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SAP Reports Strong Growth in Software and Software-Related Service Revenues and Refines Annual Outlook to Reach Upper-End of Range
2008-07-29 00:09:00
SAP Reports Strong Growth in Software and Software-Related Service Revenues and Refines Annual Outlook to Reach Upper-End of Range
WALLDORF, Germany, July 29 /EMWNews/ -- SAP AG (NYSE: SAP) today announced its preliminary financial results for the second quarter and six months ended June 30, 2008.
HIGHLIGHTS - Second Quarter 2008 SAP - Second Quarter 2008* U.S. GAAP Non-GAAP** % change constant euro million % % currency Q2/2008 Q2/2007 change Q2/2008 Q2/2007 change *** Software revenues 898 716 25 898 716 25 34 Software and software- related service revenues 2,061 1,704 21 2,113 1,704 24 32 Total revenues 2,858 2,421 18 2,910 2,421 20 28 Operating income 593 581 2 711 594 20 30 Operating margin (%) 20.7 24.0 -3.3pp 24.4 24.5 -0.1pp 0.5pp Income from continuing operations 411 453 -9 497 461 8 - Net income 408 449 -9 494 457 8 - Basic EPS from cont. operations (euro) 0.34 0.37 -8 0.42 0.38 11 - * All figures are preliminary and unaudited and are based on the current status of the purchase price allocation for the Business Objects acquisition which is not yet final. ** Revenue line items are adjusted for the Business Objects support revenue that Business Objects would have recognized had it remained a standalone entity but that SAP is not permitted to recognize as revenue under U.S. GAAP as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges. See Appendix at the end of the financial section of the press release for explanations of the Non-GAAP measures used in this press release and for related reconciliations to U.S. GAAP. *** Constant currency Non-GAAP revenue and operating income figures are calculated by translating Non-GAAP revenue and Non-GAAP operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's Non-GAAP constant currency numbers with the Non-GAAP number of the previous year's respective period. See Appendix at the end of the financial section of press release for details. Revenues -- Second quarter 2008 U.S. GAAP software and software-related service revenues were 2.06 billion euro (2007: 1.70 billion euro), representing an increase of 21% compared to the second quarter of 2007. Non-GAAP software and software-related service revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of 52 million euro, for the second quarter of 2008 were 2.11 billion euro (2007: 1.70 billion euro). This represents an increase of 24% (32% at constant currencies) compared to the second quarter of 2007. If SAP's reporting currency was the U.S. Dollar, Non-GAAP software and software-related service revenues for the second quarter would have increased 44% compared to the same period one year ago. -- Excluding the contribution from Business Objects, SAP's business contributed 16 percentage points to the constant currency growth of the Non- GAAP software and software-related service revenues for the second quarter of 2008. -- U.S. GAAP total revenues for the 2008 second quarter were 2.86 billion euro (2007: 2.42 billion euro), which was a year-over-year increase of 18%. Non-GAAP total revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of 52 million euro for the second quarter of 2008, were 2.91 billion euro (2007: 2.42 billion euro), which is an increase of 20% (28% at constant currencies) compared to the second quarter of 2007. -- Second quarter 2008 U.S. GAAP software revenues were 898 million euro (2007: 716 million euro), representing an increase of 25% (34% at constant currencies) compared to the second quarter of 2007. Income -- U.S. GAAP operating income for the second quarter was 593 million euro (2007: 581 million euro), which was an increase of 2% compared to the second quarter of 2007. Second quarter Non-GAAP operating income, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling 118 million euro, was 711 million euro (2007: 594 million euro), which was an increase of 20% (30% at constant currencies) compared to the second quarter of 2007. -- The U.S. GAAP operating margin for the second quarter of 2008 was 20.7% (2007: 24.0%). The second quarter Non-GAAP operating margin was 24.4% (2007: 24.5%), or 25.0% at constant currencies. Both the U.S. GAAP and the Non-GAAP operating margins were impacted by 1) 24 million euro expensed in the second quarter of 2008 for the settlement of a litigation and, 2) one-time expenses associated with the integration of Business Objects (which are not acquisition-related charges) of approximately 11 million euro. -- U.S. GAAP income from continuing operations for the second quarter of 2008 was 411 million euro (2007: 453 million euro), representing a decrease of 9% compared to the second quarter of 2007. Non-GAAP income from continuing operations, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling 86 million euro, was 497 million euro (2007: 461 million euro), representing an increase of 8% compared to the second quarter of 2007. Second quarter 2007 U.S. GAAP and Non-GAAP income from continuing operations were positively impacted by an effective tax rate of 25.5% and 25.8%, respectively, partly resulting from non-recurring tax effects. -- U.S. GAAP earnings per share from continuing operations for the second quarter of 2008 was 0.34 euro (2007: 0.37 euro), which was a decrease of 8% compared to the same period in 2007. Non-GAAP earnings per share from continuing operations for the second quarter of 2008 was 0.42 euro (2007: 0.38 euro), which was an increase of 11% compared to the same period in 2007. Core Enterprise Applications Vendor Share SAP reported its tenth consecutive quarter of share gains. Based on U.S. GAAP second quarter 2008 software and software-related service revenues on a rolling four-quarter basis, SAP's worldwide share of Core Enterprise Applications vendors, which account for approximately $38.1 billion in software and software-related service revenues as defined by the Company based on industry analyst research, was 33.7% for the four-quarter period ended June 30, 2008. This represents an increase of 1.1 percentage points compared to the four-quarter period ended March 31, 2008 and a 7.7 percentage point increase compared to the four quarter period ended June 30, 2007, of which approximately 4.5 percentage points came from organic growth and 3.2 percentage points from the acquisition of Business Objects. "We performed very well in the second quarter, in which our 32% growth in Non-GAAP software and software-related service revenues at constant currencies marked our 18th consecutive quarter of double-digit growth," said Henning Kagermann, co-CEO of SAP. "Our organic growth, which excludes the contribution from Business Objects, was just as impressive, contributing 16 percentage points to the constant currency growth of software and software- related service revenues. We can attribute our strong performance to good overall execution and the continued strength in all three core areas of our business, the established business, the midmarket and business user solutions." Mr. Kagermann continued, "SAP is unique in that we provide a truly open business process platform, with a fully integrated suite of software solutions built on top, along with a very dynamic ecosystem developing solutions around it. Our unique offering puts us on a short list of strategic solutions for CEO's whether they are seeking efficiencies, compliance or growth for their companies." Cash Flow Operating cash flow from continuing operations for the first six months of 2008 was 1.37 billion euro (2007: 1.02 billion euro). Free cash flow for the first six months of 2008 was 1.20 billion euro (2007: 828 million euro), which was 23% of total revenues (2007: 18%). At June 30, 2008, the Company had total group liquidity of 1.5 billion euro (December 31, 2007: 2.8 billion euro), which includes cash and cash equivalents, restricted cash and short term investments. Share Buyback In the second quarter of 2008 the Company bought back 3.8 million shares at an average price of 32.58 euro (124.2 million euro). Of the total shares purchased in the second quarter, 265,971 shares were subsequently acquired from the Company by employees who exercised stock options under SAP's share- based compensation programs. The number of shares bought back in the second quarter of 2008 represented 0.31% of the total shares outstanding. At June 30, 2008, the Company held Treasury Stock in the amount of 57.9 million shares (approximately 4.6% of total shares outstanding) at an average price of 35.31 euro. For the first six months of 2008, the Company invested 382.6 million euro buying back approximately 11.8 million shares at an average price of 32.31 euro.
