e20vf
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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(Mark One) |
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Date of event requiring this shell company report |
Commission file number: 1-14251
SAP AG
(Exact name of registrant as specified in its charter)
SAP CORPORATION
(Translation of Registrants name into English)
Federal Republic of Germany
(Jurisdiction of incorporation or organization)
Dietmar-Hopp-Allee 16
69190 Walldorf
Federal Republic of Germany
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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American Depositary Shares, each representing one-fourth
of one Ordinary Share, without nominal value |
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New York Stock Exchange |
Ordinary Shares, without nominal value |
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New York Stock Exchange* |
Securities
registered or to be registered pursuant to Section 12(g) of
the Act: None
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None
Indicate
the number of outstanding shares of each of the issuers
classes of capital or common stock as of the close of the period
covered by the annual report:
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Ordinary Shares, without nominal value (as of December 31,
2005)**
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316,457,821 |
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
If this
report is an annual or transition report, indicate by check mark
if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note
Checking the box above will not relieve any registrant required
to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under
those Sections.
Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated
filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark which financial statement item the registrant has
elected to follow.
If this is
an annual report, indicate by check mark whether the registrant
is a shell company (as defined in
Rule 12b-2 of the
Exchange Act).
* Not for trading, but only in connection with the
registration of American Depositary Shares representing such
ordinary shares.
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** |
Including 6,678,656 treasury shares. |
[THIS PAGE INTENTIONALLY LEFT BLANK]
TABLE OF CONTENTS
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* |
Omitted because the Item is not applicable or the answer is
negative. |
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** |
The Registrant has responded to Item 18 in lieu of this
Item. |
ii
INTRODUCTION
SAP AG is a German stock corporation (Aktiengesellschaft)
and is referred to in this Annual Report on
Form 20-F,
together with its subsidiaries, as SAP, or as the
Company, we, our, or
us. Our consolidated financial statements included
in Item 18. Financial Statements in this Annual
Report on
Form 20-F have
been prepared in accordance with generally accepted accounting
principles in the United States of America, referred to as
U.S. GAAP.
In this Annual Report on
Form 20-F:
(i) references to U.S.$, $, or
dollars are to U.S. dollars;
(ii) references to
or
euro are to the euro, a currency of the countries
currently participating in the European Economic Monetary Union
(EMU). Certain amounts that appear in this Annual
Report on
Form 20-F may not
sum because of rounding adjustments. In this Annual Report on
Form 20-F, except
as otherwise specified, financial information with respect to
SAP has been expressed in euro and/or dollars.
Unless otherwise specified herein, all euro financial data that
have been converted into dollars have been converted at the noon
buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal
Reserve Bank of New York (the Noon Buying Rate) on
December 31, 2005, which was U.S.$1.1842 per
1.00. No
representation is made that such euro amounts actually represent
such dollar amounts or that such euro amounts could have been or
could be converted into dollars at that or any other exchange
rate on such date or on any other dates. The rate used for the
convenience translations also differs from the currency exchange
rates used for the preparation of the Consolidated Financial
Statements. For information regarding recent rates of exchange
between euro and dollars, see Item 3. Key
Information Exchange Rates. At March 10,
2006, the Noon Buying Rate for converting euro to dollars was
U.S.$1.1886 per
1.00.
Unless the context otherwise requires, references in this Annual
Report on
Form 20-F to
ordinary shares are to SAP AGs ordinary shares, without
nominal value, and references to preference shares are to SAP
AGs non-voting preference shares, without nominal value,
which were converted to ordinary shares as of June 18,
2001. References in this Annual Report on
Form 20-F to
ADSs are to SAP AGs American Depositary
Shares, each representing one-fourth of one SAP ordinary share.
SAP AGs Annual General Shareholders Meeting to be
held on May 9, 2006 will consider among other things a
proposal to change our share capital by an increase in
subscribed capital from corporate funds pursuant to which each
shareholder will receive three additional shares for each
existing SAP ordinary share held. No new capital is being raised
through this transaction. If shareholders approve the capital
increase at the Annual General Shareholders Meeting and
the resolution adopted is registered in the commercial register,
the number of SAP ordinary shares held will increase fourfold
automatically. As a result of this capital structure change, we
anticipate that the ratio of ordinary share to ADSs would be
adjusted to 1:1.
SAP, the SAP logo, R/2,
R/3, mySAP, mySAP.com,
xApp, xApps, SAP NetWeaver
and other SAP product and service names mentioned herein are
trademarks or registered trademarks of SAP AG in Germany and in
several other countries. This Annual Report on
Form 20-F also
contains product and service names of companies other than SAP
that are trademarks of their respective owners.
1
FORWARD-LOOKING INFORMATION
This Annual Report on
Form 20-F contains
forward-looking statements based on the beliefs of, and
assumptions made by, our management using information currently
available to them. Any statements contained in this Annual
Report on
Form 20-F that are
not historical facts are forward-looking statements as defined
in the U.S. Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our
current expectations and projections about future events,
including, but not limited to:
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general economic and business conditions; |
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attracting and retaining personnel; |
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competition in the software industry; |
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implementing our business strategy; |
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developing and introducing new services and products; |
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freedom to use intellectual property; |
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regulatory and political conditions; |
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adapting to technological developments; |
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obtaining and expanding market acceptance of our services and
products; |
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terrorist attacks or other acts of violence or war; |
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integrating newly acquired businesses; |
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meeting our customers requirements; and |
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other risks and uncertainties, some of which we describe under
Item 3. Key Information Risk
Factors. |
The words aim, anticipate,
believe, continue, could,
counting on, is confident,
estimate, expect, forecast,
intend, may, plan,
project, predict, seek,
should, strategy, want,
will, would and similar expressions as
they relate to us are intended to identify such forward-looking
statements. Such information includes, for example, the
statements made in Item 5. Operating and Financial
Review and Prospects, but also appears in other parts of
this Annual Report on
Form 20-F. Such
statements reflect our current views and assumptions and all
forward-looking statements are subject to various risks and
uncertainties that could cause actual results to differ
materially from those statements. The factors that could affect
our future financial results are discussed more fully under
Item 3. Key Information Risk
Factors as well as elsewhere in this Annual Report on
Form 20-F and in
our other filings with the U.S. Securities and Exchange
Commission (SEC). Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date of this Annual Report on
Form 20-F. We
undertake no obligation to publicly update or revise any
forward-looking statements whether as a result of new
information, future events or otherwise.
2
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The following table represents selected consolidated financial
information of SAP. The table should be read together with
Item 5. Operating and Financial Review and
Prospects. The selected consolidated financial data of SAP
is a summary of, is derived from and is qualified by reference
to, our consolidated financial statements and notes thereto
audited for the years ended December 31, 2005, 2004, 2003,
and 2002 by KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
(KPMG), independent auditors and for the year ended
December 31, 2001 by ARTHUR ANDERSEN
Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
mbH (Arthur Andersen), independent auditors.
The audited consolidated income statements, consolidated
statements of cash flows and consolidated statements of changes
in shareholders equity for the years ended
December 31, 2005, 2004, and 2003, and the consolidated
balance sheets at December 31, 2005 and 2004 are included
in Item 18. Financial Statements.
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Year Ended December 31, | |
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2005 | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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U.S.$(1) | |
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(in thousands, except per share data) | |
Income Statement Data:
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Total revenue
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10,080,418 |
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8,512,429 |
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7,514,493 |
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7,024,606 |
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7,412,838 |
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7,340,804 |
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Operating income
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2,760,053 |
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2,330,732 |
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2,018,381 |
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1,724,019 |
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1,625,678 |
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1,312,374 |
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Income before income taxes and minority interest
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2,743,029 |
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2,316,356 |
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2,072,642 |
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1,776,615 |
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1,107,698 |
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1,068,757 |
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Net income
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1,772,045 |
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1,496,407 |
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1,310,521 |
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1,077,063 |
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508,614 |
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581,136 |
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Earnings per
share(2)
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Basic
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5.72 |
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4.83 |
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4.22 |
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3.47 |
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1.62 |
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1.85 |
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Diluted
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5.70 |
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4.81 |
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4.20 |
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3.46 |
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1.62 |
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1.85 |
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Other Data:
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Weighted average number of shares
outstanding(2)(3)
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Basic
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309,816 |
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309,816 |
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310,802 |
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310,781 |
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313,016 |
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314,309 |
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Diluted
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310,836 |
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310,836 |
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312,156 |
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311,409 |
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313,980 |
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314,412 |
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Balance Sheet Data:
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Total assets
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10,732,099 |
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9,062,742 |
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7,585,472 |
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6,325,865 |
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5,608,463 |
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6,195,604 |
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Shareholders equity
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6,847,326 |
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5,782,238 |
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4,594,253 |
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3,709,445 |
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2,872,091 |
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3,109,513 |
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Subscribed capital
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374,750 |
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316,458 |
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316,004 |
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315,414 |
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314,963 |
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314,826 |
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Short-term bank loans and overdrafts
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26,417 |
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22,308 |
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25,851 |
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19,043 |
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22,657 |
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458,266 |
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Long-term financial
debt(4)
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10,562 |
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8,919 |
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9,211 |
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11,948 |
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11,318 |
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7,375 |
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3
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(1) |
Amounts in the column are unaudited and translated for the
convenience of the reader at U.S.$1.1842 to
1.00, the Noon
Buying Rate for converting
1.00 into
dollars on December 31, 2005. See
Exchange Rates for recent exchange rates
between the euro and the dollar. Our auditors have not audited
these converted dollar amounts. |
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(2) |
Amounts are adjusted for our one-for-one conversion of
preference shares to ordinary shares effective as of
June 18, 2001. |
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(3) |
Includes preference and ordinary shares for periods prior to
June 18, 2001, the effective date of the conversion of the
preference shares into ordinary shares on a share-for-share
basis. |
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(4) |
Long-term financial debt represents financial liabilities with a
remaining life beyond one year, which is comprised of bank loans
and overdrafts and convertible bonds issued pursuant to
stock-based compensation plans. See Item 6.
Directors, Senior Management and Employees Share
Ownership Stock-Based Compensation Plans. |
EXCHANGE RATES
The prices for ordinary shares traded on German stock exchanges
are denominated in euro. Fluctuations in the exchange rate
between the euro and the dollar will affect the dollar
equivalent of the euro price of the ordinary shares traded on
the German stock exchanges and, as a result, may affect the
price of the American Depositary Shares (ADSs) in the United
States. See Item 9. The Offer and Listing for a
description of the ADSs. In addition, SAP AG pays cash
dividends, if any, in euro, so that such exchange rate
fluctuations will also affect the dollar amounts received by the
holders of ADSs on the conversion into dollars of cash dividends
paid in euro on the ordinary shares represented by the ADSs. The
deposit agreement with respect to the ADSs requires the
depositary to convert any dividend payments from euro into
dollars as promptly as practicable upon receipt.
A significant portion of our revenue and expenses is denominated
in currencies other than the euro. Therefore, movements in the
exchange rate between the euro and the respective currencies to
which we are exposed may materially affect our consolidated
financial position, results of operations and cash flows. See
Item 5. Operating and Financial Review and
Prospects Foreign Currency Exchange Rate
Exposure and for our foreign currency risk and hedging
strategy see Item 11. Quantitative and Qualitative
Disclosure About Market Risk Foreign Currency
Risk.
The following table sets forth the average, high, low, and
period-end Noon Buying Rates for the euro expressed as dollars
per 1.00.
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Year |
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Average(1) | |
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High | |
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Low | |
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Period-End | |
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2001
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0.8909 |
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0.9535 |
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0.8370 |
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0.8901 |
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2002
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0.9495 |
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1.0485 |
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0.8594 |
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1.0485 |
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2003
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1.1411 |
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1.2597 |
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1.0361 |
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1.2597 |
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2004
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1.2478 |
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1.3625 |
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1.1801 |
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1.3538 |
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2005
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1.2400 |
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1.3476 |
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1.1667 |
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1.1842 |
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4
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Month |
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High | |
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Low | |
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Period-End | |
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2005
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July
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1.2200 |
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1.1917 |
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1.2129 |
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August
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1.2434 |
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1.2147 |
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1.2330 |
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September
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1.2538 |
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1.2011 |
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1.2058 |
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October
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1.2148 |
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1.1914 |
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1.1995 |
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November
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1.2067 |
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1.1667 |
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1.1790 |
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December
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1.2041 |
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1.1699 |
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1.1842 |
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2006
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January
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1.2287 |
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1.1980 |
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1.2158 |
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February
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1.2100 |
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1.1860 |
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1.1925 |
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March (through March 10, 2006)
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1.2028 |
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1.1886 |
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1.1886 |
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(1) |
The average of the applicable Noon Buying Rates on the last day
of each month during the relevant period. |
DIVIDENDS
Dividends are jointly proposed by SAP AGs Supervisory
Board (Aufsichtsrat) and Executive Board
(Vorstand) based on SAP AGs year-end stand-alone
financial statements, subject to approval by the shareholders,
and are officially declared for the prior year at SAP AGs
Annual General Shareholders Meeting. Dividends paid to
holders of the ADSs may be subject to German withholding tax.
See Item 8. Financial Information
Dividend Policy and Item 10. Additional
Information Taxation.
The following table sets forth in euro the annual dividends paid
or proposed to be paid per ordinary share in respect of each of
the years indicated. The table does not reflect tax credits that
may be available to German taxpayers who receive dividend
payments. If you own our ordinary shares or ADSs and if you are
a U.S. resident, please refer to Taxation in
Item 10.
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Dividend Paid per |
Year Ended December 31, |
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Ordinary Share |
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U.S.$ |
2001
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0.58 |
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0.53 (1 |
)(4) |
2002
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0.60 |
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0.69 (1 |
)(4) |
2003
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0.80 |
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0.95 (1 |
)(4) |
2004
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1.10 |
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1.39 (1 |
)(4) |
2005 (proposed)
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1.45 |
(2) |
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1.72 (2 |
)(3)(4) |
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(1) |
Translated for the convenience of the reader from euro into
dollars at the Noon Buying Rate for converting euro into dollars
on the dividend payment date. The depositary is required to
convert any dividend payments received from SAP as promptly as
practicable upon receipt. |
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(2) |
Subject to approval of the Annual General Shareholders
Meeting of SAP AG to be held on May 9, 2006. |
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(3) |
Translated for the convenience of the reader from euro into
dollars at the Noon Buying Rate for converting euro into dollars
on March 10, 2006, of U.S.$1.1886 per
1.00. The
depositary is required to convert any dividend payments received
from SAP as promptly as practicable upon receipt. The dividend
paid can actually differ due to changes in the exchange rate. |
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(4) |
One SAP ADS currently represents one-fourth of SAP AGs
ordinary share. Accordingly, the final dividend per ADS is
calculated as one-fourth of the dividend for one SAP AG share
and is dependent on the euro/dollar exchange rate. |
5
The amount of dividends paid on the ordinary shares depends on
the amount of SAP AG profits to be distributed by SAP AG, which
depends in part upon our performance. The timing and amount of
future dividend payments will depend upon our future earnings,
capital needs and other relevant factors in each case as
proposed by the Executive Board and the Supervisory Board of SAP
AG and approved at the Annual General Shareholders Meeting.
RISK FACTORS
Economic Risks
A downturn in the economic conditions in the regions in which
we operate or in the software markets in those regions or in our
customers specific industries has in the past resulted,
and may result in the future, in a significant fluctuation of
demand for our products, causing our revenues and profitability
to suffer.
Implementation of SAP software products can constitute a major
portion of our customers overall corporate budget, and the
amount customers are willing to invest in acquiring and
implementing SAP products and the timing of our customers
investments have tended to vary due to economic or financial
crises or other business conditions. A recession, slow or weak
economic recovery of technology and software markets could have
a material adverse effect on our business, financial position,
operating results or cash flows. In particular, our
profitability and cash flows may be significantly adversely
affected by adverse economic conditions in Europe or the
U.S. because we derive a substantial portion of our revenue
from software licenses and services in those geographic regions.
One important feature of our long-term strategy for growth is to
increase our offerings for the small and midsize enterprise
(SME) segment. A slowdown in growth, recession, or slow or
weak economic recovery could inhibit the creation and financial
strength of those businesses and thereby delay or prevent
altogether that key element of our growth strategy.
See Item 4 Business by Region for information
on the regions in which we operate and Revenue by Industry
Sector for information on the industries in which our
customers operate.
Social and political instabilities including those caused by
terrorist attacks, the risk of war or international hostilities
as well as the risk of pandemic disease outbreaks could
adversely impact our business.
The financial, political, economic and other uncertainties
following terrorist attacks like those in the U.S., Spain and
the UK, and other acts of violence or war, such as the conflict
in Iraq, as well as the risk of pandemic disease outbreaks could
damage the world economy and affect our and our customers
investment decisions over an extended period of time. We believe
that geopolitical uncertainties, including hostilities against
the U.S., countries in Europe or any other country, or the
threat of serious disease may lead to cautiousness by our
customers in setting their capital spending budgets.
Furthermore, such occurrences could make business continuity and
business travel more difficult, thus interfering with
customers decision making processes and our ability to
sell products and provide services to them.
Because we expect to continue to expand globally, we may face
specific economic and regulatory challenges that we may not be
able to meet.
Our products and services are currently marketed in over 120
countries in the Europe, Middle East and Africa
(EMEA), North and Latin America
(Americas) and Asia-Pacific (APA)
regions. In 2005, revenue
6
derived from non-EMU member states totaled
5,371 million,
representing approximately 63% of our total revenue. Sales in
these regions are subject to risks inherent in international
business activities, including, in particular:
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general economic or political conditions in each country or
region; |
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the overlap of differing tax structures; |
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the management of an organization spread over various
jurisdictions; |
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exchange rate fluctuations; and |
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regulatory constraints such as export restrictions, governmental
regulations such as regulations of the Internet, and additional
requirements for the design and for the distribution of software
and services. |
Other general risks associated with international operations
include import and export licensing requirements, trade
restrictions, changes in tariff and freight rates and travel and
communication costs. There can be no assurance that our
international operations will continue to be successful or that
we will be able to effectively manage the increased level of
international operations.
Market Risks
Consolidation in the software industry may result in
instability of software demand and stronger peer companies in
the long term.
The entire IT sector, including the software industry, is
currently experiencing consolidation through mergers and
acquisitions, particularly involving larger companies, such as
the acquisitions of PeopleSoft, Inc. and Siebel Systems, Inc. by
Oracle Corporation. Such consolidation in the industry may
create uncertainty among potential customers about future IT
investment plans, causing longer sales cycles for us. Also,
consolidated companies may emerge as stronger competitors with
more resources, a larger customer base and a wider variety of
product offerings than we have.
Due to intense competition, our market share and financial
performance could suffer.
The software industry is intensely competitive. As part of our
business strategy, over the last few years we have focused our
efforts in areas where demand is expected to grow more rapidly.
In particular, we have been focusing on customer relationship
management, a technology and application integration platform,
solutions for small and midsize enterprises as well as
industry-tailored solutions for specific industries such as
retail and financial services. Our expansion from the
traditional large enterprise resource planning
(ERP) product offerings exposes us to different competitors
in size, geographic location and specialty. Current and
potential competitors have established or may establish
cooperative relationships among themselves or with third parties
to increase the ability of their products to address customer
needs better than we do. Competition, with respect to pricing,
product quality and functionalities/features, and consulting and
support services, could increase substantially and result in
price reductions, cost increases or loss of segment share.
In response to competition, we have been required in the past,
and may be required in the future, to furnish additional
discounts or other concessions to customers or otherwise modify
our pricing practices. These developments have impacted and may
increasingly negatively impact our revenue and earnings.
The recent trend towards outsourcing business processes to
external providers (business process outsourcing, or
BPO) could result in increased competition for SAP
with systems integrators, consulting firms, telecommunications
firms, computer hardware vendors and other IT service providers.
Companies pursuing business process outsourcing will not be
interested in purchasing SAP software products to the
7
extent the solution provided by the outsourcing provider
includes the necessary software-based process support. The
perception of value created by SAPs products among end
user customers could be diminished to the extent outsourcing
providers bundle SAP applications with their services. While
most of SAPs revenues are currently derived from contracts
directly with end user customers, an increased trend to
outsourcing business processes to external providers could have
a short-term adverse impact on SAPs revenues, earnings and
results of operations. In addition, the distribution of
applications through application service providers may in the
short term reduce the price paid for SAP products or adversely
affect other sales of SAP products.
The market in which we compete continues to evolve and, if it
does not grow rapidly in the long term, our business will be
adversely affected.
We are investing significant resources in further developing and
marketing new and enhanced products and services. Demand and
customer acceptance for recently introduced products and
services are subject to a high level of uncertainty, especially
where acquisition of SAP software products requires a large
capital commitment or other significant commitment of resources.
Moreover, newer offerings allow greater levels of flexibility in
software application and data utilization, particularly by those
individuals and enterprises that have historically relied upon
traditional means of commerce and communication. Their adoption
therefore will require a broad acceptance of new and
substantially different methods of conducting business and
exchanging information. These products and services involve a
new approach to the conduct of business and, as a result, we
have invested in, and intend to continue to pursue, intensive
marketing and sales efforts to educate prospective customers
regarding the uses and benefits of these products and services
in order to generate demand. Demand for these products and
services may not develop, which could have a material adverse
effect on our business, financial position and results of
operations or cash flows.
Our future revenue is dependent in part upon our installed
customer base continuing to license additional products, renew
maintenance agreements and purchase additional professional
services.
Our large installed customer base has traditionally generated
additional new software, maintenance, consulting and training
revenues. We believe that recently developed or planned SAP
offerings geared towards substantially expanding the potential
scope of potential users within our installed customer base such
as Mendocino, a joint solution offering developed with Microsoft
Corporation, or our SAP xApp Analytics composite applications,
pose an opportunity for SAP to continue to generate revenue from
existing customers. Nevertheless, in future periods customers
may not necessarily license additional SAP products or contract
for additional services or maintenance. After an initial term,
maintenance is generally renewable annually at a customers
option, and there are no mandatory payment obligations or
obligations to license additional software. If our customers
decide not to renew their maintenance agreements or license
additional products or contract for additional services, or if
they reduce the scope of their maintenance agreements, our
revenues could decrease and our operating results could be
adversely affected.
Strategic Planning Risks
Our failure to develop new relationships and enhance existing
relationships with third-party distributors, software suppliers,
system integrators and value-added resellers that help sell our
services and products may adversely affect our revenues.
We have entered into agreements with a number of leading
computer software and hardware suppliers and other technology
providers to cooperate and ensure that certain of the products
produced by such suppliers are compatible with SAP software
products. We have also supplemented our consulting and support
services (in the areas of product implementation, training and
maintenance) through alliance partnerships
8
with third-party hardware and software suppliers, systems
integrators, consulting groups formerly associated with major
accounting firms and other consulting firms. Most of these
agreements and alliances are of relatively short duration and
non-exclusive. In addition, we have established relationships
relating to the resale of certain of our software products by
third parties. These third parties include value-added resellers
and, in the area of application hosting services, certain
computer hardware vendors, systems integrators and
telecommunications providers. Our growth strategy includes
commencing and maintaining relationships with independent
software vendors (ISVs) and value added resellers for our
products targeted at SMEs.
There can be no assurance that these third parties or business
partners, most of whom have similar arrangements with our
competitors and some of whom also produce their own standard
application or technology integration software in competition
with us, will continue to cooperate with us when such agreements
or partnerships expire or are up for renewal. In addition, there
can be no assurance that such third parties or partners will
provide high-quality products or services or that actions taken
or omitted to be taken by such parties will not adversely affect
us. The failure to obtain high-quality products or services or
to renew such agreements or partnerships could adversely affect
our ability to continue to develop product enhancements and new
solutions that keep pace with anticipated changes in hardware
and software technology and telecommunications, or could
adversely affect our ability to penetrate target markets and
consequently the demand for our software products.
Human Capital Risks
If we were to lose the services of members of management and
employees or fail to attract new personnel who possess
specialized knowledge and technology skills, we may not be able
to manage our operations effectively or develop new products and
services.
Our operations could be adversely affected if senior managers or
other skilled personnel were to leave and qualified replacements
were not available. Competition for managerial and skilled
personnel in the software industry remains intense. Especially
as we embark on the introduction of new and innovative
technology offerings to our client base such as our SAP
NetWeaver platform initiative, we are relying on being able to
build up and maintain a specialized workforce with deep
technological know-how to ensure an optimal implementation of
such new technologies in accordance with our clients
demands. Such personnel in certain regions (including the U.S.
and Europe) are in short supply. We expect continued increases
in compensation costs in order to attract and retain senior
managers and skilled employees, especially as the economic
environment improves. Most of our current employees, with the
exception of selected managers, are subject to employment
agreements or conditions that do not contain post-employment
noncompete provisions and in the case of most of our existing
employees outside of Germany, permit the employees to terminate
their employment on relatively short notice. There can be no
assurance that we will continue to be able to attract and retain
the personnel we require to develop and market new and enhanced
products and to market and service our existing products and
conduct our operations successfully. Further, our recruiting of
personnel may expose us to claims from other companies seeking
to prevent their employees from working for a competitor.
If we do not effectively manage our growth, our existing
personnel and systems may be strained and our business may not
operate efficiently.
We have a history of rapid growth and will need to effectively
manage our future growth to be successful. In 2003, 2004, and
2005, we experienced an industry-wide trend in customer spending
away from a lower volume of very large contracts to a higher
volume of smaller contracts. In order to support our future
growth, we expect to continue in the long-term to incur
significant costs to increase headcount in key areas of our
business, explore and/or enter new markets and build
infrastructure ahead of anticipated revenue. We announced in
January 2005 our intention to hire an additional 3,000 employees
in 2005 to support our
9
revenue growth goals and increased our hiring plans during 2005,
resulting in an ultimate addition of more than 3,600 new
employees to SAPs workforce as of December 31, 2005.
There can be no assurance that significant increases in
employees and infrastructure will result in growth in revenue or
operating results in the future. Also, there is no assurance
that we can sufficiently staff such additional headcount in
lower cost countries such as India or China due to, for example,
a local increase in competition for workforce in such countries.
As a result, our operating margin and revenue figures per
employee could decline. In addition, the ability to control
costs could adversely affect revenue, profitability and cash
flow in the future.
Organizational and Governance-related Risks
Principal shareholders may be able to exert control over our
future direction and operations.
As of March 10, 2006, the beneficial holdings of SAP
AGs principal shareholders (not counting immediate family
members) and/or the holdings of entities controlled by them
constituted in the aggregate approximately 30.667% of the
outstanding ordinary shares of SAP AG. If SAP AGs
principal shareholders and/or the holdings of entities
controlled by them vote the shares held by them in the same
manner, it may have the effect of delaying, preventing or
facilitating a change in control of SAP or other significant
changes to SAP AG or its capital structure. See
Item 7. Major Shareholders and Related Party
Transactions Major Shareholders.
Sales of ordinary shares by principal shareholders could
adversely affect the price of our capital stock.
The sale of a large number of ordinary shares by any of the
principal shareholders and related entities, or by any of them,
could have a negative effect on the trading price of our ADSs or
our ordinary shares. We are not aware of any restrictions on the
transferability of the shares owned by the principal
shareholders or any related entity.
We are subject to significantly increased governance-related
regulatory requirements both in Germany and the U.S.
SAP AG as a stock corporation domiciled in Germany and listed in
Germany and the U.S. is subject to governance-related
regulatory requirements under both jurisdictions. These
standards are among the highest standards world-wide and have
grown considerably in the past few years. In the U.S., the
Sarbanes-Oxley Act of 2002 requires the establishment, ongoing
assessment and certification of an effective system of Internal
Control over Financial Reporting accompanied by stringent
documentation efforts for companies and their external auditors.
In Germany, the 10-point program to strengthen corporate
integrity and investor protection issued by the federal
government in February 2003 has resulted in various legislative
initiatives which, among other things, have been or may be
lowering the requirements for shareholder lawsuits and have
intensified or may intensify regulators control over
insider trading as well as the work of external auditors.
Pursuant to the EU Anti-discrimination Directive which will need
to be implemented as national law in Germany, very broad
anti-discriminatory requirements backed by the threat of damages
may be imposed upon the human resources operations of companies
in the future. Given the high level of complexity of these laws
there can be no assurance that we will not be held in breach of
certain regulatory requirements, e.g., through fraudulent or
negligent behavior of individual employees, our failure to
comply with certain formal documentation requirements or
otherwise. Any corresponding accusation against us, whether
merited or not, may have a material adverse impact on our
reputation as well as the trading price of our ordinary shares
and ADSs.
10
U.S. judgments may be difficult or impossible to enforce
against us or our Board members.
SAP AG is a stock corporation organized under the laws of
Germany. With one exception, all members of SAP AGs
Executive Board and Supervisory Board are non-residents of the
U.S. A substantial portion of the assets of SAP and such
persons are located outside the U.S. As a result, it may
not be possible to effect service of process within the
U.S. upon such persons or us or to enforce against them
judgments obtained in U.S. courts predicated upon the civil
liability provisions of the securities laws of the U.S. In
addition, awards of punitive damages in actions brought in the
U.S. or elsewhere may be unenforceable in Germany.
Communication and Information Risks
We may not be able to prevent harmful information leakage
about future strategies, technologies and products.
We have established a range of security standards and
organizational communication protocols to help ensure that
internal, confidential communications and information about
sensitive subjects such as our future strategies, technologies
and products are not improperly or prematurely disclosed to the
public. There is no guarantee that the established protective
mechanisms will work in every case. SAPs competitive
position could be considerably compromised if confidential
information about the future direction of our product
development or other strategies became public knowledge.
Our IT security measures may be breached or compromised and
we may sustain unplanned IT system unavailability.
We rely on encryption, authentication technology and firewalls
to provide security for confidential information transmitted to
and from us over the Internet. Anyone who circumvents our
security measures could misappropriate proprietary information
or cause interruptions in our services or operations. The
Internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses and software
programs that disable or impair computers have been distributed
and have rapidly spread over the Internet. Computer viruses
could be introduced into our systems or those of our customers
or suppliers, which could disrupt our network or make it
inaccessible to customers or suppliers. Our security measures
may be inadequate to prevent security breaches, and our business
would be harmed if we do not prevent them. In addition, we may
be required to expend significant capital and other resources to
protect against the threat of security breaches and to alleviate
problems caused by breaches as well as by any unplanned
unavailability of our internal IT systems generally for other
reasons.
Wide acceptance of the use of Web-based transactions may be
hindered due to privacy concerns.
Consumers have significant concerns about secure transmissions
of confidential information, especially financial information,
over public networks like the Internet. This remains a
significant obstacle to general acceptance of
e-commerce and certain
aspects of SAPs business. Advances in computer
capabilities, new discoveries in the field of cryptography or
other events or developments could result in compromises or
breaches of our security measures or those of other technology
providers. If any compromises of security were to occur, it
could have the effect of substantially reducing the use of the
Web for commerce and communications and therefore could
adversely impact our long-term strategy for growth.
11
Financial Risks
Our sales are subject to quarterly fluctuations and our sales
forecast may not be accurate.
Our revenue and operating results can vary and have varied in
the past, sometimes substantially, from quarter to quarter. Our
revenue in general, and in particular our software revenue, is
difficult to forecast for a number of reasons, including:
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the relatively long sales cycles for our products; |
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the size and timing of individual license transactions; |
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the timing of the introduction of new products or product
enhancements by us or our competitors; |
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changes in customer budgets; |
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seasonality of a customers technology purchases; and |
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other general economic and market conditions. |
As many of our customers make and plan their information
technology (IT) purchasing decisions at or near the end of
calendar quarters and a significant percentage of those
decisions are made during the fourth quarter, even a small delay
in purchasing decisions could have a material adverse effect on
our results of operations. While our dependence on single, large
scale sales transactions has decreased in recent years due to a
relative increase in the number of license transactions
concluded by SAP, mainly attributable to SAPs strengthened
focus on the SME segment, there can be no assurance that our
results will not be adversely affected by the loss or delay of
one or a few large sales, which continue to occur especially in
the enterprise customer segment.
We use a pipeline system, a common industry
practice, to forecast sales and trends in our business. Our
sales personnel monitor the status of proposals, including the
date when they estimate that a customer will make a purchase
decision and the potential revenue from the sale. While this
pipeline analysis may provide us with some guidance in business
planning, budgeting and forecasting, these pipeline estimates
may not consistently correlate to revenue in a particular
quarter and could cause us to improperly plan, budget or
forecast. Because our operating expenses are based upon
anticipated revenue levels and because a high percentage of our
expenses are relatively fixed in the near term, any shortfall in
anticipated revenue or delay in recognition of revenue could
result in significant variations in our results of operations
from quarter to quarter or year to year. We significantly
increased in each year from 2003 through 2005, and plan to
continue to increase throughout 2006, the following expenditures:
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expansion of our operations; |
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research and development directed towards new products and
product enhancements; and |
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development of new distribution and resale channels,
particularly for small and midsize enterprises. |
Such increases in expenditures will depend, among other things,
upon ongoing results and evolving business needs. To the extent
such expenses precede or are not subsequently followed by
increased revenue, our quarterly or annual operating results
would be materially adversely affected and may vary
significantly from preceding or subsequent periods.
12
Because we conduct our operations throughout the world, our
results of operations may be affected by currency
fluctuations.
Although the euro has been our financial and reporting currency
since January 1, 1999, a significant portion of our
business is conducted in currencies other than the euro.
Approximately 63% of our consolidated revenue in 2005 was
attributable to operations in non-EMU member states and
translated into euro. As a consequence,
period-to-period
changes in the average exchange rate in a particular currency
can significantly affect reported revenue and operating results.
In general, appreciation of the euro relative to another
currency has a negative effect on reported results of
operations, while depreciation of the euro has a positive
effect, although such effects may be short term in nature.
Fluctuations in the value of the U.S. dollar, the Japanese
yen, the British pound, the Swiss franc, the Canadian dollar,
and the Australian dollar have historically provided the
greatest exposure to SAPs risk of currency fluctuations.
As our business in emerging markets such as India and China
continues to experience strong growth, these countries
respective currencies are growing in importance as well. We
continually monitor our exposure to currency risk and pursue a
company-wide foreign exchange risk management policy. We have in
the past and expect to continue in the future to at least partly
hedge such risks with certain financial instruments. There can
be no assurance that our hedging activities, if any, will be
effective. See Item 11. Quantitative and Qualitative
Disclosures about Market Risk Foreign Currency
Risk.
Our revenue mix may vary and may negatively affect our profit
margins.
Variances or slowdowns in our licensing activity may negatively
impact our current and future revenue from maintenance and
services since such maintenance and services revenues typically
lag behind and are dependent upon software revenue. We generally
license our products on a
right-to-use
basis pursuant to a perpetual license providing for an initial
license fee based on the number and types of users or other
applicable criteria. Maintenance fees, which are typically
prepaid by our customers for periods of three to twelve months,
are typically established based on a specified percentage of the
initial license fee. In addition, changes in our pricing model,
including an on-demand
pricing model, could lead to a decline or delay in software
sales and/or a decline or delayed increase in maintenance fees
as our sales force and our customers adjust to the new pricing
policies.
Any decrease in the percentage of our total revenue derived from
software licensing could have a material adverse effect on our
business, financial position, results of operations or cash
flows.
The cost of derivative instruments for hedging of the STAR
Plan may exceed the benefits of those arrangements.
Under our stock appreciation rights plan (the STAR
Plan), stock appreciation rights (STARs) are
granted to eligible employees of SAP. The STARs are primarily
granted in the first quarter of each year and generally give the
participants the right to a portion of the appreciation in the
market price of the ordinary shares for the relevant measurement
period. We have entered into in the past, and expect to enter
into in the future, derivative instruments to hedge all or a
portion of the anticipated cash flows in connection with the
STARs in the event cash payments to participants are required as
a result of an increase in the market price of the ordinary
shares. We believe hedging anticipated cash flows in connection
with the STARs limits the potential exposure associated with the
STAR Plan, including potentially significant cash outlays and
resulting compensation expense. There can be no assurance,
however, that the benefits achieved from hedging our STAR Plan
will exceed the related costs.
13
Managements use of estimates may affect our results of
operations and financial position.
Our financial statements are based upon the accounting policies
as described in Note 3 of our consolidated financial
statements included in Item 18. Financial
Statements. Such policies require management to make
significant estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenues and
expenses. Facts and circumstances which management uses in
making estimates and judgments may change from time to time and
may result in significant variations, including adverse effects
on our results of operations or financial position. See
Item 5. Operating and Financial Review and
Prospects Critical Accounting Policies.
Revenue recognition accounting pronouncements may adversely
affect our reported results of operations.
We continuously review our compliance with all new and existing
revenue recognition accounting pronouncements. Depending upon
the outcome of these ongoing reviews and the potential issuance
of further accounting pronouncements, implementation guidelines
and interpretations, we may be required to modify our reported
results, revenue recognition policies or business practices,
which could have a material adverse effect on our results of
operations. Our existing revenue recognition policies are
described in Note 3 to our consolidated financial
statements included in Item 18. Financial
Statements and in Item 5. Operating and
Financial Review and Prospects Critical Accounting
Policies.
The market price for our ADSs and ordinary shares may remain
volatile.
The trading prices of the ADSs and the ordinary shares have
experienced and may continue to experience significant
volatility. The current trading prices of the ADSs and the
ordinary shares reflect certain expectations about the future
performance and growth of SAP, particularly on a quarterly
basis. However, our revenue can vary, sometimes substantially,
from quarter to quarter, causing significant variations in
operating results and in growth rates compared to prior periods.
Any shortfall in revenue or earnings from levels projected by us
quarterly or from projections made by securities analysts could
have an immediate and significant adverse effect on the trading
prices of the ADSs or the ordinary shares in any given period.
Additionally, we may not be able to confirm our projections of
any such shortfalls until late in the quarter or following the
end of the quarter because license agreements are often executed
late in a quarter. Finally, the stock prices for many companies
in the software sector have experienced wide fluctuations, which
have often not been directly related to an individual
companys operating performance. The trading prices of our
ADSs and ordinary shares may fluctuate in response to various
factors including, but not limited to:
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the announcement of new products or product enhancements by us
or our competitors; |
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technological innovation by us or our competitors; |
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quarterly variations in our results of operations; |
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changes in revenue and revenue growth rates on a consolidated
basis or for specific geographic areas, business units, products
or product categories; |
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speculation in the press or financial community; |
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general market conditions specific to particular industries; |
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general and country-specific economic or political conditions
(particularly wars, terrorist attacks etc.); and |
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proposed and completed acquisitions or other significant
transactions by us or our competitors. |
14
Many of these factors are beyond our control. In the past,
companies that have experienced volatility in the market price
of their stock have been subject to securities class action
litigation. Any such securities class action litigation against
us, with or without merit, could result in substantial costs and
the diversion of managements attention and resources.
Project Risks
Customer implementation and installation of our products
involves significant resources and is subject to significant
risks.
Implementation of SAP software is a process that often involves
a significant commitment of resources by our customers and is
subject to a number of significant risks over which we have
little or no control. Some of our customers have incurred
significant third-party consulting costs and experienced
protracted implementation times in connection with the purchase
and installation of SAP software products. We believe that these
costs and delays were due in many cases to the fact that, in
connection with the implementation of the SAP software products,
these customers conducted extensive business re-engineering
projects involving complex changes relating to business
processes within the customers own organization. However,
criticisms regarding these additional costs and protracted
implementation times have been directed at us, and there have
been, from time to time, shortages of our trained consultants
available to assist customers in the implementation of our
products. In addition, the success of new SAP software products
introduced by us may be adversely impacted by the perceived time
and cost to implement existing SAP software products or the
actual time and cost to implement such new products. We cannot
provide assurances that protracted installation times or
criticisms of us will not continue, that shortages of our
trained consultants will not occur, or that our costs to perform
installation projects will not exceed the fees we receive when
fixed fees are charged by us.
Product Risks
Undetected errors, shortcomings in our security features or
delays in new products and product enhancements may result in
increased costs to us and delayed demand for our new
products.
To achieve customer acceptance, our new products and product
enhancements can require long development and testing periods,
which may result in delays in scheduled introduction. Generally,
first releases are licensed to a controlled group of customers
after a validation process. Such new products and product
enhancements may contain a number of undetected errors or
bugs when they are first released. As a result, in
the first year following the introduction of certain releases,
we work with our early customers to correct such errors. There
can be no assurance, however, that all such errors can be
corrected to the customers satisfaction, with the result
that certain customers may bring claims for cash refunds,
damages, replacement software or other concessions. The risks of
errors and their adverse consequences may increase as we seek to
introduce simultaneously a variety of new software products.
Significant undetected errors or delays in new products or
product enhancements may affect market acceptance of SAP
software products, and any such events could have a material
adverse effect on SAPs financial condition, cash flow,
results of operations and reputation.
The use of SAP software products by customers in
business-critical applications and processes and the increased
complexity of our software create the risk that customers or
other third parties may pursue warranty, performance or other
claims against us in the event of actual or alleged failures of
SAP software products, the provision of services or application
hosting. We have in the past been, and may in the future
continue to be, subject to such warranty, performance or other
similar claims.
15
In addition, certain of our Internet browser-enabled products
include security features that are intended to protect the
privacy and integrity of customer data. Despite these security
features, our products may be vulnerable to break-ins and
similar problems caused by Internet users, such as hackers
bypassing firewalls and misappropriating confidential
information. Such break-ins or other disruptions could
jeopardize the security of information stored in and transmitted
through the computer systems of our customers. Addressing
problems and claims associated with such actual or alleged
failures could be costly and have a material impact on our
operations.
Although our agreements generally contain provisions designed to
limit our exposure as a result of actual or alleged failures of
SAP software products or the provision of services, such
provisions may not cover every eventuality or be effective under
applicable law. Any claim, regardless of its merits, could
entail substantial expense and require the devotion of
significant time and attention by key management personnel. The
accompanying publicity of any claim, regardless of its merits,
could adversely affect the demand for our software.
If we are unable to keep up with rapid technological changes,
we may not be able to compete effectively.
Our future success will depend in part upon our ability to:
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continue to enhance and expand our existing products and
services; |
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provide best-in-class
business solutions and services; and |
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develop and introduce new products and provide new services that
satisfy increasingly sophisticated customer requirements, that
keep pace with technological developments and that are accepted
in the market. |
There can be no assurance that we will be successful in
anticipating and developing product enhancements or new
solutions and services to adequately address changing
technologies and customer requirements or that we will be able
to generate enough revenues to offset the significant research
and development costs we incur in bringing these products and
services to the market. We may fail to anticipate and develop
technological improvements, to adapt our products to
technological change, changing country-specific regulatory
requirements, emerging industry standards and changing customer
requirements or to produce high-quality products, enhancements
and releases in a timely and cost-effective manner in order to
compete with applications and other technologies offered by our
competitors.
We depend on technology licensed to us by third parties, and
the loss of this technology could delay implementation of our
products or force us to pay higher license fees.
We license numerous third-party technologies that we incorporate
into our existing products, on which, in the aggregate, we may
be substantially dependent. There can be no assurance that the
licenses for such third-party technologies will not be
terminated or that we will be able to license third-party
software for future products. In addition, we may be unable to
renegotiate acceptable third-party license terms to reflect
changes in our pricing models. While we do not believe that one
individual technology we license is material to our business,
changes in or the loss of third-party licenses could lead to a
material increase in the costs of licensing or to SAP software
products becoming inoperable or their performance being
materially reduced, with the result that we may need to incur
additional development costs to ensure continued performance of
our products.
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Our strategy to position SAP NetWeaver as a business process
platform may not succeed or may make certain of our products
less desirable.
In 2003, we announced the introduction of the SAP NetWeaver
platform, an integration and application platform. With SAP
NetWeaver, customers could easily integrate systems, as well as
develop, deploy, run, and maintain software programs. This new
and innovative platform provided the foundation for running both
SAP and external applications. We have devoted a significant
amount of resources to the development and marketing of the SAP
NetWeaver platform to gain awareness and market share.
In 2004, a more consolidated release of the SAP NetWeaver
platform became available to customers. With this release,
technology components were unified in a single platform reducing
the need for custom integration and ensuring that
mission-critical business processes were reliable, secure, and
scalable. Also in 2004, we announced that the SAP NetWeaver
platform provided the technical foundation for enterprise
services architecture (ESA), a business-driven software
architecture for the creation of services-based,
enterprise-scale solutions. ESA takes the concept of
service-oriented architecture (SOA) to a new level by
transforming Web services into enterprise services. ESA supports
business requirements through the use of enterprise services to
compose applications and extend existing systems. The SAP
NetWeaver 2004s release has evolved to become a composition
platform with model-based development that customers can use to
enhance open enterprise services that are delivered by mySAP
Business Suite applications.
In 2005, we announced the evolution of the SAP NetWeaver
platform into a business process platform. As a business process
platform, SAP NetWeaver combines infrastructure technology with
preconfigured application and process components for the quick
composition and deployment of innovative business processes.
The failure to receive acceptance from customers of the SAP
NetWeaver platform, development by competitors of superior
technology or significant errors in the solution could have a
material adverse impact on our revenues, earnings and results of
operations.
A key component of our strategy for a broad adoption of the SAP
NetWeaver platform as a business process platform is to work
with our customers and partners to develop reusable enterprise
services and process components that are stored in an enterprise
repository. As such, we are working with certified third-party
ISVs and the SAP NetWeaver platform serves as a basis for those
ISVs to develop and offer their own business applications. To
the extent that SAP cannot attract a sufficient number of
capable ISVs delivering high-quality solutions based on the
platform, the desired market penetration of SAP NetWeaver may
not be achieved. Any ISV-developed solutions with significant
errors may reflect negatively on SAPs reputation and thus
indirectly impede SAPs own business operations. In
addition, as with any open platform design, the greater
flexibility provided to customers to use data generated by
non-SAP software may reduce customer demand to elect and use
certain of our software products.
Other Operational Risks
We may not be able to protect our intellectual property
rights, which may cause us to incur significant costs in
litigation and erosion in the value of our brands and
products.
We rely on a combination of the protections provided by
applicable trade secret, copyright, patent and trademark laws,
license and non-disclosure agreements and technical measures to
establish and protect our rights in our products. Despite our
efforts, there can be no assurance that these protections will
be adequate or that our competitors will not independently
develop technologies that are substantially equivalent or
superior to our technology. Also, it may be possible for third
parties to copy certain portions of our products or reverse
engineer or otherwise obtain and use information that we regard
as proprietary. Accordingly, there can be no assurance that we
will be able to protect our proprietary software against
unauthorized third-party
17
copying or use, which could adversely affect our competitive
position. In addition, the laws of certain countries do not
protect our proprietary rights to the same extent as do the laws
of the U.S. or Germany.
Some of our competitors or entities focusing on patent
acquisition and licensing may have been more aggressive than we
have in applying for or obtaining patent protection for
innovative proprietary technologies.
We have been issued patents under our patent program and have a
number of patent applications pending for inventions claimed by
us. Nonetheless, the use of open-source software has become more
prevalent in the development of software solutions in the
software industry. Accordingly, we are selectively embedding in
our software certain third-party open-source software
components, which include software code subject to a license
that typically requires that the code be freely transferable. We
have implemented strict and detailed approval processes around
the deployment of such components which involve, among other
things, a thorough check of any corresponding licensing terms.
There can be no assurance that, in the future, patents of third
parties will not preclude us from utilizing certain technology
in our products or require us to enter into royalty and
licensing arrangements on terms that are not favorable to us.
Furthermore, there can be no assurance that, in the future, a
third party will not assert that our products or our deployment
of third-party software, including open source software, violate
its patents, copyrights or trade secrets. Although we do not
believe that we are infringing any proprietary rights of others,
third parties have claimed and may claim in the future that we
have infringed their intellectual property rights. Our software
products have been, and we believe will increasingly be, subject
to such claims as the number of products in our industry segment
grows, as we expand our products into new industry segments and
as the functionality of products overlap. Any claims, with or
without merit, could be time-consuming, result in costly
litigation, cause product shipment delays, subject our products
to an injunction, require a complete or partial re-design of the
relevant product, result in delays by customers in making
spending decisions or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at
all.
If we acquire other companies, we may not be able to
integrate their operations effectively and, if we enter into
strategic alliances, we may not work successfully with our
alliance partners.
In order to complement or expand our business, we have made and
expect to continue to make acquisitions of additional
businesses, products and technologies, and have entered into,
and expect to continue to enter into, a variety of alliance
arrangements. Our current strategy for growth includes, but is
not limited to, the acquisition of companies with the aim of
strengthening our geographic reach, broadening our offerings in
particular industries, or complementing our technology
portfolio. Managements negotiation of potential
acquisitions or alliances, and managements integration of
acquired businesses, products or technologies could divert its
time and resources. In addition, risks commonly encountered in
such transactions include:
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inability to successfully integrate the acquired business; |
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inability to integrate the acquired technologies or products
with our current products and technologies; |
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potential disruption of our ongoing business; |
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inability to retain key technical and managerial personnel; |
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dilution of existing equity holders caused by capital stock
issuances to the stockholders of acquired companies or capital
stock issuances to retain employees of the acquired companies; |
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assumption of unknown material liabilities of acquired companies; |
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incurrence of debt or significant cash expenditure; |
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difficulty in implementing or maintaining controls, procedures
and policies; |
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potential adverse impact on our relationships with partner
companies or third-party providers of technology or products; |
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impairment of relationships with employees and customers; |
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regulatory constraints; and |
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problems with product quality, product architecture, legal
contingencies, product development issues or other significant
risks that may not be detected through the due diligence process. |
In addition, acquisitions of additional businesses may require
large write-offs of any in-process research and development
costs related to companies being acquired and amortization costs
related to certain tangible and intangible assets that are
acquired. Ultimately, certain acquired businesses may not
perform as anticipated, resulting in charges for the impairment
of goodwill and/or other intangible assets. Such write-offs and
amortization charges may have a significant negative impact on
operating margins and net income in the quarter in which the
business combination is completed and subsequent periods. In
addition, we have entered and expect to continue to enter into
alliance agreements for the purpose of developing new products
and services. There can be no assurance that any such products
or services will be successfully developed or that we will not
incur significant unanticipated liabilities in connection with
such arrangements. We may not be successful in overcoming these
risks or any other problems encountered in connection with any
such transactions and may therefore not be able to receive the
intended benefits of those acquisitions or alliances.
We may incur losses in connection with venture capital
investments.
We have acquired and expect to continue to acquire equity
interests in or make advances to technology-related companies,
many of which currently generate net losses. Such activities may
individually and in the aggregate involve significant capital
outlay. Most of these companies are recently established. It is
possible that changes in market conditions, the performance of
companies in which we hold investments or to which we have made
advances or other factors negatively impact our results of
operations and financial position or our ability to recognize
gains from the sale of marketable equity securities.
Additionally, under German tax laws capital losses or
write-downs of equity securities are not tax deductible, which
may negatively impact our effective tax rate, cash flows and net
income going forward. See Item 5. Operating and
Financial Review and Prospects Critical Accounting
Policies Realizability of Venture Capital
Investments.
Our insurance coverage may not be sufficient to avoid
negative impacts on our financial position or results of
operations resulting from the settlement of claims.
We maintain extensive insurance coverage for protection against
many risks of liability. The extent of insurance coverage is
regularly reviewed and is modified if we deem it necessary. Our
goal of insurance coverage is to ensure that the financial
effects, to the extent practicable at reasonable cost, resulting
from risk occurrences are excluded or limited. Despite these
measures, certain categories of risks are not currently
insurable at reasonable cost. Even where we obtain insurance,
our coverage is subject to exclusions that may limit or prevent
availability to recover under those policies. Any failure to
obtain or recover under insurance policies may result in a
significant adverse impact on our financial position or results
of operations.
We are subject to claims and lawsuits against us that may
result in adverse outcomes.
We are subject to a variety of claims and lawsuits. Adverse
outcomes in some or all of the claims pending against us may
result in significant monetary damages or injunctive relief
against us that could
19
adversely affect our ability to conduct our business. While
management currently believes that resolving all of these
matters, individually or in the aggregate, will not have a
material adverse impact on our financial position or results of
operations, litigation and other claims are by their nature
subject to inherent uncertainties, and managements view of
these matters may change in the future. Actual outcomes of
litigation and other claims may differ from the judgments made
by management in prior periods, which could result in a material
adverse impact on our financial position and results of
operations.
ITEM 4. INFORMATION ABOUT SAP
Our legal corporate name is SAP AG, which was changed during
2005 from SAP Aktiengesellschaft Systeme, Anwendungen, Produkte
in der Datenverarbeitung. SAP AG is translated in English to SAP
Corporation. SAP AG was incorporated under the laws of the
Federal Republic of Germany in 1972. Where the context requires
in the discussion below, SAP AG refers to our predecessors,
Systemanalyse und Programmentwicklung GbR (1972-1976) and SAP
Systeme, Anwendungen, Produkte in der Datenverarbeitung GmbH
(1976-1988). SAP AG became a stock corporation
(Aktiengesellschaft) in 1988. Our principal executive
offices, headquarters and registered office are located at
Dietmar-Hopp-Allee 16, 69190 Walldorf, Germany. Our
telephone number is +49-6227-7-47474. SAP AGs agent for
U.S. federal securities law purposes in the U.S. is
Brad Brubaker. He can be reached c/o SAP America, Inc. at
3999 West Chester Pike, Newtown Square, PA 19073.
AVAILABILITY OF THIS REPORT
We intend to make this Annual Report on
Form 20-F and
other periodic reports publicly available on our Web site
(www.sap.com) without charge immediately following our filing
with the U.S. Securities and Exchange Commission. We assume
no obligation to update or revise any part of this Annual Report
on Form 20-F,
whether as a result of new information, future events or
otherwise, unless we are required to do so by law.
DESCRIPTION OF THE BUSINESS
Overview
SAP was founded in 1972 and is today one of the worlds
leading providers of business software solutions and one of the
worlds three largest independent software companies based
on market capitalization.
Today, SAP has around 32,000 customers with more than 100,000
installations in over 120 countries and employs more than 35,000
people in more than 50 countries in the Europe, Middle East, and
Africa (EMEA), Americas, and Asia-Pacific regions.
SAPs core business is developing and licensing SAP
business software solutions. The product portfolio includes the
SAP NetWeaver platform, and the following software applications:
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mySAP Business Suite applications, which help enterprises
improve business operations ranging from supplier relationships
to production to warehouse management, sales, and all
administrative functions, through to customer relationships |
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Qualified mySAP
All-in-One partner
solutions and the SAP Business One applications for small and
midsize enterprises (SMEs) |
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Specific solutions for more than 25 industries in industry
sectors such as financial services, consumer products, public
service, process industry, service industry and discrete
industry sectors |
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SAP also sells maintenance, consulting, and training services
associated with its software products. Furthermore, SAP develops
and markets products in close cooperation with business partners.
The company is listed on several exchanges, including the
Frankfurt Stock Exchange and the New York Stock Exchange
(NYSE) under the symbol SAP.
Evolution of SAP Solutions
We introduced our first generation of software in 1973,
initially consisting of only a financial accounting application.
The software was later expanded to include materials management.
Expanding beyond this first generation, SAP began to develop
integrated, cross-functional, multi-language, multi-currency
solutions for a broader range of business processes. In 1981,
SAP introduced our second generation of application software,
the SAP R/2 system, which could be installed on an
enterprise-wide basis. SAP R/2 was our first enterprise resource
planning (ERP) system, designed to integrate all
aspects of business, including distribution centers, field
operations centers, corporate headquarters, and sales offices.
Among its many functions, SAP R/2 included cost accounting,
human resource management, logistics, and manufacturing. We
believe that SAP R/2 also reduced processing bottlenecks by
improving and accelerating user access to data.
In 1988, we anticipated and capitalized upon growth in the
demand for more decentralized business software solutions.
During this period, we designed the initial version of the SAP
R/3 system, moving from mainframe computers to open systems such
as client/server networks composed of multiple computers.
Introduced in 1992, SAP R/3 offered the functionality of SAP R/2
in an open, three-tier, client/server architecture, and quickly
became the category leader in ERP systems. We believe that SAP
R/3 not only improved manufacturing efficiency but also improved
the efficiency of such processes as distribution, finance,
sales, procurement, inventory, and human resources. In the years
following the introduction of SAP R/3, we also introduced
several new business software applications and enhanced existing
products to operate independently of SAP R/3.
During the 1990s, we introduced several solutions built on SAP
R/3 to provide capabilities tailored to specific industries. In
addition, we developed new solutions to address a variety of
critical business issues Emerging customer needs also led us to
create additional solutions.
In 1999, we introduced the mySAP.com
e-business platform.
This Internet-based platform not only linked together disparate
business functions but also enabled collaboration among
different organizations. As a result, it enabled organizations
to participate in a larger collaborative community of customers,
suppliers, and partners, which could shift functions and
responsibilities as needed.
In 2002, we renamed mySAP.com as mySAP Business Suite. mySAP
Business Suite is a family of business applications that help
organizations manage their entire value chains across extended
business networks. mySAP Business Suite is designed to allow
organizations to excel in a business environment that requires
rapid adaptation to changing business conditions.
In 2003, the SAP NetWeaver integration and application platform
was launched, allowing organizations to integrate systems and to
develop, deploy, and maintain software programs. The SAP
NetWeaver platform is designed to allow easy integration of key
business processes in both SAP and non-SAP solutions. SAP
NetWeaver also became the platform upon which all SAP solutions
are delivered. In addition, we announced the successor to SAP
R/3 called mySAP ERP. mySAP ERP provides organizations with a
comprehensive enterprise resource planning solution that can be
extended through the addition of other SAP applications, such as
mySAP Customer Relationship Management, mySAP Supply Chain
Management, and mySAP Supplier Relationship Management. mySAP
ERP is part of the mySAP Business Suite family of applications
and is powered by the SAP NetWeaver platform.
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Responding to the growing requirement for increased business
flexibility and inter-operability between heterogeneous
applications, we unveiled in 2004 enterprise services
architecture (ESA), a blueprint for the creation of
services-based, enterprise-scale solutions extending
service-oriented architecture design fundamentals. A service is
a self-contained task or piece of functionality that can be
accessed by applications using open standards. Enterprise
services represent reusable, more meaningful building blocks,
aggregating granular service modules, for composing applications
to automate complex enterprise business processes and scenarios.
Enterprise services can communicate business logic between
software applications running on disparate platforms. ESA offers
the potential for increased adaptability, flexibility, and
openness.
The SAP NetWeaver platform is the foundation for ESA. We are
actively working today to build enterprise services into our own
applications and to create a repository of enterprise services
for use by selected partners and customers. We have created an
ESA adoption program that is designed for SAP and companies in
our partner network to demonstrate the potential benefits of ESA
to prospective and existing customers.
SAPs Strategy
SAPs strategy is to build on a strong position in the core
enterprise applications segment and grow into adjacent lines of
business serving customers with new offerings by leveraging ESA
and working with an increasingly broad set of software partners.
The intent of the strategy remains to increase software license
sales, segment share and profitability.
We plan to grow within our core segment of enterprise
applications by increasing our penetration within existing
accounts and by expanding our reach to new customers in
potentially higher-growth market segments, industries and new
geographies. We plan to grow sales by focusing on the small and
midsize enterprise (SME) segment, providing attractive
offerings to nonexpert business users and by delivering an
application platform through which partners and customers can
build, adapt, and run business applications. Although
acquisitions may occur, we plan to support this growth strategy
principally with organic development of our product portfolio.
Significant changes in customer requirements are emerging, such
as the need for flexibility and interoperability between
heterogeneous software systems, driven by broad economic trends
including globalization and technology advancements. We see
globalization as a trend that is increasing competition
worldwide and establishing requirements for connectivity and
interdependence among the worlds markets, businesses, and
governments. In this environment, businesses are seeking greater
integration and flexibility in their business applications. The
IT industry has responded by introducing service-oriented
architectures that allow disparate systems to work together more
efficiently and effectively through the use of broadly accepted
development and communications standards. Our product strategy
directly addresses these new customer requirements through ESA.
As part of our ESA strategy, we are currently working to
transform the SAP NetWeaver platform as a business process
platform. The business process platform will include enterprise
services built into our own applications and the creation of a
repository of enterprise services for use by customers and
partners. The business process platform is intended to allow
customers and partners to develop new composite business
applications more easily using enterprise services, as well as
allowing our software products and technology to provide greater
flexibility and added value to customers. We expect this to
create increased demand for our application software products
and related technology and services. In addition, the business
process platform will allow us to improve our efficiency and
reduce time-to-market
by allowing the reuse of software components in development, and
by permitting the creation of composite applications more
rapidly than traditional modes of application software
development. Composite applications created by software partners
will complement and extend our products, allowing us to reach a
larger market.
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Going forward, our global services and field services
organizations will remain an important part of successfully
executing our strategic road map. The crucial role of services
is to develop innovative ways to support the sale of software
directly and indirectly. Our services will provide
ramp-up services for
new products, teach and lead other systems integrators, provide
quality assurance (particularly in partner-led implementations)
and find ways to streamline and standardize our services to make
their delivery more efficient overall.
Strategic Road Map
We envision a path of profitable growth in three stages through
2010.
Through 2006, we will continue to focus on building world-class
processes and products to drive efficiency for our customers. We
expect to create incremental growth primarily based on existing
solutions, including mySAP Business Suite applications, while
continuing to promote some of the new offerings, such as the SAP
NetWeaver platform, SAP xApp Analytics, Mendocino and SAP CRM
on-demand solutions. Mendocino is a code name for a joint
product from Microsoft and SAP that allows for the exchange of
information between SAPs application software and
Microsoft®
Office products. SAP CRM on-demand solutions provide a hosted
customer relationship management service that incorporates
software functions, hosting and maintenance services using a
subscription pricing model.
To support the ESA standard, we intend to continue to recruit
ISVs and IT vendors who develop solutions for the SAP NetWeaver
platform.
In 2007 and beyond, we plan to deliver the next wave of products
to market, including new SAP industry solution portfolios and an
ESA-based solution for SMEs. In addition, we expect to see a new
set of ISV solutions delivered on the SAP NetWeaver platform and
commensurate platform-based revenues.
In 2008 and beyond, we plan to further promote the adoption of
ESA and the SAP NetWeaver platform and further expand our base
of partners. mySAP Business Suite is expected to be fully
services-enabled through the SAP NetWeaver platform. During this
phase, we also intend to deliver additional next-generation
products.
Strategic Priorities for 2006
The Executive Board has established four priorities for 2006:
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To increase our market share, especially in the SME segment |
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To focus on increasing profitability by improving productivity
in all areas |
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To better serve SAP users with new products such as Mendocino,
SAP CRM on-demand solutions and analytical applications |
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To help customers transition to and gain benefits from ESA |
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SAP Product and Service Portfolio
We offer the following products and services:
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Products
We license components of our software solutions on an individual
user basis. Licenses may be issued for individual solutions and
applications or for mySAP Business Suite, which is described
below. In addition to the user licenses for a solution, certain
specialized functionality that is not user-specific may be
licensed separately as one of our software engines.
Applications
mySAP Business Suite
mySAP Business Suite is a group of business applications that
aims at enabling organizations to manage the entire value chain
across business networks. Each application is available
individually or in combination with other applications or
solutions, and each is based on the SAP NetWeaver platform.
mySAP Business Suite applications help increase the
effectiveness of business relationships and streamline the
management of an organizations overall information
technology (IT) infrastructure. Because of their flexible
platform, mySAP Business Suite applications may be deployed on a
variety of computer hardware types and software operating
systems.
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mySAP Business Suite consists of the following SAP applications:
mySAP CRM, mySAP ERP, mySAP PLM, mySAP SCM and mySAP SRM.
mySAP Customer Relationship Management
(mySAP CRM)
mySAP CRM is a customer relationship management
(CRM) application that provides functions to manage the
entire customer interaction cycle. It contains industry-specific
capabilities that support marketing, sales and service
departments. The application provides the ability to view and
manage data related to each customer interaction, including
those interactions occurring through field organizations, the
Internet, interaction centers and channel partners. mySAP CRM
helps businesses:
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Identify and engage potential customers; |
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Perform business transactions with customers; |
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Fulfill individual customer needs as contracted; and |
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Provide after-sales care such as customer service and product
maintenance. |
mySAP ERP
mySAP ERP is an enterprise resource planning
(ERP) application that contains a broad range of functions
that support analytics, human capital management, financials,
procurement and logistics execution, product development and
manufacturing, sales and service and corporate services. mySAP
ERP includes the following four solutions that support key
functional areas:
Financials
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|
|
The mySAP ERP Financials solution is a finance, analytics,
accounting, and financial compliance solution that is designed
to help organizations handle financial transactions, process and
interpret financial and business data and implement financial
reporting controls for corporate governance. |
Human
Capital Management (HCM)
|
|
|
The mySAP ERP HCM solution is designed to help organizations
optimize their investment in their employees. It enables
organizations to enhance workforce performance by helping to
streamline a wide range of essential human resources
transactions and processes, including compliance with global
regulatory requirements. It supports administration, payroll,
benefits, legal reporting, online recruiting, blended learning,
organizational management, compensation, manager self-services,
employee collaboration and workforce analytics. |
Corporate
Services
|
|
|
The mySAP ERP Corporate Services solution helps organizations
support and streamline administrative processes in the areas of
project portfolio management; quality management; audit
management; environment, health and safety; travel management;
and real estate management. Although these processes exist in
most enterprises, they are often viewed as not differentiating
an entity from its peers. Therefore, our customers seek to
conduct these processes with the utmost efficiency. mySAP ERP
Corporate Services is designed to optimize these services
through greater visibility into performance, greater control,
and reduced financial and environmental risks. |
26
Operations
|
|
|
The mySAP ERP Operations solution provides functions for
automating and streamlining procurement and logistics execution,
product development and manufacturing and sales and service. The
solution also provides tools for analyzing data for better
decision-making, as well as functions to promote individual
employee productivity. |
mySAP Product Lifecycle Management
(mySAP PLM)
The mySAP PLM application is designed to enable organizations to
manage the complete lifecycle of a product, from initial concept
design and engineering to production
ramp-up and product
change management to service and maintenance. It is designed to
align product development priorities with business strategy
through portfolio management, idea and concept management and
requirements management. It enables organizations to manage the
product development process and facilitate collaboration through
project, resource and cost management, thereby helping to bring
products to market on time and within cost. mySAP PLM also
enables organizations to effectively utilize cross-functional
teams and achieve environmental, health and safety compliance by
managing product life-cycle data, including documents, product
master and structure, process recipes, service and maintenance
structure and any changes to these data.
mySAP Supply Chain Management (mySAP SCM)
The mySAP SCM application enables organizations to manage their
supply chain by helping to synchronize the entire supply chain,
from sourcing through manufacturing, distribution and
fulfillment. It also assists in integrating these processes
within the enterprise as well as across the network of
suppliers, customers and business partners. mySAP SCM enables
organizations and their partners to easily view inventory
levels, orders, supplier and customer allocations, forecasts,
production plans and key performance indicators so that they can
work together with greater coordination. In addition, mySAP SCM
monitors advanced planning, fulfillment, logistics, warehousing
and transportation processes with radio frequency identification
(RFID)-enabled sense-and-respond capabilities to optimize the
flow of goods and creates alerts in the event of deviation from
plans.
mySAP Supplier Relationship Management
(mySAP SRM)
mySAP SRM is an application that enables organizations to manage
their spending with suppliers. mySAP SRM simplifies and
automates the procurement process through a self-service
requisitioning process. It includes functions for supplier
qualification, negotiation and contract management processes. In
addition, mySAP SRM enables trading partners to collaborate on
specifications and request-for-quotation processes as well as to
process orders and manage invoices electronically.
SAP Manufacturing
The SAP Manufacturing solution is designed to allow discrete and
process manufacturers to plan, schedule and sequence, execute
and monitor production and maintenance while supporting
compliance with health and safety standards. It enables
companies to integrate manufacturing with the supply chain and
other enterprise business processes. It also allows users to
detect material, capacity, order, machine and labor exceptions.
SAP Manufacturing runs on the SAP NetWeaver platform.
27
SAP Service and Asset Management
The SAP Service and Asset Management solution enables
organizations to install, maintain, repair and uninstall or
decommission products, equipment, assets and facilities. SAP
Service and Asset Management allows service and maintenance
organizations to grow service-related revenues when service is
delivered for a fee, improve service efficiency and
productivity, reduce service and maintenance costs, increase
equipment uptime and reliability, trim investments in service
spare parts, improve return on assets (ROA), improve bottom-line
performance and increase customer and end-user satisfaction and
loyalty.
SAP Service and Asset Management runs on the SAP NetWeaver
platform.
SAP xApps Composite Applications
In 2002, we announced the SAP xApps family of composite
applications, a new breed of applications. SAP xApps composite
applications are either general-purpose or industry-specific
composite applications that integrate with customers
existing business applications and infrastructure in order to
create more value from those applications and infrastructure.
The SAP xApps family of composite applications refers to a
specific category of composite applications based on the SAP
NetWeaver platform and enterprise services.
SAP xApps composite applications are designed to support
innovative business processes and to deliver specific business
benefits. The first composite application introduced in the SAP
xApps family was the SAP xApp Resource and Portfolio Management
(SAP xRPM) composite application. SAP xRPM is a project and
portfolio management application that can utilize business
information from disparate systems and sources in the
performance of business processes. As with the rest of the SAP
xApps portfolio, SAP xRPM is a composite application that is
delivered with pre-built, services-based integration to various
desktop, human resources, financial, and project management
systems.
SAP
xApps Composite Applications for Mobile Business
|
|
|
SAP xApps composite applications for mobile business are
designed to allow users of the mySAP Business Suite applications
to access required business processes through standard mobile
devices, such as personal digital assistants (PDAs) and mobile
phones. SAP currently delivers the following composite
applications for mobile business: SAP xApp Mobile Sales, SAP
xApp Mobile Service, SAP xApp Mobile Asset Management, and SAP
xApp Mobile Time and Travel. These composite applications run in
an occasionally connected mode, which allows users
to run their business processes with or without a network
connection. The underlying technology which enables this
capability is SAP NetWeaver Mobile, one of the components of the
SAP NetWeaver platform. |
SAP
xApp Analytics
|
|
|
The SAP xApp Analytics composite application is designed to help
business users take appropriate actions based on comprehensive
views of their business data. SAP xApp Analytics allows users to
analyze data from disparate sources, including third-party
applications, legacy systems and externally syndicated
information sources. SAP xApp Analytics also allows users to
extend existing functionality, as well as to create their own
analytic applications. |
Other SAP xApps composite applications currently available
include SAP Global Trade Services (SAP GTS), SAP xApp Emissions
Management (SAP xEM), SAP xApp Product Definition (SAP xPD), SAP
xApp Cost and Quotation and Management (SAP xCQM), SAP xApp
Manufacturing Integration and Intelligence (SAP xMII), and SAP
xApp Integrated Exploration and Production (SAP xIEP). SAP
software and consulting partners can also develop SAP
xApps Certified composite applications.
