25. OTHER RESERVES AND ACCRUED LIABILITIES

As of December 31, 2004, accrued taxes include current and prior year tax obligations in the amount of €567,831 thousand (2003: €343,519 thousand) and deferred tax liabilities in the amount of €64,202 thousand (2003: €111,980 thousand).

Other reserves and accrued liabilities as of December 31 are as follows:

Other reserves and accrued liabilities payable after one year as of December 31, 2004, are €116,723 thousand (€107,162 thousand in 2003).

Obligations to employees relate primarily to variable bonus payments tied to earnings performance, paid out after the balance sheet date. Other obligations to employees also includes termination benefits required by law in certain foreign subsidiaries that constitute defined benefit plans under SFAS 87. Such benefits are payable in a lump sum upon separation from the Company. The accrued liability for such plans amounts to €13,382 thousand as of December 31, 2004 (2003: €11,307 thousand).

Obligations to suppliers represent services received or goods purchased for which SAP has not yet been invoiced. Warranty and service cost accruals represent estimated future warranty obligations and other minor routine items provided under maintenance. SAP generally provides a six to 12 month warranty on its software. SAP determines the warranty accrual based on the historical average cost of fulfilling its obligations under these commitments. As of December 31, 2004 and 2003, SAP accrued €3,852 thousand and €7,600 thousand, respectively. The aggregate utilization of the warranty accrual in 2004 was €4,366 thousand (2003: €2,317 thousand) and the aggregate warranty expense was net €618 thousand in 2004 (2003: €5,188 thousand).

The majority of vacation accruals included in vacation and other absences relates to employee contracts without a limit on the number of vacation days that can be carried over.

Exit activities include contract termination and similar restructuring costs for unused lease space as well as severance payments. Restructuring costs are included in the Consolidated Statements of Income in the line item Other operating expense, net. The following table presents the beginning and ending balances along with additions and deductions incurred:

SAP generally does not have an ongoing severance benefit plan arrangement at most of its subsidiaries. SAP accounted for its 2004 severance obligations in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), or SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (“SFAS 88”), depending on the subsidiary involved with the severance activity. In 2003, SAP accounted for most of its severance obligations in accordance with SFAS 146 since the majority of the severance activities related to one-time events. Other severance obligations (affecting 768 employees in 2002) were accounted for in accordance with SFAS 112 or EITF 94-3, as applicable. Because these other severance benefits do not vest or accumulate, the liability was recognized when it became probable that an obligation had been incurred and the amount could be estimated.

Provision for unused lease space relate to costs that will continue to be incurred for vacated space under various operating lease contracts that will have no future economic benefit to the Company in accordance with SFAS 146 in 2004 and 2003 and EITF 94-3 in 2002. For 2004, the charges affected each of the segments, while for 2003 those charges primarily relate to the training segment.