HIGHLIGHTS - Six Months 2008 Business Objects is included in the results from January 21, 2008 onwards. SAP - Six Months 2008* U.S. GAAP Non-GAAP** % change constant euro million % % currency H1/2008 H1/2007 change H1/2008 H1/2007 change *** Software revenues 1,520 1,278 19 1,520 1,278 19 27 Software and software- related service revenues 3,797 3,219 18 3,896 3,219 21 28 Total revenues 5,318 4,583 16 5,417 4,583 18 25 Operating income 952 1,017 -6 1,200 1,041 15 26 Operating margin (%) 17.9 22.2 -4.3pp 22.2 22.7 -0.5pp 0.1pp Income from continuing operations 658 765 -14 842 780 8 - Net income 650 759 -14 834 774 8 - Basic EPS from cont. operations (euro) 0.55 0.63 -13 0.71 0.64 11 - * All figures are preliminary and unaudited and are based on the current status of the purchase price allocation for the Business Objects acquisition which is not yet final. ** Revenue line items are adjusted for the Business Objects support revenue that Business Objects would have recognized had it remained a standalone entity but that SAP is not permitted to recognize as revenue under U.S. GAAP as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges. See Appendix at the end of the financial section of the press release for explanations of the Non-GAAP measures used in this press release and for related reconciliations to U.S. GAAP. *** Constant currency Non-GAAP revenue and operating income figures are calculated by translating Non-GAAP revenue and Non-GAAP operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's Non-GAAP constant currency numbers with the Non-GAAP number of the previous year's respective period. See Appendix at the end of the financial section of press release for details. Revenues -- Six months 2008 U.S. GAAP software and software-related service revenues were 3.80 billion euro (2007: 3.22 billion euro), representing an increase of 18% compared to the first half of 2007. Non-GAAP software and software-related service revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of 99 million euro, for the first six months of 2008 were 3.90 billion euro (2007: 3.22 billion euro). This represents an increase of 21% (28% at constant currencies) compared to the first half of 2007. If SAP's reporting currency was the U.S. Dollar, Non-GAAP software and software-related service revenues for the first half would have increased 40% compared to the same period one year ago. -- Excluding the contribution from Business Objects, SAP's business contributed 14 percentage points to the constant currency growth of the Non- GAAP software and software-related service revenues for the first half of 2008. -- U.S. GAAP total revenues for the 2008 first half were 5.32 billion euro (2007: 4.58 billion euro), which was a year-over-year increase of 16%. Non- GAAP total revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of 99 million euro for the first six months of 2008, were 5.42 billion euro (2007: 4.58 billion euro), which is an increase of 18% (25% at constant currencies) compared to the first half of 2007. -- First Half 2008 U.S. GAAP software revenues were 1.52 billion euro (2007: 1.28 billion euro), representing an increase of 19% (27% at constant currencies) compared to the first six months of 2007. Income -- U.S. GAAP operating income for the 2008 six-month period was 952 million euro (2007: 1.02 billion euro), which was a decrease of 6% compared to the same period for 2007. First-half Non-GAAP operating income, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling 248 million euro, was 1.20 billion euro (2007: 1.04 billion euro), which was an increase of 15% (26% at constant currencies) compared to the first half of 2007. -- The U.S. GAAP operating margin for the 2008 six-month period was 17.9% (2007: 22.2%). The first-half Non-GAAP operating margin was 22.2% (2007: 22.7%), or 22.8% at constant currencies. Both the U.S. GAAP and the Non-GAAP operating margins were impacted by 1) 24 million euro expensed in the second quarter of 2008 for the settlement of a litigation and, 2) one-time expenses associated with the integration of Business Objects (which are not acquisition-related charges) of approximately 18 million euro. -- U.S. GAAP income from continuing operations for the first half of 2008 was 658 million euro (2007: 765 million euro), representing a decrease of 14% compared to the same period for 2007. Non-GAAP income from continuing operations, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling 184 million euro, was 842 million euro (2007: 780 million euro), representing an increase of 8% compared to the first half of 2007. Six-month 2007 U.S. GAAP and Non-GAAP income from continuing operations were positively impacted by a 2007 second quarter effective tax rate of 25.5% and 25.8%, respectively, partly resulting from non-recurring tax effects. -- U.S. GAAP earnings per share from continuing operations for the first half of 2008 was 0.55 euro (2007: 0.63 euro), which was a decrease of 13% compared to the same period in 2007. Non-GAAP earnings per share from continuing operations for the 2008 six-month period was 0.71 euro (2007: 0.64 euro), which was an increase of 11% compared to the same period in 2007. BUSINESS OUTLOOK The Company is providing the following outlook for the full-year 2008, which has changed from the previous outlook provided on April 30, 2008. The Company has refined the outlook for Non-GAAP software and software-related service revenues at constant currencies and Non-GAAP operating margin at constant currencies. -- The Company reaffirmed that it expects full-year 2008 Non-GAAP software and software-related service revenue, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects of approximately 180 million euro, to increase in a range of 24% - 27% at constant currencies (2007: 7.428 billion euro), but the Company now expects to reach the upper end of the range. The Company reaffirmed that SAP's business, excluding the contribution from Business Objects, is expected to contribute 12 - 14 percentage points to this growth, but the Company now expects the contribution to reach the upper end of the range. -- The Company reaffirmed that it expects the full-year 2008 Non-GAAP operating margin at constant currencies, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges, to be in the range of 28.5% - 29.0% (2007 non-GAAP