-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PG3d8NJwaqNOvjA7duWlkM+52jJy5bGkh7z8Q6aeRdKwL58VtAYoWRmgZ7m95+tI BxA+hNXCfGSbYRjxZbXwNQ== 0000950123-00-003806.txt : 20000419 0000950123-00-003806.hdr.sgml : 20000419 ACCESSION NUMBER: 0000950123-00-003806 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000418 FILED AS OF DATE: 20000418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAP AKTIENGESELLSCHAFT SYSTEMS APPLICATIONS PRODUCTS IN DATA CENTRAL INDEX KEY: 0001000184 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 STATE OF INCORPORATION: I8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 001-14251 FILM NUMBER: 603979 BUSINESS ADDRESS: STREET 1: NEUROTTSTRABE 16 STREET 2: WALLDORF, FEDERAL REPUBLIC OF GERMAN CITY: NEW YORK STATE: NY ZIP: 69190 BUSINESS PHONE: 0114962277 MAIL ADDRESS: STREET 1: NEUROTTSTRASSE 16 CITY: WALLDORF D 69190 STATE: I8 6-K 1 FORM 6-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 April 18, 2000 SAP AKTIENGESELLSCHAFT SYSTEME, ANWENDUNGEN, PRODUKTE IN DER DATENVERARBEITUNG (Exact name of registrant as specified in its charter) SAP CORPORATION SYSTEMS, APPLICATIONS AND PRODUCTS IN DATA PROCESSING (Translation of registrant's name into English) Neurottstrasse 16 69190 Walldorf Federal Republic of Germany (Address of principal executive office) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [ ] Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [ ] No [X] If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_______. 2 SAP AKTIENGESELLSCHAFT SYSTEME, ANWENDUNGEN, PRODUKTE IN DER DATENVERARBEITUNG FORM 6-K The following material has been distributed to holders of American Depositary Receipts representing the preference shares, without nominal value (the "Preference Shares"), of SAP Aktiengesellschaft Systeme, Anwendungen, Produckte in der Datenverarbeitung, a stock corporation organized under the laws of the Federal Republic of Germany (the "Company"): (i) Invitation to Annual General Meeting of the Company to be held on May 5, 2000, attached as Exhibit 99.1 hereto and incorporated by reference herein; (ii) Invitation to Special Meeting of holders of Preference Shares to be held on May 5, 2000, attached as Exhibit 99.2 hereto and incorporated by reference herein; and (iii) Summarized English Version of the 1999 Annual Report of the Company, attached as Exhibit 99.3 hereto and incorporated by reference herein. For purposes of this Form 6-K, the Company has omitted the consolidated financial statements included in the Summarized English Version of the 1999 Annual Report of the Company and, pursuant to Rule 12b-23 under the U.S. Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"), is incorporating therein by reference to pages F-1 through F-41 of the Company's Annual Report on Form 20-F for 1999 filed with the U.S. Securities and Exchange Commission (the "SEC") on April 7, 2000 the copy of such consolidated financial statements included in such Annual Report on Form 20-F for 1999, which is attached as Exhibit 99.4 hereto and incorporated by reference herein. Any statements contained in the Exhibits hereto that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "intend," "may," "will," "expect," "anticipate" and "project" and similar expressions as they relate to the Company are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the Company's future financial results are discussed more fully in the Company's filings with the SEC, including the Company's Annual Report on Form 20-F for 1999 filed with the SEC on April 7, 2000. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. 1 3 EXHIBITS Exhibit No. Exhibit - ----------- ------- 99.1 Invitation to Annual General Meeting of the Company to be held on May 5, 2000 99.2 Invitation to Special Meeting of holders of Preference Shares to be held on May 5, 2000 99.3 Summarized English Version of the 1999 Annual Report of the Company (including the Company's consolidated financial statements, which form an integral part thereof and which, pursuant to Rule 12b-23 under the Securities Exchange Act, are hereby incorporated therein by reference to pages F-1 through F-41 of the Company's Annual Report on Form 20-F for 1999 filed with the SEC on April 7, 2000) 99.4 Pages F-1 through F-41 of the Company's Annual Report on Form 20-F for 1999 filed with the SEC on April 7, 2000 2 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SAP AKTIENGESELLSCHAFT SYSTEME, ANWENDUNGEN, PRODUKTE IN DER DATENVERARBEITUNG (Registrant) By: /s/ Henning Kagermann ---------------------------------- Name: Prof. Dr. Henning Kagermann Title: Co-Chairman and CEO By: /s/ Dieter Matheis ---------------------------------- Name: Dieter Matheis Title: CFO Date: April 18, 2000 3 5 EXHIBIT INDEX Exhibit No. Exhibit - ----------- ------- 99.1 Invitation to Annual General Meeting of the Company to be held on May 5, 2000 99.2 Invitation to Special Meeting of holders of Preference Shares to be held on May 5, 2000 99.3 Summarized English Version of the 1999 Annual Report of the Company (including the Company's consolidated financial statements, which form an integral part thereof and which, pursuant to Rule 12b-23 under the Securities Exchange Act, are hereby incorporated therein by reference to pages F-1 through F-41 of the Company's Annual Report on Form 20-F for 1999 filed with the SEC on April 7, 2000) 99.4 Pages F-1 through F-41 of the Company's Annual Report on Form 20-F for 1999 filed with the SEC on April 7, 2000 EX-99.1 2 INVITATION TO ANNUAL MEETING 1 3 Annual General Meeting of Shareholders [PICTURE] SAP(R) AKTIENGESELLSCHAFT SYSTEMS, APPLICATIONS, PRODUCTS IN DATA PROCESSING OF WALLDORF, GERMANY Security identification numbers: Ordinary shares: 716 460 and 716 461 Preference shares: 716 463 and 716 464 Shareholders in our Company are invited to attend the thirteenth annual general meeting of shareholders at ROSENGARTEN CONGRESS CENTER, ROSENGARTENPLATZ 2, 68161 MANNHEIM, GERMANY, May 5, 2000 at 10 A.M. 2 4 Annual General Meeting of Shareholders Agenda 1. PRESENTATION OF THE AUDITED ANNUAL FINANCIAL STATEMENTS AND ANNUAL CONSOLIDATED FINANCIAL STATEMENTS, THE EXECUTIVE BOARD'S REVIEW OF OPERATIONS AND GROUP REVIEW OF OPERATIONS, AND THE SUPERVISORY BOARD'S REPORT, FOR THE FISCAL YEAR 1999 2. RESOLUTION: APPROPRIATION OF RETAINED EARNINGS FOR THE FISCAL YEAR 1999 The Executive Board and the Supervisory Board propose that retained earnings amounting to E 166,467,607.20 be appropriated as follows: E 1.57 dividend per no-par ordinary share carrying dividend rights: E 95,770,000.00 E 1.60 dividend per no-par preference share carrying dividend rights: E 70,009,782.40 Transfer to retained earnings: E 877,788.40
The dividend will be distributed on or after May 8, 2000. 3. RESOLUTION: FORMAL RATIFICATION OF THE ACTS OF THE EXECUTIVE BOARD IN THE FISCAL YEAR 1999 The Executive Board and the Supervisory Board propose that the acts of the Executive Board be formally ratified. 4. RESOLUTION: FORMAL RATIFICATION OF THE ACTS OF THE SUPERVISORY BOARD IN THE FISCAL YEAR 1999 The Executive Board and the Supervisory Board propose that the acts of the Supervisory Board be formally ratified. 5. APPOINTMENT OF AN AUDITOR FOR THE FISCAL YEAR 2000 The Supervisory Board proposes that ARTHUR ANDERSEN Wirtschaftspruefungsgesellschaft Steuerberatungsgesellschaft mbH, of Eschborn/Frankfurt, be appointed auditor of the Financial Statements and Consolidated Financial Statements for the fiscal year 2000. 3 5 Annual General Meeting of Shareholders 6. PROPOSAL FOR REPLACEMENT OF SECTION 2 (OBJECTIVES OF THE COMPANY) OF THE ARTICLES OF ASSOCIATION OF SAP AG The Executive Board and the Supervisory Board propose that Section 2 of the SAP AG Articles of Association be amended to read as follows: "Section 2 Objectives of the Company 1. The corporate purpose of the Company is direct or indirect activity in the area of development, production, and marketing of products and the provision of services in the field of information technology, and particularly in the following fields: - 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 relevant accessories - 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 2. The Company is authorized to act in all the business areas listed in (1) and to delegate such activities to affiliated enterprises within the meaning of the German Stock Corporation Act ("the Act"), sections 15ff; in particular the Company is authorized to delegate its business in whole or in parts to such enterprises. The Company is authorized to establish branch offices in Germany and other countries, to found, acquire, and invest in other companies of the same or related kind and to enter into collaboration and joint venture agreements. The Company is further authorized to invest in enterprises of all kinds principally for the purpose of placing financial resources. The Company 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 shareholding. 3. The Company is authorized to take all actions and measures that are consistent with the corporate purpose or that directly or indirectly further the corporate purpose. 4 6 Annual General Meeting of Shareholders 7. RESOLUTIONS: A) CAPITAL STOCK INCREASE FROM THE COMPANY'S RESERVES B) REDIVISION OF THE CAPITAL STOCK BY SPLITTING EACH NO-PAR SHARE WITH ATTRIBUTABLE SUBSCRIBED CAPITAL OF THREE EUROS INTO THREE SINGLE NO-PAR SHARES WITH ATTRIBUTABLE SUBSCRIBED CAPITAL OF ONE EURO C) EXCLUSION OF THE SHAREHOLDERS' RIGHT TO SHARE CERTIFICATES IN RESPECT OF THEIR SHARES, AND AMENDMENT OF THE ARTICLES OF ASSOCIATION D) CORRESPONDING AMENDMENT OF THE AUTHORIZATION TO ISSUE CONVERTIBLE BONDS AND STOCK OPTIONS, OR BOTH, AND TO BUY THE COMPANY'S OWN SHARES It is proposed to increase the capital stock from the Company's reserves without the issuance of new shares (section 207 (2) (second sentence) of the Act) to the next higher amount at which the subscribed capital attributable to the shares is an exact whole euro value. The subscribed capital stock is currently E 267,804,752.97, divided into 104,756,114 no-par shares each representing E 2.5564596 (rounded) of the subscribed capital stock. To achieve an attributable subscribed capital for the 104,756,114 shares of exactly three euros the subscribed capital stock would be increased from E 267,804,752.97 to E 314,268,342.00 from the Company's reserves. Contingent capital would increase in the same proportion, as required by section 218 of the Act. To conform to the market standard, each share with attributable subscribed capital of three euros would be split into three no-par shares, each with attributable subscribed capital of one euro. The resolutions of the general meeting of shareholders of January 18, 2000 concerning the authorization to issue convertible bonds and stock options, or both, and to buy the Company's own shares, would be amended correspondingly. This applies also to the preference right provisions in section 23 (6) of the Articles of Association. By virtue of the change to no-par shares with attributable subscribed capital of one euro, the existing share certificates showing a German mark par value are no longer correct. It is proposed to withdraw the share certificates denominated in German marks and to declare them invalid. Investors' rights to share certificates would be excluded in order to avoid the necessity of printing new certificates. The Executive and Supervisory Boards therefore propose that the following resolutions be adopted: A) CAPITAL STOCK INCREASE FROM THE COMPANY'S RESERVES The amount of subscribed capital stock represented by each no-par share in the Company shall be increased from the current (rounded) value of E 2.5564596 to an exact whole euro value. The capital stock of the Company shall be increased in accordance with section 207 (2) (second sentence) of the Act from the Company's reserves without issuance of new shares. 5 7 Annual General Meeting of Shareholders Current subscribed capital stock E 267,804,752.97 Increase E 46,463,589.03 New subscribed capital stock E 314,268,342.00