28
SAP Industry-Specific Solution Portfolios
Business requirements and processes vary by industry. SAP has
developed portfolios of industry-specific solutions that are
based on mySAP Business Suite applications to support distinct
business processes. These portfolios reflect SAPs
extensive experience in servicing the unique needs of each of
these industries. The portfolios are regularly updated based on
insights gained from our close relationships with our customers
and various industry groups.
Our industry portfolios are grouped into six industry sectors as
shown below:
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Process Industries
|
|
Services Industries |
SAP for Chemicals
|
|
SAP for Media |
SAP for Mill Products
|
|
SAP for Logistics Service Providers |
SAP for Oil & Gas
|
|
SAP for Postal Services |
SAP for Mining
|
|
SAP for Railways |
|
|
SAP for Telecommunications |
Discrete Industries
|
|
SAP for Utilities |
SAP for Aerospace & Defense
|
|
SAP for Professional Services |
SAP for Automotive
|
|
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SAP for Engineering, Construction &
Operations
|
|
Financial Services |
SAP for High Tech
|
|
SAP for Banking |
SAP for Industrial Machinery & Components
|
|
SAP for Insurance |
|
Consumer Industries
|
|
Public Services |
SAP for Consumer Products
|
|
SAP for Healthcare |
SAP for Retail
|
|
SAP for Higher Education & Research |
SAP for Wholesale Distribution
|
|
SAP for Public Sector |
SAP for Life Sciences
|
|
SAP for Defense & Security |
SAP Solutions for Small and Midsize Enterprises
SAP provides a broad range of business solutions for small and
midsize enterprises (SMEs), which we define as companies with
fewer than 2,500 employees or translated revenue of less than
U.S.$1 billion. In general, the combination of certain
criteria will determine the solutions and channel by which our
customers purchase and implement SAP solutions. These criteria
include:
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company revenue; |
|
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number of employees; |
|
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standardized versus more custom solutions; and |
|
|
|
level of desired partner involvement. |
We regard the SME segment as consisting of two sub-segments:
|
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|
|
In the lower-end segment are those companies that require
prepackaged business solutions, and |
|
|
|
In the higher-end segment are those companies that require more
preconfigured and custom solutions. |
29
Based on this segmentation, SAP solution offerings for the SME
segment consist of the following:
SAP
Business One
|
|
|
The SAP Business One application is a business management
application designed specifically for small businesses to enable
them to integrate and automate their business processes via a
single application. In addition, SAP Business One is targeted
for subsidiaries of larger corporations which have adopted SAP
solutions. It contains an intuitive user interface and supports
business processes such as financial management, customer
relationship management, purchasing, inventory management and
manufacturing. It can be extended via a software development kit
by customers and local partners for industry specific
applications. SAP Business One is based on the technology gained
through SAPs 2002 acquisition of TopManage. |
mySAP
All-in-One Partner
Solutions
|
|
|
Qualified mySAP
All-in-One partner
solutions, which are delivered through a network of approved SAP
channel partners, are based on mySAP Business Suite applications
and SAP Best Practices that provide predefined business
processes, and are designed to help customers and partners
implement the software easily and quickly. SAP channel partners
that offer mySAP
All-in-One partner
solutions build upon the foundation of the best practices
incorporated into the product and provide additional support for
other industry-specific best practices based on their unique
knowledge and expertise. Qualified mySAP
All-in-One partner
solutions are sold, deployed, and supported exclusively by SAP
channel partners as a defined-scope implementation with
consulting services. There are currently over 550 qualified
mySAP All-in-One
partner solutions available worldwide. |
SAP
Packaged Solutions
|
|
|
We offer SAP packaged solutions based on mySAP Business Suite
and pre-configured SAP Best Practices. We offer several types of
SAP packaged solutions, including: general-purpose SAP ERP
packaged solutions; SAP ERP packaged solutions that address the
needs of a particular industry, such as the SAP ERP Automotive
Supplier packaged solution; and the SAP Marketing and Campaign
Management packaged solution. |
Platform
The SAP NetWeaver Platform
As the technical foundation for enterprise services architecture
(ESA), the SAP NetWeaver platform is designed to enable
customers to integrate and process business information from
disparate SAP or non-SAP sources in a variety of ways.
The SAP NetWeaver platform incorporates flexible Web
services-based integration capabilities in a unified platform.
The SAP NetWeaver platform aims at making it easier for
customers to link both non-SAP and SAP applications to work
together. It is based on industry standards and can be extended
with commonly used development tools such as Java 2 Platform,
Enterprise Edition (J2EE), Microsoft .NET, and IBM WebSphere.
The SAP NetWeaver platform provides a composition platform that
enables IT departments to compose and orchestrate enterprise
services using model-based development. With these enterprise
services, organizations can rapidly enhance their existing
business processes or develop and deploy new business processes.
We believe that the SAP NetWeaver platform gives customers new
ways of making use of their
30
current application investments while also allowing them to
create new applications that are composed of components from
older, pre-existing applications.
SAP NetWeaver is the platform for the mySAP Business Suite
family of business applications, SAP xApps composite
applications and many partner solutions.
To help IT departments meet business requirements, we identify
common IT practices and provide a tool that organizations can
use to match business requirements to IT solutions based on the
SAP NetWeaver platform. For each IT practice, the SAP NetWeaver
platform supports a variety of key IT activities, all of which
can be performed using the integrated components of the SAP
NetWeaver platform.
The SAP NetWeaver platform supports the following IT practices:
User
Productivity Enablement
|
|
|
SAP NetWeaver promotes enhanced collaboration, optimized
knowledge management, enterprise search, business task
management and personalized access to critical applications and
data using Web-based portals and mobile interfaces. These IT
activities are enabled by the SAP NetWeaver Portal component,
including its knowledge management and collaboration
functionality, and the SAP NetWeaver Mobile component. |
Data
Unification
|
|
|
SAP NetWeaver helps IT organizations ensure that all master
data, including user-defined data and data related to customers,
suppliers and employees, is accurate, free of duplicate records
and normalized. Data unification can be achieved through
master-data consolidation, master-data harmonization, central
master-data management, enterprise data warehousing, product
content management, and global data synchronization. These IT
activities are enabled by SAP NetWeaver components such as SAP
NetWeaver Master Data Management (SAP NetWeaver MDM), SAP
NetWeaver Exchange Infrastructure (SAP NetWeaver XI), and SAP
NetWeaver Business Intelligence (SAP NetWeaver BI). |
Business
Information Management
|
|
|
With the SAP NetWeaver platform, IT organizations can increase
the visibility and reach of structured and unstructured
enterprise data and help people at various levels and locations
turn disparate raw data into integrated, meaningful, and
actionable information. Business information management can be
achieved through enterprise reporting, query, and analysis;
business planning and analytical services; enterprise data
warehousing; enterprise knowledge management; and enterprise
search. These IT activities are enabled by SAP NetWeaver
components such as SAP NetWeaver BI, SAP NetWeaver XI, and the
knowledge management functionality of SAP NetWeaver Portal. |
Business
Event Management
|
|
|
With the SAP NetWeaver platform, organizations can manage
business events by monitoring business activity, managing
business tasks and enabling an Auto-ID
infrastructure integrating automated communication
and sensing devices including radio frequency identification
(RFID) readers and printers, Bluetooth devices, embedded
systems, and bar-code devices. These IT activities are enabled
by SAP NetWeaver components such as SAP NetWeaver Portal, SAP
NetWeaver BI, SAP NetWeaver XI, and SAP Auto-ID Infrastructure. |
31
End-to-End
Process Integration
|
|
|
With the SAP NetWeaver platform, IT organizations can make
disparate applications and business partners systems work
together consistently to perform business processes, exchanging
information and executing transactions.
End-to-end process
integration can be provided through
application-to-application
processes,
business-to-business
processes, business process management, business task management
and platform interoperability. These IT activities are enabled
by SAP NetWeaver components and related applications such as SAP
NetWeaver XI, adapters, and ARIS for SAP NetWeaver. |
Custom
Development
|
|
|
With the SAP NetWeaver platform, IT organizations can extract
new value from existing investments in technology and skills by
creating new, enterprise-scale applications. Organizations can
develop, configure and adapt applications, as well as enable
interoperability of different technology platforms. These IT
activities are enabled by SAP NetWeaver components such as SAP
NetWeaver Application Server (SAP NetWeaver AS) and tools such
as SAP NetWeaver Developer Studio, SAP NetWeaver Visual Composer
and SAP Composite Application Framework. |
Unified
Life-Cycle Management
|
|
|
With the SAP NetWeaver platform, IT organizations can automate
software application management processes to help optimize all
facets of a software applications life cycle to permit
continuous operations and faster reaction to changing business
requirements. These IT activities are enabled by SAP NetWeaver
components and tools such as SAP NetWeaver AS, SAP NetWeaver
Administrator, the Adaptive Computing Controller tool and SAP
Solution Manager. |
Application
Governance and Security Management
|
|
|
With the SAP NetWeaver platform, organizations can govern
applications and manage IT security through integrated user and
access management, as well as authentication and single sign-on.
These IT activities are enabled by SAP NetWeaver components such
as SAP NetWeaver AS, SAP NetWeaver XI, and SAP NetWeaver Portal. |
Consolidation
|
|
|
The SAP NetWeaver platform helps organizations consolidate user
interfaces, information, and processes through the use of ESA.
IT projects that support consolidation include master-data
consolidation, enterprise data warehousing, enterprise knowledge
management, platform interoperability and SAP NetWeaver
operations. These IT activities are enabled by SAP NetWeaver
components such as SAP NetWeaver Portal, SAP NetWeaver BI, SAP
NetWeaver MDM, and SAP NetWeaver XI. |
ESA
Design and Deployment
|
|
|
With the SAP NetWeaver platform, organizations can create new,
distinctive business processes flexibly. |
Services
In addition to its software solution portfolio, SAP provides
comprehensive service offerings that include consulting and
education, which comprise field services, and support services,
ramp-up services,
32
hosting, support for business process outsourcing (BPO) and
custom development, which comprise global services. Our global
services and field services organizations together make up SAP
Services.
Field Services
Field services include the following business areas:
SAP
Consulting
|
|
|
SAP Consulting offers consulting, implementation, and
optimization services that aim at delivering business value in
all phases of the solution life-cycle. |
|
|
SAP Consulting brings together SAP specialists, SAP product
development professionals and certified partners to provide a
single point of contact for customers seeking assistance with
their SAP solutions. SAP Consulting offers the delivery of
consistent services and methodologies at customer locations
around the world. |
|
|
SAP Consulting advises and supports customers during the entire
solution life cycle, from the planning phase through building
and running the solutions: |
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|
Planning phase: Ensure that an organizations IT
infrastructure supports its business goals; |
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Building phase: Get software up and running quickly and
cost-effectively; and |
|
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Running phase: Enable solutions to grow and adapt with changing
customer needs. |
SAP
Education
|
|
|
The SAP Education organization provides the training and tools
required to assist SAP customers and partners in maximizing the
benefits attained from SAP solutions. SAP Education services
include education needs analysis, education delivery via
classroom or
e-learning, assessment
certification and continuous improvement. |
|
|
The curriculum includes approximately 300 different courses,
ranging from overview courses to expert courses. These courses
are offered in more than 18 languages at more than 70
training centers worldwide, with more than 200,000 course
participants per year. |
Global Services
Global services includes the following business areas:
SAP
Active Global Support
|
|
|
The SAP Active Global Support organization offers a broad range
of services to support customers with planning, implementation,
operations, upgrades and continuous improvement. |
|
|
SAP Active Global Support aims at ensuring the optimum
performance of customers SAP solutions and the maximum
benefit to their business. For example, SAP experts advise
customers on choosing and deploying the support structures and
processes that best meet their needs. In addition, these experts
can resolve system issues before the customers system goes
live. As a result, customers benefit from optimized
system performance. |
|
|
Once a customers SAP solution is up and running, support
and maintenance continue with help-desk services, online
monitoring, remote maintenance, and
on-site assistance. SAP
Active Global |
33
|
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|
Support can help customers spot bottlenecks, plan resources, and
migrate to new releases and technologies. |
|
|
Key offerings of SAP Active Global Support include: |
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|
The SAP Standard Support option which provides the knowledge,
tools, and functions to keep customers SAP environment
up-to-date and running
efficiently. It is designed to prevent bottlenecks and system
downtime and to bring timely issue resolution. |
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|
The SAP Premium Support option through which SAPs experts
taking a more active role in establishing support operations. It
provides a guaranteed service-level agreement (SLA) for
response and corrective action and delivers an annual assessment
that gives a detailed plan focused on the customers
priorities; |
SAP
Ramp-Up
|
|
|
SAP Ramp-Up is the standardized process for introducing SAP
products to the market. All SAP application software products in
all countries are introduced using this process. When a solution
is ready for productive use, it enters the SAP Ramp-Up process.
SAP Ramp-Up is designed to ensure the quality of SAP solutions
by increasing process control and feeding field and customer
experience directly into product development. It benefits
customers by providing accelerated support channels and
dedicated coaches with direct lines to SAP product development
groups, SAP Consulting and SAP Active Global Support. SAP
Ramp-Up is also designed to reduce the cost, time, and risk of
both SAP Ramp-Up implementations and regular, mass-market
implementations. |
SAP
Managed Services
|
|
|
The SAP Managed Services organization provides a comprehensive
portfolio of services, running and managing SAP solutions on
behalf of customers. More than 300 customers benefit from SAP
Managed Services global reach, direct and continued access
to SAP expertise, increased service and support, greater
financial predictability, and the ability to free internal
resources to focus on core competencies. SAP Managed Services
offers: |
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Application Management Services |
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Second and third level application support |
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Application enhancements |
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Application evolution |
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Performance monitoring and optimization services |
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Global delivery engagement model for 24x7 coverage |
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SAP Evaluation Hosting |
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SAP Implementation Hosting |
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SAP Application Hosting |
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SAP Upgrade Hosting |
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SAP Ramp-up Hosting |
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SAP Development and Prototype Hosting |
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SAP Hosted E-Learning
|
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SAP Remote Application Operation |
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Managed solutions for business ecosystems |
34
Support
for Business Process Outsourcing
|
|
|
In addition to its traditional direct license model and reseller
channels, SAP engages with leading business process outsourcing
(BPO) providers that deliver their services to end
customers on platforms based on SAP applications and services.
These BPO providers typically enter into an agreement with SAP
that includes a license agreement permitting the use of
specified SAP applications in selected markets for the provision
of BPO services to the end customer, such as outsourced human
resources services, for a predefined duration. We do not offer
BPO services, but contribute to better BPO deployments for our
customers and partners through BPO-ready solutions and services
such as implementation support and quality assurance. |
SAP
Custom Development
|
|
|
The SAP Custom Development organization develops custom
solutions that address customers unique business
requirements on the SAP NetWeaver platform. The service
portfolio includes development services that help customers to
extend and enhance existing SAP solutions or build new and
innovative business solutions, and maintenance services to
protect their custom solutions and SAP investment as their
business evolves over time. |
Seasonality
As is common in the software industry, our business has
historically experienced the highest revenue in the fourth
quarter of each year, due primarily to year-end capital
purchases by customers. Such factors have resulted in 2005,
2004, and 2003 first quarter revenue being lower than revenue in
the prior years fourth quarter. We believe that this trend
will continue in the future and that our revenue will continue
to peak in the fourth quarter of each year and decline from that
level in the first quarter of the following year.
Business by Region
We operate our business in three principal geographic regions,
namely EMEA, which represents Europe, Middle East and Africa,
the Americas, which represents both North America and Latin
America, and Asia-Pacific, which represents Japan, Australia and
parts of Asia. We allocate revenue amounts to each region based
on where the customer is located. See Note 32 to our
consolidated financial statements included in
Item 18. Financial Statements for additional
information with respect to operations by geographic region.
35
The following table sets forth, for the years indicated, the
total revenue attributable to each of our three principal
geographic regions:
|
|
|
|
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|
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|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
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| |
|
| |
|
| |
|
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(in millions) | |
Germany
|
|
|
1,810.4 |
|
|
|
1,780.1 |
|
|
|
1,670.3 |
|
Rest of EMEA
|
|
|
2,702.4 |
|
|
|
2,443.4 |
|
|
|
2,299.6 |
|
|
|
|
|
|
|
|
|
|
|
Total EMEA
|
|
|
4,512.8 |
|
|
|
4,223.5 |
|
|
|
3,969.9 |
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
2,342.8 |
|
|
|
1,893.7 |
|
|
|
1,736.0 |
|
Rest of Americas
|
|
|
656.8 |
|
|
|
530.1 |
|
|
|
480.2 |
|
|
|
|
|
|
|
|
|
|
|
Total Americas
|
|
|
2,999.6 |
|
|
|
2,423.8 |
|
|
|
2,216.2 |
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
406.2 |
|
|
|
387.4 |
|
|
|
441.5 |
|
Rest of Asia-Pacific
|
|
|
593.8 |
|
|
|
479.8 |
|
|
|
397.0 |
|
|
|
|
|
|
|
|
|
|
|
Total Asia-Pacific
|
|
|
1,000.0 |
|
|
|
867.2 |
|
|
|
838.5 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
8,512.4 |
|
|
|
7,514.5 |
|
|
|
7,024.6 |
|
|
|
|
|
|
|
|
|
|
|
EMEA. 53.0% of our 2005 total revenue was derived from
the EMEA region, compared to 56.2% in 2004. After a strong
revenue growth in 2004 of 6.4%, we achieved another revenue
growth of 6.9% to
4,512.8 million
in 2005 in the EMEA region. Revenue in Germany, SAPs home
country, increased by 1.7% to
1,810.4 million.
40.1% of revenue for the EMEA region in 2005 was derived from
Germany which is a slight decrease of 2 percentage points
compared to 2004. The remainder of the revenue for the EMEA
region in 2005 was derived primarily from the United Kingdom,
Switzerland, France, the Netherlands and Italy. The number of
our employees (full-time equivalents, or FTEs) in the EMEA
region increased by 5.2% from 20,658 at December 31, 2004
to 21,729 at December 31, 2005. In Germany, the number of
our employees (FTEs) increased by 2.9% to 13,916 at
December 31, 2005 compared to 13,525 at December 31,
2004. See Item 6. Directors, Senior Management and
Employees Employees.
Americas. 35.2% of our 2005 total revenue was derived
from the Americas region, compared to 32.3% in 2004. Revenues
increased from 2004 to 2005 by 23.8% to
2,999.6 million.
Revenue from the United States in 2005 was
2,342.8 million,
an increase of 23.7% from
1,893.7 million
in 2004. The United States represented 78.1% of SAPs total
revenue for the Americas region in both 2005 and 2004. On a
constant currency basis revenue growth was 22.7% in 2005.
Exchange rate fluctuations had a positive impact on revenue
figures for the Americas region of
77.7 million
or 3.2%. For the Americas region excluding the U.S., total
revenue increased by 23.9% to
656.8 million
in 2005 (12.8% on a constant currency basis). This was mainly
derived from Canada, Brazil, Mexico and Venezuela. The number of
employees (FTEs) in the Americas region increased by 19.0% from
6,684 at December 31, 2004 to 7,953 at December 31,
2005. The most notable increase was in the area of customer
service and support, accounting for 45% of the increase, mainly
due to the hiring of additional consultants to meet the growing
demand of consulting projects in the region.
Asia-Pacific. 11.8% of our 2005 total revenue was derived
from the Asia-Pacific region, compared to 11.5% in 2004. In
2005, SAPs revenue for the Asia-Pacific region was derived
primarily from Japan, Australia, India, South Korea, China and
Singapore. Our revenue in the Asia-Pacific region increased by
15.3% to
1,000.0 million
in 2005. After a decrease for 2004 of
54.1 million,
or 12.3%, revenue derived from Japan increased by 4.9% to
406.2 million
in 2005. This represents 40.6% of total revenues in the
Asia-Pacific region. On a constant currency basis, revenues
derived from Japan increased by 6.7% from 2004 to 2005. In the
rest of the Asia-Pacific region, total revenue increased 23.8%
from 2004 to 2005 (18.8% increase on a constant currency basis).
In the Asia-Pacific region, the number of employees (FTEs)
increased by 27.3% from 4,863 as of December 31, 2004 to
6,191 as of December 31, 2005, mainly due to the expansion
of our research and development facilities in India and China.
36
Software Revenue by Solution
In 2001 we began to allocate software revenues to specific
software solutions for internal reporting purposes. These
allocations include revenues from contracts for specific
solutions and for integrated solution contracts, which are
mostly allocated based on the results of usage surveys provided
by our customers for solutions that are licensed in a suite of
business solutions. Such surveys reflect the customers
expected use of the various solutions within their integrated
contract, although a customers actual use may differ from
their expectations at the time they complete the surveys. We are
only able to monitor the total number of seats deployed but we
have no ability to monitor differences between a customers
actual use of the specific software solutions and the usage
reported in the surveys. Nevertheless, we allocate revenues for
internal purposes, based upon the number of users and user type
by solution as specified in the initial customer surveys.
Revenues recognized are allocated to each applicable solution
based upon weighted average values per solution resulting from
the number of each user type per solution, as provided by the
customer, multiplied by the respective price per user type as
set forth in our standard price list. We then allocate the
recognized revenue for the software license based upon each
solutions weighted average values. The remainder of
revenues, which relate to SAP R/3, industry solution portfolios
and software engines are specifically identified in the license
if applicable, and are allocated to the specific software
solutions at fixed ratios based upon the functional capabilities
to which they relate. This methodology is applied to each
individual mySAP Business Suite and mySAP ERP contract. Although
we believe this methodology of allocating revenue to specific
software solutions is reasonable, and we apply this methodology
on a consistent basis, there can be no assurance that such
calculated amounts reflect the amounts that would result had we
individually licensed each specific software solution.
At the beginning of 2004, we changed our usage surveys for
determining software revenues by solution. The usage surveys no
longer include certain technology components, including SAP
Business Intelligence and SAP Portals, since such technology
components are now integrated with the SAP NetWeaver platform.
Therefore, prior year comparable figures are not available for
certain solutions using the new method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
ERP
|
|
|
1,157.6 |
|
|
|
990.0 |
|
|
|
801.2 |
|
CRM
|
|
|
602.6 |
|
|
|
501.0 |
|
|
|
440.1 |
|
SCM
|
|
|
508.9 |
|
|
|
480.0 |
|
|
|
477.1 |
|
PLM
|
|
|
161.6 |
|
|
|
166.9 |
|
|
|
156.1 |
|
Business Intelligence/ Enterprise Portal/ SRM/ Marketplaces
|
|
|
n/a |
|
|
|
n/a |
|
|
|
273.1 |
|
SRM
|
|
|
176.0 |
|
|
|
147.1 |
|
|
|
n/a |
|
SAP NetWeaver and other related components
|
|
|
176.0 |
|
|
|
76.0 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
Total software revenue
|
|
|
2,782.7 |
|
|
|
2,361.0 |
|
|
|
2,147.6 |
|
|
|
|
|
|
|
|
|
|
|
Revenue by Industry Sector
We identified six industry sectors in order to focus our product
development efforts on the key industries of our existing and
potential customers and to provide best business practices and
specific integrated business solutions to those industries. We
allocate our customers at the outset of an initial arrangement
to an industry. All subsequent revenues from a particular
customer are recorded under that
37
industry sector for that customer. The following table sets
forth the total revenues attributable to each of the six
industry sectors for the years ended December 31, 2005,
2004, and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Process Industries
|
|
|
1,765.9 |
|
|
|
1,469.1 |
|
|
|
1,381.3 |
|
Discrete Industries
|
|
|
1,986.1 |
|
|
|
1,807.9 |
|
|
|
1,659.4 |
|
Consumer Industries
|
|
|
1,457.0 |
|
|
|
1,349.8 |
|
|
|
1,243.8 |
|
Service Industries
|
|
|
1,946.0 |
|
|
|
1,673.9 |
|
|
|
1,664.5 |
|
Financial Services
|
|
|
543.4 |
|
|
|
519.1 |
|
|
|
474.1 |
|
Public Services
|
|
|
814.0 |
|
|
|
694.7 |
|
|
|
601.5 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
8,512.4 |
|
|
|
7,514.5 |
|
|
|
7,024.6 |
|
|
|
|
|
|
|
|
|
|
|
Sales, Marketing and Distribution
SAP AG primarily uses its worldwide network of subsidiaries to
market and distribute SAPs products and services locally.
Those subsidiaries have entered into license agreements with SAP
AG pursuant to which the subsidiary acquires the right to
sublicense SAP AGs products to customers within a specific
territory and agrees to provide primary support to those
customers. Under these agreements, the subsidiaries retain a
certain percentage of the revenue generated by the sublicensing
activity. We began operating in the U.S. in 1988 through
SAP America, Inc., a wholly owned subsidiary of SAP AG. Since
then, the U.S. has become one of our most important
geographic regions. In certain countries, we have established
distribution agreements with independent resellers rather than
with subsidiaries.
In addition to our subsidiaries sales forces, SAP has
developed an independent sales and support force through
value-added resellers who assume responsibility for the
licensing, implementing and supporting of SAP solutions,
particularly with regard to the SAP Business One application and
qualified mySAP
All-in-One partner
solutions. We have also entered into alliances with major system
integration firms, telecommunication firms and computer hardware
providers to offer certain mySAP Business Suite applications.
We supplement certain of our consulting and support services
through alliances with hardware and software suppliers, systems
integrators and third-party consultants with the goal of
providing customers with a wide selection of third-party
competencies. The role of the alliance partner ranges from
pre-sales consulting for business solutions to the
implementation of our software products to project management
and end-user training for customers and, in the case of certain
hardware and software suppliers, to technology support.
SAPs marketing efforts cover large, multinational groups
of companies as well as small and midsize enterprises. We
believe our solutions and services meet important needs of all
kinds of customers and are not dependent on the size or industry
of the customer.
Capitalizing on the possibilities of the Internet, we actively
make use of online marketing. Some of our solutions can be
tested online via the Internet demonstration and evaluation
system, which also offers special services to introduce
customers and prospects to new solutions and services.
38
Partnerships, Alliances and Acquisitions
Partnerships and strategic alliances are a key element of our
efforts to broaden the solutions and services offered to SAP
customers and to extend the markets for our products and
services. Our close collaboration with partners across the life
cycle of a customer solution is a key element in enhancing
customer satisfaction. We characterize our partnerships and
strategic alliances into eight categories that together
constitute what we refer to as the partner services network.
Within most categories, our partners may achieve the status of a
local or global partner. We expect our alliance partners to
provide customers with joint strategic solutions. Our partners
generally have a strong position in a particular line of
business or cross-industry and complement the range of SAP
solutions in these areas. The partner categories are: services
partners, technology partners, software partners, hosting
partners, business partners, content partners, education
partners and support partners. Our partner network includes
thousands of companies including independent software vendors,
systems integrators, and business procurement outsourcing
(BPO) providers across all partner categories.
We have entered into agreements with a number of leading
software, technology and services companies to cooperate and
ensure that certain of the software, technology and/or services,
products and solutions offered by such suppliers complement our
software products.
As discussed in Note 4 in Item 18. Financial
Statements, we increased our ownership interest in our
subsidiary SAP Systems Integration AG (SAP SI) in 2005 from
91.6% as of December 31, 2004 to 96.5% as of
December 31, 2005. The aggregate purchase price for the SAP
SI shares acquired in 2005 was
60.0 million
(2004:
168.1 million)
which was paid in cash. We believe the acquisition of the
additional shares of SAP SI will help us strengthen our
capabilities for IT-strategy consulting offerings in the future.
Part of our strategy involves growth through acquisitions and
other transactions. We routinely evaluate various alternatives
and engage in discussions and negotiations with potential
parties to such transactions. In 2005, we acquired four
unrelated companies and completed two business combinations in
the form of asset deals, the results from which are included in
our results since the respective dates of acquisition. We also
acquired software (intellectual property) from other companies,
without acquiring related businesses. These transactions were
immaterial individually and in the aggregate. Three of the
acquired companies developed and sold software, while the fourth
provided support services. The two businesses acquired through
asset deals developed and sold software. See Note 4 in
Item 18. Financial Statements for further
details.
On February 28, 2005, we entered into a definitive merger
agreement to acquire all of the outstanding shares of Retek,
Inc. (Retek), a provider of software solutions and
services to the retail industry, for U.S.$8.50 per share.
The aggregate purchase price, including the cash settlement of
Reteks outstanding share-based awards and net of cash
acquired, was expected to be approximately
U.S.$394 million. On March 8, 2005, Oracle Corporation
(Oracle) made a hostile tender offer to acquire
Reteks outstanding shares at a price of U.S.$9 per
share and announced that it had accumulated approximately 10% of
Reteks outstanding shares already. On March 17, 2005,
we increased our offer to U.S.$11 per Retek share and
Oracle increased its offer to U.S.$11.25 per share. On
March 22, 2005, we indicated that we would not provide an
increased offer for Reteks outstanding shares. Retek then
terminated the definitive merger agreement with us and we
withdrew our tender offer for Retek.
We are not aware of any public takeover offers by third parties
with respect to our shares that have occurred in 2005 or prior.
39
Intellectual Property, Proprietary Rights and Licenses
We rely on a combination of the protections provided by
applicable trade secret, copyright, patent and trademark laws,
license and non-disclosure agreements and technical measures to
establish and protect our rights in our products.
We believe that none of the individual patents or technologies
owned or licensed by us is material to our business. We may
however be significantly dependent in the aggregate on
technology that we license from third parties that is embedded
into our products or that we resell to our customers.
We have licensed and will continue to license numerous
third-party software products that we incorporate into and/or
distribute with our existing products. We try to protect
ourselves in the respective agreements by defining certain
rights in case such agreements are terminated. The termination
rights and terms of each license agreements vary, but the
various protections generally include receiving maintenance for
a certain period of time after termination, the right to
distribute the then-current software release for a certain
period of time after termination and/or the right to transfer
the relevant intellectual property to SAP if we desire. In many
cases we agree on an escrow of the relevant proprietary
technology for the term of the agreement to allow us to provide
maintenance in case we are unable to retain maintenance from the
third-party licensor.
In 2004, as part of SAPs relationship with Microsoft
Corporation, which started more than ten years ago, the two
companies entered into a patent cross-license agreement to
provide a better environment for joint technical collaboration
and solutions development.
Internal Risk Management Policies and Procedures
We have a system comprising multiple mechanisms across the SAP
Group that is designed to recognize and analyze risks early and
respond appropriately. These mechanisms include recording,
monitoring and controlling internal enterprise processes and
business risks using internal reporting functions, a number of
management and controlling systems and a planning process that
is uniform throughout our group. We have created standard
documentation of key business processes of SAP AG and all of its
major subsidiaries, which are routinely assessed and tested as
to their design and operating effectiveness to mitigate typical
risks inherent in such processes in line with both German and
U.S. requirements. SAPs Principles of Corporate
Governance, ratified by our Executive Board and our Supervisory
Board at the end of 2001 and updated in August 2002 and March
2004, constitute a further component in the system. They
comprise, among others, standards and guidelines for the work of
the Executive Board and Supervisory Board, and for the
cooperation between them. In addition, we have implemented
various additional measures to comply with requirements under
the Sarbanes-Oxley Act. Amongst other measures, we established a
Disclosure Committee, whose main task is to monitor the timing
and content of information released to the financial markets.
For further information on the measures we have implemented
relating to the Sarbanes-Oxley Act, please refer to
Item 6. Directors, Senior Management and
Employees and Item 15. Controls and
Procedures. Further elements of the system include a
corporate-wide Code of Business Conduct which was formalized in
2003, comprehensive published reports and the work of the
Supervisory Board in monitoring and controlling the Executive
Board. In early 2003, we created a central dedicated Corporate
Risk Management function along with a global network of risk
management practitioners tasked to consolidate and enhance
SAPs various existing risk management activities in
accordance with a corporate-wide uniform methodology. Pursuant
to SAPs Enterprise Risk Management program, various
regular business activities including software development
programs, customer implementation projects, internal IT system
implementations and a variety of other corporate areas are
continuously assessed against a range of predefined generic risk
categories identified in a uniform corporate-wide Risk Catalog
and aggregated in a corporate-wide risk management application,
from which a regular enterprise risk report to SAPs CEO
and CFO is derived. The Enterprise Risk
40
Management program tracks certain of the risks summarized in
Item 3. Key Information Risk
Factors in the same risk category structure as established
by SAPs internal risk management reporting system.
ORGANIZATIONAL STRUCTURE
As of December 31, 2005, SAP AG was the holding company of
103 subsidiaries whose main task is the distribution of
SAPs products and services on a local basis. Our primary
research and development facilities, the overall group strategy
and the corporate administration functions are concentrated at
our headquarters in Walldorf, Germany.
The following table illustrates our most significant
subsidiaries based on revenues:
|
|
|
|
|
|
|
|
|
|
|
Ownership | |
|
Country of |
|
|
Name of Subsidiary |
|
% | |
|
Incorporation |
|
Function |
|
|
| |
|
|
|
|
Germany
|
|
|
|
|
|
|
|
|
SAP Deutschland AG & Co. KG, Walldorf
|
|
|
100 |
|
|
Germany |
|
Sales, consulting and training |
Rest of Europe/ Middle East/ Africa
|
|
|
|
|
|
|
|
|
SAP (UK) Limited, Feltham
|
|
|
100 |
|
|
Great Britain |
|
Sales, consulting and training |
SAP (Schweiz) AG, Biel
|
|
|
100 |
|
|
Switzerland |
|
Sales, consulting and training |
SAP France S.A., Paris
|
|
|
100 |
|
|
France |
|
Sales, consulting and training |
SAP ITALIA SISTEMI, APPLICAZIONI, PRODOTTI IN DATA PROCESSING
S.P.A., Milan
|
|
|
100 |
|
|
Italy |
|
Sales, consulting and training |
SAP Nederland B.V.,s-Hertogenbosch
|
|
|
100 |
|
|
The Netherlands |
|
Sales, consulting and training |
Americas
|
|
|
|
|
|
|
|
|
SAP America, Inc., Newtown Square
|
|
|
100 |
|
|
USA |
|
Sales, consulting and training |
SAP Canada Inc., Toronto
|
|
|
100 |
|
|
Canada |
|
Sales, consulting and training |
Asia/Pacific
|
|
|
|
|
|
|
|
|
SAP JAPAN Co., Ltd., Tokyo
|
|
|
100 |
|
|
Japan |
|
Sales, consulting and training, research and development |
DESCRIPTION OF PROPERTY
Our principal executive, administrative, marketing and sales,
consulting, training, customer support and research and
development facilities are located in Walldorf and neighboring
St. Leon-Rot, Germany, approximately 60 miles south of
Frankfurt/ Main. The number of workplaces at this combined
location expanded by approximately 500 during 2005 to
approximately 13,500 through increased occupancy and
200 additional leased workspaces in Walldorf.
The ongoing hiring activities in our global centers for
development, service and support involved capital expenditures
in 2005 of
5.8 million
(primarily leasehold improvements) for further expansion. These
expansions occurred mainly in India, where 1,430 workspaces were
added, in Hungary (189 workspaces added), and in Israel (260
workspaces added). We intend to add approximately 900 additional
workspaces in China by the end of 2006. As Prague, Czech
Republic, was selected as the central location for our shared
service activities in finance and sales for Europe, more than
200 workspaces were leased.
In 2005, we commenced construction activities in Walldorf and
St. Leon-Rot, where two new buildings with workplace capacities
of 2,000 and 900, respectively, are being added. We currently
estimate that the total cost of construction will amount to
approximately
160 million,
which will be financed using our liquid assets. Construction
activities in St. Leon-Rot ended in February 2006, while
construction activities in Walldorf are expected to be finished
in the first quarter of 2007. Upon completion of the
construction of the
41
buildings, we intend to terminate certain current office leases
in Walldorf, the charge for which is not expected to be material.
As discussed in Note 29 in Item 18. Financial
Statements, in 2004, SAP America, Inc. and SAP Properties,
Inc., its wholly-owned subsidiary, sold a portion of the United
States headquarters property in Newtown Square, Pennsylvania,
which is partly occupied by SAP America, Inc, and partly by
other subsidiaries. A portion of the property sold was
subsequently leased back with different terms through 2014. The
remaining owned property is used for our U.S. headquarters
for the Americas and for regional operations for administration,
marketing, sales, consulting, training, customer support and
research and development.
We have financed all expansions through working capital and
existing credit facilities described in this
Form 20-F under
Item 5. Operating and Financial Review and
Prospects Liquidity and Capital Resources.
While it is difficult to ascribe production capacity to office
space, we generally assume that we need approximately
183 square feet per employee for research and development
activities and administrative services, and approximately
140 square feet per employee for sales, training and
consulting activities.
The location of each of our major facilities, all of which are
leased (unless otherwise indicated), is set forth below:
|
|
|
Country, City |
|
Facility Description |
|
|
|
Austria, Vienna
|
|
Sales, consulting, training, marketing and customer support |
Belgium, Brussels
|
|
Sales, consulting and training |
Brazil, São Paulo
|
|
Sales, consulting and training |
Bulgaria, Sofia
|
|
Sales and development |
Canada, Toronto, Ontario
|
|
Sales, consulting, training and marketing |
China, Shanghai
|
|
Research and development |
Czech Republic, Prague
|
|
Sales, consulting and training |
Denmark, Copenhagen
|
|
Sales, consulting, training and customer support |
France, Paris
|
|
Sales, consulting, training and marketing |
Germany, Berlin
|
|
Research and development, sales and consulting |
Germany, Dresden
|
|
Consulting and customer support |
Germany, Freiberg
|
|
Consulting |
Germany, Munich
|
|
Research and development, sales and consulting |
Germany, Hamburg
|
|
Sales, consulting and training |
Germany, Bensheim
|
|
Sales and consulting |
Germany, Ratingen
|
|
Sales and consulting |
Germany, St. Ingbert (owned)
|
|
Research and development, sales and consulting |
Germany, Walldorf (owned)
|
|
Sales, consulting, research and development and customer support |
Germany, St. Leon-Rot (owned)
|
|
Research and development and customer support |
Germany, Mannheim
|
|
Consulting and IT |
Hungary, Budapest
|
|
Sales, consulting, training and customer support |
India, Bangalore (owned)
|
|
Research and development |
India, Gurgaon
|
|
Customer support |
Ireland, Dublin
|
|
Customer support |
Ireland, Galway
|
|
Research and customer support |
Israel, Raanana
|
|
Research and development, sales and consulting |
Italy, Milan
|
|
Sales, consulting and training |
Japan, Tokyo
|
|
Sales, marketing and training |
The Netherlands, Hertogenbosch
|
|
Sales, consulting and training |
Russia, Moscow
|
|
Sales and consulting |
42
|
|
|
Country, City |
|
Facility Description |
|
|
|
Singapore, Singapore
|
|
Sales, customer support and research and development |
South Africa, Johannesburg
|
|
Sales, consulting, training, customer support, research and
development |
South Korea, Seoul
|
|
Sales and consulting |
Spain, Madrid
|
|
Sales, consulting, training, research and development and
customer support |
Sweden, Stockholm
|
|
Sales, consulting, training, marketing and customer support |
Switzerland, Biel (owned)
|
|
Sales and marketing |
Switzerland, Regensdorf
|
|
Training |
United Kingdom, Feltham (owned)
|
|
Sales, consulting, training and customer support |
United States, Palo Alto, California
|
|
Research and development, sales and consulting |
United States, Waltham, Massachusetts
|
|
Sales, consulting and training |
United States, Chicago, Illinois
|
|
Sales, marketing, consulting, training and research and
development |
United States, Newtown Square, Pennsylvania (owned and leased)
|
|
Sales, consulting, training, research and development and
customer support |
United States, New York, New York
|
|
Sales, marketing, and consulting |
United States, Foster City, California
|
|
Training |
United States, Atlanta, Georgia
|
|
Sales, marketing, consulting and training |
We believe that our facilities are in good operating condition
and adequate for their present and anticipated usage. We are not
aware of any environmental issue that may affect the utilization
of our current facilities.
CAPITAL EXPENDITURES
SAPs capital expenditures for intangible assets and
property, plant and equipment, were
262 million
for the year ended December 31, 2005 (2004:
193 million,
2003:
219 million).
Principal areas of investment during 2005 related to the
purchase of computer hardware and other business equipment to
support the ongoing increases in employees and global
operations. Cars contributed
60 million
due to the continued purchase of company cars for eligible
employees in Germany. As discussed in Description of
Property above, expenditures for construction of buildings
occurred during 2005 mainly in Germany.
During 2006, we expect to spend approximately
165 million
for the purchase of computer hardware and other business
equipment, approximately
55 million
for the purchase of cars, as well as approximately another
201 million
to fund the new and on-going construction of additional
facilities and certain leasehold improvements. See also
Description of Property above, Item 5.
Operating and Financial Review and Prospects
Liquidity and Capital Resources and Note 32 to our
consolidated financial statements in Item 18.
Financial Statements, for further details regarding
capital expenditures, including information about capital
expenditures by geographic region.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not Applicable.
43
ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
OVERVIEW
SAP consists of SAP AG and its network of 103 operating
subsidiaries. We operate worldwide and define the following
three geographic regions: EMEA, the Americas and Asia-Pacific.
We have three lines of business that constitute our reporting
segments: product, consulting and training. Furthermore, SAP
focuses on six industry sectors, namely process, discrete,
consumer, service, financial services and public services. For a
discussion of our geographic regions and industry sectors, see
Item 4. Information about SAP Description
of the Business Business by Region,
Revenue by Industry Sector,
SAP Strategy and Note 32 to our
consolidated financial statements included in
Item 18. Financial Statements.
Our principal sources of revenue are sales of products and
services. Product revenue consists primarily of software license
fees and maintenance fees. License fees are derived from the
licensing of SAP software products to customers. We provide
standard maintenance for a fee based on a fixed percentage
calculated on the net license fee paid by the customer. We also
offer optional maintenance and support services for additional
coverage and scope. Our service revenue consists of consulting,
training and other service revenue; consulting revenue is
primarily derived from the services rendered with respect to
implementation of our software products and training revenue
from customer project teams and end-users, as well as training
third-party consultants with respect to SAP software products.
See Item 4. Information about SAP
Description of the Business Services for a
description of the other services.
At the beginning of 2005, based on our prediction of growth in
the economy as a whole and in the IT industry in particular, we
set operational goals for the year with a main focus on software
revenue growth and a further increase of our pro-forma operating
margin. Our target was to increase software revenue in the range
of 10 12% compared to 2004. On October 20, 2005
we raised our software revenue outlook and expected full-year
2005 software revenue to increase in the range of 12
14% compared to 2004. Regarding our pro-forma operating margin
(excluding stock-based compensation and acquisition related
changes) we expected an increase of 0.0
0.5 percentage points from 27.8% achieved in 2004.
In order to achieve the growth in revenue and operating margin,
we expected increases in headcount in 2005 compared to the
previous year, especially in sales, marketing, research, and
development. We also expected a significant proportion of the
new research and development jobs to be located in countries
outside of Germany, such as India and China. We also expected
the number of employees to increase in the United States, mainly
in sales and marketing.
In fiscal year 2005, we achieved or exceeded our goals for
revenue and operating margin. Software revenue increased from
2,361.0 million
in 2004 to
2,782.8 million
in 2005, representing an increase of
421.8 million
or 17.9%. This exceeded our revised software revenue guidance of
an increase in the range of 12 14%. Our operating
margin increased from 26.9% in 2004 to 27.4% in 2005 and our
pro-forma operating margin increased by 0.5 percentage
point from 27.8% in 2004 to 28.3% in 2005, meeting the high end
of our outlook which was a 0.0 0.5 percentage
point increase. For the year ended December 31, 2005, our
revenue and income before income taxes and minority interests
were approximately
8,512.4 million
and
2,316.4 million,
respectively, as compared to
7,514.5 million
and
2,072.6 million,
respectively, for the year ended December 31, 2004. Net
income was
1,496.4 million
and
1,310.5 million
for the years ended December 31, 2005 and 2004,
respectively.
The following discussion is provided to enable a better
understanding of our operating results for the periods covered,
including:
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|
|
|
|
key factors that impacted our performance; |
|
|
|
discussion of our operating results for 2005 compared to 2004
and for 2004 compared to 2003; and |
|
|
|
our outlook for 2006. |
44
This overview should be read in connection with the more
detailed discussion and analysis of our financial condition and
results of operations in this Item 5, Item 3.
Key Information Risk Factors, and
Item 18. Financial Statements.
KEY FACTORS
Global Economy
Global economy continues to grow
The global economy continued to recover throughout the course of
2005. The news from North America and many of the Asian
countries was predominantly good. The European economy also grew
stronger as the year progressed, helped by low long-term
interest rates, a retreating euro, and buoyant export markets.
However, domestic demand in Europe remained flat. Surges in
energy and commodity prices impeded global recovery. However,
both the Paris-based Organisation for Economic Co-operation and
Development (OECD) and the Washington, DC-based
International Monetary Fund (IMF) report that the core
inflation rates in most industrialized countries were low, with
rates in the range 1% to 3%. Not even the steep increase in
energy prices seriously impacted the global recovery. The IMF
estimates that global gross domestic product (GDP) grew
some 4.3%. That represents a decline compared to the overall
2004 figure of 5.1%, but deceleration during the first six
months of 2005 was partially offset by a pick up in growth in
the second half of the year.
The chief driver of growth was again China. Chinas economy
grew 9.5% in 2004 and the IMF believes it grew 9.0% in 2005.
Indias economy also remains buoyant, with growth unchanged
at 7%. The OECD reports 2.4% GDP growth in Japan (2004: 2.7%).
The U.S. economy was again vigorous: The IMF estimates that
U.S. GDP grew more than 3.5% in 2005, compared with 4.2% in
the previous year.
Europe lags behind global growth
The economies of Europe underachieved in comparison with the
global economy. According to the OECD, euro zone GDP growth,
which was 1.8% in 2004, slowed to 1.4% in 2005. Both the OECD
and the IMF point to slow demand on the European market and the
increased oil price as an impediment to economic growth.
Exporters alone are achieving the growth to keep the European
Union (EU) economy afloat.
The OECD believes the German economy expanded only a
disappointing 1.1% in 2005. In 2004, German GDP had grown 1.6%
according to the IMF. The supporting pillar of the German
economy, and the only part of the economy that remained vibrant,
was export trade. On the fourth-quarter numbers, the Kiel
Institute for World Economics comments that there are clear
signs the German economy is experiencing a trend of improved
growth. Key indicators, such as process industry order books,
increasingly point toward improved growth, the Institute says.
IT Sector
Trend in IT industry remains stable
Information technology (IT) market-intelligence provider
IDC estimates that the global IT market grew 5.9% in 2005.
Another IT market researcher, Gartner, believes global IT market
growth was only 4.9%. Gartner divides the IT market into
hardware, packaged software, applications, and services segments.
The segment in which SAP chiefly operates is applications, which
in 2005 expanded 5.6% worldwide according to IDC, or 8.4%
according to Gartner. It indicated the IT market continued to
grow, almost regardless of anything that happened in the
political, climatic, or economic environments.
45
According to IDCs analysis, in 2005 the fastest-growing
segment in the IT market was system infrastructure. That
indicates that companies increasingly focused on optimizing and
overhauling their IT infrastructure. Application-related
segments in particular benefited from a growth spurt. In
IDCs analysis, this means the trend toward replacing
systems became more pronounced in 2005, which would boost new
application implementations.
U.S. IT market grows almost 5%
IDC estimates the IT market in the United States, SAPs
single most important market, grew 4.9% in 2005. Gartners
corresponding estimate is similar. Both research firms report 5%
IT market growth in Western Europe, where the economic
environment was more difficult than in the United States. IDC
and Gartner report appreciably stronger growth of 6% or more for
the year in the Asia-Pacific market. More than 90% of global IT
business is with customers in North America, Western Europe, and
the Asia-Pacific region.
The German Association for Information Technology,
Telecommunications, and New Media (BITKOM) estimates that
the German IT market grew 3.2%, which is similar to the
corresponding 2004 growth figure. On the other hand, IDC
believes the overall German IT market expanded only 2.7% in
2005. BITKOM estimates that the German market for system and
applications software expanded 4.5%. IDC reports that the German
IT services market grew 2% in the year.
OPERATING RESULTS
2005 Compared with 2004
Total Revenue.
Total revenue increased from
7,514.5 million
in 2004 to
8,512.4 million
in 2005, representing an increase of
997.9 million
or 13.3%. At constant currencies, total revenue increased by
11.8%. Compared to 2004, the overall growth in 2005 was
primarily driven by product revenue, while service revenue also
increased moderately. Compared to 2004 software revenue grew by
17.9% and maintenance revenue grew by 12.5%. This growth
exceeded our updated software revenue outlook from
October 20, 2005.
Initially for 2005, we assumed a weaker euro with an average
exchange rate of $1.30 per
1.00, which was
then adjusted to $1.15 per
1.00 with our
adjusted guidance communicated on October 20, 2005. The
average exchange rate in 2005 was $1.24 per
1.00, compared
to $1.25 per
1.00 in 2004.
The rate evolved as follows for the period-end Noon Buying Rate
expressed as dollars per
1.00.
|
|
|
|
|
Date |
|
Period-End | |
|
|
| |
December 2004
|
|
|
1.3538 |
|
March 2005
|
|
|
1.2969 |
|
June 2005
|
|
|
1.2098 |
|
September 2005
|
|
|
1.2058 |
|
December 2005
|
|
|
1.1842 |
|
March 10, 2006
|
|
|
1.1886 |
|
Ultimately the weakness of the euro over the year increased the
euro value of revenues generated in other currencies. Foreign
currency translation effects from the weakening value of the
euro during the year positively impacted our total consolidated
revenue by
111.1 million,
or 1.3%, in 2005. In 2004, foreign currency translation effects
from the strengthening value of the euro during the year
negatively impacted our total consolidated revenue by
235.8 million.
46
The following discussion is based on how we allocate revenues
for classification in our consolidated statements of income,
which is dependent on the nature of the sales transaction
regardless of the operating segment it was provided by:
Product Revenue. Product revenue, which consists of
software revenue and maintenance revenue, increased from
5,184.2 million
in 2004 to
5,958.4 million
in 2005, representing an increase of
774.2 million
or 14.9% (13.2% on a constant currency basis).
Software revenue increased from
2,361.0 million
in 2004 to
2,782.8 million
in 2005, representing an increase of
421.8 million,
or 17.9%. With the weakening value of the euro compared to other
currencies, this increase was impacted by a positive foreign
currency translation effect. On a constant currency basis,
software revenue grew by 15.4% from 2004 to 2005. The biggest
contributor to software revenue growth in 2005 was again the
Americas region (in particular the U.S.) where we accomplished a
growth of 31.8% compared to 2004 (or 31.1% for the U.S.).
For a summary of software revenue by solution in 2005, see
Item 4. Information about SAP Description
of the Business Software Revenue by Solution.
We have continued to implement our volume business model with a
higher number of smaller contracts. New customers accounted for
33% of our 2005 software contracts, with the remaining 67%
coming from our installed customer base (compared to 32% from
new customers and 68% from our installed customer base in 2004).
Based on the value of orders received, the new customer share
decreased from 24% in 2004 to 22% in 2005.
In the small and midsize enterprise segment (enterprises with
2,500 or fewer employees, or annual revenue of
U.S.$1 billion or less), we achieved above-average software
revenue growth and strengthened our market position in 2005.
Maintenance revenue increased from
2,823.2 million
in 2004 to
3,175.6 million
in 2005, representing an increase of
352.4 million
or 12.5%. On a constant currency basis, maintenance revenue grew
by 11.4% from 2004 to 2005. With our growing installed customer
base, this increase in maintenance revenue was primarily due to
the growth of software sales throughout 2004 and due to
additional software contracts closed during 2005. Accordingly,
maintenance revenues continued to increase constantly on a
rolling four quarter basis. In 2005 the biggest contributor to
the increase in maintenance revenues based on volume came again,
as in 2004, from the EMEA region. The EMEA region is still the
biggest contributor to software sales group wide.
Product revenue as a percentage of total revenue increased from
69.0% in 2004 to 70.0% in 2005, driven by the growth in software
and maintenance revenues.
Service Revenue. Service revenue increased from
2,273.0 million
in 2004 to
2,481.4 million
in 2005, representing an increase of
208.4 million
or 9.2% (8.1% on a constant currency basis).
47
Consulting revenue increased from
1,970.6 million
in 2004 to
2,138.9 million
in 2005, representing an increase of 8.5%. On a constant
currency basis the increase would have been
148.7 million
or 7.5%. This growth in consulting revenue resulted mainly from
the increase in the consulting work-force by 4.8% and a higher
utilization of these resources for external projects in 2005. In
addition, interim use of third-party resources increased by 9.5%
in order to meet the rise in customer activities.
Consulting revenue as a percentage of total revenue decreased
from 26.2% in 2004 to 25.1% in 2005, caused by the
over-proportional growth of product revenue.
After two years of decreasing revenues in 2002 and 2003 and flat
revenues in 2004, the training business showed a solid recovery
with training revenue increasing from
302.4 million
in 2004 to
342.5 million
in 2005, or 13.2%. At constant currencies, training revenues
increased by 12.0%. While traditional classroom training only
grew marginally, most of the growth in training revenue was
achieved in academy training, customer-specific training and
education consulting. The training business also benefited from
the alignment with the consulting business which helped drive
the increase of revenues through joint customer engagements.
Service revenue also includes the revenue generated by the SAP
Managed Services organization, which operates, manages and
maintains SAP solutions. SAP Managed Services revenue increased
from
58.4 million
in 2004 to
68.3 million
in 2005, representing an increase of 17.0%. On a constant
currency basis, the increase would have been
9.7 million
or 16.6%. Most of the growth of SAP Managed Services revenue
came from the United States.
Total Operating Expenses.
At the beginning of the year, we explained in our business
outlook guidance that 2005 would be a year of investment in the
future. We have invested by increasing our workforce to support
our current and future revenue growth targets. Total operating
expenses increased from
5,496.1 million
in 2004 to
6,181.7 million
in 2005, representing an increase of
685.6 million,
or 12.5%. On a constant currency basis, the increase in total
operating expenses was
634.6 million,
or 11.5%, which means that foreign currency translation effects
from the weakening value of the euro during 2005 negatively
impacted our total operating expenses by
51.0 million,
compared to a positive impact of
111.1 million
on total revenues.
The increase is mainly related to the following:
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|
We increased our sales and marketing expenses in 2005 by
222.6 million,
or 14.6%, compared to 2004, reflecting additional investment in
aligning our operations to volume business and in our sales
organization. |
|
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|
Our growing workforce resulted in an increase in personnel
expenses, which went up from
2,968.0 million
in 2004 to
3,371.5 million
in 2005, or 13.6%. This increase in personnel expenses is the
result of the overall headcount increase from
32,205 full-time equivalents as of December 31, 2004,
to 35,873 full-time equivalents as of December 31,
2005, an increase of 11.4%. The biggest increase in headcount
was in research and development, in which the worldwide
full-time equivalent count rose 18% to 11,629. The increase is
consistent with our organic growth strategy and commitment to
meet product release schedules. We continued to keep a tight
control on personnel expenses due to minimal fixed salary
increases as well as by adding additional headcount primarily in
the major emerging markets with modest salary levels such as
China and India. The share of resources in low cost locations
(Bulgaria, China, and India) increased from 8.2% in 2004 to
10.9% in 2005. |
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|
The rise in the headcount and overall increase in business
activity during 2005 resulted in higher travel expenses compared
to 2004 (an increase of
55.8 million
or 17.5%). |
As a result of the strong product revenue growth, cost of
purchased licenses increased by 19.5%.
48
As a consequence of the strong revenue growth and the increase
in total operating expenses, operating income increased from
2,018.4 million
in 2004 to
2,330.7 million
in 2005, or by 15.5%. Operating margin increased from 26.9% in
2004 to 27.4% in 2005.
Pro-Forma Operating Income.
We have provided guidance and related information in 2005 and
2004 using pro-forma operating income on a consolidated basis.
We use this information internally and believe this pro forma
measure provides meaningful information to our investors because
we exclude acquisition related charges and settlements of
stock-based compensation plans to focus attention on the
financial performance of our core operations. We exclude
stock-based compensation expenses because we have no direct
influence over the actual expense of these awards once we enter
into stock-based compensation plans. This pro forma information
is not prepared in accordance with U.S. GAAP and should not
be considered a substitute for the historical financial
information presented in accordance with U.S. GAAP. The pro
forma measures used by us may be different from pro forma
measures used by other companies.
At the beginning of 2005, our target was to improve our
pro-forma operating margin (that is, the ratio of pro-forma
operating income to total revenue) from the 27.8% achieved in
2004 by approximately 0.0-0.5 percentage points.
We were able to reach this target in 2005 and the pro forma
operating margin increased by 0.5 percentage points to
28.3%. Pro forma operating income (excluding expenses for
stock-based compensation and acquisition-related charges)
increased from
2,086.1 million
in 2004 to
2,409.3 million
in 2005. Pro forma operating expenses (excluding expenses for
stock-based and acquisition-related charges) in 2005 increased
by 12.4% to
6,103.1 million.
A reconciliation from U.S. GAAP operating income to
pro-forma operating income is as follows:
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2005 | |
|
2004 | |
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| |
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| |
|
|
(in millions of ) | |
U.S. GAAP operating income
|
|
|
2,331 |
|
|
|
2,018 |
|
Acquisition-related charges
|
|
|
34 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
LTI 2000 Plan/ STAR Plan
|
|
|
45 |
|
|
|
37 |
|
|
Settlement of stock-based compensation plans in the context of
mergers and acquisitions
|
|
|
0 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
45 |
|
|
|
38 |
|
|
|
|
|
|
|
|
Pro forma operating income excluding stock-based compensation
and acquisition-related charges
|
|
|
2,410 |
|
|
|
2,086 |
|
|
|
|
|
|
|
|
In the second quarter of 2005, we redefined the
acquisition-related charges used to determine our pro-forma
operating income, pro-forma earnings per share, and other
pro-forma measures. Previously, we treated the amortization of
intangibles as acquisition-related charges only if the
intangibles had been acquired in the context of the purchase of
a business. However, we now expect that our acquisitions will
often be purchases of a target companys intellectual
property and related intangibles rather than purchases of the
target business itself. Therefore, effective with the second
quarter of 2005, we treat the amortization of all purchased
intellectual property rights and related intangibles as
acquisition-related charges. Changing the definition of
acquisition-related charges had no material effect on previously
published pro-forma figures because we had never before made
significant stand-alone purchases of intellectual property.
49
Detail of Operating Expenses.
Cost of Product. Cost of product consists primarily of:
|
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|
|
customer support costs which include 24x7 message handling,
services for upgrades, SAP EarlyWatch services, SAP GoingLive
services and premium maintenance services (SAP Safeguarding
services, SAP Empowering services and SAP MaxAttention support
option) delivered by the SAP Active Global Support
organization; |
|
|
|
license fees and commissions paid to third parties for databases
and the other complementary third-party products sublicensed by
us to customers; and |
|
|
|
costs of developing custom solutions that address
customers unique business requirements. |
In line with growing product revenues, cost of product has
increased from
916.3 million
in 2004 to
993.2 million
in 2005, or by 8.4% mainly due to increased expenses for
software license fees and the expansion of support resources. As
a percentage of product revenue, cost of product decreased from
17.7% in 2004 to 16.7% in 2005.
Certain reclassifications were made to the previously reported
amounts of cost of product and research and development
expenses. See Note 8 in Item 18. Financial
Statements.
Cost of Services. Cost of services consists primarily of
consulting and training personnel expenses as well as expenses
for third-party consulting and training resources. Cost of
services increased from
1,783.5 million
in 2004 to
1,924.6 million
in 2005, or 7.9%. As a percentage of service revenue, cost of
services decreased to 77.6% in 2005 compared to 78.5% in 2004.
One main reason for the increase in cost of services in 2005 was
the growth in consulting headcount by 4.8% resulting in
increased personnel expenses of
68.9 million.
Furthermore, the higher interim use of third-party resources
resulted in an increase of
49.0 million
in third-party costs, compared to 2004. In comparison to 2004,
an increase in the utilization of our resources for billable
projects led to an increase in the service margin. In response
to the change in demand to a more flexible customer delivery
model, the training business has successfully managed a shift
from fixed to flexible infrastructures, especially with respect
to the focus on consolidating training facilities and ceasing
operations in certain geographic locations.
Research and Development. Our research and development
expenses consist primarily of:
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|
personnel expenses related to our research and development
employees; |
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|
amortization of computer hardware used in our research and
development activities; and |
|
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|
costs incurred for independent contractors retained by us to
assist in our research and development activities. |
Research and development expenses increased from
908.0 million
in 2004 to
1,088.6 million
in 2005, or 19.9%. As a percentage of total revenue, research
and development expenses increased from 12.1% in 2004 to 12.8%
in 2005.
Overall, the number of research and development employees
increased from 9,882 full-time equivalents in 2004 to
11,629 full-time equivalents in 2005, representing an
increase of 17.7%. Although the number of employees increased
during 2005, the related cost did not increase at the same rate
due to a continuous effort of the research and development
organization to move into cost effective locations, such as
China and India. The share of employees working in the research
and development area as part of the total number of employees
increased from 30.7% for 2004 to 32.4% for 2005.
Sales and Marketing. Sales and marketing expenses
increased from
1,523.7 million
in 2004 to
1,746.2 million
in 2005, or 14.6%. As a percentage of total revenue, sales and
marketing expenses remained relatively constant, up slightly
from 20.3% in 2004 to 20.5% in 2005. The increase in sales and
marketing
50
expenses in 2005 relates to the efforts to support our current
and future revenue growth targets and mainly results from
salaries for new sales personnel and higher bonus payments to
sales and marketing employees due to the overachievement of
revenue targets.
Overall employees in sales and marketing increased from
5,583 full-time equivalents in 2004 to 6,249 full-time
equivalents in 2005, or 11.9%, and personnel expenses increased
accordingly from
703.6 million
in 2004 to
852.4 million
in 2005, or 21.2%. We also continued to increase variable parts
of salaries in 2005.
General and Administrative. General and administrative
expenses increased from
366.4 million
in 2004 to
435.2 million
in 2005. This represents an increase of 18.8%. This rise
included an increase in performance-related compensation as well
as additional spending on shared service centers (finance,
administration and human resources). As a percentage of total
revenue, general and administrative expenses represented 5.1% in
2005 compared to 4.9% in 2004.
Other Operating Income/ Expense, Net. Other operating
income/expense, net, changed from a net operating income of
1.8 million
in 2004 to a net operating income of
6.2 million
in 2005. The primary reason for the change was the reduction in
the amount of restructuring costs for unused lease space and
severance payments for exit activities from
7.0 million
in 2004 to
1.7 million
in 2005 (period expenses, net of adjustments).
The 2005 restructuring activities included organizational
changes in some foreign subsidiaries, such as replacement of
management and sales personnel mainly in the EMEA region. See
Note 24 to our consolidated financial statements in
Item 18. Financial Statements for discussion
regarding the expenses incurred in connection with our exit
activities, which include contract termination and similar
restructuring costs for unused lease space as well as severance
payments.
Financial Income/ Expense, Net.
Financial income/expense, net is comprised primarily of
income/(losses) from equity method investments, gains/(losses)
on sales of equity securities, and net interest income.
Financial income/expense, net, decreased by
30.2 million
from net financial income of
41.0 million
in 2004 to net financial income of
10.8 million
in 2005. The decrease mainly is attributable to unrealized
losses from hedging anticipated cash-flow exposures associated
with the employee STAR plan. The increase in the price of SAP
stock contributed to such unrealized losses of
66.2 million
in 2005 (2004:
14.6 million).
This effect was partially offset by an increase in net interest
income from
55.8 million
in 2004 to
89.9 million
due to higher liquid asset balances from cash flows generated
from our operations in 2005.
Income Taxes.
Our effective income tax rate decreased from 36.5% in 2004 to
35.3% in 2005. This decrease was primarily due to the impact of
tax exempted income and decreasing income tax rates in some
countries. See Note 11 to our consolidated financial
statements in Item 18. Financial Statements.
Net Income.
Net income increased from
1,310.5 million
in 2004 to
1,496.4 million
in 2005, representing an increase of
185.9 million,
or 14.2%. Net income as a percentage of total revenue increased
from 17.4% for 2004 to 17.6% for 2005. This slight increase was
primarily due to the overall increase in total revenues of
997.9 million
or 13.3% compared to 2004, primarily driven by strong growth in
software revenues which grew by 17.9%, partially offset by an
increase in total operating expenses of
685.6 million,
or 12.5%, compared to 2004. Additionally, income tax expense
increased only by 7.9% from
757.3 million
in 2004 to
817.1 million
in 2005, not proportionate to the increase of 11.8% in income
before income taxes and minority interest. Basic earnings per
share were 4.83
in 2005 compared to
4.22 in 2004.
51
Segment Discussion.
As described in Note 32 in Item 18. Financial
Statements, we have three operating segments: product,
consulting and training. Total revenue figures for each of our
operating segments differ from the revenue figures classified in
our consolidated statements of income because for segment
reporting purposes, revenue is generally allocated to the
segment that is responsible for the related transactions,
regardless of the nature of the sales transaction. The segment
contributions reflect only expenses directly attributable to the
segments and do not represent the actual margins for the
operating segments. Indirect costs such as general and
administrative, research and development (including cost from
software development contracts of
82.3 million
(2004:
112.0 million)),
charges for stock-based compensation and acquisition-related
charges, and other corporate expenses are not allocated to the
operating segments and therefore are not included in segment
contribution. Depreciation and amortization of long-lived assets
as well as other facility and IT-related expenses are allocated
to each operating segment based on headcount or facility space
occupied.
In 2005, the total impact of stock-based compensation and
settlements of stock-based compensation plans included in total
operating expenses in the consolidated financial statements was
45.0 million
compared to
38.1 million
in 2004. Therefore, segment contribution is not indicative of
the actual profitability margin for the operating segments.
In 2005,
2.4 million
(2004:
3.9 million)
of exit costs related to unused lease space and severance
payments were not allocated to the segments.
Product segment. The Product segment is primarily engaged
in marketing and licensing our software products, performing
software development services, and performing maintenance
services. Maintenance services include technical support for our
products, assistance in resolving problems, providing user
documentation, updates and other support for software products,
new versions, and support packages. Reflecting internal
management responsibilities within our organization, the product
segment includes the lines of business sales, marketing and
service and support.
Product segment revenue increased by 14.2% from
5,292.9 million
in 2004 to
6,044.3 million
in 2005. On a constant currency basis, product segment revenue
grew by 12.5%. Approximately 98% of revenues within the product
segment are derived from software and maintenance revenue, with
the remaining 2% derived from services revenue and other
revenue. Software revenue as part of the total product segment
revenue increased by 15.9% from
2,363.4 in
2004 million to
2,739.3 million
in 2005. This corresponds to an increase of 13.5% based on
constant currencies. Maintenance revenues increased by 12.3%
from
2,817.4 million
in 2004 to
3,162.7 million
in 2005, an increase of 11.2% based on constant currencies.
Product segment expenses increased by 19.2% from
2,058.1 million
in 2004 to
2,452.5 million
in 2005, an increase of 18.0% based on constant currencies.
Expenses of the line of business sales account for about half of
the entire product segment expenses, while expenses of the line
of business marketing account for roughly one fourth and
expenses of the line of business service and support account
also for roughly one fourth of overall product segment expenses.
The increase in sales and marketing expenses results mainly from
the higher headcount reflecting additional
investment in aligning our operations to more volume
business and associated personnel- and
travel-related expenses as well as additional third-party and
marketing expenses.
Product segment contribution increased by 11.0% from
3,234.8 million
in 2004 to
3,591.9 million
in 2005, or 59.4% of total segment revenue compared to 61.1% of
total segment revenue in 2004. On a constant currency basis,
product segment contribution increased by 9.0%. While we were
able to increase product segment revenues, most notably in the
U.S. operations, the percentage increase in our product
segment expenses was slightly higher, resulting in the decrease
in product segment contribution as a percentage of total
revenue. The proportionally higher increase in segment expenses
results mainly from the additional expenses incurred in the
service and support area.
52
Consulting segment. The Consulting segment is primarily
engaged in the implementation of our software products.
Consulting segment revenues increased by 8.8% from
1,910.3 million
in 2004 to
2,078.1 million
in 2005. In constant currency, revenue increased by 7.8%.
Consulting segment expenses increased by 9.1% from
1,484.0 million
in 2004 to
1,619.0 million
in 2005. In constant currency, segment expenses increased by
8.1%.
Geographically, the strong growth in the consulting services
business comes from the Americas region, especially the United
States and Latin America in which we also see the biggest
increase in product revenues. The consulting revenue growth in
the United States is mainly attributable to our investment in
demand generation at the end of 2004 and at the beginning of
2005. The increase in demand was met by an increase in the SAP
consulting work force by 4.8% and an increased billable
utilization of these resources for external consulting projects.
In addition, the interim use of third-party resources increased
by 9.5% in order to meet the rise in customer activities.
Revenue in the EMEA region also grew, although at a less
significant rate than the Americas region, driven mainly by
growth in the Eastern European countries. In the Asia-Pacific
region consulting revenue increased marginally.
Consulting segment contribution increased by 7.7% from
426.3 million
in 2004 to
459.1 million
in 2005. In constant currency, the segment contribution
increased by 6.7%. The consulting segment profitability was
slightly reduced by 0.2 percentage points.
Training segment. The Training segment is primarily
engaged in providing educational services on the use of our
software products and related topics for customers and partners.
Training services include traditional classroom training at SAP
training facilities, customer and partner-specific training and
end-user training, as well as
e-learning.
Training segment revenues were
380.2 million
in 2005, which represented a strong increase (23.8%) from
306.6 million
in 2004. On a constant currency basis, training segment revenues
would have been
375.6 million
for 2005. While traditional classroom training grew only
marginally, strong revenue growth was achieved primarily in
academy training, customer-specific training, and education
consulting. Although it only represented a small proportion
(1.2%) of the total training revenue,
e-learning continued to
rise in popularity and grew significantly (135%) in 2005.
Training segment expenses increased from
209.0 million
in 2004 to
248.0 million
in 2005, or 18.6%. Costs have increased to support the growing
business. In response to the change in customer demand to a more
flexible delivery model, the training business has successfully
managed a shift from fixed to flexible infrastructures by
consolidating training facilities and ceasing operations in
certain geographic locations. Revenue growth in all areas but
traditional classroom training has helped drive an increase in
profitability.
Training segment contribution increased by 35.5% from
97.6 million
in 2004 to
132.2 million
in 2005. The training segment profitability increased by
3.0 percentage points. This is primarily due to the growth
of revenue streams with a lower cost of delivery, combined with
the continued drive to flexibility in the core delivery model in
response to customer demands.
2004 Compared with 2003
Total Revenue.
Total revenue increased from
7,024.6 million
for 2003 to
7,514.5 million
in 2004, representing an increase of
489.9 million
or 7.0%. At constant currencies, total revenues increased by
10%. Compared to 2003, while services revenues also increased
moderately, the overall growth in 2004 was primarily driven by
product revenues. Both software and maintenance revenues grew by
9.9% compared to 2003. This growth was in line with what we
expected at the beginning of 2004, when we stated that our
target was to increase software
53
revenue by 10% compared to 2003. We were able to increase our
revenues in accordance with our guidance despite the continued
rise of the euro exchange rate compared to other major
currencies in 2004.