operating margin: 27.3%), but the Company now expects to reach the upper end of the range. -- The Company continues to project an effective tax rate of 31.0% to 31.5% (based on U.S. GAAP income from continuing operations) for 2008. KEY EVENTS - Second Quarter 2008 -- In the second quarter of 2008, SAP closed major contracts in several key regions including Carlsberg Breweries A/S, Comet Group Plc, Fiat Services S.p.A., GDF SUEZ, Saudi Electricity Company (SEC) in EMEA; AmerisourceBergen Corporation, Brown Shoe Company, Freeman, Marisa Lojas Varejistas Ltda, The City of Edmonton in Americas; and China Petroleum & Chemical, KPIT Cummins Infosystems Ltd, Neptune Orient Lines Ltd, India Oil and Natural Gas Corporation, Shanxi Electric I/E Power Corp., SUMISHO COMPUTER SYSTEMS in the Asia Pacific Japan region. -- On June 17, 2008, SAP announced its intent to acquire Visiprise, Inc. With the addition of Visiprise, SAP will deliver on its "Perfect Plant" strategy to bring together core SAP solutions with the software, hardware and services offerings of ecosystem partners to drive innovation for discrete manufacturers. -- On May 20, 2008, SAP announced Unilever's implementation of SAP NetWeaver Master Data Management (SAP NetWeaver MDM) component to support five countries in the Asia/AMET (Africa, Middle-East and Turkey) region. Unilever requires a unified view of master data to remain agile and quickly address changing business needs while maintaining strong local market performance. -- On May 19, 2008, SAP announced that it will support Daimler AG as a global IT solution provider in order to drive Daimler's comprehensive IT harmonization strategy. -- On May 19, 2008, SAP announced that Bayer MaterialScience selected the latest version of the SAP Customer Relationship Management (SAP CRM) application, SAP CRM 2007, to help enable its global sales force to deliver superior value to its customers. -- On May 19, 2008, SAP announced new CRM functionality in the SAP Business All-in-One solution. CRM functionality in SAP Business All-in-One will considerably enhance SAP's midsize customers' ability to pursue new customer strategies and manage entire end-to-end business processes with preconfigured best practices. -- SAP's international customer conference SAPPHIRE 2008, held in Orlando, Florida, May 4-7 and Berlin, Germany May 19 - 21 focused on "Business Beyond Boundaries." During SAPPHIRE 2008, customers from throughout the world showed how they utilize and benefit from SAP solutions to build "business beyond boundaries." -- On May 5, 2008, SAP and Satyam Computer Services Ltd. announced a new partnership to help businesses accelerate co-innovation and improve their return on investment. Under a new agreement, Satyam has become an SAP global services partner to help companies worldwide to reliably and rapidly implement SAP solutions and transform business processes. -- On May 5, 2008, SAP announced that it would further extend its partnership with IBM for SAP Business All-in-One solutions. -- On May 5, 2008, SAP announced that Infosys signed up to the SAP Global Service Partner Program. This announcement marked an important milestone in the relationship between the two organizations, which have been working together for more than five years to help companies realize information technology (IT) and business results from their investments in SAP applications. -- On May 2, 2008, SAP and Research In Motion (RIM) announced a co- innovation partnership to usher in a new era in enterprise mobility. Both companies have joined forces to change the way people work, by enabling anytime, anywhere mobile access to SAP enterprise applications through the widely adopted BlackBerry(R) platform. -- On April 2, 2008, SAP announced the appointment of SAP Deputy CEO Leo Apotheker as the company's co-CEO alongside SAP CEO Henning Kagermann. The supervisory board also appointed to the SAP Executive Board three new members, effective July 1, 2008: Corporate Officers Erwin Gunst, Bill McDermott and Jim Hagemann Snabe. Use of Non-GAAP Financial Measures This press release contains certain financial measures such as Non-GAAP revenues, Non-GAAP operating income, Non-GAAP operating margin, free cash flow, constant currency revenue and operating income measures, as well as U.S. Dollar based Non-GAAP revenue numbers. These measures are not prepared in accordance with U.S. GAAP and therefore are considered non-GAAP financial measures. Our non-GAAP financial measures may not correspond to non-GAAP financial measures that other companies report. The non-GAAP financial measures that we report should be considered as additional to, and not as a substitute for or superior to revenue, operating margin or our other measures of financial performance prepared in accordance with U.S. GAAP. See the Appendix at the end of the financial section of this press release for additional information regarding the Non-GAAP measures included in this press release and for the reconciliations to the corresponding U.S. GAAP measures. Core Enterprise Applications Vendor Share The Company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $38.1 billion in software and software-related service revenues as defined by the Company based on industry analyst research. For 2008, industry analysts project approximately 7% year-on-year growth for Core Enterprise Applications vendors. For its quarterly share calculation, SAP assumes that this approximate 7% growth will not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set of (approximately 25) Core Enterprise Application vendors. Webcast/Supplementary Financial Information SAP senior management will host a conference call today at 3:00 pm (CEDT) / 2:00 pm (BST) / 9:00 am (EDT) / 6:00 am (PDT). The conference call will be Webcast live on the Company's Web site at http://www.sap.com/investor and will be available for replay purposes as well. Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.
About SAP
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than 25 industries to become best-run businesses. With around 75,000
customers (includes customers from the acquisition of Business Objects) in
over 120 countries, the company is listed on several exchanges, including
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planning and related applications.