To this end, E 46,463,589.03, of the E 240,847,510.25 capital reserves recorded in the balance sheet as of December 31, 1999 shall be converted to subscribed capital stock. This means that the portion of the subscribed capital stock represented by each no-par share is E 3.00. The number of shares in circulation will not change. This resolution proposal is supported by the financial statements as of December 31, 1999 finalized by the Executive Board and the Supervisory Board and bearing the unqualified approval of the auditors ARTHUR ANDERSEN Wirtschaftspruefungsgesellschaft Steuerberatungsgesellschaft mbH, Eschborn/Frankfurt, Germany. B) REDENOMINATION OF SHARES The capital stock shall be redivided and redenominated as follows: Each no-par share with an attributable subscribed capital of E 3.00 is replaced by three no-par shares each with an attributable subscribed capital of E 1.00. C) AMENDMENT OF THE ARTICLES OF ASSOCIATION, EXCLUSION OF THE SHAREHOLDERS' RIGHTS TO SHARE CERTIFICATES, REDEFINITION OF PREFERENCE DIVIDEND RIGHTS The following amendments to the Articles of Association are agreed to reflect the resolutions at Agenda Item 7 a) to c): aa) Section 4 (1) of the Articles of Association is amended to read as follows: "The capital stock of the Company amounts to E 314,268,342.00 and is divided into 183,000,000 no-par ordinary shares and 131,268,342 no-par non-voting preference shares. The preference shares shall carry preference rights in respect of the distribution of retained earnings in accordance with section 23 (6) of the Articles of Association." bb) Section 4 (2) (third sentence) of the Articles of Association is amended to read as follows: "Certificates issued for shares with a par value of DM 5.00 certify ownership of three individual shares until such certificates are declared invalid; certificates issued for shares with a par value of DM 50.00 certify ownership of thirty individual shares until such certificates are declared invalid." The Supervisory Board is authorized to delete section 4 (2) (third sentence) of the Articles of Association after the declaration of invalidity 6 8 Annual General Meeting of Shareholders in respect of share certificates denominated in DM amounts has become effective. cc) Section 4 (3) (third sentence) of the Articles of Association is amended to read as follows: "The right of shareholders to share certificates in respect of their shares is excluded." dd) Section 4 (5) (first sentence) of the Articles of Association is amended to read as follows: "Taking into account the conversion rights already exercised by December 31, 1999, the capital stock of the Company is further conditionally increased by a maximum of E 1,481,658 divided into a maximum of 1,481,658 no-par, nonvoting bearer preference shares ranking equally with the preference shares already issued (Contingent Capital II)." ee) Section 4 (7) (first sentence) of the Articles of Association is amended to read as follows: "The capital stock is further conditionally increased by E 18,750,000.00 by the issuance of a maximum of 18,750,000 no-par, nonvoting bearer preference shares ranking equally with the preference shares already issued (Contingent Capital III)." ff) Section 16 (first sentence) of the Articles of Association is amended to read as follows: "In addition to the reimbursement of his or her expenses, each member of the Supervisory Board shall receive a fixed remuneration of E 5,112.92 payable after the end of the fiscal year, and additional remuneration of E 2,100.13 multiplied by the distributed profit and divided by the capital stock." gg) Section 23 (6) (first sentence) of the Articles of Association is amended to read as follows: "Holders of preference shares receive a share of the retained earnings that exceeds the dividend paid on ordinary shares by 1 euro cent and is equal to no less than 1 euro cent per preference share." D) AMENDMENT OF RESOLUTIONS OF JANUARY 18, 2000 CONCERNING AUTHORIZATIONS aa) The resolution of the January 18, 2000 general meeting of shareholders concerning authorization to issue convertible bonds and/or stock options is amended to the effect that every authorization to issue a convertible bond with a par value of E 3.00 carrying the right to convert to one preference share is replaced by an authorization to issue three convertible bonds each with a par value of E 1.00 and each carrying the right to 7 9 Annual General Meeting of Shareholders convert to one preference share, and that every authorization to issue a stock option carrying the right to subscribe to one preference share is replaced by an authorization to issue three stock options each carrying the right to subscribe to one preference share. bb) The resolution of the January 18, 2000 general meeting of shareholders concerning authorization to purchase the Company's own shares is amended to the effect that the Company is authorized to purchase on the stock market up to 18,750,000 no-par preference shares in the Company representing up to E 18,750,000 in total as a proportion of the capital stock. 8. RESOLUTION: AUTHORIZED CAPITAL II The Executive Board and Supervisory Board propose that the following resolution be adopted: a) Subject to the consent of the Supervisory Board, the Executive Board is authorized to increase the capital stock on one or more occasions no later than May 1, 2005 by no more than E 25 million in total by issuing new nonvoting bearer preference shares that carry the same rights under the Articles of Association as previously issued preference shares (Authorized Capital II). Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude the shareholders' statutory preemptive rights: - In respect of fractional shares, - Where the capital is increased against contributions in cash and the portion of the capital stock represented by the new shares in respect of which preemptive rights are excluded is no greater than 10% of that capital stock at the time the new shares are issued and the issue price of the new shares is not materially below the stock exchange price of listed shares of the same class carrying the same rights under the Articles of Association on the day when the Executive Board finally determines the issue price, as provided in section 203 (1) and (2) and section 186 (3)(4) of the Act, - Where the capital is increased against contributions in kind to obtain shares for the acquisition of enterprises or interests in enterprises. The Executive Board shall not exercise the authorization granted in this subsection a) where it has (1) already on one or more occasions exercised its authorization under Agenda Item 9 of the May 5, 2000 annual general meeting of shareholders to increase the capital stock pursuant to Contingent Capital IV or exercised the authorization in this subsection a) and where (2) a first or subsequent exercise of the authorization in this a) would cause the sum of the amounts by which the capital stock is increased pursuant to the authorization in Agenda Item 9 of the May 5, 2000 annual general meeting of 8 10 Annual General Meeting of Shareholders shareholders and the amounts by which the capital stock is increased pursuant to Authorized Capital II under b) to exceed E 25 million in total. Subject to the consent of the Supervisory Board, the Executive Board is authorized to determine the further details of the implementation of the capital stock increase pursuant to Authorized Capital II. The Supervisory Board is authorized to amend the Articles of Association accordingly after full or partial implementation of the capital stock increase pursuant to Authorized Capital II or after expiration of the authorization period. The Executive Board is directed to apply for entry of Authorized Capital II in the commercial register such that the capital stock increase from the Company's reserves (Agenda Item 7) is entered before Authorized Capital II. b) The following new paragraph 8 is added to section 4 of the Articles of Association: "Subject to the consent of the Supervisory Board, the Executive Board is authorized to increase the capital stock on one or more occasions no later than May 1, 2005 by no more than E 25 million in total by issuing new nonvoting bearer preference shares that carry the same rights under the Articles of Association as previously issued preference shares (Authorized Capital II). Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude the shareholders' statutory preemptive rights: - In respect of fractional shares, - Where the capital is increased against contributions in cash and the portion of the capital stock represented by the new shares in respect of which preemptive rights are excluded is no greater than 10% of that capital stock at the time the new shares are issued and the issue price of the new shares is not materially below the stock exchange price of listed shares of the same class carrying the same rights under the Articles of Association on the day when the Executive Board finally determines the issue price, as provided in the German Stock Corporation Act, section 203 (1) and (2) and section 186 (3)(4), - Where the capital is increased against contributions in kind to obtain shares for the acquisition of enterprises or interests in enterprises. Subject to the consent of the Supervisory Board, the Executive Board is authorized to determine the further details of the implementation of capital stock increases pursuant to Authorized Capital II. The Supervisory Board is authorized to amend section 4 (8) of the Articles of Association accordingly after full or partial implementation of the capital stock increase pursuant to authorized capital or after expiration of the authorization period." 9 11 Annual General Meeting of Shareholders The resolution of the annual general meeting of shareholders proposed in this Agenda Item 8 cannot take effect unless consent is given by preference shareholders' special resolution. Pursuant to section 203 (2) and section 186 (4) (second sentence) of the Act, the Executive Board presents its report of the grounds for excluding preemptive rights below; the report is also available to every shareholder as part of this invitation and at the annual general meeting of shareholders, and has been on display, and available to be sent on request, at the Company's offices since the day on which the calling of the annual general meeting of shareholders was announced: The proposed authorization to issue new shares pursuant to Authorized Capital II is intended to enable the Executive Board, with the Supervisory Board's consent, to respond quickly to opportunities which require financing in connection with the implementation of strategic decisions. The possibility of excluding preemptive rights of fractional shares simplifies the process of increasing capital stock against contributions in cash. The purpose of the proposed authorization to exclude preemptive rights for capital stock increases against contributions in kind is to enable the Company to acquire enterprises or interests in enterprises in exchange for nonvoting preference shares. SAP AG competes internationally. In the interest of its shareholders, the Company must always be in a position to move quickly and flexibly in international markets. That means it must have the option of acquiring enterprises or interests in enterprises to improve its competitive position. The interests of the shareholders and of the Company are, in some cases, best served if the Company acquires such enterprises or interests in enterprises in exchange for shares in the Company. The proposed authorization to exclude preemptive rights is intended to give SAP the flexibility it needs to quickly take advantage of opportunities to acquire enterprises or interests. Valuations of the Company's stock and of enterprises to be acquired or invested in will be based on impartial assessments of the corporate value by auditors and/or premium international investment banks. The Executive Board also seeks authorization, subject to the consent of the Supervisory Board, to exclude preemptive rights where the capital increase is within the size limit and other requirements of section 186 (3) (fourth sentence) of the Act. If there is a discount on the stock exchange price, it is not expected to exceed 3% or at most 5% of the stock exchange price. The authorization to exclude preemptive rights is intended, in this case, to enable management to take advantage of favorable short-term market conditions. The issue price would be set closer to the issue date, and would tend to be nearer to the market price. This would maximize issue price and the equity effect. Because management can act quickly, stock capital increases of this kind are known to achieve a higher inflow of funds than comparable capital increases where shareholders do have preemptive rights. Thus, it benefits the Company and the shareholders. The Executive Board sees the authorization in Agenda Item 8 as an alternative financial model to the authorization in Agenda Item 9 of issuing bonds with 10 12 Annual General Meeting of Shareholders detachable warrants and/or convertible bonds. To ensure that the two authorizations together do not lead to an increase the SAP AG capital stock by more than E 25 million, the Executive Board may not exercise the authorization in Agenda Item 8 where it has (1) already on one or more occasions exercised its authorization under Agenda Item 8 to increase the capital stock pursuant to Authorized Capital II or exercised the authorization in Agenda Item 9 and where (2) a first or subsequent exercise of the authorization in Agenda Item 8 would cause the sum of the amounts by which the capital stock is increased under Agenda Item 8 and the amounts dedicated to subscription rights or the service of convertible bonds pursuant to Contingent Capital IV created in Agenda Item 9 to exceed E 25 million in total. The Executive Board will report all use made of Authorized Capital II to the general meeting of shareholders. 