Compared to the dollar the exchange rate of the euro evolved as
follows for the period-end Noon Buying Rate expressed as dollars
per 1.00.
|
|
|
|
|
Date |
|
Period-End | |
|
|
| |
December 2003
|
|
|
1.2597 |
|
March 2004
|
|
|
1.2292 |
|
June 2004
|
|
|
1.2179 |
|
September 2004
|
|
|
1.2417 |
|
December 2004
|
|
|
1.3538 |
|
March 8, 2005
|
|
|
1.3342 |
|
Ultimately the strength of the euro over the year reduced the
euro value of revenues generated in other currencies. Foreign
currency translation effects from the strengthening value of the
euro during the year negatively impacted our total consolidated
revenue by
235.8 million
in 2004. In 2003, foreign currency translation effects from the
strengthening value of the euro during 2003 negatively impacted
our total consolidated revenue by
577.3 million.
The following discussion is based on how we allocate revenues
for classification in our consolidated statements of income,
which is dependent on the nature of the sales transaction
regardless of the operating segment it was provided by:
Product Revenue. Product revenue, which consists of
software revenue and maintenance revenue, increased from
4,716.4 million
in 2003 to
5,184.2 million
in 2004, representing an increase of
467.8 million
or 9.9% (13% on a constant currency basis).
Software revenue increased from
2,147.6 million
in 2003 to
2,361.0 million
in 2004, representing an increase of
213.4 million
or 9.9%. With the rise of the euro compared to other currencies
continuing in 2004, this increase was again impacted by the
related negative foreign currency translation effects. On a
constant currency basis software revenue grew by 13.3% from 2003
to 2004. The biggest contributor to the software revenue growth
in 2004 was the Americas region (and in particular the U.S.)
where we accomplished a growth of 23% compared to 2003 (or 25%
for the U.S).
For a summary of software revenue by solution in 2004, see
Item 4. Information about SAP Description
of the Business Software Revenue by Solution.
Based on orders received versus revenue recognized, the
installed customer base accounted for 76% of SAPs 2004
signed software contracts, with the remaining 24% coming from
new customers (74% from installed customer base and 26% from new
customers in 2003). As already seen in 2003, we continued to
experience an industry-wide trend away from a lower
54
volume of very large contracts to a higher volume of smaller
contracts in 2004. In the small and midsize enterprise segment,
we achieved above-average software revenue growth and
strengthened our market position in 2004. On the basis of orders
received, 31% of software revenue was from small and midsize
enterprises, compared to 28% of our software revenue in 2003.
Maintenance revenue increased from
2,568.8 million
in 2003 to
2,823.2 million
in 2004, representing an increase of
254.4 million
or 9.9%. On a constant currency basis, maintenance revenue grew
by 13.3% from 2003 to 2004. With our growing installed customer
base, this change in maintenance revenue was primarily due to
the growth of software sales throughout 2003 and by the
additional software contracts closed during 2004. Accordingly
maintenance revenues continued to increase constantly on a
rolling four quarter basis. As a significant portion of our
software sales are finalized in the last quarter of the year,
the trend showing increases in the respective maintenance
revenue that follows in subsequent quarters is expected to
continue. The biggest contributor to the increase in maintenance
revenues based on volume came from the sales region EMEA in
2004. The EMEA region was the biggest contributor to software
sales group wide and in addition, this region had lower foreign
currency translation effects compared to other regions.
Product revenue as a percentage of total revenue increased from
67.1% in 2003 to 69.0% in 2004, driven by the growth in software
and maintenance revenues which both increased by 9.9% compared
to 2003.
Service Revenue. Service revenue increased from
2,252.8 million
in 2003 to
2,273.0 million
in 2004, representing an increase of
20.2 million
or 0.9% (4% on a constant currency basis).
Consulting revenue increased from
1,953.5 million
in 2003 to
1,970.6 million
in 2004, representing an increase of 0.9%. On a constant
currency basis the increase would have been
82.5 million
or 4.2%. This growth in consulting revenue resulted mainly from
the increase in the consulting work force by approximately 7% in
2004. Despite a modest increase in the number of hours billed to
our customers, the price pressure in the market environment that
we experienced throughout 2003 continued in 2004 and hence
adversely impacted the overall increase in consulting revenues.
Consulting revenue as a percentage of total revenue decreased
from 27.8% in 2003 to 26.2% in 2004, caused by the
over-proportional growth of product revenue.
Training revenue increased from
299.3 million
in 2003 to
302.4 million
in 2004, or 1.0%. At constant currencies, training revenues
increased by 4.3%. As in 2003 there was a continuing trend noted
in the customers demand behavior. Customers continued to
restrict their spending on employee training courses and
structurally, there was a continued shift in our customers
demand away from traditional classroom training at our regional
offices to requesting more customer specific
on-site training and
e-learning.
Total Operating Expenses.
Total operating expenses increased from
5,300.6 million
in 2003 to
5,496.1 million
in 2004, representing an increase of
195.5 million
or 3.7%. On a constant currency basis the increase in total
operating expenses was
350.8 or 6.6%,
which means that foreign currency translation effects from the
strengthening value of the euro during 2004 positively impacted
our total operating expenses by
155.3 million,
compared to a negative impact of
235.8 million
on total revenues. In addition, our continued cost management
measures throughout 2004 also contributed to the modest overall
increase in total operating expenses compared to stronger
revenue growth. We believe the increase was mainly attributable
to the following:
|
|
|
|
|
We intentionally increased our sales and marketing expenses in
2004 to support our revenue growth targets. Sales and marketing
costs increased by
112.7 million,
or 8.0% compared to 2003. |
|
|
|
Additional use of third parties: In 2004, we significantly
expanded the use of third parties in our consulting and research
and development departments on an interim basis to support our
own resources with an associated increased cost of
33.3 million
compared to 2003. |
55
|
|
|
|
|
Our growing workforce resulted in an increase in personnel
expenses, which went up from
2,936.6 million
in 2003 to
2,968.0 million
in 2004, or 1.1%. This moderate increase in personnel expenses
was achieved even though the overall headcount increased from
29,610 full-time equivalents as per December 31, 2003,
to 32,205 full-time equivalents as per December 31,
2004, an increase of 7.3%. We continued to keep a tight control
on personnel expenses due to minimal fixed salary increases as
well as by adding additional headcount primarily in low cost
locations. The share of resources in low cost locations
increased from 4.9% in 2003 to 8.2% in 2004. |
|
|
|
The rise in the headcount and overall increase in business
activity during 2004 resulted in higher travel expenses compared
to 2003. |
As a result of the strong revenue growth and the modest increase
in total operating expenses, operating income increased from
1,724.0 million
in 2003 to
2,018.4 million
in 2004, or 17.1%. Operating margin increased from 24.5% in 2003
to 26.9% in 2004.
Pro Forma Operating Income.
We have provided guidance and related information in 2004 and
2003 using pro forma operating income on a consolidated basis.
We use this information internally and believe this pro forma
measure provides meaningful information to our investors because
we exclude acquisition related charges and settlements of
stock-based compensation plans to focus attention on the
financial performance of our core operations. As discussed
above, effective with the second quarter of 2005, we treat the
amortization of all purchased intellectual property rights and
related intangibles as acquisition-related charges, whether
purchased in stand-alone transactions or as part of the
acquisition of a business. Previously, we treated the
amortization of intangibles as acquisition-related charges only
if the intangibles had been acquired in the context of the
purchase of a business. The change in definition had no material
effect on previously published pro-forma figures. For purposes
of our pro forma operating income, we also exclude stock-based
compensation expenses because we have no direct influence over
the actual expense of these awards once we enter into
stock-based compensation plans. This pro forma information is
not prepared in accordance with U.S. GAAP and should not be
considered a substitute for the historical financial information
presented in accordance with U.S. GAAP. The pro forma
measures used by us may be different from pro forma measures
used by other companies.
At the beginning of 2004 our target was to improve our pro forma
operating margin (excluding expenses for stock-based
compensation and acquisition-related charges) from the 27%
achieved in 2003 by approximately 1 percentage point.
We were able to reach this target in 2004 and the pro forma
operating margin increased by 1 percentage point to 28%.
Pro forma operating income (excluding expenses for stock-based
compensation and acquisition-related charges) increased from
1,879.6 million
in 2003 to
2,086.1 million
in 2004. Pro forma operating expenses (excluding expenses for
stock-based and acquisition-related charges) in 2004 increased
by 5.5% to
5,428.4 million.
56
A reconciliation from U.S. GAAP operating income to pro
forma operating income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(in millions of ) | |
U.S. GAAP Operating income
|
|
|
2,018 |
|
|
|
1,724 |
|
Acquisition-related charges
|
|
|
30 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
LTI 2000 Plan/ STAR Plan
|
|
|
37 |
|
|
|
125 |
|
|
Settlement of stock-based compensation plans in the context of
mergers and acquisitions
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
38 |
|
|
|
130 |
|
|
|
|
|
|
|
|
Pro forma operating income excluding stock-based compensation
and acquisition-related charges
|
|
|
2,086 |
|
|
|
1,880 |
|
|
|
|
|
|
|
|
Detail of Operating Expenses.
Cost of Product. Cost of product consists primarily of:
|
|
|
|
|
customer support costs which include 24x7 message handling,
services for upgrades, SAP EarlyWatch services, SAP GoingLive
services and premium maintenance services (SAP Safeguarding
services, SAP Empowering services and SAP MaxAttention support
option) delivered by the SAP Active Global Support
organization; |
|
|
|
license fees and commissions paid to third parties for databases
and the other complementary third-party products sublicensed by
us to customers; and |
|
|
|
costs of developing custom solutions that address
customers unique business requirements. |
Cost of product decreased from
962.8 million
in 2003 to
916.3 million
in 2004, or 4.8%. As a percentage of product revenue, cost of
product decreased from 20.4% in 2003 to 17.7% in 2004.
Apart from a positive foreign currency translation effect, the
efficiency improvements in the support organization that we
accomplished in 2004 also had a positive effect. Due to new and
more efficient processes the support organization could allocate
more resources to support internal projects in other
organizations such as the sales organization. Although the
number of employees increased during 2004, the related costs
increased less due to a continuous effort of the support
organization to move into cost effective locations and due to
the continuous efforts to improve the efficiency of our
processes.
Cost of Services. Cost of services consists primarily of
consulting and training personnel expenses as well as expenses
for third-party consulting and training resources. Cost of
services increased from
1,694.1 million
in 2003 to
1,783.5 million
in 2004 or 5.3%. As a percentage of service revenue, cost of
services increased to 78.5% in 2004 compared to 75.2% in 2003.
One main reason for this increase was that we substantially
increased the interim use of third-party resources reflected in
third-party costs increasing by
33.3 million
compared to 2003. Furthermore, the growth in consulting
headcount by approximately 7% resulted in increased personnel
expenses of
17.3 million
or 1.5%. These newly employed consultants not yet being fully
productive for the full year also negatively impacted the
service profitability. Both the increase in third-party
resources and headcount were a reflection of stronger internal
support provided by our service organization to support other
internal projects such as sales and
ramp-up of products.
Foreign currency translation effects had a significant positive
impact on cost of services. Cost of services increased by
approximately 8.9% at constant currencies.
57
Research and Development. Our research and development
cost consists primarily of:
|
|
|
|
|
personnel expenses related to our research and development
employees; |
|
|
|
amortization of computer hardware used in our research and
development activities; and |
|
|
|
costs incurred for independent contractors retained by us to
assist in our research and development activities. |
Research and development expenses increased from
872.2 million
in 2003 to
908.0 million
in 2004, or 4.1%. As a percentage of total revenue, research and
development expenses decreased from 13.7% in 2003 to 12.2% in
2004.
Overall, the number of research and development employees
increased from 8,854 full-time equivalents in 2003 to
9,882 full-time equivalents in 2004, representing an
increase of 11.6%. Due to an increased share of resources in low
cost locations personnel expenses were kept nearly constant. The
share of employees working in the research and development
department as part of the total number of employees increased to
30.7% for 2004 from 29.9% for 2003. As in all other areas,
foreign currency translation effects had a positive effect on
the overall increase in research and development expenses.
Sales and Marketing. Sales and marketing expenses
increased from
1,411.0 million
in 2003 to
1,523.7 million
in 2004, or 8.0%. As a percentage of total revenue, sales and
marketing expenses remained relatively constant, up slightly
from 20.1% in 2003 to 20.3% in 2004. On a constant currency
basis, sales and marketing expenses increased by approximately
11%. The increase in sales and marketing expenses in 2004
relates to the efforts to support our revenue growth targets for
the year and mainly results from salaries for new sales
personnel and higher bonus payments to sales and marketing
employees.
Overall employees in sales and marketing increased from
5,170 full-time equivalents in 2003 to 5,583 full-time
equivalents in 2004, or 8.0%, and total personnel expenses
increased accordingly from
660.1 million
in 2003 to
699.1 million
in 2004, or 5.9%. We also continued to increase variable parts
of salaries in 2004.
General and Administrative. General and administrative
expenses increased from
354.0 million
in 2003 to
366.4 million
in 2004. This represented an increase of 3.5% or approximately
6% on a constant currency basis. The increase was mainly driven
by an increase in travel expenses and the interim use of
third-party services. As percentage of total revenue, general
and administrative expenses slightly decreased from 5.0% in 2003
to 4.9% in 2004.
Other Operating Income/ Expenses, Net. Other operating
income/expenses, net, reversed from a net operating expense of
6.5 million
in 2003 to a net operating income of
1.8 million
in 2004. The primary reason was the significant reduction in the
amount of restructuring costs for unused lease space and
severance payments for exit activities from
20.5 million
in 2003 to
9.6 million
in 2004.
The 2004 restructuring activities particularly included
organizational changes in some foreign subsidiaries, such as
replacement of management and sales personnel mainly in the EMEA
region, and the Nordic countries in particular. See Note 24
to our consolidated financial statements in Item 18.
Financial Statements for discussion regarding the expenses
incurred in connection with our exit activities, which include
contract termination and similar restructuring costs for unused
lease space as well as severance payments.
Customer credit loss risks based on aging of receivables are
classified as general bad debt expense as a component of other
operating expense, net. For the year ended December 31,
2004,
1.8 million
was recorded as other operating expense. For the years ended
December 31, 2003, and 2002,
5.4 million
and
5.3 million
were recorded as other operating income, respectively, due to
our decreased days sales outstanding (meaning the average number
of days that passed before we were paid by our customers
following the delivery of our software or the rendering of
services).
58
Financial Income/ Expense, Net.
Financial income/expense, net is comprised primarily of
income/(losses) from equity method investments, gains/(losses)
on sales of equity investments securities and net interest
income. Financial income/expense, net improved from financial
income of
16.3 million
in 2003 to net financial income of
41.0 million
in 2004, an increase of
24.7 million.
The increase mainly resulted from higher net interest income,
which went up from
43.4 million
in 2003 to
56.3 million
in 2004. This improvement was related to the increase in liquid
assets resulting from the higher cash flows generated from our
operations in 2004. Further contributing to the overall increase
were the gains on sales of equity securities, which went up from
2.2 million
in 2003 to
14.0 million
in 2004.
Income Taxes.
Our effective income tax rate decreased from 39.0% for 2003 to
36.5% in 2004. This decrease was primarily due to the impact of
tax exempted income and fewer non-tax deductible losses on
investments than in the year 2003. See Note 11 to our
consolidated financial statements in Item 18.
Financial Statements.
Net Income.
Net income increased from
1,077.1 million
in 2003 to
1,310.5 million
in 2004, representing an increase of
233.4 million
or 21.7%. Net income as a percentage of total revenue increased
from 15.3% for 2003 to 17.4% for 2004. This increase was
primarily due to the overall increase in total revenues of
489.9 million
or 7% compared to 2003, primarily driven by strong growth in
software and maintenance revenues which both grew by 9.9%,
combined with the proportionally lower increase in total
operating expenses of
195.5, or 3.7%
compared to 2003. Additionally, financial income/expense, net
improved from financial income of
16.3 million
in 2003 to net financial income of
41.0 million
in 2004, an increase of
24.7 million.
Basic earnings per share were
4.22 in 2004
compared to 3.47
in 2003.
Segment Discussion.
As described in Note 32 in Item 18. Financial
Statements, we have three operating segments: product,
consulting and training. Total revenue figures for each of our
operating segments differ from the revenue figures classified in
our consolidated statements of income because for segment
reporting purposes, revenue is generally allocated to the
segment that is responsible for the related transactions,
regardless of the nature of the sales transaction. The segment
contributions reflect only expenses directly attributable to the
segments and do not represent the actual margins for the
operating segments. Indirect costs such as general and
administrative, research and development, charges for
stock-based compensation and acquisition-related charges, and
other corporate expenses are not allocated to the operating
segments and therefore are not included in segment contribution.
Depreciation and amortization of long-lived assets as well as
other facility and IT-related expenses are allocated to each
operating segment based on headcount or facility space occupied.
In 2004 the total impact of stock based compensation and
settlements of stock-based compensation plans included in total
operating expenses in the consolidated financial statements was
38.1 million
compared to
130.0 million
in 2003. Therefore, segment contribution is not indicative of
the actual profitability margin for the operating segments.
In 2004,
3.9 million
(2003:
6.0 million)
of exit costs related to unused lease space and severance
payments were not allocated to the segments.
59
As discussed in Note 32 in Item 18. Financial
Statements, through December 31, 2003, we accounted
for internal sales and transfers between segments either on a
cost basis or at estimated market prices, depending on the type
of service provided. Effective January 1, 2004, in order to
best manage the utilization of our internal resources, we
started recording all internal sales and transfers based on
fully loaded cost rates. We adjusted the management reporting of
internal revenues such that internal sales and transfers are now
reported as a cost reduction rather than internal revenues. This
change in segment measures resulted in lower revenues and costs
for the operating segments. Due to the high volume of
intercompany activity between certain group entities (mainly the
German, US, and UK subsidiaries), the change also resulted in
higher margins for the segments. We also adopted a new
calculation of the segment contribution in 2004 such that
acquisition related charges no longer burden a segments
contribution.
Although there have been no changes in the composition of
operating segments or in reportable operating segments, our
original segment disclosures for 2003 have been presented along
with revised information that conforms to the current
presentation.
Product segment. The Product segment is primarily engaged
in marketing and licensing our software products, performing
software development services, and performing maintenance
services. Maintenance services include technical support for our
products, assistance in resolving problems, providing user
documentation, updates and other support for software products,
new versions, and support packages. Reflecting internal
management responsibilities within our organization, the product
segment includes the lines of business sales, marketing and
service and support.
Product segment revenue increased by 10.3% from
4,797.8 million
in 2003 to
5,292.9 million
in 2004. On a constant currency basis, product segment revenue
grew by 13.7%. Approximately 98% of revenues within the product
segment were derived from software and maintenance revenue, with
the remaining 2% derived from services revenue and other
revenue. Software revenue as part of the total product segment
revenue increased by 11% from
2,131.3 in
2003 million to
2,361.0 million
in 2004. This corresponded to an increase of 14.3% based on
constant currencies. Maintenance revenues increased by 10% from
2,565.9 million
in 2003 to
2,817.4 million
in 2004, an increase of 13.1% based on constant currencies.
Product segment expenses increased by 10.5% from
1,862.7 million
in 2003 to
2,058.1 million
in 2004, an increase of 13.5% based on constant currencies.
Expenses of the line of business sales accounted for roughly
more than half of the entire product segment expenses. Expenses
of the line of business marketing accounted for roughly one
fourth and expenses of the line of business service and support
accounted for roughly one fifth of overall product segment
expenses. The increase in sales and marketing expenses resulted
mainly from the higher headcount and associated personnel-,
travel- and other personnel related expenses as well as
additional third-party and marketing expenses. The growth in
service and support expenses was driven primarily by the
decision to strategically shift the organizational
responsibility for the maintenance of mature product releases
from the development organization to the service and support
teams.
Product segment contribution increased by 10.2% from
2,935.1 million
in 2003 to
3,234.8 million
in 2004, or 61.1% of total segment revenue compared to 61.2% of
total segment revenue in 2003. On a constant currency basis,
product segment contribution increased by 13.8%. While we were
able to increase product segment revenues, primarily relating to
the U.S. operations, the percentage increase in our product
segment expenses was slightly higher, resulting in a slight
decrease in product segment contribution as a percentage of
total revenue. The proportionally higher increase in segment
expenses resulted mainly from the additional expenses incurred
in the service and support area.
Consulting segment. The Consulting segment is primarily
engaged in the implementation of our software products.
Consulting segment revenues increased by 1.4% from
1,884.8 million
in 2003 to
1,910.3 million
in 2004. In constant currency, revenue increased by 5%. The
market in the consulting segment continued to be very
competitive in 2004 and our customers and partners remained very
price-conscious throughout the
60
year, adversely impacting the revenue growth in the consulting
segment. In addition, our focus on growing product revenues also
impacted the growth in consulting segment revenues.
Consulting segment expenses increased by 2.9% from
1,442.4 million
in 2003 to
1,484.0 million
in 2004. In constant currency, segment expenses increased by 6%.
In markets with strong growth, such as the Americas region, more
consultants were hired and more third-party services were
engaged. The main contributing factor to the higher segment
expenses was the increased headcount with the related increase
in personnel and travel expenses.
Consulting segment contribution decreased by 3.6% from
442.4 million
in 2003 to
426.3 million
in 2004. In constant currency, the segment contribution
decreased by 1%. The consulting segment profitability was
reduced by 1.2 percentage points. Consultants had been more
engaged in supporting the product segment, ramping up new
products and supporting the sales cycle. The newly employed
consultants not yet being fully productive for the full year
also negatively impacted the consulting segment profitability.
Training segment. The Training segment is primarily
engaged in providing educational services on the use of our
software products and related topics for customers and partners.
Training services include traditional classroom training at SAP
training facilities, customer and partner specific training,
end-user training as well as
e-learning.
Training segment revenues were
306.6 million
in 2004, which represented a slight decrease from 2003
(316.1 million).
On a constant currency basis, training segment revenues would
have been
316.8 million.
Even though our customers continued to restrict their spending
on employee training courses during the year, training segment
revenues declined only modestly in 2004 due to an overall
stabilization of the IT training market and our ability to
effectively execute on a more flexible service portfolio. This
process began in 2003 and was tailored to meet individual
customer needs rather than standardized courses. As a result,
there had been a continued decrease in traditional classroom
training which was partially offset by additional customer
specific, end-user training and
e-learning.
Training segment expenses decreased from
221.8 million
in 2003 to
209.0 million
in 2004, or 5.8%. Our training segment initiated certain
measures to reduce costs in 2003, which included consolidation
of certain facilities and ceasing operations in certain
geographic locations. A restructuring charge of approximately
9 million
was incurred in 2003 for unused lease space. The cost reduction
measures begun in 2003 had a positive impact in 2004 and
contributed to the overall reduction in training segment
expenses in 2004.
Training segment contribution increased by 3.5% from
94.3 million
in 2003 to
97.6 million
in 2004. The training segment profitability increased by
2.0 percentage points. This was due primarily to the fact
that the cost reduction of our training segment effectively met
the customer demand shift from classroom training to customized
training.
OUTLOOK 2006
Forecast for the Global Economy
The IMF and the OECD do not expect that the economic climate in
2006 will be much different than it was 2005. Overall, they
believe recovery in the global economy will not be stronger than
in 2005. According to the IMFs forecast for 2006, global
GDP the total value of all goods and
services will grow 4.3%. Increased commodity prices
and continuing subdued demand on the domestic market will hold
back progress, especially in the industrialized countries of
Europe. It expects growth to slow in the United States and Japan.
The OECD believes that, compared to many other markets,
U.S. growth will still be relatively strong at 3.5%. The
IMF expects growth to remain strong in Asia in 2006
notably in China (where it foresees 8.2% growth) and India
(6.3%). It expects the Japanese economy to expand 2.0% in 2006
and again in 2007. Growth
61
is expected to accelerate in the euro zone. The OECD forecasts
GDP will increase 2.1% in the euro zone up from 1.4%
in 2005. It expects a 2.2% expansion of the euro zone economy in
2007. For Germany, the OECD forecasts GDP growth will accelerate
to 1.8% in 2006.
The primary risks to the global economy that the IMF and the
OECD identify are further rises in oil prices, deterioration in
the U.S. balance of payments, or sudden changes of major
trading nations currency policy. International economic
activity could also be severely impacted by major increases in
long-term interest rates or a reversal of the current temperate
trends in the financial and property markets. The OECD believes
these risks could be contained if world trade were further
opened up and there were progress in the agricultural policy
reform negotiations, which would both stimulate more worldwide
economic activity.
Forecast for the IT Industry
The generally healthy climate for business in 2006 should help
the IT market. IT market intelligence provider IDC estimates
that in 2006 the global IT market will expand 5.5% and that the
applications segment of that market will do even better, growing
5.9%. Gartner defines the IT market slightly
differently its 2006 growth forecast of
approximately 4% reflects an anticipated hesitancy in the
hardware and IT services segments. Red Herring, a
U.S. magazine covering the IT market, foresees sustained
pressure on prices in 2006, especially affecting the major
vendors. Nonetheless, Gartner expects the applications market to
expand 8% worldwide in 2006. That increase could be generated by
products such as Microsoft and SAPs shared Mendocino
development, Red Herring suggests.
Gartner forecasts that SMEs will spend some 7% more on IT in
2006 than in 2005, reasoning that companies will look to
advanced IT support for their business processes for the edge in
an ever fiercer competitive environment worldwide. Thus, many of
them will modernize their systems and applications, Gartner
believes.
In IDCs assessment, the SME market that SAP can address
comprises some 64,000 companies with a headcount of 1,000
to 2,500 and 1.2 million companies with a headcount in the
range 100 to 1,000. Citigroup estimates that SAPs
share of the SME segment is some 10%, which already makes it the
leader, ahead of Intuit, Microsoft, Sage, and Oracle.
Gartner expects SMEs to concentrate their IT investment on
security, Internet business processes, and expanding their ERP
systems. It believes larger companies in the SME spectrum (with
500 or more employees) will spend significantly on ERP. These
are precisely the companies that are feeling the impact of more
demanding compliance requirements such as those under the
U.S. Sarbanes-Oxley Act. Gartner predicts they will also
tend to invest in document management and CRM systems.
The U.S. IT market is SAPs single most important
source of revenue, and here IDC estimates 5.0% growth in 2006
(2005: 4.9%). Gartners corresponding estimate is similar.
Despite the rather subdued outlook for the western European
economy as a whole, IDC believes the IT market in the region
will grow slightly faster than in the United States. Gartner, on
the other hand, expects the western European IT market to grow
more slowly. In the Asia-Pacific region, IDC predicts that the
IT market will expand 5% in 2006, while Gartner projects 4.4%
growth.
BITKOM estimates that growth of the German IT market in 2006
will comfortably exceed 3%. It bases its forecast on the results
of its quarterly membership surveys. In IDCs view, the
growth rate for the entire German IT market will grow from 2.7%
in 2005 to 4.8% in 2006.
Red Herring warns that the practice of sourcing
enterprise application software as Internet services rather than
by buying licenses could be unhelpful to the major vendors. The
practice was first observed in 2004, and is expected to reach
significant proportions in 2006. IDC predicts that Internet
providers of software as services will see their revenue grow
15% in 2006.
62
Forecast for SAP
Operational goals for 2006: profitable growth
In 2006, we aim to post double-digit software and product
revenue growth for the third year in a row and thus further
strengthen our segment share. At the same time, we plan to
continue to align our operations to volume business to increase
the proportion of our revenue derived from SME customers. We
also plan to continue to invest in research and development to
drive forward development of a business process platform and
bring strategic new products to market. At the beginning of the
year, we published the following outlook for fiscal year 2006:
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To provide additional transparency, we are providing for the
first time an outlook for product revenues, which is comprised
of software and maintenance revenues. We expect full-year 2006
product revenues to increase in the range of 13% to 15% compared
to 2005. This growth rate is based on our expectation for
full-year 2006 software revenue growth in the range of 15% to
17% compared to 2005. As in 2005, the growth is expected to be
driven by the Americas and Asia-Pacific. Low single-digit
revenue growth in Germany is likely, while high single-digit
growth is expected for the rest of the EMEA region. Consulting
and training revenues are expected to grow more slowly than
product revenue. |
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We expect the full-year 2006 pro-forma operating margin, which
excludes stock-based compensation and acquisition-related
charges, to increase in the range of 0.5 to 1.0 percentage
points compared to 2005. |
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We expect full-year 2006 pro-forma earnings per share, which
exclude stock-based compensation, acquisition-related charges
and impairment-related charges, to be in the range of
5.80 to
6.00 per
share. |
As in previous years, the major portion of the planned
investment is earmarked for new hires, who would be taken on as
needed to meet the actual requirements of business. If the year
unfolds as planned, some 3,500 full-time equivalents would
be added to the total headcount. The regional breakdown of
headcount growth is planned to be similar to that of 2005. A
significant proportion of the new jobs is expected to be located
in India and China, while some 20% of the increase is expected
in Germany.
This outlook assumes that:
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The economy is stable. |
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The buying behavior of customers will conform to the usual
seasonal pattern, with revenue at its strongest in the fourth
quarter. |
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The average U.S. dollar to euro exchange rate is
$1.23 per
1.00. |
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The effective group tax rate is 34.5%, which takes in account
among other things an anticipated favorable effect of the
municipal trade tax rate change enacted in January 2006 for the
City of Walldorf, Germany, where our corporate headquarters is
located. |
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In 2006, SAP intends to continue seeking opportunities to step
up stock repurchasing from the 2005 previous level. The outlook
for pro-forma EPS is based on 307 million shares. |
The stated revenue, income, and margin targets of SAP for fiscal
year 2006 are subject to a number of risks, over which we may
have no influence or only limited influence. This outlook should
be read in connection with the more detailed discussion and
analysis of our financial condition and results of operations in
this Item 5, Item 3. Key Information
Risk Factors, and Item 18. Financial
Statements.
63
Prospects through 2010
In the medium term, we expect further advances and continuing
revenue growth. The ESA road map is planned for completion in
2007, which means that the SAP NetWeaver platform will have
evolved into a business process platform, which we plan to make
widely available to other software companies for their
developments, and that the mySAP Business Suite applications and
mySAP All-in-One
partner solutions will be fully based on the business process
platform. We expect this to open up new ways for us to approach
the market. At the same time, we want to strengthen our position
in the SME segment and offer new strategic products, enabling us
to tap into new markets. Currently, we estimate the size, in
terms of product revenue volume, of the segments in which we
operate to be approximately U.S.$30 billion. As we expand
into new markets, we predict the size of the overall segments in
which we operate to reach approximately U.S.$70 billion by
2010. We want to translate this potential into additional
revenue growth. By 2010, we aim to earn around half of our
software revenue with new, as yet unavailable, products,
increase the number of customers to approximately 100,000, and
receive 40% to 45% of our orders from customers in the SME
segment.
The expected revenue growth, combined with productivity
increases in all business processes, should lead to further
margin improvements. Therefore, we expect our 2007 pro-forma
operating margin to be over 30%.
FOREIGN CURRENCY EXCHANGE RATE EXPOSURE
Although our reporting currency is the euro, a significant
portion of our business is nevertheless conducted in currencies
other than the euro. International sales are primarily made
through our subsidiaries in the respective regions and are
generally denominated in the local currency, although in certain
countries where foreign currency exchange rate exposure is
considered high, some sales may be denominated in euro or
U.S. dollars. Expenses incurred by the subsidiaries are
generally denominated in the local currency. Accordingly, the
functional currency of our subsidiaries is generally the local
currency. Therefore, movements in the foreign currency exchange
rates between the euro, and the respective local currencies to
which our subsidiaries in countries that do not participate in
the EMU are exposed, may materially affect our consolidated
financial position, results of operations and cash flows. In
general, appreciation of the euro relative to another currency
has a negative effect on our results of operations, while
depreciation of the euro has a positive effect. As a
consequence,
period-to-period
changes in the average exchange rate in a particular currency
can significantly affect our revenue, operating results and net
income. The principal currencies in which our subsidiaries
conduct business that are subject to the risks described in this
paragraph are the U.S. dollar, the Japanese yen, the
British pound, the Swiss franc, the Canadian dollar and the
Australian dollar. We enter into derivative instruments,
primarily foreign exchange forward contracts, to protect our
anticipated cash flows from foreign subsidiaries from the
effects of foreign currency exchange fluctuations. See also
Item 11. Quantitative and Qualitative Disclosures
About Market Risk Foreign Currency Risk and
Note 31 in Item 18. Financial Statements.
Approximately 63% of our consolidated revenue in 2005 and
approximately 60% in 2004 was attributable to operations in
non-EMU participating countries and such revenues had to be
translated into euros for financial reporting purposes.
Fluctuations in the value of the euro had positive effects on
our consolidated revenue of
111 million,
income before income taxes of
21 million
and net income of
23 million
for 2005, and had negative impacts on our consolidated revenue
of
(236) million,
income before income taxes of
(56) million
and net income of
(43) million
for 2004. See Item 11. Quantitative and Qualitative
Disclosures About Market Risk Foreign Currency
Risk.
The impact of foreign currency exchange rate fluctuations
discussed in the preceding paragraph is calculated by
translating current period figures in local currency to euros at
the monthly average exchange rate for the corresponding month in
the prior year. Throughout this Annual Report on
Form 20-F, we
64
discuss our financial performance without the effect of foreign
currency fluctuations on a constant currency basis,
which is calculated in the same manner.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared based on the
accounting policies described in Note 3 to our consolidated
financial statements in Item 18. Financial
Statements in this Annual Report on
Form 20-F. The
application of such policies may require management to make
significant estimates and assumptions. We believe that the
following are our more critical accounting estimates used in the
preparation of our consolidated financial statements that could
have a significant impact on our future and current consolidated
results of operations and financial position:
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Revenue recognition |
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Valuation of accounts receivable |
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Accounting for stock-based compensation |
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Accounting for income taxes and other income tax related
judgments |
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Realizability of strategic and venture capital investments |
Please refer to Note 3 to our consolidated financial
statements in Item 18. Financial Statements for
further discussion of our accounting policies.
Revenue Recognition
Substantially all of our revenues are derived from the sale or
the license of our software products and the sale of
maintenance, consulting, development, training, and other
services. Our standard license agreement provides a perpetual
license to use our products based on the number of licensed
users. We may license our software in multiple element
arrangements if the customer purchases any combination of
maintenance, consulting, development, training, or other
services in conjunction with the software license.
We recognize revenue pursuant to the requirements of American
Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) 97-2, Software
Revenue Recognition
(SOP 97-2),
as amended by SOP 98-9, Software Revenue Recognition
With Respect to Certain Transactions; SOP 81-1,
Accounting for Performance of Construction-type and Certain
Production-type Contracts; the SECs Staff Accounting
Bulletin (SAB) No. 104, Revenue
Recognition; Emerging Issues Task Force (EITF)
00-21, Revenue Arrangements with Multiple Deliverables
(EITF 00-21);
EITF 03-5,
Applicability of AICPA Statement of Position 97-2 to
Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software; and other authoritative
accounting guidance.
We recognize revenue using the residual method when SAP-specific
objective evidence of fair value exists for all of the
undelivered elements (for example, maintenance, consulting, or
other services) in the arrangement, but does not exist for one
or more delivered elements (for example, software). We allocate
revenue to each undelivered element based on its respective fair
value which is the price charged when that element is sold
separately or, for elements not yet sold separately, the price
established by management if it is probable that the price will
not change before the element is sold separately. We defer
revenue for the undelivered elements (for example, maintenance,
consulting, or other services) and recognize the residual amount
of the arrangement fee attributable to the delivered element
(for example, software), if any, when the basic criteria in
SOP 97-2 have been
met. If an undelivered element is not sold separately and
management has not yet established a price for the undelivered
element that will not change before the element is sold
separately, revenues for all elements are deferred until the
delivery criteria have been satisfied.
65
Under SOP 97-2,
provided that the arrangement does not involve significant
production, modification, or customization of the software,
revenue is recognized when all of the following four criteria
have been met:
1. Persuasive evidence of an arrangement exists
2. Delivery has occurred
3. The fee is fixed or determinable, and
4. Collectibility is probable.
If at the outset of an arrangement we determine that the
arrangement fee is not fixed or determinable, revenue is
deferred until the arrangement fee becomes due and payable by
the customer. If at the outset of an arrangement we determine
that collectibility is not probable, revenue is deferred until
payment is received. If an arrangement allows for customer
acceptance of the software or services, we defer revenue until
the earlier of customer acceptance or when the acceptance rights
lapse.
We occasionally license software for a specified time period.
Revenue for short-term time-based licenses, which generally
include maintenance during the license period, is recognized
ratably over the license term. Revenues for multi-year
time-based licenses that include maintenance, whether separately
priced or not, are recognized ratably over the license term
unless a substantive maintenance renewal rate exists, in which
case the amount allocated to software based on the residual
method is recognized as software revenue when the basic criteria
in SOP 97-2 have
been met. Revenues from time-based licenses were not material in
any of the periods presented in this Annual Report on
Form 20-F.
If an arrangement includes the right to undelivered unspecified
additional software products, the entire arrangement is
accounted for as a subscription. Revenue from the arrangement is
recognized ratably over the term of the arrangement beginning
with the delivery of the first product. Revenues from
subscriptions were not material in any of the periods presented
in this Annual Report on
Form 20-F.
We recognize revenue from resellers upon evidence of
sell-through to the end customer. If we become aware that a
reseller has granted contingent rights to an end-customer, we
defer revenue recognition until a valid license agreement has
been entered into without contingencies or, if applicable, until
the contingencies expire.
In multiple-element arrangements involving software and
consulting, training, or other services that are not essential
to the functionality of the software, the service revenues are
accounted for separately from the software revenues.
Maintenance revenues are recognized over the term of the
maintenance contract. Our initial maintenance term is generally
in the range of one to three years, renewable by the customer on
an annual basis thereafter. The maintenance fee, including the
fee for subsequent renewals, is typically established based on a
specified percentage of the license fee paid by the customer.
Our customers typically prepay maintenance for periods of three
to twelve months. Maintenance revenues are recognized ratably
over the term of the maintenance contract. If a maintenance
customer is specifically identified as a bad debtor, we cease
recognizing maintenance revenue except to the extent that
maintenance fees have already been collected. For time-based
licenses and subscriptions, we allocate a portion of the
arrangement fee to maintenance revenue based on the estimated
fair value of the maintenance.
Consulting, training and other service revenues are recognized
as the respective services are performed, generally on a
time-and-materials basis. Consulting revenues attributed to
fixed-price arrangements are recognized using the proportional
performance method, based on direct labor costs incurred to date
as a percentage of total estimated project costs required to
complete the project. Consulting services primarily comprise
implementation support related to the installation and
configuration of our software products and do not typically
involve significant production, modification, or customization
of the software. When total cost estimates exceed revenues in a
fixed-price arrangement, the estimated losses are recognized
66
immediately based upon an average fully burdened daily rate
applicable to the consulting organization delivering the
services.
Revenues for arrangements that involve significant production,
modification, or customization of the software and those in
which services are not available from third-party vendors and
therefore deemed essential, are recognized, depending on the fee
structure, on a time-and-materials basis or using the percentage
of completion method of accounting. If we do not have a
sufficient basis to measure the progress of completion, revenue
is recognized when final acceptance is received from the
customer. If the arrangement includes elements that do not
qualify for contract accounting (for example maintenance,
hosting) such elements are accounted for separately provided
that the elements have stand-alone value and SAP-specific
objective evidence of fair value exists. When total cost
estimates exceed revenues in a fixed-price arrangement, the
estimated losses are recognized immediately based upon an
average fully burdened daily rate applicable to the unit
delivering the services.
We periodically enter into joint development agreements with
customers to leverage their industry expertise and provide
standard software solutions for selected vertical markets. These
customers generally contribute cash, resources, and industry
expertise in exchange for license rights for the future
solution. We recognize software revenue in conjunction with
these arrangements based upon the percentage of completion
method. Beginning in 2005, we classify the development costs
associated with these arrangements as cost of product. See
Note 8 to our consolidated financial statements in
Item 18. Financial Statements for more
information.
Hosting services are recognized ratably over the term of hosting
contract. Revenues from hosting services were not material in
any of the periods presented in this Annual Report on
Form 20-F.
The assumptions, risks, and uncertainties inherent with the
application of the percentage of completion method affect the
timing and amounts of revenues and expenses reported. Numerous
internal and external factors can affect estimates, including
direct labor rates, utilization, and efficiency variances.
We account for
out-of-pocket expenses
rebilled to customers as maintenance, consulting, and training
revenues.
We believe that our accounting estimates used in applying our
revenue recognition policies are critical because:
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the determination that it is probable that the customer will pay
for the products and services purchased is inherently judgmental; |
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the allocation of proceeds to certain elements in
multiple-element arrangements is complex; |
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the determination of whether a service is essential to the
functionality of the software is complex; |
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establishing company-specific fair values of elements in
multiple-element arrangements requires adjustments from
time-to-time to reflect
recent prices charged when each element is sold
separately; and |
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the determination of the stage of completion for certain
consulting and development arrangements is complex. |
Changes in the aforementioned items could have a material effect
on the type and timing of revenue recognized. There have been no
significant changes in our accounting estimates related to our
revenue recognition policies that had a material impact on the
amount of our reported revenue, results of operations or our
financial position in 2005 and 2004.
Historically, SAP-specific objective evidence of fair value for
certain undelivered elements in multiple-element arrangements
has been determined on an enterprise-wide or country-wide basis,
depending on the nature of the undelivered element. As economic
conditions change in certain geographic locations in which
67
we operate, we may need to modify our business practices in
individual locations or worldwide, and future SAP-specific
objective evidence of fair value of such undelivered elements
may deviate from historical fair values. Consequently, the
percentages and the amounts of the different types of revenue
recognized in the future for multiple-element arrangements
involving software could differ significantly from historical
trends and could materially impact our reported revenues,
results of operations and financial position in the future.
Valuation of Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do
not bear interest. Total accounts receivable at
December 31, 2005 and 2004 were
2,251.0 million
and
1,929.1 million,
respectively, which were net of an allowance for bad debts of
72.9 million
in 2005 and
63.4 million
in 2004. Included in accounts receivable are unbilled
receivables related to costs and estimated earnings in excess of
billings on uncompleted fixed fee consulting arrangements of
34.6 million
and
43.0 million
at December 31, 2005 and 2004, respectively. The allowance
for doubtful accounts represents our best estimate of the amount
of probable credit losses in our existing accounts receivable
portfolio. We determine the allowance for doubtful accounts
after giving consideration to specific customer past due amounts
based on due dates and regional economic risks. Account balances
are charged off against the allowance after all collection
efforts have been exhausted and the potential for recovery is
considered remote. Non-interest-bearing receivables with a term
exceeding one year are discounted to their present value using
local interest rates.
Total provisions for allowances for doubtful accounts charged to
earnings approximated net
12.4 million,
1.7 million
and
7.0 million
during 2005, 2004, and 2003, respectively. The amount charged to
earnings in 2004 was low compared to other years on average
mainly due to successful collection of receivables previously
reserved for. A factor contributing to the increase in the
amount charged in 2005 was an increase in revenues in general.
Specific customer credit loss risks are charged to the
respective functional cost category of product or cost of
service sold. Customer credit loss risks based on aging of the
receivables are classified as general bad debt expense, which is
included in Other operating income/expense, net as
disclosed in Note 7 in Item 18. Financial
Statements.
Charges for credit loss risks were as follows:
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2005 | |
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2004 | |
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2003 | |
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(mio) | |
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(mio) | |
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Specific customer credit loss risks
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9.0 |
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0.0 |
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12.4 |
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Customer credit loss risks based on aging of the receivables
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3.4 |
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1.7 |
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(5.4 |
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Total provisions for allowances for doubtful accounts charged to
earnings
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12.4 |
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1.7 |
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7.0 |
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Accounts receivable written-off against the allowance for
doubtful accounts approximated
8.1 million,
7.7 million
and
22.9 million
during 2005, 2004, and 2003, respectively.
We believe that the accounting estimate related to the
establishment of the allowance for doubtful accounts is a
critical accounting policy because the assessment of whether a
receivable is collectible is inherently judgmental and requires
the use of assumptions about customer defaults that could change
significantly and because changes in our estimates about the
allowance for doubtful accounts could materially impact the
reported assets and expenses in our financial statements.
However, the recognition of allowances for doubtful accounts
initially has no impact on our reported cash flows, our
liquidity and capital resources. Net income could be adversely
affected if actual credit losses exceed our estimates.
Accounting for Stock-Based Compensation
As further explained in Note 22 to our consolidated
financial statements in Item 18. Financial
Statements, we have several stock-based compensation
plans. Through December 31, 2005, we accounted for
stock-based compensation based on the intrinsic-value-based
method prescribed by Accounting Principles
68
Board Opinion 25, Accounting for Stock Issued to
Employees (APB 25), and related
interpretations. Under this method, compensation expense is
recorded only if on the date of grant the current market price
of the underlying stock exceeds the exercise price or the
exercise price is not fixed at the grant date.
SFAS 123 Accounting for Stock-Based Compensation
(SFAS 123) and SFAS 148 Accounting
for Stock-Based Compensation Transition and
Disclosure, an amendment of FASB Statement No. 123
(SFAS 148) established accounting and
disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As
permitted by SFAS 123 and SFAS 148, we elected to
continue to apply the intrinsic-value-based method of accounting
described above and adopted only the disclosure requirements of
SFAS 123, as currently effective at December 31, 2005.
The following table illustrates the effect on net income if the
fair-value-based method had been applied to all outstanding and
unvested awards in 2005, 2004, and 2003.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
As reported
|
|
|
1,496,407 |
|
|
|
1,310,521 |
|
|
|
1,077,063 |
|
Add: Expense for stock-based compensation, net of tax according
to APB 25
|
|
|
31,130 |
|
|
|
23,445 |
|
|
|
85,700 |
|
Deduct: Expense for stock-based compensation, net of tax
according to FAS 123
|
|
|
138,468 |
|
|
|
181,323 |
|
|
|
205,109 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
1,389,069 |
|
|
|
1,152,643 |
|
|
|
957,654 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
Basic as reported
|
|
|
4.83 |
|
|
|
4.22 |
|
|
|
3.47 |
|
Diluted as reported
|
|
|
4.81 |
|
|
|
4.20 |
|
|
|
3.46 |
|
Basic pro forma
|
|
|
4.48 |
|
|
|
3.71 |
|
|
|
3.08 |
|
Diluted pro forma
|
|
|
4.48 |
|
|
|
3.70 |
|
|
|
3.08 |
|
We use the Black-Scholes valuation model to estimate the fair
value of our stock options. As described in Note 22 to our
consolidated financial statements in Item 18.
Financial Statements, this valuation model requires that
we use a number of assumptions, including expected future stock
price volatility and expected option life (which represents our
estimate of the average amount of time remaining until the
options are exercised or expire unexercised). Expected future
stock price volatility is estimated based upon historical stock
price movements over the most recent period equal to the
expected option life. Expected option life is based on the
vesting period, the expected volatility of the underlying stock
and on actual exercise activity related to previous option
grants. Additionally, our share price on the date of grant
influences the option value. Notwithstanding that the exercise
price of most options equals or is connected to the quoted
market price of our stock on the grant date, the higher the
share price the higher the option value. In accordance with
fixed-plan accounting under APB 25, changes in the option
value after the grant date do not impact compensation expense.
We intend to continue using stock-based compensation awards to
attract and retain senior managers and select employees. As
discussed in Note 3 in Item 18. Financial
Statements, the adoption of SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS 123R), requires that stock-based
awards be accounted for at fair value, rather than intrinsic
value. We adopted SFAS 123R beginning January 1, 2006
using the modified version of prospective application. We expect
the adoption of SFAS 123R will result in a reduction of our
earnings and could result in dilution to our shareholders, and
such adverse effect could be material. Also, the determination
of the fair value of awards granted involves making certain
assumptions. The above
69
presented pro forma effects on reported net income as if the
fair-value-based method was used to recognize compensation
expense on equity-classified awards are not necessarily
indicative of the impact the adoption of SFAS 123R will
have on our future reported net income. The table above does not
reflect the measurement of liability-classified awards at fair
value and does not reflect the impact of estimating forfeitures
of awards granted, both of which will be required under
SFAS 123R. We are currently evaluating the expected
share-based compensation expense for the year ended
December 31, 2006.
For purposes of determining the estimated fair value of our
stock options, we believe expected volatility is the most
sensitive assumption. The fair value of awards granted under our
SOP 2002 in 2005 was calculated based on an expected volatility
of 24%. Changes in the volatility assumption could significantly
impact the estimated fair values calculated by the Black-Scholes
valuation model and, consequently, the required pro forma
information reported in our consolidated financial statements.
The trading prices of our ordinary shares have experienced and
may continue to experience significant volatility. The following
table shows the income statement effect of certain assumed
changes in the volatility covering all significant equity-award
grants as of December 31, 2005, on the pro forma net income
of
1,389 million
as disclosed in Note 3 to our consolidated financial
statements in Item 18. Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed change in volatility in percentage-points |
|
10% | |
|
5% | |
|
+5% | |
|
+10% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of ) | |
Effect on pro forma net income for volatility assumption change
|
|
|
23 |
|
|
|
12 |
|
|
|
(10 |
) |
|
|
(21 |
) |
Pro forma net income using revised volatility assumption
|
|
|
1,412 |
|
|
|
1,401 |
|
|
|
1,379 |
|
|
|
1,368 |
|
Accounting for Income Taxes and Other Income Tax Related
Judgments
We conduct operations and earn income in numerous foreign
countries and are subject to changing tax laws in multiple
jurisdictions within the countries in which we operate. In
addition, there are numerous transactions where the ultimate tax
outcome is uncertain such as those involving revenue sharing and
cost reimbursement arrangements between SAP Group companies.
Significant judgments are necessary in determining our worldwide
income tax accruals and provisions. Although we believe we have
made reasonable estimates about the ultimate resolution of our
tax uncertainties, no assurance can be given that the final tax
outcome of these matters will be consistent with what is
reflected in our historical income tax provisions and accruals.
Such differences could have a material effect on our income tax
provision and net income in the period in which such
determinations are made.
We had net deferred tax assets related to activities in various
countries approximating
156.2 million
and
141.4 million
at December 31, 2005 and 2004, respectively, which are net
of a valuation allowance of approximately
6.9 million
and
1.4 million,
respectively. We record a valuation allowance to reduce our
deferred tax assets to the amount of future tax benefit that we
believe will more likely than not be realized. The valuation
allowance increased in 2005 by
5.5 million
and decreased in 2004 by
0.1 million.
The increase in valuation allowance for 2005 was primarily
attributed to a change in assessment of the realizability of net
operating loss carryforwards. At December 31, 2005, we have
net operating loss carryforwards in certain foreign tax
jurisdictions of approximately
52.7 million
that may be used to offset future taxable income in those
jurisdictions. Of this amount,
21.1 million
predominantly relates to state net operating loss carry forwards
in the United States which will expire if not used in
varying amounts over the next twenty years. Further,
approximately
14.1 million
of net operating loss carryforwards are available in other
foreign tax jurisdictions which will expire if not used in
varying amounts over the next three to seven years. The
70
remaining net operating loss carryforwards currently have no
expiration period for usage. The carrying values and realization
of our net deferred tax assets are principally dependent upon:
|
|
|
|
|
our ability to generate future taxable income; |
|
|
|
managements interpretation of applicable tax laws; |
|
|
|
managements assumptions and judgments regarding the use of
tax planning strategies in certain tax jurisdictions; and |
|
|
|
assumptions about whether our results of future operations will
generate sufficient taxable income to utilize our remaining net
deferred tax assets. |
We believe that our estimates pertaining to our accounting for
income taxes are critical because:
|
|
|
|
|
our judgments regarding future taxable income are based upon
expectations of market conditions and other facts and
circumstances. Any adverse change to the underlying facts or our
assumptions could require that we reduce the carrying value of
our net deferred tax assets; and |
|
|
|
our use of different estimates, assumptions and judgments in
connection with tax planning strategies and tax uncertainties
could result in materially different carrying values of our
income tax asset and liability amounts and therefore could
adversely impact our recorded income tax amounts. |
As of December 31, 2005, we have cumulative undistributed
earnings from certain foreign subsidiaries of approximately
2,371 million
that are currently deemed to be permanently reinvested. A change
in economic or other circumstances could impact our decision to
repatriate some or all of these undistributed earnings which
would result in the recognition of additional income tax
liabilities.
Changes in any of the aforementioned items could have a material
impact on our financial position and results of operations.
There were no significant changes in estimates about our ability
to realize our deferred tax assets nor have we made any
significant changes to our plans about whether to permanently
reinvest undistributed earnings of foreign subsidiaries that had
a material impact on our consolidated financial condition or
results of operations during 2005 and 2004.
Realizability of Venture Capital Investments
In the past and as a continuing part of our business strategy,
we have made significant investments in technology related
companies, some of which are
start-up companies that
are currently reporting and that have historically reported net
losses. Due to the limited historical information available
about many of these companies, our estimates concerning our
ability to recover the carrying value of these investments
involve significant judgments. Specifically, the determination
of the fair value of an investment and the amount we can expect
to realize upon liquidation of an investment is judgmental, as
is the determination of whether a decline in value of an
investment is other-than temporary. Changes in our estimates
could have a material impact on our financial position and
results of operations.
The carrying value of our venture capital investments at
December 31, 2005 was
52.7 million
(2004:
44.8 million).
Although not significant in 2005, impairments and other charges
related to our investments have had in the past, and could again
have in the future, a material impact on our financial position
and results of operations. In 2005, 2004, and 2003, we
recognized impairment charges relating to our venture capital
investments of
4.0 million,
5.1 million
and
15.1 million,
respectively.
71
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
See Note 3 in our consolidated financial statements in
Item 18. Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
In 2005, as in 2004 and 2003, we have funded most of our growth
internally from cash flow provided from operations. Over the
past several years, our principal use of cash has been to
support continuing operations and our capital expenditure
requirements resulting from our growth, and to pay dividends on
our shares and reacquire our shares in the open market. Cash and
cash equivalents are primarily held in euro and U.S dollars as
of December 31, 2005.
We believe that cash flows from operations, existing cash and
cash equivalents, short-term marketable securities and available
financing sources will be sufficient to meet our working capital
needs and our currently planned capital expenditure requirements
for the next twelve months. However, there can be no assurance
that a downturn in the economy worldwide, in a particular
region, or for our products and services in general, will not
change this outlook.
As discussed in Note 4 in Item 18. Financial
Statements, in 2005 we acquired minority shares of SAP
Systems Integration AG (SAP SI) utilizing our cash at banks. In
order to complement or expand our business in the future, we
expect to make further acquisitions of additional businesses,
products and technologies, and to enter into joint venture
arrangements. These acquisitions or joint venture arrangements
may require additional financing. In addition, continued growth
in our business may from time to time require additional
capital. There can be no assurance that additional capital will
be available to us if and when required, or that such additional
capital will be available on acceptable terms to us.
The table below presents our liquid assets for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
Cash at banks
|
|
|
455,522 |
|
|
|
458,909 |
|
Cash equivalents
|
|
|
1,608,552 |
|
|
|
1,046,884 |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,064,074 |
|
|
|
1,505,793 |
|
|
|
|
|
|
|
|
Liquid investments with original maturities exceeding
3 months and remaining maturities less than 1 year
|
|
|
910,850 |
|
|
|
918,272 |
|
Liquid investments with remaining maturities exceeding
1 year
|
|
|
238,648 |
|
|
|
772,477 |
|
|
|
|
|
|
|
|
|
|
|
3,213,572 |
|
|
|
3,196,542 |
|
|
|
|
|
|
|
|
Our holdings of marketable securities as investments increased
by
631 million
to
643 million
(2004:
12 million),
of which
433 million
were recorded as fixed assets and
210 million
as non-fixed assets.
Total net interest income increased to
89.9 million
in 2005 compared to
55.8 million
in 2004 and
43.0 million
in 2003. The increase is primarily due to higher levels of
liquidity and higher interest rates. In addition to foreign
currency exposure, we are generally exposed to fluctuations in
the interest rates of many of the worlds leading
industrialized countries. Our interest income and expense is
most sensitive to fluctuations in the level of U.S. and EMU
interest rates.
Liquid assets in the amount of approximately
640 million
are held in U.S.$ and approximately
2,075 million
are held in euro.
72
Analysis of Cash Flow Statement
Operating cash flow for 2005 was
1,607.9 million,
representing a 13% decrease from
1,845.3 million
in 2004. The decrease is partly due to back tax payments
depleting deferred tax reserves. Also, in 2004 cash flow was
buoyed by cash generated by the maturing of a forward exchange
contract. Further, accounts receivable increased from
1,929.1 million
at December 31, 2004 to
2,251.0 million
at December 31, 2005, representing an increase of
321.9 million
or 17%. Despite the increase in accounts receivable, which is
consistent with the overall increase in revenues, we managed to
reduce our rolling
12-month average
collection period, which is measured in days sales
outstanding (meaning the average number of days that passed
before we were paid by our customers following the delivery of
our software or the rendering of services) from 71 days in
2004 to 68 days in 2005 due primarily to our more stringent
receivables management processes.
In 2005, net cash used in investing activities was
583.5 million,
a decrease of 22% over 2004. The reduction is mainly due to the
fact that substantial amounts of cash were transferred to
short-term assets in the prior year. Change in liquid assets
with maturities greater than 90 days was
541.2 million
cash inflow in 2005 compared to
433.5 million
cash outflow in 2004. Also, increasing our holding in SAP SI had
led to greater outflows in 2004 than in 2005. Capital
expenditures during 2005 for intangible assets and property,
plant and equipment were
261.8 million,
an increase of
69.1 million
from
192.7 million
in 2004. This included
240.7 million
in property, plant and equipment additions (2004:
172.0 million),
mainly a rise in building activity at the company headquarters
and additional spending on IT infrastructure and company cars
during 2005 to keep pace with the overall growth in employees
and business activities.
Net cash used in financing activities was
554.9 million
in 2005, an increase of
166.7 million
from the
388.2 million
of net cash used in 2004. Dividend payments were
340.4 million
and
248.7 million
in 2005 and 2004, respectively. Additionally we spent
approximately
441.2 million
in 2005 to purchase 3,394 thousand of our own ordinary
shares (2004:
165.6 million
to purchase 1,313 thousand of our own ordinary shares),
some of which are held in treasury at December 31, 2005,
under our stock buy-back program in order to satisfy
subscription rights granted under our various stock-based
compensation plans. Also, we spent approximately
13 million
in 2005 to purchase 390 thousand ADSs (2004:
9 million
to purchase 290 thousand ADSs).
Credit Lines
As of December 31, 2005, we had outstanding long-term
financial debt of
8.9 million
and outstanding short-term financial debt of approximately
22.3 million,
consisting primarily of amounts borrowed under lines of credit.
We are currently party to a revolving
1 billion
syndicated credit facility agreement with an initial term of
5 years ending November 2009. The use of the facility is
not restricted by any financial covenants. Proceeds are for
general corporate purposes. Borrowings under the facility bear
interest of EURIBOR or LIBOR for the respective currency plus a
margin ranging from 0.20% to 0.25% depending on the amount
drawn. We are also required to pay a commitment fee of
0.07% per annum on unused amounts of the available credit.
We entered into this credit facility to increase our financial
flexibility. We did not, however, draw down the facility in
2005, nor do we currently intend to draw down the facility.
Consequently, there were no borrowings outstanding under the
facility as of December 31, 2005.
As of December 31, 2005, SAP AG had additional available
lines of credit totaling approximately
553.4 million.
As of December 31, 2005, there were no borrowings
outstanding under these lines of credit. Furthermore, certain of
our foreign subsidiaries have lines of credit available that
allow them to borrow funds in their respective local currencies
at prevailing interest rates, generally to the extent SAP AG has
guaranteed such amounts. As of December 31, 2005,
approximately
217.7 million
were available through such
73
arrangements. Total aggregate borrowings under these lines of
credit amounted to
24 million
as of December 31, 2005.
AUTHORIZED CAPITAL
We also have available sources of cash through authorized
capital as outlined in Item 10. Additional
Information Share Capital.
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into operating leases for office facilities for
most of our subsidiaries, computer hardware and certain other
equipment. These arrangements are oftentimes referred to as a
form of off-balance sheet financing. Rental expenses under these
operating leases are set forth below under Contractual
obligations.
We have not entered into any transactions, arrangements or other
relationships with unconsolidated, variable interest entities.
We believe we dont have other forms of off-balance-sheet
arrangements that would require disclosure other than those
already disclosed.
Contractual Obligations
The table below presents our on- and off-balance sheet
contractual obligations as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligation |
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
Off-balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
687,487 |
|
|
|
148,738 |
|
|
|
109,190 |
|
|
|
91,066 |
|
|
|
71,556 |
|
|
|
59,629 |
|
|
|
207,308 |
|
Purchase Commitments
|
|
|
78,783 |
|
|
|
78,598 |
|
|
|
140 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commitments
|
|
|
38,820 |
|
|
|
23,386 |
|
|
|
2,031 |
|
|
|
1,759 |
|
|
|
1,633 |
|
|
|
1,603 |
|
|
|
8,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
6,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,686 |
|
|
|
5,241 |
|
Other Liabilities
|
|
|
838,778 |
|
|
|
749,243 |
|
|
|
42,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,650,795 |
|
|
|
999,965 |
|
|
|
154,084 |
|
|
|
92,870 |
|
|
|
73,189 |
|
|
|
62,918 |
|
|
|
267,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have operating leases for office facilities for most of our
subsidiaries, cars, computer hardware and certain other
equipment. Rental expense for operating leases in 2005 was
165 million
(2004:
153 million;
2003:
159 million).
Purchase commitments relate primarily to the construction of
facilities, office equipment and car purchase commitments. Other
commitments basically comprise food and security services and
other facility commitments.
As described in Note 22 to our consolidated financial
statements in Item 18. Financial Statements,
bonds consist primarily of outstanding convertible bonds related
to our LTI 2000 Plan.
Please refer to Note 25 to our consolidated financial
statements in Item 18. Financial Statements for
a detailed description of our other liabilities.
Benefit Plan Obligations and Costs
The obligations and expenses shown in our Consolidated Financial
Statements for our benefit pension plans are not necessarily
indicative of our future cash funding requirements. This is
primarily due to
74
deviations that can occur between the assumptions used in the
actuarial valuation of our benefit plan obligations and costs
and actual results of plan assets. In addition, although we
currently do not expect to significantly increase cash
contributions to our benefit plans in the near term, actual cash
contributions may deviate from future funding requirements due
to additional voluntary contributions to benefit plan assets.
Our contributions in 2006 to our defined contribution plans are
expected to be between
75 million
and
85 million,
which is within the range of contributions over the last three
years.
Our contributions in 2006 to our defined benefit pension plans
are expected to be approximately
2 million
for German plans and
7 million
for non-German plans, all of which is expected to be paid as
cash contributions.
The benefit obligations and the plan assets as of
December 31, 2005 for our defined benefit plans represented
increases of
76 million
and
57 million,
respectively, compared to December 31, 2004. Of the
increases,
18 million
for the benefit obligations and
21 million
for the plan assets were attributable to foreign currency
adjustments mainly due to the weaker euro against the
U.S. dollar. A significant portion of the benefit
obligations is for our foreign pension plans outside of Germany,
primarily the U.S. plan which accounts for approximately
53% of total benefit obligations. Another
23 million
in the changes in the total benefit obligations is due to
actuarial loss.
For more information, see Note 23 to our consolidated
financial statements in Item 18. Financial
Statements.
Obligations Under Indemnifications and Guarantees
Our software license agreements generally include certain
provisions for indemnifying customers against liabilities if our
software products infringe a third partys intellectual
property rights. To date, we have not incurred any material loss
as a result of such indemnification and have not recorded any
liabilities related to such obligations.
In addition, we occasionally provide function and/or performance
guarantees in routine consulting contracts and/or development
arrangements. Based on historical experience and evaluation, we
do not believe that any material loss resulting from these
guarantees is probable. In addition, because the guarantees
relate to our own performance, no related liability has been
recorded. We also generally provide a six to 12 month
warranty on our software. Due to the nature of these warranties,
which relate to the performance of our software, we cannot
reasonably estimate the maximum exposure to loss resulting from
the warranties. Our warranty liability is included in other
reserves and accrued liabilities. See Note 24 to our
consolidated financial statements in Item 18.
Financial Statements.
As of December 31, 2005 and 2004, no guarantees were
provided for performance or financial obligations of third
parties.
RESEARCH AND DEVELOPMENT
As discussed in Item 6. Directors, Senior Management
and Employees Executive Board, the Executive
Board member responsibilities reflect the SAPs value
chain. One of the Board areas, Research & Breakthrough
Innovation, includes SAP Research, a group responsible for
identifying emerging information technology trends, as well as
researching and creating prototypes in strategically important
SAP business areas. The fundamental business model of SAP
Research is based on co-innovation through collaborative
research with both academia and industry.
The Product & Technology Group, part of another SAP
Executive Board area, Product, is responsible for developing and
optimizing existing SAP solutions and improving products in
development. The groups mission is to maximize satisfied
usage of SAP software.
75
SAP Labs is a global research and development organization with
operations in nine countries Bulgaria, Canada,
China, France, Hungary, India, Israel, Japan and the
U.S. This regional diversification enhances the efficient
use of local resources and allows for greater access to industry
expertise and customers. SAP Labs focuses on development
activities that address the needs of specific industries and
geographic regions.
Research and development expenses for the years ending
December 31, 2005, 2004, and 2003 were
1,088.6 million,
908.1 million
and
872.2 million,
respectively. Research and development expenses as a percentage
of revenue were 12.8%, 12.1% and 12.4% for the years ended
December 31, 2005, 2004, and 2003, respectively. As of
December 31, 2005, 2004 and 2003, the percentage of
employees (full-time equivalents) devoted to research and
development was 32.4%, 30.7% and 29.9%, respectively.
We have entered into agreements with a number of leading
computer software, technology and hardware suppliers and
telecommunications providers to cooperate and enable certain of
the products produced by such suppliers to be compatible with
our solutions. These arrangements do not involve market or
credit risk support on our behalf or by us, nor do they involve
the issuance of our securities to provide the third-party
suppliers with needed liquid resources. We evaluate the
financial strength of the third-party suppliers with which we
choose to cooperate, and we do not accept incremental financial
risk through guarantees, loans, or other financial commitments.
Areas of Current and Future Research and Development Efforts
We believe that in the medium term, it is critical to
continuously improve our portfolio of innovative products to
maintain and reinforce our current leading position as a vendor
of business software. We intend to continue investing
substantial resources in technological research and development.
Research and development activities in 2005 centered on the
delivery of software solutions for the enterprise services
architecture (ESA) roadmap, and on the on-schedule delivery
of mySAP Business Suite solutions and all of the SAP industry
solutions based on the SAP NetWeaver platform. Our significant
areas of current technological research and development efforts
include:
|
|
|
|
|
enablement of our solutions based on enterprise services
architecture; |
|
|
|
evolution of the SAP NetWeaver platform towards a business
process platform; |
|
|
|
SAP software offerings, including mySAP CRM, mySAP SCM, mySAP
ERP, mySAP PLM, mySAP SRM, SAP xApps composite applications, and
SAP Business One; |
|
|
|
continuous innovation of SAP industry solution portfolios; |
|
|
|
increased focus on solutions targeted for small and midsize
enterprises and business users; and |
|
|
|
new and innovative technologies. |
76
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES
SUPERVISORY BOARD
The current members of the Supervisory Board of SAP AG, each
such members principal occupation, the year in which each
was first elected and the year in which the term of each
expires, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year | |
|
Year | |
|
|
|
|
|
|
First | |
|
Term | |
Name |
|
Age | |
|
Principal Occupation |
|
Elected | |
|
Expires | |
|
|
| |
|
|
|
| |
|
| |
Prof. Dr. h.c. mult. Hasso Plattner, Chairperson
(2)(3)(5)(7)(8)
|
|
|
62 |
|
|
Chairperson of the Supervisory Board |
|
|
2003 |
|
|
|
2007 |
|
Pekka
Ala-Pietilä(1)(8)
|
|
|
49 |
|
|
Executive Advisor to the CEO of Nokia Corporation |
|
|
2002 |
|
|
|
2007 |
|
Prof. Dr. Wilhelm Haarmann
(1)(3)(5)(9)
|
|
|
55 |
|
|
Attorney at Law, Certified Public Auditor and Certified Tax
Advisor; HAARMANN Partnerschaftsgesellschaft,
Rechtsanwälte, Steuerberater, Wirtschaftsprüfer |
|
|
1988 |
|
|
|
2007 |
|
Dr. h.c. Hartmut Mehdorn
(1)(7)
|
|
|
63 |
|
|
Chairperson of Executive Board, Deutsche Bahn AG |
|
|
1998 |
|
|
|
2007 |
|
Prof. Dr. Dr. h.c. mult. August-Wilhelm
Scheer(1)(6)(8)
|
|
|
64 |
|
|
Professor at Saarland University |
|
|
2002 |
|
|
|
2007 |
|
Dr. Erhard
Schipporeit(11)
|
|
|
57 |
|
|
Member of the Executive Board, E.ON AG |
|
|
2005 |
|
|
|
2007 |
|
Dr. Dieter
Spöri(1)(5)
|
|
|
62 |
|
|
Head of Corporate Representation Federal Affairs,
DaimlerChrysler AG |
|
|
1998 |
|
|
|
2007 |
|
Dr. h.c. Klaus
Tschira(1)(4)
|
|
|
65 |
|
|
Managing Director, Klaus Tschira Stiftung gGmbH |
|
|
1998 |
|
|
|
2007 |
|
Helga Classen, Vice
Chairperson(5)(7)(10)
|
|
|
55 |
|
|
Employee, Deputy Data Protection Officer |
|
|
1993 |
|
|
|
2007 |
|
Willi
Burbach(7)(8)(10)
|
|
|
43 |
|
|
Employee, Developer |
|
|
1993 |
|
|
|
2007 |
|
Bernhard
Koller(4)(10)
|
|
|
56 |
|
|
Employee, Manager of Idea Management |
|
|
1989 |
|
|
|
2007 |
|
Christiane Kuntz-Mayr
(5)(8)(10)
|
|
|
43 |
|
|
Employee, Development Manager |
|
|
2002 |
|
|
|
2007 |
|
Lars
Lamadé(6)(10)
|
|
|
34 |
|
|
Employee, Risk Manager Service & Support |
|
|
2002 |
|
|
|
2007 |
|
Dr. Gerhard
Maier(3)(6)(10)
|
|
|
52 |
|
|
Employee, Development Project Manager |
|
|
1989 |
|
|
|
2007 |
|
Dr. Barbara Schennerlein
(5)(10)
|
|
|
49 |
|
|
Employee, Principal Consultant |
|
|
1998 |
|
|
|
2007 |
|
Stefan
Schulz(4)(8)(10)
|
|
|
36 |
|
|
Employee, Development Project Manager |
|
|
2002 |
|
|
|
2007 |
|
77
|
|
(1) |
Elected by SAP AGs shareholders on May 3, 2002. |
|
(2) |
Elected by SAP AGs shareholders on May 9, 2003. |
|
(3) |
Member of the Compensation Committee. |
|
(4) |
Member of the Audit Committee. |
|
(5) |
Member of the General Committee. |
|
(6) |
Member of the Finance and Investment Committee. |
|
(7) |
Member of the Mediation Committee. |
|
(8) |
Member of the Technology Committee. |
|
(9) |
Until January 1, 2006, Wilhelm Haarmann practiced as a
partner of Haarmann Hemmelrath which served as special German
tax counsel to SAP AG and counseled SAP with regard to other
legal matters. On January 1, 2006, he joined HAARMANN
Partnerschaftsgesellschaft in Frankfurt. Wilhelm Haarmann was
determined to be the Audit Committees financial expert
until July 2005. Please refer to Item 16A. Audit
Committee Financial Expert for details. |
|
(10) |
Elected by SAP AGs employees on April 9, 2002. |
|
(11) |
Elected by SAP AGs shareholders on May 12, 2005,
replacing Dietmar Hopp who resigned from the Supervisory Board
on the same day. Member of the Audit Committee, and determined
to be the Audit Committee Financial Expert, replacing Wilhelm
Haarmann. |
For detailed information on the Supervisory Board committees and
their tasks, including the Audit Committee and Compensation
Committee, please refer to Item 10. Additional
Information Corporate Governance.