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Appendix - Financial Information to Follow
CONSOLIDATED INCOME STATEMENT
(U.S. GAAP, Non-GAAP* and Non-GAAP at Constant Currency**)
Preliminary and unaudited
euro millions, unless
otherwise stated Three months ended June 30,
2008
Non-
GAAP
Curr constant
U.S. Non- ency Curr
GAAP Adj.* GAAP* Impact** ency**
Software revenue 898 0 898 63 961
Support revenue 1,099 52 1,151 69 1,220
Subscription and other software-
related service revenue 64 0 64 2 66
Software and software-related
service revenue 2,061 52 2,113 134 2,247
Consulting revenue 628 0 628 39 667
Training revenue 114 0 114 7 121
Other service revenue 26 0 26 2 28
Professional services and other
service revenue 768 0 768 48 816
Other revenue 29 0 29 2 31
Total revenue 2,858 52 2,910 184 3,094
Cost of software and software-
related services -418 45 -373
Cost of professional services and
other services -581 0 -581
Research and development -421 1 -420
Sales and marketing -681 20 -661
General and administration -169 0 -169
Other operating income/expense, net 5 0 5
Total operating expenses -2,265 66 -2,199 -121 -2,320
Operating income 593 118 711 63 774
Other non-operating income/expense,
net 19 0 19
Financial income/expense, net -13 0 -13
Income from continuing operations
before income taxes 599 118 717
Income taxes -188 -32 -220
Minority interests 0 0 0
Income from continuing operations 411 86 497
Loss from discontinued operations,
net of tax -3 0 -3
Net income 408 86 494
Earnings per Share (EPS)
EPS from continuing operations -
basic in euro 0.34 0.42
EPS from continuing operations -
diluted in euro 0.34 0.42
EPS from net income - basic in euro 0.34 0.41
EPS from net income - diluted in euro 0.34 0.41
Weighted average number of shares*** 1,191 1,191
Key Ratios
Operating margin 20.7% 24.4% 25.0%
Effective tax rate from continuing
operations 31.4% 30.7%
euro millions, unless
otherwise stated Three months ended June 30,
2007 % change
Non-
GAAP
constant
U.S. Non- U.S. Non- Curr
GAAP Adj.* GAAP* GAAP GAAP* ency**
Software revenue 716 0 716 25 25 34
Support revenue 944 0 944 16 22 29
Subscription and other
software-related service
revenue 44 0 44 45 45 50
Software and software-related
service revenue 1,704 0 1,704 21 24 32
Consulting revenue 556 0 556 13 13 20
Training revenue 104 0 104 10 10 16
Other service revenue 28 0 28 -7 -7 0
Professional services and
other service revenue 688 0 688 12 12 19
Other revenue 29 0 29 0 0 7
Total revenue 2,421 0 2,421 18 20 28
Cost of software and
software-related services -305 11 -294 37 27
Cost of professional services
and other services -524 0 -524 11 11
Research and development -353 1 -352 19 19
Sales and marketing -535 1 -534 27 24
General and administration -127 0 -127 33 33
Other operating
income/expense, net 4 0 4 25 25
Total operating expenses -1,840 13 -1,827 23 20 27
Operating income 581 13 594 2 20 30
Other non-operating
income/expense, net -4 0 -4 -575 -575
Financial income/expense, net 34 0 34 -138 -138
Income from continuing
operations before
income taxes 611 13 624 -2 15
Income taxes -156 -5 -161 21 37
Minority interests -2 0 -2 N/A N/A
Income from continuing
operations 453 8 461 -9 8
Loss from discontinued
operations, net of tax -4 0 -4 -25 -25
Net income 449 8 457 -9 8
Earnings per Share (EPS)
EPS from continuing
operations - basic in euro 0.37 0.38 -8 11
EPS from continuing
operations - diluted in euro 0.37 0.38 -8 11
EPS from net income - basic
in euro 0.37 0.38 -8 8
EPS from net income - diluted
in euro 0.37 0.38 -8 8
Weighted average number of
shares*** 1,208 1,208
Key Ratios
Operating margin 24.0% 24.5% -3.3pp -0.1pp 0.5pp
Effective tax rate from
continuing operations 25.5% 25.8%
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to
recognize as revenue under U.S. GAAP as a result of business
combination accounting rules. Adjustments in the operating expense
line items are for acquisition-related charges. See Appendix for
details
** constant currency revenue and operating income figures are calculated
by translating revenue and operating income of the current period
using the average exchange rates from the previous year's respective
period instead of the current period. Constant currency period-over-
period changes are calculated by comparing the current year's Non-GAAP
constant currency numbers with the Non-GAAP number of the previous
year's respective period. See Appendix for details
*** in millions, treasury stock excluded
CONSOLIDATED INCOME STATEMENT
(U.S. GAAP, Non-GAAP* and Non-GAAP at Constant Currency**)
Preliminary and unaudited
euro millions, unless
otherwise stated Six months ended June 30,
2008
Non-
GAAP
Curr constant
U.S. Non- ency Curr
GAAP Adj.* GAAP* Impact** ency**
Software revenue 1,520 0 1,520 106 1,626
Support revenue 2,157 99 2,256 123 2,379
Subscription and other software-
related service revenue 120 0 120 3 123
Software and software-related
service revenue 3,797 99 3,896 232 4,128
Consulting revenue 1,215 0 1,215 71 1,286
Training revenue 218 0 218 13 231
Other service revenue 51 0 51 4 55
Professional services and other
service revenue 1,484 0 1,484 88 1,572
Other revenue 37 0 37 2 39
Total revenue 5,318 99 5,417 322 5,739
Cost of software and software-
related services -785 93 -692
Cost of professional services and
other services -1,148 0 -1,148
Research and development -838 15 -823
Sales and marketing -1,278 41 -1,237
General and administration -321 0 -321
Other operating income/expense, net 4 0 4
Total operating expenses -4,366 149 -4,217 -213 -4,430
Operating income 952 248 1,200 109 1,309
Other non-operating income/expense,
net 18 0 18
Financial income/expense, net -15 0 -15
Income from continuing operations
before income taxes 955 248 1,203
Income taxes -297 -64 -361
Minority interests 0 0 0
Income from continuing operations 658 184 842
Loss from discontinued operations,
net of tax -8 0 -8
Net income 650 184 834
Earnings per Share (EPS)
EPS from continuing operations -
basic in euro 0.55 0.71
EPS from continuing operations -
diluted in euro 0.55 0.71
EPS from net income - basic in euro 0.54 0.70
EPS from net income - diluted in euro 0.54 0.70
Weighted average number of shares*** 1,194 1,194
Key Ratios
Operating margin 17.9% 22.2% 22.8%
Effective tax rate from continuing
operations 31.1% 30.0%
euro millions, unless
otherwise stated Six months ended June 30,
2007 % change
Non-
GAAP
constant
U.S. Non- U.S. Non- Curr
GAAP Adj.* GAAP* GAAP GAAP* ency**
Software revenue 1,278 0 1,278 19 19 27
Support revenue 1,858 0 1,858 16 21 28
Subscription and other
software-related service
revenue 83 0 83 45 45 48
Software and software-related
service revenue 3,219 0 3,219 18 21 28
Consulting revenue 1,074 0 1,074 13 13 20
Training revenue 198 0 198 10 10 17
Other service revenue 56 0 56 -9 -9 -2
Professional services and
other service revenue 1,328 0 1,328 12 12 18
Other revenue 36 0 36 3 3 8
Total revenue 4,583 0 4,583 16 18 25
Cost of software and
software-related services -592 21 -571 33 21
Cost of professional services
and other services -1,029 0 -1,029 12 12
Research and development -692 1 -691 21 19
Sales and marketing -1,013 2 -1,011 26 22
General and administration -246 0 -246 30 30
Other operating
income/expense, net 6 0 6 -33 -33
Total operating expenses -3,566 24 -3,542 22 19 25
Operating income 1,017 24 1,041 -6 15 26
Other non-operating
income/expense, net -7 0 -7 -357 -357
Financial income/expense, net 70 0 70 -121 -121
Income from continuing
operations before
income taxes 1,080 24 1,104 -12 9
Income taxes -313 -9 -322 -5 12
Minority interests -2 0 -2 N/A N/A
Income from continuing
operations 765 15 780 -14 8
Loss from discontinued
operations, net of tax -6 0 -6 33 33
Net income 759 15 774 -14 8
Earnings per Share (EPS)
EPS from continuing
operations - basic in euro 0.63 0.64 -13 11
EPS from continuing
operations - diluted in euro 0.63 0.64 -13 11
EPS from net income - basic
in euro 0.63 0.64 -14 9
EPS from net income - diluted
in euro 0.63 0.64 -14 9
Weighted average number of
shares*** 1,211 1,211
Key Ratios
Operating margin 22.2% 22.7% -4.3pp -0.5pp 0.1pp
Effective tax rate from
continuing operations 29.0% 29.2%
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to
recognize as revenue under U.S. GAAP as a result of business
combination accounting rules. Adjustments in the operating expense
line items are for acquisition-related charges. See Appendix for
details
** constant currency revenue and operating income figures are calculated
by translating revenue and operating income of the current period
using the average exchange rates from the previous year's respective
period instead of the current period. Constant currency period-over-
period changes are calculated by comparing the current year's Non-GAAP
constant currency numbers with the Non-GAAP number of the previous
year's respective period. See Appendix for details
*** in millions, treasury stock excluded
Revenue in U.S. Dollar
Preliminary and unaudited
Three months ended June 30,
Software and
Software Software-Related
Revenue Service Revenue
% %
2008 2007 change 2008 2007 change
U.S. GAAP Revenue
in Euro 898 euro 716 euro 25% 2,061 euro 1,704 euro 21%
Respective Measure
in U.S. Dollar $1,397 $961 45% $3,214 $2,293 40%
Adjustment* 0 0 - $81 0 -
U.S. Dollar
Non-GAAP Revenue $1,397 $961 45% $3,295 $2,293 44%
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to recognize
as revenue under U.S. GAAP as a result of business combination rules.