9. RESOLUTION CONCERNING AUTHORIZATION TO ISSUE BONDS WITH DETACHABLE WARRANTS AND/OR CONVERTIBLE BONDS WITH CONCURRENT CREATION OF CONTINGENT CAPITAL AND AMENDMENT OF THE ARTICLES OF ASSOCIATION The Executive Board and Supervisory Board propose that the following resolution be adopted: a) Subject to the consent of the Supervisory Board, the Executive Board is authorized to issue on one or more occasions and no later than May 4, 2005, bearer bonds with detachable warrants and/or convertible bonds having a total par value of no more than E 2 billion and having a term of no longer than ten years and to issue to the holders of bonds with detachable warrants warrant rights and the holders of convertible bonds conversion rights in respect of new SAP AG nonvoting bearer preference shares ranking equally with preference shares already issued and representing together in total no more than E 25 million as a calculated proportion of the capital stock, subject to the terms of the bonds with detachable warrants and the convertible bonds, as appropriate. The terms of the convertible bonds will provide that the holders of convertible bonds may be required to convert their bonds to new shares in the Company. Bonds with detachable warrants and convertible bonds may be denominated in euros or in the legal currency of an OECD country. Where they are issued in a currency other than the euro, the applicable value is calculated using the European Central Bank euro currency purchasing price on the day on which it is resolved to issue bonds with detachable warrants and/or convertible bonds. Bonds with detachable warrants and/or convertible bonds may also be issued by wholly-owned direct or indirect German or foreign affiliates of SAP AG, and if they are, subject to the consent of the Supervisory Board, the Executive Board is authorized to guarantee the bonds with detachable warrants and/or convertible bonds for the affiliate and to grant to holders of bonds with detachable warrants warrant rights and to holders of convertible bonds 11 13 Annual General Meeting of Shareholders conversion rights in respect of new SAP AG nonvoting bearer preference shares. A consortium of banks will be instructed to take over the bonds with detachable warrants and convertible bonds and to offer them to shareholders for subscription; however, where shareholders' subscription rights to fractional shares would arise by applying the subscription ratio the Executive Board is authorized to exclude them. The Executive Board is also entitled to exclude subscription rights to the extent necessary in order to accord to holders of warrant and conversion rights attaching to previously issued bonds, to holders of convertible bonds carrying a duty to convert, and to holders of stock options (warrant rights) issued by the Company, the subscription rights to which those holders are entitled on their exercise of those warrant rights and conversion rights or, as the case may be, on their performance of that duty to convert. Further, subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act in respect of the issue, whether on one or more occasions, of bonds with detachable warrants and/or convertible bonds provided warrant or conversion rights for new SAP AG shares representing no more than ten percent (10%) of the capital stock as a calculated proportion of the available capital stock - pursuant to this and other authorizations - when preemptive rights are first excluded in accordance with section 186 (3) (fourth sentence) of the Act. In determining whether the ten-percent threshold has been reached, exclusions of shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act under other authorizations shall also be taken into consideration. Where the Executive Board excludes shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act in reliance on this authorization, the issue price shall not be materially below the theoretical market value of the bonds with detachable warrants or convertible bonds, as the case may be, determined by applying accepted methods of financial calculation. In this respect, the Executive Board shall obtain the expert opinion of an independent investment bank of good standing if it excludes shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act. Where bonds with detachable warrants are issued there shall be attached to each such bond one warrant or more warrants for the purchase by the holder, in accordance with the terms of the bonds with detachable warrants to be defined by the Executive Board, of nonvoting bearer preference shares in the Company ranking equally with preference shares already issued. Subject to the terms of the bonds with detachable warrants, warrant holders may be entitled when exercising the warrant right to have the bonds or the payment obligations related to them offset against the purchase price for the new shares in the Company. Where subscription rights to fractions of new shares arise, it may be provided that these fractions may be added together as 12 14 Annual General Meeting of Shareholders provided in the terms of the convertible bonds to make subscription rights to whole shares. The term of the warrant rights shall be no longer than ten years. Where convertible bonds are issued the holders thereof shall be entitled, or, if the loan terms so provide, required, to exchange their bonds for nonvoting bearer preference shares in the Company ranking equally with preference shares already issued, in accordance with the loan terms to be defined by the Executive Board. The rate at which bonds are exchanged for shares shall be the result of dividing the par value of one bond by the defined conversion price for one preference share in the Company; the rate at which bonds are exchanged for shares may also be the result of dividing the issue price of one bond, where lower than the par value, by the defined conversion price for one SAP AG preference share. Where there is no provision in the loan terms for subscription rights to fractional shares to be added together to make subscription rights to whole shares, the rate at which bonds are exchanged for shares may be rounded up or down to a whole number; further, there may be provision for an additional cash contribution. The terms of the bonds with detachable warrants and of the convertible bonds may also provide that the number of new preference shares for subscription, or a related right of exchange, on exercise of warrant rights or conversion rights or on performance of the duty to convert shall be variable and that the subscription price or conversion price may be changed during the term within a range to be defined by the Executive Board depending on the development of the share price or in consequence of dilution protection provisions. The attributable subscribed capital of the shares for subscription against each bond with detachable warrant shall not exceed ten percent (10%) of the attributable subscribed capital of the bond with detachable warrant at the time the bonds with detachable warrant are issued. The attributable subscribed capital of the shares to be issued against each convertible bond on conversion shall not exceed ten percent (10%) of the attributable subscribed capital of the convertible bond at the time the bonds are issued. The subscription price or conversion price, as the case may be, defined for one new SAP AG share shall either be no less than eighty percent (80%) of the average market price of a SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange during the last ten business days before the day on which the Executive Board resolved to issue the bonds with detachable warrant or convertible bonds, or otherwise no less than eighty percent (80%) of the average market price of the SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange during the period in which the subscription rights are traded on the Frankfurt Stock Exchange, not including the last two business days on which the subscription rights are traded, whether the rate at which bonds are exchanged for shares/ the conversion price is variable or not. Such subscription price or conversion price may be translated into the legal currency of an OECD country by 13 15 Annual General Meeting of Shareholders applying the European Central Bank euro currency purchasing price on the last day of the period concerned. The subscription price or conversion price may also rounded up or down to a whole euro value or, as the case may be, to a whole value in the translation currency units. These provisions apply subject to section 9 (1) of the Act. Subject to section 9 (1) of the Act the subscription price or conversion price may be reduced by reason of a dilution protection provision in the terms of the bonds with detachable warrants and the convertible bonds if, during the subscription period or conversion period, the Company accords exclusive subscription rights to its shareholders when it increases the capital stock, or issues further bonds with detachable warrants or convertible bonds or grants or guarantees warrant rights or conversion rights and does not accord to the holders of existing warrant rights or conversion rights the subscription rights to them to which they would be entitled after exercising their existing warrant or conversion rights. The Company may, in this case, at its election implement the reduction in the subscription price or conversion price by paying an appropriate amount in cash on exercise of the warrant right or conversion right or by reducing by an appropriate amount any additional cash contribution. A dilution protection provision in the terms of the bonds with detachable warrants or the convertible bonds may further provide that the holders of the warrants or convertible bonds may also be accorded additional warrant rights or conversion rights in respect of shares pursuant to contingent capital of the Company or that the rate at which bonds are exchanged for shares is amended applying the reduced subscription or conversion price if adequate contingent capital is available. The terms of the bonds with detachable warrants and the convertible bonds may also provide that by reason of dilution protection provisions (i) the number of new shares for subscription on exercise of the warrant right or conversion of the convertible bond shall be variable and that additional warrant rights or conversion rights for shares shall be accorded to the holders of the warrants or convertible bonds and that additional shares shall be made available to holders of convertible bonds upon performance of a duty to convert, and (ii) the subscription price or conversion price shall be changed during the term of the warrant rights or conversion rights. Further, the terms of the bonds with detachable warrants and the convertible bonds may provide for adjustment of the warrant rights or conversion rights in the event of a reduction of the