - | ------ | ------ |  | - | ------ | - |  | ----- | ------ | - |  | - | ------- | -
|2003                             |  | Mar 31 |        |   | June 30 |   |        | Sep 30 |  |   | Dec 31 |   |  | Total |       
|                                 |  |        |        |   |         |   |        |        |  |   |        |   |  |       |       
|Revenues                         |  | $      | 37,558 |   |         | $ | 42,894 |        |  | $ | 43,797 |   |  | $     | 44,080 |   |  | $ | 168,329 |  
|Gross profit                     |  |        | 17,084 |   |         |   | 19,687 |        |  |   | 21,408 |   |  |       | 21,478 |   |  |   | 79,657  |  
|Net loss                         |  |        | (9,380 | ) |         |   | (6,123 | )      |  |   | (2,741 | ) |  |       | (2,289 | ) |  |   | (20,533 | )
|Basic and diluted loss per share |  | $      | (0.18  | ) |         | $ | (0.11  | )      |  | $ | (0.05  | ) |  | $     | (0.04  | ) |  | $ | (0.38   | )



Note 16  Subsequent Events




84



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##### Table of Contents



SIGNATURES






| |           
| | ----------
| | Retek Inc.



| |     |                      
| | --- | ---------------------
| | By: | /s/ Martin J. Leestma

| |                                      
| | -------------------------------------
| |                                      
| | Martin J. Leestma                    
| | President and Chief Executive Officer





|                                             |  |                                                                                                                                                                          |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | 
|Signature                                    |  | Title (Capacity)                                                                                                                                                        
|                                             |  |                                                                                                                                                                         
|                                            
|/s/ Martin J. LeestmaMartin
    J. Leestma   |  | President and Chief Executive Officer, Director (PRINCIPAL
    EXECUTIVE OFFICER)                                                                                       
|                                            
|/s/ Gregory A. EffertzGregory
    A. Effertz |  | Senior Vice President, Finance & Administration, Chief
    Financial Officer, Treasurer and Secretary (PRINCIPAL FINANCIAL
    OFFICER AND PRINCIPAL ACCOUNTING OFFICER)
|                                            
|/s/ John BuchananJohn
    Buchanan           |  | Chairman of the Board of Directors                                                                                                                                      
|                                            
|/s/ N. Ross BuckenhamN.
    Ross Buckenham   |  | Director                                                                                                                                                                
|                                            
|/s/ Ward CareyWard
    Carey                 |  | Director                                                                                                                                                                
|                                            
|/s/ Chris SangChris
    Sang                 |  | Director                                                                                                                                                                
|                                            
|/s/ Glen A. TerbeekGlen
    A. Terbeek       |  | Director                                                                                                                                                                

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|                                           |  |                  |  | 
|------------------------------------------ |  | ---------------- |  | 
|Signature                                  |  | Title (Capacity)
|                                           |  |                 
|                                          
|/s/ Stephen E. WatsonStephen
    E. Watson |  | Director        
|                                          
|/s/ William J. WalshWilliam
    J. Walsh   |  | Director        

86



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##### Table of Contents



EXHIBIT TABLE:


INDEX TO EXHIBITS


|        |    |      |                     |                                                                                                                  
|------- | -- | ---- | ------------------- | -----------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |                    
|Number  |    |      | Exhibit Description
|        |    |      |                    
|        | 2  | .1   |                     | Agreement and Plan of Merger and Reorganization between Retek
    Logistics, Inc. and Registrant(2)              
|        | 2  | .2   |                     | Separation Agreement(1)                                                                                          
|        | 2  | .3   |                     | Technology License Agreement(1)                                                                                  
|        | 2  | .4   |                     | Tax Sharing Agreement(1)                                                                                         
|        | 2  | .5   |                     | Services Agreement(1)                                                                                            
|        | 2  | .6   |                     | Corporate Rights Agreement(1)                                                                                    
|        | 2  | .7   |                     | Stock Contribution Agreement(1)                                                                                  
|        | 3  | .1   |                     | Amended and Restated Certificate of Incorporation of the
    Registrant(1)                                       
|        | 3  | .2   |                     | Bylaws of the Registrant(1)                                                                                      
|        | 10 | .5*  |                     | Retek 1999 Equity Incentive Plan(2)                                                                              
|        | 10 | .6*  |                     | Retek 1999 Employee Stock Purchase Plan(2)                                                                       
|        | 10 | .7*  |                     | Retek 1999 Director Stock Option Plan(2)                                                                         
|        | 10 | .9   |                     | Lease Agreement between Ryan 900, LLC and Retek Inc.(3)                                                          
|        | 10 | .10  |                     | First Amendment to Lease Agreement between Ryan 900, LLC and
    Retek Inc.(3)                                   
|        | 10 | .13* |                     | Change in control agreement by and between the Registrant and
    Gregory A. Effertz(4)                          
|        | 10 | .15* |                     | Change in control plan by and between the Registrant and John
    Goedert and James B. Murdy(4)                  
|        | 10 | .16* |                     | Employment agreement of John Buchanan dated as of August 4,
    2001(6)                                          
|        | 10 | .17* |                     | Change in control plan by and between the Registrant and Duncan
    B. Angove(5)                                 
|        | 10 | .18* |                     | Change in control plan by and between the Registrant and John
    Gray(6)                                        
|        | 10 | .19* |                     | Offer letter by and between the Registrant and John Gray(6)                                                      
|        | 10 | .21* |                     | Offer letter by and between the Registrant and Martin J.
    Leestma(7)                                          
|        | 10 | .22* |                     | Amendment No. 1 to Employment agreement by and between the
    Registrant and John Buchanan(8)                   
|        | 10 | .23* |                     | Change in control agreement by and between the Registrant and
    Martin J. Leestma(9)                           
|        | 10 | .24* |                     | Change in control agreement by and between the Registrant and
    Thomas F. Carretta(9)                          
|        | 10 | .25* |                     | Change in control plan by and between the Registrant and Jerome
    Dolinsky(9)                                  
|        | 10 | .26* |                     | Form of stock option agreement (executives) under the Retek
    Inc. 1999 Equity Incentive Plan                  
|        | 10 | .27* |                     | Form of stock option agreement (directors  initial
    grant) under the Retek Inc. 1999 Equity Incentive Plan   
|        | 10 | .28* |                     | Form of stock option agreement (directors  succeeding
    grant) under the Retek Inc. 1999 Equity Incentive Plan
|        | 21 | .1   |                     | Schedule of Subsidiaries(6)                                                                                      
|        | 23 | .1   |                     | Consent of PricewaterhouseCoopers LLP                                                                            
|        | 24 | .1   |                     | Powers of Attorney (contained on signature page)                                                                 
|        | 31 | .1   |                     | Rule 13a-14(a)/15d-14(a) Certification of CEO                                                                    
|        | 31 | .2   |                     | Rule 13a-14(a)/15d-14(a) Certification of CFO                                                                    
|        | 32 |      |                     | Section 1350 Certification of CEO and CFO                                                                        

87