Six months ended June 30,
Software and
Software Software-Related
Revenue Service Revenue
% %
2008 2007 change 2008 2007 change
U.S. GAAP Revenue
in Euro 1,520 euro 1,278 euro 19% 3,797 euro 3,219 euro 18%
Respective Measure
in U.S. Dollar $2,355 $1,704 38% $5,844 $4,286 36%
Adjustment* 0 0 - $154 0 -
U.S. Dollar
Non-GAAP
Revenue $2,355 $1,704 38% $5,998 $4,286 40%
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to recognize
as revenue under U.S. GAAP as a result of business combination rules.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. GAAP)
Preliminary and unaudited
June 30, December 31,
euro millions 2008 2007
Assets
Cash and cash equivalents 1,411 1,608
Restricted cash 3 550
Short-term investments 99 598
Accounts receivable, net 2,874 2,895
Other assets 513 541
Deferred income taxes 148 125
Prepaid expenses/deferred charges 143 76
Assets classified as held for disposal 15 15
Current assets 5,206 6,408
Goodwill 4,911 1,423
Intangible assets, net 1,200 403
Property, plant, and equipment, net 1,359 1,316
Investments 101 89
Accounts receivable, net 2 3
Other assets 646 555
Deferred income taxes 160 146
Prepaid expenses/deferred charges 26 23
Noncurrent assets 8,405 3,958
Total assets 13,611 10,366
June 30, December 31,
euro millions 2008 2007
Liabilities, Minority interests
and Shareholders' equity
Accounts payable 654 715
Income tax obligations 377 341
Other liabilities 1,287 1,456
Provisions 203 154
Deferred income taxes 53 47
Deferred income 1,396 477
Liabilities associated with assets
classified as held for disposal 11 9
Current liabilities 3,981 3,199
Accounts payable 5 10
Income tax obligations 98 90
Other liabilities 2,691 79
Provisions 429 369
Deferred income taxes 176 73
Deferred income 37 42
Noncurrent liabilities 3,436 663
Total liabilities 7,417 3,862
Minority interests 2 1
Common stock, no par value 1,246 1,246
Treasury stock -2,044 -1,734
Additional paid-in capital 342 347
Retained earnings 7,214 7,159
Accumulated other comprehensive
loss -566 -515
Shareholders' equity 6,192 6,503
Total liabilities, Minority interests
and Shareholders' equity 13,611 10,366
Days Sales Outstanding 68 66
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. GAAP)
Preliminary and unaudited
euro millions Six months ended June 30
2008 2007
Net income 650 759
Net loss from discontinued
operations 8 6
Minority interests 0 2
Income from continuing operations
before minority interests 658 767
Adjustments to reconcile income from
continuing operations before
minority interests to net cash
provided by operating activities:
Depreciation and amortization 271 120
Losses from equity investees 1 1
Losses on disposal of intangible
assets and property, plant, and
equipment 1 0
Gains on disposal of investments -9 -2
Writeups/downs of financial assets 0 0
Allowances for doubtful accounts 35 0
Impacts of hedging for cash-settled
share-based payment plans 12 13
Stock-based compensation including
income tax benefits 14 10
Excess tax benefit from share-based
compensation -8 0
Deferred income taxes -44 1
Change in accounts receivable 225 153
Change in other assets -65 -309
Change in accrued and other liabilities -626 -484
Change in deferred income 906 754
Net cash provided by operating
activities from continuing operations 1,371 1,024
Acquisition of minority interests
in subsidiaries 0 -48
Business combinations, net of cash
and cash equivalents acquired -3,689 -345
Repayment of acquirees' debt in
business combinations -450 0
Purchase of intangible assets and
property, plant, and equipment -171 -196
Proceeds from disposal of
intangible assets and property,
plant, and equipment 20 12
Cash transferred to restricted cash -451 0
Reduction of restricted cash 1,000 0
Purchase of investments -14 -512
Sales of investments 504 538
Purchase of other financial assets -7 -7
Sales of other financial assets 7 7
Net cash used in investing activities
from continuing operations -3,251 -551
Dividends paid -594 -556
Purchase of treasury stock -383 -506
Proceeds from reissuance of
treasury stock 45 42
Proceeds from issuance of common
stock (share-based compensation) 8 13
Excess tax benefit from share-based
compensation 8 0
Proceeds from short-term and
long-term debt 3,859 18
Repayments of short-term and
long-term debt -1,260 -13
Proceeds from the exercise of
equity-based derivative
instruments (STAR hedge) 66 75
Purchase of equity-based derivative
instruments (hedge for cash-
settled share-based payment plans) -55 0
Net cash used in financing activities
from continuing operations 1,694 -927
Effect of foreign exchange rates on
cash and cash equivalents -3 -7
Net cash used in operating
activities from discontinued
operations -8 -8
Net cash used in investing
activities from discontinued
operations 0 0
Net cash used in financing
activities from discontinued
operations 0 0
Net cash used in discontinued
operations -8 -8
Net change in cash and cash
equivalents -197 -469
Cash and cash equivalents at the
beginning of the period 1,608 2,399
Cash and cash equivalents at the end
of the period 1,411 1,930
REVENUE BY REGION
(U.S. GAAP, Non-GAAP* and Non-GAAP at Constant Currency**)
Preliminary and unaudited
euro millions Three months ended June 30,
2008
Non-
GAAP
Curr constant
U.S. Non- ency curr
GAAP Adj.* GAAP* Impact** ency**
Software revenue by region***
EMEA 444 0 444 14 458
Americas 306 0 306 38 344
Asia Pacific Japan 148 0 148 11 159
Total 898 0 898 63 961