capital stock or other extraordinary changes in corporate structure or capitalization. Whenever dilution occurs, any range for the definition of the subscription price or conversion price may be redetermined. Subject to the consent of the Supervisory Board or, as the case may be, by agreement with the appropriate boards of the affiliates issuing the bonds with detachable warrants or convertible bonds, the Executive Board is authorized 14 16 Annual General Meeting of Shareholders to determine the further details of the issue and conditions of the bonds with detachable warrants and the convertible bonds, and in particular the rate of interest, issue price, term and denomination, subscription or conversion price, dilution protection provisions, time periods for subscription or conversion, as well as procedures for exchange in respect of rights to exchange and/or duties to exchange or convert. The Executive Board shall not exercise the authorization in this subsection a) where it has (1) already on one or more occasions exercised its authorization under Agenda Item 8 of the May 5, 2000 annual general meeting of shareholders to increase the capital stock pursuant to Authorized Capital II or exercised the authorization in this subsection a) and where (2) a first or subsequent exercise of the authorization in this subsection a) would cause the sum of the amounts by which the capital stock is increased under Agenda Item 8 of the May 5, 2000 annual general meeting of shareholders and the amounts dedicated to warrant rights or the service of convertible bonds pursuant to Contingent Capital IV created in b) to exceed E 25 million in total. b) The capital stock will be subject to a contingent increase of no more than E 25 million through the issuance of no more than 25 million nonvoting bearer preference shares to which each is attributed E 1.00 of the capital stock and ranking equally with the preference shares already issued (Contingent Capital IV). The contingent capital increase will be used to secure the warrant rights of holders of detachable warrants in accordance with the terms of the bonds with detachable warrants or, as the case may be, the exchange by holders of convertible bonds of their convertible bonds for new preference shares in the Company in accordance with the terms for convertible bonds, where those bonds with detachable warrants or convertible bonds are issued pursuant to the authorization at subsection a) on or before May 4, 2005 by the Company or by its fully-owned direct or indirect German or foreign affiliates. The new shares will be issued at the subscription price or conversion price, as the case may be, determined in accordance with subsection a). The contingent capital increase will be effected only if bonds with detachable warrants or convertible bonds are issued and to the extent holders of the bonds with detachable warrants or convertible bonds exercise their warrant rights and conversion rights or the convertible bonds are converted and the contingent capital is required to meet the conditions of the bonds with detachable warrants or convertible bonds. Subject to the consent of the Supervisory Board, the Executive Board is authorized to determine the further details of the implementation of the contingent capital increase. 15 17 Annual General Meeting of Shareholders c) The following new paragraph 9 is added to section 4 (Capital Stock) of the Articles of Association: "The capital stock is subject to a further contingent increase of E 25 million divided into no more than 25 million nonvoting bearer preference shares ranking equally with the preference shares already issued (Contingent Capital IV). The capital stock increase will be effected only to the extent that holders of warrants or conversion rights attaching to bonds with detachable warrants or to convertible bonds issued or guaranteed on or before May 4, 2005 by SAP AG or by its fully-owned direct or indirect German or foreign affiliates exercise their warrant rights or conversion rights or to the extent that holders under a duty to convert convertible bonds issued or guaranteed on or before May 4, 2005 by SAP AG or by its fully-owned direct or indirect affiliates perform their duty to convert. The new shares are eligible for dividend from the beginning of the fiscal year in which they arise through exercise of warrant rights or conversion of convertible bonds." The resolution of the annual general meeting of shareholders proposed in this Agenda Item 9 cannot take effect unless consent is given by preference shareholders' special resolution. Pursuant to section 221 (4) and section 186 (4) (second sentence) of the Act, the Executive Board presents its report of the grounds for excluding preemptive rights below; the report is also available to every shareholder as part of this invitation at the annual general meeting of shareholders, and has been on display, and available for sending on request, at the Company's offices since the day on which the calling of the annual general meeting of shareholders was announced: The authorization to issue bonds with detachable warrants or convertible bonds is intended to give the Company greater choice of financing options. The option to stipulate a duty to convert convertible bonds extends the variety of this type of financial instruments available. When SAP AG and its fully-owned direct or indirect affiliates issue bonds, shareholders are entitled to a preemptive subscription right unless there are provisions to the contrary. One reason for excluding that preemptive right is to provide adequate protection against dilution for holders of existing warrant rights and conversion rights to SAP AG shares. Dilution protection can be given to holders of warrant rights and conversion rights either by reducing the subscription price or conversion price, or else by providing a subscription right. The Executive Board proposes to decide in favor of one or other of these options at the time it exercises the authorization. In order not to be restricted in advance to the option to reduce the subscription price or conversion price, it is usual to provide authorization to exclude shareholders' preemptive rights to new shares to the extent necessary to allow the holders of the bonds the subscription rights to which they would be entitled to after exercising their warrant right or conversion right. Putting holders of existing warrant rights and conversion rights in the same position as shareholders in this way when further bonds with detachable warrants and convertible bonds are 16 18 Annual General Meeting of Shareholders issued without effecting an increase in capital stock makes the new bonds with detachable warrant or convertible bonds more attractive and thus furthers the Company's interest by creating an attractive instrument to raise capital. Shareholders' subscription rights would also be excluded where fractional shares would otherwise be created when the rate at which bonds are exchanged for shares is determined. This makes it possible to apply a convenient, round rate. Furthermore, subject to the consent of the Supervisory Board, the Executive Board would be authorized to exclude shareholders' preemptive rights in respect of the issue of these bonds provided the warrant and conversion rights for SAP AG shares proportionately represent no more than ten percent (10%) of the capital stock. Where this ten-percent exemption is applied, all exclusions of shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act under other authorizations, for example, the authorization in Agenda Item 8, must also be taken into consideration so that the ten-percent threshold is not exceeded by the sum of such exclusions. For the purpose of determining the ten-percent threshold, the capital stock means the capital stock at the time of the first exercise of authorization to exclude preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act. Excluding preemptive rights in this way gives the Company the opportunity to raise financing for investments quickly on the financial market and, by setting prices close to the market levels, to achieve favorable financing conditions. Section 221 (4) (second sentence) of the Act provides that section 186 (3) (fourth sentence) of the Act also applies analogously to bonds with detachable warrants and to convertible bonds. When determining when the aforementioned ten-percent threshold is reached, any exclusion of the preemptive right pursuant to other authorizations (for example, the authorization in Agenda Item 8) must also be taken into consideration. This means that all exclusions of the preemptive right together must be limited to no more than ten percent of the capital stock. Section 186 (3) (fourth sentence) of the Act also provides that the issue price must not be set materially below the stock exchange price. To ensure that this requirement is also met in respect of the issue of bonds with detachable warrant and convertible bonds, the authorization provides that the issue price must not be materially below the theoretical market value of the bonds with detachable warrants or convertible bonds, as the case may be, determined by applying accepted methods of financial calculation. If the issue price concerned is no more than 3% or at the most no more than 5% below the calculated market value at the time when the bond with detachable warrant or convertible bond is issued, then for the purposes of the rule in section 186 (3) (fourth sentence) of the Act, the exclusion of the preemptive right is permissible because the discount is not material. To meet this requirement for the issue of such bonds the Executive Board undertakes to obtain the expert opinion of an independent investment bank of good standing in respect of each issue that excludes the preemptive right pursuant to section 186 (3) (fourth sentence) of the Act. This satisfies the shareholders' need for protection against dilution of their shares. Since the 17 19 Annual General Meeting of Shareholders authorization requires that the issue price be set not materially below the calculated market value, in practice the value of a preemptive right would be zero. This means that the exclusion of the preemptive right does not lead to the loss of any financial benefit for shareholders. Shareholders who wish to maintain their share of the Company's capital stock can achieve this with a purchase of more shares on the cash market. The contingent capital is required to service warrant rights, conversion rights, and conversion duties in respect of SAP AG preference shares attaching to bonds with detachable warrants and convertible bonds. The subscription price or conversion price, as the case may be, defined for one new SAP AG share must either be no less than eighty percent (80%) of the average market price of the SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange on the last ten business days before the day on which the Executive Board resolved to issue the bonds with detachable warrant or convertible bonds, or otherwise no less than eighty percent (80%) of the average market price of the SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange during the period in which the subscription rights are traded on the Frankfurt Stock Exchange, not including the last two business days on which the subscription rights are traded, whether the rate at which bonds are exchanged for shares/ the conversion price is variable or not. The terms may also provide that the rate at which bonds are exchanged for shares is variable and that the conversion price may be set during the term within a range to be defined depending on the development of the share price. This allows the Company to issue the bonds on terms that are particularly close to market levels. The Executive Board sees the authorization in Agenda Item 9 as an alternative financial model to the authorization in Agenda Item 8 of increasing the capital stock pursuant to contingent capital. To ensure that together the two authorizations do not lead to an increase in the SAP AG capital stock greater than E 25 million, the Executive Board may not exercise the authorization in Agenda Item 9 where it has (1) already on one or more occasions exercised its authorization under Agenda Item 8 to increase the capital stock pursuant to Authorized Capital II or exercised the authorization in Agenda Item 9 and where (2) a first or subsequent exercise of the authorization in Agenda Item 9 would cause the sum of the amounts by which the capital stock is increased under Agenda Item 8 and the amounts dedicated to warrant rights or the service of convertible bonds pursuant to Contingent Capital IV created in Agenda Item 9 to exceed E 25 million in total. 