The current members of the Supervisory Board of SAP AG that are
members on other supervisory boards and comparable governing
bodies of enterprises, other than SAP AGs, in Germany and
other countries as of December 31, 2005, are set forth in
Note 33 to our consolidated financial statements included
in Item 18. Financial Statements. Apart from
pension obligations towards employees, SAP AG has not entered
into contracts with any member of the Supervisory Board that
provide for benefits upon a termination of the employment of
service of the member.
Pursuant to the German Co-determination Act of 1976
(Mitbestimmungsgesetz), in 2002 SAP AG was required to
increase the number of members on the Supervisory Board from
twelve to sixteen, comprised of eight representatives of the
shareholders and eight representatives of the employees. German
law required this increase since the number of employees of SAP
AG and its group companies exceeded 10,000 employees in Germany
in 2001. This increase was reflected in an amendment to
SAPs Articles of Incorporation, which was approved at the
Annual General Shareholders Meeting on May 3, 2002.
Of the eight employee representatives, two must be nominated by
the trade unions. The elected employees must be at least
18 years of age and must have been in the employment of SAP
AG or one of its German subsidiaries for at least one year. They
must also fulfill the other qualifications for election codified
in Section 8 of the German Works Council Constitution Act.
These qualifications include, among other things, not having
been declared ineligible or debarred from holding public office
by a court.
78
EXECUTIVE BOARD
The current members of the Executive Board, the year in which
each such member was first appointed and the year in which the
term of each expires, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year First | |
|
Year Current | |
Name |
|
Appointed | |
|
Term Expires | |
|
|
| |
|
| |
Prof. Dr. Henning Kagermann, CEO
|
|
|
1991 |
|
|
|
2007 |
|
Dr. Peter Zencke
|
|
|
1993 |
|
|
|
2008 |
|
Prof. Dr. Claus Heinrich
|
|
|
1996 |
|
|
|
2010 |
|
Gerhard Oswald
|
|
|
1996 |
|
|
|
2010 |
|
Dr. Werner Brandt
|
|
|
2001 |
|
|
|
2009 |
|
Shai Agassi
|
|
|
2002 |
|
|
|
2010 |
|
Léo Apotheker
|
|
|
2002 |
|
|
|
2010 |
|
In March 2005, we adopted a new form of organization designed to
better implement our strategy and achieve goals. The Executive
Board members responsibilities are now aligned along
SAPs value chain, spanning innovation, research and
development, production, services, marketing, training,
consulting and sales.
A description of the management responsibilities and backgrounds
of the current members of the Executive Board are as follows:
Henning Kagermann, CEO (Vorstandssprecher),
58 years old, physics graduate. Henning Kagermann joined
SAP AG in 1982. He became a member of the Executive Board in
1991 and Co-CEO in 1998. In May 2003 he became sole CEO of the
Executive Board. He has overall responsibility for SAPs
strategy and business development, and is further responsible
for corporate communications, global intellectual property,
internal audit and top talent management.
Shai Agassi, 37 years old, computer science graduate
and software entrepreneur. Shai Agassi joined SAP in 2001 as CEO
of SAP Portals and became a member of the Executive Board in
2002. Prior to joining SAP, Shai Agassi founded a number of
software companies in Israel between 1990 and 1994, and served
in various positions in those companies. He moved one of these
companies to California and renamed it TopTier Software, Inc.,
where he served as Chairperson, CTO and eventually CEO. TopTier
was acquired by SAP in 2001, after which Shai Agassi became the
CEO of SAP Portals, at that time a fully owned subsidiary of
SAP. He is responsible for product development, the technology
platform, the industry solutions, the partner network, and
product and industry marketing.
Léo Apotheker, 52 years old, business
economist. Léo Apotheker first joined SAP in 1988 and
became a member of the Executive Board in 2002. He is
responsible for sales, consulting, education, and marketing.
Werner Brandt, 52 years old, business administration
graduate. Werner Brandt joined SAP in early 2001 as the Chief
Financial Officer and member of the Executive Board. Prior to
joining SAP, Werner Brandt
79
was CFO and member of the Executive Board of Fresenius Medical
Care AG since 1999. In this role, he was also responsible for
labor relations. Before joining Fresenius Medical Care AG,
Werner Brandt headed the finance function of the European
operations of Baxter International. His responsibilities at SAP
include finance and administration, shared services, and SAP
Ventures.
Claus Heinrich, 50 years old, business management
and operations research graduate. Claus Heinrich joined SAP in
1987 and became a member of the Executive Board in 1996. He is
responsible for global human resources (including labor
relations), quality management, internal IT and development labs
(SAP Labs).
Gerhard Oswald, 52 years old, economics graduate.
Gerhard Oswald joined SAP in 1981 and became a member of the
Executive Board in 1996. He is responsible for global service
and support, as well as custom development.
Peter Zencke, 56 years old, mathematics and
economics graduate. Peter Zencke joined SAP in 1984 and became a
member of the Executive Board in 1993. He is responsible for
research and for the application platform.
The current members of the Executive Board of SAP AG that are
members on other supervisory boards and comparable governing
bodies of enterprises, other than SAP, in Germany and other
countries as of December 31, 2005, are set forth in
Note 33 to our consolidated financial statements in
Item 18. Financial Statements. Apart from
pension obligations, SAP AG has not entered into contracts with
any member of the Executive Board that provide for benefits upon
a termination of the employment of service of the member.
To our knowledge, there are no family relationships among the
Supervisory and Executive Board members.
COMPENSATION, SHAREHOLDING, AND DEALINGS OF DIRECTORS AND
OFFICERS
This section outlines the criteria that we apply to determine
compensation for Executive Board and Supervisory Board members,
discloses the amount of compensation paid, and describes the
compensation packages. It also contains information about
Executive Board members stock-based compensation plans,
shares held by Executive Board and Supervisory Board members,
and the directors dealings required to be disclosed in
accordance with the German Securities Trading Act.
Executive Board
Compensation Package
The Executive Board compensation package is specified by the
compensation committee of the Supervisory Board. Executive Board
members compensation is intended to reflect our size and
global presence as well as our economic and financial standing.
We believe the level of compensation is internationally
competitive to reward committed, successful work in a dynamic
environment.
The compensation of the Executive Board as a body is primarily
performance-based. It has three elements: a fixed element
(salary), a performance-related element (directors
profit-sharing), and a long-term incentive element (stock
options). A compensation target is set for the total of fixed
and performance-related elements. We review the compensation
target every year in light of SAPs business and
directors compensation at comparable companies on the
international stage. Every year, the compensation committee of
the Supervisory Board sets the target performance-related
compensation, reflecting the relevant values in that years
budget.
80
The elements of Executive Board compensation are paid as follows:
|
|
|
|
|
The fixed element is paid as a monthly salary. |
|
|
|
The amount of performance-related compensation to be paid out in
respect of 2005 depends on the SAP Groups achievement of
its targets for pro-forma operating income before stock-based
compensation expenses and acquisition-related charges and on
software revenue growth. On February 3, 2006 the
Supervisory Boards compensation committee assessed
SAPs performance against the agreed targets and determined
how much performance-related compensation was payable. SAP will
make the payment after the Annual General Shareholders
Meeting in May 2006. |
|
|
|
The long-term incentive element takes the form of stock options
issued on the terms of the SAP Stock Option Plan 2002 (SAP SOP
2002) that the Annual General Shareholders Meeting
approved on May 3, 2002. The number of stock options to be
issued to each individual member of the Executive Board was
decided by the compensation committee at its meeting on
February 10, 2005 and reflected the fair value of the
options. Details of the plan and the terms of options under it
are set out in Note 22 to our consolidated financial
statements in Item 18. Financial Statements.
For options granted to members of the Executive Board in and
from February 2004, the SAP SOP 2002 plan terms provide that the
Supervisory Board can cap subscription rights if it believes
that an option holder would make a windfall profit by exercising
them. If the total profit from the exercise at all times of
rights under options issued to that holder at the same time
exceeds two times the product of (i) the number of
subscription rights received by that option holder; and
(ii) the exercise price, that total profit is a windfall
profit. It is determined by reference to the total of the
differences, calculated individually for each exercised
subscription right, between the closing price of the share on
the exercise day and the exercise price. SAP bears any expenses
incurred by the option holder through fees, taxes, or deductions
related to the cap. The Supervisory Board can only cap
subscription rights if it decides the windfall profits are due
to not inconsequential, extraordinary, unforeseen appreciation
for which the Executive Board is not responsible. |
Amount of Compensation
Executive Board members compensation in fiscal year 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Performance- | |
|
Long-term | |
|
|
|
|
|
|
|
|
related | |
|
incentive | |
|
|
|
|
|
|
Fixed elements | |
|
compensation | |
|
elements | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
Directors | |
|
|
|
|
|
|
|
|
|
|
profit | |
|
Stock | |
|
|
|
|
|
|
Salary | |
|
Others* | |
|
sharing | |
|
options | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
Prof. Dr. Henning Kagermann (CEO)
|
|
|
618.0 |
|
|
|
18.3 |
|
|
|
4,104.0 |
|
|
|
1,344.5 |
|
|
|
6,084.8 |
|
|
|
5,258.7 |
|
Shai Agassi
|
|
|
412.0 |
|
|
|
100.2 |
|
|
|
2,736.0 |
|
|
|
752.9 |
|
|
|
4,001.1 |
|
|
|
3,312.4 |
|
Léo Apotheker
|
|
|
412.0 |
|
|
|
0.2 |
|
|
|
2,736.0 |
|
|
|
752.9 |
|
|
|
3,901.1 |
|
|
|
3,262.0 |
|
Dr. Werner Brandt
|
|
|
412.0 |
|
|
|
41.3 |
|
|
|
2,736.0 |
|
|
|
752.9 |
|
|
|
3,942.2 |
|
|
|
3,046.7 |
|
Prof. Dr. Claus E. Heinrich
|
|
|
412.0 |
|
|
|
20.0 |
|
|
|
2,736.0 |
|
|
|
752.9 |
|
|
|
3,920.9 |
|
|
|
3,277.8 |
|
Gerhard Oswald
|
|
|
412.0 |
|
|
|
14.2 |
|
|
|
2,736.0 |
|
|
|
752.9 |
|
|
|
3,915.1 |
|
|
|
3,270.4 |
|
Dr. Peter Zencke
|
|
|
412.0 |
|
|
|
21.9 |
|
|
|
2,736.0 |
|
|
|
752.9 |
|
|
|
3,922.8 |
|
|
|
3,281.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,688.0 |
|
|
|
24,709.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Retirement pension plan contributions, insurance contributions,
benefits in kind, compensation from seats on other governing
bodies in the SAP Group |
81
Disclosed in the table above for the first time, the stock
option values (2005:
5,861.9
thousand; 2004:
9,507.0
thousand) are the fair value of SAP SOP 2002 options at the time
of grant to the respective members. During 2005, members of the
Executive Board received the following stock options under SAP
SOP 2002:
|
|
|
|
|
|
|
Stock options | |
|
|
| |
Prof. Dr. Henning Kagermann (CEO)
|
|
|
66,955 |
|
Shai Agassi
|
|
|
37,495 |
|
Léo Apotheker
|
|
|
37,495 |
|
Dr. Werner Brandt
|
|
|
37,495 |
|
Prof. Dr. Claus E. Heinrich
|
|
|
37,495 |
|
Gerhard Oswald
|
|
|
37,495 |
|
Dr. Peter Zencke
|
|
|
37,495 |
|
|
|
|
|
Total
|
|
|
291,925 |
|
|
|
|
|
End-of-service
undertakings
Retirement Pension Plan
On January 1, 2000, SAP AG introduced a contributory
retirement pension plan. At that time the performance-based
retirement plan was discontinued for Executive Board members.
Entitlements accrued up to December 31, 1999, were
unaffected
In 2005, pension benefits of
474 thousand
(2004: 247
thousand) were paid to former Executive Board members. As of
December 31, 2005, the projected benefit obligation for
former Executive Board members was
12,830 thousand
(2004: 10,819
thousand).
Early Termination
The standard contract for all Executive Board members from
January 1, 2006 provides that on termination before full
term SAP AG will pay to the member the outstanding part of the
compensation target for the entire remainder of the term,
appropriately discounted for early payment. A member has no
claim to that payment if he or she leaves SAP for reasons for
which he or she is responsible.
If an Executive Board members post on the Executive Board
expires or ceases to exist because of or as a consequence of
change or restructuring or due to a change of control, SAP AG
and each Executive Board member has the right to terminate the
employment contract within eight weeks of the occurrence by
giving six months notice. A change of control is when an
investor becomes obliged to make a takeover offer for SAP under
the German Securities Acquisition and Takeover Act, when SAP AG
merges with another company and becomes the subsumed entity, or
when a domination or profit transfer agreement is concluded with
SAP AG as the dependent company. An Executive Board
members contract can also be terminated before full term
if his or her appointment as an SAP AG Executive Board member is
revoked.
During the continuance of a
12-month
postcontractual noncompete period, an Executive Board member is
paid abstention compensation corresponding to 50% of his or her
final average contractual compensation. SAP can deduct the
abstention compensation from any other amount it owes the
member, such as pension or early termination payments.
Long-Term Incentive Elements
Members of the Executive Board hold stock-based compensation
awards granted to them in previous years under SAP SOP 2002 and
LTI Plan 2000. Details and terms of the two plans are set out in
Note 22 to our consolidated financial statements in
Item 18. Financial Statements.
82
SAP SOP 2002
The table below shows stock options held by members of the
Executive Board on December 31, 2005, granted in 2003,
2004, and 2005 under SAP SOP 2002.
The exercise prices listed in the table for SAP SOP 2002 stock
options are 110% of the base price of an SAP AG ordinary share.
The base price is the arithmetic mean SAP share closing auction
price in the Frankfurt stock exchange
Xetra®
trading system (or its successor system) over the five business
days immediately before the issue date of that stock option. The
lowest exercise price permitted is the closing auction price on
the day before the issue date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested as of | |
|
Not vested as of | |
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2005 | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
|
Exercise | |
|
|
|
Remaining | |
|
|
|
Remaining | |
|
|
|
Remaining | |
|
|
price | |
|
Number | |
|
term | |
|
Number | |
|
term | |
|
Number | |
|
term | |
|
|
() | |
|
of options | |
|
(years) | |
|
of options | |
|
(years) | |
|
of options | |
|
(years) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Prof. Dr. Henning Kagermann (CEO)
|
|
|
90.37 |
|
|
|
80,000 |
|
|
|
2.16 |
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
2.16 |
|
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
3.13 |
|
|
|
50,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
66,955 |
|
|
|
4.11 |
|
|
|
66,955 |
|
|
|
4.11 |
|
Shai Agassi
|
|
|
90.37 |
|
|
|
30,000 |
|
|
|
2.16 |
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
2.16 |
|
|
|
|
99.13 |
|
|
|
30,000 |
|
|
|
2.33 |
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
2.33 |
|
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
37,495 |
|
|
|
4.11 |
|
Léo Apotheker
|
|
|
90.37 |
|
|
|
30,000 |
|
|
|
2.16 |
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
2.16 |
|
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
37,495 |
|
|
|
4.11 |
|
Dr. Werner Brandt
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
37,495 |
|
|
|
4.11 |
|
Prof. Dr. Claus E. Heinrich
|
|
|
90.37 |
|
|
|
45,000 |
|
|
|
2.16 |
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
2.16 |
|
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
37,495 |
|
|
|
4.11 |
|
Gerhard Oswald
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
37,495 |
|
|
|
4.11 |
|
Dr. Peter Zencke
|
|
|
90.37 |
|
|
|
45,000 |
|
|
|
2.16 |
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
2.16 |
|
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
28,000 |
|
|
|
3.13 |
|
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
37,495 |
|
|
|
4.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
260,000 |
|
|
|
|
|
|
|
509,925 |
|
|
|
|
|
|
|
769,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2005, members of the Executive Board exercised stock
options granted in earlier years under SAP SOP 2002 as follows:
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
Number of | |
|
exercise price per | |
|
|
options | |
|
option () | |
|
|
| |
|
| |
Dr. Werner Brandt
|
|
|
30,000 |
|
|
|
90.37 |
|
Gerhard Oswald
|
|
|
45,000 |
|
|
|
90.37 |
|
|
|
|
|
|
|
|
Total
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
83
LTI Plan 2000
Beneficiaries under LTI Plan 2000 could choose between
convertible bonds and stock options. The chief difference was in
the way the exercise or conversion price was determined. The
bond conversion price depends on the closing price of the SAP
share the day before the bond was issued, while the option
exercise price varies with the performance of the SAP share over
time against the Goldman Sachs Software Index.
The table below shows stock options held by members of the
Executive Board on December 31, 2005, granted in earlier
years under LTI Plan 2000. The exercise prices listed for LTI
Plan 2000 stock options reflect the prices payable by an
Executive Board member for one SAP ordinary share upon exercise
of the option on December 31, 2005. The exercise prices are
variable. They vary with the performance of the SAP share over
time against the Goldman Sachs Software Index.
LTI Plan 2000 Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested as of | |
|
Not vested as of | |
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2005 | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
|
Exercise | |
|
Number | |
|
Remaining | |
|
Number | |
|
Remaining | |
|
Number | |
|
Remaining | |
|
|
price () | |
|
of options | |
|
term (years) | |
|
of options | |
|
term (years) | |
|
of options | |
|
term (years) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Prof. Dr. Henning Kagermann (CEO)
|
|
|
77.95 |
|
|
|
28,032 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
28,032 |
|
|
|
4.14 |
|
|
|
|
94.72 |
|
|
|
39,375 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
39,375 |
|
|
|
5.14 |
|
Shai Agassi
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Léo Apotheker
|
|
|
117.02 |
|
|
|
14,437 |
|
|
|
6.14 |
|
|
|
7,438 |
|
|
|
6.14 |
|
|
|
21,875 |
|
|
|
6.14 |
|
Dr. Werner Brandt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prof. Dr. Claus E. Heinrich
|
|
|
77.95 |
|
|
|
20,532 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
20,532 |
|
|
|
4.14 |
|
|
|
|
94.72 |
|
|
|
27,500 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
27,500 |
|
|
|
5.14 |
|
Gerhard Oswald
|
|
|
117.02 |
|
|
|
|
|
|
|
|
|
|
|
10,625 |
|
|
|
6.14 |
|
|
|
10,625 |
|
|
|
6.14 |
|
Dr. Peter Zencke
|
|
|
77.95 |
|
|
|
6,981 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
6,981 |
|
|
|
4.14 |
|
|
|
|
94.72 |
|
|
|
18,425 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
18,425 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,282 |
|
|
|
|
|
|
|
18,063 |
|
|
|
|
|
|
|
173,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
The table below shows convertible bonds held by members of the
Executive Board on December 31, 2005, granted in earlier
years under LTI Plan 2000. The exercise prices listed in the
table for LTI Plan 2000 convertible bonds reflect the prices
payable by an Executive Board member for one SAP ordinary share
on conversion of the bond. The exercise prices are fixed and
correspond to the quoted price of one SAP ordinary share on the
business day immediately preceding the grant of the convertible
bond.
LTI Plan 2000 Convertible Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested as of | |
|
Not vested as of | |
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2005 | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
|
Exercise | |
|
Number of | |
|
Remaining | |
|
Number | |
|
Remaining | |
|
Number | |
|
Remaining | |
|
|
price () | |
|
bonds | |
|
term (years) | |
|
of bonds | |
|
term (years) | |
|
of bonds | |
|
term (years) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Prof. Dr. Henning Kagermann (CEO)
|
|
|
290.32 |
|
|
|
22,425 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
22,425 |
|
|
|
4.14 |
|
|
|
|
191.25 |
|
|
|
31,500 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
31,500 |
|
|
|
5.14 |
|
|
|
|
151.50 |
|
|
|
59,400 |
|
|
|
6.14 |
|
|
|
30,600 |
|
|
|
6.14 |
|
|
|
90,000 |
|
|
|
6.14 |
|
Shai Agassi
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Léo Apotheker
|
|
|
334.67 |
|
|
|
23,850 |
|
|
|
4.19 |
|
|
|
|
|
|
|
|
|
|
|
23,850 |
|
|
|
4.19 |
|
|
|
|
191.25 |
|
|
|
30,000 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
5.14 |
|
|
|
|
151.50 |
|
|
|
11,550 |
|
|
|
6.14 |
|
|
|
5,950 |
|
|
|
6.14 |
|
|
|
17,500 |
|
|
|
6.14 |
|
Dr. Werner Brandt
|
|
|
191.25 |
|
|
|
5,000 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
5.14 |
|
|
|
|
151.50 |
|
|
|
19,800 |
|
|
|
6.14 |
|
|
|
10,200 |
|
|
|
6.14 |
|
|
|
30,000 |
|
|
|
6.14 |
|
Prof. Dr. Claus E. Heinrich
|
|
|
290.32 |
|
|
|
16,425 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
16,425 |
|
|
|
4.14 |
|
|
|
|
191.25 |
|
|
|
22,000 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
5.14 |
|
|
|
|
151.50 |
|
|
|
33,000 |
|
|
|
6.14 |
|
|
|
17,000 |
|
|
|
6.14 |
|
|
|
50,000 |
|
|
|
6.14 |
|
Gerhard Oswald
|
|
|
290.32 |
|
|
|
16,425 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
16,425 |
|
|
|
4.14 |
|
|
|
|
191.25 |
|
|
|
22,000 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
5.14 |
|
|
|
|
151.50 |
|
|
|
16,500 |
|
|
|
6.14 |
|
|
|
8,500 |
|
|
|
6.14 |
|
|
|
25,000 |
|
|
|
6.14 |
|
Dr. Peter Zencke
|
|
|
290.32 |
|
|
|
16,425 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
16,425 |
|
|
|
4.14 |
|
|
|
|
191.25 |
|
|
|
22,000 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
5.14 |
|
|
|
|
151.50 |
|
|
|
33,000 |
|
|
|
6.14 |
|
|
|
17,000 |
|
|
|
6.14 |
|
|
|
50,000 |
|
|
|
6.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401,300 |
|
|
|
|
|
|
|
89,250 |
|
|
|
|
|
|
|
490,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights exercised by members of the Executive Board in 2005 under
LTI Plan 2000 stock options and convertible bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options | |
|
|
|
|
| |
|
Convertible Bonds | |
|
|
|
|
Weighted | |
|
| |
|
|
|
|
average | |
|
|
|
Weighted | |
|
|
|
|
exercise | |
|
|
|
average | |
|
|
Number | |
|
price per | |
|
Number | |
|
exercise price | |
|
|
of options | |
|
option () | |
|
of bonds | |
|
per bond () | |
|
|
| |
|
| |
|
| |
|
| |
Dr. Werner Brandt
|
|
|
2,125 |
|
|
|
88.12 |
|
|
|
|
|
|
|
|
|
Gerhard Oswald
|
|
|
19,663 |
|
|
|
99.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
Stock Held by Executive Board Members
No member of the Executive Board holds more than 1% of the
subscribed capital of SAP AG. Members of the Executive Board
held a total of 31,346 SAP ordinary shares on December 31,
2005.
The table below shows transactions by Executive Board members
and persons closely associated with them notified to SAP
pursuant to the German Securities Trading Act, section 15a
in 2005.
Transactions in SAP Shares and American Depositary Receipts
(ADRs)
|
|
|
|
|
|
|
|
|
Notifying party |
|
Transaction date |
|
Transaction |
|
Number |
|
Unit price |
|
|
|
|
|
|
|
|
|
Shai Agassi
|
|
February 4, 2005 |
|
Purchase of ADRs |
|
25,500 |
|
U.S.$39.1249 |
Dr. Werner Brandt
|
|
December 12, 2005 |
|
Exercise of subscription rights |
|
20,000 |
|
90.37 |
|
|
December 12, 2005 |
|
Sale of shares |
|
20,000 |
|
155.03 |
|
|
December 12, 2005 |
|
Purchase of shares |
|
1,000 |
|
154.80 |
|
|
June 10, 2005 |
|
Exercise of subscription rights |
|
2,125 |
|
88.1236 |
|
|
June 10, 2005 |
|
Exercise of subscription rights |
|
10,000 |
|
90.37 |
|
|
June 10, 2005 |
|
Sale of shares |
|
12,125 |
|
138.17302 |
Gerhard Oswald
|
|
June 10, 2005 |
|
Exercise of subscription rights |
|
10,313 |
|
108.8686 |
|
|
June 10, 2005 |
|
Exercise of subscription rights |
|
45,000 |
|
90.37 |
|
|
June 10, 2005 |
|
Exercise of subscription rights |
|
9,350 |
|
88.1236 |
|
|
June 10, 2005 |
|
Sale of shares |
|
64,663 |
|
138.17302 |
Executive Board: Other Information
In 2005, SAP did not grant any compensation advance or credit
to, or enter into any commitment for the benefit of, any member
of the Executive Board.
As far as the law permits, SAP AG and SAP AGs affiliated
companies in Germany and elsewhere indemnify and hold harmless
their respective directors and officers against and from the
claims of third parties. To this end SAP maintains
directors and officers group liability insurance.
The policy is annual and is renewed from year to year. The
insurance covers the personal liability of the insured group for
financial loss caused by its managerial acts and omissions.
There is no individual deductible as envisaged in the German
Corporate Governance Code, section 3.8, paragraph 2.
SAP believes the motivation and responsibility that the members
of the SAP Executive and Supervisory Boards bring to their
duties would not be improved by such a deductible element. For
this reason, SAP regards a deductible as unnecessary for the
insured group.
86
Supervisory Board Members
Compensation Package
Supervisory Board members compensation is governed by
SAPs Articles of Incorporation, section 16. It
provides that each member of the Supervisory Board receives
compensation composed of a fixed element and a variable element
as well as reimbursement of his or her expenditure. The variable
element is linked to SAPs dividend. The chairperson and
deputy chairperson are paid more fixed compensation and more
variable compensation than the other members.
The fixed element is
50,000 for the
chairperson,
37,500 for the
deputy chairperson, and
25,000 for other
members of the Supervisory Board. The fixed element is paid
after the end of the fiscal year.
For each 0.01 by
which the dividend distributed per share exceeds
0.40, the
variable element is
2,000 for the
chairperson,
1,500 for the
deputy chairperson, and
1,000 for other
members of the Supervisory Board. The variable element is paid
on the first business day following the Annual General
Shareholders Meeting resolving upon the appropriation of
the retained earnings for the relevant fiscal year.
The aggregate compensation cannot exceed
100,000 for the
chairperson,
75,000 for the
deputy chairperson, and
50,000 for other
members.
Amount of Compensation
Subject to resolutions of the Annual General Shareholders
Meeting on May 9, 2006, the compensation paid to
Supervisory Board members in respect of fiscal year 2005 will be
as set out in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Fixed | |
|
Variable | |
|
|
|
Fixed | |
|
Variable | |
|
|
|
|
compensation | |
|
compensation | |
|
Total | |
|
compensation | |
|
compensation | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Prof. Dr. h. c. mult. Hasso Plattner (Chairperson)
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
100.0 |
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
100.0 |
|
Helga Classen (Deputy Chairperson)
|
|
|
37.5 |
|
|
|
37.5 |
|
|
|
75.0 |
|
|
|
37.5 |
|
|
|
37.5 |
|
|
|
75.0 |
|
Willi Burbach
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Prof. Dr. Wilhelm Haarmann
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dietmar Hopp (until May 12, 2005)
|
|
|
10.4 |
|
|
|
10.4 |
|
|
|
20.8 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Bernhard Koller
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Christiane Kuntz-Mayr
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Lars Lamadé
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dr. Gerhard Maier
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dr. h. c. Hartmut Mehdorn
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Pekka Ala-Pietilä
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Prof. Dr. Dr. h. c. August-Wilhelm Scheer
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dr. Barbara Schennerlein
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dr. Erhard Schipporeit (since May 12, 2005)
|
|
|
16.7 |
|
|
|
16.7 |
|
|
|
33.4 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Stefan Schulz
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dr. Dieter Spöri
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
Dr. h. c. Klaus Tschira
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
25.0 |
|
|
|
25.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
439.6 |
|
|
|
439.6 |
|
|
|
879.2 |
|
|
|
437.5 |
|
|
|
437.5 |
|
|
|
875.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
In addition, SAP reimburses to members of the Supervisory Board
the value-added tax payable on their compensation.
Long-Term Incentive Elements
Members are not offered stock options or other stock-based
compensation for their Supervisory Board work. Any stock options
or other stock-based compensation received by employee-elected
members relate to their position as SAP employees and not to
their work on the Supervisory Board.
Supervisory Board members shareholdings
Note 21 to our consolidated financial statements in
Item 18. Financial Statements shows the
shareholdings of Supervisory Board members Hasso Plattner
(chairperson) and Klaus Tschira, and the companies they
control, on December 31, 2005. No other member of the
Supervisory Board held more than 1% of SAP AGs subscribed
capital. Members of the Supervisory Board held a total of
70,396,026 SAP ordinary shares on December 31, 2005.
The table below shows transactions in 2005 by Supervisory Board
members and persons closely associated with them notified to SAP
pursuant to the German Securities Trading Act, section 15a.
|
|
|
|
|
|
|
|
|
|
|
Transactions in SAP Shares and American Depositary Receipts (ADRs) | |
| |
Notifying party |
|
Transaction date |
|
Transaction |
|
Number |
|
Unit price | |
|
|
|
|
|
|
|
|
| |
Hasso Plattner GmbH & Co. Beteiligungs-KG |
|
December 28, 2005 |
|
Acquisition of shares by way of security loan |
|
410,000 |
|
|
Variable* |
|
Bernhard Koller
|
|
August 1, 2005 |
|
Purchase of shares |
|
1,000 |
|
|
140.23 |
|
|
|
May 24, 2005 |
|
Purchase of shares |
|
350 |
|
|
131.47 |
|
Christiane Kuntz-Mayr
|
|
October 31, 2005 |
|
Purchase of shares |
|
325 |
|
|
142.18821 |
|
|
|
* |
at an original price of 0.35% of
153.16 per
annum and additionally the payment of a sum of 140% of any cash
disbursements received on the share loan with an original value
of 219,784.60. |
Supervisory Board: Other Information
In 2005, SAP did not grant any compensation advance or credit
to, or enter into any commitment for the benefit of, any member
of the Supervisory Board.
Hasso Plattner, chairperson of the Supervisory Board, entered
into a consulting contract with SAP after he joined the
Supervisory Board in May, 2003. The contract does not provide
for any compensation. The only cost incurred by SAP in 2005
under the contract was the reimbursement of expenses.
As far as the law permits, SAP AG indemnifies Supervisory Board
members against, and holds them harmless from, claims brought by
third parties. To this end the Company maintains directors
and officers group liability insurance. For more
information about this insurance, see the Executive Board:
Other Information section.
EMPLOYEES
As of December 31, 2005, we employed 35,873 full-time
equivalents (FTEs) worldwide, which represented an
increase of 11.4% from December 31, 2004. Of the total
headcount, 13,916 employees were
88
based in Germany and 6,019 in the U.S. The following tables
set forth the numbers of employees by business area and by
geographic region at December 31, 2005, 2004, and 2003 in
terms of FTE and headcount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees as of December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
FTEs |
|
EMEA | |
|
Americas | |
|
Asia | |
|
Total | |
|
EMEA | |
|
Americas | |
|
Asia | |
|
Total | |
|
EMEA | |
|
Americas | |
|
Asia | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Customer Service & Support
|
|
|
8,370 |
|
|
|
3,705 |
|
|
|
2,315 |
|
|
|
14,390 |
|
|
|
8,340 |
|
|
|
3,136 |
|
|
|
2,029 |
|
|
|
13,505 |
|
|
|
7,950 |
|
|
|
2,873 |
|
|
|
1,710 |
|
|
|
12,533 |
|
Research & Development
|
|
|
7,834 |
|
|
|
1,274 |
|
|
|
2,521 |
|
|
|
11,629 |
|
|
|
7,173 |
|
|
|
1,084 |
|
|
|
1,625 |
|
|
|
9,882 |
|
|
|
6,810 |
|
|
|
1,074 |
|
|
|
970 |
|
|
|
8,854 |
|
Sales & Marketing
|
|
|
3,186 |
|
|
|
2,135 |
|
|
|
928 |
|
|
|
6,249 |
|
|
|
3,042 |
|
|
|
1,730 |
|
|
|
811 |
|
|
|
5,583 |
|
|
|
3,022 |
|
|
|
1,432 |
|
|
|
716 |
|
|
|
5,170 |
|
General & Administrative
|
|
|
2,339 |
|
|
|
839 |
|
|
|
427 |
|
|
|
3,605 |
|
|
|
2,103 |
|
|
|
734 |
|
|
|
398 |
|
|
|
3,235 |
|
|
|
2,052 |
|
|
|
677 |
|
|
|
324 |
|
|
|
3,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAP Group
|
|
|
21,729 |
|
|
|
7,953 |
|
|
|
6,191 |
|
|
|
35,873 |
|
|
|
20,658 |
|
|
|
6,684 |
|
|
|
4863 |
|
|
|
32,205 |
|
|
|
19,834 |
|
|
|
6,056 |
|
|
|
3,720 |
|
|
|
29,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees as of December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Headcounts |
|
EMEA | |
|
Americas | |
|
Asia | |
|
Total | |
|
EMEA | |
|
Americas | |
|
Asia | |
|
Total | |
|
EMEA | |
|
Americas | |
|
Asia | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Customer Service & Support
|
|
|
8,544 |
|
|
|
3,712 |
|
|
|
2,317 |
|
|
|
14,573 |
|
|
|
8,500 |
|
|
|
3,144 |
|
|
|
2,029 |
|
|
|
13,673 |
|
|
|
8,111 |
|
|
|
2,881 |
|
|
|
1,721 |
|
|
|
12,713 |
|
Research & Development
|
|
|
8,096 |
|
|
|
1,280 |
|
|
|
2,523 |
|
|
|
11,899 |
|
|
|
7,412 |
|
|
|
1,091 |
|
|
|
1,626 |
|
|
|
10,129 |
|
|
|
7,042 |
|
|
|
1,084 |
|
|
|
974 |
|
|
|
9,100 |
|
Sales & Marketing
|
|
|
3,264 |
|
|
|
2,135 |
|
|
|
929 |
|
|
|
6,328 |
|
|
|
3,113 |
|
|
|
1,731 |
|
|
|
814 |
|
|
|
5,658 |
|
|
|
3,112 |
|
|
|
1,434 |
|
|
|
721 |
|
|
|
5,267 |
|
General & Administrative
|
|
|
2,449 |
|
|
|
841 |
|
|
|
428 |
|
|
|
3,718 |
|
|
|
2,205 |
|
|
|
737 |
|
|
|
400 |
|
|
|
3,342 |
|
|
|
2,163 |
|
|
|
681 |
|
|
|
327 |
|
|
|
3,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAP Group
|
|
|
22,353 |
|
|
|
7,968 |
|
|
|
6,197 |
|
|
|
36,518 |
|
|
|
21,230 |
|
|
|
6,703 |
|
|
|
4,869 |
|
|
|
32,802 |
|
|
|
20,428 |
|
|
|
6,080 |
|
|
|
3,743 |
|
|
|
30,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe that hiring highly qualified professionals is
essential in creating the foundations for our future success and
continued growth. Initial plans for 2005 called for 3,000 new
jobs to be created. The actual number of employees hired
exceeded this forecast.
The biggest increases were in research and development, in which
the worldwide FTE count rose 18% to 11,629, with the most
notable increase in the Asia-Pacific region of 55%. The increase
is consistent with our organic growth strategy and commitment to
meet product release schedules.
Expressed in the average number of FTEs, our workforce increased
from 31,224 in 2004 to 34,550 in 2005.
Certain employees who are employed by SAP but who are not
currently working or who work part-time while finishing a
university degree are excluded from the above figures. Also,
certain temporary employees are not included in the above
figures. The number of such temporary employees is not material.
None of our employees are subject to a collective bargaining
agreement. We have never experienced a work stoppage and believe
that our employee relations are excellent.
We do not currently have a works council for our employees in
Germany. In late February 2006, three employees invited all
employees to a meeting in Walldorf, Germany, the purpose of
which was to elect a committee to organize works council
elections. At that meeting, which took place on March 2,
2006, 91% of the employees present rejected the presented
candidates for the election committee. Employees of SAP AG
subsequently petitioned a German court to establish an election
committee. The court is due to issue its decision on
April 11, 2006.
On March 14, 2006, four employees invited all employees to
another meeting to elect an election committee. If more than
half of the employees present at the meeting elect the proposed
members of the election committee, this committee will organize
works council elections and the petition to the court would be
dropped. The organization of a works council could limit the
current flexibility we have in making workforce management
decisions and therefore could result in increased costs in
German workforce decisions. Nevertheless, works councils are
present in almost all German companies and we do not expect
89
that the organization of a works council at SAP would have a
material adverse impact on our results of operations, financial
condition or cash flows.
SHARE OWNERSHIP
Beneficial Ownership of Shares
The ordinary shares beneficially owned by Dietmar Hopp (member
of the Supervisory Board until May 12, 2005), Hasso
Plattner (Chairperson of the Supervisory Board) and Klaus
Tschira (member of the Supervisory Board) and/or companies
affiliated with the aforementioned individuals are disclosed in
Item 7. Major Shareholders and Related Party
Transactions Major Shareholders. We believe
each of the other members of the Supervisory Board and the
Executive Board beneficially owns less than 1% of the ordinary
shares as of March 10, 2006.
Stock-Based Compensation Plans
SAP SOP 2002
At the 2002 Annual General Shareholders Meeting, our
shareholders approved the SAP Stock Option Plan (SAP SOP
2002). The SAP SOP 2002, which provides for the issuance
of stock options to the members of the SAP AG Executive Board,
members of subsidiaries executive boards as well as to
eligible executives and other top performers of SAP AG and its
subsidiaries, is designed to replace the LTI 2000 Plan described
below. Under the SAP SOP 2002, the Executive Board is authorized
to issue, on or before April 30, 2007, up to 19,015,415
stock options.
Each stock option granted under SAP SOP 2002 entitles its holder
to subscribe to one SAP share, against the payment of an
exercise price, which is composed of a base price and a premium
of 10% on the base price. The base price is the average market
price of the SAP share on the Frankfurt Stock Exchange during
the five trading days preceding the issue of the respective
stock option, calculated on the basis of the arithmetic mean of
the closing auction prices of the SAP share in the
Xetra®
trading system. These provisions notwithstanding, the exercise
price should not be less than the closing auction price on the
day before the issue date. The term of the stock options is five
years. Subscription rights cannot be exercised until a vesting
period has elapsed. The vesting period of an option
holders subscription rights ends two years after the issue
date of that holders options.
For options granted to members of the Executive Board in and
from February 2004, the SAP SOP 2002 plan conditions provide for
a potential limitation on the subscription rights to the extent
that the Supervisory Board determines that, by exercising the
rights, the option holder would make a profit that would be
characterized as a windfall by, combined with the profit from
earlier exercises of subscription rights issued to the option
holder at the same issuing date, exceeding twice the product of
(i) the number of subscription rights received by the
option holder and (ii) the exercise price. Such profit is
determined as the total of the differences, calculated
individually for each exercised subscription right, between the
closing price of the share on the exercise day and the exercise
price. SAP AG undertakes to pay back to the option holders any
expenses they may incur through fees, taxes, or deductions
related to the limit on achievable income. The subscription
rights shall only be limited if the Supervisory Board determines
that the windfall results from significant extraordinary,
unforeseeable developments that the Executive Board is not
responsible for.
Through December 31, 2005, SAP SOP 2002 was generally
considered a fixed plan under APB 25. Since the exercise
price, which was fixed one day before grant, should not be less
than the share price on that date, no expenses were recorded for
awards granted under SAP SOP 2002. As the number of stock
options granted to the members of the Executive Board under SAP
SOP 2002 was not known on grant date due to the above mentioned
potential limitation on subscription rights, SAP SOP 2002 was
not considered a fixed plan for those
90
stock options. As such, compensation expense was recorded over
the vesting period equal to the difference between the exercise
price of the stock options and the market value of the ordinary
share. Beginning January 1, 2006, we adopted
SFAS 123R, using the modified version of prospective
application, to account for stock-based compensation.
SFAS 123R requires that stock-based awards be accounted for
at fair value. See Item 5. Operating and Financial
Review and Prospects Critical Accounting
Policies Accounting for Stock-Based
Compensation and Note 3 in Item 18.
Financial Statements.
As of March 10, 2006, 10,600 thousand options have been
granted to participants under the SAP SOP 2002, of which 5,842
thousand options are exercisable at this time.
By resolution of the Annual General Shareholders Meeting
held on May 12, 2005, the Executive Board was authorized to
repurchase on or before October 31, 2006 up to
30.0 million shares in SAP AG subject to the provision that
the shares purchased by virtue of this authorization, together
with any other shares already acquired and held by SAP, do not
account for more than 10% of SAP AGs capital stock. Such
repurchased ordinary shares may, among other things, be used to
satisfy our obligations upon conversion of the convertible bonds
or exercise of the stock options under the LTI 2000 Plan and our
obligations upon the exercise of stock options under the SAP SOP
2002. This resolution replaced the resolution of the Annual
General Shareholders Meeting of May 6, 2004, which
authorized the Executive Board to acquire on or before
October 31, 2005, up to 30.0 million shares in SAP to,
among other things, satisfy our obligations upon conversion of
the convertible bonds or exercise of the stock options under the
LTI 2000 Plan and the exercise of stock options under the SAP
SOP 2002. These repurchases of ordinary shares are expected to
reduce the dilutive effects on earnings per share. As of
March 10, 2006, we have repurchased 1,912 thousand ordinary
shares and issued them to stock option holders who have
exercised stock options under the SAP SOP 2002.
Long Term Incentive 2000 Plan
On January 18, 2000 SAPs shareholders approved the
Long Term Incentive 2000 Plan (the LTI 2000 Plan).
The LTI 2000 Plan is a stock-based compensation program,
providing members of the SAP AG Executive Board, members of
subsidiaries executive boards and selected employees a
choice between convertible bonds, stock options, or a 50%
mixture of each. Under the LTI 2000 Plan, 15 million
convertible bonds or 18.75 million stock options were
originally authorized, and a maximum of 18.75 million
ordinary shares were authorized pursuant to a contingent capital
increase for issuance upon conversion of the convertible bonds
and exercise of the stock options granted under the LTI 2000
Plan. Upon conversion of the convertible bonds and exercise of
the stock options, we will be required to provide ordinary
shares in return for payment of the conversion or exercise
price, as the case may be, which will be less than the market
price for the ordinary shares at the time of such conversion or
exercise.
By resolution of the Annual General Shareholders Meeting
on May 3, 2002, the authorization to issue convertible
bonds and stock options under the LTI 2000 Plan, to the extent
not yet made use of, was revoked. In addition, the contingent
capital for issuance upon conversion of the convertible bonds
and exercise of the stock options granted under the LTI 2000
Plan was reduced to the amount necessary to secure all
convertible bonds and stock options already granted under the
LTI 2000 Plan. In total SAP AG issued approximately
8.68 million convertible bonds and approximately
3.63 million stock options under the LTI 2000 Plan.
The conversion price of the convertible bonds for one SAP AG
ordinary share will equal the closing price of the SAP AG
ordinary share quoted in the
Xetra®
trading system (or any successor system) of the Frankfurt Stock
Exchange on the last trading day prior to the issue of the
respective convertible bond (the day on which SAP AG or the
credit institution managing the issue on behalf of SAP AG
accepts the beneficiarys subscription). Upon the exercise
of the conversion rights, an additional payment is due for each
share equal to the amount by which the conversion price of the
share exceeds the nominal amount of the converted bond of
1 for each
convertible bond, which was payable upon granting of the
convertible bonds and which is mandatory according to German
Stock Corporation Law.
91
The exercise price of the stock options issued under the LTI
2000 Plan for one SAP AG ordinary share is calculated by
reference to the outperformance. The outperformance is the
percentage points by which the performance of the SAP AG
ordinary share exceeds the performance of the reference index
(GSTI Software Index). The initial value for determining the
performance by the SAP AG ordinary shares is the closing price
of the SAP AG ordinary shares quoted in the
Xetra®
trading system (or any successor system) of the Frankfurt Stock
Exchange on the last trading day prior to the issue of the stock
option (the day on which SAP AG or the credit institution
managing the issue for SAP AG accepts the beneficiarys
subscription). The initial value for determining the performance
of the reference index is the last value recorded for the
reference index on the same trading day on the Chicago Board
Options Exchange. The final value for determining the
performance of the SAP AG ordinary share is the closing price of
SAPs ordinary shares quoted in the
Xetra®
trading system (or any successor system) of the Frankfurt Stock
Exchange on the latest trading day prior to exercise of the
subscription right attaching to the stock option. The final
value for determining the performance of the reference index is
the last value of the reference index on the same trading day on
the Chicago Board Options Exchange. The initial value and the
final value of the reference index will be translated from U.S.$
to euro using the spot mid cashpaper range rate on the Frankfurt
interbank market. Performance is the price change measured
between the initial value and the final value, expressed as
percentage points. In calculating the performance of the SAP AG
ordinary share, the same adjustment rules for dividend payments,
subscription rights, and other special rights are applied to the
stock exchange prices used as are applied in determining the
relevant reference index. The exercise price for one stock
option is calculated by reference to the outperformance. The
outperformance is the percentage points by which the performance
of the SAP AG ordinary share exceeds the performance of the
reference index, as follows: The exercise price is the final
value as determined above, less the product of the initial value
as determined above and the outperformance.
Beneficiaries under the LTI 2000 Plan may not exercise their
conversion or subscription rights until a vesting period has
elapsed. The vesting period for 33% of such rights ends two
years after the issue date, for the next 33% three years after
the issue date and for the balance four years after the issue
date. Convertible bonds and stock options under the LTI 2000
Plan have a term of 10 years from the issue date, after
which they become void.
Through December 31, 2005, the convertible bond program was
considered a fixed plan under APB 25, and resulted in no
compensation expense under the current terms of the LTI 2000
Plan. Under APB 25, the stock option program under the LTI
2000 Plan was a variable plan because the exercise price varies
depending upon the criteria described above. As such,
compensation expense was recorded over the vesting period equal
to the difference between the exercise price of the stock
options and the market value of the ordinary share. Stock
options may negatively impact our results of operations and both
stock options and convertible bonds may negatively impact our
earnings per share. Beginning January 1, 2006, we adopted
SFAS 123R, using the modified version of prospective
application, to account for stock-based compensation.
SFAS 123R requires that stock-based awards be accounted for
at fair value. See Item 5. Operating and Financial
Review and Prospects Critical Accounting
Policies Accounting for Stock-Based
Compensation and Note 3 in Item 18.
Financial Statements.
As of March 10, 2006, we have repurchased 851 thousand
ordinary shares and issued them to stock option holders who have
exercised stock options under the LTI 2000 Plan. See the
preceding section, SAP SOP 2002, for further
discussions regarding shares we are authorized to repurchase to
satisfy our obligations under the LTI 2000 Plan and the SAP SOP
2002.
STAR Plan
The STAR Plan provides for the grant of stock appreciation
rights (STARs) to eligible employees of SAP AG and
our majority-owned subsidiaries. The STAR Plan is administered
by SAP AGs Executive Board with respect to eligible
employees. Beginning with the introduction of the LTI 2000 Plan
in 2000, SAP SOP
92
2002 participants (and prior to the introduction of the SAP SOP
2002, LTI 2000 Plan participants) who are granted stock options
generally may not receive STARs under the STAR Plan in the same
fiscal year. The Executive Board or the Supervisory Board, as
applicable, has the authority to determine: (i) the persons
to whom grants may be made under the STAR Plan; (ii) the
size and other terms and conditions of each grant;
(iii) the time when the grants will be made and the
duration of any applicable exercise or restriction period,
including the criteria for vesting and the acceleration of
vesting; and (iv) any other matters arising under the STAR
Plan.
The valuation of each of the STARs is calculated quarterly, over
a period of two years. Each quarterly valuation is weighted as
follows in determining the final valuation of the respective
STARs:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Weighting Factor | |
|
Quarter Ended |
|
Weighting Factor | |
|
|
| |
|
|
|
| |
March 31, Year 1
|
|
|
5 |
% |
|
March 31, Year 2 |
|
|
10 |
% |
June 30, Year 1
|
|
|
5 |
% |
|
June 30, Year 2 |
|
|
10 |
% |
September 30, Year 1
|
|
|
10 |
% |
|
September 30, Year 2 |
|
|
10 |
% |
December 31, Year 1
|
|
|
20 |
% |
|
December 31, Year 2 |
|
|
30 |
% |
2006 STARs. In February 2006, the Supervisory Board approved a
maximum budget of
63 million
for 2006 STARs to be granted to selected employees who are not
granted stock options under the SAP SOP 2002 in the year 2006.
Currently we are expecting to grant approximately
3.5 million 2006 STARs.
The valuations of the 2006 STARs for the quarterly periods
ending December 31 are based on the amount by which the
grant price of
168.49 is
exceeded by the average fair market value of one ordinary share
as quoted on the
Xetra®
trading system over the 20 consecutive business days commencing
on the day after the announcement of our preliminary annual
results for 2006 and 2007. The other quarterly valuations are
based on the amount by which the grant price of
168.49 is
exceeded by the average fair market value of an ordinary share
quoted on the
Xetra®
trading system over the five consecutive business days
commencing on the day after the announcement of our quarterly
results. Because each quarterly valuation is measured
independently, it will be unaffected by any other quarterly
valuation.
The cash payout value of each 2006 STAR will be calculated
quarterly as follows: (i) 100% of the first
50 value
appreciation for such quarter; (ii) 50% of the next
50 value
appreciation; and (iii) 25% of any additional value
appreciation. Participants will, in the case such value
appreciation occurred, receive payments with respect to the 2006
STARs on March 31, 2008 and January 31, 2009, each
payment equal to 50% of the total payout amount. Participants
will receive 2006 STAR payments provided that (subject to
certain exceptions) they continue to be actively employed by us
on the payment dates.
2005 STARs. In March 2005 the Supervisory Board approved the
granting of approximately 4.7 million 2005 STARs to
selected employees who were not granted stock options under the
SAP SOP 2002 in the year 2005. The 2005 STARs grant value of
121.87 is based
upon the average fair market value of one ordinary share over
the 20 business days from the day after the announcement of our
2004 preliminary results on January 26, 2005.
The valuations of the 2005 STARs for the quarterly periods
ending December 31 are based on the amount by which the
grant price of
121.87 is
exceeded by the average fair market value of one ordinary share
as quoted on the
Xetra®
trading system over the 20 consecutive business days commencing
on the day after the announcement of our preliminary annual
results for 2005 and 2006. The other quarterly valuations are
based on the amount by which the grant price of
121.87 is
exceeded by the average fair market value of an ordinary share
quoted on the
Xetra®
trading system over the five consecutive business days
commencing on the day after the announcement of our quarterly
results. Because each quarterly valuation is measured
independently, it will be unaffected by any other quarterly
valuation.
The cash payout value of each 2005 STAR will be calculated
quarterly as follows: (i) 100% of the first
50 value
appreciation for such quarter; (ii) 50% of the next
50 value
appreciation; and (iii) 25% of any
93
additional value appreciation. Participants will, in the case
such value appreciation occurred, receive payments with respect
to the 2005 STARs on March 31, 2007 and January 31,
2008, each payment equal to 50% of the total payout amount.
Participants will receive 2005 STAR payments provided that
(subject to certain exceptions) they are still employees of SAP
on the payment dates.
2004 STARs. In March 2004, we granted 3.5 million 2004
STARs to selected employees who were not granted stock options
under the SAP SOP 2002 in the year 2004. The grant price of the
2004 STARs was
134.35 based
upon the average fair market value of one ordinary share over
the 20 business days from the day the announcement of our 2003
preliminary results on January 22, 2004. The final STAR
2004 value was fixed in February 2006, at
12.06.
Participants will receive payments with respect to the 2004
STARs on March 31, 2006 and January 31, 2007, each
payment equal to 50% of the total payout amount. Participants
will receive 2004 STAR payments provided that (subject to
certain exceptions) they are still employees of SAP on the
payment dates.
2003 STARs. In March 2003, we granted 3.8 million 2003
STARs to selected employees who were not granted stock options
under the SAP SOP 2002 in the year 2003. The grant price of the
2003 STARs was
84.91 based upon
the average fair market value of one ordinary share over the 20
business days from the day the announcement of our 2002
preliminary results on January 30, 2003. The final STAR
2003 value was fixed in February 2005 at
39.29.
Participants received payments with respect to the 2003 STARs on
March 31, 2005 and January 31, 2006, each payment
equal to 50% of the total payout amount.
2002 STARs. In February 2002, we granted 3.6 million 2002
STARs to selected employees who were not granted stock options
or convertible bonds under the LTI 2000 Plan in the year 2002.
Because the grant price of the 2002 STARs was higher than the
price of the ordinary shares during the measurement period, no
payments were made with respect to the 2002 STARs.
2001 STARs. In 2001, we granted 3.4 million 2001 STARs to
selected employees who did not receive stock options or
convertible bonds under the LTI 2000 Plan in the year 2001.
Because the grant price of the 2001 STARs was higher than the
price of the ordinary shares during the measurement period, no
payments were made with respect to the 2001 STARs.
German Employee Stock Purchase Plans
We maintain two employee stock purchase plans for our German
employees: (i) an ongoing payroll deduction plan (the
German Payroll Deduction Plan) and (ii) an
annual purchase plan (the German Annual Purchase
Plan). Under the German Payroll Deduction Plan, an
eligible German employee is able to purchase ordinary shares
through payroll deductions of up to 10% of the gross monthly
salary of the employee and SAP contributions of 15% of the
ordinary share purchase price as well as the assumption of
ancillary purchase expenses. As soon as the amount available for
an employee is sufficient together with our contribution to
purchase an ordinary share, such purchase is effected at the
market price and credited to the employees account. The
acquired shares are not subject to a holding period. Under the
German Annual Purchase Plan, eligible German employees may buy a
determined number of ordinary shares per year on a set date.
Under such plan, SAP contributes
260 per
year. The employee provides any additional amounts, if
necessary, to avoid the purchase of fractional shares. The
acquired shares are transferred to an individual account of the
participating employee, and they are not subject to a holding
period. Employees must elect each year to participate in the
German Annual Purchase Plan.
U.S. Employee Stock Purchase Plans
During 2005 we maintained three plans which allow for our
U.S. employees to acquire equity securities of SAP AG as
follows: (i) an Employee Discount Stock Purchase Plan
(U.S. Discount Plan); (ii) an employee
non-discount purchase plan (the U.S. Non-discount
Plan); and (iii) the ADR Stock Fund (the ADR
Stock Fund) available under the SAP America, Inc. 401(k)
Plan (401(k) Plan). Under the
94
U.S. Discount Plan, eligible employees are able to purchase
ADSs through semi-monthly payroll deductions of up to an annual
aggregate of 10% of their annual compensation or $21,250,
whichever is less, and we contribute 15% of the ADSs
purchase price as well as the assumption of ancillary purchase
expenses. Under the U.S. Non-discount Plan, an
administrator makes open market purchases of ADSs for the
accounts of participating employees on a semi-monthly basis.
Such purchases are made out of amounts deducted from each
participating employees eligible compensation. We do not
make any contributions in connection with the
U.S. Non-discount Plan. Effective December 31, 2005,
the U.S. Discount Plan was discontinued with no new
contributions allowed after that date. There is no change to the
current setup of the Non-discount Plan. The ADR Stock Fund was
introduced in 2000 as an investment option provided to certain
U.S. employees under the 401(k) Plan. For 2005,
U.S. employees could contribute up to 15% for highly
compensated employees and up to 25% for non-highly compensated
employees of their pretax and after tax payroll under the 401(k)
Plan, and we would contribute 50% of the contributed amounts up
to 6% of the pretax and after tax pay not to exceed
$4,500 per year. Both employee and employer contributions
are submitted to a plan administrator who provides various
investment fund options at the election of each participant. For
2006, both highly and non-highly compensated employees may
contribute up to 25% of their pretax and after tax payroll to
the plan. The maximum matching contribution provided by SAP
under the plan has been increased to $6,600 per year in
2006.
Other Foreign Stock Purchase Plans
Although we maintain and are in the process of introducing
various employee stock purchase plans similar to our German and
U.S. plans in the majority of our remaining foreign
subsidiaries, the combined impact of these plans on our results
of operations, net income and cash flows is not material.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
MAJOR SHAREHOLDERS
The share capital of SAP AG consists of ordinary shares, which
are issued only in bearer form. Accordingly, SAP AG generally
has no way of determining who our shareholders are or how many
shares a particular shareholder owns. SAPs ordinary shares
are traded in the U.S. by means of American Depositary
Shares (ADS). Each ADS currently represents one fourth of one
SAP ordinary share. On March 10, 2006, based upon
information provided by the ADS depositary, the Deutsche Bank
Trust Company Americas, there were 104,678,828 ADSs,
representing approximately 26,169,707 ordinary shares, held of
record by 1,543 registered holders. The ordinary shares
underlying such ADSs represented 8.1% of the then-outstanding
ordinary shares (including treasury stock). Because SAPs
ordinary shares are issued in bearer form only, we are unable to
determine the number of ordinary shares directly held by persons
with U.S. addresses.
However, under Section 21 of the German Securities Trading
Act (Wertpapierhandelsgesetz), holders of voting
securities of a German company admitted to official trading on a
stock exchange within the European Union or the European
Economic Area are obligated to notify the issuer of the
securities of the level of their holdings whenever such holdings
reach, exceed or fall below certain thresholds, which have been
set at 5%, 10%, 25%, 50% and 75% of the issuers
outstanding voting rights.
95
The following table sets forth certain information regarding the
beneficial ownership of the ordinary shares as of March 10,
2006 of: (i) each person or group known by SAP AG to own
beneficially 5% or more of the outstanding ordinary shares; and
(ii) the beneficial ownership of all members of the
Supervisory Board and all members of the Executive Board,
individually and as a group, in each case as reported to SAP AG
by such persons. Apart from the shares transfer as set forth in
the footnotes to this table, there was, as far as we are able to
tell given the nature of our shares, no significant change in
the percentage ownership held by any major shareholder during
the past three business years. None of the major shareholders
have special voting rights.
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares | |
|
|
Beneficially Owned | |
|
|
| |
|
|
|
|
% of | |
Principal Shareholders |
|
Number | |
|
Outstanding | |
|
|
| |
|
| |
Dietmar Hopp Stiftung GmbH
|
|
|
27,467,300 |
|
|
|
8.672 |
% |
Golf-Club St. Leon-Rot GmbH & Co. Betriebs oHG
|
|
|
3,650,000 |
|
|
|
1.152 |
% |
|
|
|
|
|
|
|
Dietmar Hopp,
collectively(1)
|
|
|
31,117,300 |
|
|
|
9.824 |
% |
Hasso Plattner GmbH & Co.
Beteiligungs-KG(2)
|
|
|
29,779,740 |
|
|
|
9.402 |
% |
Hasso Plattner Förderstiftung GmbH
|
|
|
4,580,573 |
|
|
|
1.446 |
% |
Hasso Plattner (24,100 ADRs)
|
|
|
6,025 |
|
|
|
0.002 |
% |
|
|
|
|
|
|
|
Hasso Plattner, Chairperson Supervisory Board,
collectively(3)
|
|
|
34,366,338 |
|
|
|
10.850 |
% |
Dr. h.c. Klaus Tschira Beteiligungs GmbH & Co. KG
|
|
|
15,832,660 |
|
|
|
4.999 |
% |
Klaus Tschira Stiftung gGmbH
|
|
|
15,285,843 |
|
|
|
4.826 |
% |
Klaus Tschira, Member Supervisory Board
|
|
|
500,000 |
|
|
|
0.158 |
% |
|
|
|
|
|
|
|
Klaus Tschira, Member Supervisory Board,
collectively(4)
|
|
|
31,618,503 |
|
|
|
9.982 |
% |
Executive Board Members as a group (7
persons)(5)
|
|
|
31,346 |
|
|
|
0.010 |
% |
Supervisory Board Members as a group (16 persons)
|
|
|
65,988,924 |
|
|
|
20.833 |
% |
|
|
|
|
|
|
|
Executive Board Members and Supervisory Board Members as a
group (23 persons)
|
|
|
66,020,270 |
|
|
|
20.843 |
% |
Options and convertible bonds that are vested and exercisable
within 60 days of March 10, 2006, held by Executive
Board Members and Supervisory Board Members, collectively(5)
|
|
|
1,111,058 |
|
|
|
N/A |
|
|
|
(1) |
Dietmar Hopp exercises sole voting and dispositive power in
Dietmar Hopp Stiftung GmbH and Golf-Club St. Leon-Rot
GmbH & Co. Betriebs oHG. |
|
(2) |
Hasso Plattner owns a 100% partnership interest in and controls
Hasso Plattner GmbH & Co. Beteiligungs-KG. |
|
(3) |
Hasso Plattner exercises sole voting and dispositive power in
Hasso Plattner GmbH & Co. Beteiligungs-KG and in Hasso
Plattner Förderstiftung gGmbH. |
|
(4) |
Klaus Tschira exercises shared voting and dispositive power in
Klaus Tschira Stiftung gGmbH and Dr. h.c. Tschira
Beteiligungs GmbH & Co. KG. |
|
(5) |
Includes 631,383 stock options and 479,675 convertible bonds. |
We at present have no knowledge about any arrangements, the
operation of which may at a subsequent date result in a change
in control of the company.
96
RELATED PARTY TRANSACTIONS
See Note 34 in Item 18. Financial
Statements for information on related party transactions.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
See Item 18. Financial Statements and pages F-1
through F-65 and S-1.
OTHER FINANCIAL INFORMATION
Legal Proceedings
In April 2005,
U.S.-based ePlus, Inc.,
instituted legal proceedings in the United States District Court
for the Eastern District of Virginia against SAP. ePlus alleges
that certain SAP products, methods, and services infringe three
U.S. patents owned by ePlus. In its complaint, ePlus seeks
unspecified monetary damages, permanent injunctive relief, and
up to treble damages for alleged willful infringement. A claims
construction hearing was held in November 2005 and a ruling by
the court was issued in January 2006. The trial is scheduled to
begin March 28, 2006.
In August 2005,
U.S.-based AMC
Technology, Inc., instituted legal proceedings in the United
States District Court for the Eastern District of Pennsylvania
against SAP. AMC alleges that SAP breached an agreement with
AMC, and that certain SAP technology infringed AMCs
copyright and improperly included AMC technology. AMCs
complaint seeks unspecified monetary damages and injunctive
relief. No trial date has been scheduled.
We are subject to other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of
business. Although the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe
that the outcome of any of these matters will have a material
adverse effect on our business, results of operations, financial
position or cash flows. Any litigation, however, involves
potential risk and potentially significant litigation costs, and
therefore there can be no assurance that any litigation which is
now pending or which may arise in the future would not have such
a material adverse effect on our business, financial position,
results of operations or cash flows.
Dividend Policy
Dividends are jointly proposed by SAP AGs Supervisory
Board and Executive Board based on SAP AGs year-end
stand-alone financial statements, subject to approval at the
Annual General Shareholders Meeting, and are officially
declared for the prior year at SAP AGs Annual General
Shareholders Meeting. SAP AGs Annual General
Shareholders Meeting usually convenes during the second
quarter of each year. Since ordinary shares are in bearer form,
dividends are usually remitted to the custodian bank on behalf
of the shareholder within one business day following the Annual
General Shareholders Meeting. One SAP ADS represents
one-fourth of SAP AGs ordinary share. Accordingly, the
final dividend per ADS is calculated as one-fourth of the
dividend of one SAP AG ordinary share and is dependent on the
euro/ U.S. dollar exchange rate. Record holders of the ADSs
on the dividend record date will be entitled to receive payment
of the dividend declared in respect of the year for which it is
declared. Cash dividends payable to such holders will be paid to
the Depositary in euro and, subject to certain exceptions, will
be converted by the Depositary into U.S. dollars. The
amount of dividends received by holders of ADSs may be affected
by fluctuations in exchange rates. See Item 3. Key
Information Exchange Rates.
97
The amount of dividends paid on the ordinary shares depends on
the amount of distributable profits as reported in SAP AGs
year-end stand-alone financial statements, which depends in part
upon our performance. The timing and amount of future dividend
payments will depend upon our future earnings, capital needs and
other relevant factors.
ITEM 9. THE OFFER AND LISTING
GENERAL
The ordinary shares are listed on each of the Frankfurt Stock
Exchange, the Berlin Stock Exchange and the Stuttgart Stock
Exchange. The ordinary shares were delisted from the Zürich
Stock Exchange on February 1, 2005. In addition, the
ordinary shares are traded in the
over-the-counter
markets (Freiverkehr) in Germany. The principal trading
market for the ordinary shares is the Frankfurt Stock Exchange.
The ordinary shares are issued only in bearer form.
Prior to June 18, 2001, SAP AG also had preference shares,
which were converted into ordinary shares on a share for share
basis pursuant to resolutions adopted at our Annual General
Shareholders Meeting and a special meeting of holders of
the preference shares on May 3, 2001. The amount of
subscribed capital for ordinary shares was therefore increased
by the amount of preference shares converted on the effective
date of the conversion. Due to the conversion, the ordinary
shares are registered and listed on the various stock exchanges
in Europe.
Effective August 3, 1998, the ADSs were listed on the New
York Stock Exchange (NYSE) originally representing a
fraction of a preference share. Due to the conversion of
preference shares into ordinary shares, the latter were
registered with the NYSE as the underlying security for the
ADSs. The ADSs trade on the NYSE under the symbol
SAP and currently each represents one-fourth of one
ordinary share. The Depositary for the ADSs pursuant to the
Deposit Agreement was The Bank of New York until December 2004,
when it was succeeded by Deutsche Bank Trust Company Americas.
SAP AGs Annual General Shareholders Meeting to be
held on May 9, 2006 will consider among other things a
proposal to change our share capital by an increase in
subscribed capital from corporate funds pursuant to which each
shareholder will receive three additional shares for each
existing SAP share held. No new capital is being raised through
this transaction. If shareholders approve the capital increase
at the Annual Shareholders Meeting and the resolution
adopted is registered in the commercial register, the number of
shares held will increase fourfold automatically. As a result of
this capital structure change, we anticipate that the ratio of
ordinary share to ADSs would be adjusted to 1:1.
Trading on the Frankfurt Stock Exchange
The Frankfurt Stock Exchange, operated by Deutsche Börse
AG, is the largest of the eight German stock exchanges,
accounting for approximately 91% of the turnover of all German
stock exchanges. The aggregate annual turnover of the Frankfurt
Stock Exchange (including
Xetra®)
in 2005 amounted to
1.2 trillion
(orderbook turnover) for both equity and debt instruments. On
December 31, 2005, the equity securities of 6,823
corporations, including 5,988 non-German corporations, were
traded on the Frankfurt Stock Exchange, including
over-the-counter
markets.
Prices are continuously quoted on the Frankfurt Stock Exchange
floor each business day between 9:00 a.m. and
8:00 p.m. Central European Time for the ordinary shares and
for other actively traded securities. Markets in listed
securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets both
on and off the Stock Exchange. Price formation is determined by
open outcry by state-appointed specialists (amtliche
Kursmakler) who are themselves exchange members, but who do
not, as a rule, deal with the public. The Stock Exchange
continuously quotes prices for active stocks during Stock
Exchange hours.
98
Transactions on the Frankfurt Stock Exchange are settled on the
second business day following trading. Transactions off the
Frankfurt Stock Exchange (which may be the case if one of the
parties to the transaction is foreign) are generally also
settled on the second business day following trading (although a
different period may be agreed upon by the parties). A quotation
can be suspended if orderly stock exchange trading is
temporarily endangered or if a suspension is necessary in order
to protect the public interest. Under German law,
customers orders to buy or sell listed securities must be
executed on a stock exchange unless the customer gives other
specific instructions for an individual transaction or an
indeterminate number of transactions.
In addition to the trading floor, the ordinary shares are also
traded on
Xetra®,
a computerized trading system of Deutsche Börse AG.
Xetra®
matches buy and sell orders from licensed traders in a central,
fully electronic order book. The system works independently of
the location of the trader and provides insight into the order
book. The trading hours for
Xetra®
are from 9:00 a.m. until 5:30 p.m. Central European
Time on each business day. Securities traded on
Xetra®
include almost the full range of shares listed on the Frankfurt
Stock Exchange and a number of additional warrants and
certificates.
Xetra®
is subject to the rules and regulations of the Frankfurt Stock
Exchange. It now has a market share of 97% in the securities of
the 30 companies comprising the Deutsche Aktienindex
(DAX®),
the leading index of trading on the Frankfurt Stock Exchange.
The SAP AG preference shares were included in the
DAX®
beginning September 15, 1995 and were replaced by ordinary
shares upon the conversion on June 18, 2001.
99
The table below sets forth, for the periods indicated, the high
and low closing sales prices for the ordinary shares on the
Frankfurt Stock Exchange, as provided by the Deutsche Börse
AG, together with the closing highs and lows of the
DAX®.