Software and software-related
service revenue by region***
Germany 353 2 355 0 355
Rest of EMEA 758 20 778 29 807
Total EMEA 1,111 22 1,133 29 1,162
United States 472 24 496 79 575
Rest of Americas 190 2 192 8 200
Total Americas 662 26 688 87 775
Japan 89 1 90 0 90
Rest of Asia Pacific Japan 199 3 202 18 220
Total Asia Pacific Japan 288 4 292 18 310
Total 2,061 52 2,113 134 2,247
Total revenue by region***
Germany 524 2 526 0 526
Rest of EMEA 1,009 20 1,029 36 1,065
Total EMEA 1,533 22 1,555 36 1,591
United States 703 24 727 116 843
Rest of Americas 249 2 251 10 261
Total Americas 952 26 978 126 1,104
Japan 115 1 116 0 116
Rest of Asia Pacific Japan 258 3 261 22 283
Total Asia Pacific Japan 373 4 377 22 399
Total 2,858 52 2,910 184 3,094
euro millions Three months ended June 30,
2007 % change
Non-
GAAP
constant
U.S. Adj. Non- U.S. Non- curr
GAAP * GAAP* GAAP GAAP* ency**
Software revenue by region***
EMEA 350 0 350 27 27 31
Americas 259 0 259 18 18 33
Asia Pacific Japan 107 0 107 38 38 49
Total 716 0 716 25 25 34
Software and software-related
service revenue by region***
Germany 319 0 319 11 11 11
Rest of EMEA 597 0 597 27 30 35
Total EMEA 916 0 916 21 24 27
United States 415 0 415 14 20 39
Rest of Americas 152 0 152 25 26 32
Total Americas 567 0 567 17 21 37
Japan 82 0 82 9 10 10
Rest of Asia Pacific Japan 139 0 139 43 45 58
Total Asia Pacific Japan 221 0 221 30 32 40
Total 1,704 0 1,704 21 24 32
Total revenue by region***
Germany 454 0 454 15 16 16
Rest of EMEA 812 0 812 24 27 31
Total EMEA 1,266 0 1,266 21 23 26
United States 643 0 643 9 13 31
Rest of Americas 208 0 208 20 21 25
Total Americas 851 0 851 12 15 30
Japan 111 0 111 4 5 5
Rest of Asia Pacific Japan 193 0 193 34 35 47
Total Asia Pacific Japan 304 0 304 23 24 31
Total 2,421 0 2,421 18 20 28
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to
recognize as revenue under U.S. GAAP as a result of business
combination accounting rules. Adjustments in the operating expense
line items are for acquisition-related charges. See Appendix for
details
** constant currency revenue and operating income figures are calculated
by translating revenue and operating income of the current period
using the average exchange rates from the previous year's respective
period instead of the current period. Constant currency period-over-
period changes are calculated by comparing the current year's Non-GAAP
constant currency numbers with the Non-GAAP number of the previous
year's respective period
*** based on customer location
REVENUE BY REGION
(U.S. GAAP, Non-GAAP* and Non-GAAP at Constant Currency**)
Preliminary and unaudited
euro millions Six months ended June 30,
2008
Non-
GAAP
Curr constant
U.S. Non- ency Curr
GAAP Adj.* GAAP* Impact** ency**
Software revenue by region***
EMEA 736 0 736 24 760
Americas 523 0 523 65 588
Asia Pacific Japan 261 0 261 17 278
Total 1,520 0 1,520 106 1,626
Software and software-related
service revenue by region***
Germany 655 3 658 0 658
Rest of EMEA 1,374 37 1,411 50 1,461
Total EMEA 2,029 40 2,069 50 2,119
United States 885 48 933 144 1,077
Rest of Americas 340 4 344 10 354
Total Americas 1,225 52 1,277 154 1,431
Japan 175 2 177 1 178
Rest of Asia Pacific Japan 368 5 373 27 400
Total Asia Pacific Japan 543 7 550 28 578
Total 3,797 99 3,896 232 4,128
Total revenue by region***
Germany 977 3 980 0 980
Rest of EMEA 1,846 37 1,883 63 1,946
Total EMEA 2,823 40 2,863 63 2,926
United States 1,338 48 1,386 213 1,599
Rest of Americas 451 4 455 12 467
Total Americas 1,789 52 1,841 225 2,066
Japan 227 2 229 1 230
Rest of Asia Pacific Japan 479 5 484 33 517
Total Asia Pacific Japan 706 7 713 34 747
Total 5,318 99 5,417 322 5,739
euro millions Six months ended June 30,
2007 % change
Non-
GAAP
constant
U.S. Non- U.S. Non- curr
GAAP Adj.* GAAP* GAAP GAAP* ency**
Software revenue by region***
EMEA 587 0 587 25 25 29
Americas 507 0 507 3 3 16
Asia Pacific Japan 184 0 184 42 42 51
Total 1,278 0 1,278 19 19 27
Software and software-related
service revenue by region***
Germany 590 0 590 11 12 12
Rest of EMEA 1,077 0 1,077 28 31 36
Total EMEA 1,667 0 1,667 22 24 27
United States 834 0 834 6 12 29
Rest of Americas 300 0 300 13 15 18
Total Americas 1,134 0 1,134 8 13 26
Japan 144 0 144 22 23 24
Rest of Asia Pacific Japan 274 0 274 34 36 46
Total Asia Pacific Japan 418 0 418 30 32 38
Total 3,219 0 3,219 18 21 28
Total revenue by region***
Germany 862 0 862 13 14 14
Rest of EMEA 1,485 0 1,485 24 27 31
Total EMEA 2,347 0 2,347 20 22 25
United States 1,262 0 1,262 6 10 27
Rest of Americas 404 0 404 12 13 16
Total Americas 1,666 0 1,666 7 11 24
Japan 199 0 199 14 15 16
Rest of Asia Pacific Japan 371 0 371 29 30 39
Total Asia Pacific Japan 570 0 570 24 25 31
Total 4,583 0 4,583 16 18 25
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to
recognize as revenue under U.S. GAAP as a result of business
combination accounting rules. Adjustments in the operating expense
line items are for acquisition-related charges. See Appendix for
details
** constant currency revenue and operating income figures are calculated
by translating revenue and operating income of the current period
using the average exchange rates from the previous year's respective
period instead of the current period. Constant currency period-over-
period changes are calculated by comparing the current year's Non-GAAP
constant currency numbers with the Non-GAAP number of the previous
year's respective period