18 20 Annual General Meeting of Shareholders 10. CONSENT TO THE CONTRACT FOR THE TRANSFER OF SAP AG'S BUSINESS AREA "SALES, TRAINING, CONSULTING, AND SERVICE IN THE FEDERAL REPUBLIC OF GERMANY" TO SAP DEUTSCHLAND AG & CO. KG (TRANSFER FOR ACQUISITION PURSUANT TO THE GERMAN LAW OF REORGANIZATIONS, SECTION 123(3)(1)) On March 10, 2000 SAP AG and SAP Deutschland AG & Co. KG initialed a transfer and acquisition contract by which SAP AG's business area "Sales, Training, Consulting, and Service in the Federal Republic of Germany" is to transferred to SAP Deutschland AG & Co. KG by way of transfer and acquisition pursuant to the German Law of Reorganizations, section 123(3)(1). The Executive Board and Supervisory Board propose that the Company consent to the transfer and acquisition contract. The material provisions of the transfer contract (as set forth in the initialed draft of March 10, 2000) are as follows: SAP AG, the transferor corporation, will transfer by transfer and acquisition contract its business area "Sales, Training, Consulting, and Service in the Federal Republic of Germany" ("STCS business area") to SAP Deutschland AG & Co. KG ("SAP LGD"), the transferee partnership, by way of transfer and acquisition pursuant to the German Law of Reorganizations, section 123(3)(1) in consideration of shares, namely an increase in SAP AG's general partner's interest in SAP LGD. SAP LGD is a limited partnership established on March 6, 2000 in which SAP AG has a capital contribution of E 900.00 as general partner and in which SAP Beteiligungs GmbH, a fully-owned subsidiary of SAP AG, has a capital contribution of E 100.00 (which is also liability capital within the meaning of the German Commercial Code, section 172(1)) as limited partner. The corporate purpose of SAP LGD is selling and renting SAP AG products, and training, consulting, and service in connection with those products. SAP Beteiligungs GmbH holds its limited partner interest in SAP LGD on trust for SAP AG. The transfer of the STCS business area will be effected at the commercial book value in the SAP AG year-end statements of December 31, 2000 with effect from 0.00 A.M. on January 1, 2001 (the transfer date). With effect from the transfer date, all business affecting the STCS business area will be for the account of SAP LGD. The transfer and acquisition contract sets forth the details of the purpose of the transfer. Except as the transfer and acquisition contract otherwise expressly provides, SAP AG will transfer its STCS business area in Germany to SAP LGD with all assets and liabilities including all property that is directly or indirectly allocable legally or commercially to the STCS business area. This includes, without limitation, all PCs, photocopy machines, fax equipment, office and shop equipment and fittings, furniture, networks, telephone equipment, and other property allocable to the STCS business area at the rooms and premises occupied by the STCS business area in Walldorf as well as its business premises in Munich, Hamburg, Berlin, Ratingen, and Hannover. The property transferred also includes 19 21 Annual General Meeting of Shareholders all the company cars, cellular telephones, and notebook computers used by the employees working for the STCS business area. The property to be transferred to SAP LGD also includes all license, consulting, maintenance, service, training, and customer development contracts that SAP AG has concluded with customers domiciled in Germany and all rights and duties arising under them. All business documents, including without limitation lists of customers and customer files (whether in machine-readable form or otherwise) that concern the STCS business area will be transferred to SAP LGD. Further, the transfer and acquisition contract provides that all commercial leases taken by SAP AG for the STCS business area, in particular the leases for the Hamburg, Hannover, Berlin, and Ratingen branches, will be transferred to SAP LGD with all rights and duties under them; similarly all contracts allocable to the STCS business area with vendors, with affiliated companies, and with enterprises with which there is a participatory relationship, as well as all subcontracts and other contracts with other parties that are allocable to the STCS business area. The transfer and acquisition contract provides that SAP LGD will take a lease from SAP AG by separate contract in respect of the area occupied by the STCS business area in Walldorf. The transfer and acquisition contract also provides that SAP LGD will take a sublease in respect of part of the commercial property leased in by SAP AG for the Munich branch. The contract also provides that SAP AG and SAP LGD will conclude a license agreement in respect of the SAP software to be marketed by SAP LGD. At the time when the transfer becomes effective the existing employment relationships allocable to the STCS business area will be transferred unchanged in content to SAP LGD in accordance with the German Law of Reorganizations, section 324 and the German Commercial Code, section 613a. The transfer of employer's rights and duties includes all incidents of employment including benefit expectancies and reserves created in connection with employment and benefits. Title to assets and liabilities and other rights and duties passes on SAP AG's entry of the transfer in the commercial register. The rights and duties in the contract pass on January 1, 2001. With effect from that time SAP AG will by business management contract appoint SAP LGD to represent SAP AG in the STCS business area. In consideration of SAP AG's transfer of the STCS business area to SAP LGD, SAP AG's capital participation as general partner will be increased by the amount by which the transferred balance-sheet assets exceed the transferred balance-sheet liabilities. With effect from the transfer date, SAP's share of profits as SAP LGD general partner will be commensurate with its increased capital contribution share. 20 22 Annual General Meeting of Shareholders There will be no special measures within the meaning of the German Law of Reorganizations, section 126 (1)(7). Special rights and advantages within the meaning of the German Law of Reorganizations, section 126 (1)(7) or section 126 (1)(8) will not be granted. With regard to the consequences of the transfer for the employees and their representatives, the contract states that employment relationships in existence at the time when the transfer is entered into the commercial register and allocable to the STCS business area will be transferred unchanged in content to SAP LGD in accordance with the German Law of Reorganizations, section 324 and the German Commercial Code, section 613 a (1) and (4). The transfer will not affect business structures. The transfer itself will have no effect on the number of employees. The transfer will therefore not have any disadvantageous consequences for the employees. The draft transfer contract was lodged with the commercial register of the Heidelberg Local Court on March 10, 2000. The following documents are available for inspection by shareholders at the offices of SAP AG, Neurottstrasse 16, 69190 Walldorf, Germany as of the time the annual general meeting of shareholders is announced: - Transfer contract (initialed draft of March 10, 2000) - SAP AG financial statements and reviews of operations for the last three fiscal years - Transfer report by the SAP AG Executive Board Copies of the documents listed above will be sent to any shareholder on request without delay and at no charge. * * * Holders of PREFERENCE SHARES or ORDINARY SHARES are entitled to participate in the annual general meeting of shareholders, and holders of ORDINARY SHARES ARE ENTITLED TO EXERCISE VOTING RIGHTS, if no later than April 27, 2000, they deposit their shares during customary business hours at the Company or at a branch in the Federal Republic of Germany of one of the financial institutions listed below and leave them so deposited until the end of the annual general meeting of shareholders: - DG BANK Deutsche Genossenschaftsbank - Deutsche Bank Aktiengesellschaft - Dresdner Bank Aktiengesellschaft - Bayerische Hypo- und Vereinsbank Aktiengesellschaft - BHF-BANK Aktiengesellschaft 21 23 Annual General Meeting of Shareholders - Commerzbank Aktiengesellschaft - SGZ-Bank Sudwestdeutsche Genossenschafts-Zentralbank AG Deposit at one of the institutions listed above is also considered to have been effected if, with the consent and on behalf of a depositary institution, the shares are deposited with another financial institution and blocked until the end of the annual general meeting of shareholders. The shares may also be deposited with a German notary public or a securities clearing and deposit bank. In this case we ask that a certificate issued by the notary public or the securities clearing and deposit bank be submitted to our Company no later than one day after the last possible day for deposits. The admission tickets issued on the basis of the deposit will serve the holders of ordinary shares as identification for the exercise of their voting rights. HOLDERS OF PREFERENCE SHARES DO NOT HAVE VOTING RIGHTS. Shareholders may appoint a proxy, for example, their deposit bank, a shareholders' association, or a private individual. The addresses by members of the SAP Executive Board will be transmitted via the Internet on the day of the annual general meeting of shareholders (www.sap.de/investor). Walldorf, March 24, 2000 SAP Aktiengesellschaft Systems, Applications, Products in Data Processing The Executive Board EX-99.2 3 INVITATION TO SPECIAL MEETING 1 26 Special Meeting of Preference Shareholders SAP(R) AKTIENGESELLSCHAFT SYSTEMS, APPLICATIONS, PRODUCTS IN DATA PROCESSING OF WALLDORF, GERMANY Security identification numbers: Preference shares: 716 463 and 716 464 Preference shareholders in our Company are invited to attend a special meeting of preference shareholders at ROSENGARTEN CONGRESS CENTER, ROSENGARTENPLATZ 2, 68161 MANNHEIM, GERMANY, on May 5, 2000 after our Company's annual general meeting of shareholders but no earlier than 12 noon. 2 27 Special Meeting of Preference Shareholders Agenda 1. CONSENT TO RESOLUTION OF THE THIRTEENTH ANNUAL GENERAL MEETING OF SHAREHOLDERS, MAY 5, 2000, CONCERNING AUTHORIZED CAPITAL II The Executive Board and Supervisory Board propose that the following resolution be adopted: a) Subject to the consent of the Supervisory Board, the Executive Board is authorized to increase the capital stock on one or more occasions no later than May 1, 2005 by no more than E 25 million in total by issuing new nonvoting bearer preference shares that carry the same rights under the Articles of Association as previously issued preference shares (Authorized Capital II). Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude the shareholders' statutory preemptive rights: - In respect of fractional shares, - Where the capital is increased against contributions in cash and the portion of the capital stock represented by the new shares in respect of which preemptive rights are excluded is no greater than 10% of that capital stock at the time the new shares are issued and the issue price of the new shares is not materially below the stock exchange price of listed shares of the same class carrying the same rights under the Articles of Association on the day when the Executive Board finally determines the issue price, as provided in section 203 (1) and (2) and section 186 (3)(4) of the Act, - Where the capital is increased against contributions in kind to obtain shares for the acquisition of enterprises or interests in enterprises. The Executive Board shall not exercise the authorization granted in this subsection a) where it has (1) already on one or more occasions exercised its authorization under Agenda Item 9 of the May 5, 2000 annual general meeting of shareholders to increase the capital stock pursuant to Contingent Capital IV or exercised the authorization in this subsection a) and where (2) a first or subsequent exercise of the authorization in this a) would cause the sum of the amounts by which the capital stock is increased pursuant to the authorization in Agenda Item 9 of the May 5, 2000 annual general meeting of shareholders and the amounts by which the capital stock is increased pursuant to Authorized Capital II under b) to exceed E 25 million in total. Subject to the consent of the Supervisory Board, the Executive Board is authorized to determine the further details of the implementation of the capital stock increase pursuant to Authorized Capital II. The Supervisory Board is authorized to amend the Articles of Association accordingly after full 3 28 Special Meeting of Preference Shareholders or partial implementation of the capital stock increase pursuant to Authorized Capital II or after expiration of the authorization period. The Executive Board is directed to apply for entry of Authorized Capital II in the commercial register such that the capital stock increase from the Company's reserves (Agenda Item 7) is entered before Authorized Capital II. b) The following new paragraph 8 is added to section 4 of the Articles of Association: "Subject to the consent of the Supervisory Board, the Executive Board is authorized to increase the capital stock on one ore more occasions no later than May 1, 2005 by no more than E 25 million in total by issuing new nonvoting bearer preference shares that carry the same rights under the Articles of Association as previously issued preference shares (Authorized Capital II). Subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude the shareholders' statutory preemptive rights: - In respect of fractional shares, - Where the capital is increased against contributions in cash and the portion of the capital stock represented by the new shares in respect of which preemptive rights are excluded is no greater than 10% of that capital stock at the time the new shares are issued and the issue price of the new shares is not materially below the stock exchange price of listed shares of the same class carrying the same rights under the Articles of Association on the day when the Executive Board finally determines the issue price, as provided in the German Stock Corporation Act, section 203 (1) and (2) and section 186 (3)(4), - Where the capital is increased against contributions in kind to obtain shares for the acquisition of enterprises or interests in enterprises. Subject to the consent of the Supervisory Board, the Executive Board is authorized to determine the further details of the implementation of capital stock increases pursuant to Authorized Capital II. The Supervisory Board is authorized to amend section 4 (8) of the Articles of Association accordingly after full or partial implementation of the capital stock increase pursuant to authorized capital or after expiration of the authorization period." Pursuant to section 203 (2) and section 186 (4) (second sentence) of the Act, the Executive Board presents its report of the grounds for excluding preemptive rights below; the report is also available to every shareholder as part of this invitation and at the annual general meeting of shareholders, and has been on display, and available to be sent on request, at the Company's offices since the day on which the calling of the annual general meeting of shareholders was announced: The proposed authorization to issue new shares pursuant to Authorized Capital II is intended to enable the Executive Board, with the Supervisory Board's consent, 4 29 Special Meeting of Preference Shareholders to respond quickly to opportunities which require financing in connection with the implementation of strategic decisions. The possibility of excluding preemptive rights of fractional shares simplifies the process of increasing capital stock against contributions in cash. The purpose of the proposed authorization to exclude preemptive rights for capital stock increases against contributions in kind is to enable the Company to acquire enterprises or interests in enterprises in exchange for nonvoting preference shares. SAP AG competes internationally. In the interest of its shareholders, the Company must always be in a position to move quickly and flexibly in international markets. That means it must have the option of acquiring enterprises or interests in enterprises to improve its competitive position. The interests of the shareholders and of the Company are, in some cases, best served if the Company acquires such enterprises or interests in enterprises in exchange for shares in the Company. The proposed authorization to exclude preemptive rights is intended to give SAP the flexibility it needs to quickly take advantage of opportunities to acquire enterprises or interests. Valuations of the Company's stock and of enterprises to be acquired or invested in will be based on impartial assessments of the corporate value by auditors and/or premium international investment banks. The Executive Board also seeks authorization, subject to the consent of the Supervisory Board, to exclude preemptive rights where the capital increase is within the size limit and other requirements of section 186 (3) (fourth sentence) of the Act. If there is a discount on the stock exchange price, it is not expected to exceed 3% or at most 5% of the stock exchange price. The authorization to exclude preemptive rights is intended, in this case, to enable management to take advantage of favorable short-term market conditions. The issue price would be set closer to the issue date, and would tend to be nearer to the market price. This would maximize issue price and the equity effect. Because management can act quickly, stock capital increases of this kind are known to achieve a higher inflow of funds than comparable capital increases where shareholders do have preemptive rights. Thus, it benefits the Company and the shareholders. The Executive Board sees the authorization in Agenda Item 8 as an alternative financial model to the authorization in Agenda Item 9 of issuing bonds with detachable warrants and/or convertible bonds. To ensure that the two authorizations together do not lead to an increase the SAP AG capital stock by more than E 25 million, the Executive Board may not exercise the authorization in Agenda Item 8 where it has (1) already on one or more occasions exercised its authorization under Agenda Item 8 to increase the capital stock pursuant to Authorized Capital II or exercised the authorization in Agenda Item 9 and where (2) a first or subsequent exercise of the authorization in Agenda Item 8 would cause the sum of the amounts by which the capital stock is increased under Agenda Item 8 and the amounts dedicated to subscription rights or the service of convertible bonds pursuant to Contingent Capital IV created in Agenda Item 9 to exceed E 25 million in total. 5 30 Special Meeting of Preference Shareholders The Executive Board will report all use made of Authorized Capital II to the general meeting of shareholders. 2. CONSENT TO RESOLUTION OF THE THIRTEENTH ANNUAL GENERAL MEETING OF SHAREHOLDERS OF MAY 5, 2000 CONCERNING AUTHORIZATION TO ISSUE BONDS WITH DETACHABLE WARRANTS AND/OR CONVERTIBLE BONDS WITH CONCURRENT CREATION OF CONTINGENT CAPITAL AND AMENDMENT OF THE ARTICLES OF ASSOCIATION The Executive Board and Supervisory Board propose that the following resolution be adopted: a) Subject to the consent of the Supervisory Board, the Executive Board is authorized to issue on one or more occasions and no later than May 4, 2005 bearer bonds with detachable warrants and/or convertible bonds having a total par value of no more than E 2 billion and having a term of no longer than ten years and to issue to the holders of bonds with detachable warrants warrant rights and the holders of convertible bonds conversion rights in respect of new SAP AG nonvoting bearer preference shares ranking equally with preference shares already issued and representing together in total no more than E 25 million as a calculated proportion of the capital stock, subject to the terms of the bonds with detachable warrants and the convertible bonds, as appropriate. The terms of the convertible bonds will provide that the holders of convertible bonds may be required to convert their bonds to new shares in the Company. Bonds with detachable warrants and convertible bonds may be denominated in euros or in the legal currency of an OECD country. Where they are issued in a currency other than the euro, the applicable value is calculated using the European Central Bank euro currency purchasing price on the day on which it is resolved to issue bonds with detachable warrants and/or convertible bonds. Bonds with detachable warrants and/or convertible bonds may also be issued by wholly-owned direct or indirect German or foreign affiliates of SAP AG, and if they are, subject to the consent of the Supervisory Board, the Executive Board is authorized to guarantee the bonds with detachable warrants and/or convertible bonds for the affiliate and to grant to holders of bonds with detachable warrants warrant rights and to holders of convertible bonds conversion rights in respect of new SAP AG nonvoting bearer preference shares. A consortium of banks will be instructed to take over the bonds with detachable warrants and convertible bonds and to offer them to shareholders for subscription; however, where shareholders' subscription rights to fractional shares would arise by applying the subscription ratio the Executive Board is authorized to exclude them. The Executive Board is also entitled to exclude subscription rights to the extent necessary in order to accord to holders of warrant and conversion rights attaching to previously issued bonds, to holders of convertible bonds carrying a duty to convert, and to 6 31 Special Meeting of Preference Shareholders holders of stock options (warrant rights) issued by the Company, the subscription rights to which those holders are entitled on their exercise of those warrant rights and conversion rights or, as the case may be, on their performance of that duty to convert. Further, subject to the consent of the Supervisory Board, the Executive Board is authorized to exclude shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act in respect of the issue, whether on one or more occasions, of bonds with detachable warrants and/or convertible bonds provided warrant or conversion rights for new SAP AG shares representing no more than ten percent (10%) of the capital stock as a calculated proportion of the available capital stock - pursuant to this and other authorizations - when preemptive rights are first excluded in accordance with section 186 (3) (fourth sentence) of the Act. In determining whether the ten-percent threshold has been reached, exclusions of shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act under other authorizations shall also be taken into consideration. Where the Executive Board excludes shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act in reliance on this authorization, the issue price shall not be materially below the theoretical market value of the bonds with detachable warrants or convertible bonds, as the case may be, determined by applying accepted methods of financial calculation. In this respect, the Executive Board shall obtain the expert opinion of an independent investment bank of good standing if it excludes shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act. Where bonds with detachable warrants are issued there shall be attached to each such bond one warrant or more warrants for the purchase by the holder, in accordance with the terms of the bonds with detachable warrants to be defined by the Executive Board, of nonvoting bearer preference shares in the Company ranking equally with preference shares already issued. Subject to the terms of the bonds with detachable warrants, warrant holders may be entitled when exercising the warrant right to have the bonds or the payment obligations related to them offset against the purchase price for the new shares in the Company. Where subscription rights to fractions of new shares arise, it may be provided