Since January 4, 1999, the first official trading day of
1999, the share prices of shares traded on the German stock
exchanges have been quoted in euro.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per | |
|
|
|
|
Ordinary Share(1) | |
|
DAX®(2) | |
|
|
| |
|
| |
|
|
High | |
|
Low | |
|
High | |
|
Low | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in ) | |
|
|
|
|
Annual Highs and Lows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
|
180.90 |
|
|
|
100.00 |
|
|
|
6,795.14 |
|
|
|
3,787.23 |
|
2002
|
|
|
176.30 |
|
|
|
41.65 |
|
|
|
5,462.55 |
|
|
|
2,597.88 |
|
2003
|
|
|
134.00 |
|
|
|
67.65 |
|
|
|
3,965.16 |
|
|
|
2,202.96 |
|
2004
|
|
|
142.70 |
|
|
|
116.12 |
|
|
|
4,261.79 |
|
|
|
3,646.99 |
|
2005
|
|
|
155.80 |
|
|
|
114.50 |
|
|
|
5,458.58 |
|
|
|
4,178.10 |
|
Quarterly Highs and Lows 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
142.70 |
|
|
|
120.45 |
|
|
|
4,151.83 |
|
|
|
3,726.07 |
|
|
Second Quarter
|
|
|
138.31 |
|
|
|
122.44 |
|
|
|
4,134.10 |
|
|
|
3,754.37 |
|
|
Third Quarter
|
|
|
136.02 |
|
|
|
116.12 |
|
|
|
4,035.02 |
|
|
|
3,646.99 |
|
|
Fourth Quarter
|
|
|
139.49 |
|
|
|
126.55 |
|
|
|
4,261.79 |
|
|
|
3,854.41 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
133.34 |
|
|
|
118.00 |
|
|
|
4,428.09 |
|
|
|
4,201.81 |
|
|
Second Quarter
|
|
|
144.01 |
|
|
|
114.50 |
|
|
|
4,627.48 |
|
|
|
4,178.10 |
|
|
Third Quarter
|
|
|
147.78 |
|
|
|
135.93 |
|
|
|
5,048.74 |
|
|
|
4,530.18 |
|
|
Fourth Quarter
|
|
|
155.80 |
|
|
|
140.05 |
|
|
|
5,458.58 |
|
|
|
4,806.05 |
|
Monthly Highs and Lows 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
|
|
|
147.78 |
|
|
|
139.12 |
|
|
|
4,892.50 |
|
|
|
4,530.18 |
|
|
August
|
|
|
142.20 |
|
|
|
135.93 |
|
|
|
4,990.57 |
|
|
|
4,783.80 |
|
|
September
|
|
|
144.16 |
|
|
|
137.80 |
|
|
|
5,048.74 |
|
|
|
4,837.81 |
|
|
October
|
|
|
147.05 |
|
|
|
140.05 |
|
|
|
5,138.02 |
|
|
|
4,806.05 |
|
|
November
|
|
|
153.35 |
|
|
|
142.36 |
|
|
|
5,199.48 |
|
|
|
4,922.55 |
|
|
December
|
|
|
155.80 |
|
|
|
152.95 |
|
|
|
5,458.58 |
|
|
|
5,266.55 |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
168.50 |
|
|
|
146.00 |
|
|
|
5,674.15 |
|
|
|
5,334.30 |
|
|
February
|
|
|
175.25 |
|
|
|
166.21 |
|
|
|
5,915.15 |
|
|
|
5,649.60 |
|
|
March (through March 10, 2006)
|
|
|
173.45 |
|
|
|
170.30 |
|
|
|
5,866.61 |
|
|
|
5,673.36 |
|
|
|
(1) |
Since January 1, 2000, ordinary share prices are obtained
from
Xetra®. |
|
(2) |
The
DAX®
is a continuously updated, capital-weighted performance index of
30 German blue chip companies. In principle, the shares included
in the
DAX®
are selected on the basis of their stock exchange turnover and
the issuers market capitalization. Adjustments to the
DAX®
are made for capital changes, subscription rights and dividends.
Subsequent to June 18, 1999, the highs and lows of the
DAX®
are disclosed on
Xetra®. |
On March 10, 2006, the closing sales price per ordinary
share on the Frankfurt Stock Exchange was
173.45, as
provided by the Deutsche Börse AG.
100
Trading on the NYSE
SAP AGs ordinary shares are traded in the U.S. by
means of American Depositary Shares (ADSs). Each ADS
currently represents one fourth of one SAP ordinary share. SAP
AGs Annual General Shareholders Meeting to be held
on May 9, 2006, will consider among other things a proposal
to change our share capital by an increase in subscribed capital
from corporate funds pursuant to which each shareholder will
receive three additional shares for each existing SAP share
held. No new capital is being raised through this transaction.
If shareholders approve the capital increase at the Annual
Shareholders Meeting and the resolution adopted is
registered in the commercial register, the number of shares held
will increase fourfold automatically. As a result of this
capital structure change, we anticipate that the ratio of
ordinary share to ADSs would be adjusted to 1:1. On
March 10, 2006, based upon information provided by the ADS
depositary, Deutsche Bank Trust Company Americas, there were
104,678,828 ADSs, representing approximately 26,169,707 ordinary
shares, held of record by 1,543 registered holders. The ordinary
shares underlying such ADSs represented 8.1% of the
then-outstanding ordinary shares (including treasury stock).
Because SAPs ordinary shares are issued in bearer form
only, we are unable to determine the number of ordinary shares
directly held by persons with U.S. addresses.
The table below sets forth, for the periods indicated, the high
and low closing sales prices for the ADSs on the NYSE as
reported on the NYSE Composite Tape.
|
|
|
|
|
|
|
|
|
|
|
|
Price per ADS | |
|
|
| |
|
|
High | |
|
Low | |
|
|
| |
|
| |
|
|
(in U.S.$) | |
Annual Highs and Lows
|
|
|
|
|
|
|
|
|
2001
|
|
|
47.64 |
|
|
|
23.00 |
|
2002
|
|
|
38.84 |
|
|
|
10.05 |
|
2003
|
|
|
41.80 |
|
|
|
18.46 |
|
2004
|
|
|
45.45 |
|
|
|
35.50 |
|
2005
|
|
|
46.43 |
|
|
|
36.96 |
|
Quarterly Highs and Lows
|
|
|
|
|
|
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
47.64 |
|
|
|
28.59 |
|
|
Second Quarter
|
|
|
40.99 |
|
|
|
24.39 |
|
|
Third Quarter
|
|
|
37.73 |
|
|
|
23.00 |
|
|
Fourth Quarter
|
|
|
34.80 |
|
|
|
25.09 |
|
2002
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
38.84 |
|
|
|
32.41 |
|
|
Second Quarter
|
|
|
38.30 |
|
|
|
22.68 |
|
|
Third Quarter
|
|
|
23.51 |
|
|
|
11.25 |
|
|
Fourth Quarter
|
|
|
22.65 |
|
|
|
10.05 |
|
2003
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
25.00 |
|
|
|
18.46 |
|
|
Second Quarter
|
|
|
33.40 |
|
|
|
19.18 |
|
|
Third Quarter
|
|
|
34.50 |
|
|
|
27.56 |
|
|
Fourth Quarter
|
|
|
41.80 |
|
|
|
31.13 |
|
101
|
|
|
|
|
|
|
|
|
|
|
|
Price per ADS | |
|
|
| |
|
|
High | |
|
Low | |
|
|
| |
|
| |
|
|
(in U.S.$) | |
2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
45.27 |
|
|
|
36.97 |
|
|
Second Quarter
|
|
|
41.95 |
|
|
|
36.71 |
|
|
Third Quarter
|
|
|
41.68 |
|
|
|
35.50 |
|
|
Fourth Quarter
|
|
|
45.45 |
|
|
|
39.20 |
|
2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
44.04 |
|
|
|
38.52 |
|
|
Second Quarter
|
|
|
43.42 |
|
|
|
36.96 |
|
|
Third Quarter
|
|
|
44.92 |
|
|
|
41.82 |
|
|
Fourth Quarter
|
|
|
46.43 |
|
|
|
42.08 |
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
July
|
|
|
44.92 |
|
|
|
41.82 |
|
|
August
|
|
|
43.74 |
|
|
|
41.83 |
|
|
September
|
|
|
44.33 |
|
|
|
41.90 |
|
|
October
|
|
|
43.98 |
|
|
|
42.38 |
|
|
November
|
|
|
45.15 |
|
|
|
42.08 |
|
|
December
|
|
|
46.43 |
|
|
|
45.07 |
|
2006
|
|
|
|
|
|
|
|
|
|
January
|
|
|
51.37 |
|
|
|
44.00 |
|
|
February
|
|
|
52.22 |
|
|
|
49.25 |
|
|
March (through March 10, 2006)
|
|
|
52.10 |
|
|
|
50.91 |
|
On March 10, 2006, the closing sales price per ADS on the
NYSE was U.S.$51.83, as reported on the NYSE Composite Tape.
ITEM 10. ADDITIONAL INFORMATION
ARTICLES OF INCORPORATION
Organization and Register
SAP AG is a stock corporation organized in the Federal Republic
of Germany under the Stock Corporation Act
(Aktiengesetz). SAP AG is registered in the Commercial
Register (Handelsregister) which since January 2006 has
been maintained by court in Mannheim, Germany, under the entry
number HRB 350269. As of January 1, 2003, SAP
AG publishes its official notices in the Internet version of the
Federal Gazette (www.ebundesanzeiger.de).
Change of name
The Annual General Shareholders Meeting in May 2005
resolved to change the companys name from SAP
Aktiengesellschaft Systeme, Anwendungen, Produkte in der
Datenverarbeitung to the commonly used short form
SAP AG. Accordingly, Section 1 of the Articles
of Incorporation was amended. The amendment of the Articles of
Incorporation was registered in the Commercial Register of the
court of Heidelberg on June 9, 2005, and the change of name
was effective then.
102
Objectives and purposes
Section 2 of SAP AGs Articles of Incorporation states
that our objectives involve, directly or indirectly, the
development, production and marketing of products and the
provision of services in the field of information technology,
including:
|
|
|
|
|
developing and marketing integrated product and service
solutions for e-commerce;
|
|
|
|
developing software for information technology and the licensing
of its use to others; |
|
|
|
organization and deployment consulting, as well as user
training, for
e-commerce and other
software solutions; |
|
|
|
selling, leasing, renting and arranging the procurement and
provision of all other forms of use of information technology
systems and related equipment; and |
|
|
|
making capital investments in enterprises active in the field of
information technology to promote the opening and advancement of
international markets in the field of information technology. |
SAP AG is authorized to act in all the business areas listed
above and to delegate such activities to affiliated enterprises
within the meaning of the German Stock Corporation Act; in
particular SAP AG is authorized to delegate its business in
whole or in part to such enterprises. SAP AG is authorized to
establish branch offices in Germany and other countries, as well
as to form, acquire or invest in other companies of the same or
related kind and to enter into collaboration and joint venture
agreements. SAP AG is further authorized to invest in
enterprises of all kinds principally for the purpose of placing
financial resources. SAP AG is authorized to dispose of
investments, to consolidate the management of enterprises in
which it participates, to enter into affiliation agreements with
such enterprises, or to do no more than manage its shareholdings.
Corporate governance
Introduction.
The primary source of law relating to corporate governance of a
German stock corporation is the German Stock Corporation Act,
but other relevant rules with impact on corporate governance are
also contained in the Security Trading Act, Securities Purchase
and Takeover Act, Stock Exchange Admission Regulations,
Commercial Code and other statutes. In addition to these
mandatory rules, in February 2002, a government commission
appointed by the German Minister of Justice adopted the German
Corporate Governance Code (GCGC), which has since
been amended. The GCGC consists of recommended cooperate
governance standards. Section 161 of the Stock Corporation
Act, however, requires the Executive and the Supervisory Board
of exchange-listed companies, such as SAP AG, to declare
annually that the recommendations set forth in the GCGC have
been and are being complied with, or which of the
recommendations are not being applied. SAP has disclosed
deviations from the GCGC in the above-mentioned declaration of
compliance on a yearly basis since 2002.
In December 2001, as one of the first German listed companies to
do so, SAP published its own corporate governance
rules SAPs Principles of Corporate
Governance. After the adoption of the GCGC in 2002, SAP
adjusted its own principles according to new national and
international corporate governance standards as far as they have
been continuously applicable to SAP. The purpose of
SAPs Principles of Corporate Governance, which
reflect the accepted standard of corporate governance for German
stock corporations, is to provide a framework of responsible,
value-oriented management and control policies for our company
according to or where necessary complementing the applicable
provisions of law. SAPs Principles of Corporate Governance
are available on our Web site (www.sap.com). On the same Web
site, we make available a statement of how SAPs corporate
governance practices vary from those of U.S. corporations
103
under New York Stock Exchange Listing Standards according to
Section 303A.11 of the New York Stock Exchange Corporate
Governance Rules in 2004.
The Sarbanes-Oxley Act, enacted into law in the U.S. in
July 2002, strengthens protection of shareholders by imposing
new corporate governance and reporting requirements on publicly
traded companies in the U.S. As SAP AG is a publicly traded
company listed on the New York Stock Exchange, we have taken
steps to comply with the applicable regulations of the
Sarbanes-Oxley Act and the regulations of the Corporate
Governance Rules of the New York Stock Exchange including
establishing a Disclosure Committee and enhancing the monitoring
of internal control processes.
SAP AG, as a German stock corporation, is governed by three
separate bodies: the Supervisory Board, the Executive Board and
the Annual General Shareholders Meeting. Their rules are
defined by German law and by SAPs Articles of
Incorporation (Satzung) and may be briefly summarized as
follows:
The Supervisory Board.
The Supervisory Board appoints and removes the members of the
Executive Board and oversees and advises the management of the
corporation. At regular intervals it meets to discuss current
business as well as business development and planning. The SAP
Executive Board must consult with the Supervisory Board
concerning the corporate strategy, which is developed by the
Executive Board. The Supervisory Board must also approve the
annual budget of SAP upon submission by the Executive Board and
certain subsequent deviations from the approved budget. The
Supervisory Board is also responsible for representing SAP AG in
transactions between SAP AG and Executive Board members.
The Supervisory Board, based on a recommendation by the Audit
Committee, provides its proposal for the election of the
independent public accountant to the Annual General
Shareholders Meeting. Prior to submitting this proposal
and as requested by SAPs Principles of Corporate
Governance, the SAP Supervisory Board must obtain a statement
from the proposed independent public accountant stating its
independence. The Supervisory Board is also responsible for
monitoring the auditors continued independence.
The German Co-determination Act of 1976
(Mitbestimmungsgesetz) requires supervisory boards of
corporations with more than 2,000 employees to be equally
staffed by representatives of the shareholders and
representatives of the employees. The minimum total number of
Supervisory Board members, and thus the minimum number of
shareholder representatives and employee representatives, is
legally fixed and depends on the number of employees employed by
the corporation and its German subsidiaries. Our Supervisory
Board currently consists of sixteen members, of which eight
members have been elected by SAP AGs shareholders at the
Annual General Shareholders Meeting and eight members
which have been elected by SAPs employees. Previously, the
Supervisory Board consisted of twelve members, of which six were
elected by the shareholders and six were elected by SAP
employees. Since the number of employees of SAP AG and its
affiliates in Germany exceeded 10,000 in 2001, the Supervisory
Board was enlarged to sixteen members subsequent to the Annual
General Shareholders Meeting in May 2002.
Any Supervisory Board member elected by the shareholders at the
Annual General Shareholders Meeting may be removed by
three-quarters of the votes cast at the Annual General
Shareholders Meeting. Any Supervisory Board member elected
by the employees may be removed by three quarters of the votes
cast by employees.
The Supervisory Board elects a chairman and a deputy chairman
among its members by a majority of vote of its members. If such
majority is not reached on the first vote, the chairman will be
chosen solely by the members elected by the shareholders and the
deputy chairman will be chosen solely by the members elected by
the employees. Unless otherwise provided by law, the Supervisory
Board acts by simple majority. In the case of any deadlock the
chairman has the deciding vote.
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The members of the Supervisory Board are each elected for the
same fixed term of approximately 5 years. The term expires
at the close of the Annual General Shareholders Meeting of
the fourth fiscal year following the year in which the
Supervisory Board was elected unless the Annual General
Shareholders Meeting specifies a shorter term of office
when electing individual members of the Supervisory Board or the
entire Supervisory Board. Re-election is possible. The
Supervisory Board normally meets four times a year. The
remuneration of the members of the Supervisory Board is
determined by the Articles of Incorporation.
As stipulated in SAPs Principles of Corporate Governance
the shareholder representatives of the Supervisory Board are
independent. In order to be considered for appointment to the
Supervisory Board and for as long as they serve, members must
comply with certain criteria concerning independence, conflict
of interest and multiple memberships of management, supervisory
and other governing bodies. They must be loyal to SAP in their
conduct and must not accept appointment in companies that are in
competition with SAP. Members are subject to insider trading
prohibition and the interested director dealing rules of the
Securities Trading Act.
The Supervisory Board may appoint committees from among its
members and may, to the extent permitted by law, entrust
committees with the authority to make decisions. Currently the
Supervisory Board maintains the following committees:
The focus of the Audit Committee
(Bilanzprüfungsausschuss) is the discussion and the
monitoring of the independent auditors reports about SAPs
consolidated financial statements and SAP AGs statutory
financial statements as well as the Review of SAP Group
operations and the Review of SAP AGs operations, documents
required under German law. The Audit Committee proposes
appointment of the auditor and its compensation to the
Supervisory Board, determines special audit areas and discusses
critical accounting policies with and reviews audit issues
identified by the auditor and monitors the auditors
independence. SAPs Internal Audit Department reports upon
request or at the occurrence of certain audit findings, but in
any case at least once a year directly to the Audit Committee.
The Audit Committee has established procedures regarding the
prior approval of all audit and non-audit services provided by
our independent auditor. See Item 16C. Principal
Accountant Fees and Services for details.
The Audit Committee is currently composed of 4 members: Erhard
Schipporeit, Bernhard Koller, Stefan Schulz and Klaus Tschira.
The Supervisory Board has determined Erhard Schipporeit to be a
financial expert as defined in Section 407 of the
Sarbanes-Oxley Act. See Item 16A. Audit Committee
Financial Expert for details. He is also the chairman of
the Audit Committee.
The General Committee (Präsidialausschuss)
coordinates the Supervisory Board agenda, meetings and deals
with corporate governance issues. Furthermore, it was assigned
the authority to grant SAP SOP 2002 stock options to all
recipients with the exception of Executive Board members.
The Compensation Committee (Personalausschuss) is
assigned the conclusion of employment contracts with and the
determination of the remuneration of Executive Board members. It
also grants SAP SOP 2002 stock options to SAP AG Executive Board
members.
The Finance and Investment Committee (Finanz- und
Investitionsausschuss) addresses general financing issues.
Furthermore it regularly discusses venture capital investments
and other equity investments with the Executive Board and
reports to the Supervisory Board on such investments. It is also
responsible for the approval of such investments if the
individual investment amount exceeds certain specified limits.
Required by the German Co-determination Act of 1976
(Mitbestimmungsgesetz), the Mediation Committee
(Vermittlungsausschuss) convenes only if the 2/3 majority
required for appointing/revoking the appointment of Executive
Board members is not attained. This committee has never held a
meeting in SAP AGs history.
The Technology Committee (Technologieausschuss) monitors
technology transactions and provides the Supervisory Board with
in-depth technical knowledge.
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The duties, procedures and committees of the Supervisory Board
are specified in bylaws and in SAPs Principles of
Corporate Governance, respectively. Major decisions of the
Executive Board require Supervisory Board approval.
According to the provisions of SAPs Principles of
Corporate Governance, the granting of loans to the members of
the Executive Board or the Supervisory Board is not permitted.
The Supervisory Board, according to SAPs Principles of
Corporate Governance, also can no longer approve such loans.
The Executive Board.
The Executive Board manages the corporations business, is
responsible for preparing its strategy and represents it in
dealings with third parties. The Executive Board reports
regularly to the Supervisory Board about SAP operations and
business strategies and prepares special reports upon request. A
person may not serve on the Executive Board and on the
Supervisory Board of a corporation at the same time.
The Executive Board and the Supervisory Board must cooperate
closely for the benefit of the company. Without being asked, the
Executive Board must provide to the Supervisory Board regular,
prompt and comprehensive information about all of the essential
issues affecting the SAP Groups business progress and its
potential business risks. Furthermore, the Executive Board must
maintain regular contact with the chairperson of the Supervisory
Board. The Executive Board must inform the chairperson of the
Supervisory Board without delay if exceptional events occur that
are of significance to SAPs business. The chairperson must
inform the Supervisory Board accordingly.
Pursuant to the Articles of Incorporation, the Executive Board
must consist of at least 2 members. Currently, SAP AGs
Executive Board is composed of 7 members. Any 2 members of the
Executive Board jointly or one member of the Executive Board and
the holder of a special power of attorney jointly may legally
represent SAP AG. The Supervisory Board appoints each member of
the Executive Board for a maximum term of 5 years, with the
possibility of re-appointment thereafter. Under certain
circumstances, a member of the Executive Board may be removed by
the Supervisory Board prior to the expiration of that
members term. A member of the Executive Board may not vote
on matters relating to certain contractual agreements between
such member and SAP AG, and may be liable to SAP AG if such
member has a material interest in any contractual agreement
between SAP and a third party which was not disclosed to and
approved by the Supervisory Board. Further, as the compensation
of the Executive Board members is set by the Supervisory Board,
Executive Board members are unable to vote on their own
compensation.
Under German law SAP AG Supervisory Board Members and Executive
Board Members have a duty of loyalty and care to SAP AG. They
must exercise the standard of care of a prudent and diligent
businessman and bear the burden of proving they did so if their
actions are contested. Both bodies must consider the interest of
SAP AG shareholders and our employees and, to some extent, the
common interest. Those who violate their duties may be held
jointly and severally liable for any resulting damages, unless
they acted pursuant to a lawful resolution of the Annual General
Shareholders Meeting.
SAP has implemented a Code of Business Conduct for employees
covering the following topics: Conflict of interest, personal
gain, bribery and corruption, confidentiality, financial
concerns, conduct with customers, ventures, competitors and
partners and trading in shares (addressing insider trading
concerns). The employee code and SAPs Principles of
Corporate Governance are equally applicable to managers and
members of the Executive Board. See Item 16B. Code of
Ethics for details.
Under the German law the Executive Board of SAP AG has to assess
all major risks for the SAP Group. In addition, all measures
taken by the management to reduce and handle the risks have to
be documented. Therefore, SAPs management has adopted
suitable measures such as implementing an enterprise-wide
monitoring system to ensure that adverse developments
endangering the corporate standing are recognized at a
reasonably early point in time.
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The Annual General Shareholders Meeting.
The Executive Board calls the Annual General Shareholders
Meeting. The Supervisory Board or the Executive Board may call
an extraordinary meeting of the shareholders if the interests of
the stock corporation so require. Additionally, shareholders of
SAP AG holding in the aggregate at least 5% of SAP AGs
issued share capital or shares with a nominal value of at least
500,000 may call
an extraordinary meeting of the shareholders.
Among other things, the shareholders are asked to ratify the
actions of the Executive Board and the Supervisory Board during
the prior year, to approve the distribution of the
corporations profits and to appoint an independent auditor
as well as to ratify amendments of our Articles of
Incorporation. Shareholder representatives to the Supervisory
Board are elected at the Annual General Shareholders
Meeting for terms of approximately five years.
The influence of the Annual General Shareholders Meeting
is limited by applicable law. The Annual General
Shareholders Meeting can only make management decisions if
requested to do so by the Executive Board.
Share Capital.
As of December 31, 2005, the share capital of SAP AG was
316,457,821,
consisting of 316,457,821 no-par ordinary shares. The ordinary
shares are issued only in bearer form.
On May 3, 2001, SAP AGs shareholders approved at the
Annual General Shareholders Meeting, and a special meeting
of holders of preference shares approved on the same day, the
conversion of each preference share into one ordinary share. The
conversion was effective as of June 18, 2001.
Some of the significant provisions under German law and SAP
AGs Articles of Incorporation relating to the capital
stock of SAP AG may be summarized as follows:
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Capital Increases. The capital stock may be increased in
consideration of contributions in cash or in kind, or by
establishing authorized capital or contingent capital or by an
increase of the companys capital reserves. Authorized
capital provides the Executive Board with the flexibility to
issue new shares for a period of up to five years, generally to
preserve liquidity. The Executive Board must obtain the approval
of the Supervisory Board before issuing new shares with regard
to the authorized capital. Contingent capital allows the
issuance of new shares for specified purposes, including
employee stock option plans and the issuance of shares upon
conversion of convertible bonds and exercise of stock options.
By law, the Executive Board may only issue new shares with
regard to the contingent capital for the specified purposes.
Capital increases require an approval by 75% of the issued
shares present at the Annual General Shareholders Meeting
at which the increase is proposed and require an amendment to
the Articles of Incorporation. |
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Authorized and Contingent Capital. SAPs Articles of
Incorporation authorize the Executive Board of SAP AG to
increase the subscribed capital as follows: |
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up to a total amount of
60 million
through the issuance of new ordinary shares in return for
contributions in cash until May 11, 2010 (Authorized
Capital I). The issuance is subject to the statutory
subscription rights of existing shareholders; |
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up to a total amount of
60 million
through the issuance of new ordinary shares in return for
contributions in cash or in kind until May 11, 2010
(Authorized Capital II). Subject to certain
preconditions and the consent of the Supervisory Board, the
Executive Board is authorized to exclude the shareholders
statutory subscription rights for issuance of up to
10 % of the capital stock; and |
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up to an aggregate amount of
15 million
against contribution in cash by issuing new ordinary shares
until May 1, 2007 (Authorized
Capital III). The new shares may be subscribed by a
credit institution only, and only to the extent that such credit
institution, releasing SAP from its corresponding obligation,
satisfies the conversion and subscription rights granted under
the SAP AG 2000 Long Term Incentive Plan (LTI 2000
Plan) or SAP Stock Option Plan 2002 (SAP SOP
2002), respectively. The shareholders statutory
subscription rights are excluded from this capital increase. The
Executive Board may exercise this authorization only to the
extent that the capital stock attributable to the new shares
issued from this Authorized Capital III together with new
shares from contingent capital and treasury shares issued or
transferred for the purposes of satisfying subscription rights
does not amount to more than 10% of the capital stock at the
time of adoption of the authorization. |
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More information regarding our
authorized and contingent capital is included in Note 21 in
Item 18. Financial Statements.
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Capital Reduction. The share capital may be reduced by an
amendment of the Articles of Incorporation approved by 75% of
the issued shares present at the Annual General
Shareholders Meeting. |
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Preemptive Rights. Shareholders have preemptive rights to
subscribe (Bezugsrecht) for any issue of additional
shares in proportion to their shareholdings in the issued
capital. The preemptive rights may be excluded under certain
circumstances by a shareholders resolution (approved by
75% of the issued shares present at the Annual General
Shareholders Meeting) or by the Executive Board authorized
by such shareholders resolution and subject to the consent
of the Supervisory Board. |
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Liquidation. If SAP AG were to be liquidated, any
liquidation proceeds remaining after all of our liabilities were
paid would be distributed to our shareholders in proportion to
their shareholdings. |
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No Limitation on the Right to Own Securities, including on
Foreign Ownership. With the exception of buying back
treasury stock by a stock corporation, which is limited to 10%
of the share capital, there are no limitations under German law
or in SAP AGs Articles of Incorporation on the right to
own securities, including on the right of persons who are not
citizens or residents of Germany to hold or vote ordinary shares. |
No authorization to increase capital stock was exercised in
fiscal year 2005.
In October 2005, we announced the plan to propose a change to
our share capital in 2006. The transaction would be structured
for German corporate law purposes as an increase in subscribed
capital from corporate funds pursuant to which each shareholder
will receive three additional shares (bonus shares/
dividend stock) for each existing SAP share held. No
new capital is being raised through this transaction. The
Executive Board proposal was approved by the Supervisory Board
and will be submitted for approval at the Annual General
Shareholders Meeting on May 9, 2006.
If shareholders approve the capital increase at the May 2006
Annual General Shareholders Meeting and the resolution
adopted is registered in the commercial register, the number of
shares held will increase fourfold. Total shareholders
equity will not be affected since this measure simply involves a
shift between individual components of shareholders
equity. The subscribed capital will rise to around
1,266 million
from around
316 million
at present. The number of SAPs outstanding shares, which
are all no-par value shares, will rise accordingly.
If the capital increase proposal is approved by SAP shareholders
and the resolution adopted is registered in the commercial
register, each SAP ADS will represent one SAP ordinary share
rather than one quarter of one ordinary share after giving
effect to the transaction. As a result of the capital increase,
SAPs stock exchange quotations on the German stock markets
will be reduced to one quarter of the current quotation, while
the quotation on the NYSE will remain unchanged.
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In order to preserve the economic value of Authorized Capitals I
and II following the capital increase, two proposals to create
Authorized Capital Ia and IIa will also be on the agenda at the
upcoming May 2006 Annual General Shareholders Meeting.
Authorized Capital Ia is proposed to supplement Authorized
Capital I up to a sum of
180 million
until May 8, 2011, and Authorized Capital IIa is
proposed to supplement Authorized Capital II, up to a sum
of
180 million
until May 8, 2011, in each case subject to equivalent terms
and conditions as set out for Authorized Capital I and II,
respectively.
According to the German stock corporation law, the rights of
shareholders can not be amended without shareholders
consent. The Articles of Incorporation do not provide more
stringent conditions than are required by German law.
Voting Rights.
Each ordinary share represents one vote. Cumulative voting is
not permitted under German law. SAP AGs Articles of
Incorporation provide that resolutions are passed at general
shareholders meetings by the majority as required by law.
This means that resolutions could be passed by a majority of
votes cast, unless the law requires a higher vote. Additionally,
German law requires that the following matters, among others, be
approved by the affirmative vote of 75% of the issued shares
present at the general shareholders meeting at which the
matter is proposed:
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changing the objectives provision in the articles of
incorporation; |
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capital increases and capital decreases; |
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excluding preemptive rights of shareholders to subscribe for new
shares; |
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dissolution; |
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a merger into, or a consolidation with, another company; |
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a transfer of all or virtually all of the assets; and |
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a change of corporate form. |
Change in Control.
There are no provisions in the Articles of Incorporation of SAP
AG that would have an effect of delaying, deferring or
preventing a change in control of SAP AG and that would only
operate with respect to a merger, acquisition or corporate
restructuring involving it or any of its subsidiaries.
On January 1, 2002, the German Securities Purchase and
Takeover Act (Wertpapiererwerbs-und Übernahmegesetz)
became effective. It requires, among other things, that a bidder
seeking control of a company with its corporate seat in Germany
and traded on a European Union stock exchange must publish
advance notice of a tender offer, submit a draft offer statement
to the Financial Supervisory Authority (Bundesanstalt
für Finanzdienstleistungsaufsicht) for review, and
obtain certification from a qualified financial institution that
adequate financing is in place to complete the offer. Once a
bidder has acquired shares representing 30% of the voting power
of the target company, it must make an offer for all remaining
shares. The Securities Purchase and Takeover Act requires the
executive board of the target company to refrain from taking any
measures that may frustrate the success of the takeover offer.
However, the target executive board is permitted to take any
action that a prudent and diligent management of a company that
is not the target of a takeover bid would also take. Moreover,
the target executive board may search for other bidders and,
with the prior approval of the supervisory board, may take other
defensive measures, provided that both boards act within the
parameters of their general authority under the German Stock
Corporation Act. An executive board may also adopt specific
defensive measures if such measures have been approved by the
supervisory board and were
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specifically authorized by the shareholders no later than
eighteen months in advance of a takeover bid by resolution of
75% of the votes cast.
Disclosure of Share Holdings.
SAP AGs Articles of Incorporation do not require
shareholders to disclose their share holdings. The Securities
Trading Act (Wertpapierhandelsgesetz), however, requires
holders of voting securities of SAP AG to notify SAP AG and the
Financial Supervisory Authority of the number or shares they
hold if that number reaches, exceeds of falls below specified
thresholds. These thresholds are 5%, 10%, 25%, 50% and 75% of
the corporations outstanding voting rights.
Currency Conversion Dividends
See Item 3. Key Information
Dividends and Item 8. Financial
Information Dividend Policy.
MATERIAL CONTRACTS
This section provides a summary of all material contracts not in
the ordinary course of business to which we are a party and that
have been entered into during the fiscal year ended
December 31, 2004. We did not enter into any such contracts
for the fiscal year ended December 31, 2005.
Credit Facility Agreement
On November 5, 2004, we entered into a Syndicated
Multicurrency Revolving Credit Facility Agreement with an
initial term of 5 years (the Credit Agreement)
among SAP; the lenders named in the Credit Agreement; ABN AMRO
Bank N.V., BNP Paribas, Deutsche Bank AG and J.P. Morgan
plc as Mandated Lead Arrangers; and ABN AMRO N.V. London Branch
as Agent (the Agent).
Under the Credit Agreement, we may borrow up to
1,000,000,000,
and amounts borrowed and prepaid as described below may be
reborrowed. We are required to pay a commitment fee of
0.07% per annum on unused amounts of the available credit.
The use of the Credit Agreement is not restricted by any
financial covenants.
Any borrowings will bear interest at a rate per annum equal to
the percentage rate per annum which is the aggregate of
(1) 0.20 percent per annum; (2) the European interbank
offered rate in relation to any loan in euro or the London
interbank offered rate in relation to any loan in any currency
other than euro; and (3) the percentage rate per annum
calculated by the Agent in accordance with Schedule 4 to
the Credit Agreement, if applicable. Interest is due on the last
day of each applicable interest rate period and, if the interest
rate period has a duration longer than six months, the business
day that occurs every six months after the start of the
applicable interest period.
We may prepay at any time, at our option, in whole or in part
(but not less than
20,000,000 at
any time) any outstanding borrowings plus accrued interest upon
up to five business days notice to the Agent. We are
required to pay any related breakage costs in connection with
prepaying.
The Credit Agreement contains representations customary for
credit facilities of this nature, including accuracy of
financial statements; enforceability of the Credit Agreement
documentation; no material adverse change since
December 31, 2003, the date of SAPs audited financial
statements provided in connection with its Annual Report for the
2003 fiscal year on
Form 20-F; absence
of material litigation; no violation of laws or material
agreements; power and authority to enter into Credit Agreement
documentation and the related borrowings; and material accuracy
of information.
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The Credit Agreement also contains certain events of default
customary for credit facilities of this nature, including
non-payment of principal or interest when due; breach of
covenants; material incorrectness of representations when made;
bankruptcy and insolvency; and cross-default of other material
indebtedness. If any of these events of default occur and are
not cured within applicable grace periods or waived, the Agent
shall at the request, or may with the consent, of the lenders
owed a majority of the then aggregate unpaid principal amount of
the borrowings declare all amounts under the Credit Agreement
immediately due and payable.
As of December 31, 2005, SAP has not made any borrowings
under the facility.
This description is a summary of the Credit Agreement and is
qualified in its entirety by the Credit Agreement, which is
filed as Exhibit 4.11 to the Annual Report on
Form 20-F for the
fiscal year ended December 31, 2004.
In addition, please see Note 34 in Item 18.
Financial Statements for a summary of contracts with
certain of our related parties.
We do not believe that any one particular contract, if
terminated, would have a material adverse effect on our
business, results of operations, financial condition or cash
flows.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS
The euro is a fully convertible currency. At the present time,
Germany does not restrict the export or import of capital,
except for investments in certain areas in accordance with
applicable resolutions adopted by the United Nations and the
European Union. However, for statistical purposes only, every
individual or corporation residing in Germany
(Resident) must report to the German Central Bank
(Deutsche Bundesbank), subject only to certain immaterial
exceptions, any payment received from or made to an individual
or a corporation residing outside of Germany
(Non-Resident) if such payment exceeds
12,500 (or the
equivalent in a foreign currency). In addition, German Residents
must report any claims against or any liabilities payable to
Non-Residents if such claims or liabilities, in the aggregate,
exceed
5 million
(or the equivalent in a foreign currency) at the end of any
calendar month. Residents are also required to report annually
to the German Central Bank any shares or voting rights of 10% or
more which they hold directly or indirectly in non-resident
corporations with total assets of more than
3 million.
Corporations residing in Germany with assets in excess of
3 million
must report annually to the German Central Bank any shares or
voting rights of 10% or more held directly or indirectly by a
Non-Resident. For a discussion of the treatment of remittance of
dividends, interest or other payments to Non-Resident holders of
ADSs or ordinary shares, see below
Taxation German Taxation of
Holders of ADSs or Ordinary Shares.
There are no limitations imposed by German law or the Articles
of Incorporation of SAP AG on the right of non-residents or
foreign holders to hold the ADSs or ordinary shares or to
receive dividends or other payments on such shares.
TAXATION
General
The following discussion summarizes certain German tax and
U.S. federal income tax consequences of the acquisition,
ownership and disposition of ADSs or ordinary shares. Although
the following discussion does not purport to describe all of the
tax considerations that may be relevant to a prospective
purchaser of ADSs or ordinary shares, such discussion:
(i) summarizes the material German tax consequences to a
holder of ADSs or ordinary shares, and (ii) summarizes
certain material U.S. federal income tax consequences to a
U.S. Holder (as hereinafter defined) of ADSs or ordinary
shares that is not resident (in the case of an individual) or
domiciled (in the case of a legal entity), as the case may be,
in Germany (in either case, referred
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to herein as not resident or as a
non-resident) and does not have a permanent
establishment or fixed base located in Germany through which
such ADSs or ordinary shares are held.
German Taxation of Holders of ADSs or Ordinary Shares
The following discussion generally summarizes the principal
German tax consequences of the acquisition, ownership and
disposition of ADSs or ordinary shares to a beneficial owner.
This summary is based on the laws that are in force at the date
of this Annual Report on
Form 20-F and is
subject to any changes in German law, or in any applicable
double taxation conventions to which Germany is a party,
occurring after such date. This discussion is also based, in
part, on representations of the Depositary and assumes that each
obligation of the Deposit Agreement and any related agreements
will be performed in accordance with its terms.
The following discussion is not a complete analysis or listing
of all potential German tax consequences to holders of ADSs or
Ordinary Shares and does not address all tax considerations that
may be relevant to all categories of potential purchasers or
owners of ADSs or ordinary shares. In particular, the following
discussion does not address the tax consequences for: (i) a
person that owns, directly or indirectly, 1% or more of SAP
AGs shares; (ii) a holding which forms part of a
German permanent establishment of a person not resident in
Germany; or (iii) a person that is resident in Germany and
at the same time resident in another country.
OWNERS AND PROSPECTIVE PURCHASERS OF ADSs OR ORDINARY SHARES ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE OVERALL
GERMAN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION THEREOF.
For purposes of applying German tax law and the double taxation
conventions to which Germany is a party, a holder of ADSs will
generally be treated as owning the ordinary shares represented
thereby.
German Taxation of Dividends
With regard to the taxation of dividends, the half-income system
applies. Under this system only half of the distributed profits
of a corporation will be included in the personal income tax
base of an individual shareholder resident in Germany. It is not
possible to credit the corporation tax paid by the company
against the shareholders income tax. Effectively, a
portion of 95% of the dividends received by corporate
shareholders domiciled in Germany will be tax-exempt in order to
avoid double taxation. These rules have some exceptions, which
especially apply to financial and certain insurance institutions.
Based on these considerations the German taxation of dividends
can be summarized as follows:
Under German domestic income tax laws, German corporations are
required to withhold tax on dividends in an amount equal to 20%
of the gross amount paid to resident and non-resident
shareholders. As the basis for deduction of the withholding tax
is the gross amount, withholding tax will be deducted on the
taxable and tax-exempt portion of the dividend received. A 5.5%
solidarity surtax on the German withholding tax is currently
levied on dividend distributions paid by a German corporation,
such as SAP AG. The solidarity surtax equals 1.1% (5.5% of 20%)
of the gross amount of a cash dividend. Certain persons resident
in Germany (e.g., qualifying investment funds or
tax-exempt organizations) may obtain a partial or full refund of
such taxes.
For an individual holder of ADSs or ordinary shares that is
resident in Germany, according to German income tax law, half of
the dividends received (which in the case of ADSs are calculated
as one-fourth of the dividend on one SAP AG ordinary share and
are dependent on the euro/dollar exchange rate at the time of
payment) are subject to German income tax. For such a holder,
the taxable amount will be the sum of: (i) half of the cash
payment by SAP AG and (ii) half of the taxes withheld. For
a corporate holder of ADSs or ordinary shares that is domiciled
in Germany, according to German income tax law, dividends in
principle
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are exempt from corporation tax. However, a portion of 5% of the
dividends received is treated as non deductible expenses.
Therefore, effectively a portion of 95% of dividends received by
a corporate holder of ADSs or ordinary shares that is resident
in Germany is exempt and a portion of 5% of the dividends
received is subject to corporation tax. These rules as regards
the (partial) exemption for dividends from corporation tax
have some exceptions, which especially apply to financial and
certain insurance institutions.
Subject to certain conditions, the tax withheld on the gross
amount will be eligible for credit against the holders
income tax or corporation tax liability. Exceeding amounts are
refunded upon filing and assessment of the tax return. For
holders subject to German trade tax, such tax is imposed in
general only on the amount of the dividends received, which is
subject to income tax or corporation tax. On the portion of the
dividends received which is exempt from income tax or
corporation tax, trade tax will become due if the holder of ADSs
or ordinary shares does not own at least 10% of the shares in
the distributing corporation at the beginning of the tax year.
Refund of German Tax to U.S. Holders
A partial refund of the 20% withholding tax equal to 5% of the
gross amount of the dividend and a full refund of the solidarity
surtax can be obtained by a U.S. Holder (as hereinafter
defined) under the
U.S.-German income tax
treaty (Convention between the Federal Republic of Germany and
the United States of America for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with respect to
taxes on Income, German Federal Law Gazette 1991 II
page 355) (the Treaty). Thus, for each U.S.$100
of gross dividends paid by SAP AG to a U.S. Holder, the
dividends after partial refund of the 20% withholding tax and a
refund of the solidarity surtax under the Treaty will be subject
to a German withholding tax of U.S.$15.
To claim the refund of amounts withheld in excess of the Treaty
rate, a U.S. Holder must submit (either directly or, as
described below, through the Depositary) a claim for refund to
the German tax authorities, with, in the case of a direct claim,
the original bank voucher (or certified copy thereof) issued by
the paying entity documenting the tax withheld, within four
years from the end of the calendar year in which the dividend is
received. Claims for refund are made on a special German claim
for refund form, which must be filed with the German tax
authorities: Bundeszentralamt für Steuern, D-53221 Bonn,
Germany; http://www.bzst.bund.de/. The German claim for refund
form may be obtained from the German tax authorities at the same
address where applications are filed, or from the Embassy of the
Federal Republic of Germany, 4645 Reservoir Road, N.W.,
Washington, D.C. 20007.
U.S. Holders must also submit to the German tax authorities
certification (IRS Form 6166) of their U.S. residency
status. Certification is obtained from the office of the
Director of the Internal Revenue Service Center by filing a
request for certification with the Internal Revenue Service
(IRS), Philadelphia Service Center,
U.S. Residency Certification Request, P.O. Box 16347,
Philadelphia, PA 19114-0447. Requests for certification are to
be made by filing Form 8802 Application for United States
Residency Certification.
In accordance with arrangements under the Deposit Agreement, the
Depositary (or a custodian as its designated agent) holds the
ordinary shares and receives and distributes dividends to the
U.S. Holders. The Depositary has agreed, to the extent
practicable, to perform administrative functions necessary to
obtain the refund of amounts withheld in excess of the Treaty
rate for the benefit of U.S. Holders who supply the
necessary documentation.
Under the Deposit Agreement, the Depositary has agreed to send
to the U.S. Holders of ADSs a notice explaining how to
claim a refund, the form required to obtain the IRS
Form 6166 certification and the German claim for refund
form. The notice will describe how to obtain the certification
on IRS Form 6166. In order to claim a refund, the
U.S. Holder should deliver the certification provided to it
by the IRS to the Depositary along with the completed claim for
refund form. In the case of ADSs held through a broker or other
financial intermediary, the required documentation should be
delivered to such broker or financial intermediary for
forwarding to the Depositary. In all other cases, the
U.S. Holders should deliver the required
113
documentation directly to the Depositary. The Depositary will
file the required documentation with the German tax authorities
on behalf of the U.S. Holders.
The German tax authorities will issue the refunds, which will be
denominated in euro, in the name of the Depositary. The
Depositary will convert the refunds into dollars and issue
corresponding refund checks to the U.S. Holders or their
brokers.
Refund of German Tax to Holders of ADSs or Ordinary Shares in
Other Countries
A holder of ADSs or ordinary shares resident in a country other
than Germany or the U.S. that has a double taxation
convention with Germany may obtain a full or partial refund of
German withholding taxes. Rates and procedures may vary
according to the applicable treaty. For details, such holders
are urged to consult their own tax advisors.
Taxation of Capital Gains
Half of a capital gain derived from the sale or other
disposition by an individual holder resident in Germany of ADSs
or ordinary shares is subject to income tax if the ADSs or
ordinary shares are held as part of his or her trade or business
or if the ADSs or ordinary shares held as part of his or her
private assets are sold within a period of one year after
acquisition. According to the coalition agreement reached
between the political parties of the German federal government
the one year period shall be abolished and a general capital
gains tax for privately held shares shall be introduced. The
details of such proposed change still need to be determined. In
particular, the coalition agreement does not contain an
effective date for such change which is not expected to take
place before January 1, 2007.
A capital gain derived from the sale or other disposition by a
corporate holder domiciled in Germany of ADSs or ordinary shares
in principle is exempt from corporation tax. However, a portion
of 5% of a capital gain derived is treated as non-deductible
business expenses. Therefore, effectively a portion of 95% of a
capital gain derived from the sale or other disposition by a
corporate holder domiciled in Germany of ADSs or ordinary shares
is exempt and a portion of 5% of a capital gain derived is
subject to corporation tax. These rules as regards the
(partial) exemption from corporation tax have some
exceptions, which especially apply to financial and certain
insurance institutions.
Special rules apply for individual and corporate holders
resident in Germany if the shares have been received in the
course of a tax-exempt reorganization.
For holders subject to German trade tax, such tax is imposed in
general only on the portion of the capital gain, which is
subject to income tax or corporation tax.
The above mentioned half-income system therefore in principle
does apply to the income taxation of both dividends and capital
gains.
A holder resident or domiciled in a country other than Germany
is generally not subject to German income or corporation tax on
the capital gain derived from the sale or other disposition of
ADSs or ordinary shares.
Other German Taxes
There are no German net worth, transfer, stamp or similar taxes
on the holding, purchase or sale of ADSs or ordinary shares.
114
German Estate and Gift Taxes
A transfer of ADSs or ordinary shares by gift or by reason of
death of a holder will be subject to German gift or inheritance
tax, respectively, if one of the following persons is resident
in Germany: the donor or transferor or his or her heir, or the
donee or other beneficiary. If one of the aforementioned persons
is resident in Germany and another is resident in a country
having a treaty with Germany, regarding gift or inheritance
taxes, different rules may apply. If none of the aforementioned
persons is resident in Germany, the transfer is not subject to
German gift or inheritance tax. For persons giving up German
residence, special rules apply during the first five years, and
under specific circumstances, during the first ten years, after
the end of the year in which the person left Germany. In
general, in the case of a U.S. Holder, a transfer of ADSs
or ordinary shares by gift or by reason of death that would
otherwise be subject to German gift or inheritance tax,
respectively, will not be subject to such German tax by reason
of the U.S.-German
estate tax treaty (Convention between the Federal Republic of
Germany and the United States of America for the Avoidance of
Double Taxation with respect to Estate, Gift and Inheritance
Taxes, German Federal Law Gazette 1982 II page 847,
amended by the Protocol of September 15, 2000, German
Federal Law Gazette 2000 II, page 1170 and as
published on December 21, 2000, German Federal Law Gazette
2001 II, page 65) (the Estate Tax Treaty)
unless the donor or transferor, or the heir, donee or other
beneficiary, is domiciled in Germany for purposes of the Estate
Tax Treaty between the United States and Germany at the time of
the making of the gift or at the time of the donors or
transferors death.
In general, the Estate Tax Treaty provides a credit against
U.S. federal estate and gift tax liability for the amount
of inheritance and gift tax paid in Germany, subject to certain
limitations, in a case where the ADSs or ordinary shares are
subject to German inheritance or gift tax and U.S. federal
estate or gift tax.
U.S. Taxation of U.S. Holders of Ordinary Shares or
ADSs
The following discussion generally summarizes certain
U.S. federal income tax consequences of the acquisition,
ownership and disposition of ADSs or ordinary shares to a
beneficial owner: (i) who is an individual citizen or
resident of the U.S. or a corporation organized under the
laws of the U.S. or any political subdivision thereof, an
estate whose income is subject to U.S. federal income tax
regardless of its source or a trust, if a U.S. court can
exercise primary supervision over its administration and one or
more U.S. persons are authorized to control all substantial
decisions of the trust; (ii) who is not resident in Germany
for German tax purposes; (iii) whose holding of ADSs or
ordinary shares does not form part of the business property or
assets of a permanent establishment or fixed base in Germany;
and (iv) who is fully entitled to the benefits of the
Treaty in respect of such ADSs or ordinary shares (a
U.S. Holder).
This summary deals only with ADSs and ordinary shares that are
held as capital assets and does not address tax considerations
applicable to U.S. Holders that may be subject to special
tax rules, such as dealers or traders in securities, financial
institutions, insurance companies, tax-exempt entities,
regulated investment companies, U.S. Holders that hold
ordinary shares or ADSs as a part of a straddle, conversion
transaction or other arrangement involving more than one
position, U.S. Holders that own (or are deemed for
U.S. tax purposes to own) 10% or more of the total combined
voting power of all classes of voting stock of SAP AG,
U.S. Holders that have a principal place of business or
tax home outside the U.S. or U.S. Holders
whose functional currency is not the dollar and
U.S. Holders that hold ADSs or ordinary shares through
partnerships or other pass-through entities.
The discussion below is based upon the U.S. Internal
Revenue Code of 1986, as amended (the Code), the
Treaty and regulations, rulings and judicial decisions there
under at the date of this Annual Report on
Form 20-F. Any
such authority may be repealed, revoked or modified, perhaps
with retroactive effect, so as to result in U.S. federal
income tax consequences different from those discussed below. No
assurance can be given that the conclusions set out below would
be sustained by a court if challenged by the IRS. The
115
discussion below is based, in part, on representations of the
Depositary, and assumes that each obligation in the Deposit
Agreement and any related agreements will be performed in
accordance with its terms.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A SUMMARY OF
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN ADSs OR ORDINARY SHARES. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE APPLICATION TO
THEIR PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED
BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL OR FOREIGN TAX
LAW. THE STATEMENTS OF U.S. TAX LAW SET OUT BELOW ARE BASED
ON THE LAWS IN FORCE AND INTERPRETATIONS THEREOF AT THE DATE OF
THIS ANNUAL REPORT ON FORM 20-F AND ARE SUBJECT TO ANY CHANGES
OCCURRING AFTER THAT DATE.
For U.S. federal income tax purposes, a U.S. Holder of
ADSs will be considered to own the ordinary shares represented
thereby. Accordingly, unless the context otherwise requires, all
references in this section to ordinary shares are deemed to
refer likewise to ADSs representing an ownership interest in
ordinary shares.
Distributions
Subject to the discussion below under Passive Foreign
Investment Company Considerations, distributions made by
SAP AG with respect to ordinary shares (other than distributions
in liquidation and certain distributions in redemption of
stock), including the amount of German tax deemed to have been
withheld in respect of such distributions, will be taxed to
U.S. Holders as ordinary dividend income to the extent that
such distributions do not exceed the current and accumulated
earnings and profits of SAP AG as computed for U.S. federal
income tax purposes. As discussed above, a U.S. Holder may
obtain a refund of German withholding tax to the extent that the
German withholding tax exceeds 15% of the amount of the
associated distribution. For example, if SAP AG distributes a
cash dividend equal to U.S.$100 to a U.S. Holder, the
distribution currently will be subject to German withholding tax
of U.S.$20 plus U.S.$1.10 surtax, and the U.S. Holder will
receive U.S.$78.90. If the U.S. Holder obtains the Treaty
refund, he will receive an additional U.S.$6.10 from the German
tax authorities. For U.S. tax purposes, such
U.S. Holder will be considered to have received a total
distribution of U.S.$100, which will be deemed to have been
subject to German withholding tax of U.S.$15 (15% of U.S.$100)
resulting in the net receipt of U.S.$85. Distributions, if any,
in excess of SAP AGs current and accumulated earnings and
profits will constitute a non-taxable return of capital to a
U.S. Holder and will be applied against and reduce the
U.S. Holders tax basis in his or her ordinary shares.
To the extent that such distributions exceed the tax basis of
the U.S. Holder in his or her ordinary shares, the excess
generally will be treated as capital gain.
In the case of a distribution in euro, the amount of the
distribution generally will equal the dollar value of the euro
distributed (determined by reference to the spot currency
exchange rate on the date of receipt of the distribution
(receipt by the Depositary in the case of a distribution on
ADSs)), regardless of whether the holder in fact converts the
euro into dollars, and the U.S. Holder will not realize any
separate foreign currency gain or loss (except to the extent
that such gain or loss arises on the actual disposition of
foreign currency received).
Dividends paid by SAP AG generally will constitute
portfolio income for purposes of the limitations on
the use of passive activity losses (and, therefore, generally
may not be offset by passive activity losses) and as
investment income for purposes of the limitation on
the deduction of investment interest expense. Dividends paid by
SAP AG will not be eligible for the dividends received deduction
generally allowed to U.S. corporations under
Section 243 of the Code. Dividends paid by SAP AG after
December 31, 2002 are treated as qualified dividends
subject to capital gains rates as provided by the Jobs and
Growth Tax Reconciliation Act of 2003.
116
Under certain circumstances, a U.S. Holder may be deemed to
have received a distribution for U.S. federal income tax
purposes upon an adjustment, or the failure to make an
adjustment, to the conversion price of the 1994 Bonds.
Sale or Exchange
In general, assuming that SAP AG at no time is a passive foreign
investment company, upon a sale or exchange of ordinary shares
to a person other than SAP AG, a U.S. Holder will recognize
gain or loss in an amount equal to the difference between the
amount realized on the sale or exchange and the
U.S. Holders adjusted tax basis in the ordinary
shares. Such gain or loss will be capital gain or loss and will
be long-term capital gain (taxable at a reduced rate for
individuals) if the ordinary shares were held for more than one
year. The deductibility of capital losses is subject to
significant limitations. Upon a sale of ordinary shares to SAP
AG, a U.S. Holder may recognize capital gain or loss or,
alternatively, may be considered to have received a distribution
with respect to the ordinary shares, in each case depending upon
the application to such sale of the rules of Section 302 of
the Code.
Deposit and withdrawal of ordinary shares in exchange for ADSs
by a U.S. Holder will not result in its realization of gain
or loss for U.S. federal income tax purposes.
Foreign Tax Credit
In general, in computing its U.S. federal income tax
liability, a U.S. Holder may elect for each taxable year to
claim a deduction or, subject to the limitations on foreign tax
credits generally, a credit for foreign income taxes paid or
accrued by it. For U.S. foreign tax credit purposes,
subject to the applicable limitations under the foreign tax
credit rules, the 15% German tax that is treated as having been
withheld from dividends paid to a U.S. Holder will be
eligible for credit against the U.S. Holders federal
income tax liability. Thus, in the numerical example set out
above, a U.S. Holder who receives a cash distribution of
U.S.$85 from SAP AG (U.S.$100 of the initial distribution net of
U.S.$20 of German withholding tax and U.S.$1.10 of surtax plus
the Treaty refund of U.S.$6.10) will be treated as having been
subject to German withholding tax in the amount of U.S.$15 (15%
of U.S.$100) and will be able to claim the U.S. foreign tax
credit, subject to applicable foreign tax credit limitations, in
the amount of U.S.$15.
For U.S. foreign tax credit purposes, dividends paid by SAP
AG generally will be treated as foreign-source income. For tax
years beginning before January 1, 2007, dividends paid by
SAP AG will be treated as passive income (or in the
case of certain holders, as financial services
income) and, for tax years beginning after
December 31, 2006, dividends paid by SAP AG will be treated
as passive category income (or in the case of
certain holders, as general category income). Gains
or losses realized by a U.S. Holder on the sale or exchange
of ordinary shares generally will be treated as
U.S.-source gain or
loss.
The availability of foreign tax credits depends on the
particular circumstances of each U.S. Holder.
U.S. Holders are advised to consult their own tax advisors.
Passive Foreign Investment Company Considerations
Classification as a PFIC. Special and adverse U.S. tax
rules apply to a U.S. Holder that holds an interest in a
passive foreign investment company (a
PFIC). In general, a PFIC is any
non-U.S. corporation,
if (i) 75% or more of the gross income of such corporation
for the taxable year is passive income (the income
test) or (ii) the average percentage of assets (by
value) held by such corporation during the taxable year that
produce passive income (e.g., dividends, interest,
royalties, rents and annuities) or that are held for the
production of passive income is at least 50% (the asset
test). A corporation that owns, directly or indirectly, at
least 25% by value of the stock of a second corporation must
take into account its proportionate share of the second
corporations income and assets in applying the income test
and the asset test.
117
Based on current projections concerning the composition of SAP
AGs income and assets, SAP AG does not believe that it
will be treated as a PFIC for its current or future taxable
years. However, because this conclusion is based on our current
projections and expectations as to its future business activity,
SAP AG can provide no assurance that it will not be treated as a
PFIC in respect of its current or any future taxable years.
Consequences of PFIC Status. If SAP AG is treated as a PFIC for
any taxable year during which a U.S. Holder holds ordinary
shares, then, subject to the discussion of the qualified
electing fund (QEF) and
mark-to-market
rules below, such U.S. Holder generally will be subject to
a special and adverse tax regime with respect to any gain
realized on the disposition of the ordinary shares and with
respect to certain excess distributions made to it
by SAP AG. The adverse tax consequences include taxation of such
gain or excess distribution at ordinary-income rates and payment
of an interest charge on tax, which is deemed to have been
deferred with respect to such gain or excess distributions.
Under the PFIC rules, excess distributions include dividends or
other distributions received with respect to the ordinary
shares, if the aggregate amount of such distributions in any
taxable year exceeds 125% of the average amount of distributions
from SAP AG made during a specified base period.
In some circumstances, a U.S. Holder may avoid certain of
the unfavorable consequences of the PFIC rules by making a QEF
election in respect of SAP AG. A QEF election effectively would
require an electing U.S. Holder to include in income
currently its pro rata share of the ordinary earnings and
net capital gain of SAP AG. However, a U.S. Holder cannot
elect QEF status with respect to SAP AG unless SAP AG complies
with certain reporting requirements and there can be no
assurance that SAP AG will provide such information.
A U.S. Holder that holds marketable stock in a
PFIC may, in lieu of making a QEF election, also avoid certain
unfavorable consequences of the PFIC rules by electing to mark
the PFIC stock to market at the close of each taxable year. SAP
AG expects that the ordinary shares will be
marketable for this purpose. A U.S. Holder that
makes the
mark-to-market election
will be required to include in income each year as ordinary
income an amount equal to the excess, if any, of the fair market
value of the stock at the close of the year over the
U.S. Holders adjusted tax basis in the stock. If, at
the close of the year, the U.S. Holders adjusted tax
basis exceeds the fair market value of the stock, then the
U.S. Holder may deduct any such excess from ordinary
income, but only to the extent of net
mark-to-market gains
previously included in income. Any gain from the actual sale of
the PFIC stock will be treated as ordinary income, and any loss
will be treated as ordinary loss to the extent of net
mark-to-market gains
previously included in income.
Taxation of Holders of ADSs or Ordinary Shares in Other Countries
HOLDERS OR POTENTIAL HOLDERS OF ADSs OR ORDINARY SHARES WHO ARE
RESIDENT OR OTHERWISE TAXABLE IN COUNTRIES OTHER THAN GERMANY
AND THE U.S. ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE OVERALL TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.
DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with
these requirements, we file reports and other information as a
foreign private issuer with the SEC. These materials, including
this Annual Report on
Form 20-F and the
exhibits thereto, may be inspected and copied at the SECs
Public Reference Room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Copies of the materials may be
obtained from the Public Reference Room of the SEC at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549 at
prescribed rates. The public may obtain information on the
operation of the SECs Public Reference Room by calling the
SEC in the U.S. at 202-942-4320. The SEC also maintains a
Web site at www.sec.gov that contains reports, proxy statements
and other information regarding registrants that file
electronically with the SEC. Our annual report and some of the
other information
118
submitted by us to the SEC may be accessed through this Web
site. In addition, material filed by SAP can be inspected at the
offices of the New York Stock Exchange at 20 Broad Street,
New York, New York 10005.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
To ensure the adequacy and effectiveness of our foreign exchange
hedge positions, and to monitor the risks and opportunities of
our non-hedge portfolios, we continually monitor our foreign
forward and option positions. In addition, we monitor our
interest rate exposure, if any, both on a stand-alone basis and
in conjunction with our underlying foreign currency risk, from
an economic and an accounting perspective. However, there can be
no assurance that the programs described below with respect to
the management of currency exchange and interest rate risk will
offset more than a portion of the adverse financial impact
resulting from unfavorable movements in either the foreign
exchange rates or interest rates. In addition, we have entered
into in the past, and expect to enter into in the future,
derivative instruments to hedge all or a portion of the
anticipated cash flows in connection with our stock appreciation
rights plan (STAR Plan) in the event cash payments to
participants are required as a result of an increase in the
market price of the ordinary shares. There can be no assurance
that the benefits achieved from hedging our STAR Plans exceed
the related costs.
FOREIGN CURRENCY RISK
Most of SAP AGs subsidiaries have entered into license
agreements with SAP AG pursuant to which the subsidiary has
acquired the right to sublicense SAP software products to
customers within a specific territory. Under these license
agreements, the subsidiaries generally are required to pay SAP
AG a royalty equivalent to a percentage of the product fees
charged by them to their customers within 30 days following
the end of the month in which the subsidiary recognizes the
revenue. These intercompany royalties payable to SAP AG are
generally denominated in the respective subsidiarys local
currency in order to centralize foreign currency risk with SAP
AG in Germany. In certain countries, subsidiaries submit
royalties to SAP AG in U.S.$. Because these royalties are
denominated in the local currencies of the various subsidiaries
or U.S. dollars, whereas the functional currency of SAP AG
is the euro, SAP AGs anticipated cash flows are subject to
foreign currency exchange risks. In addition, the delay between
the date when the subsidiary records revenue and the date when
the subsidiary remits payment to SAP AG also exposes us to
foreign exchange risk. See Item 5. Operating and
Financial Review and Prospects Foreign Currency
Exchange Rate Exposure.
We enter into derivative instruments, primarily foreign exchange
forward contracts and currency options, to hedge anticipated
cash flows in foreign currencies from foreign subsidiaries.
Specifically, these foreign exchange forward contracts offset
anticipated cash flows and existing intercompany receivables
relating to the countries with significant operations, including
the United States, Japan, the United Kingdom, Switzerland,
Canada and Australia. We use foreign exchange derivatives that
generally have maturities of twelve months or less, which may be
rolled over to provide continuing coverage until the applicable
royalties are received.
Generally, anticipated cash flows represent expected
intercompany amounts resulting from revenues generated within
the next twelve months following the purchase date of the
derivative instrument. However, we infrequently extend the
future periods being hedged for a period of up to two years from
the purchase date of the derivative instrument based on our
forecasts and anticipated exchange rate fluctuations in various
currencies.
119
The table below provides information about the derivative
financial instruments we have entered into that are sensitive to
foreign currency exchange rates. The table presents fair values,
notional amounts (at the contract exchange rates) and the
respective weighted average contractual foreign currency
exchange rates. The fair values do not reflect any foreign
exchange gains or losses on the underlying intercompany
receivables and payables. In addition, the table below does not
include foreign currency risks associated with third-party
receivables and payables denominated in currencies other than
the functional currency of the reporting subsidiary. See our
consolidated financial statements included in
Item 18. Financial Statements for further
information on our foreign exchange derivative instruments.
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Contract | |
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Notional | |
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Amounts | |
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Expected | |
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Fair Value | |
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Weighted Average | |
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Maturity Date | |
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December 31, | |
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Contractual | |
Foreign Currency Risk |
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2006 | |
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2005(1) | |
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Exchange Rate | |
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| |
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| |
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(000) | |
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(000) | |
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Derivatives used to manage firm commitments
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Foreign Currency Forward Contracts
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|
|
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(Receive Local Currency, Sell euro)
|
|
|
|
|
|
|
|
|
|
|
|
|
Japanese Yen
|
|
|
157,018 |
|
|
|
(591 |
) |
|
|
136.9271 |
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Israeli Shekels
|
|
|
65,000 |
|
|
|
1074 |
|
|
|
5.5500 |
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Czech Korunas
|
|
|
12,000 |
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|
|
(9 |
) |
|
|
28.9810 |
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Mexican Pesos
|
|
|
10,093 |
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|
|
253 |
|
|
|
12.9100 |
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Swiss Francs
|
|
|
3,331 |
|
|
|
(47 |
) |
|
|
1.5313 |
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Singapore dollars
|
|
|
2,808 |
|
|
|
246 |
|
|
|
2.1365 |
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U.S. dollars
|
|
|
2,273 |
|
|
|
12 |
|
|
|
1.1878 |
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British Pounds
|
|
|
1,882 |
|
|
|
12 |
|
|
|
0.6908 |
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Canadian dollars
|
|
|
1,442 |
|
|
|
14 |
|
|
|
1.3869 |
|
Foreign Currency Forward Contracts
|
|
|
|
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|
|
|
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(Receive euro, Sell Local Currency)
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|
|
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|
|
|
|
|
|
|
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U.S. dollars
|
|
|
580,566 |
|
|
|
(20,539 |
) |
|
|
1.2340 |
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Israeli Shekels
|
|
|
65,000 |
|
|
|
(572 |
) |
|
|
5.5076 |
|
Canadian dollars
|
|
|
53,660 |
|
|
|
(1,520 |
) |
|
|
1.4143 |
|
Japanese Yen
|
|
|
25,985 |
|
|
|
1 |
|
|
|
138.5432 |
|
British Pounds
|
|
|
24,425 |
|
|
|
248 |
|
|
|
0.6796 |
|
Swiss Francs
|
|
|
11,036 |
|
|
|
25 |
|
|
|
1.5495 |
|
Australian dollars
|
|
|
4,863 |
|
|
|
(28 |
) |
|
|
1.6246 |
|
Singapore dollars
|
|
|
2,804 |
|
|
|
(250 |
) |
|
|
2.1400 |
|
Mexican Pesos
|
|
|
169 |
|
|
|
(4 |
) |
|
|
12.8975 |
|
Foreign Currency Forward Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
(Receive Canadian dollars, Sell U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
8,477 |
|
|
|
343 |
|
|
|
0.8595 |
|
Derivatives used to manage anticipated Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
(Receive euro, Sell Local Currency)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
246,727 |
|
|
|
(13,177 |
) |
|
|
1.2581 |
|
British Pounds
|
|
|
100,995 |
|
|
|
(539 |
) |
|
|
0.6966 |
|
Japanese Yen
|
|
|
75,175 |
|
|
|
1,952 |
|
|
|
133.2890 |
|
Swiss Francs
|
|
|
61,273 |
|
|
|
659 |
|
|
|
1.5268 |
|
Canadian dollars
|
|
|
57,832 |
|
|
|
(4,350 |
) |
|
|
1.4862 |
|
Australian dollars
|
|
|
39,135 |
|
|
|
(988 |
) |
|
|
1.6775 |
|
|
|
(1) |
Amounts included on SAPs consolidated balance sheet. |
120
INTEREST RATE RISK
In order to maintain a liquid portfolio, we invest cash
primarily in bank time deposits, notes and bonds, and fixed and
variable rate marketable debt securities. We have in the past
entered into, and in the future may enter into, interest rate
swaps to better manage the interest income on our cash
equivalents and marketable securities and to partially mitigate
the impact of interest rate fluctuations on these investments.
No interest rate swaps were outstanding as of December 31,
2005.
The table below presents principal (or notional) amounts (in
thousands of euro unless otherwise indicated), respective fair
values at December 31, 2005 and related weighted average
interest rates by year of maturity for SAPs investment
portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity Date | |
|
Fair Value | |
( (000), unless otherwise indicated) |
|
| |
|
December 31, | |
Marketable debt securities |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fixed rate
|
|
|
125,711 |
|
|
|
462,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,572 |
|
|
|
593,720 |
|
|
|
556,899 |
|
Average interest rate
|
|
|
2.76 |
% |
|
|
4.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.47 |
% |
|
|
|
|
|
|
|
|
Variable rate
|
|
|
13,509 |
|
|
|
23 |
|
|
|
40,037 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
73,569 |
|
|
|
73,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
139,220 |
|
|
|
462,460 |
|
|
|
40,037 |
|
|
|
20,000 |
|
|
|
|
|
|
|
5,572 |
|
|
|
667,289 |
|
|
|
630,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moreover, we held
910,850 thousand
in liquid investments with original maturities exceeding three
months. Since the remaining maturities of these investments are
below 12 months we do not face considerable interest rate
risk.
We have lines of credit available that allow us to borrow money
in the local currency. Interest under these lines of credit is
determined at the time of borrowing based on current market
rates. The table below presents principal amounts outstanding at
December 31, 2005 (in thousands of euro unless otherwise
indicated), and related weighted average interest rates or the
bank loans outstanding under lines of credit and overdrafts.
Because the majority of the maturities is short term and the
amounts borrowed are rolled over as necessary at current market
rates of interest at such time, fair values of bank loans and
overdrafts approximate carrying values.
|
|
|
|
|
Bank loans and overdrafts |
|
2005 | |
|
|
| |
Fixed rate bank loans
(000)
|
|
|
19,445 |
|
Average interest rate of fixed rate bank loans
|
|
|
7.22 |
% |
Overdrafts (000)
|
|
|
4,855 |
|
|
|
|
|
Total bank loans and overdrafts
|
|
|
24,300 |
|
|
|
|
|
EQUITY PRICE RISK
We are exposed to equity price risks on the marketable portion
of our equity securities. Our available-for-sale securities
include investments in the high-technology industry, which
historically have experienced high volatility. We typically do
not attempt to reduce or eliminate market exposure on these
securities.
We hold such equity securities purchased through our venture
operations and strategic global partnering programs. The purpose
of venture investments is to provide funding to companies that,
in the opinion of our management, have promising technologies.
The venture funding represents an equity investment, and/or
loans, and does not represent a commitment of further business
development initiatives by us. Investments made in conjunction
with strategic global partnering differ from those of the
venture operations since such investments are made in software
and service partners who are expected to complement our existing
or future product and/or service offerings. Frequently, SAP and
our partners may also enter into development or sublicense
agreements to further align the strategies of SAP and the
partner.