*** based on customer location
SHARE-BASED COMPENSATION
(U.S. GAAP and Non-GAAP)
Preliminary and unaudited
euro millions Six months ended June 30,
2008 2007 % change
Share-based compensation per expense
line item
(both U.S. GAAP and Non-GAAP):
Cost of software and software-
related services 4 4 0%
Cost of professional services and
other services 10 11 -9%
Research and development 15 15 0%
Sales and marketing 15 9 67%
General and administration 8 10 -20%
Other operating income/expense, net 0 0 0%
Total Share-Based Compensation 52 49 6%
FREE CASH FLOW
Preliminary and unaudited
euro millions Six months ended June 30,
2008 2007 % change
Net cash provided by operating
activities from continuing operations 1,371 1,024 34%
Purchase of long-lived assets
excluding additions from business
combinations -171 -196 -13%
Free Cash Flow 1,200 828 45%
HEADCOUNT
Preliminary and unaudited
in Full-Time-Equivalents - from June 30, December 31, June 30,
continuing operations 2008 2007 2007
Headcount by Region
Germany 15,503 14,749 14,395
Rest of EMEA 11,035 8,905 8,641
Total EMEA 26,538 23,654 23,036
United States 9,293 7,832 7,594
Rest of Americas 4,491 2,797 2,547
Total Americas 13,784 10,629 10,141
Japan 1,477 1,344 1,267
Rest of Asia Pacific Japan 9,648 8,234 7,292
Total Asia Pacific Japan 11,125 9,578 8,559
Total 51,447 43,861 41,736
Headcount by Functional Area
Software and software related
services 6,517 5,831 5,494
Professional services and other
services 14,057 12,785 12,268
Research and development 15,148 12,951 12,330
Sales and marketing 10,794 8,282 7,865
General and administration 3,367 2,797 2,635
Infrastructure 1,564 1,215 1,144
Total 51,447 43,861 41,736
MULTI QUARTER SUMMARY
(U.S. GAAP and Non-GAAP)
Preliminary and unaudited
euro millions, unless
stated otherwise Q2/2008 Q1/2008 Q4/2007 Q3/2007 Q2/2007 Q1/2007
Software revenue
(U.S. GAAP) 898 622 1,415 714 716 562
Revenue adjustment* 0 0 0 0 0 0
Software revenue
(Non-GAAP) 898 622 1,415 714 716 562
Support revenue
(U.S. GAAP) 1,099 1,058 1,005 975 944 914
Revenue adjustment* 52 47 0 0 0 0
Support revenue (Non-GAAP) 1,151 1,105 1,005 975 944 914
Subscription and other
software-related
service revenue
(U.S. GAAP) 64 56 53 46 44 39
Revenue adjustment* 0 0 0 0 0 0
Subscription and other
software-related
service revenue
(Non-GAAP) 64 56 53 46 44 39
Software and software-
related service
revenue (U.S. GAAP) 2,061 1,736 2,473 1,735 1,704 1,515
Revenue adjustment* 52 47 0 0 0 0
Software and software-
related service
revenue (Non-GAAP) 2,113 1,783 2,473 1,735 1,704 1,515
Total revenue (U.S. GAAP) 2,858 2,460 3,240 2,419 2,421 2,162
Revenue adjustment* 52 47 0 0 0 0
Total revenue (Non-GAAP) 2,910 2,507 3,240 2,419 2,421 2,162
Operating income
(U.S. GAAP) 593 359 1,109 606 581 436
Revenue adjustment* 52 47 0 0 0 0
Expense adjustment* 66 83 19 18 13 11
Operating income
(Non-GAAP) 711 489 1,128 624 594 447
Operating margin
(U.S. GAAP) 20.7% 14.6% 34.2% 25.1% 24.0% 20.2%
Operating margin
(Non-GAAP) 24.4% 19.5% 34.8% 25.8% 24.5% 20.7%
Effective tax rate from
continuing operations
(Non-GAAP) 30.7% 29.0% 33.8% 35.1% 25.8% 33.5%
EPS from continuing
operations - basic in euro
(U.S. GAAP) 0.34 0.21 0.63 0.34 0.37 0.26
EPS from continuing
operations - diluted in
euro (U.S. GAAP) 0.34 0.21 0.63 0.34 0.37 0.26
EPS from continuing
operations - basic in euro
(Non-GAAP) 0.42 0.29 0.64 0.35 0.38 0.26
EPS from continuing
operations - diluted in
euro (Non-GAAP) 0.42 0.29 0.64 0.35 0.38 0.26
Headcount** 51,447 51,274 43,861 42,601 41,736 40,318
* adjustments in the revenue line items are for the Business Objects
support revenue that Business Objects would have recognized had it
remained a stand-alone entity but that SAP is not permitted to
recognize as revenue under U.S. GAAP as a result of business
combination accounting rules. Adjustments in the operating expense line
items are for acquisition-related charges. See Appendix for details
** in Full-Time-Equivalents - from continuing operations
APPENDIX
Explanation of Non-GAAP Measures
This document discloses certain financial measures, such as Non-GAAP
revenues, Non-GAAP operating income, Non-GAAP operating margin, free cash
flow, a constant currency revenue and operating income measures as well as
U.S. Dollar based revenue numbers, that are not prepared in accordance with
U.S. GAAP and are therefore considered non-GAAP financial measures. Our
non- GAAP financial measures may not correspond to non-GAAP financial
measures that other companies report. The non-GAAP financial measures that
we report should be considered as additional to, and not as substitutes for
or superior to, revenue, operating income, cash flows, or other measures of
financial performance prepared in accordance with U.S. GAAP. Our non-GAAP
financial measures included in this press release are reconciled to the
nearest U.S. GAAP measure in the tables on the pages F1 to F9 above.
Non-GAAP Revenues, Non-GAAP Operating Income and Non-GAAP Operating
Margin
We believe that it is of interest to investors to receive certain
supplemental historical and prospective financial information used by our
management in running our business - in addition to financial data prepared
in accordance with U.S. GAAP. Beginning in 2008 we use both Non-GAAP
revenues and Non-GAAP operating income / Non-GAAP operating margin as
defined below consistently in our planning, forecasting, reporting,
compensation and external communication.