that these fractions may be added together as provided in the terms of the convertible bonds to make subscription rights to whole shares. The term of the warrant rights shall be no longer than ten years. Where convertible bonds are issued the holders thereof shall be entitled, or, if the loan terms so provide, required, to exchange their bonds for nonvoting bearer preference shares in the Company ranking equally with preference shares already issued, in accordance with the loan terms to be defined by the Executive Board. The rate at which bonds are exchanged for shares shall be the result of dividing the par value of one bond by the defined conversion price for one preference share in the Company; the rate at which bonds are exchanged for shares may also be the result of dividing the issue price of one 7 32 Special Meeting of Preference Shareholders bond, where lower than the par value, by the defined conversion price for one SAP AG preference share. Where there is no provision in the loan terms for subscription rights to fractional shares to be added together to make subscription rights to whole shares, the rate at which bonds are exchanged for shares may be rounded up or down to a whole number; further, there may be provision for an additional cash contribution. The terms of the bonds with detachable warrants and of the convertible bonds may also provide that the number of new preference shares for subscription, or a related right of exchange, on exercise of warrant rights or conversion rights or on performance of the duty to convert shall be variable and that the subscription price or conversion price may be changed during the term within a range to be defined by the Executive Board depending on the development of the share price or in consequence of dilution protection provisions. The attributable subscribed capital of the shares for subscription against each bond with detachable warrant shall not exceed ten percent (10%) of the attributable subscribed capital of the bond with detachable warrant at the time the bonds with detachable warrant are issued. The attributable subscribed capital of the shares to be issued against each convertible bond on conversion shall not exceed ten percent (10%) of the attributable subscribed capital of the convertible bond at the time the bonds are issued. The subscription price or conversion price, as the case may be, defined for one new SAP AG share shall either be no less than eighty percent (80%) of the average market price of a SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange during the last ten business days before the day on which the Executive Board resolved to issue the bonds with detachable warrant or convertible bonds, or otherwise no less than eighty percent (80%) of the average market price of the SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange during the period in which the subscription rights are traded on the Frankfurt Stock Exchange, not including the last two business days on which the subscription rights are traded, whether the rate at which bonds are exchanged for shares/ the conversion price is variable or not. Such subscription price or conversion price may be translated into the legal currency of an OECD country by applying the European Central Bank euro currency purchasing price on the last day of the period concerned. The subscription price or conversion price may also rounded up or down to a whole euro value or, as the case may be, to a whole value in the translation currency units. These provisions apply subject to section 9 (1) of the Act. Subject to section 9 (1) of the Act the subscription price or conversion price may be reduced by reason of a dilution protection provision in the terms of the bonds with detachable warrants and the convertible bonds if, during the subscription period or conversion period, the Company accords exclusive subscription rights to its shareholders when it increases the capital stock, or 8 33 Special Meeting of Preference Shareholders issues further bonds with detachable warrants or convertible bonds or grants or guarantees warrant rights or conversion rights and does not accord to the holders of existing warrant rights or conversion rights the subscription rights to them to which they would be entitled after exercising their existing warrant or conversion rights. The Company may, in this case, at its election implement the reduction in the subscription price or conversion price by paying an appropriate amount in cash on exercise of the warrant right or conversion right or by reducing by an appropriate amount any additional cash contribution. A dilution protection provision in the terms of the bonds with detachable warrants or the convertible bonds may further provide that the holders of the warrants or convertible bonds may also be accorded additional warrant rights or conversion rights in respect of shares pursuant to contingent capital of the Company or that the rate at which bonds are exchanged for shares is amended applying the reduced subscription or conversion price if adequate contingent capital is available. The terms of the bonds with detachable warrants and the convertible bonds may also provide that by reason of dilution protection provisions (i) the number of new shares for subscription on exercise of the warrant right or conversion of the convertible bond shall be variable and that additional warrant rights or conversion rights for shares shall be accorded to the holders of the warrants or convertible bonds and that additional shares shall be made available to holders of convertible bonds upon performance of a duty to convert, and (ii) the subscription price or conversion price shall be changed during the term of the warrant rights or conversion rights. Further, the terms of the bonds with detachable warrants and the convertible bonds may provide for adjustment of the warrant rights or conversion rights in the event of a reduction of the capital stock or other extraordinary changes in corporate structure or capitalization. Whenever dilution occurs, any range for the definition of the subscription price or conversion price may be redetermined. Subject to the consent of the Supervisory Board or, as the case may be, by agreement with the appropriate boards of the affiliates issuing the bonds with detachable warrants or convertible bonds, the Executive Board is authorized to determine the further details of the issue and conditions of the bonds with detachable warrants and the convertible bonds, and in particular the rate of interest, issue price, term and denomination, subscription or conversion price, dilution protection provisions, time periods for subscription or conversion, as well as procedures for exchange in respect of rights to exchange and/or duties to exchange or convert. The Executive Board shall not exercise the authorization in this subsection a) where it has (1) already on one or more occasions exercised its authorization under Agenda Item 8 of the May 5, 2000 annual general meeting of shareholders to increase the capital stock pursuant to Authorized Capital II or 9 34 Special Meeting of Preference Shareholders exercised the authorization in this subsection a) and where (2) a first or subsequent exercise of the authorization in this subsection a) would cause the sum of the amounts by which the capital stock is increased under Agenda Item 8 of the May 5, 2000 annual general meeting of shareholders and the amounts dedicated to warrant rights or the service of convertible bonds pursuant to Contingent Capital IV created in b) to exceed E 25 million in total. b) The capital stock will be subject to a contingent increase of no more than E 25 million through the issuance of no more than 25 million nonvoting bearer preference shares to which each is attributed E 1.00 of the capital stock and ranking equally with the preference shares already issued (Contingent Capital IV). The contingent capital increase will be used to secure the warrant rights of holders of detachable warrants in accordance with the terms of the bonds with detachable warrants or, as the case may be, the exchange by holders of convertible bonds of their convertible bonds for new preference shares in the Company in accordance with the terms for convertible bonds, where those bonds with detachable warrants or convertible bonds are issued pursuant to the authorization at subsection a) on or before May 4, 2005 by the Company or by its fully-owned direct or indirect German or foreign affiliates. The new shares will be issued at the subscription price or conversion price, as the case may be, determined in accordance with subsection a). The contingent capital increase will be effected only if bonds with detachable warrants or convertible bonds are issued and to the extent holders of the bonds with detachable warrants or convertible bonds exercise their warrant rights and conversion rights or the convertible bonds are converted and the contingent capital is required to meet the conditions of the bonds with detachable warrants or convertible bonds. Subject to the consent of the Supervisory Board, the Executive Board is authorized to determine the further details of the implementation of the contingent capital increase. c) The following new paragraph 9 is added to section 4 (Capital Stock) of the Articles of Association: "The capital stock is subject to a further contingent increase of E 25 million divided into no more than 25 million nonvoting bearer preference shares ranking equally with the preference shares already issued (Contingent Capital IV). The capital stock increase will be effected only to the extent that holders of warrants or conversion rights attaching to bonds with detachable warrants or to convertible bonds issued or guaranteed on or before May 4, 2005 by SAP AG or by its fully-owned direct or indirect German or foreign affiliates exercise their warrant rights or conversion rights or to the extent that holders under a duty to convert convertible bonds issued or guaranteed on or before May 4, 2005 by SAP AG or by its fully-owned direct or indirect affiliates perform their duty to convert. The new shares are eligible for dividend from 10 35 Special Meeting of Preference Shareholders the beginning of the fiscal year in which they arise through exercise of warrant rights or conversion of convertible bonds." Pursuant to section 221 (4) and section 186 (4) (second sentence) of the Act, the Executive Board presents its report of the grounds for excluding preemptive rights below; the report is also available to every shareholder as part of this invitation at the annual general meeting of shareholders, and has been on display, and available for sending on request, at the Company's offices since the day on which the calling of the annual general meeting of shareholders was announced: The authorization to issue bonds with detachable warrants or convertible bonds is intended to give the Company greater choice of financing options. The option to stipulate a duty to convert convertible bonds extends the variety of this type of financial instruments available. When SAP AG and its fully-owned direct or indirect affiliates issue bonds, shareholders are entitled to a preemptive subscription right unless there are provisions to the contrary. One reason for excluding that preemptive right is to provide adequate protection against dilution for holders of existing warrant rights and conversion rights to SAP AG shares. Dilution protection can be given to holders of warrant rights and conversion rights either by reducing the subscription price or conversion price, or else by providing a subscription right. The Executive Board proposes to decide in favor of one or other of these options at the time it exercises the authorization. In order not to be restricted in advance to the option to reduce the subscription price or conversion price, it is usual to provide authorization to exclude shareholders' preemptive rights to new shares to the extent necessary to allow the holders of the bonds the subscription rights to which they would be entitled to after exercising their warrant right or conversion right. Putting holders of existing warrant rights and conversion rights in the same position as shareholders in this way when further bonds with detachable