121
In many instances, we invest in privately held companies. Such
investments are recorded at cost and therefore do not expose us
to equity price risk as long as they are privately owned,
although such investments are subject to evaluation for
impairment. We recognized in financial income no net gains or
losses from the sale of marketable equity securities in 2005. In
2004 we had net gains of
14 million
resulting from this. In 2005, we recorded approximately
0.6 million
of gains from equity method investments due to the application
of the equity method of accounting and impairment charges of
4.0 million
for other equity securities due to an other-than-temporary
decline in fair value. In 2004, we recorded approximately
0.3 million
of losses from equity method investments due to the application
of the equity method of accounting and impairment charges of
5.1 million
for other equity securities due to an other-than-temporary
decline in fair value. There can be no assurance that changes in
market conditions, the performance of companies in which we hold
investments or other factors will not negatively impact our
ability to recognize gains from the sale of marketable equity
securities on conditions similar to those existing in 2005, or
will not result in the loss of amounts invested.
STAR Hedge
To a certain extent SAP hedges anticipated cash flow exposures
associated with unrecognized non-vested STARs (see Note 22
in Item 18. Financial Statements) through the
purchase of derivative instruments from an independent financial
institution. We are therefore further exposed to equity price
risks on SAP shares, which underlie those derivative instruments.
As of December 31, 2005 the following derivative
instruments were designated as a hedge for the STAR Plan 2005,
STAR Plan 2004 and STAR Plan 2003, respectively:
|
|
|
|
|
|
|
|
|
|
|
Hedge of 3.8 million 2005 STARs | |
|
|
| |
|
|
Number of call | |
|
|
Buy/sell |
|
options | |
|
Strike price | |
|
|
| |
|
| |
Buy
|
|
|
3,800,000 |
|
|
|
121.87 |
|
Sell
|
|
|
1,900,000 |
|
|
|
171.87 |
|
Sell
|
|
|
950,000 |
|
|
|
221.87 |
|
Fair value as of December 31, 2005 in
(000):
107,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge of 3.0 million 2004 STARs | |
|
|
| |
|
|
Number of call | |
|
|
Buy/sell |
|
options | |
|
Strike price | |
|
|
| |
|
| |
Buy
|
|
|
3,000,000 |
|
|
|
134.35 |
|
Sell
|
|
|
1,500,000 |
|
|
|
184.35 |
|
Sell
|
|
|
750,000 |
|
|
|
234.35 |
|
Fair value as of December 31, 2005 in
(000): 22,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge of 2.0 million 2003 STARs | |
|
|
| |
|
|
Number of call | |
|
|
Buy/sell |
|
options | |
|
Strike price | |
|
|
| |
|
| |
Buy
|
|
|
2,000,000 |
|
|
|
84.91 |
|
Sell
|
|
|
1,000,000 |
|
|
|
134.91 |
|
Sell
|
|
|
500,000 |
|
|
|
184.91 |
|
Fair value as of December 31, 2005 in
(000): 39,302
|
|
|
|
|
|
|
|
|
122
The terms of the derivative financial instruments are also
designed to reflect the eight measurement dates and weighting
factors applicable to the STAR Plan, as described in
Note 22 in Item 18. Financial Statements.
The amounts of options, which expire at each measurement date,
reflect the respective weighting factor of that date. Payment
dates reflect payment terms of the STAR Plan, which is subject
to the respective hedge. Viewed together, SAP will receive from
the financial institution 100% of the first
50 in
appreciation of SAPs stock price above the strike price of
the STAR, 50% of the next
50 in
appreciation of SAPs stock price above the strike price of
the STAR, and 25% of any additional appreciation of SAPs
stock price above the strike price of the STAR.
The terms of the derivative financial instruments require cash
settlement and there are no settlement alternatives. These
derivative financial instruments are classified as other assets
on SAPs Consolidated Balance Sheets.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES
Not Applicable.
123
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES
Not Applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITY HOLDERS AND USE OF PROCEEDS
Not Applicable.
ITEM 15. CONTROLS AND PROCEDURES
As of December 31, 2005, SAPs disclosure controls and
procedures are designed to ensure that the material financial
and non-financial information required to be disclosed in
Form 20-F and
filed with the SEC is recorded, processed, summarized and
reported in a timely manner. SAPs management conducted an
evaluation of the effectiveness of SAPs disclosure
controls and procedures as of December 31, 2005. The
evaluation was performed by our Global Internal Audit Services
function as well as dedicated SOX Champions in all
of SAPs major entities and business units with the
participation of process owners, our key corporate senior
management, senior management of each business group, and under
the supervision of our Chief Executive Officer
(CEO), Henning Kagermann, and our Chief Financial
Officer (CFO), Werner Brandt. In designing and
evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable, rather than
absolute, assurances of achieving the desired control
objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the foregoing, SAPs
management, including the CEO and CFO, concluded that as of
December 31, 2005 SAPs disclosure controls and
procedures were effective.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
In 2003, our Supervisory Board determined that Wilhelm Haarmann,
a member of the Supervisory Board and its Audit Committee, is an
audit committee financial expert. Under applicable
SEC and NYSE requirements, all members of SAPs audit
committee need to fulfill certain independence requirements from
July 31, 2005 onwards. Due to the current business
relationship between Wilhelm Haarmann and SAP, he does not
fulfill these independence requirements (please refer to
Note 34 in Item 18. Financial Statements
for information regarding related party transactions between us
and Wilhelm Haarmann). Wilhelm Haarmann therefore ceased being a
member of the audit committee as of July 29, 2005.
On July 29, 2005, Erhard Schipporeit, who was elected to
the Supervisory Board in May 2005, was named to our Audit
Committee. Our Supervisory Board determined that Erhard
Schipporeit is an audit committee financial expert.
Erhard Schipporeit is independent, as such term is
defined in Rule 10A-3 under the Exchange Act.
ITEM 16B. CODE OF ETHICS
In 2003, SAP adopted a Code of Business Conduct that applies to
all employees (including all personnel in the accounting and
controlling departments) and the members of SAPs Executive
Board (including our principal executive officer and principal
financial officer). We believe that our Code of Business
124
Conduct constitutes a code of ethics as defined by
the SEC. The Code of Business Conduct sets standards for all
dealings with customers, partners, competitors and suppliers and
includes, among others, regulations with regard to
confidentiality, loyalty and prevention of bribery.
International differences in culture, language, and legal and
social systems make the adoption of uniform Codes of Business
Conduct across an entire global company somewhat difficult. As a
result, SAP has set forth a master code containing minimum
standards. In turn, each company within the SAP Group has been
required to adopt a similar code that meets as far
as local legal requirements permit at least these
minimum standards, but may also include additional or more
stringent rules of conduct.
The SAPs Principles of Corporate Governance
which include the corporate governance standards and guidelines
that SAPs Executive Board and Supervisory Board follow in
carrying out their duties also include ethical standards that
apply to the members of the Executive Board. Please refer to the
description under the heading Corporate Governance
in Item 10. Additional Information for further
information on SAPs Principles of Corporate
Governance.
We have made our Code of Business Conduct and our Principles of
Corporate Governance publicly available by posting the full text
of both documents on our Web site under
www.sap.com/corpgovernance (section Statutes). The
published Code of Business Conduct is the code of our parent
company, SAP AG. It is identical with the master code.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES, AUDIT-RELATED FEES, TAX FEES AND ALL OTHER FEES
Please refer to Note 35 to our consolidated financial
statements in Item 18. Financial Statements for
information on fees paid to our independent auditors KPMG for
audit services and other professional services.
AUDIT COMMITTEES PRE-APPROVAL POLICIES AND PROCEDURES
As required under German law, our shareholders appoint our
independent auditors to audit our financial statements, based on
a proposal that is legally required to be submitted by the
Supervisory Board. The Supervisory Boards proposal is
based on a proposal by the Audit Committee. See also the
description under the heading Corporate Governance
in Item 10. Additional Information.
In 2002 our Audit Committee adopted a policy with regard to the
pre-approval of audit and non-audit services to be provided by
our independent auditors. This policy, which is designed to
assure that such engagements do not impair the independence of
our auditors, was amended and expanded in 2003. The policy
requires prior approval of the Audit Committee for all services
to be provided by our independent auditors for any entity of the
SAP Group. With regard to non-audit services the policy
distinguishes between three categories of services:
|
|
|
|
1. |
Prohibited services: This category includes services
that our independent auditors must not be engaged to perform.
These are services that are not permitted by applicable law or
that would be inconsistent with maintaining the auditors
independence. |
|
|
2. |
Services requiring universal approval: Services of
this category may be provided by our independent auditors up to
a certain aggregate amount in fees per year that is determined
annually by the Audit Committee. |
|
|
3. |
Services requiring individual approval: Services of
this category may only be provided by our independent auditors
if they have been individually (specifically) pre-approved
by the Audit Committee or an Audit Committee member who is
authorized by the Audit Committee to make such approvals. |
125
Our Head of Corporate Financial Reporting reviews all individual
requests to engage our independent auditors as a service
provider in accordance with this policy and determines the
category to which the requested service belongs. All requests
for engagements with expected fees over a specified limit are
additionally reviewed by our Chief Financial Officer. Based on
the determination of the category the request is
(i) declined if it is a prohibited service,
(ii) approved if it is a service requiring universal
approval and the maximum aggregate amount fixed by the
Audit Committee has not been met or (iii) forwarded to the
Audit Committee for individual approval if the service
requires individual approval or is a service
requiring universal approval and the maximum aggregate
amount fixed by the audit committee has been met.
Our Audit Committees pre-approval policies also include
detailed information requirements to ensure the Audit Committee
is kept aware of all engagements involving our independent
auditors that were not individually pre-approved by the Audit
Committee itself.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
The rules of the SEC and the NYSE require all members of the
audit committee to be independent. However, if an employee of a
foreign private issuer such as SAP who is not an executive
officer of that issuer is elected to the supervisory board or
audit committee of that issuer pursuant to the issuers
governing law, such employee is exempt from the independence
requirements and thus permitted to sit on the audit committee
pursuant to the exemption afforded by
Rule 10A-3(b)(1)(iv)(C) under the Securities Exchange Act.
We rely on this exemption. Our audit committee includes two
members who are non-executive employees of SAP AG, Bernhard
Koller and Stefan Schulz, who are named to our Supervisory Board
pursuant to the German Co-determination Act (see Item 6 for
details). We believe that the reliance on this exemption does
not materially adversely affect the ability of our audit
committee to act independently and to satisfy the other
requirements of Rule 10A-3.
126
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
AND AFFILIATED PURCHASERS
The following table sets out information concerning purchases of
our ordinary shares under our supported Employee Discount Stock
Purchase programs, Long-Term Incentive Plan 2000, Stock Option
Plan 2002 and share buy back program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) | |
|
(c) | |
|
(d) | |
|
|
(a) | |
|
Average Price | |
|
Total Number of Shares | |
|
Maximum Number of | |
|
|
Total Number | |
|
Paid per | |
|
Purchased as Part of | |
|
Shares that May Yet | |
|
|
of Shares | |
|
Share | |
|
Publicly Announced | |
|
Be Purchased Under | |
Period |
|
Purchased | |
|
(in ) | |
|
Plans or Programs | |
|
the Plans or Programs | |
|
|
| |
|
| |
|
| |
|
| |
January 1/1/05 1/31/05
|
|
|
955,086 |
|
|
|
119.75 |
|
|
|
955,086 |
|
|
|
25,294,404 |
|
February 2/1/05 2/28/05
|
|
|
307,510 |
|
|
|
123.26 |
|
|
|
307,510 |
|
|
|
25,001,902 |
|
March 3/1/05 3/31/05
|
|
|
13,249 |
|
|
|
122.73 |
|
|
|
13,249 |
|
|
|
25,594,123 |
|
April 4/1/05 4/30/05
|
|
|
510,945 |
|
|
|
121.41 |
|
|
|
510,945 |
|
|
|
25,097,123 |
|
May 5/1/05 5/31/05
|
|
|
344,389 |
|
|
|
128.19 |
|
|
|
344,022 |
|
|
|
24,835,276 |
|
June 6/1/05 6/30/05
|
|
|
223,894 |
|
|
|
137.79 |
|
|
|
221,510 |
|
|
|
25,071,239 |
|
July 7/1/05 7/31/05
|
|
|
21,050 |
|
|
|
144.97 |
|
|
|
21,050 |
|
|
|
25,061,239 |
|
August 8/1/05 8/31/05
|
|
|
512,798 |
|
|
|
137.96 |
|
|
|
512,798 |
|
|
|
24,879,677 |
|
September 9/1/05 9/30/05
|
|
|
11,298 |
|
|
|
143.56 |
|
|
|
11,298 |
|
|
|
24,939,684 |
|
October 10/1/05 10/31/05
|
|
|
114,206 |
|
|
|
142.08 |
|
|
|
114,206 |
|
|
|
25,058,815 |
|
November 11/1/05 11/30/05
|
|
|
11,345 |
|
|
|
146.55 |
|
|
|
11,345 |
|
|
|
25,119,475 |
|
December 12/1/05 12/31/05
|
|
|
370,147 |
|
|
|
154.63 |
|
|
|
370,147 |
|
|
|
24,967,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,395,917 |
|
|
|
130.00 |
|
|
|
3,393,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All purchases were made in accordance with the authorization to
acquire and use treasury shares granted at the Annual General
Shareholders Meeting on May 12, 2005, pursuant to
which the Executive Board was authorized to acquire, on or
before October 31, 2006, up to 30 million shares of
SAP subject to the provision that the shares to be purchased by
virtue of this authorization, together with any other shares
already acquired and held by SAP, do not account for more than
10% of the SAPs capital stock.
All purchases were made in market transactions effected on the
Frankfurt Stock Exchange, with the exception of the purchases of
ADSs shown in the table below, which were made in market
transactions effected on the New York Stock Exchange.
127
The following table sets out information concerning purchases of
our ADSs under our supported Employee Discount Stock Purchase
programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) | |
|
(c) | |
|
(d) | |
|
|
(a) | |
|
Average Price | |
|
Total Number of ADSs | |
|
Maximum Number of | |
|
|
Total Number | |
|
Paid per | |
|
Purchased as Part of | |
|
ADSs that May Yet | |
|
|
of ADSs | |
|
ADS | |
|
Publicly Announced | |
|
Be Purchased Under | |
Period |
|
Purchased | |
|
(in U.S.$) | |
|
Plans or Programs | |
|
the Plans or Programs | |
|
|
| |
|
| |
|
| |
|
| |
January 1/1/05 1/31/05
|
|
|
21,106 |
|
|
|
41.06 |
|
|
|
21,106 |
|
|
|
N/A |
|
February 2/1/05 2/28/05
|
|
|
29,030 |
|
|
|
39.67 |
|
|
|
29,030 |
|
|
|
N/A |
|
March 3/1/05 3/31/05
|
|
|
92,001 |
|
|
|
41.11 |
|
|
|
92,001 |
|
|
|
N/A |
|
April 4/1/05 4/30/05
|
|
|
26,035 |
|
|
|
39.05 |
|
|
|
26,035 |
|
|
|
N/A |
|
May 5/1/05 5/31/05
|
|
|
31,948 |
|
|
|
41.55 |
|
|
|
31,948 |
|
|
|
N/A |
|
June 6/1/05 6/30/05
|
|
|
24,175 |
|
|
|
41.99 |
|
|
|
24,175 |
|
|
|
N/A |
|
July 7/1/05 7/31/05
|
|
|
24,149 |
|
|
|
42.91 |
|
|
|
24,149 |
|
|
|
N/A |
|
August 8/1/05 8/31/05
|
|
|
35,593 |
|
|
|
42.61 |
|
|
|
35,593 |
|
|
|
N/A |
|
September 9/1/05 9/30/05
|
|
|
24,612 |
|
|
|
43.51 |
|
|
|
24,612 |
|
|
|
N/A |
|
October 10/1/05 10/31/05
|
|
|
24,859 |
|
|
|
43.36 |
|
|
|
24,859 |
|
|
|
N/A |
|
November 11/1/05 11/30/05
|
|
|
32,475 |
|
|
|
42.85 |
|
|
|
32,475 |
|
|
|
N/A |
|
December 12/1/05 12/31/05
|
|
|
24,868 |
|
|
|
44.33 |
|
|
|
24,868 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
388,851 |
|
|
|
41.84 |
|
|
|
388,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-65, and to
page S-1, incorporated herein by reference.
The following consolidated financial statements are filed as
part of this Annual Report on
Form 20-F:
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Income for the years ended 2005, 2004
and 2003.
Consolidated Balance Sheets as of December 31, 2005 and
2004.
Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2005, 2004 and 2003.
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003.
Notes to Consolidated Financial Statements.
Schedule for the years ended December 31, 2005, 2004 and
2003:
Schedule II Valuation and Qualifying Accounts
and Reserves.
128
ITEM 19. EXHIBITS
The following documents are filed as exhibits to this Annual
Report on Form 20-F:
|
|
|
|
|
|
1 |
|
|
Articles of Incorporation (Satzung) of SAP AG, as amended to
date (English translation). |
|
2.1 |
|
|
Form of global share certificate for ordinary shares (English
translation). |
|
2.2 |
|
|
Form of American Depositary Receipt.(1) |
|
4.1 |
|
|
Form of Amended and Restated Deposit Agreement among SAP AG,
Deutsche Bank Trust Company Americas, as Depositary, and all
owners and holders from time to time of American Depositary
Receipts issued thereunder, including the form of American
Depositary Receipts, dated as of December 3, 2004.(2) |
|
4.2 |
|
|
Credit Facility Agreement among SAP as Borrower; ABN AMRO Bank
N.V., BNP Paribas, Deutsche Bank AG and J.P. Morgan plc as
Mandated Lead Arrangers; ABN AMRO N.V. London Branch as Agent;
and the lenders named in the Credit Agreement, dated as of
November 5, 2004.(3) |
|
4.3 |
|
|
Agreement and Plan of Merger dated as of February 28, 2005,
among SAP America, Inc., Sapphire Expansion Corporation and
Retek Inc.(4) |
|
4.4 |
|
|
Amendment dated as of March 16, 2005 to Agreement and Plan
of Merger dated as of February 28, 2005 among SAP America,
Inc., Sapphire Expansion Corporation and Retek Inc.(5) |
|
4.5 |
|
|
Employment Contract for Executive Board Member Shai Agassi,
dated May 5, 2005. |
|
4.6 |
|
|
Form of Employment Contract for Executive Board Members (other
than Shai Agassi). |
|
4.7 |
|
|
Bonus Schedule Board Members 2005, dated February 9, 2005. |
|
8 |
|
|
Subsidiaries, Equity Method Investments, and Other Investments
of SAP AG. |
|
12.1 |
|
|
Certification of Chief Executive Officer required by
Rule 13a-14(a) or Rule 15d-14(a). |
|
12.2 |
|
|
Certification of Chief Financial Officer required by
Rule 13a-14(a) or Rule 15d-14(a). |
|
13 |
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
15 |
|
|
Consent of Registered Independent Public Accounting Firm. |
|
|
(1) |
Incorporated by reference to
Form 8-A of SAP
AG, filed on May 3, 2001. |
|
(2) |
Incorporated by reference to the Current Report on
Form 6-K of SAP
AG, filed on December 13, 2004. |
|
(3) |
Incorporated by reference to the Annual Report on
Form 20-F of SAP
AG, filed March 22, 2005. |
|
(4) |
Incorporated by reference to the Tender Offer Statement on
Schedule TO, filed by SAP America, Inc. and Sapphire
Expansion Corporation on March 4, 2005. |
|
(5) |
Incorporated by reference to Amendment No. 4 to Tender
Offer Statement on Schedule TO, filed on March 17,
2005 by SAP America, Inc. and Sapphire Expansion Corporation. |
129
SIGNATURE
The Registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F and that
it has duly caused and authorized the undersigned to sign this
Annual Report on its behalf.
|
|
|
SAP AG |
|
(Registrant) |
|
|
By: /s/ HENNING KAGERMANN |
|
|
|
Name: Prof. Dr. Henning Kagermann |
|
Title: Chief Executive Officer |
Dated March 22, 2006
|
|
|
By: /s/ WERNER BRANDT |
|
|
|
Name: Dr. Werner Brandt |
|
Title: Chief Financial Officer |
Dated March 22, 2006
130
SAP AG AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Public Accounting Firm
|
|
|
F-1 |
|
Consolidated Financial Statements
|
|
|
|
|
|
Consolidated Statements of Income for the years ended
December 31, 2005, 2004 and 2003
|
|
|
F-2 |
|
|
Consolidated Balance Sheets as of
December 31, 2005, 2004 and 2003
|
|
|
F-3 |
|
|
Consolidated Statements of Changes in Shareholders
Equity for the years ended December 31, 2005, 2004
and 2003
|
|
|
F-4 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003
|
|
|
F-6 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7 |
|
Schedule for the years ended December 31, 2005,
2004 and 2003:
|
|
|
|
|
|
Schedule II Valuation and Qualifying
Accounts and Reserves
|
|
|
S-1 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Supervisory Board of SAP AG:
We have audited the accompanying consolidated balance sheets of
SAP AG and subsidiaries (SAP AG or
the company) as of December 31, 2005 and 2004,
and the related consolidated statements of income, changes in
shareholders equity, and cash flows for each of the years
in the three-year
period ended December 31, 2005. In connection with our
audits of the consolidated financial statements, we also have
audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position if SAP AG as of December 31, 2005 and 2004,
and the results of their operations and their cash flows for
each of the years in the
three-year period ended
December 31, 2005, in conformity with generally accepted
accounting principles in the United States of America. Also, in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
Mannheim, Germany
March 10, 2006
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
F-1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31,
(in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(1) | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
US$ (000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
|
Software revenue
|
|
|
|
|
|
|
3,295,334 |
|
|
|
2,782,751 |
|
|
|
2,361,012 |
|
|
|
2,147,591 |
|
|
|
Maintenance revenue
|
|
|
|
|
|
|
3,760,595 |
|
|
|
3,175,642 |
|
|
|
2,823,189 |
|
|
|
2,568,807 |
|
|
Product revenue
|
|
|
|
|
|
|
7,055,929 |
|
|
|
5,958,393 |
|
|
|
5,184,201 |
|
|
|
4,716,398 |
|
|
|
Consulting revenue
|
|
|
|
|
|
|
2,532,934 |
|
|
|
2,138,941 |
|
|
|
1,970,606 |
|
|
|
1,953,459 |
|
|
|
Training revenue
|
|
|
|
|
|
|
405,548 |
|
|
|
342,466 |
|
|
|
302,443 |
|
|
|
299,331 |
|
|
Service revenue
|
|
|
|
|
|
|
2,938,482 |
|
|
|
2,481,407 |
|
|
|
2,273,049 |
|
|
|
2,252,790 |
|
|
Other revenue
|
|
|
|
|
|
|
86,007 |
|
|
|
72,629 |
|
|
|
57,243 |
|
|
|
55,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
(5 |
) |
|
|
10,080,418 |
|
|
|
8,512,429 |
|
|
|
7,514,493 |
|
|
|
7,024,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
|
|
|
|
(1,176,179 |
) |
|
|
(993,227 |
) |
|
|
(916,278 |
) |
|
|
(962,757 |
) |
|
Cost of service
|
|
|
|
|
|
|
(2,279,128 |
) |
|
|
(1,924,614 |
) |
|
|
(1,783,453 |
) |
|
|
(1,694,062 |
) |
|
Research and development
|
|
|
|
|
|
|
(1,289,158 |
) |
|
|
(1,088,632 |
) |
|
|
(908,056 |
) |
|
|
(872,225 |
) |
|
Sales and marketing
|
|
|
(6 |
) |
|
|
(2,067,875 |
) |
|
|
(1,746,221 |
) |
|
|
(1,523,662 |
) |
|
|
(1,411,004 |
) |
|
General and administration
|
|
|
|
|
|
|
(515,346 |
) |
|
|
(435,185 |
) |
|
|
(366,425 |
) |
|
|
(354,043 |
) |
|
Other operating income/ expense, net
|
|
|
(7 |
) |
|
|
7,321 |
|
|
|
6,182 |
|
|
|
1,762 |
|
|
|
(6,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(8 |
) |
|
|
(7,320,365 |
) |
|
|
(6,181,697 |
) |
|
|
(5,496,112 |
) |
|
|
(5,300,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
2,760,053 |
|
|
|
2,330,732 |
|
|
|
2,018,381 |
|
|
|
1,724,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income/ expense, net
|
|
|
(9 |
) |
|
|
(29,796 |
) |
|
|
(25,161 |
) |
|
|
13,274 |
|
|
|
36,309 |
|
|
Financial income/ expense, net
|
|
|
(10 |
) |
|
|
12,772 |
|
|
|
10,785 |
|
|
|
40,987 |
|
|
|
16,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
|
|
|
|
2,743,029 |
|
|
|
2,316,356 |
|
|
|
2,072,642 |
|
|
|
1,776,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(11 |
) |
|
|
(967,554 |
) |
|
|
(817,053 |
) |
|
|
(757,269 |
) |
|
|
(692,640 |
) |
|
Minority interest
|
|
|
|
|
|
|
(3,429 |
) |
|
|
(2,896 |
) |
|
|
(4,852 |
) |
|
|
(6,912 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
1,772,046 |
|
|
|
1,496,407 |
|
|
|
1,310,521 |
|
|
|
1,077,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic in
|
|
|
(12 |
) |
|
|
5.72 |
|
|
|
4.83 |
|
|
|
4.22 |
|
|
|
3.47 |
|
Earnings per share diluted in
|
|
|
(12 |
) |
|
|
5.70 |
|
|
|
4.81 |
|
|
|
4.20 |
|
|
|
3.46 |
|
|
|
(1) |
The 2005 figures have been translated solely for the convenience
of the reader at an exchange rate of US$ 1.1842 to
1.00, the
Noon Buying Rate certified by the Federal Reserve Bank of New
York on December 31, 2005. |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-2
CONSOLIDATED BALANCE SHEETS
as of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(2) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
US$ (000) | |
|
(000) | |
|
(000) | |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(13 |
) |
|
|
741,956 |
|
|
|
626,546 |
|
|
|
456,707 |
|
Other intangible assets
|
|
|
(13 |
) |
|
|
165,429 |
|
|
|
139,697 |
|
|
|
68,186 |
|
Property, plant, and equipment
|
|
|
(14 |
) |
|
|
1,296,658 |
|
|
|
1,094,965 |
|
|
|
999,083 |
|
Financial assets
|
|
|
(15 |
) |
|
|
632,546 |
|
|
|
534,155 |
|
|
|
100,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
2,836,589 |
|
|
|
2,395,363 |
|
|
|
1,624,358 |
|
Inventories
|
|
|
(16 |
) |
|
|
22,945 |
|
|
|
19,376 |
|
|
|
11,692 |
|
|
Accounts receivable, net
|
|
|
(17 |
) |
|
|
2,665,666 |
|
|
|
2,251,027 |
|
|
|
1,929,100 |
|
|
Other assets
|
|
|
(18 |
) |
|
|
752,623 |
|
|
|
635,554 |
|
|
|
537,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets
|
|
|
|
|
|
|
3,418,289 |
|
|
|
2,886,581 |
|
|
|
2,466,745 |
|
Marketable securities
|
|
|
(15 |
) |
|
|
248,167 |
|
|
|
209,565 |
|
|
|
10,164 |
|
Liquid assets
|
|
|
(19 |
) |
|
|
3,805,512 |
|
|
|
3,213,572 |
|
|
|
3,196,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-fixed assets
|
|
|
|
|
|
|
7,494,913 |
|
|
|
6,329,094 |
|
|
|
5,685,143 |
|
Deferred taxes
|
|
|
(11 |
) |
|
|
296,877 |
|
|
|
250,698 |
|
|
|
205,601 |
|
Prepaid expenses and deferred charges
|
|
|
(20 |
) |
|
|
103,721 |
|
|
|
87,587 |
|
|
|
70,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
10,732,099 |
|
|
|
9,062,742 |
|
|
|
7,585,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thereof total current assets
|
|
|
|
|
|
|
7,390,740 |
|
|
|
6,241,125 |
|
|
|
4,849,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
US$ (000) | |
|
(000) | |
|
(000) | |
Shareholders Equity and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribed
capital(1)
|
|
|
|
|
|
|
374,750 |
|
|
|
316,458 |
|
|
|
316,004 |
|
Treasury stock
|
|
|
|
|
|
|
(918,132 |
) |
|
|
(775,318 |
) |
|
|
(569,166 |
) |
Additional paid-in capital
|
|
|
|
|
|
|
441,431 |
|
|
|
372,767 |
|
|
|
322,660 |
|
Retained earnings
|
|
|
|
|
|
|
7,088,841 |
|
|
|
5,986,186 |
|
|
|
4,830,156 |
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(139,564 |
) |
|
|
(117,855 |
) |
|
|
(305,401 |
) |
Shareholders equity
|
|
|
(21 |
) |
|
|
6,847,326 |
|
|
|
5,782,238 |
|
|
|
4,594,253 |
|
Minority interests
|
|
|
|
|
|
|
9,018 |
|
|
|
7,615 |
|
|
|
21,971 |
|
|
Pension liabilities and similar obligations
|
|
|
(23 |
) |
|
|
217,442 |
|
|
|
183,619 |
|
|
|
139,690 |
|
|
Other reserves and accrued liabilities
|
|
|
(24 |
) |
|
|
2,177,910 |
|
|
|
1,839,140 |
|
|
|
1,768,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and accrued liabilities
|
|
|
|
|
|
|
2,395,352 |
|
|
|
2,022,759 |
|
|
|
1,908,413 |
|
|
Bonds
|
|
|
|
|
|
|
8,203 |
|
|
|
6,927 |
|
|
|
7,277 |
|
|
Other liabilities
|
|
|
(25 |
) |
|
|
993,280 |
|
|
|
838,778 |
|
|
|
728,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
1,001,483 |
|
|
|
845,705 |
|
|
|
736,115 |
|
Deferred income
|
|
|
(26 |
) |
|
|
478,920 |
|
|
|
404,425 |
|
|
|
324,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity and liabilities
|
|
|
|
|
|
|
10,732,099 |
|
|
|
9,062,742 |
|
|
|
7,585,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thereof current liabilities
|
|
|
|
|
|
|
3,294,071 |
|
|
|
2,781,685 |
|
|
|
2,591,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Contingent capital
52,930
thousand (2004:
55,247
thousand) |
|
(2) |
The 2005 figures have been translated solely for the convenience
of the reader at an exchange rate of US$ 1.1842 to
1.00, the
Noon Buying Rate certified by the Federal Reserve Bank of New
York on December 31, 2005. |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
for the years ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Additional | |
|
|
|
|
shares issued | |
|
Subscribed | |
|
paid-in | |
|
Retained | |
|
|
and outstanding | |
|
capital | |
|
capital | |
|
earnings | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
December 31, 2002
|
|
|
314,963 |
|
|
|
314,963 |
|
|
|
185,180 |
|
|
|
2,871,106 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,077,063 |
|
|
Other comprehensive income/loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
101,173 |
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,346 |
) |
Treasury Stock transactions
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
Convertible bonds and stock options exercised
|
|
|
451 |
|
|
|
451 |
|
|
|
12,243 |
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(2,005 |
) |
|
|
(737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
315,414 |
|
|
|
315,414 |
|
|
|
296,555 |
|
|
|
3,761,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,310,521 |
|
|
Other comprehensive income/loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
186 |
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(248,716 |
) |
Treasury Stock transactions
|
|
|
|
|
|
|
|
|
|
|
8,881 |
|
|
|
|
|
Convertible bonds and stock options exercised
|
|
|
590 |
|
|
|
590 |
|
|
|
21,389 |
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(4,351 |
) |
|
|
7,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
316,004 |
|
|
|
316,004 |
|
|
|
322,660 |
|
|
|
4,830,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,496,407 |
|
|
Other comprehensive income/loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(36,356 |
) |
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340,425 |
) |
Treasury Stock transactions
|
|
|
|
|
|
|
|
|
|
|
48,136 |
|
|
|
|
|
Convertible bonds and stock options exercised
|
|
|
454 |
|
|
|
454 |
|
|
|
42,294 |
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(3,967 |
) |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
316,458 |
|
|
|
316,458 |
|
|
|
372,767 |
|
|
|
5,986,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income/loss | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Currency effects | |
|
|
|
|
|
|
|
|
Unrealized | |
|
Additional | |
|
Unrealized | |
|
|
|
from intercompany | |
|
|
|
|
|
|
Currency | |
|
gains/ losses | |
|
minimum | |
|
gains/ | |
|
|
|
long-term | |
|
|
|
|
|
|
translation | |
|
on marketable | |
|
pension | |
|
losses on cash | |
|
Unrealized gains | |
|
investment | |
|
Treasury | |
|
|
|
|
adjustment | |
|
securities | |
|
liability | |
|
flow hedges | |
|
on STAR hedges | |
|
transactions | |
|
Stock | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
|
|
(103,249 |
) |
|
|
(3,139 |
) |
|
|
(20,005 |
) |
|
|
712 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(373,477 |
) |
|
|
2,872,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,077,063 |
|
|
|
|
(148,424 |
) |
|
|
19,118 |
|
|
|
16,283 |
|
|
|
12,729 |
|
|
|
23,996 |
|
|
|
|
|
|
|
|
|
|
|
(76,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,154 |
) |
|
|
(88,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,673 |
) |
|
|
15,979 |
|
|
|
(3,722 |
) |
|
|
13,441 |
|
|
|
23,996 |
|
|
|
0 |
|
|
|
(461,631 |
) |
|
|
3,709,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,310,521 |
|
|
|
|
(70,723 |
) |
|
|
(7,678 |
) |
|
|
(7,019 |
) |
|
|
(131 |
) |
|
|
(15,398 |
) |
|
|
(2,473 |
) |
|
|
|
|
|
|
(103,422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,207,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(248,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,535 |
) |
|
|
(98,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(322,396 |
) |
|
|
8,301 |
|
|
|
(10,741 |
) |
|
|
13,310 |
|
|
|
8,598 |
|
|
|
(2,473 |
) |
|
|
(569,166 |
) |
|
|
4,594,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,496,407 |
|
|
|
|
120,136 |
|
|
|
2,867 |
|
|
|
766 |
|
|
|
(22,273 |
) |
|
|
42,814 |
|
|
|
43,236 |
|
|
|
|
|
|
|
187,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,152 |
) |
|
|
(158,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,260 |
) |
|
|
11,168 |
|
|
|
(9,975 |
) |
|
|
(8,963 |
) |
|
|
51,412 |
|
|
|
40,763 |
|
|
|
(775,318 |
) |
|
|
5,782,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(1) | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
US$ (000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Net income
|
|
|
|
|
|
|
1,772,045 |
|
|
|
1,496,407 |
|
|
|
1,310,521 |
|
|
|
1,077,063 |
|
Minority interest
|
|
|
|
|
|
|
3,430 |
|
|
|
2,896 |
|
|
|
4,852 |
|
|
|
6,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
|
|
|
|
1,775,475 |
|
|
|
1,499,303 |
|
|
|
1,315,373 |
|
|
|
1,083,975 |
|
Adjustments to reconcile income from operations to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
241,038 |
|
|
|
203,545 |
|
|
|
209,669 |
|
|
|
215,517 |
|
Result from equity investments, net
|
|
|
(10 |
) |
|
|
(722 |
) |
|
|
(610 |
) |
|
|
342 |
|
|
|
234 |
|
Gains on disposal of property, plant, and equipment and equity
securities
|
|
|
|
|
|
|
(6,870 |
) |
|
|
(5,801 |
) |
|
|
(13,485 |
) |
|
|
(3,987 |
) |
Write-downs of financial assets, net
|
|
|
|
|
|
|
16,009 |
|
|
|
13,519 |
|
|
|
17,800 |
|
|
|
15,421 |
|
Impacts of STAR hedging
|
|
|
|
|
|
|
8,762 |
|
|
|
7,399 |
|
|
|
(7,428 |
) |
|
|
2,967 |
|
Stock-based compensation including income tax benefits
|
|
|
|
|
|
|
59,324 |
|
|
|
50,096 |
|
|
|
18,828 |
|
|
|
110,280 |
|
Change in accounts receivable and other assets
|
|
|
|
|
|
|
(429,924 |
) |
|
|
(363,050 |
) |
|
|
(164,798 |
) |
|
|
64,329 |
|
Change in reserves and liabilities
|
|
|
|
|
|
|
195,954 |
|
|
|
165,474 |
|
|
|
433,545 |
|
|
|
(44,284 |
) |
Deferred tax expense/benefit
|
|
|
|
|
|
|
(19,023 |
) |
|
|
(16,064 |
) |
|
|
19,205 |
|
|
|
92,622 |
|
Change in other assets
|
|
|
|
|
|
|
(26,935 |
) |
|
|
(22,745 |
) |
|
|
(3,545 |
) |
|
|
21,024 |
|
Change in deferred income
|
|
|
|
|
|
|
90,987 |
|
|
|
76,834 |
|
|
|
19,821 |
|
|
|
(58,609 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
(27 |
) |
|
|
1,904,075 |
|
|
|
1,607,900 |
|
|
|
1,845,327 |
|
|
|
1,499,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of minorities in subsidiaries
|
|
|
|
|
|
|
(71,008 |
) |
|
|
(59,964 |
) |
|
|
(168,103 |
) |
|
|
(8,971 |
) |
Other acquisitions, net of cash and cash equivalents acquired
|
|
|
|
|
|
|
(209,424 |
) |
|
|
(176,849 |
) |
|
|
(19,181 |
) |
|
|
(54,192 |
) |
Purchase of intangible assets and property, plant, and equipment
|
|
|
|
|
|
|
(309,979 |
) |
|
|
(261,762 |
) |
|
|
(192,682 |
) |
|
|
(218,820 |
) |
Purchase of financial assets
|
|
|
|
|
|
|
(542,546 |
) |
|
|
(458,154 |
) |
|
|
(42,749 |
) |
|
|
(29,308 |
) |
Proceeds from disposal of fixed assets
|
|
|
|
|
|
|
37,212 |
|
|
|
31,424 |
|
|
|
116,735 |
|
|
|
35,275 |
|
Purchase of marketable securities
|
|
|
|
|
|
|
(236,131 |
) |
|
|
(199,401 |
) |
|
|
(8,812 |
) |
|
|
(3 |
) |
Change in liquid assets (maturities exceeding 3 months)
|
|
|
|
|
|
|
640,949 |
|
|
|
541,251 |
|
|
|
(433,530 |
) |
|
|
(916,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(690,927 |
) |
|
|
(583,455 |
) |
|
|
(748,322 |
) |
|
|
(1,192,626 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
(403,131 |
) |
|
|
(340,425 |
) |
|
|
(248,716 |
) |
|
|
(186,346 |
) |
Purchase of treasury stock
|
|
|
|
|
|
|
(538,049 |
) |
|
|
(454,357 |
) |
|
|
(175,018 |
) |
|
|
(127,215 |
) |
Proceeds from reissuance of Treasury Stock
|
|
|
|
|
|
|
243,583 |
|
|
|
205,695 |
|
|
|
55,856 |
|
|
|
27,435 |
|
Proceeds from issuance of common stock (Stock-based compensation)
|
|
|
|
|
|
|
50,622 |
|
|
|
42,748 |
|
|
|
15,395 |
|
|
|
6,944 |
|
Proceeds from bonds
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
846 |
|
Repayment of bonds
|
|
|
|
|
|
|
(414 |
) |
|
|
(350 |
) |
|
|
(2,806 |
) |
|
|
(430 |
) |
Proceeds from convertible bonds
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
6,754 |
|
|
|
5,749 |
|
Proceeds from short-term and long-term debt
|
|
|
|
|
|
|
69 |
|
|
|
58 |
|
|
|
3,909 |
|
|
|
775 |
|
Repayments made of short-term and long-term debt
|
|
|
|
|
|
|
(795 |
) |
|
|
(671 |
) |
|
|
(491 |
) |
|
|
(3,963 |
) |
Proceeds from the exercise of equity derivative instruments
(STAR hedge)
|
|
|
|
|
|
|
46,513 |
|
|
|
39,278 |
|
|
|
0 |
|
|
|
0 |
|
Acquisition of derivative equity instruments (STAR hedge)
|
|
|
|
|
|
|
(55,496 |
) |
|
|
(46,864 |
) |
|
|
(43,041 |
) |
|
|
(38,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(657,098 |
) |
|
|
(554,888 |
) |
|
|
(388,158 |
) |
|
|
(315,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rates on cash
|
|
|
|
|
|
|
105,067 |
|
|
|
88,724 |
|
|
|
(41,791 |
) |
|
|
(50,406 |
) |
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
661,117 |
|
|
|
558,281 |
|
|
|
667,056 |
|
|
|
(58,548 |
) |
Cash and cash equivalents at the beginning of the year
|
|
|
|
|
|
|
1,783,160 |
|
|
|
1,505,793 |
|
|
|
838,737 |
|
|
|
897,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
(19 |
) |
|
|
2,444,277 |
|
|
|
2,064,074 |
|
|
|
1,505,793 |
|
|
|
838,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The 2005 figures have been translated solely for the convenience
of the reader at an exchange rate of US$ 1.1842 to
1.00. the
Noon Buying Rate certified by the Federal Reserve Bank of New
York on December 31, 2005. |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
(1) GENERAL
The accompanying Consolidated Financial Statements of SAP AG,
together with its subsidiaries (collectively, SAP,
the Group, or the Company), have been
prepared in accordance with generally accepted accounting
principles in the United States of America
(U.S. GAAP).
SAP is an international corporation with headquarters in
Walldorf, Germany. SAP develops, markets, and sells a variety of
software solutions, primarily enterprise application software
products for organizations including corporations, government
agencies, and educational institutions. SAP also offers support
and other services (including consulting and training) related
to its software offering (see Note 32 for more information).
Certain amounts reported in previous years have been
reclassified to conform to the 2005 presentation. These
reclassifications include adjustments to the previously reported
amounts of Cost of Product and Research and Development expense.
See Note 8 for more information. In addition adjustments
have been made to the 2004 and 2003 balances of cash and cash
equivalents. See Note 19 for more information.
SAP is exempt as outlined in the German Commercial Code
Implementation Act, (Einführungsgesetz zum HGB-EGHGB),
section 58 paragraph 5 and the German Commercial Code
(Handelsgesetzbuch HGB), section 292a, from
preparing consolidated financial statements in accordance with
German GAAP since its Consolidated Financial Statements are
prepared in accordance with U.S. GAAP.
Amounts included in the Consolidated Financial Statements are
reported in thousands of euros
((000))
unless otherwise stated. All financial data that is presented in
U.S. dollars (US$) has been converted, for the
convenience of the reader, at the Noon Buying Rate certified by
the Federal Reserve Bank of New York on December 31, 2005,
which was U.S.$1.1842 per
1.00. Financial
data that has been presented in U.S. dollars is unaudited
and presented solely for the convenience of the reader.
SAP operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties, many of which are
beyond the Companys control. The Company derives a
substantial portion of its revenue from software licenses and
services sold to customers in Germany, the United States, the
United Kingdom, and Japan (see Note 32). SAPs future
revenue and results of operations may be significantly adversely
affected by a prolonged economic slowdown in any of these
countries or elsewhere. Further, a significant portion of the
Companys business is conducted in currencies other than
the euro. SAP continually monitors its exposure to foreign
currency exchange risk and has a Company-wide foreign currency
exchange risk policy under which it may hedge such risks with
certain financial instruments. However, fluctuations in foreign
currency exchange rates, especially the value of the
U.S. dollar, Japanese yen, British pound, Swiss franc,
Canadian dollar, and Australian dollar could significantly
impact the Companys reported financial position and
results of operations.
(2) SCOPE OF CONSOLIDATION
The Consolidated Financial Statements include SAP AG and all of
its majority-owned subsidiaries. All significant intercompany
transactions and balances relating to consolidated entities have
been eliminated.
F-7
The following table summarizes the change in the number of legal
entities included in the Consolidated Financial Statements:
Number of Legal Entities Consolidated in the Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
German | |
|
Foreign | |
|
Total | |
|
|
| |
|
| |
|
| |
December 31, 2004
|
|
|
15 |
|
|
|
73 |
|
|
|
88 |
|
Additions
|
|
|
2 |
|
|
|
14 |
|
|
|
16 |
|
Disposals
|
|
|
0 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
17 |
|
|
|
86 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
The impact of changes in the scope of companies included in the
Consolidated Financial Statements during 2005 did not have a
significant effect on the comparability of the Consolidated
Financial Statements presented. The addition relates to six
newly founded companies and to 10 legal entities added in
connection with acquisitions. The disposal is due to the
liquidation of a consolidated legal entity.
In 2005 three companies in which SAP does not have a controlling
financial interest but in respect of which SAP does have the
ability to exercise significant influence over the operating and
financial policies (equity method investments), are
accounted for using the equity method (2004: five companies).
All subsidiaries and equity method investments are listed in
Note 38 with ownership percentages, revenues, net income,
equity, and numbers of employees.
Under German law, subsidiaries of a holding company are exempt
from preparing stand-alone financial statements if they are
included in the consolidated financial statements of their
holding company and the use of this exemption is disclosed in
the notes to the consolidated financial statements. Pursuant to
HGB, section 264 paragraph 3 or section 264b the
following subsidiaries are exempt from preparing stand-alone
financial statements and a review of operations:
|
|
|
|
|
SAP Deutschland AG & Co. KG, Walldorf |
|
|
|
SAP Hosting AG Co. KG, St Leon-Rot |
|
|
|
Steeb Anwendungssysteme GmbH, Abstatt |
|
|
|
SAP Passau GmbH & Co. KG, Passau |
|
|
|
SAP Projektverwaltungs und Beteiligungs GmbH, Walldorf |
|
|
|
SAP Beteiligungsverwaltung GmbH, Walldorf |
|
|
|
SAP Administrations Beteiligungs GmbH, Walldorf. |
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting periods. In making
its estimates, the Company considers historical and forecast
information, as well as regional and industry economic
conditions in which the Company and/or its customers
participate, changes to which could negatively impact the
estimates made by management, in particular when assessing the
valuation and recoverability of receivables, investments and
other assets, and tax positions. Actual results could differ
from SAPs estimates.
F-8
SAPs financial position, results of operations, and cash
flows are subject to numerous risks and uncertainties. Factors
that could affect the Companys future financial statements
and cause actual results to differ materially from current
expectations include, but are not limited to, further adverse
changes in the global economy, consolidation and intense
competition in the software industry, decline in customer demand
in the most important markets in Europe, the United States, and
Asia, as well as fluctuations in currency exchange rates.
Foreign Currencies
The assets and liabilities of foreign operations where the
functional currency is not euros are translated into euros using
period-end closing exchange rates, whereas items of income and
expense are translated into euros using average exchange rates
during the respective periods. The resulting foreign currency
translation adjustments are included in Other comprehensive
income/loss in the Consolidated Statements of Changes in
Shareholders Equity.
Assets and liabilities that are denominated in foreign
currencies other than the functional currency are translated at
the period-end closing rate with resulting gains and losses
reflected in Other non-operating income/ expense, net in the
Consolidated Statements of Income.
The exchange rates of key currencies affecting the Group are as
follows:
Exchange Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing rate at | |
|
|
|
|
|
|
December 31 | |
|
Annual average exchange rate | |
|
|
|
|
| |
|
| |
|
|
|
|
to 1.00 | |
|
to 1.00 | |
|
to 1.00 | |
|
to 1.00 | |
|
to 1.00 | |
|
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
U.S. dollar
|
|
|
US$ |
|
|
|
1.1797 |
|
|
|
1.3621 |
|
|
|
1.2360 |
|
|
|
1.2490 |
|
|
|
1.1394 |
|
Japanese yen
|
|
|
JPY |
|
|
|
138.90 |
|
|
|
139.65 |
|
|
|
137.08 |
|
|
|
134.73 |
|
|
|
130.98 |
|
British pound
|
|
|
GBP |
|
|
|
0.6853 |
|
|
|
0.7051 |
|
|
|
0.6827 |
|
|
|
0.6795 |
|
|
|
0.6936 |
|
Canadian dollar
|
|
|
CAD |
|
|
|
1.3725 |
|
|
|
1.6416 |
|
|
|
1.4908 |
|
|
|
1.6163 |
|
|
|
1.5835 |
|
Australian dollar
|
|
|
AUD |
|
|
|
1.6109 |
|
|
|
1.7459 |
|
|
|
1.6246 |
|
|
|
1.7003 |
|
|
|
1.7307 |
|
Swiss franc
|
|
|
CHF |
|
|
|
1.5551 |
|
|
|
1.5429 |
|
|
|
1.5478 |
|
|
|
1.5421 |
|
|
|
1.5226 |
|
Revenue Recognition
Substantially all of the Companys revenues are derived
from the sale or the license of the Companys software
products and the sale of maintenance, consulting, development,
training, and other services. The Companys standard
license agreement provides a perpetual license to use the
Companys products based on the number of licensed users.
The Company may license its software in multiple element
arrangements if the customer purchases any combination of
maintenance, consulting, development, training, or other
services in conjunction with the software license.
The Company recognizes revenue pursuant to the requirements of
American Institute of Certified Public Accountants
(AICPA) Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2), as amended.
Revenue is recognized using the residual method when
Company-specific objective evidence of fair value exists for all
of the undelivered elements (for example, maintenance,
consulting, or other services) in the arrangement, but does not
exist for one or more delivered elements (for example software).
The Company allocates revenue to each undelivered element based
on its respective fair value which is the price charged when
that element is sold separately or, for elements not yet sold
separately, the price established by management if it is
probable that the price will not change before the element is
sold separately. The Company defers revenue for the undelivered
elements (for example, maintenance, consulting, or other
F-9
services) and recognizes the residual amount of the arrangement
fee attributable to the delivered element (for example,
software), if any, when the basic criteria in SOP 97-2 have
been met.
Under SOP 97-2, provided that the arrangement does not
involve significant production, modification, or customization
of the software, revenue is recognized when all of the following
four criteria have been met:
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1. |
Persuasive evidence of an arrangement exists |
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2. |
Delivery has occurred |
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3. |
The fee is fixed or determinable, and |
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4. |
Collectibility is probable. |
If at the outset of an arrangement the Company determines that
the arrangement fee is not fixed or determinable, revenue is
deferred until the arrangement fee becomes due and payable by
the customer. If at the outset of an arrangement the Company
determines that collectibility is not probable, revenue is
deferred until payment is received. If an arrangement allows for
customer acceptance of the software or services, the Company
defers revenue until the earlier of customer acceptance or when
the acceptance rights lapse.
The Company occasionally licenses software for a specified time
period. Revenue for short-term time-based licenses, which
generally include maintenance during the license period, is
recognized ratably over the license term. Revenues for
multi-year time-based licenses that include maintenance, whether
separately priced or not, are recognized ratably over the
license term unless a substantive maintenance renewal rate
exists, in which case the amount allocated to software based on
the residual method is recognized as software revenue when the
basic criteria in SOP 97-2 have been met. Revenues from
time-based licenses were not material in any of the periods
presented.
If an arrangement includes the right to undelivered unspecified
additional software products, the entire arrangement is
accounted for as a subscription. Revenue from the arrangement is
recognized ratably over the term of the arrangement beginning
with the delivery of the first product. Revenues from
subscriptions were not material in any of the periods presented.
The Company recognizes revenue from resellers upon evidence of
sell-through to the end customer. If SAP becomes aware that a
reseller has granted contingent rights to an end-customer, the
Company defers revenue recognition until a valid license
agreement has been entered into without contingencies or, if
applicable, until the contingencies expire.
In multiple-element arrangements involving software and
consulting, training, or other services that are not essential
to the functionality of the software, the service revenues are
accounted for separately from the software revenues.
Maintenance revenues are recognized ratably over the term of the
maintenance contract. If a maintenance customer is specifically
identified as a bad debtor, the Company ceases recognizing
maintenance revenue except to the extent that maintenance fees
have already been collected. For time-based licenses and
subscriptions, SAP allocates a portion of the arrangement fee to
maintenance revenue based on the estimated fair value of the
maintenance.
Consulting, training, and other service revenues are recognized
as the respective services are performed, generally on a
time-and-materials basis. Consulting revenues attributed to
fixed-price arrangements are recognized using the proportional
performance method, based on direct labor costs incurred to date
as a percentage of total estimated project costs required to
complete the project. Consulting services primarily comprise
implementation support related to the installation and
configuration of the Companys software products and do not
typically involve significant production, modification, or
customization of the software. When total cost estimates exceed
revenues in a fixed-price arrangement, the estimated losses are
recognized immediately based upon an average fully burdened
daily rate applicable to the consulting organization delivering
the services.
F-10
Revenues for arrangements that involve significant production,
modification, or customization of the software and those in
which services are not available from third-party vendors and
therefore deemed essential, are recognized, depending on the fee
structure, on a time-and-materials basis or using the percentage
of completion method of accounting. If SAP does not have a
sufficient basis to measure the progress of completion, revenue
is recognized when final acceptance is received from the
customer. If the arrangement includes elements that do not
qualify for contract accounting (for example maintenance,
hosting) such elements are accounted for separately provided
that the elements have stand-alone value and company-specific
objective evidence of fair value exists. When total cost
estimates exceed revenues in a fixed-price arrangement, the
estimated losses are recognized immediately based upon an
average fully burdened daily rate applicable to the unit
delivering the services.
The Company periodically enters into joint development
agreements with customers to leverage their industry expertise
and provide standard software solutions for selected vertical
markets. These customers generally contribute cash, resources,
and industry expertise in exchange for license rights for the
future solution. The Company recognizes software revenue in
conjunction with these arrangements based upon the percentage of
completion method. Beginning in 2005, the Company classifies the
development costs associated with these arrangements as Cost of
Product. See Note 8 for more information.
Hosting services are recognized ratably over the term of hosting
contract. Revenues from hosting services were not material in
any of the periods presented.
The assumptions, risks, and uncertainties inherent with the
application of the percentage of completion method affect the
timing and amounts of revenues and expenses reported. Numerous
internal and external factors can affect estimates, including
direct labor rates, utilization, and efficiency variances.
The Company accounts for out-of-pocket expenses rebilled to
customers as maintenance, consulting, and training revenues.
Research and Development
Research and development costs are expensed as incurred.
Research and development costs incurred between the date on
which technological feasibility is established and the date of
which the related product is available-for-sale should be
capitalized. Historically, such costs have not been material and
consequently have not been capitalized.
Advertising Costs
Advertising costs are expensed as incurred.
Rental Expense
SAP is a lessee of property, plant, and equipment, mainly
buildings and vehicles, under operating leases that do not
transfer to SAP the substantive risks and rewards of ownership.
Rent expense on operating leases is recognized on a
straight-line basis over the life of the lease including renewal
terms if, at inception of the lease, renewal is reasonably
assured. Some operating leases contain lessee incentives, such
as up-front payments of costs or free or reduced periods of
rent. Such incentives are amortized over the life of the lease
such that the rent expense is recognized on a straight-line
basis over the life of the lease.
Earnings per Share
Basic earnings per share is calculated by dividing consolidated
net income by the weighted average number of common shares
outstanding. Diluted earnings per share reflect the potential
dilution that would
F-11
occur if all in the money securities and other
contracts to issue common shares were exercised or converted.
Goodwill and Other Intangible Assets
SAP accounts for all business combinations using the purchase
method. As of the date of acquisition, the purchase price is
allocated to the fair values of the assets acquired and
liabilities assumed. Goodwill represents the excess of the cost
of an acquired entity over the fair values assigned to the
tangible assets acquired, to those intangible assets that are
required to be recognized and reported separately from goodwill,
and to the liabilities assumed.
Purchased intangible assets with estimable useful lives, are
recorded at acquisition cost and generally amortized on a
straight-line basis over their estimated useful life of two to
12 years, and reviewed for impairment when significant
events occur or there are changes in circumstances that indicate
that the carrying amount of the asset or asset group may not be
recoverable. All of SAPs intangible assets, with the
exception of goodwill and the aggregate minimum pension
liability offset, have estimable useful lives and are therefore
subject to amortization.
The fair value of acquired identifiable in-process research and
development (in-process R&D), which represents
acquired research and development efforts that have not reached
technological feasibility and that have no alternative future
use, is expensed immediately.
Goodwill is not amortized, but is tested for impairment at least
annually or when significant events occur or when there are
changes in circumstances that indicate the fair value of a
reporting unit of the Group is less than its carrying value.
Property, Plant, and Equipment
Property, plant, and equipment is valued at acquisition cost
plus the fair value of related asset retirement costs, if any,
and if reasonably estimable, less accumulated depreciation.
Interest incurred during the construction of qualifying assets
is capitalized and amortized over the related assets
estimated useful lives.
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|
Useful lives of property, |
|
|
plant, and equipment |
|
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|
Buildings
|
|
25 to 50 years |
Leasehold improvements
|
|
Based upon the lease contract |
Information technology equipment
|
|
3 to 5 years |
Office furniture
|
|
4 to 20 years |
Automobiles
|
|
5 years |
Generally, property, plant, and equipment is depreciated using
the straight-line method. Certain assets with expected useful
lives in excess of three years are depreciated using the
declining balance method.
During the third quarter of 2005, after a comprehensive review
of owned property, plant, and equipment, SAP revised its
estimates of the depreciable lives and salvage values of certain
property, plant, and equipment to better reflect their remaining
economic lives and salvage values. The effect of these changes
in estimates on the year ended December 31, 2005, was not
material.
Leasehold improvements are depreciated using the straight-line
method over the shorter of the term of the lease or the useful
life of the asset. If a renewal option exists, the depreciation
period reflects the additional time covered by the option if
exercise is reasonably assured.
F-12
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, equipment, and
acquired intangible assets subject to amortization, are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or group of assets
may not be recoverable. Recoverability of assets to be held and
used is assessed by comparing their carrying amount to the
expected future undiscounted net cash flows they are expected to
generate. If an asset or group of assets is considered to be
impaired, the impairment to be recognized is measured as the
amount by which the carrying amount of the asset or group of
assets exceeds fair value. Long-lived assets meeting the
criteria to be considered as held-for-sale are reported at the
lower of their carrying amount or fair value less anticipated
disposal costs. In the years presented, the Company recognized
no significant impairment charges on long-lived assets.
Financial Assets and Marketable Securities
Marketable debt and equity securities, other than investments
accounted for by the equity method, are classified as
available-for-sale or held-to-maturity, depending on
managements intent with respect to holding such
investments. If it is readily determinable, marketable
securities classified as available-for-sale are accounted for at
fair value. Unrealized gains and losses on available-for-sale
securities are excluded from earnings and reported net of tax as
a component of other comprehensive income within
shareholders equity. The Company does not classify
marketable debt or equity securities as trading.
Investments in privately held companies over which SAP does not
have the ability to exercise significant influence are accounted
for under the cost method of accounting. An impairment charge is
recognized in earnings in the line item Financial income,
net in the period a decline in realizable value below carrying
value is deemed to be other than temporary. Gains or losses
realized on sales of securities are based on the average-cost
method.
Investments accounted for under the equity method are initially
recorded at acquisition cost and are subsequently adjusted for
SAPs proportionate share of the investees net income
or losses and for amortization of any step up in the value of
the acquired assets over the investees book value. The
excess of SAPs initial investment in equity method
companies over its ownership percentage in the underlying net
assets of those companies is attributed to certain fair value
adjustments with the remaining portion recognized as goodwill
(investor level goodwill) which is not amortized. An
impairment loss on SAPs equity method investments is
recognized when the carrying value of the investment exceeds the
realizable value on an other-than-temporary basis.
All marketable debt and equity securities, cost method
investments, and equity method investments, are evaluated for
impairment at least annually or earlier if SAP becomes aware of
an event that indicates that the carrying amount of the asset
may not be recoverable. To determine whether a decline in value
below the carrying amount of an asset is other-than-temporary,
SAP considers whether it has the ability and intent to hold the
investment until a market price recovery occurs and whether
evidence indicating that the carrying value of the investment is
recoverable outweighs evidence to the contrary. Evidence
considered in this assessment includes the reasons for the
impairment, the severity and duration of the decline in
realizable value below cost, changes in value subsequent to the
balance sheet date, as well as forecasted performance of the
investee. If a decline in value below the carrying amount is
determined to be other than temporary, the asset is written down
to fair value through an impairment charge and a new cost basis
is established.
Non-interest-bearing or below-market-rate loans to employees and
to third parties are discounted to their present value. In the
event of any delay or shortfall in payments due under employee
or third-party loans, SAP performs an individual loan review.
The same applies if SAP becomes aware of any change in the
debtors financial condition that indicates a delay or
shortfall in payments may result. If it is probable that SAP
will not be able to collect the amounts due according to the
contractual terms of the loan agreement, an impairment charge is
recorded based on SAPs best estimate of the amount that
will be recoverable.
F-13
Dividend and interest income are recognized when earned.
Non-Fixed Assets
Non-fixed assets are comprised of Inventories, Accounts
receivable, Other assets, Marketable securities, and Liquid
assets including amounts to be realized in excess of one year.
The respective amounts to be realized in excess of one year are
disclosed in the Notes.
Inventories
Inventories recorded at the lower of purchase or production cost
or market value. Production costs consist of direct salaries,
materials, and production overhead.
Accounts Receivable and Other Assets
Accounts receivable are recorded at the invoiced amount and do
not bear interest. Included in Accounts receivable are unbilled
receivables related to fixed fee consulting arrangements. The
allowance for doubtful accounts is the Companys best
estimate of the amount of probable credit losses in the
Companys existing accounts receivable portfolio. The
Company determines the allowance for doubtful accounts after
giving consideration to specific customer past due amounts based
on due dates and regional economic risks. Account balances are
charged off against the allowance after all collection efforts
have been exhausted and the potential for recovery is considered
remote. Non-interest-bearing receivables with a term exceeding
one year are discounted to their present value using local
interest rates.
With the exception of investments in insurance policies held for
employee-financed pension plan, which are recorded at
actuarially determined values including premiums paid and
guarantied interest, all Other assets are recorded at historical
cost which approximates fair value due to their short-term
nature.
Liquid Assets
Liquid assets are comprised of cash and cash equivalents and
time deposits with original maturities exceeding three months.
Cash and Cash Equivalents
Cash and cash equivalents for purposes of the Consolidated
Statements of Cash Flows consist of cash at banks, highly liquid
investments with original maturities of three months or less.
The Consolidated Statements of Cash Flows are reconciled to cash
and cash equivalents, which are reconciled to liquid assets in
Note 19.
Prepaid Expenses and Deferred Charges
Prepaid expenses and deferred charges are primarily composed of
prepayments of software royalties, operating leases, and
maintenance contracts which will be charged to expense in the
future periods as such costs are incurred.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement
F-14
carrying amounts of existing assets and liabilities and their
respective tax bases and on operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
Deferred tax assets are reduced by a valuation allowance to the
extent that it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
Commitments and Contingencies
Liabilities for loss contingencies are recorded when it is
probable that a liability to third parties has been incurred and
the amount can be reasonably estimated. Liabilities for loss
contingencies are regularly adjusted as further information
develops or circumstances change.
At the time of the sale or license of SAPs software, which
includes a warranty provision, SAP records an accrual for
warranty costs based on historical experience.
Pension Benefit Liabilities
The measurement of pension-benefit liabilities is based on
actuarial computations using the projected-unit-credit method in
accordance with SFAS 87, Employers Accounting for
Pensions (SFAS 87). The assumptions used to
calculate pension liabilities and costs are shown in
Note 23. Changes in the amount of the projected benefit
obligation or plan assets resulting from experience different
from that assumed and from changes in assumptions can result in
gains or losses not yet recognized in the Groups
Consolidated Financial Statements. Amortization of an
unrecognized net gain or loss is included as a component of the
Groups net periodic benefit plan cost for a year if, as of
the beginning of the year, that unrecognized net gain or loss
exceeds 10% of the greater of the projected benefit obligation
or the fair value of that plans assets. In that case, the
amount of amortization recognized by the Group is the resulting
excess divided by the average remaining service period of the
active employees expected to receive benefits under the plan.
The Company also records a liability for amounts payable under
the provisions of its various defined contribution plans.
Stock-Based Compensation
Through December 31, 2005, the Company accounted for
stock-based compensation based on the intrinsic-value-based
method prescribed by Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees (APB
25), and related interpretations. Under this method,
compensation expense is recorded only if on the date of grant
the current market price of the underlying stock exceeds the
exercise price or the exercise price is not fixed at the grant
date.
SFAS 123 Accounting for Stock-Based Compensation,
(SFAS 123) and SFAS 148 Accounting for
Stock-Based Compensation Transition and Disclosure,
an amendment of FASB Statement No. 123
(SFAS 148) established accounting and
disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As
permitted by SFAS 123 and SFAS 148, the Company
elected to continue to apply the intrinsic-value-based method of
accounting described above and adopted only the disclosure
requirements of
F-15
SFAS 123, as currently effective at December 31, 2005.
The following table illustrates the effect on net income if the
fair-value-based method had been applied to all outstanding and
unvested awards in each period.
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|
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|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income (in
(000))
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
1,496,407 |
|
|
|
1,310,521 |
|
|
|
1,077,063 |
|
Add: Expense for stock-based compensation, net of tax according
to APB 25
|
|
|
31,130 |
|
|
|
23,445 |
|
|
|
85,700 |
|
Deduct: Expense for stock-based compensation, net of tax
according to SFAS 123
|
|
|
138,468 |
|
|
|
181,323 |
|
|
|
205,109 |
|
|
|
|
|
|
|
|
|
|
|
Pro-forma
|
|
|
1,389,069 |
|
|
|
1,152,643 |
|
|
|
957,654 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
|
4.83 |
|
|
|
4.22 |
|
|
|
3.47 |
|
Diluted as reported
|
|
|
4.81 |
|
|
|
4.20 |
|
|
|
3.46 |
|
Basic pro-forma
|
|
|
4.48 |
|
|
|
3.71 |
|
|
|
3.08 |
|
Diluted pro-forma
|
|
|
4.48 |
|
|
|
3.70 |
|
|
|
3.08 |
|
Derivative Financial Instruments
SAP uses forward exchange derivative financial instruments to
reduce the foreign currency exchange risk, primarily of
anticipated cash flows from transactions with subsidiaries
denominated in currencies other than the euro. As discussed in
Note 31, the Company uses call options to hedge its
anticipated cash flow exposure attributable to changes in the
market value of stock appreciation rights under various plans.
SAP accounts for derivatives and hedging activities in
accordance with SFAS 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), as amended, which requires that all
derivative financial instruments be recorded on the balance
sheet at their fair value. The effective portion of the realized
and unrealized gain or loss on derivatives designated as cash
flow hedges is reported net of tax, as a component of other
comprehensive income. The portion of gains or losses on
derivatives is reclassified from other comprehensive income into
earnings in the same period or periods during which the hedged
forecasted transaction affects earnings, or in the period the
derivative contract is terminated, if earlier. The ineffective
portion of gains or losses on derivatives designated as cash
flow hedges are reported in earnings when the ineffectiveness
occurs. In measuring the effectiveness of foreign
currency-related cash flow hedges, SAP excludes differences
resulting from time value (that is, spot rates versus forward
rates for forward contracts). Changes in value resulting from
the excluded component are recognized in earnings immediately.
Foreign currency exchange derivatives entered into by SAP to
offset exposure to anticipated cash flows that do not meet the
conditions for hedge accounting are recorded at fair value in
the Consolidated Balance Sheets with changes in fair value
included in earnings.
Treasury Stock
Treasury shares are recorded at acquisition cost and are
included as a separate component of Shareholders equity.
Gains and losses on the subsequent reissuance of treasury shares
are credited or charged to the Additional paid-in capital on an
after-tax basis.
Accumulated Other Comprehensive Income/Loss
Comprehensive income is comprised of Net income and Other
comprehensive income/loss.
Accumulated other comprehensive income/loss includes foreign
currency translation adjustments, changes in additional minimum
pension liability, unrealized gains and losses from derivatives
designated as
F-16
cash flow hedges, unrealized gains and losses resulting from
STAR hedges, and unrealized gains and losses from marketable
debt and equity securities classified as available-for-sale.
Other comprehensive income/loss and comprehensive income are
displayed separately in the Consolidated Statements of Changes
in Shareholders Equity.
New Accounting Standards Not Yet Adopted
In June 2005 the FASB ratified EITF 05-5, Accounting for
Early Retirement or Postemployment Programs with Specific
Features (Such As Terms Specified in Altersteilzeit Early
Retirement Arrangements). EITF 05-5 provides guidance
on the accounting for the German Altersteilzeit
(ATZ) early retirement program and other types of
benefit arrangements with the same or similar terms. The ATZ
program is a German early retirement program designed to create
an incentive for employees, within a certain age group, to
changeover from full or part-time employment into retirement
before their legal retirement age. The ATZ program provides the
employee with a bonus which is reimbursed by subsidies from the
German government if certain conditions are met. According to
EITF 05-5, the bonuses provided by the employer should be
accounted for as postemployment benefits under SFAS 112,
Employers Accounting for Postemployment
Benefits an amendment of FASB Statements No. 5
and 43 (SFAS 112), with compensation cost
recognized over the remaining service period beginning when the
individual agreement is signed by the employee and ending when
the active service period ends. The government subsidy should be
recognized when the employer meets the necessary criteria and is
entitled to the subsidy. The effect of applying EITF 05-5
should be recognized prospectively as a change in accounting
estimate under SFAS 154 Accounting Changes and
Error Corrections a Replacement of APB Opinion
No. 20 and FASB Statement No. 3
(SFAS 154) in fiscal years beginning after
December 15, 2005. SAP expects the adoption of
EITF 05-5 in the first quarter of 2006 to have no material
effects on SAPs financial statements.
In May 2005, the FASB issued SFAS 154,. SFAS 154
requires that the correction of an error, a voluntary change of
accounting principles, and the first-time adoption of a new
accounting pronouncement without specified transition method
shall be applied retrospectively to prior periods
financial statements, unless it is impracticable to do so.
Impracticability could occur if the direct period-specific
effects or the direct cumulative effect of the accounting change
can not be determined. In addition, SFAS 154 contains a new
definition of changes in accounting estimates that shall be
applied on a prospective basis to financial statements. Under
SFAS 154 a change in depreciation, amortization, or
depletion method for a long-lived, non-financial asset is a
change in estimate affected by a change in accounting principle,
SFAS 154 is effective for fiscal years beginning after
December 15, 2005. SAP does not expect the adoption of
SFAS 154 to have a material impact on the consolidated
financial statements.
In December 2004, the FASB issued SFAS 123 (revised 2004),
Share-Based Payment (SFAS 123R).
SFAS 123R establishes accounting guidance for share-based
payments and transactions in which an entity exchanges its
equity instruments for goods or services or incurs liabilities
in exchange for goods or services that are based on the fair
value of the entitys equity instruments or that may be
settled by the issuance of those equity instruments.