Non-GAAP revenue: Revenues in this document identified as "Non-GAAP
revenue" have been adjusted from the respective U.S. GAAP numbers by
including the full amount of Business Objects support revenues that would
have been reflected by Business Objects had it remained a stand-alone
entity but are not permitted to be reflected as revenues under U.S. GAAP as
a result of fair value accounting for Business Objects support contracts in
effect at the time of the Business Objects acquisition.
Under U.S. GAAP we record at fair value the Business Objects support
contracts in effect at the time of the acquisition of Business Objects.
Consequently, our U.S. GAAP support revenues, our U.S. GAAP software and
software-related service revenues and our U.S. GAAP total revenues for
periods subsequent to the Business Objects acquisition do not reflect the
full amount of support revenue that Business Objects would have recorded
for these support contracts absent the acquisition by SAP. Adjusting
revenue numbers for this one-time revenue impact provides additional
insight into our ongoing performance because the support contracts are
typically one-year contracts and renewals of these contracts are expected
to result in revenues that are not impacted by the business
combination-related fair value accounting.
We believe that our Non-GAAP revenue numbers have limitations,
particularly as the eliminated amounts may be material to us. We therefore
do not evaluate our growth and performance without considering both
Non-GAAP revenues and U.S. GAAP revenues. We caution the readers of this
document to follow a similar approach by considering our Non-GAAP revenues
only in addition to, and not as a substitute for or superior to, revenues
or other measures of our financial performance prepared in accordance with
U.S. GAAP.
Non-GAAP operating income / Non-GAAP operating margin: Operating income
and operating margin in this document identified as "Non-GAAP operating
income" or "Non-GAAP operating margin" have been adjusted from the
respective operating income and operating margin numbers as recorded under
U.S. GAAP by including the full amount of Business Objects support revenues
to be included in Non-GAAP revenue, and by excluding acquisition-related
charges. Acquisition related charges in this context comprise: · --
Amortization expense of intangibles acquired in business combination and
standalone acquisitions of intellectual property · -- Expense from
purchased in-process research and development · -- Restructuring expenses
as far as incurred in connection with a business combinations and accounted
for under SFAS 146 in SAP's U.S. GAAP financial statements
Although acquisition-related charges include recurring items from past
acquisitions, such as amortization of acquired intangible assets, they also
include an unknown component, relating to current-year acquisitions. We
cannot accurately assess or plan for that unknown component until we have
finalized our purchase price allocation. Furthermore acquisition-related
charges may include one-time charges that are not reflective of our ongoing
operating performance.
We believe that our Non-GAAP financial measures described above have
limitations, particularly as the eliminated amounts may be material to us.
We therefore do not evaluate our growth and performance without considering
both Non-GAAP operating income / Non-GAAP operating margin numbers and U.S.
GAAP operating income and margin numbers. We caution the readers of this
document to follow a similar approach by considering our Non-GAAP operating
income / Non-GAAP operating margin numbers only in addition to, and not as
a substitute for or superior to, revenues or other measures of our
financial performance prepared in accordance with U.S. GAAP.
Free Cash Flow
We believe that free cash flow is a widely accepted supplemental
measure of liquidity. Free cash flow measures a company's cash flow
remaining after all expenditures required to maintain or expand the
business have been paid off. We calculate free cash flow as operating cash
flow from continuing operations minus additions to long-lived assets
excluding additions from acquisitions. Free cash flow should be considered
in addition to, and not as a substitute for or superior to, cash flow or
other measures of liquidity and financial performance prepared in
accordance with U.S. GAAP.
Constant Currency Period-over-Period Changes
We believe it is important for investors to have information that
provides insight into our sales. Revenue measures determined under U.S.
GAAP provide information that is useful in this regard. However, both sales
volume and currency effects impact period-over-period changes in sales
revenue. We do not sell standardized units of products and services, so we
cannot provide relevant information on sales volume by providing data on
the changes in product and service units sold. To provide additional
information that may be useful to investors in breaking down and evaluating
changes in sales volume, we present information about our revenue and
various values and components relating to operating income that are
adjusted for foreign currency effects. We calculate constant currency
year-over-year changes in revenue and operating income by translating
foreign currencies using the average exchange rates from the previous
(comparator) year instead of the report year.
We believe that data on constant currency period-over-period changes
have limitations, particularly as the currency effects that are eliminated
constitute a significant element of our revenues and expenses and may
severely impact our performance. We therefore limit our use of constant
currency period-over-period changes to the analysis of changes in volume as
one element of the full change in a financial measure. We do not evaluate
our results and performance without considering both constant currency
period-over-period changes on the one hand and changes in revenues,
expenses, income, or other measures of financial performance prepared in
accordance with U.S. GAAP on the other. We caution the readers of this
document to follow a similar approach by considering data on constant
currency period-over-period changes only in addition to, and not as a
substitute for or superior to, changes in revenues, expenses, income, or
other measures of financial performance prepared in accordance with U.S.
GAAP.
U.S. Dollar-based Non-GAAP Revenue Measures
Substantially all of our major competitors report their financial
performance in U.S. Dollars. Thus changes in exchange rates, particularly
in the U.S. Dollar to Euro rates, affect the financial statements of our
competitors differently than our Euro-based financial statements. We
therefore believe that U.S. Dollar-based revenue numbers for SAP provide
investors with useful additional information that enables them to better
compare SAP's revenue growth with SAP's competitors' revenue growth
irrespective of movements in exchange rates.
Our U.S. Dollar Non-GAAP Revenue numbers are determined as if SAP's
reporting currency was the U.S. Dollar. In fact, the reporting currency of
our U.S. GAAP and IFRS consolidated financial statements as filed in
Germany and in the U.S. with the U.S. Securities and Exchange Commission
(SEC) is the Euro. Additionally, our U.S. Dollar Non-GAAP Revenue numbers
have been adjusted from the respective U.S. GAAP revenue numbers by the
same support revenue fair value adjustment than our Non GAAP Revenue
numbers explained above.
SAP's management uses our U.S. Dollar Non-GAAP Revenue numbers to gain
a better understanding of SAP's operating results compared to SAP's major
competitors.
We believe that our U.S. Dollar Non-GAAP Revenue numbers have
limitations, particularly because the impact of currency exchange rate
fluctuations and the eliminated amounts may be material to us. We therefore
do not evaluate our growth and performance without considering both
Non-GAAP revenues and Euro- based U.S. GAAP revenues. We caution the
readers of this document to follow a similar approach by considering our
U.S. Dollar Non-GAAP Revenue numbers only in addition to, and not as a
substitute for or superior to, revenues or other measures of our financial
performance prepared in accordance with U.S. GAAP and reported in Euro.
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