Equity-classified awards are measured at grant date fair value
and are not subsequently remeasured. Liability-classified awards
are remeasured to fair value at each balance sheet date until
the award is settled. SFAS 123R originally applied to all
awards granted after July 1, 2005, and to awards modified,
repurchased, or cancelled after that date. In April 2005, the
U.S. Securities and Exchange Commission (SEC) issued a
release allowing postponement of the effective date of
SFAS 123R. In accordance with the SEC release, SAP will
adopt SFAS 123R as of January 1, 2006, using the
modified version of prospective application. SAP expects the
cumulative effect from the adoption of SFAS 123R including
the remeasurement from intrinsic value to fair value of
liability classified awards (STAR 2003, STAR 2004, STAR 2005) to
be immaterial, due to the fact that the difference between the
intrinsic values and the fair values of the STARs outstanding as
of December 31, 2005, was immaterial. See Note 22 for
information about the effects of applying the fair value method
to account for stock-based employee compensation on the
Groups Consolidated Financial Statements.
F-17
(4) ACQUISITIONS
In 2005, SAP acquired four unrelated companies and completed two
business combinations in the form of asset deals, the results
from which are included in SAPs results since the
respective dates of acquisition. SAP also acquired software
(intellectual property) from other companies, without acquiring
related businesses in the meaning of SFAS 141, Business
Combinations (SFAS 141). These transactions
were immaterial individually and in the aggregate. Three of the
acquired companies developed and sold software and the, one
acquired company provided support services. The two businesses
acquired through asset deals developed and sold software. The
aggregate purchase price of these acquisitions was paid in cash
and amounted to
176.8 million
net of cash received and was allocated as follows:
91.5 million
as identifiable intangible assets with estimated useful lives
ranging from two to 12 years,
0.3 million
as in-process research and development which was expensed at the
acquisition date since the acquired technologies had no
alternative future use and
(14.1) million
as other assets net of liabilities. The remaining
99.1 million
was allocated as goodwill, of which
3 million
is expected to be fully deductible for tax purposes. The
goodwill recognized in 2005 was assigned to the Product,
Consulting, and Training segments in the amounts of
84.2 million,
12.9 million,
and
2.0 million,
respectively. The aggregate purchase price related to SAPs
2005 acquisitions may increase by approximately
17 million
if certain earn-out considerations and milestones are
subsequently achieved by the acquired companies.
Also in 2005, SAP acquired shares in its subsidiary SAP Systems
Integration AG (SAP SI), increasing its ownership interest from
91.6% as of December 31, 2004, to 96.5% as of
December 31, 2005. The acquisition of shares of SAP SI was
accounted for like a purchase business combination. The
aggregate purchase price for the SAP SI shares acquired in 2005
was
60.0 million
(2004:
168.1 million)
which was paid in cash. SAP allocated
44.2 million
of the aggregate purchase price to goodwill of the Consulting
segment,
14.5 million
to minority interests and
1.3 million
to identifiable intangible assets. The recorded goodwill is not
expected to be tax deductible. In connection with SAPs
acquisition of additional SAP SI shares during 2004, SAP AG
offered participants of SAP SIs stock option plan a cash
settlement for the outstanding convertible bonds. The majority
of plan participants accepted the offer. The resulting cash
payments amount to approximately
9.0 million.
Most of this was paid in 2005 and 2004. As of December 31,
2005 and 2004, convertible bonds outstanding were immaterial.
In connection with the 2005 transactions discussed above, SAP
assigned the following amounts to identifiable intangible assets:
Identifiable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated useful | |
|
|
million | |
|
life (in years) | |
|
|
| |
|
| |
Customer contracts
|
|
|
12.1 |
|
|
|
2 - 10 |
|
Intellectual Property
|
|
|
80.7 |
|
|
|
3 - 12 |
|
In-process research and development
|
|
|
0.3 |
|
|
|
expensed at the |
|
|
|
|
|
|
|
|
acquisition date |
|
|
|
|
|
|
|
|
Identifiable intangible assets acquired
|
|
|
93.1 |
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2004, SAP completed
certain acquisitions, which were immaterial individually and in
the aggregate. These acquisitions were accounted for using the
purchase method and are included in SAPs Consolidated
Financial Statements since the date of acquisition. The
aggregate purchase price of these acquisitions in 2004 was
186.6 million,
of which
22.3 million
was assigned to identifiable intangible assets with estimated
useful lives ranging from 0.5 to 6.5 years,
0.5 million
as in-process research and development which was expensed at the
acquisition date since the acquired technologies had no
alternative future use,
42.0 million
to minority interests and
(5.1) million
as other assets net of liabilities.
F-18
The remaining
126.9 million
was recorded as goodwill. The goodwill recognized in 2004 was
assigned to the Product and Consulting segments in the amounts
of
1.7 million
and
125.2 million,
respectively.
B. NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME
(5) REVENUE
Revenue information by segment and geographic region is
disclosed in Note 32. Other revenue primarily relates to
income derived from marketing events.
(6) SALES AND MARKETING
Sales and marketing expense includes advertising costs, which
amounted to
185 million,
170 million,
and
162 million
in 2005, 2004, and 2003 respectively.
(7) OTHER OPERATING INCOME/ EXPENSE, NET
Other operating income/ expense for the years ended
December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Bad debt expense
|
|
|
(3,409 |
) |
|
|
(1,791 |
) |
|
|
0 |
|
Restructuring costs severance obligations
|
|
|
(899 |
) |
|
|
(5,796 |
) |
|
|
(3,384 |
) |
Restructuring costs unused lease space
|
|
|
(632 |
) |
|
|
(1,210 |
) |
|
|
(17,164 |
) |
Expenses to obtain rental income
|
|
|
0 |
|
|
|
(1,517 |
) |
|
|
(3,297 |
) |
Other
|
|
|
(2,983 |
) |
|
|
(2,834 |
) |
|
|
(835 |
) |
|
|
|
|
|
|
|
|
|
|
Other operating expense
|
|
|
(7,923 |
) |
|
|
(13,148 |
) |
|
|
(24,680 |
) |
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
6,811 |
|
|
|
7,135 |
|
|
|
9,870 |
|
Receipt of insurance proceeds
|
|
|
1,618 |
|
|
|
4,318 |
|
|
|
2,002 |
|
Reductions of bad debt allowance
|
|
|
0 |
|
|
|
0 |
|
|
|
5,368 |
|
Other
|
|
|
5,676 |
|
|
|
3,457 |
|
|
|
944 |
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
14,105 |
|
|
|
14,910 |
|
|
|
18,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,182 |
|
|
|
1,762 |
|
|
|
(6,496 |
) |
|
|
|
|
|
|
|
|
|
|
Charges to the allowance for doubtful accounts for bad debt
expense are based on a systematic, ongoing review, and
evaluation of outstanding receivables that is performed every
month. Specific customer credit loss risks are also included in
the allowance for doubtful accounts, but are charged to the
respective cost of product or cost of service sold. Total
provisions for allowances for doubtful accounts charged to the
respective functional cost category of product or cost of
service sold approximated
9.0 million,
0 million
and
12.3 million
during 2005, 2004, and 2003, respectively.
See Note 24 for more detailed information about costs
incurred in connection with exit activities.
(8) FUNCTIONAL COSTS AND OTHER EXPENSES
The information provided below is classified based upon the type
of expense. The Consolidated Statements of Income include these
amounts in various categories based upon the applicable line of
business.
F-19
Cost of Services and Materials
Cost of purchased services and materials, which are included in
various operating expense line items in the Consolidated
Statements of Income for the years ended December 31, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Raw materials and supplies, purchased goods
|
|
|
30,030 |
|
|
|
27,124 |
|
|
|
26,052 |
|
Purchased services
|
|
|
827,831 |
|
|
|
722,727 |
|
|
|
643,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857,861 |
|
|
|
749,851 |
|
|
|
669,867 |
|
|
|
|
|
|
|
|
|
|
|
Personnel Expenses/ Number of Employees
Personnel expenses, which are included in various operating
expenses in the Consolidated Statements of Income for the years
ended December 31, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Salaries
|
|
|
2,882,828 |
|
|
|
2,513,791 |
|
|
|
2,479,416 |
|
Social costs
|
|
|
379,240 |
|
|
|
350,052 |
|
|
|
346,579 |
|
Pension expense
|
|
|
109,479 |
|
|
|
104,175 |
|
|
|
110,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,371,547 |
|
|
|
2,968,018 |
|
|
|
2,936,590 |
|
|
|
|
|
|
|
|
|
|
|
Included in personnel expenses for the years ended
December 31, 2005, 2004, and 2003, are expenses associated
with the stock-based compensation plans as described in
Note 22.
The average number of employees in full-time equivalents was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Employees in full-time equivalents
|
|
|
34,550 |
|
|
|
31,224 |
|
|
|
29,098 |
|
Certain employees who are currently employed by SAP but who are
not currently operational or who work part-time while finishing
a university degree are excluded from the above figures. Also,
certain temporary employees are not included in the above
figures. The number of such temporary employees is not material.
The Company made certain adjustments to amounts previously
reported in 2004 and 2003 as Cost of Product and Research and
Development expense. The Company determined that these
adjustments were necessary to properly classify certain
development costs associated with contracts with one or more
customer to jointly produce, modify, or customize software. Such
costs were previously reported in Research and Development
expense reflecting the fact that the software had not reached
technological feasibility. However, these costs should have been
reported as contract costs and included in Cost of Product
consistent with the accounting for the related contract software
development revenue. These adjustments have no effect on the
amounts of operating income, net income, cash flows, segment
results or any balance sheet line items. The effects of these
adjustments are as follows for the years ended December 31,
2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
As | |
|
|
|
As | |
|
|
|
|
previously | |
|
|
|
As | |
|
previously | |
|
|
|
As | |
|
|
reported | |
|
Adjustment | |
|
adjusted | |
|
reported | |
|
Adjustment | |
|
adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Cost of product
|
|
|
(804,312 |
) |
|
|
(111,966 |
) |
|
|
(916,278 |
) |
|
|
(839,041 |
) |
|
|
(123,716 |
) |
|
|
(962,757 |
) |
Research and development
|
|
|
(1,020,022 |
) |
|
|
111,966 |
|
|
|
(908,056 |
) |
|
|
(995,941 |
) |
|
|
123,716 |
|
|
|
(872,225 |
) |
F-20
(9) OTHER NON-OPERATING INCOME/ EXPENSE, NET
Other non-operating income/ expense for the years ended
December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Foreign currency losses
|
|
|
(116,628 |
) |
|
|
(140,881 |
) |
|
|
(255,749 |
) |
Losses on disposal of fixed assets
|
|
|
(2,915 |
) |
|
|
(6,696 |
) |
|
|
(3,474 |
) |
Other
|
|
|
(16,406 |
) |
|
|
(8,830 |
) |
|
|
(6,585 |
) |
|
|
|
|
|
|
|
|
|
|
Other non-operating expenses
|
|
|
(135,949 |
) |
|
|
(156,407 |
) |
|
|
(265,808 |
) |
|
|
|
|
|
|
|
|
|
|
Foreign currency gains
|
|
|
77,987 |
|
|
|
152,831 |
|
|
|
284,288 |
|
Gains on disposal of fixed assets
|
|
|
7,641 |
|
|
|
6,147 |
|
|
|
5,237 |
|
Other
|
|
|
25,160 |
|
|
|
10,703 |
|
|
|
12,592 |
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income
|
|
|
110,788 |
|
|
|
169,681 |
|
|
|
302,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,161 |
) |
|
|
13,274 |
|
|
|
36,309 |
|
|
|
|
|
|
|
|
|
|
|
(10) FINANCIAL INCOME, NET
Financial income, net for the years ended December 31 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Interest and similar income
|
|
|
93,778 |
|
|
|
63,880 |
|
|
|
46,988 |
|
Interest and similar expenses
|
|
|
(3,859 |
) |
|
|
(8,122 |
) |
|
|
(3,999 |
) |
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
89,919 |
|
|
|
55,758 |
|
|
|
42,989 |
|
|
|
|
|
|
|
|
|
|
|
Gain from investments, net
|
|
|
855 |
|
|
|
1,842 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
thereof from equity method investments
|
|
|
610 |
|
|
|
(342 |
) |
|
|
(234 |
) |
Income from marketable securities and loans of financial assets
|
|
|
64,791 |
|
|
|
2,865 |
|
|
|
3,084 |
|
Write-down of financial assets
|
|
|
(12,559 |
) |
|
|
(15,329 |
) |
|
|
(7,806 |
) |
Impairment-related charges
|
|
|
(4,026 |
) |
|
|
(5,074 |
) |
|
|
(14,857 |
) |
Gains on sales of equity securities
|
|
|
1,075 |
|
|
|
14,034 |
|
|
|
2,224 |
|
Unrealized losses on STAR hedge
|
|
|
(66,166 |
) |
|
|
(14,558 |
) |
|
|
(15,213 |
) |
Other financial income/expense
|
|
|
(63,104 |
) |
|
|
1,449 |
|
|
|
5,844 |
|
|
|
|
|
|
|
|
|
|
|
Other financial loss from investments, net
|
|
|
(79,989 |
) |
|
|
(16,613 |
) |
|
|
(26,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,785 |
|
|
|
40,987 |
|
|
|
16,287 |
|
|
|
|
|
|
|
|
|
|
|
Interest income is derived primarily from Cash and cash
equivalents, Long-term investments, and Other assets. In the
table above, Income from marketable securities and loans of
financial assets and Other financial income/ expense both
include
62.6 million
in 2005 resulting from collateral held to secure capital
investments made. While holding the collateral, SAP directly
transfers to the debtor any income received on the collateral.
Interest income received on the capital investment is included
in interest income. SAP decides on a case by case basis whether
to require collateral for its financial investments.
See Notes 15 and 22 regarding write-downs of financial
assets and unrealized losses on STAR hedge respectively.
F-21
(11) INCOME TAXES
Income tax for the years ended December 31 is comprised of
the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Current taxes Germany
|
|
|
514,836 |
|
|
|
470,473 |
|
|
|
382,786 |
|
Current taxes Foreign
|
|
|
318,281 |
|
|
|
267,591 |
|
|
|
217,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
833,117 |
|
|
|
738,064 |
|
|
|
600,018 |
|
Deferred taxes Germany
|
|
|
15,317 |
|
|
|
22,120 |
|
|
|
90,925 |
|
Deferred taxes Foreign
|
|
|
(31,381 |
) |
|
|
(2,915 |
) |
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,064 |
) |
|
|
19,205 |
|
|
|
92,622 |
|
Income tax expense
|
|
|
817,053 |
|
|
|
757,269 |
|
|
|
692,640 |
|
|
|
|
|
|
|
|
|
|
|
In 2005 and 2004, the German government enacted several new tax
laws with minor effect on corporations. Accordingly this
legislation does not include any significant changes of
relevance for the Company and the effect of this and other
changes in tax laws on the Consolidated Statements of Income in
2005, 2004 and 2003 were not material.
Income before income tax and minority interest consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Germany
|
|
|
1,454,675 |
|
|
|
1,352,200 |
|
|
|
1,179,891 |
|
Foreign
|
|
|
861,681 |
|
|
|
720,442 |
|
|
|
596,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,316,356 |
|
|
|
2,072,642 |
|
|
|
1,776,615 |
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate for the years ended
December 31, 2005, 2004, and 2003, was 35.3%, 36.5%, and
39.0% respectively. The following table reconciles the expected
income tax expense computed by applying the Companys
combined German corporate tax rate of 36.32% in 2005 (2004:
36.20%; 2003: 37.71%) to the actual income tax expense. The
Companys 2005 combined German corporate tax rate includes
a corporate income tax rate, after the benefit of deductible
trade tax, of 21.62 % (2004: 21.66%; 2003: 22.91%) plus a
solidarity surcharge of 5.5% thereon and trade taxes of 13.51%
(2004: 13.35%; 2003: 13.54%).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Income before income taxes
|
|
|
2,316,356 |
|
|
|
2,072,642 |
|
|
|
1,776,615 |
|
Expected income taxes 36.32% in 2005 (36.20% in 2004, 37.71% in
2003)
|
|
|
841,300 |
|
|
|
750,296 |
|
|
|
669,961 |
|
Foreign tax rate differential
|
|
|
(5,717 |
) |
|
|
(7,800 |
) |
|
|
(14,735 |
) |
Tax on non-deductible expenses
|
|
|
12,776 |
|
|
|
12,631 |
|
|
|
28,564 |
|
Tax effect on losses
|
|
|
6,593 |
|
|
|
(471 |
) |
|
|
(1,507 |
) |
Tax effect on equity investments and securities
|
|
|
(34,626 |
) |
|
|
(7,795 |
) |
|
|
7,110 |
|
Other
|
|
|
(3,273 |
) |
|
|
10,408 |
|
|
|
3,247 |
|
|
|
|
|
|
|
|
|
|
|
Actual income tax expense
|
|
|
817,053 |
|
|
|
757,269 |
|
|
|
692,640 |
|
|
|
|
|
|
|
|
|
|
|
F-22
Deferred income tax assets and liabilities as of
December 31, 2005 and 2004, are summarized (referring to
the underlying items) as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Deferred tax assets
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
8,753 |
|
|
|
34,181 |
|
Property, plant, and equipment
|
|
|
38 |
|
|
|
3,278 |
|
Financial assets
|
|
|
14,714 |
|
|
|
7,206 |
|
Accounts receivable
|
|
|
9,684 |
|
|
|
4,099 |
|
Net operating loss carryforwards
|
|
|
9,427 |
|
|
|
11,993 |
|
Pension provisions
|
|
|
28,687 |
|
|
|
18,332 |
|
Stock-based compensation
|
|
|
12,892 |
|
|
|
8,371 |
|
Other liabilities
|
|
|
140,474 |
|
|
|
91,422 |
|
Deferred income
|
|
|
32,829 |
|
|
|
28,106 |
|
Other
|
|
|
127 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
257,625 |
|
|
|
207,049 |
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(6,927 |
) |
|
|
(1,448 |
) |
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
250,698 |
|
|
|
205,601 |
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
17,572 |
|
|
|
0 |
|
Property plant, and equipment
|
|
|
3,123 |
|
|
|
7,718 |
|
Financial assets
|
|
|
28,996 |
|
|
|
8,944 |
|
Accounts receivable
|
|
|
41,307 |
|
|
|
44,204 |
|
Other provisions
|
|
|
3,453 |
|
|
|
3,130 |
|
Other
|
|
|
20 |
|
|
|
206 |
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
94,471 |
|
|
|
64,202 |
|
|
|
|
|
|
|
|
Net deferred tax assets/ liabilities
|
|
|
156,227 |
|
|
|
141,399 |
|
|
|
|
|
|
|
|
With regard to their duration, Deferred tax assets and
liabilities as of December 31 are classified as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Deferred tax assets
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
144,542 |
|
|
|
96,132 |
|
Long-term
|
|
|
106,156 |
|
|
|
109,469 |
|
|
|
|
|
|
|
|
|
|
|
250,698 |
|
|
|
205,601 |
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
42,399 |
|
|
|
47,557 |
|
Long-term
|
|
|
52,072 |
|
|
|
16,645 |
|
|
|
|
|
|
|
|
|
|
|
94,471 |
|
|
|
64,202 |
|
|
|
|
|
|
|
|
On December 31, 2005, certain foreign subsidiaries of the
Company had net operating loss carryforwards amounting to
52,694 thousand
(2004: 65,907
thousand), which may be used to offset future taxable income. Of
this amount
21,133 thousand
predominantly relates to state net operating loss carryforwards
in the United States, of which
16,617 thousand
expire during the years 2021 and 2025, if not used earlier. The
remaining amount is available to be used to offset state taxable
income, if any, over the next
F-23
15 years. Further
14,122 thousand
relates to other net operating loss carryforwards that will
expire if not used within three to seven years. The remaining
17,439 thousand
relates to other net operating loss carryforwards that do not
expire and therefore can be utilized indefinitely.
Deferred tax assets as of December 31, 2005 and 2004,
relating to net operating loss carryforwards, have been reduced
by a valuation allowance of
6,927 thousand
and
1,448 thousand,
respectively, to a net amount that management believes is more
likely than not to be realized.
The increase of this valuation allowance in 2005 from
1,448 thousand
to
6,927 thousand
is mainly caused by change in assessment of the realizability of
net operating loss carryforwards. In the previous year the
valuation allowance had decreased from
1,504 thousand
to
1,448 thousand.
The Company recorded tax liabilities of
3,935 thousand
(2004:
3,240 thousand)
for taxes on future dividend distributions from foreign
subsidiaries, which are based on
217,000 thousand
(2004:
179,000 thousand)
of cumulative undistributed earnings of those foreign
subsidiaries because such earnings are intended to be
repatriated. The Company has not recognized an income tax
liability on approximately
2,371 million
(2004: approximately
1,824,million)
of undistributed earnings of its foreign subsidiaries that arose
in 2005 and prior years because the Company plans to permanently
reinvest the undistributed earnings. It is not practicable to
estimate the amount of unrecognized tax liabilities for these
undistributed foreign earnings.
Total income taxes for the years ended December 31, 2005,
2004, and 2003, including those charged against Additional
paid-in capital or not affecting the Consolidated Statements of
Income (charged or credited to Other comprehensive income) were
allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Income tax expense before additional Paid-in Capital effects
|
|
|
794,018 |
|
|
|
741,517 |
|
|
|
678,957 |
|
Additional Paid-in Capital
|
|
|
23,035 |
|
|
|
15,752 |
|
|
|
13,683 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
817,053 |
|
|
|
757,269 |
|
|
|
692,640 |
|
|
|
|
|
|
|
|
|
|
|
Tax effect on items of Other comprehensive income/loss
|
|
|
7,792 |
|
|
|
(11,262 |
) |
|
|
31,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
824,845 |
|
|
|
746,007 |
|
|
|
724,390 |
|
|
|
|
|
|
|
|
|
|
|
See Note 21 for the income tax impact of the components of
Accumulated other comprehensive income.
(12) EARNINGS PER SHARE
Convertible bonds and stock options granted to employees under
SAPs stock-based compensation programs are included in the
diluted earnings per share calculations to the extent they have
a dilutive effect. The dilutive impact is calculated using the
treasury stock method. Stock options to acquire
6.3 million, 9.4 million and 7.6 million SAP
common shares that were issued in connection with the LTI 2000
Plan or SAP SOP 2002 were not included in the computation
of diluted earnings per share for 2005, 2004 and 2003,
respectively, because the options underlying exercise
prices were higher than the average market prices of SAP common
shares in these periods. The number of outstanding stock options
and convertible bonds is presented in Note 22.
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
In thousands, except per share data | |
Net
income ()
|
|
|
1,496,407 |
|
|
|
1,310,521 |
|
|
|
1,077,063 |
|
Weighted average shares basic
|
|
|
309,816 |
|
|
|
310,802 |
|
|
|
310,781 |
|
Stock options
|
|
|
1,020 |
|
|
|
1,354 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
310,836 |
|
|
|
312,156 |
|
|
|
311,409 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
basic ()
|
|
|
4.83 |
|
|
|
4.22 |
|
|
|
3.47 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
diluted ()
|
|
|
4.81 |
|
|
|
4.20 |
|
|
|
3.46 |
|
|
|
|
|
|
|
|
|
|
|
C. NOTES TO THE CONSOLIDATED BALANCE SHEETS
(13) GOODWILL/ INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses, trademarks, | |
|
|
|
|
|
|
similar rights | |
|
|
|
|
|
|
and other | |
|
|
|
|
|
|
intangibles | |
|
Goodwill | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Purchase cost
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/2005
|
|
|
262,011 |
|
|
|
552,303 |
|
|
|
814,314 |
|
Exchange rate differences
|
|
|
14,722 |
|
|
|
31,091 |
|
|
|
45,813 |
|
Change in the scope of consolidation
|
|
|
2,010 |
|
|
|
0 |
|
|
|
2,010 |
|
Additions
|
|
|
114,129 |
|
|
|
143,246 |
|
|
|
257,375 |
|
Retirements/ disposals
|
|
|
(13,158 |
) |
|
|
0 |
|
|
|
(13,158 |
) |
Reclassifications
|
|
|
31 |
|
|
|
0 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
379,745 |
|
|
|
726,640 |
|
|
|
1,106,385 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/2005
|
|
|
193,825 |
|
|
|
95,596 |
|
|
|
289,421 |
|
Exchange rate differences
|
|
|
11,758 |
|
|
|
4,498 |
|
|
|
16,256 |
|
Change in the scope of consolidation
|
|
|
1,731 |
|
|
|
0 |
|
|
|
1,731 |
|
Additions
|
|
|
45,839 |
|
|
|
0 |
|
|
|
45,839 |
|
Retirements/ disposals
|
|
|
(13,105 |
) |
|
|
0 |
|
|
|
(13,105 |
) |
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
240,048 |
|
|
|
100,094 |
|
|
|
340,142 |
|
|
|
|
|
|
|
|
|
|
|
Carrying value 12/31/2005
|
|
|
139,697 |
|
|
|
626,546 |
|
|
|
766,243 |
|
|
|
|
|
|
|
|
|
|
|
Carrying value 12/31/2004
|
|
|
68,186 |
|
|
|
456,707 |
|
|
|
524,893 |
|
|
|
|
|
|
|
|
|
|
|
The additions to goodwill include additions resulting from the
acquisitions discussed in Note 4 as well as certain minor
purchase adjustments related to prior acquisitions.
F-25
All of SAPs intangible assets, other than goodwill and the
aggregate minimum pension liability offset
(427 thousand)
included in other intangibles, are subject to amortization.
Intangibles consist of two major asset classes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and | |
|
|
|
|
|
Licenses, trademarks, | |
|
|
database | |
|
Acquired | |
|
|
|
similar rights and | |
|
|
licenses | |
|
technology | |
|
Other | |
|
other intangibles | |
|
|
| |
|
| |
|
| |
|
| |
|
|
in (000), except for amortization period | |
12/31/2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase cost
|
|
|
160,425 |
|
|
|
194,217 |
|
|
|
25,103 |
|
|
|
379,745 |
|
Accumulated amortization
|
|
|
124,432 |
|
|
|
108,738 |
|
|
|
6,878 |
|
|
|
240,048 |
|
thereof additions in 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase cost
|
|
|
20,609 |
|
|
|
80,663 |
|
|
|
12,857 |
|
|
|
114,129 |
|
Weighed average amortization period in years
|
|
|
3.0 |
|
|
|
6.0 |
|
|
|
8.0 |
|
|
|
|
|
12/31/2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase cost
|
|
|
139,533 |
|
|
|
110,036 |
|
|
|
12,442 |
|
|
|
262,011 |
|
Accumulated amortization
|
|
|
112,264 |
|
|
|
73,350 |
|
|
|
8,211 |
|
|
|
193,825 |
|
During 2005 the Company acquired software and database licenses
from third parties. Software and database licenses consist
primarily of technology for internal use whereas acquired
technology consists primarily of technology to be incorporated
into the Groups products. The additions to software and
database licenses in 2005 were acquired from third parties,
whereas the additions to Acquired technology and Other result
from the acquisitions discussed in Note 4.
Other intangibles consists primarily of trademark licenses and
customer contracts acquired. For further information see
Note 4.
The estimated aggregate amortization expense for the intangible
assets owned by the Company as of December 31, 2005, for
each of the five succeeding years ending December 31 is as
follows:
|
|
|
|
|
|
|
(000) | |
|
|
| |
2006
|
|
|
40,686 |
|
2007
|
|
|
29,626 |
|
2008
|
|
|
21,975 |
|
2009
|
|
|
18,419 |
|
2010
|
|
|
12,423 |
|
thereafter
|
|
|
16,141 |
|
The carrying amount of goodwill by reportable segment as of
December 31, 2005 and 2004, is as follows (for further
information see Note 32):
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thereof | |
|
|
|
thereof | |
|
|
|
|
additions in | |
|
|
|
additions in | |
|
|
12/31/2005 | |
|
2005 | |
|
12/31/2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Product
|
|
|
308,647 |
|
|
|
84,185 |
|
|
|
198,046 |
|
|
|
1,745 |
|
Consulting
|
|
|
304,934 |
|
|
|
56,995 |
|
|
|
252,675 |
|
|
|
125,190 |
|
Training
|
|
|
12,965 |
|
|
|
2,066 |
|
|
|
5,986 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
626,546 |
|
|
|
143,246 |
|
|
|
456,707 |
|
|
|
126,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The additions in 2005 include certain minor adjustments related
to prior acquisitions.
F-26
(14) PROPERTY, PLANT, AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, leasehold | |
|
|
|
|
|
|
|
|
improvements, and | |
|
|
|
Payments | |
|
|
|
|
buildings, including | |
|
Other property, | |
|
and con- | |
|
|
|
|
buildings on third- | |
|
plant, and | |
|
struction in | |
|
|
|
|
party land | |
|
equipment | |
|
progress | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Purchase cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/2005
|
|
|
918,907 |
|
|
|
938,530 |
|
|
|
4,515 |
|
|
|
1,861,952 |
|
Exchange rate differences
|
|
|
26,501 |
|
|
|
23,543 |
|
|
|
102 |
|
|
|
50,146 |
|
Change in the scope of consolidation
|
|
|
244 |
|
|
|
4,074 |
|
|
|
0 |
|
|
|
4,318 |
|
Additions
|
|
|
19,737 |
|
|
|
181,068 |
|
|
|
39,875 |
|
|
|
240,680 |
|
Retirements/ disposals
|
|
|
(10,893 |
) |
|
|
(101,352 |
) |
|
|
(10 |
) |
|
|
(112,255 |
) |
Reclassifications
|
|
|
487 |
|
|
|
494 |
|
|
|
(1,012 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
954,983 |
|
|
|
1,046,357 |
|
|
|
43,470 |
|
|
|
2,044,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/2005
|
|
|
253,144 |
|
|
|
609,725 |
|
|
|
0 |
|
|
|
862,869 |
|
Exchange rate differences
|
|
|
8,782 |
|
|
|
17,556 |
|
|
|
0 |
|
|
|
26,338 |
|
Change in the scope of consolidation
|
|
|
132 |
|
|
|
3,157 |
|
|
|
0 |
|
|
|
3,289 |
|
Additions
|
|
|
35,607 |
|
|
|
122,099 |
|
|
|
0 |
|
|
|
157,706 |
|
Retirements/ disposals
|
|
|
(10,269 |
) |
|
|
(90,088 |
) |
|
|
0 |
|
|
|
(100,357 |
) |
Reclassifications
|
|
|
(60 |
) |
|
|
60 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
287,336 |
|
|
|
662,509 |
|
|
|
0 |
|
|
|
949,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value 12/31/2005
|
|
|
667,647 |
|
|
|
383,848 |
|
|
|
43,470 |
|
|
|
1,094,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value 12/31/2004
|
|
|
665,763 |
|
|
|
328,805 |
|
|
|
4,515 |
|
|
|
999,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The additions and disposals in other property, plant, and
equipment relate primarily to the renewal and purchase of
computer hardware and cars acquired in the normal course of
business.
Interest capitalized has not been material to any period
presented.
(15) FINANCIAL ASSETS AND MARKETABLE SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets | |
|
Non-fixed Assets | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Equity method investments
|
|
|
1,407 |
|
|
|
1,595 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,407 |
|
|
|
1,595 |
|
|
Marketable equity securities available-for-sale
|
|
|
23,080 |
|
|
|
17,328 |
|
|
|
0 |
|
|
|
0 |
|
|
|
23,080 |
|
|
|
17,328 |
|
|
Equity securities at cost
|
|
|
28,262 |
|
|
|
25,924 |
|
|
|
0 |
|
|
|
0 |
|
|
|
28,262 |
|
|
|
25,924 |
|
Equity securities
|
|
|
51,342 |
|
|
|
43,252 |
|
|
|
0 |
|
|
|
0 |
|
|
|
51,342 |
|
|
|
43,252 |
|
Debt securities available-for-sale
|
|
|
431,128 |
|
|
|
231 |
|
|
|
199,310 |
|
|
|
242 |
|
|
|
630,438 |
|
|
|
473 |
|
Investment fund securities
|
|
|
1,994 |
|
|
|
1,984 |
|
|
|
10,255 |
|
|
|
9,922 |
|
|
|
12,249 |
|
|
|
11,906 |
|
Loans
|
|
|
48,284 |
|
|
|
53,320 |
|
|
|
0 |
|
|
|
0 |
|
|
|
48,284 |
|
|
|
53,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
534,155 |
|
|
|
100,382 |
|
|
|
209,565 |
|
|
|
10,164 |
|
|
|
743,720 |
|
|
|
110,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No available-for-sale securities were sold in 2005. Proceeds
from sales of available-for-sale securities in 2004 were
67.7 million
(2003:
4.1 million).
Gross gains realized from sales of available-for-sale securities
in 2004 were
13.7 million
(2003:
2.2 million).
Gross losses realized from sales of available-for-sale
securities are not material for the periods presented.
F-27
Equity and Debt Securities
Amounts pertaining to Marketable equity securities and debt
securities as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities in loss position | |
|
|
|
|
| |
|
|
Marketable securities not | |
|
|
|
|
|
|
|
|
in loss position | |
|
for less than 12 | |
|
for more than 12 | |
|
total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Fair | |
|
unrealized | |
|
Fair | |
|
unrealized | |
|
Fair | |
|
unrealized | |
|
Fair | |
|
unrealized | |
|
|
value | |
|
gains | |
|
value | |
|
losses | |
|
value | |
|
losses | |
|
value | |
|
losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities (available-for-sale)
|
|
|
23,080 |
|
|
|
13,787 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Marketable debt securities (available-for-sale)
|
|
|
174,312 |
|
|
|
2 |
|
|
|
456,126 |
|
|
|
3,643 |
|
|
|
0 |
|
|
|
0 |
|
|
|
456,126 |
|
|
|
3,643 |
|
Investment fund securities
|
|
|
2,329 |
|
|
|
19 |
|
|
|
9,920 |
|
|
|
79 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9,920 |
|
|
|
79 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities (available-for-sale)
|
|
|
14,910 |
|
|
|
9,006 |
|
|
|
2,418 |
|
|
|
569 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,418 |
|
|
|
569 |
|
Marketable debt securities (available-for-sale)
|
|
|
0 |
|
|
|
0 |
|
|
|
473 |
|
|
|
133 |
|
|
|
0 |
|
|
|
0 |
|
|
|
473 |
|
|
|
133 |
|
Investment fund securities
|
|
|
1,984 |
|
|
|
31 |
|
|
|
9,922 |
|
|
|
77 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9,922 |
|
|
|
77 |
|
For the year ended December 31, 2005, the Company recorded
other-than-temporary impairment charges related to Marketable
securities of
0.3 million
(2004:
0 million;
2003:
8.7 million).
The carrying value of all equity securities at cost was
28 million
and
26 million
as of December 31, 2005 and 2004, respectively. Equity
securities at cost, which primarily include venture capital
investments, are not included in the above table as a market
value for those securities is generally not readily obtainable.
During 2005, 2004, and 2003, the Company recorded
3.7 million,
5.1 million,
and
6.1 million,
respectively, in charges related to other-than-temporary
impairments of equity securities at cost. The Marketable debt
securities as of December 31, 2005, consist of high-quality
(investment grade) bonds. The impairments of Marketable debt
securities in 2005 resulted from changes in market interest
rates and not from changes in to the creditworthiness of the
underlying debtor. SAP determines these impairments to be
temporary given the short duration of the respective declines in
value and the Companys intent and ability to hold these
investments for a reasonable period of time sufficient for a
forecasted recovery.
Other Loans
Other loans include interest-bearing and non-interest or
below-market-interest loans to employees and third parties as
follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Loans to employees
|
|
|
47,846 |
|
|
|
42,824 |
|
Loans to third parties
|
|
|
438 |
|
|
|
10,496 |
|
|
|
|
|
|
|
|
|
|
|
48,284 |
|
|
|
53,320 |
|
|
|
|
|
|
|
|
Loans granted to employees primarily consist of interest-free or
below-market-rate building loans. SAP discounts interest-free or
below-market-rate employee loans based on prevailing market
rates. There have been no loans to employees or members of the
Executive Board and Supervisory Board to assist them in
exercising stock options.
F-28
(16) INVENTORIES
Inventories consist of costs for office supplies and
documentation and services for which revenues have been deferred.
(17) ACCOUNTS RECEIVABLE, NET
Accounts receivable include costs and estimated earnings in
excess of billings on uncompleted contracts of
144,567 thousand
and 135,194
thousand as of December 31, 2005 and 2004, respectively.
Amounts presented in the Consolidated Balance Sheets are net of
allowances for bad debts of
72,889 thousand
and 63,362
thousand as of December 31, 2005 and 2004, respectively.
Accounts receivable, net based on due dates as of
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Due within 1 year
|
|
|
2,249,482 |
|
|
|
1,928,557 |
|
Due between 1 and 5 years
|
|
|
1,545 |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
|
2,251,027 |
|
|
|
1,929,100 |
|
|
|
|
|
|
|
|
Concentrations of credit risks are limited due to the
Companys large customer base and its dispersion across
many different industries and countries worldwide. No single
customer accounted for 5% or more of Total revenues or Accounts
receivable, net in 2005, 2004, or 2003.
(18) OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Fair value of STAR hedge and other derivatives
|
|
|
175,256 |
|
|
|
191,716 |
|
Investments in insurance policies held for employee-financed
pension plans, semiretirement, and time accounts
|
|
|
181,366 |
|
|
|
134,003 |
|
Income tax receivables
|
|
|
75,408 |
|
|
|
52,161 |
|
Prepaid pensions
|
|
|
38,595 |
|
|
|
32,035 |
|
Rent deposits
|
|
|
27,364 |
|
|
|
22,823 |
|
Others
|
|
|
137,565 |
|
|
|
104,907 |
|
|
|
|
|
|
|
|
Total other assets
|
|
|
635,554 |
|
|
|
537,645 |
|
|
|
|
|
|
|
|
thereof with a remaining term exceeding 1 year
|
|
|
307,710 |
|
|
|
224,829 |
|
|
|
|
|
|
|
|
Included in others are interest receivable and short-term loans.
Detailed information about SAPs derivative financial
instruments are presented in Note 31. Investments in
insurance policies relate to the employee-financed pension plans
as presented in Note 23. The corresponding liability for
investments in insurance policies for semiretirement and time
accounts is included in Other reserves and accrued liabilities
(see Note 24).
F-29
(19) LIQUID ASSETS
Liquid assets as of December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Cash at banks
|
|
|
455,522 |
|
|
|
458,909 |
|
Cash equivalents
|
|
|
1,608,552 |
|
|
|
1,046,884 |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,064,074 |
|
|
|
1,505,793 |
|
|
|
|
|
|
|
|
Liquid investments with original maturities exceeding
3 months and remaining maturities less than 1 year
|
|
|
910,850 |
|
|
|
918,272 |
|
Liquid investments with remaining maturities exceeding
1 year
|
|
|
238,648 |
|
|
|
772,477 |
|
|
|
|
|
|
|
|
|
|
|
3,213,572 |
|
|
|
3,196,542 |
|
|
|
|
|
|
|
|
Liquid assets with remaining maturities exceeding one year are
classified as non-current in our consolidated balance sheets.
In 2005, SAP eliminated from cash and cash equivalents variable
rate demand notes that contain a right to put the note back to
parties other than the issuer within three months and began
classifying them as liquid assets with original maturities
exceeding one year. The December 31, 2004 and 2003 balances
of liquid asset items and the 2004 and 2003 consolidated
statements of cash flows have been adjusted accordingly. These
adjustments have no effect on the amounts of total liquid
assets, total assets, net income or cash flow from operations of
the Company. The effects of this adjustment are as follows for
the years ended December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
As | |
|
|
|
As | |
|
|
|
|
Previously | |
|
|
|
As | |
|
Previously | |
|
|
|
As | |
|
|
Reported | |
|
Adjustment | |
|
Adjusted | |
|
Reported | |
|
Adjustment | |
|
Adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Change in liquid assets (maturities exceeding 3 months)
|
|
|
(571,846 |
) |
|
|
138,316 |
|
|
|
(433,530 |
) |
|
|
(868,718 |
) |
|
|
(47,889 |
) |
|
|
(916,607 |
) |
Net cash used in investing activities
|
|
|
(886,638 |
) |
|
|
138,316 |
|
|
|
(748,322 |
) |
|
|
(1,144,737 |
) |
|
|
(47,889 |
) |
|
|
(1,192,626 |
) |
Net increase in cash and cash equivalents
|
|
|
528,740 |
|
|
|
138,316 |
|
|
|
667,056 |
|
|
|
(10,659 |
) |
|
|
(47,889 |
) |
|
|
(58,548 |
) |
Cash and cash equivalents at the beginning of the year
|
|
|
984,395 |
|
|
|
(145,658 |
) |
|
|
838,737 |
|
|
|
995,054 |
|
|
|
(97,769 |
) |
|
|
897,285 |
|
Cash and cash equivalents at the end of the year
|
|
|
1,513,135 |
|
|
|
(7,342 |
) |
|
|
1,505,793 |
|
|
|
984,395 |
|
|
|
(145,658 |
) |
|
|
838,737 |
|
Liquid investments with remaining maturities exceeding
1 year
|
|
|
765,135 |
|
|
|
7,342 |
|
|
|
772,477 |
|
|
|
523,089 |
|
|
|
145,658 |
|
|
|
668,747 |
|
(20) PREPAID EXPENSES AND DEFERRED CHARGES
Prepaid expenses and deferred charges are mainly comprised of
prepayments for software royalties, operating leases, and
maintenance contracts.
F-30
(21) SHAREHOLDERS EQUITY
Subscribed Capital
As of December 31, 2005, SAP AG had 316,457,821 no-par
common shares issued (including treasury stock) with a
calculated nominal value of
1 per share.
The number of common shares increased by 454,221 (corresponding
to 454,221) as a
result of the exercise of awards granted under certain
stock-based compensation plans.
Shareholdings in SAP AG as of December 31, 2005, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Number of | |
|
% of | |
|
Number of | |
|
% of | |
|
|
shares | |
|
subscribed | |
|
shares | |
|
subscribed | |
|
|
(000) | |
|
capital | |
|
(000) | |
|
capital | |
|
|
| |
|
| |
|
| |
|
| |
Hasso Plattner GmbH&Co. Beteiligungs-KG
|
|
|
31,650 |
|
|
|
10.0% |
|
|
|
31,240 |
|
|
|
9.9% |
|
Dietmar Hopp Stiftung GmbH
|
|
|
27,467 |
|
|
|
8.7% |
|
|
|
28,017 |
|
|
|
8.9% |
|
Klaus Tschira Stiftung gGmbH
|
|
|
17,641 |
|
|
|
5.6% |
|
|
|
21,155 |
|
|
|
6.7% |
|
Dr. h.c. Tschira Beteiligungs GmbH&Co. KG
|
|
|
15,833 |
|
|
|
5.0% |
|
|
|
15,833 |
|
|
|
5.0% |
|
Hasso Plattner Förderstiftung gGmbH
|
|
|
4,763 |
|
|
|
1.5% |
|
|
|
5,229 |
|
|
|
1.6% |
|
Golf Club St. Leon-Rot GmbH & Co. Betriebs OHG
|
|
|
4,061 |
|
|
|
1.3% |
|
|
|
4,811 |
|
|
|
1.5% |
|
Treasury Stock
|
|
|
6,679 |
|
|
|
2.1% |
|
|
|
5,363 |
|
|
|
1.7% |
|
Free float
|
|
|
208,364 |
|
|
|
65.8% |
|
|
|
204,356 |
|
|
|
64.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316,458 |
|
|
|
100.0% |
|
|
|
316,004 |
|
|
|
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golf Club St. Leon-Rot GmbH & Co. Betriebs OHG is wholly
owned by Dietmar Hopp.
Authorized Capital
The Articles of Association authorize the Executive Board of SAP
AG (the Executive Board) to increase the Subscribed
capital
|
|
|
|
|
up to a total amount of
60 million
through the issuance of new common shares in return for
contributions in cash until May 11, 2010 (Authorized
Capital I). The issuance is subject to the statutory
subscription rights of existing shareholders |
|
|
|
up to a total amount of
60 million
through the issuance of new common shares in return for
contributions in cash or in kind until May 11, 2010
(Authorized Capital II). Subject to certain
preconditions and the consent of the Supervisory Board, the
Executive Board is authorized to exclude the shareholders
statutory subscription rights |
|
|
|
up to an aggregate amount of
15 million
against contribution in cash by issuing new common shares until
May 1, 2007 (Authorized Capital III). The new
shares may be subscribed by a credit institution only, and only
to the extent that such credit institution, releasing SAP from
its corresponding obligation, satisfies the conversion and
subscription rights granted under the SAP AG 2000 Long Term
Incentive Plan (LTI 2000 Plan) or SAP Stock Option
Plan 2002 (SAP SOP 2002), respectively. The
shareholders statutory subscription rights are excluded
from this capital increase. The Executive Board may exercise
this authorization only to the extent that the capital stock
attributable to the new shares issued from this Authorized
Capital III together with new shares from contingent capital and
treasury shares issued or transferred for the purposes of
satisfying subscription rights does not amount to more than 10%
of the capital stock at the time of adoption of the
authorization. |
F-31
No authorization to increase capital stock was exercised in
fiscal year 2005.
Contingent Capital
SAP AGs Capital stock is subject to a contingent increase
of common shares. The contingent increase may be effected only
to the extent that the holders of the convertible bonds and
stock options that were issued by SAP AG under certain
stock-based compensation plans (see Note 22) exercise their
conversion or subscription rights. The following table provides
a summary of the changes in Contingent capital for 2004 and 2005:
|
|
|
|
|
|
|
Contingent | |
|
|
capital | |
|
|
| |
|
|
(000) | |
12/31/2003
|
|
|
55,837 |
|
|
|
|
|
Exercise
|
|
|
(590 |
) |
New authorized
|
|
|
0 |
|
Reduction
|
|
|
0 |
|
|
|
|
|
12/31/2004
|
|
|
55,247 |
|
|
|
|
|
Exercise
|
|
|
(454 |
) |
Cancellation
|
|
|
(32 |
) |
New authorized
|
|
|
0 |
|
Reduction
|
|
|
(1,831 |
) |
|
|
|
|
12/31/2005
|
|
|
52,930 |
|
|
|
|
|
Treasury Stock
By resolution of the annual general shareholders meeting
held on May 12, 2005, the Executive Board was authorized to
acquire, on or before October 31, 2006, up to
30 million shares in the Company on the condition that such
share purchases, together with any previously acquired shares,
do not account for more than 10% of the Companys capital
stock. Although Treasury stock is legally considered
outstanding, SAP has no dividend or voting rights associated
with Treasury stock. SAP may redeem or resell shares held in
treasury or may use Treasury stock for the purpose of servicing
subscription rights and conversion rights under the
Companys stock-based compensation plans. Also, SAP may use
the shares as consideration in connection with the acquisition
of enterprises.
As of December 31, 2005, SAP had acquired 6,679 thousand
(2004: 5,363 thousand) of its own shares, representing
6,679 thousand
(2004: 5,363
thousand) or 2.1% (2004: 1.7%) of Capital stock. In 2005
3,214 thousand (2004: 1,127 thousand) shares in
aggregate were acquired under the buyback program at an average
price of approximately
129.77 (2004:
125.49) per
share, representing
3,214 thousand
or 1.0% (2004:
1,127 thousand
or 0.4%) of Capital stock. In connection with stock-based
compensation plans, SAP acquired in 2005 an additional
180 thousand (2004: 186 thousand) of its own shares,
representing 0.06% (2004: 0.06%) of the total shares outstanding
as of December 31, at an average market price of
134.26 (2004:
130.13) per
share. Such shares were transferred to employees during the year
at an average price of
100.66 (2004:
99.61) per
share. See Note 22 for further information. In 2005,
certain of SAP AGs foreign subsidiaries purchased an
additional 390 thousand (2004: 290 thousand) American
Depositary Receipts (ADRs) (each ADR represents
one-fourth of a common share), at an average price of US$41.83
(2003: US$40.61) per ADR. Such ADRs were distributed to
employees during the year at an average price of US$35.33 (2004:
US$34.57) per ADR by an administrator. The Company held no ADRs
as of December 31, 2005 and 2004, respectively.
F-32
Other Comprehensive Income/Loss
The changes in the components of Accumulated other comprehensive
income/loss consist of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Tax | |
|
|
|
|
|
Tax | |
|
|
|
|
|
Tax | |
|
|
|
|
Pre-tax | |
|
(expense) | |
|
Net | |
|
Pre-tax | |
|
(expense) | |
|
Net | |
|
Pre-tax | |
|
(expense) | |
|
Net | |
|
|
amount | |
|
or benefit | |
|
amount | |
|
amount | |
|
or benefit | |
|
amount | |
|
amount | |
|
or benefit | |
|
amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Unrealized gains/ losses on marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains/ losses
|
|
|
1,571 |
|
|
|
1,153 |
|
|
|
2,724 |
|
|
|
(699 |
) |
|
|
774 |
|
|
|
75 |
|
|
|
14,365 |
|
|
|
(814 |
) |
|
|
13,551 |
|
|
Reclassification adjustments for gains/ losses included in net
income
|
|
|
220 |
|
|
|
(77 |
) |
|
|
143 |
|
|
|
(8,020 |
) |
|
|
267 |
|
|
|
(7,753 |
) |
|
|
5,574 |
|
|
|
(7 |
) |
|
|
5,567 |
|
|
Net unrealized gains/ losses on marketable securities
|
|
|
1,791 |
|
|
|
1,076 |
|
|
|
2,867 |
|
|
|
(8,719 |
) |
|
|
1,041 |
|
|
|
(7,678 |
) |
|
|
19,939 |
|
|
|
(821 |
) |
|
|
19,118 |
|
Currency translation adjustments
|
|
|
120,136 |
|
|
|
0 |
|
|
|
120,136 |
|
|
|
(70,723 |
) |
|
|
0 |
|
|
|
(70,723 |
) |
|
|
(148,424 |
) |
|
|
0 |
|
|
|
(148,424 |
) |
Additional minimum pension liability adjustments
|
|
|
(737 |
) |
|
|
1,503 |
|
|
|
766 |
|
|
|
(9,089 |
) |
|
|
2,070 |
|
|
|
(7,019 |
) |
|
|
27,249 |
|
|
|
(10,966 |
) |
|
|
16,283 |
|
Unrealized gains/ losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized cash flow hedge gains/ losses
|
|
|
(30,323 |
) |
|
|
(10,992 |
) |
|
|
(19,331 |
) |
|
|
11,691 |
|
|
|
1,681 |
|
|
|
10,010 |
|
|
|
20,261 |
|
|
|
7,300 |
|
|
|
12,961 |
|
|
Reclassification adjustments for gains/ losses included in net
income
|
|
|
(4,614 |
) |
|
|
(1,672 |
) |
|
|
(2,942 |
) |
|
|
(11,844 |
) |
|
|
(1,703 |
) |
|
|
(10,141 |
) |
|
|
(363 |
) |
|
|
(131 |
) |
|
|
(232 |
) |
|
Net unrealized cash flow hedge gains/ losses
|
|
|
(34,937 |
) |
|
|
12,664 |
|
|
|
(22,273 |
) |
|
|
(153 |
) |
|
|
22 |
|
|
|
(131 |
) |
|
|
19,898 |
|
|
|
(7,169 |
) |
|
|
12,729 |
|
Unrealized gains/ losses on
STAR hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/ losses on
STAR hedge
|
|
|
78,376 |
|
|
|
(27,417 |
) |
|
|
50,959 |
|
|
|
(1,094 |
) |
|
|
378 |
|
|
|
(716 |
) |
|
|
36,790 |
|
|
|
(12,794 |
) |
|
|
23,996 |
|
|
Reclassification adjustments for gains/ losses included in net
income
|
|
|
(12,527 |
) |
|
|
4,382 |
|
|
|
(8,145 |
) |
|
|
(22,433 |
) |
|
|
7,751 |
|
|
|
(14,682 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Net unrealized gains/ losses on STAR hedge
|
|
|
65,849 |
|
|
|
(23,035 |
) |
|
|
42,814 |
|
|
|
(23,527 |
) |
|
|
8,129 |
|
|
|
(15,398 |
) |
|
|
36,790 |
|
|
|
(12,794 |
) |
|
|
23,996 |
|
Currency effects from intercompany long-term investment
transactions
|
|
|
43,236 |
|
|
|
0 |
|
|
|
43,236 |
|
|
|
(2,473 |
) |
|
|
0 |
|
|
|
(2,473 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/loss
|
|
|
195,338 |
|
|
|
(7,792 |
) |
|
|
187,546 |
|
|
|
(114,684 |
) |
|
|
11,262 |
|
|
|
(103,422 |
) |
|
|
(44,548 |
) |
|
|
(31,750 |
) |
|
|
(76,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income/loss at beginning of
period
|
|
|
|
|
|
|
|
|
|
|
(305,401 |
) |
|
|
|
|
|
|
|
|
|
|
(201,979 |
) |
|
|
|
|
|
|
|
|
|
|
(125,681 |
) |
Accumulated other comprehensive income/loss at end of
period
|
|
|
|
|
|
|
|
|
|
|
(117,855 |
) |
|
|
|
|
|
|
|
|
|
|
(305,401 |
) |
|
|
|
|
|
|
|
|
|
|
(201,979 |
) |
Miscellaneous
Under the German Stock Corporation Act (Aktiengesetz), the
amount of dividends available for distribution to shareholders
is based upon the earnings of SAP AG as reported in its
statutory financial statements determined in accordance with the
German Commercial Code (Handelsgesetzbuch). For the year ended
December 31, 2005, the Executive Board and the Supervisory
Board propose a distribution in 2006 of
1.45 per share
as a dividend to the shareholders relating to the earnings of
SAP AG for the year ended
F-33
December 31, 2005. Dividends per share for 2004 and 2003,
which were paid in the immediately subsequent year, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
| |
|
| |
Dividend per common share
|
|
|
1.10 |
|
|
|
0.80 |
|
(22) STOCK-BASED COMPENSATION PLANS
Total compensation expense recorded in connection with
stock-based compensation plans for the year 2005 amounts to
45 million
(2004:
37 million;
2003:
125 million).
Employee Discounted Stock Purchase Programs
The Company acquires SAP AG common shares and ADRs under various
employee stock purchase plans and transfers the shares to
employees. Through December 31, 2005, discounts provided to
employees through such plans do not exceed 15% and are treated
as a direct reduction of equity.
Stock Appreciation Rights (STAR) Plans
In February 2005 as well as in February 2004 and 2003, the
Company granted approximately 4.7 million, 3.5 million
and 3.8 million stock appreciation rights (2005
STARs, 2004 STARs, and 2003 STARs
respectively) to selected employees who are not participants in
the LTI 2000 Plan or SAP SOP 2002. The 2005, 2004, and 2003
STAR grant values of
121.87,
134.35, and
84.91,
respectively, are based upon the average fair market value of
one common share over the 20 business days commencing the
day after the announcement of the Companys preliminary
results for the preceding fiscal year. The valuation of the
STARs is calculated quarterly, over a period of two years. Each
quarterly valuation is weighted as follows in determining the
final valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighting factor | |
Quarter ended | |
| |
March 31 | |
|
June 30 | |
|
Sep. 30 | |
|
Dec. 31 | |
|
March 31 | |
|
June 30 | |
|
Sep. 30 | |
|
Dec. 31 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
5% |
|
|
|
5% |
|
|
|
10% |
|
|
|
20% |
|
|
|
10% |
|
|
|
10% |
|
|
|
10% |
|
|
|
30% |
|
The valuations for the quarterly periods ending December 31
are based on the amount by which the grant price is exceeded by
the average fair market value of one common share as quoted on
Xetra®,
the trading system of the Frankfurt Stock Exchange, over the
20 consecutive business days commencing on the day after
the announcement of the Companys preliminary annual
results. The other quarterly valuations are based on the amount
by which the grant price is exceeded by the average fair market
value of one common share quoted on
Xetra®
over the five consecutive business days commencing on the day
after the announcement of the Companys quarterly results.
Because each quarterly valuation is measured independently, it
is unaffected by any other quarterly valuation.
The cash payout value of each STAR will be calculated quarterly
as follows: (i) 100% of the first
50 value
appreciation for such quarter; (ii) 50% of the next
50 value
appreciation; and (iii) 25% of any additional value
appreciation. Participants will receive payments with respect to
the 2005 STARs as follows: 50% each on both March 31, 2007,
and January 31, 2008. Under the terms of the 2004 STAR
Program, participants were scheduled to receive an initial
payment of 50% on March 31, 2006, and a second installment
on January 31, 2007. Participants will receive STAR
payments provided that, subject to certain exceptions, they are
still employees of the Company on the payment dates.
As SAPs STAR Plans are settled in cash rather than by
issuing equity instruments a liability is recorded for such
plans, based on the current value of the STARs at the reporting
date. Compensation expense
F-34
including effects of the changes in the value of the
STAR is accrued over the period the employee
performs the related service (vesting period).
As of December 31, 2005, a STAR provision in the amount of
122 million
(109 million
in 2004) is included in Other reserves and accrued liabilities
in the consolidated balance sheet (see Note 24). The
related STAR expense was reduced by the effects of the STAR
hedge as described in Note 31 and
therefore totaled only
21 million
(38 million
in 2004 and
36 million
in 2003). The STAR provision as of December 31, 2005, as
well as the related STAR expense result from the 2005, 2004, and
2003 STAR Program.
Stock Option Plan 2002
At the 2002 annual general shareholders meeting, the
Companys shareholders approved the SAP SOP 2002. The
SAP SOP 2002, which provides for the issuance of stock
options to the members of the SAP AG Executive Board, members of
subsidiaries Executive Boards as well as to eligible
executives and other top performers of SAP AG and its
subsidiaries, is designed to replace the LTI 2000 Plan,
described below. Under the SAP SOP 2002, the Executive
Board is authorized to issue, on or before April 30, 2007,
up to 19,015,415 stock options.
Each stock option granted under the SAP SOP 2002 entitles
its holder to subscribe to one share of the Company, against the
payment of an exercise price, which is composed of a base price
and a premium of 10% thereon. The base price is the average
market price of the SAP share on the Frankfurt Stock Exchange
during the five trading days preceding the issue of the
respective stock option, calculated on the basis of the
arithmetic mean of the closing auction prices of the SAP share
in the
Xetra®
trading system. These provisions notwithstanding, the exercise
price should not be less than the closing auction price on the
day before the issue date. The term of the stock options is five
years. Subscription rights cannot be exercised until a vesting
period has elapsed. The vesting period of an option
holders subscription rights ends two years after the issue
date of that holders options.
For options granted to members of the Executive Board in and
from February 2004, the SAP SOP 2002 plan conditions
provide for a potential limitation on the subscription rights to
the extent that the Supervisory Board determines that, by
exercising the rights, the option holder would make a profit
that would be characterized as a windfall by, combined with the
profit from earlier exercises of subscription rights issued to
the option holder at the same issuing date, exceeding twice the
product of (i) the number of subscription rights received
by the option holder and (ii) the exercise price. Such
profit is determined as the total of the differences, calculated
individually for each exercised subscription right, between the
closing price of the share on the exercise day and the exercise
price. SAP AG undertakes to pay back to the option holders any
expenses they may incur through fees, taxes, or deductions
related to the limit on achievable income. The subscription
rights shall only be limited if the Supervisory Board determines
that the windfall results from significant extraordinary,
unforeseeable developments that the Executive Board is not
responsible for.
The SAP SOP 2002 is generally considered a fixed plan under
APB 25. Since the exercise price, which is fixed one day before
grant, cannot be less than the share price on that date, no
expenses are recorded for awards granted under the SAP
SOP 2002. As the number of stock options granted to the
members of the Executive Board under the SAP SOP 2002 is
not known on grant date due to the above mentioned potential
limitation on subscription rights, the SAP SOP 2002 is not
considered a fixed plan for those stock options. As such,
compensation expense is recorded over the vesting period equal
to the difference between the exercise price of the stock
options and the market value of the common share at each balance
sheet date.
Total compensation expense recorded in connection with options
granted from February 2004 to the members of the Executive Board
under the SAP SOP 2002 for the year 2005 amounts to
3 million.
Since in 2004 the exercise price of the stock options granted
from February 2004 exceeded the share price as of
December 31, 2004, no compensation expenses were recorded
for options granted to the members of the Executive Board under
the SAP SOP 2002 in 2004.
F-35
A summary of the SAP SOP 2002 activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Weighted average | |
|
|
Shares available | |
|
options | |
|
exercise price | |
|
|
for grant | |
|
outstanding | |
|
per option | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
| |
12/31/2002
|
|
|
19,015 |
|
|
|
|
|
|
|
|
|
Additional shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,737 |
|
|
|
3,737 |
|
|
|
90.48 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
109 |
|
|
|
90.37 |
|
12/31/2003
|
|
|
15,278 |
|
|
|
3,628 |
|
|
|
90.48 |
|
Additional shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,105 |
|
|
|
2,105 |
|
|
|
149.99 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
99 |
|
|
|
105.86 |
|
12/31/2004
|
|
|
13,173 |
|
|
|
5,634 |
|
|
|
112.44 |
|
Additional shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,916 |
|
|
|
2,916 |
|
|
|
134.20 |
|
Exercised
|
|
|
|
|
|
|
1,714 |
|
|
|
90.37 |
|
Forfeited
|
|
|
|
|
|
|
167 |
|
|
|
136.62 |
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
10,257 |
|
|
|
6,669 |
|
|
|
127.02 |
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
average | |
|
|
|
average | |
|
|
Number of | |
|
remaining | |
|
exercise | |
|
Number of | |
|
exercise | |
Range of exercise prices |
|
stock options | |
|
contractual life | |
|
price | |
|
stock options | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
years | |
|
| |
|
(000) | |
|
| |
90.37
|
|
|
1,778 |
|
|
|
2.16 |
|
|
|
90.37 |
|
|
|
1,778 |
|
|
|
90.37 |
|
99.13
|
|
|
45 |
|
|
|
2.33 |
|
|
|
99.13 |
|
|
|
45 |
|
|
|
99.13 |
|
134.20
|
|
|
2,843 |
|
|
|
4.11 |
|
|
|
134.20 |
|
|
|
|
|
|
|
|
|
149.99
|
|
|
2,003 |
|
|
|
3.13 |
|
|
|
149.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.37-149.99
|
|
|
6,669 |
|
|
|
3.28 |
|
|
|
127.02 |
|
|
|
1,823 |
|
|
|
90.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See review of operations for information related to members of
the Executive Board.
Long Term Incentive 2000 Plan
On January 18, 2000, the Companys shareholders
approved the LTI 2000 Plan. The LTI 2000 Plan is a
stock-based compensation program providing members of the SAP AG
Executive Board, members of subsidiaries executive boards
and selected employees a choice between convertible bonds, stock
options, or a 50% mixture of each. If stock options are chosen,
the participant receives 25% more stock options than convertible
bonds. Under the LTI 2000 Plan, each convertible bond
having a 1
nominal value may be converted into one common share over a
maximum of 10 years subject to service vesting
requirements. The conversion price is equal to the market price
of a common share as quoted on the Xetra trading system the day
immediately preceding the grant. Each stock option may be
exercised in exchange for one common share over a maximum of
10 years subject to the same vesting requirements. The
exercise price varies based upon the outperformance of the
common share price appreciation versus the appreciation of the
Goldman Sachs Software Index from the day immediately preceding
grant to the day on which the exercise price is being
determined. Both the convertible bonds and stock options vest as
follows: 33% after two years from date of
F-36
grant, 33% after three years and 34% after four years. Forfeited
convertible bonds or stock options are disqualified and may not
be reissued.
Under APB 25, SAP records no expenses relating to the
convertible bonds issued under its LTI 2000 Plan since the
conversion price is equal to the market price of an SAP common
share on the date of grant. Because the exercise price for stock
options issued under the LTI 2000 Plan is variable, an
expense is recorded over the vesting period based upon the stock
options intrinsic value on the reporting date.
In total, 12,305,271 conversion and subscription rights have
been issued under the LTI 2000 Plan through March 14,
2002. At the 2002 annual general shareholders meeting, the
Companys shareholders revoked the authorization to issue
further convertible bonds and stock options under the
LTI 2000 Plan.
A summary of the LTI 2000 Plan activity for both convertible
bonds and stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options | |
|
Convertible bonds | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
Shares | |
|
Number of | |
|
average | |
|
Number of | |
|
average | |
|
|
available | |
|
options | |
|
exercise price | |
|
bonds | |
|
exercise price | |
|
|
for grant | |
|
outstanding | |
|
per option | |
|
outstanding | |
|
per bond | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
| |
|
(000) | |
|
| |
12/31/2002
|
|
|
0 |
|
|
|
3,067 |
|
|
|
72.51 |
|
|
|
7,803 |
|
|
|
200.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction due to option/bond ratio (25% of bonds issued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
217 |
|
|
|
73.93 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
161 |
|
|
|
94.45 |
|
|
|
226 |
|
|
|
185.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2003
|
|
|
0 |
|
|
|
2,689 |
|
|
|
91.10 |
|
|
|
7,577 |
|
|
|
201.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction due to option/bond ratio (25% of bonds issued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
511 |
|
|
|
90.11 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
63 |
|
|
|
100.53 |
|
|
|
307 |
|
|
|
222.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2004
|
|
|
0 |
|
|
|
2,115 |
|
|
|
97.19 |
|
|
|
7,270 |
|
|
|
200.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction due to option/bond ratio (25% of bonds issued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
607 |
|
|
|
104.94 |
|
|
|
31 |
|
|
|
150.56 |
|
Forfeited
|
|
|
|
|
|
|
41 |
|
|
|
114.01 |
|
|
|
314 |
|
|
|
204.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
0 |
|
|
|
1,467 |
|
|
|
107.44 |
|
|
|
6,925 |
|
|
|
200.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2005 the Company recorded compensation expenses for the LTI
2000 Plan in the amount of
21 million.
Due to the development of SAPs common share price
appreciation versus the appreciation of the Goldman Sachs
Software Index in 2004, the Company recorded a
1 million
gain in connection with its LTI 2000 Plan for 2004. In 2003, the
Company recorded compensation expenses for the LTI 2000 Plan in
the amount of
89 million.
F-37
The following tables summarize information about stock options
and convertible bonds outstanding as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options | |
|
Exercisable stock options | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
Number of | |
|
remaining | |
|
average | |
|
Number of | |
|
average | |
Range of exercise prices |
|
stock options | |
|
contractual life | |
|
exercise price | |
|
stock options | |
|
exercise price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
years | |
|
| |
|
(000) | |
|
| |
73.19 77.95
|
|
|
175 |
|
|
|
4.14 |
|
|
|
77.90 |
|
|
|
175 |
|
|
|
77.90 |
|
92.44 94.72
|
|
|
320 |
|
|
|
5.15 |
|
|
|
94.68 |
|
|
|
320 |
|
|
|
94.68 |
|
105.73
|
|
|
7 |
|
|
|
5.57 |
|
|
|
105.73 |
|
|
|
7 |
|
|
|
105.73 |
|
117.02
|
|
|
965 |
|
|
|
6.14 |
|
|
|
117.02 |
|
|
|
485 |
|
|
|
117.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73.19 117.02
|
|
|
1,467 |
|
|
|
5.69 |
|
|
|
107.44 |
|
|
|
987 |
|
|
|
102.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding convertible bonds | |
|
Exercisable convertible bonds | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
Number of | |
|
remaining | |
|
average | |
|
Number of | |
|
average | |
Range of exercise prices |
|
bonds | |
|
contractual life | |
|
exercise price | |
|
bonds | |
|
exercise price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
years | |
|
| |
|
(000) | |
|
| |
131.81 159.99
|
|
|
2,639 |
|
|
|
6.13 |
|
|
|
151.58 |
|
|
|
1,755 |
|
|
|
152.01 |
|
183.67 191.25
|
|
|
2,609 |
|
|
|
5.14 |
|
|
|
191.22 |
|
|
|
2,609 |
|
|
|
191.22 |
|
234.79 247.00
|
|
|
18 |
|
|
|
4.70 |
|
|
|
242.09 |
|
|
|
18 |
|
|
|
242.09 |
|
290.32
|
|
|
1,609 |
|
|
|
4.14 |
|
|
|
290.32 |
|
|
|
1,609 |
|
|
|
290.32 |
|
334.67
|
|
|
50 |
|
|
|
4.19 |
|
|
|
334.67 |
|
|
|
50 |
|
|
|
334.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131.81 334.67
|
|
|
6,925 |
|
|
|
5.28 |
|
|
|
200.31 |
|
|
|
6,041 |
|
|
|
207.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-Forma Information
SFAS 123 requires disclosure of pro-forma information
regarding net income and earnings per share as if the Company
had accounted for its stock-based awards granted to employees
using the fair value method. The fair value of the
Companys stock-based awards was estimated as of the date
of grant using the Black-Scholes option-pricing model.
The fair values of the Companys stock-based awards granted
under SAP SOP 2002 were calculated using the following
weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected life (in years)
|
|
|
3.5 years |
|
|
|
2.5 years |
|
|
|
2.5 years |
|
Risk-free interest rate
|
|
|
2.82% |
|
|
|
2.65% |
|
|
|
2.61% |
|
Expected volatility
|
|
|
24% |
|
|
|
57% |
|
|
|
68% |
|
Expected dividend ratio
|
|
|
0.65% |
|
|
|
0.45% |
|
|
|
0.73% |
|
The weighted average fair value of stock options granted under
the SAP SOP 2002 in 2005 was
20.08 (2004:
43.61; 2003:
28.83).
For pro-forma purposes, the estimated fair value of the
Companys stock-based awards is amortized over the vesting
period. The Companys pro-forma information is presented in
Note 3.
(23) PENSION LIABILITIES AND SIMILAR OBLIGATIONS
The Company maintains several defined benefit and defined
contribution plans for its employees both in Germany and at its
foreign subsidiaries, which provide for old age, disability, and
survivors benefits. The measurement dates for the domestic
and foreign benefit plans are principally December 31.
Individual benefit plans have also been established for members
of the Executive Board.
F-38
The accrued liabilities on the balance sheet for pension and
other similar obligations at December 31 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Domestic benefit plans
|
|
|
13,410 |
|
|
|
5,368 |
|
Foreign benefit plans
|
|
|
19,280 |
|
|
|
22,315 |
|
Employee financed plans
|
|
|
146,123 |
|
|
|
109,079 |
|
Other pension and similar obligations
|
|
|
4,806 |
|
|
|
2,928 |
|
|
|
|
|
|
|
|
|
|
|
183,619 |
|
|
|
139,690 |
|
|
|
|
|
|
|
|
Domestic Benefit Plans
The Companys domestic defined benefit plans provide
participants with pension benefits that are based on the length
of service and compensation of employees.
The change of the benefit obligation and the change in plan
assets for the domestic plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
|
33,236 |
|
|
|
30,349 |
|
Service costs
|
|
|
300 |
|
|
|
301 |
|
Interest costs
|
|
|
1,640 |
|
|
|
1,587 |
|
Actuarial gain/loss
|
|
|
8,361 |
|
|
|
1,609 |
|
Benefits paid
|
|
|
(792 |
) |
|
|
(610 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
42,745 |
|
|
|
33,236 |
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
27,536 |
|
|
|
25,761 |
|
Actual return on plan assets
|
|
|
295 |
|
|
|
199 |
|
Employer contributions
|
|
|
1,683 |
|
|
|
2,186 |
|
Benefits paid
|
|
|
(740 |
) |
|
|
(492 |
) |
Assets transferred to defined contribution plan
|
|
|
(52 |
) |
|
|
(118 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
28,722 |
|
|
|
27,536 |
|
|
|
|
|
|
|
|
Funded status
|
|
|
14,023 |
|
|
|
5,700 |
|
Unrecognized transition assets
|
|
|
(448 |
) |
|
|
(490 |
) |
Unrecognized net actuarial loss
|
|
|
(16,115 |
) |
|
|
(7,239 |
) |
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(2,540 |
) |
|
|
(2,029 |
) |
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
|
(6 |
) |
|
|
0 |
|
Accrued benefit liability
|
|
|
13,410 |
|
|
|
5,368 |
|
Intangible assets
|
|
|
(427 |
) |
|
|
(25 |
) |
Accumulated other comprehensive income
|
|
|
(15,517 |
) |
|
|
(7,372 |
) |
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(2,540 |
) |
|
|
(2,029 |
) |
|
|
|
|
|
|
|
F-39
The following weighted average assumptions were used for the
actuarial valuation of the Groups domestic pension benefit
obligation as of the respective measurement date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
% | |
|
% | |
|
% | |
Discount rate
|
|
|
4.0 |
|
|
|
5.0 |
|
|
|
5.3 |
|
compensation increase
|
|
|
2-7 |
|
|
|
2-7 |
|
|
|
2-7 |
|
The components of net periodic benefit cost of the Groups
domestic benefit plans for the years ended December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Service cost
|
|
|
300 |
|
|
|
301 |
|
|
|
409 |
|
Interest cost
|
|
|
1,640 |
|
|
|
1,587 |
|
|
|
1,624 |
|
Expected return on plan assets
|
|
|
(1,572 |
) |
|
|
(1,638 |
) |
|
|
(1,529 |
) |
Net amortization
|
|
|
804 |
|
|
|
545 |
|
|
|
484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172 |
|
|
|
795 |
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used for determining the net
periodic pension cost for the Groups domestic pension
plans for 2005, 2004, and 2003, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
% | |
|
% | |
|
% | |
Discount rate
|
|
|
5.0 |
|
|
|
5.3 |
|
|
|
5.8 |
|
Expected return on plan assets
|
|
|
5.5 |
|
|
|
6.0 |
|
|
|
5.9 |
|
Rate of compensation increase
|
|
|
2-7 |
|
|
|
2-7 |
|
|
|
2-7 |
|
SAPs investment strategy in Germany is to invest all
contributions into stable insurance policies. The expected rate
of return on plan assets for the Groups domestic benefit
plans is calculated by reference to the expected returns
achievable on the insured policies given the expected asset mix
of the policies. The assumed discount-rates are derived from
rates available on high-quality fixed-income investments for
which the timing and amounts of payments match the timing and
amounts of SAPs projected pension payments.
Foreign Benefit Plans
The Companys foreign defined benefit plans provide
participants with pension benefits that are based upon
compensation levels, age, and years of service.
F-40
The change of the benefit obligation and the change in plan
assets for the foreign plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
|
189,838 |
|
|
|
174,792 |
|
Service costs
|
|
|
29,872 |
|
|
|
30,220 |
|
Interest costs
|
|
|
9,021 |
|
|
|
7,817 |
|
Employee contributions
|
|
|
2,965 |
|
|
|
0 |
|
Actuarial loss / gain
|
|
|
15,064 |
|
|
|
(11,722 |
) |
Benefits paid
|
|
|
(7,853 |
) |
|
|
(5,710 |
) |
Foreign currency exchange rate changes
|
|
|
17,751 |
|
|
|
(7,527 |
) |
Other changes
|
|
|
0 |
|
|
|
1,968 |
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
256,658 |
|
|
|
189,838 |
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
185,628 |
|
|
|
157,449 |
|
Actual return on plan assets
|
|
|
18,087 |
|
|
|
8,994 |
|
Employer contributions
|
|
|
20,385 |
|
|
|
30,095 |
|
Employee contributions
|
|
|
2,965 |
|
|
|
2,064 |
|
Benefits paid
|
|
|
(6,554 |
) |
|
|
(4,519 |
) |
Foreign currency exchange rate changes
|
|
|
21,131 |
|
|
|
(10,423 |
) |
Other changes
|
|
|
0 |
|
|
|
1,968 |
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
241,642 |
|
|
|
185,628 |
|
|
|
|
|
|
|
|
Funded status
|
|
|
15,016 |
|
|
|
4,210 |
|
Unrecognized transition assets
|
|
|
(1,888 |
) |
|
|
(2,074 |
) |
Unrecognized prior service cost
|
|
|
1,331 |
|
|
|
1,281 |
|
Unrecognized net actuarial loss
|
|
|
(32,767 |
) |
|
|
(20,099 |
) |
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(18,308 |
) |
|
|
(16,682 |
) |
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
|
(37,588 |
) |
|
|
(31,547 |
) |
Accrued benefit liability
|
|
|
19,280 |
|
|
|
22,315 |
|
Intangible assets
|
|
|
0 |
|
|
|
0 |
|
Accumulated other comprehensive income
|
|
|
0 |
|
|
|
(7,450 |
) |
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(18,308 |
) |
|
|
(16,682 |
) |
|
|
|
|
|
|
|
There were no plan transfers, divestitures, curtailments, or
settlements impacting SAPs foreign benefit plans in 2005
or 2004.
Assumptions regarding discount rates, rates of increase in
compensation, and long-term rates of return on plan assets used
in calculating the projected benefit obligations vary according
to the economic conditions of the country in which the benefit
plans are situated. The following are weighted averages of the
assumptions that were used for the actuarial valuation of the
Groups foreign pension benefit obligation as of the
respective measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
% | |
|
% | |
|
% | |
Discount rate
|
|
|
4.2 |
|
|
|
4.5 |
|
|
|
4.7 |
|
Rate of compensation increase
|
|
|
4.9 |
|
|
|
4.9 |
|
|
|
4.7 |
|
F-41
The components of net periodic benefit cost of the Groups
foreign benefit plans for the years ended December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Service cost
|
|
|
29,872 |
|
|
|
30,220 |
|
|
|
29,503 |
|
Interest cost
|
|
|
9,021 |
|
|
|
7,817 |
|
|
|
7,691 |
|
Expected return on plan assets
|
|
|
(14,270 |
) |
|
|
(11,959 |
) |
|
|
(9,189 |
) |
Net amortization
|
|
|
184 |
|
|
|
849 |
|
|
|
1,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,807 |
|
|
|
26,927 |
|
|
|
29,651 |
|
|
|
|
|
|
|
|
|
|
|
The following are weighted averages of the assumptions that were
used to determine net periodic pension cost for the Groups
foreign pension plans for 2005, 2004, and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
% | |
|
% | |
|
% | |
Discount rate
|
|
|
4.5 |
|
|
|
4.7 |
|
|
|
5.2 |
|
Expected return on plan assets
|
|
|
6.9 |
|
|
|
6.9 |
|
|
|
6.5 |
|
Rate of compensation increase
|
|
|
5.0 |
|
|
|
4.7 |
|
|
|
4.8 |
|
The expected return on plan assets assumption is based on
weighted average expected long-term rate of returns for each
asset class which are estimated based on factors such as
historical return patterns for each asset class and forecasts
for inflation. Historical return patterns and other relevant
financial factors are reviewed for appropriateness and
reasonableness and modifications are made when considered
necessary. For example, the excessive returns on equity
securities in the late 1990s were given less weight to the
expected return on plan assets assumption than were the more
moderate returns before and since then. The assumed
discount-rates are derived from rates available on high-quality
fixed-income investments for which the timing and amounts of
payments match the timing and amounts of SAPs projected
pensions payments.. The Groups foreign benefit plan asset
allocation at December 31, 2005, as well as the target
asset allocation, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target asset | |
|
Actual % of 2005 | |
|
Target asset | |
|
Actual % of 2004 | |
Asset category |
|
allocation 2006 | |
|
plan assets | |
|
allocation 2005 | |
|
plan assets | |
|
|
| |
|
| |
|
| |
|
| |
Equity
|
|
|
53.8 |
|
|
|
57.2 |
|
|
|
59.0 |
|
|
|
58.1 |
|
Fixed income
|
|
|
37.2 |
|
|
|
31.8 |
|
|
|
39.7 |
|
|
|
38.4 |
|
Real Estate
|
|
|
2.9 |
|
|
|
0.4 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Insurance Policies
|
|
|
5.5 |
|
|
|
3.7 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Other
|
|
|
0.6 |
|
|
|
6.9 |
|
|
|
1.3 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment strategies for SAPs foreign benefit plans
vary according to the individual conditions of the country in
which the benefit plans are situated. Generally, a long-term
investment horizon has been adopted for all major foreign
benefit plans. SAPs policy is to invest in a
risk-diversified portfolio consisting of a mix of assets within
the above target asset allocation range.
Additional Information on Funded Status for Domestic and Foreign
Plans
The total accumulated benefit obligation for the Groups
principal domestic and foreign benefit plans for the year ended
2005 was 42,147
thousand (2004:
32,755 thousand)
and 228,647
thousand (2004:
176,458
thousand), respectively. The projected benefit obligation,
accumulated benefit obligation, and fair value of
F-42
plan assets for the Groups domestic and foreign defined
benefit pension plans with accumulated benefit obligations in
excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005 | |
|
12/31/2004 | |
|
|
| |
|
| |
|
|
Domestic | |
|
Foreign | |
|
|
|
Domestic | |
|
Foreign | |
|
|
|
|
plans | |
|
plans | |
|
Total | |
|
plans | |
|
plans | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Projected benefit obligation
|
|
|
42,745 |
|
|
|
21,578 |
|
|
|
64,323 |
|
|
|
33,141 |
|
|
|
78,821 |
|
|
|
111,962 |
|
Accumulated benefit obligation
|
|
|
42,147 |
|
|
|
16,686 |
|
|
|
58,833 |
|
|
|
32,667 |
|
|
|
71,823 |
|
|
|
104,490 |
|
Fair value of plan assets
|
|
|
28,722 |
|
|
|
0 |
|
|
|
28,722 |
|
|
|
27,447 |
|
|
|
51,915 |
|
|
|
79,362 |
|
Underfunding of accumulated benefit obligation
|
|
|
13,425 |
|
|
|
16,686 |
|
|
|
30,111 |
|
|
|
5,220 |
|
|
|
19,908 |
|
|
|
25,128 |
|
Expected Future Contributions and Benefits
The Groups expected contribution in 2006 is
1,693 thousand
for domestic plans and
6,759 thousand
for foreign plans, all of which is expected to be paid as cash
contributions.
The estimated future pension benefits to be paid over the next
10 years by the Groups domestic and foreign benefit
plans for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic | |
|
Foreign | |
|
|
|
|
plans | |
|
plans | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
2006
|
|
|
976 |
|
|
|
8,580 |
|
|
|
9,556 |
|
2007
|
|
|
1,135 |
|
|
|
9,932 |
|
|
|
11,067 |
|
2008
|
|
|
1,345 |
|
|
|
12,027 |
|
|
|
13,372 |
|
2009
|
|
|
1,374 |
|
|
|
13,347 |
|
|
|
14,721 |
|
2010
|
|
|
1,557 |
|
|
|
14,680 |
|
|
|
16,237 |
|
2011-2015
|
|
|
9,501 |
|
|
|
104,349 |
|
|
|
113,850 |
|
Contribution Plans
The Company also maintains domestic and foreign defined
contribution plans. Amounts contributed by the Company under
such plans are based upon a percentage of the employees
salary or the amount of contributions made by employees. The
costs associated with defined contribution plans were
82,128 thousand,
76,453 thousand,
and 79,955
thousand in 2005, 2004, and 2003 respectively.
Employee-Financed Pension Plan
In Germany SAP maintains an unqualified employee-financed plan,
whereby employees may contribute a limited portion of their
salary. SAP purchases and holds guaranteed fixed rate insurance
contracts, which are recorded in Other assets (see Note 18)
and are equal to the obligations under the plan.
(24) OTHER RESERVES AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Current and deferred taxes
|
|
|
523,504 |
|
|
|
632,033 |
|
Other reserves and accrued liabilities
|
|
|
1,315,636 |
|
|
|
1,136,690 |
|
|
|
|
|
|
|
|
|
|
|
1,839,140 |
|
|
|
1,768,723 |
|
|
|
|
|
|
|
|
F-43
As of December 31, 2005, accrued taxes include current and
prior year tax obligations in the amount of
429,033 thousand
(2004: 567,831
thousand) and deferred tax liabilities in the amount of
94,471 thousand
(2004: 64,202
thousand).
Other reserves and accrued liabilities as of December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(000) | |
|
(000) | |
Other obligations to employees
|
|
|
736,234 |
|
|
|
611,567 |
|
Obligations to suppliers
|
|
|
180,456 |
|
|
|
183,069 |
|
Vacation and other absences
|
|
|
171,687 |
|
|
|
145,293 |
|
STAR obligations
|
|
|
122,240 |
|
|
|
108,910 |
|
Fair value of foreign exchange contracts
|
|
|
43,919 |
|
|
|
5,255 |
|
Restructuring costs
|
|
|
9,525 |
|
|
|
16,235 |
|
Contribution to employees accident insurance account
|
|
|
7,677 |
|
|
|
6,584 |
|
Customer claims
|
|
|
6,735 |
|
|
|
10,902 |
|
Auditing and reporting costs
|
|
|
6,688 |
|
|
|
5,889 |
|
Warranty and service costs
|
|
|
2,900 |
|
|
|
3,852 |
|
Other
|
|
|
27,575 |
|
|
|
39,134 |
|
|
|
|
|
|
|
|
|
|
|
1,315,636 |
|
|
|
1,136,690 |
|
|
|
|
|
|
|
|
Other reserves and accrued liabilities payable after one year as
of December 31, 2005, are
101,591 thousand
(99,935 thousand
in 2004).
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
16,377 thousand
as of December 31, 2005 (2004:
13,382 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,
2005 and 2004, SAP accrued
2,900 thousand
and 3,852
thousand, respectively. The aggregate utilization of the
warranty accrual in 2005 was
2,737 thousand
(2004: 4,366
thousand) and the aggregate warranty expense was net
1,785 thousand
in 2005 (2004:
618 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
F-44
the line item Other operating expense, net. The following
table presents the beginning and ending balances along with
additions and deductions incurred:
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as | |
|
|
|
|
|
|
|
|
|
Balance as | |
|
|
of 1/1 | |
|
Additions | |
|
Utilization | |
|
Release | |
|
Currency | |
|
of 12/31 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Unused Lease space
|
|
|
7,577 |
|
|
|
17,164 |
|
|
|
(5,544 |
) |
|
|
0 |
|
|
|
(1,506 |
) |
|
|
17,691 |
|
Severance payments for restructuring
|
|
|
11,159 |
|
|
|
3,384 |
|
|
|
(9,347 |
) |
|
|
(1,001 |
) |
|
|
(666 |
) |
|
|
3,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,736 |
|
|
|
20,548 |
|
|
|
(14,891 |
) |
|
|
(1,001 |
) |
|
|
(2,172 |
) |
|
|
21,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as | |
|
|
|
|
|
|
|
|
|
Balance as | |
|
|
of 1/1 | |
|
Additions | |
|
Utilization | |
|
Release | |
|
Currency | |
|
of 12/31 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Unused Lease space
|
|
|
17,691 |
|
|
|
2,625 |
|
|
|
(7,557 |
) |
|
|
(1,415 |
) |
|
|
(779 |
) |
|
|
10,565 |
|
Severance payments for restructuring
|
|
|
3,529 |
|
|
|
6,972 |
|
|
|
(3,668 |
) |
|
|
(1,176 |
) |
|
|
13 |
|
|
|
5,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,220 |
|
|
|
9,597 |
|
|
|
(11,225 |
) |
|
|
(2,591 |
) |
|
|
(766 |
) |
|
|
16,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as | |
|
|
|
|
|
|
|
|
|
Balance as | |
|
|
of 1/1 | |
|
Additions | |
|
Utilization | |
|
Release | |
|
Currency | |
|
of 12/31 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Unused Lease space
|
|
|
10,565 |
|
|
|
2,379 |
|
|
|
(4,404 |
) |
|
|
(1,547 |
) |
|
|
833 |
|
|
|
7,826 |
|
Severance payments for restructuring
|
|
|
5,670 |
|
|
|
4,203 |
|
|
|
(4,846 |
) |
|
|
(3,304 |
) |
|
|
(24 |
) |
|
|
1,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,235 |
|
|
|
6,582 |
|
|
|
(9,250 |
) |
|
|
(4,851 |
) |
|
|
809 |
|
|
|
9,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance benefits that do not vest or accumulate are recognized
when it becomes probable that an obligation has been incurred
and the amount is reasonably estimable In 2005, 2004, and 2003,
SAP accounted for most of its severance obligations in
accordance with SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146) since the majority of the severance
activities related to one-time events.
Provision for unused lease space relates 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. For 2005 and 2004, the charges affected
each of the segments, while for 2003 those charges primarily
relate to the training segment.
F-45
(25) OTHER LIABILITIES
Other liabilities based on due dates as of December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term less | |
|
Term | |
|
Term more | |
|
|
|
|
|
|
than 1 | |
|
between 1 | |
|
than | |
|
Balance on | |
|
Balance on | |
|
|
year | |
|
and 5 years | |
|
5 years | |
|
12/31/2005 | |
|
12/31/2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Bank loans and overdrafts
|
|
|
22,308 |
|
|
|
0 |
|
|
|
1,992 |
|
|
|
24,300 |
|
|
|
27,785 |
|
Advanced payments received
|
|
|
29,812 |
|
|
|
40,113 |
|
|
|
0 |
|
|
|
69,925 |
|
|
|
53,537 |
|
Accounts payable
|
|
|
383,191 |
|
|
|
246 |
|
|
|
0 |
|
|
|
383,437 |
|
|
|
340,461 |
|
Taxes
|
|
|
210,020 |
|
|
|
0 |
|
|
|
0 |
|
|
|
210,020 |
|
|
|
175,248 |
|
Social security
|
|
|
46,788 |
|
|
|
0 |
|
|
|
0 |
|
|
|
46,788 |
|
|
|
43,988 |
|
Other liabilities
|
|
|
57,124 |
|
|
|
2,364 |
|
|
|
44,820 |
|
|
|
104,308 |
|
|
|
87,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
749,243 |
|
|
|
42,723 |
|
|
|
46,812 |
|
|
|
838,778 |
|
|
|
728,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities are unsecured, excluding retention of title and
similar rights customary in the industry. Effective interest
rates of bank loans are 7.22% and 6.14% in 2005 and 2004,
respectively.
In 2004, liabilities with a remaining term not exceeding one
year amounted to
695,345 thousand
and those with a remaining term exceeding five years amounted to
30,813 thousand.
On November 5, 2004, SAP AG entered into a
1 billion
syndicated revolving credit facility agreement with an initial
term of five years. The use of the facility is not restricted by
any financial covenants. Borrowings under the facility bear
interest of EURIBOR or LIBOR for the respective currency plus a
margin ranging from 0.20 to 0.25% depending on the amount drawn.
SAP is also required to pay a commitment fee of 0.07% per annum
on the unused available credit.
As of December 31, 2005 and 2004 there were no borrowings
outstanding under the facility.
Additionally, as of December 31, 2005 and 2004, SAP AG had
available lines of credit totaling
553,400 thousand
and 621,500
thousand, respectively. As of December 31, 2005 and 2004,
there were no borrowings outstanding under these lines of credit.
As of December 31, 2005 and 2004, certain of SAPs
subsidiaries had lines of credit available that allowed them to
borrow in local currencies at prevailing interest rates up to
217,712 thousand
and 203,806
thousand, respectively. Total aggregate borrowings under these
lines of credit, which are predominantly guaranteed by SAP AG,
amounted to
24,300 thousand
as of December 31, 2005, and
27,785 thousand
as of December 31, 2004.
(26) DEFERRED INCOME
Deferred income consists mainly of prepayments for maintenance
and deferred software license revenues. Such amounts will be
recognized as software, maintenance, or service revenue,
depending upon the reasons for the deferral when the basic
criteria in SOP 97-2 have been met (see Note 3).
D. ADDITIONAL INFORMATION
(27) SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid included in net cash provided by operating
activities in 2005, 2004, and 2003 was
3,830 thousand,
5,503 thousand,
and
3,900 thousand,
respectively. Income taxes paid in fiscal years 2005, 2004, and
2003, net of refunds, was
975,565 thousand,
481,557 thousand,
and
591,012 thousand,
respectively.
F-46
See the reconciliation from cash and cash equivalents to liquid
assets in Note 19.
(28) CONTINGENT LIABILITIES
SAPs software license agreements generally include certain
provisions for indemnifying customers against liabilities if our
software products infringe a third partys intellectual
property rights. To date, SAP has not incurred any material loss
as a result of such indemnification and has not recorded any
liabilities related to such obligations.
SAP occasionally grants function and/or performance guarantees
in routine consulting contracts and/or development arrangements.
Based on historical experience and evaluation, SAP does not
believe that any material loss resulting from these guarantees
is probable. In addition, because the guarantees relate to
SAPs own performance, no related liability has been
recorded. The Company also generally provides a six to
12 month warranty on its software. Due to the nature of
these warranties, which relate to the performance of SAPs
software, SAP cannot reasonably estimate the maximum exposure to
loss resulting from the warranties. The Companys warranty
liability is included in other reserves and accrued liabilities
(see Note 24).
As of December 31, 2005 and 2004, no guarantees were
provided for performance or financial obligations of third
parties.
(29) OTHER FINANCIAL COMMITMENTS
Other financial commitments amounted to
805,089 thousand
and 617,298
thousand as of December 31, 2005 and 2004, respectively,
and are comprised primarily of commitments under rental and
operating leases of
687,487
thousand, and
563,478 thousand
as of December 31, 2005 and 2004, respectively. Those
commitments relate primarily to the lease of office space, cars,
and office equipment. In addition, financial commitments exist
in the form of purchase commitments totaling
78,783 thousand,
and 26,068
thousand as of December 31, 2005 and 2004, respectively.
These commitments relate primarily to the construction of
facilities in Germany, office equipment, and car purchase
commitments. Historically, the majority of those purchase
commitments have been utilized. For financial commitments
related to SAPs pension plans, see Note 23.
In October 2000 SAP Properties, a wholly owned subsidiary of SAP
America, Inc., entered into a seven-year lease arrangement with
a sophisticated financial institution for office space and also
agreed to serve as an agent to oversee the renovations of the
office space. The operating lease agreement was between SAP
Properties and the financial institution directly, with no
involvement of any variable interest entity. Under the terms of
the lease, SAP Properties was required to restrict cash equal to
the amount spent by the financial institution on such
renovations. This lease was accounted for as an operating lease
in accordance with SFAS 13, Accounting for Leases
(SFAS 13).
In January 2004 SAP America, Inc. and SAP Properties signed an
agreement with a third-party real estate development company to
sell a portion of the United States headquarters property in
Newtown Square, Pennsylvania. A portion of the property sold was
owned and another portion of the property was occupied by SAP
America, Inc. and certain subsidiaries pursuant to an operating
lease with the sophisticated financial institution noted above.
The sale took place in 2004 and released the restricted cash
securing the lease obligation.
F-47
Commitments under rental and operating leasing contracts as of
December 31, 2005:
|
|
|
|
|
|
|
(000) | |
|
|
| |
Due 2006
|
|
|
148,738 |
|
Due 2007
|
|
|
109,190 |
|
Due 2008
|
|
|
91,066 |
|
Due 2009
|
|
|
71,556 |
|
Due 2010
|
|
|
59,629 |
|
Due thereafter
|
|
|
207,308 |
|
Rent expense was
164,544
thousand,
153,418
thousand, and
159,284 thousand
for the years ended December 31, 2005, 2004, and 2003,
respectively.
(30) LITIGATION AND CLAIMS
In April 2005, U.S.-based ePlus, Inc., instituted legal
proceedings in the United States against SAP. ePlus alleges that
certain SAP products, methods, and services infringe three
U.S. patents owned by ePlus. In its complaint, ePlus seeks
unspecified monetary damages, permanent injunctive relief, and
up to treble damages for alleged willful infringement. A claims
construction hearing was held in November 2005 and a ruling by
the court was issued in January 2006. The trial is scheduled to
begin March 28, 2006.
In August 2005, U.S.-based AMC Technology, Inc., instituted
legal proceedings in the United States against SAP. AMC alleges
that SAP breached an agreement with AMC, and that certain SAP
technology infringed AMCs copyright and improperly
included AMC technology. AMCs complaint seeks unspecified
monetary damages and injunctive relief. No trial date has been
scheduled.
While the ultimate outcome of these cases cannot be determined
presently with certainty, SAP is vigorously defending against
the claims, and believes that these actions are not likely to
have a material effect on its business, financial position,
results of operations, or cash flows. As of December 31,
2005, no amount has been accrued for these matters as a loss is
not probable or estimable. Any litigation, however, involves
potential risk and potentially significant litigation costs, and
therefore there can be no assurance that these actions would not
have such a material adverse effect on SAPs business,
financial position, results of operations, or cash flows.
F-48
(31) FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The Company utilizes various types of financial instruments in
the ordinary course of business. The carrying amounts and fair
values of SAPs financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
value | |
|
Fair value | |
|
value | |
|
Fair value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Marketable equity securities available-for-sale
|
|
|
23,080 |
|
|
|
23,080 |
|
|
|
17,328 |
|
|
|
17,328 |
|
Marketable debt securities available-for-sale
|
|
|
630,438 |
|
|
|
630,438 |
|
|
|
473 |
|
|
|
473 |
|
Marketable fund securities available-for-sale
|
|
|
12,249 |
|
|
|
12,249 |
|
|
|
11,906 |
|
|
|
11,906 |
|
Other loans
|
|
|
48,284 |
|
|
|
48,284 |
|
|
|
53,320 |
|
|
|
53,320 |
|
Bank loans and overdrafts
|
|
|
(24,300 |
) |
|
|
(24,300 |
) |
|
|
(27,785 |
) |
|
|
(27,785 |
) |
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
(37,776 |
) |
|
|
(37,776 |
) |
|
|
81,653 |
|
|
|
81,653 |
|
Call options (STAR hedge)
|
|
|
169,113 |
|
|
|
169,113 |
|
|
|
104,808 |
|
|
|
104,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
821,088 |
|
|
|
821,088 |
|
|
|
241,703 |
|
|
|
241,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The market values of these financial instruments are determined
as follows:
|
|
|
|
|
Marketable debt and equity securities: The fair values of
Marketable debt and equity securities are based upon available
quoted market prices on December 31. |
|
|
|
Other loans, Bank loans and overdrafts: The fair values of Other
loans, Bank loans and overdrafts approximate their carrying
values. The interest-free, below-market-rate employee loans
included in other loans are discounted based on prevailing
market rates. |
|
|
|
Derivative financial instruments: The fair value of derivatives
generally reflects the estimated amounts the Company would pay
or receive to terminate the contracts on the reporting date. |
Detailed information about the fair value of the Companys
financial instruments is included in Notes 15 and 25.
Accounting and Use of Derivative Financial Instruments
As an internationally active enterprise, the Company is subject
to risks from currency fluctuations in its ordinary operations.
The Company utilizes derivative financial instruments to reduce
such risks as described below. The derivative financial
instruments employed by the Company are exclusively marketable
instruments with sufficient liquidity. The Company has
established internal guidelines that govern the use of
derivative financial instruments.
Foreign Exchange Risk Management
Most of SAP AGs subsidiaries have entered into license
agreements with SAP AG pursuant to which each subsidiary has
acquired the right to sublicense SAP AG software products to
customers within a specific territory. Under these license
agreements, the subsidiaries generally are required to pay SAP
AG a royalty equivalent to a percentage of the product fees
charged by them to their customers within 30 days following
the end of the month in which the subsidiary recognizes the
revenue. These intercompany royalties payable to SAP AG are
mostly denominated in the respective subsidiarys local
currency in order to centralize foreign currency risk with
SAP AG in Germany. Because these royalties are denominated
in the various subsidiaries
F-49
local currencies, whereas the functional currency of SAP AG
is the euro, SAP AGs anticipated cash flows are subject to
foreign exchange risks. In addition, the delay between the date
when the subsidiary records product revenue and the date when
the subsidiary remits payment to SAP AG exposes SAP AG
to foreign exchange risk.
SAP enters into derivative instruments, primarily foreign
exchange forward contracts and currency options, to hedge
anticipated cash flows in foreign currencies from foreign
subsidiaries. Specifically, these foreign exchange forward
contracts offset anticipated cash flows and existing
intercompany receivables relating to the countries with
significant operations, including the United States, Japan, the
United Kingdom, Switzerland, Canada, and Australia. SAP uses
foreign exchange derivatives that generally have maturities of
12 months or less, which may be rolled over to provide
continuing coverage until the applicable royalties are received.
Generally, anticipated cash flows represent expected
intercompany amounts resulting from revenues generated within
the 12 months following the purchase date of the derivative
instrument. However, SAP infrequently extends the future periods
being hedged for a period of up to two years from the purchase
date of the derivative instrument based on the Companys
forecasts and anticipated exchange rate fluctuations in various
currencies. SAP believes the use of foreign currency derivative
financial instruments reduces the aforementioned risks that
arise from doing business in international markets and holds
such instruments for purposes other than trading.
Foreign exchange derivatives are recorded at fair value in the
Consolidated Balance Sheets. Gains or losses on derivatives
designated and qualifying as cash flow hedges are included in
Accumulated other comprehensive income, net of tax.
When intercompany accounts receivable resulting from product
revenue royalties are recorded, the applicable gain or loss is
reclassified to Other non-operating income/ expense, net. Going
forward, any additional gains or losses relating to that
derivative are posted to Other non-operating income/ expense,
net until the position is closed or the derivative expires.
For the year ended December 31, 2005, no gains or losses
were reclassified from Accumulated other comprehensive income as
a result of the discontinuance of foreign currency cash flow
hedges because it was probable that the original forecasted
transaction would not occur are included in earnings. For the
year ended December 31, 2004, such net gains of
0 thousand were
included in earnings (2003: net gains of
26 thousand).
It is estimated that
8,963 thousand
of net losses included in Accumulated other comprehensive income
at December 31, 2005, will be reclassified into earnings
during the next year. As of December 31, 2005, SAP held
derivative financial instruments with a maximum term of
12 months to hedge its exposure to the variability in
future cash flows for forecasted transactions.
Foreign exchange derivatives entered into by SAP to offset
exposure to anticipated cash flows that do not meet the
requirements for applying hedge accounting are marked to market
at each reporting period with unrealized gains and losses
recognized in earnings.
STAR Hedge
To a certain extent SAP hedges anticipated cash flow exposures
associated with unrecognized non-vested STARs (see Note 22)
through the purchase of derivative instruments from independent
financial institutions.
F-50
As of December 31, 2005 and 2004, the following derivative
instruments were designated as a hedge for the STAR 2005, 2004,
and 2003, respectively:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
| |
Hedge of 3.8 million 2005 STARs | |
| |
Buy/sell | |
|
options | |
|
Strike price | |
| |
|
| |
|
| |
|
Buy |
|
|
|
3,800,000 |
|
|
|
121.87 |
|
|
Sell |
|
|
|
1,900,000 |
|
|
|
171.87 |
|
|
Sell |
|
|
|
950,000 |
|
|
|
221.87 |
|
Fair value as of December 31, 2005, in (000): 107,358
|
|
|
|
|
|
|
|
|
|
|
Hedge of 3.0 million 2004 STARs | |
| |
|
|
Number of call | |
|
|
Buy/sell | |
|
options | |
|
Strike price | |
| |
|
| |
|
| |
|
Buy |
|
|
|
3,000,000 |
|
|
|
134.35 |
|
|
Sell |
|
|
|
1,500,000 |
|
|
|
184.35 |
|
|
Sell |
|
|
|
750,000 |
|
|
|
234.35 |
|
Fair value as of December 31, 2005, in (000): 22,453
|
|
|
|
|
|
|
|
|
|
|
Hedge of 2.0 million 2003 STARs | |
| |
|
|
Number of call | |
|
|
Buy/sell | |
|
options | |
|
Strike price | |
| |
|
| |
|
| |
|
Buy |
|
|
|
2,000,000 |
|
|
|
84.91 |
|
|
Sell |
|
|
|
1,000,000 |
|
|
|
134.91 |
|
|
Sell |
|
|
|
500,000 |
|
|
|
184.91 |
|
Fair value as of December 31, 2005, in (000): 39,302
|
|
|
|
|
|
|
|
|
|
|
2004 | |
| |
Hedge of 3.0 million 2004 STARs | |
| |
Buy/sell | |
|
options | |
|
Strike price | |
| |
|
| |
|
| |
|
Buy |
|
|
|
3,000,000 |
|
|
|
134.35 |
|
|
Sell |
|
|
|
1,500,000 |
|
|
|
184.35 |
|
|
Sell |
|
|
|
750,000 |
|
|
|
234.35 |
|
Fair value as of December 31, 2004, in (000): 22,308
|
|
|
|
|
|
|
|
|
|
|
Hedge of 2.0 million 2003 STARs | |
| |
|
|
Number of call | |
|
|
Buy/sell | |
|
options | |
|
Strike price | |
| |
|
| |
|
| |
|
Buy |
|
|
|
2,000,000 |
|
|
|
84.91 |
|
|
Sell |
|
|
|
1,000,000 |
|
|
|
134.91 |
|
|
Sell |
|
|
|
500,000 |
|
|
|
184.91 |
|
Fair value as of December 31, 2004, in (000): 82,500
The terms of the derivative financial instruments are also
designed to reflect the eight measurement dates and weighting
factors applicable to the STAR program, as described in
Note 22. The amount of options, which expire at each
measurement date, reflect the respective weighting factor of
that date. Payments dates reflect payment terms of the STAR
program, which is subject to the respective hedge. Viewed
together, SAP will receive from the financial institution 100%
of the first 50
in appreciation of SAPs stock price above the strike price
of the STAR, 50% of the next
50 in
appreciation of SAPs stock price above the strike price of
the STAR, and 25% of any additional appreciation of SAPs
stock price above the strike price of the STAR.
The terms of the derivative financial instruments require cash
settlement and there are no settlement alternatives. These
derivative financial instruments are accounted for as Other
assets on SAPs Consolidated Balance Sheets.
Hedge effectiveness is assessed based on changes in the
intrinsic value of the STAR hedge instrument. Accordingly the
change in the fair value attributable to the time value of the
derivative instrument will be recorded currently in the
Consolidated Statements of Income under Financial income/
expense. The change in intrinsic value is recorded in Other
comprehensive income with the resulting Deferred tax liability
recorded separately. The amount in Other comprehensive income is
used to offset compensation expense on the STAR recognized over
the vesting period. To the extent SAP entered into a hedge for
recognized, vested STARs, the change in intrinsic value of the
derivative is recognized currently in Financial income/ expense.
F-51
As of December 31, 2005,
66 million
(2004:
15 million;
2003:
15 million)
have been recorded as an expense in Financial income.
Compensation expense on STAR has been reduced by
59 million
(2004:
22 million;
2003:
16 million);
Other comprehensive income increased by
43 million
(2004: decreased by
15 million;
increased by
24 million),
net of tax. See Note 22 for additional information.
The notional values and fair values of the derivative financial
instruments as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Notional | |
|
|
|
Notional | |
|
|
|
|
value | |
|
Fair value | |
|
value | |
|
Fair value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Forward exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
435,659 |
|
|
|
6,143 |
|
|
|
1,226,531 |
|
|
|
86,908 |
|
|
Losses
|
|
|
1,178,309 |
|
|
|
(43,919 |
) |
|
|
222,487 |
|
|
|
(5,255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,613,968 |
|
|
|
(37,776 |
) |
|
|
1,449,018 |
|
|
|
81,653 |
|
Call options (STAR hedge)
|
|
|
n/a |
|
|
|
169,113 |
|
|
|
n/a |
|
|
|
104,808 |
|
Credit Risk
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. To
avoid these counterparty risks, the Company conducts business
exclusively with major financial institutions. SAP does not have
significant exposure to any individual counterparty.
(32) SEGMENT INFORMATION
SAP discloses segment information in accordance with
SFAS 131, Disclosures about Segments of an Enterprise
and Related Disclosures (SFAS 131).
SFAS 131 requires financial information about operating
segments to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate
resources to segments.
The Companys internal reporting system produces reports in
which business activities are presented in a variety of ways.
Based on these reports, the Executive Board, which has been
identified as the chief operating decision-maker according to
the criteria of SFAS 131, evaluates business activities in
a number of different ways. Neither the line of business nor the
geographic structure can be identified as primary, and
accordingly the line of business structure is regarded as
constituting the operating segments. SAP has three operating
segments: Product, Consulting, and Training.
Accounting policies for each segment are the same as those
described in the summary of significant accounting policies as
disclosed in Note 3, except for differences in the currency
translation and stock-based compensation expenses. Under
managements view, certain deferred compensation charges
for settlements of stock-based compensation plans are also
considered stock-based compensation. Differences in the foreign
currency translation result in minor deviations between the
figures reported internally and the figures reported in the
financial statements.
Through December 31, 2003, SAP accounted for internal sales
and transfers between segments either on a cost basis or at
estimated market prices, depending on the type of service
provided. Effective January 1, 2004, in order to best
manage the utilization of its internal resources, SAP started
recording all internal sales and transfers based on fully loaded
cost rates. The Company adjusted the management reporting of
internal revenues such that internal sales and transfers are now
reported as cost reduction rather than internal revenues. This
change in segment measures resulted in lower revenues and costs
for the operating segments. The Company also adopted a new
calculation of the segment contribution in 2004 such that
acquisition-related charges no longer burden a segments
contribution.
F-52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
Product | |
|
Consulting | |
|
Training | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
External revenue
|
|
|
6,044,338 |
|
|
|
2,078,091 |
|
|
|
380,209 |
|
|
|
8,502,638 |
|
Segment expenses
|
|
|
(2,452,470 |
) |
|
|
(1,619,034 |
) |
|
|
(247,968 |
) |
|
|
(4,319,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution
|
|
|
3,591,868 |
|
|
|
459,057 |
|
|
|
132,241 |
|
|
|
4,183,166 |
|
Segment profitability
|
|
|
59.4 |
% |
|
|
22.1 |
% |
|
|
34.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
Product | |
|
Consulting | |
|
Training | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
External revenue
|
|
|
5,292,941 |
|
|
|
1,910,292 |
|
|
|
306,591 |
|
|
|
7,509,824 |
|
Segment expenses
|
|
|
(2,058,099 |
) |
|
|
(1,483,993 |
) |
|
|
(209,001 |
) |
|
|
(3,751,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution
|
|
|
3,234,842 |
|
|
|
426,299 |
|
|
|
97,590 |
|
|
|
3,758,731 |
|
Segment profitability
|
|
|
61.1 |
% |
|
|
22.3 |
% |
|
|
31.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
|
| |
|
|
Product | |
|
Consulting | |
|
Training | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
External revenue
|
|
|
4,797,827 |
|
|
|
1,884,801 |
|
|
|
316,088 |
|
|
|
6,998,716 |
|
Segment expenses
|
|
|
(1,862,679 |
) |
|
|
(1,442,398 |
) |
|
|
(221,783 |
) |
|
|
(3,526,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution
|
|
|
2,935,148 |
|
|
|
442,403 |
|
|
|
94,305 |
|
|
|
3,471,856 |
|
Segment profitability
|
|
|
61.2 |
% |
|
|
23.5 |
% |
|
|
29.8 |
% |
|
|
|
|
Product
The Product segment is primarily engaged in marketing and
licensing the Companys software products, performing
software development services, and performing maintenance
services. Maintenance services include technical support for the
Companys products, assistance in resolving problems,
providing user documentation, updates and other support for
software products, new versions, and support packages.
Consulting
The Consulting segment assists customers in the implementation
of SAP software products. Consulting services also include
customer support in project planning, feasibility studies,
analyses, organizational consulting, system adaptation, system
optimization, release change, and interface setup.
Training
The Training segment provides educational services on the use of
SAP software products and related topics for customers and
partners. Training services include traditional classroom
training at SAP training facilities, customer and
partner-specific training, end-user training, as well as
e-learning.
Revenues
The revenue figures for the operating segments differ from the
revenue figures disclosed in the Consolidated Statements of
Income because for internal reporting purposes revenue is
generally allocated to the segment that is responsible for the
related transaction, whereas in the Consolidated Statements of
Income revenue is allocated based on the nature of the
transaction regardless of the segment it was provided by.
F-53
The following table presents a reconciliation of total segment
revenues to total consolidated revenues as reported in the
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Total revenue for reportable segments
|
|
|
8,502,638 |
|
|
|
7,509,824 |
|
|
|
6,998,716 |
|
Other external revenues
|
|
|
10,349 |
|
|
|
4,474 |
|
|
|
26,074 |
|
Other differences
|
|
|
(558 |
) |
|
|
195 |
|
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,512,429 |
|
|
|
7,514,493 |
|
|
|
7,024,606 |
|
|
|
|
|
|
|
|
|
|
|
Other external revenues result from services provided from
outside the reportable segments. Other differences primarily
comprise currency translation differences.
Segment Contribution
The segment contributions reflect only expenses directly
attributable to the segments and do not represent the actual
margins for the operating segments. Indirect costs such as
general and administrative, research and development (including
cost from software development contracts of
82,325 thousand
(2004: 111,966
thousand; 2003:
123,716
thousand)), charges for stock-based compensation and
acquisition-related charges, and other corporate expenses are
not allocated to the operating segments and therefore are not
included in segment contribution. Depreciation and amortization
of long-lived assets as well as other facility and IT-related
expenses are allocated to each operating segment based on
headcount or facility space occupied.
The following table presents a reconciliation of total segment
contribution to Income before income taxes and minority interest
as reported in the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Total contribution for reportable segments
|
|
|
4,183,166 |
|
|
|
3,758,731 |
|
|
|
3,471,856 |
|
Contribution from activities outside the reportable segments
|
|
|
(1,773,325 |
) |
|
|
(1,672,252 |
) |
|
|
(1,591,996 |
) |
Acquisition-related charges
|
|
|
(33,664 |
) |
|
|
(30,221 |
) |
|
|
(25,735 |
) |
Stock-based compensation expenses
|
|
|
(45,042 |
) |
|
|
(38,126 |
) |
|
|
(130,044 |
) |
Other differences
|
|
|
(403 |
) |
|
|
249 |
|
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,330,732 |
|
|
|
2,018,381 |
|
|
|
1,724,019 |
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income/ expenses, net
|
|
|
(25,161 |
) |
|
|
13,274 |
|
|
|
36,309 |
|
Finance income, net
|
|
|
10,785 |
|
|
|
40,987 |
|
|
|
16,287 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
2,316,356 |
|
|
|
2,072,642 |
|
|
|
1,776,615 |
|
|
|
|
|
|
|
|
|
|
|
Contribution from activities outside the reportable segments
primarily consists of general and administrative expenses and
research and development expenses. Other differences primarily
relate to currency translation differences.
F-54
Segment Profitability
A segments profitability is calculated as the ratio of
segment contribution to segment total revenues.
Segment Assets
The Company currently does not track assets or capital
expenditures by operating segments in its internal reporting
system nor is such information used by the Executive Board when
making decisions about resource allocations.
Geographic Information
The following tables present a summary of operations by
geographic region. The amounts included are based on
consolidated data, which reconciles to the Consolidated
Statements of Income. Income before income taxes is based on
unconsolidated data.
Revenue by sales destination is based upon the location of the
customer whereas Revenue by operations reflects the location of
the SAP subsidiary responsible for the sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by sales destination | |
|
Revenue by operation | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Germany
|
|
|
1,810,342 |
|
|
|
1,780,128 |
|
|
|
1,670,261 |
|
|
|
1,906,018 |
|
|
|
1,875,081 |
|
|
|
1,771,289 |
|
Rest of
EMEA(1)
|
|
|
2,702,429 |
|
|
|
2,443,383 |
|
|
|
2,299,581 |
|
|
|
2,670,304 |
|
|
|
2,411,294 |
|
|
|
2,238,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EMEA
|
|
|
4,512,771 |
|
|
|
4,223,511 |
|
|
|
3,969,842 |
|
|
|
4,576,322 |
|
|
|
4,286,375 |
|
|
|
4,009,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
2,342,808 |
|
|
|
1,893,746 |
|
|
|
1,736,080 |
|
|
|
2,343,466 |
|
|
|
1,880,247 |
|
|
|
1,728,008 |
|
Rest of Americas
|
|
|
656,789 |
|
|
|
530,043 |
|
|
|
480,150 |
|
|
|
653,938 |
|
|
|
513,586 |
|
|
|
472,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Americas
|
|
|
2,999,597 |
|
|
|
2,423,789 |
|
|
|
2,216,230 |
|
|
|
2,997,404 |
|
|
|
2,393,833 |
|
|
|
2,200,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
406,173 |
|
|
|
387,443 |
|
|
|
441,557 |
|
|
|
402,226 |
|
|
|
385,013 |
|
|
|
440,226 |
|
Rest of Asia-Pacific
|
|
|
593,888 |
|
|
|
479,750 |
|
|
|
396,977 |
|
|
|
536,477 |
|
|
|
449,272 |
|
|
|
374,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asia-Pacific
|
|
|
1,000,061 |
|
|
|
867,193 |
|
|
|
838,534 |
|
|
|
938,703 |
|
|
|
834,285 |
|
|
|
814,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,512,429 |
|
|
|
7,514,493 |
|
|
|
7,024,606 |
|
|
|
8,512,429 |
|
|
|
7,514,493 |
|
|
|
7,024,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Europe, Middle East, Africa |
F-55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax(2) | |
|
Total assets | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Germany
|
|
|
2,001,816 |
|
|
|
1,528,052 |
|
|
|
1,368,735 |
|
|
|
4,202,554 |
|
|
|
3,567,090 |
|
|
|
2,597,173 |
|
Rest of
EMEA(1)
|
|
|
345,573 |
|
|
|
335,768 |
|
|
|
285,565 |
|
|
|
1,368,949 |
|
|
|
1,376,879 |
|
|
|
1,295,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EMEA
|
|
|
2,347,389 |
|
|
|
1,863,820 |
|
|
|
1,654,300 |
|
|
|
5,571,503 |
|
|
|
4,943,969 |
|
|
|
3,892,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
417,124 |
|
|
|
265,344 |
|
|
|
178,372 |
|
|
|
2,361,033 |
|
|
|
1,866,987 |
|
|
|
1,710,432 |
|
Rest of Americas
|
|
|
68,821 |
|
|
|
21,593 |
|
|
|
40,170 |
|
|
|
528,741 |
|
|
|
288,370 |
|
|
|
318,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Americas
|
|
|
485,945 |
|
|
|
286,937 |
|
|
|
218,542 |
|
|
|
2,889,774 |
|
|
|
2,155,357 |
|
|
|
2,028,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
39,176 |
|
|
|
38,752 |
|
|
|
61,891 |
|
|
|
153,137 |
|
|
|
151,712 |
|
|
|
163,616 |
|
Rest of Asia-Pacific
|
|
|
93,717 |
|
|
|
62,027 |
|
|
|
23,618 |
|
|
|
448,328 |
|
|
|
334,434 |
|
|
|
240,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asia-Pacific
|
|
|
132,893 |
|
|
|
100,779 |
|
|
|
85,509 |
|
|
|
601,465 |
|
|
|
486,146 |
|
|
|
404,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,966,227 |
|
|
|
2,251,536 |
|
|
|
1,958,351 |
|
|
|
9,062,742 |
|
|
|
7,585,472 |
|
|
|
6,325,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Europe, Middle East, Africa |
|
(2) |
Figures of the unconsolidated stand-alone Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment | |
|
Capital expenditures | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Germany
|
|
|
764,175 |
|
|
|
702,500 |
|
|
|
699,863 |
|
|
|
170,358 |
|
|
|
117,187 |
|
|
|
159,019 |
|
Rest of
EMEA(1)
|
|
|
129,427 |
|
|
|
128,347 |
|
|
|
128,872 |
|
|
|
27,586 |
|
|
|
27,003 |
|
|
|
17,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EMEA
|
|
|
893,602 |
|
|
|
830,847 |
|
|
|
828,735 |
|
|
|
197,944 |
|
|
|
144,190 |
|
|
|
176,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
154,650 |
|
|
|
132,590 |
|
|
|
158,805 |
|
|
|
22,030 |
|
|
|
11,689 |
|
|
|
9,009 |
|
Rest of Americas
|
|
|
8,531 |
|
|
|
5,371 |
|
|
|
4,244 |
|
|
|
4,568 |
|
|
|
3,226 |
|
|
|
2,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Americas
|
|
|
163,181 |
|
|
|
137,961 |
|
|
|
163,049 |
|
|
|
26,598 |
|
|
|
14,915 |
|
|
|
11,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
4,383 |
|
|
|
5,377 |
|
|
|
7,518 |
|
|
|
1,981 |
|
|
|
1,959 |
|
|
|
1,840 |
|
Rest of Asia-Pacific
|
|
|
33,799 |
|
|
|
24,898 |
|
|
|
20,355 |
|
|
|
14,157 |
|
|
|
10,924 |
|
|
|
14,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asia-Pacific
|
|
|
38,182 |
|
|
|
30,275 |
|
|
|
27,873 |
|
|
|
16,138 |
|
|
|
12,883 |
|
|
|
16,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,094,965 |
|
|
|
999,083 |
|
|
|
1,019,657 |
|
|
|
240,680 |
|
|
|
171,988 |
|
|
|
203,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Europe, Middle East, Africa |
F-56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees as of December 31, | |
|
|
Depreciation | |
|
in full-time equivalents | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
|
|
|
|
|
Germany
|
|
|
101,097 |
|
|
|
109,714 |
|
|
|
105,797 |
|
|
|
13,916 |
|
|
|
13,525 |
|
|
|
13,026 |
|
Rest of
EMEA(1)
|
|
|
24,916 |
|
|
|
24,862 |
|
|
|
27,895 |
|
|
|
7,813 |
|
|
|
7,133 |
|
|
|
6,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EMEA
|
|
|
126,013 |
|
|
|
134,576 |
|
|
|
133,692 |
|
|
|
21,729 |
|
|
|
20,658 |
|
|
|
19,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
18,001 |
|
|
|
18,211 |
|
|
|
24,022 |
|
|
|
6,019 |
|
|
|
5,143 |
|
|
|
4,621 |
|
Rest of Americas
|
|
|
2,798 |
|
|
|
1,985 |
|
|
|
2,673 |
|
|
|
1,934 |
|
|
|
1,541 |
|
|
|
1,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Americas
|
|
|
20,799 |
|
|
|
20,196 |
|
|
|
26,695 |
|
|
|
7,953 |
|
|
|
6,684 |
|
|
|
6,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
2,958 |
|
|
|
3,778 |
|
|
|
4,587 |
|
|
|
1,264 |
|
|
|
1,340 |
|
|
|
1,350 |
|
Rest of Asia-Pacific
|
|
|
7,936 |
|
|
|
5,916 |
|
|
|
5,038 |
|
|
|
4,927 |
|
|
|
3,523 |
|
|
|
2,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific
|
|
|
10,894 |
|
|
|
9,694 |
|
|
|
9,625 |
|
|
|
6,191 |
|
|
|
4,863 |
|
|
|
3,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,706 |
|
|
|
164,466 |
|
|
|
170,012 |
|
|
|
35,873 |
|
|
|
32,205 |
|
|
|
29,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Europe, Middle East, Africa |
The majority of research and development costs are incurred in
Germany as SAP AG has title to the majority of internally
developed software. As of December 31, 2005, approximately
56.8% of the research and development personnel are located in
Germany, 11.3% in the rest of EMEA, 8.8% in the United States,
1.9% in the rest of the Americas and 21.2% in the Asia-Pacific
region.
Six groups of industry sectors generated the following revenues
for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue by industry sectors | |
|
Software revenues by industry sectors(1) | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
|
(000) | |
Process industries
|
|
|
1,765,909 |
|
|
|
1,469,136 |
|
|
|
1,381,279 |
|
|
|
659,346 |
|
|
|
489,024 |
|
|
|
404,409 |
|
Discrete industries
|
|
|
1,986,113 |
|
|
|
1,807,871 |
|
|
|
1,659,334 |
|
|
|
638,441 |
|
|
|
550,444 |
|
|
|
496,127 |
|
Consumer industries
|
|
|
1,457,006 |
|
|
|
1,349,825 |
|
|
|
1,243,809 |
|
|
|
463,504 |
|
|
|
426,547 |
|
|
|
359,958 |
|
Service industries
|
|
|
1,946,026 |
|
|
|
1,673,901 |
|
|
|
1,664,525 |
|
|
|
552,120 |
|
|
|
455,054 |
|
|
|
525,061 |
|
Financial services
|
|
|
543,360 |
|
|
|
519,115 |
|
|
|
474,135 |
|
|
|
179,046 |
|
|
|
197,511 |
|
|
|
172,544 |
|
Public services
|
|
|
814,015 |
|
|
|
694,645 |
|
|
|
601,524 |
|
|
|
290,294 |
|
|
|
242,432 |
|
|
|
189,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,512,429 |
|
|
|
7,514,493 |
|
|
|
7,024,606 |
|
|
|
2,782,751 |
|
|
|
2,361,012 |
|
|
|
2,147,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on actual customer assignment. |
The following table presents software revenues allocated to
specific software solutions including revenues from integrated
solution contracts, which are allocated based on customer usage
surveys:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(000) | |
|
(000) | |
|
(000) | |
Enterprise Resource Planning (ERP)
|
|
|
1,157,569 |
|
|
|
989,972 |
|
|
|
801,221 |
|
Customer Relationship Management (CRM)
|
|
|
602,629 |
|
|
|
501,007 |
|
|
|
440,121 |
|
Supply Chain Management (SCM)
|
|
|
508,884 |
|
|
|
479,993 |
|
|
|
477,131 |
|
Product Lifecycle Management (PLM)
|
|
|
161,635 |
|
|
|
166,924 |
|
|
|
156,043 |
|
Business Intelligence/ Enterprise Portal/ SRM/ Marketplaces
|
|
|
n/a |
|
|
|
n/a |
|
|
|
273,075 |
|
SRM
|
|
|
175,983 |
|
|
|
147,091 |
|
|
|
n/a |
|
SAP NetWeaver and other related components
|
|
|
176,051 |
|
|
|
76,025 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,782,751 |
|
|
|
2,361,012 |
|
|
|
2,147,591 |
|
|
|
|
|
|
|
|
|
|
|
F-57
Beginning in 2004, the Company changed its usage surveys for
determining software revenues by solution. The usage surveys no
longer include certain technology components, including Business
Intelligence and Portals since all technology components are now
integrated with SAP NetWeaver. Accordingly, prior year
comparable figures are not available for certain solutions using
the new method.
(33) BOARD OF DIRECTORS
EXECUTIVE BOARD
|
|
|
|
|
Membership on supervisory boards and other comparable governing |
|
|
bodies of enterprises, other than subsidiaries of the Company, in |
|
|
Germany and other countries, on December 31, 2005(1) |
|
|
|
Prof. Dr. Henning Kagermann |
|
|
Chief Executive Officer
Overall responsibility for SAPs strategy and business
development, Global Communications, Global Intellectual
Property, Internal Audit, Top Talent Management |
|
Supervisory Board, Deutsche Bank AG, Frankfurt am Main,
Germany
Supervisory Board, DaimlerChrysler Financial Services AG,
Berlin, Germany
Supervisory Board, Münchener
Rückversicherungs-Gesellschaft AG, Munich, Germany |
Shai Agassi
Product development and technology,
Industry solutions
Product and industry marketing |
|
|
Léo Apotheker |
|
|
Sales, Consulting, Education, Marketing |
|
Board of Directors, Enigma, Inc., Burlington, Massachusetts,
United States (until December 31, 2005)
Supervisory Board, AXA, Paris, France (from February 23,
2005)
Supervisory Board, Ginger Group, Paris, France (from
June 2, 2005) |
Dr. Werner Brandt |
|
|
Chief Financial Officer
Finance and Administration, Shared Services, SAP Ventures |
|
Supervisory Board, LSG Lufthansa Service Holding AG,
Neu-Isenburg, Germany |
Prof. Dr. Claus E. Heinrich
Labor Relations Director
Global Human Resources, Quality Management, Internal IT, SAP Labs |
|
|
Gerhard Oswald
Global Service and Support, Custom Development |
|
|
Dr. Peter Zencke |
|
|
Research, Application Platform |
|
Supervisory Board, SupplyOn AG, Hallbergmoos, Germany |
|
|
(1) |
Memberships on supervisory boards and comparable governing
bodies of subsidiaries can be obtained from the Company upon
request. |
F-58
SUPERVISORY BOARD
|
|
|
|
|
Membership on other supervisory boards and comparable |
|
|
governing bodies of enterprises other than the Company, in |
|
|
Germany and other countries on December 31, 2005 |
|
|
|
Prof. Dr. h.c. mult. Hasso Plattner
(2), (4),
(5), (7)
Chairman of the Supervisory Board |
|
|
Helga
Classen(1),
(4), (7)
Deputy Chairperson
Deputy Data Protection Officer |
|
|
Pekka
Ala-Pietilä(5)
Executive Advisor to the CEO of Nokia Corporation,
Espoo, Finland |
|
|
Willi
Burbach(1),
(4), (5)
Developer |
|
|
Prof. Dr. Wilhelm
Haarmann(2),
(6), (7) |
|
|
Attorney-at-law, certified public auditor, certified tax
advisor
HAARMANN Partnerschaftsgesellschaft, Rechtsanwälte,
Steuerberater, Wirtschaftsprüfer, Frankfurt am Main, Germany |
|
Supervisory Board, Aareon AG (formerly Depfa IT Services),
Mainz, Germany
Supervisory Board, Vodafone Deutschland GmbH, Düsseldorf,
Germany |
Bernhard
Koller(1),
(3)
Manager of idea management |
|
|
Christiane
Kuntz-Mayr(1),
(5), (7)
Development manager |
|
|
Lars
Lamadé(1),
(6)
Risk Manager Service & Support |
|
|
Dr. Gerhard
Maier(1),
(2), (6)
Development project manager |
|
|
F-59
|
|
|
|
|
Membership on other supervisory boards and comparable |
|
|
governing bodies of enterprises other than the Company, in |
|
|
Germany and other countries on December 31, 2005 |
|
|
|
Dr. h.c. Hartmut
Mehdorn(4) |
|
|
Chairman of the Executive Board,
Deutsche Bahn AG, Berlin, Germany |
|
Supervisory Board, DB Station & Service AG, Frankfurt am
Main, Germany (until April 28, 2005)
Supervisory Board, Stinnes AG, Berlin, Germany (until
April 28, 2005)
Supervisory Board, DB Personenverkehr GmbH, Berlin, Germany
(until April 28, 2005)
Supervisory Board, DB Netz AG, Frankfurt am Main, Germany
Supervisory Board, DEVK Deutsche Eisenbahn Versicherung
Lebensversicherungsverein a.G., Cologne, Germany
Supervisory Board, DEVK Deutsche Eisenbahn Versicherung
Sach- und HUK-Versicherungsverein a.G., Cologne, Germany
Supervisory Board, Dresdner Bank AG, Frankfurt am Main,
Germany
Supervisory Board, Bayerische
Magnetbahnvorbereitungsgesellschaft mbH, Munich, Germany (until
October 4, 2005) |
Prof. Dr. Dr. h.c. mult. August-
Wilhelm
Scheer(5),
(6) |
|
|
Professor at Saarland University, Saarbrücken, Germany |
|
Supervisory Board, IDS Scheer AG, Saarbrücken, Germany
Supervisory Board, imc information multimedia communication AG,
Saarbrücken, Germany
Board of Trustees, Hasso Plattner Stiftung für
Softwaresystemtechnik, Potsdam, Germany
Supervisory Board, Saarbrücker Zeitung Verlag und Druckerei
GmbH, Saarbrücken, Germany (from April 26, 2005)
Member of the Senate, Fraunhofer-Gesellschaft zur Förderung
der angewandten Forschung e.V., Munich, Germany (from
January 1, 2005) |
Dr. Barbara
Schennerlein(1),
(7)
Principal consultant |
|
|
F-60
|
|
|
|
|
Membership on other supervisory boards and comparable |
|
|
governing bodies of enterprises other than the Company, in |
|
|
Germany and other countries on December 31, 2005 |
|
|
|
Dr. Erhard
Schipporeit(3) |
|
|
Member of the Executive Board,
E.ON AG, Düsseldorf, Germany |
|
Supervisory Board, Commerzbank AG, Frankfurt am Main, Germany
Supervisory Board, Degussa AG, Hamburg, Germany
Supervisory Board, Deutsche Börse AG, Frankfurt am Main,
Germany (from October 7, 2005)
Supervisory Board, Talanx AG, Hanover, Germany
Supervisory Board, E.ON Ruhrgas AG, Essen, Germany
Supervisory Board, E.ON IS GmbH, Hanover, Germany (from
January 11, 2005)
Supervisory Board, HDI V.a.G., Hanover, Germany
Supervisory Board, E.ON Risk Consulting GmbH, Düsseldorf,
Germany
Supervisory Board, E.ON Audit Services, Düsseldorf,
Germany
Supervisory Board, E.ON UK plc, Coventry, UK
Supervisory Board, E.ON US Investment Corp., Delaware, USA |
Stefan
Schulz(1),
(3), (5)
Development Project Manager |
|
|
Dr. Dieter
Spöri(7) |
|
|
Head of Corporate Representation
Federal Affairs, DaimlerChrysler AG, Berlin, Germany |
|
Advisory Council, Contraf Nicotex Tobacco GmbH, Heilbronn,
Germany |
Dr. h.c. Klaus
Tschira(3) |
|
|
Managing Director, Klaus Tschira Foundation gGmbH, Heidelberg,
Germany |
|
Supervisory Board, SRH Learnlife AG, Heidelberg, Germany
Member of the Senate, Max-Planck-Gesellschaft zur Förderung
der Wissenschaften e.V., Munich, Germany |
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(1) |
Elected by the employees. |
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(2) |
Member of the Companys Compensation Committee. |
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(3) |
Member of the Companys Audit Committee. |
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(4) |
Member of the Companys Mediation Committee. |
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(5) |
Member of the Companys Technology Committee. |
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(6) |
Member of the Companys Finance and Investment Committee. |
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(7) |
Member of the Companys General Committee. |
The total compensation of the Executive Board members for fiscal
year 2005 amounted to
29,688 thousand.
This amount includes
3,306 thousand
fixed and 20,520
thousand performance-related compensation as well as
5,862 thousand
long-term incentive compensation elements. The long-term
incentive elements correspond to the fair value of the 291,925
stock options issued to Executive Board members during the year.
F-61
Subject to the adoption of the dividend resolution by the
shareholders at the Annual General Shareholders Meeting on
May 9, 2006, the total annual compensation of the
Supervisory Board members amounted to
879.2 thousand.
This amount includes
439.6 thousand
fixed and 439.6
thousand variable compensation. The Supervisory Board members do
not receive any stock-based compensation for their services. As
far as members who are employee representatives on the
Supervisory Board receive stock-based compensation, such
compensation is for their services as employees only and
unrelated to their status as members of the Supervisory Board.
During fiscal year 2005 the pension payments to former Executive
Board members were
474 thousand
(2004: 247
thousand). The projected benefit obligation as of
December 31, 2005, for former Executive Board members was
12,830 thousand
(2004: 10,819
thousand).
SAP did not grant any compensation advance or credit to, or
enter into any commitment for the benefit of, any member of the
Executive Board or Supervisory Board in fiscal year 2005, or in
2004, or 2003.
On December 31, 2005, members of the Executive Board held a
total of 31,346 shares, members of the Supervisory Board held a
total of 70,396,026 shares.
(34) RELATED PARTY TRANSACTIONS
Certain board members of SAP AG currently held or have held
within the last year positions of significant responsibility
with other entities as presented in Note 33. The Company
has relationships with certain of these entities in the ordinary
course of business, whereby it buys and sells a wide variety of
services and software at arms length.
August-Wilhelm Scheer is the major shareholder and head of the
Supervisory Board of IDS Scheer AG, a German software and IT
services company. Until early 2004, SAP owned a minority stake
in IDS Scheer (approximately 2.5% of IDS Scheers shares
outstanding as of December 31, 2003). SAP sold this stake
in February 2004. IDS Scheer and SAP have relationships in the
ordinary course of business and at arms length, whereby
IDS Scheer mainly provides services for SAP.
After his move from SAPs Executive Board to SAPs
Supervisory Board, Hasso Plattner entered into a contract with
SAP AG under which he provides consulting services for SAP. The
contract is expenses-only. Therefore SAP only incurred expenses
for reimbursements of out-of-pocket expenses incurred by Hasso
Plattner under this contract.
Hasso Plattner is the sole proprietor of H.P. Beteiligungs GmbH,
which itself holds 90% of Bramasol, Inc., Palo Alto, United
States. Bramasol is an SAP partner, with which SAP generated
revenues of
2.0 million
in fiscal year 2005 (2004:
1.9 million).
SAP received services from Bramasol worth
58 thousand in
2005 (2004: 57
thousand).
In March 2005, SAP entered into agreements with
Besitzgesellschaft der Multifunktionsarena Mannheim mbH &
Co. KG, a company owned by members of the immediate family of
Dietmar Hopp, pursuant to which a multipurpose arena in
Mannheim, Germany, was named SAP Arena (together
with the right to use the SAP logo for certain purposes) and SAP
received the right to use certain reserved seating in the arena
and to hold certain events in the arena. The fees required to be
paid by SAP pursuant to these agreements are immaterial to SAP.
Until January 1, 2006, Wilhelm Haarmann practiced as a
partner of Haarmann Hemmelrath in their Frankfurt offices. Since
January 1, 2006, he has practiced in HAARMANN
Partnerschaftsgesellschaft in Frankfurt. Haarmann Hemmelrath (HH
or the firm) was an international group of advisory
firms in the fields of legal, tax, audit, and management
consultancy services with around 900 employees in 22 offices
worldwide. HH provided valuation services, tax, and legal
counsel services for entities of the SAP Group. The total amount
charged to SAP for those services in 2005 was
0.3 million
(2004:
1.6 million;
2003:
0.5 million).
SAP was informed by HH that revenues generated with SAP
represented approximately 1% of
F-62
HHs revenue of the respective years. Additionally HH is a
customer of SAP. Amounts paid by HH to SAP for products and
services were 3
thousand, 2
thousand, and 20
thousand in the years 2005, 2004, and 2003, respectively.
At no point in the years ended December 31, 2005, 2004, or
2003, did the Company grant loans to any member of the Executive
Board and Supervisory Board. During the years ended
December 31, 2005, 2004, and 2003, there were no
significant transactions between the Company and the major
shareholders as outlined in Note 21.
As discussed in Note 15, SAP has issued loans to employees
other than to directors and officers with aggregate outstanding
balances of
47.8 million
and
42.8 million
at December 31, 2005 and 2004, respectively. Loans granted
to employees primarily consist of interest-free or
below-market-rate building loans which SAP discounts for
financial reporting purposes based on prevailing market rates.
SAPs default experience on loans to employees has been
insignificant. There have been no loans to employees or
executives to assist them in exercising stock options.
(35) PRINCIPAL ACCOUNTANT FEES AND SERVICES
In SAP AGs annual general shareholders meeting held
on May 12, 2005, SAPs shareholders appointed KPMG
Deutsche Treuhand-Gesellschaft AG
Wirtschaftsprüfungsgesellschaft, Frankfurt am Main/Berlin
(KPMG Germany), to serve as SAP AGs independent auditors
for the 2005 fiscal year. KPMG Germany and other firms in the
global KPMG network billed the following fees to SAP for audit
services for each of the last two fiscal years and for other
professional services in each of the last two financial years:
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2005 | |
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2004 | |
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2003 | |
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| |
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(000) | |
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(000) | |
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(000) | |
Audit fees
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5,234 |
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|
4,328 |
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|
3,670 |
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Audit related fees
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|
1,090 |
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|
|
888 |
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|
569 |
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Tax fees
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|
154 |
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|
1,198 |
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|
84 |
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All other fees
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|
196 |
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|
38 |
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|
|
239 |
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6,674 |
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6,452 |
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4,562 |
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Audit Fees are the aggregate fees billed by KPMG for
the audit of SAP AGs consolidated annual financial
statements as well as audits of statutory financial statements
of SAP AG and its subsidiaries. Audit-Related Fees
are fees charged by KPMG for assurance and related services that
are reasonably related to the performance of the audit or review
of SAPs financial statements and are not reported under
Audit Fees. This category comprises fees billed for
accounting advice on actual or contemplated transactions and
other agreed-upon procedures. Tax fees are fees for
professional services rendered by KPMG for tax advice on group
restructuring, transfer pricing and other actual or contemplated
transactions, tax compliance, and employee-related tax queries.
The category All Other Fees include other support
services, such as training and expert advice on issues unrelated
to accounting and taxes.
For services provided by KPMG Germany SAP recorded in 2005
expenses of
2,490 thousand
out of which
1,778 thousand
were for audit services,
62 thousand for
tax services, and
650 thousand for
other services.
(36) GERMAN CODE OF CORPORATE GOVERNANCE
The German federal government published the German Code of
Corporate Governance in February 2002. The Code contains
statutory requirements and a number of recommendations and
suggestions. Only the legal requirements are binding for German
companies. With regard to the recommendations, the German Stock
Corporation Act, section 161, requires that listed
companies publicly state every year the
F-63
extent to which they comply with them. Companies can deviate
from the suggestions without having to make any public
statements.
In 2005, 2004, and 2003, the Executive Boards and Supervisory
Boards both of SAP AG and SAPs publicly traded subsidiary
SAP Systems Integration AG issued the required compliance
statements. These statements are available on the Web sites of
SAP and SAP SI respectively.
F-64
Walldorf, March 10, 2006
SAP AG
Walldorf, Baden
Executive Board
Kagermann Agassi Apotheker Brandt Heinrich Oswald Zencke
F-65
SCHEDULE II
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2005, 2004, and 2003
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Year ended December 31, | |
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2005 | |
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2004 | |
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2003 | |
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(000) | |
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(000) | |
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(000) | |
Balance at beginning of year
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63,362 |
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71,011 |
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92,511 |
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Charged to costs and expenses(*)
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12,383 |
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1,742 |
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6,969 |
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Amounts written off
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(8,053 |
) |
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(7,700 |
) |
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(22,939 |
) |
Currency translation and other changes
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5,197 |
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(1,691 |
) |
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(5,530 |
) |
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Balance at end of year
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72,889 |
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63,362 |
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71,011 |
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(*) |
Includes the provision of bad debt expense based on aging
charged (credited) to other operating income/(expense) of
(3,409)
thousand,
(1,791)
thousand, and
5,368 thousand
in 2005, 2004, and 2003, respectively. |
S-1