warrants and convertible bonds are issued without effecting an increase in capital stock makes the new bonds with detachable warrant or convertible bonds more attractive and thus furthers the Company's interest by creating an attractive instrument to raise capital. Shareholders' subscription rights would also be excluded where fractional shares would otherwise be created when the rate at which bonds are exchanged for shares is determined. This makes it possible to apply a convenient, round rate. Furthermore, subject to the consent of the Supervisory Board, the Executive Board would be authorized to exclude shareholders' preemptive rights in respect of the issue of these bonds provided the warrant and conversion rights for SAP AG shares proportionately represent no more than ten percent (10%) of the capital stock. Where this ten-percent exemption is applied, all exclusions of shareholders' preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act under other authorizations, for example, the authorization in Agenda Item 8, must also be taken into consideration so that the ten-percent threshold is not exceeded by the sum of such exclusions. For the purpose of determining the ten-percent threshold, the capital stock means the capital stock at the time of the first 11 36 Special Meeting of Preference Shareholders exercise of authorization to exclude preemptive rights in accordance with section 186 (3) (fourth sentence) of the Act. Excluding preemptive rights in this way gives the Company the opportunity to raise financing for investments quickly on the financial market and, by setting prices close to the market levels, to achieve favorable financing conditions. Section 221 (4) (second sentence) of the Act provides that section 186 (3) (fourth sentence) of the Act also applies analogously to bonds with detachable warrants and to convertible bonds. When determining when the aforementioned ten-percent threshold is reached, any exclusion of the preemptive right pursuant to other authorizations (for example, the authorization in Agenda Item 8) must also be taken into consideration. This means that all exclusions of the preemptive right together must be limited to no more than ten percent of the capital stock. Section 186 (3) (fourth sentence) of the Act also provides that the issue price must not be set materially below the stock exchange price. To ensure that this requirement is also met in respect of the issue of bonds with detachable warrant and convertible bonds, the authorization provides that the issue price must not be materially below the theoretical market value of the bonds with detachable warrants or convertible bonds, as the case may be, determined by applying accepted methods of financial calculation. If the issue price concerned is no more than 3% or at the most no more than 5% below the calculated market value at the time when the bond with detachable warrant or convertible bond is issued, then for the purposes of the rule in section 186 (3) (fourth sentence) of the Act, the exclusion of the preemptive right is permissible because the discount is not material. To meet this requirement for the issue of such bonds the Executive Board undertakes to obtain the expert opinion of an independent investment bank of good standing in respect of each issue that excludes the preemptive right pursuant to section 186 (3) (fourth sentence) of the Act. This satisfies the shareholders' need for protection against dilution of their shares. Since the authorization requires that the issue price be set not materially below the calculated market value, in practice the value of a preemptive right would be zero. This means that the exclusion of the preemptive right does not lead to the loss of any financial benefit for shareholders. Shareholders who wish to maintain their share of the Company's capital stock can achieve this with a purchase of more shares on the cash market. The contingent capital is required to service warrant rights, conversion rights, and conversion duties in respect of SAP AG preference shares attaching to bonds with detachable warrants and convertible bonds. The subscription price or conversion price, as the case may be, defined for one new SAP AG share must either be no less than eighty percent (80%) of the average market price of the SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange on the last ten business days before the day on which the Executive Board resolved to issue the bonds with detachable warrant or convertible bonds, or otherwise no less than eighty percent (80%) of the average market price of the SAP AG preference share at the final XETRA auction on the Frankfurt Stock Exchange 12 37 Special Meeting of Preference Shareholders during the period in which the subscription rights are traded on the Frankfurt Stock Exchange, not including the last two business days on which the subscription rights are traded, whether the rate at which bonds are exchanged for shares/ the conversion price is variable or not. The terms may also provide that the rate at which bonds are exchanged for shares is variable and that the conversion price may be set during the term within a range to be defined depending on the development of the share price. This allows the Company to issue the bonds on terms that are particularly close to market levels. The Executive Board sees the authorization in Agenda Item 9 as an alternative financial model to the authorization in Agenda Item 8 of increasing the capital stock pursuant to contingent capital. To ensure that together the two authorizations do not lead to an increase in the SAP AG capital stock greater than E 25 million, the Executive Board may not exercise the authorization in Agenda Item 9 where it has (1) already on one ore more occasions exercised its authorization under Agenda Item 8 to increase the capital stock pursuant to Authorized Capital II or exercised the authorization in Agenda Item 9 and where (2) a first or subsequent exercise of the authorization in Agenda Item 9 would cause the sum of the amounts by which the capital stock is increased under Agenda Item 8 and the amounts dedicated to warrant rights or the service of convertible bonds pursuant to Contingent Capital IV created in Agenda Item 9 to exceed E 25 million in total. * * * Holders of PREFERENCE SHARES are entitled to PARTICIPATE in the special meeting for preference shareholders and to EXERCISE VOTING RIGHTS in accordance with article 18 of the Articles no later than April 27, 2000, they deposit their shares during customary business hours at the Company or at a branch in the Federal Republic of Germany of the financial institutions listed below, until the end of the special meeting: - DG BANK Deutsche Genossenschaftsbank - Deutsche Bank Aktiengesellschaft - Dresdner Bank Aktiengesellschaft - Bayerische Hypo- und Vereinsbank Aktiengesellschaft - BHF-BANK Aktiengesellschaft - Commerzbank Aktiengesellschaft - SGZ-Bank Sudwestdeutsche Genossenschafts-Zentralbank AG Deposit at one of the institutions listed above is also considered to have been effected if, with the consent and on behalf of a depositary institution, the shares are deposited with another financial institution and blocked until the end of the special meeting. 13 38 Special Meeting of Preference Shareholders The shares may also be deposited with a German notary public or a securities clearing and deposit bank. In this case we ask that a certificate issued by the notary public or the securities clearing and deposit bank be submitted to our Company no later than one day after the last possible day for deposits. The admission tickets issued on the basis of the deposit will serve the holders of preference shares as identification for the exercise of their voting rights. Section 19 (1)(3) of the Articles accords each preference share one vote at the special meeting for preference shareholders. ORDINARY SHAREHOLDERS ARE NOT ENTITLED TO PARTICIPATE OR VOTE IN THE SPECIAL MEETING OF PREFERENCE SHAREHOLDERS. Preference shareholders may appoint a proxy for the special meeting, for example, their deposit bank, a shareholders' association, or a private individual. Walldorf, March 24, 2000 SAP Aktiengesellschaft Systems, Applications, Products in Data Processing The Executive Board EX-99.3 4 SUMMARIZED VERSION OF ANNUAL REPORT 1 SAP Annual Report 1999 [Graphic -- Pictures of person typing, mySAP.com site logo, people in office lobby, stock quotes and traders] 2 INSIDE COVER PAGE [Graphic -- Picture of mySAP.com business directory] 3 CONTENTS 2 Selected Financial Highlights 3 Profile 4 From the Executive Board 6 Review of Operations 1999 20 Report of Independent Auditors[*] 21 Consolidated Income Statements[*] 22 Consolidated Balance Sheets SAP Group[*] 24 Consolidated Statements of Changes in Shareholders' Equity[*] 26 Consolidated Statements of Cash Flows[*] 27 Notes to the Consolidated Financial Statements[*] 69 Executive Board and Supervisory Board[*] 72 Subsidiaries, Joint Ventures, and Associated Companies[*] 74 Five-Year Summary 76 Address and Financial Calendar This English translation is intended for information purposes only. In the event of any conflict in interpretation, reference should be made to the original German version. [* See Exhibit 99.4 to Form 6-K filed by SAP AG with the U.S. Securities and Exchange Commission on April 18, 2000.] [Graphic -- Pictures of traders, SAP web site] Contents 1 4 Selected Financial Highlights
Selected Financial Highlights 1999 1998 1997 - ----------------------------- -------- --------- --------- (in millions of Euros, unless otherwise indicated) Total revenue 5,110.2 4,315.6 3,021.8 thereof product revenue as a % 60.6 63.0 67.5 - per employee (in thousands of Euros) 244 249 261 Number of employees, annual average 20,975 17,323 11,558 Personnel expenses 2,031.7 1,547.4 1,059.9 - as a % of total revenue 39.8 35.9 35.1 Research and development expenses 744.7 572.4 362.7 - as a % of total revenue 14.6 13.3 12.0 Net income 601.0 526.9 446.7 - as a % of total revenue 11.8 12.2 14.8 Cash earnings according to DVFA/SG(1) 896.9 586.1 547.2 - as a % of total revenue 17.6 13.6 18.1 Shareholders' equity 2,559.4 1,818.3 1,451.1 (in Euros) (in Euros) (in Euros) Earnings per ordinary share 5.73 5.03 4.28 Earnings per preference share 5.76 5.07 4.33 Dividend per ordinary share 1.57(2) 1.57 1.43 Dividend per preference share 1.60(2) 1.60 1.46
(1) German Society of Investment Analysts and Asset Managers (2) 1999 proposed dividend 2 | Selected Financial Highlights 5 PROFILE The business models of the future target new opportunities for inter-enterprise collaboration using the Internet. SAP has reoriented its entire business and product strategy to the Internet so that customers can fully profit from those opportunities. Our primary ambition is to simplify day-to-day work for all of our customers' employees in their different roles, making a sustained contribution to value creation. This is being achieved through in-depth knowledge of business processes and their optimization, and by thorough and continuous customer relationship management throughout the life cycle of a solution. Today, with more than 25,000 installations to its name, SAP not only clearly leads the market for business applications software (IDC reports that SAP's share is 36%); the Company has also become the top supplier of end-to-end inter-enterprise solutions for the collaborative business processes that enable customers to profit from the new economy, the virtual economy of the Internet. mySAP.com comprises the products, services, and solutions that SAP delivers for processing business transactions collaboratively. Enterprises and organiz- ations of all sizes and in all sectors can use mySAP.com to completely integrate their employees, their customers, and their business partners into their business via the Internet. Thus the mySAP.com solutions platform and the Company's redefinition as an Internet business confirm the analysis made by respected observers of the market that SAP, alone among leading software providers, has both the vision to conceive new solutions and the strength to quickly implement them as powerful products. In the future, permanent innovation will continue to springboard SAP's enhancement of its leading position in the worldwide market. The mySAP.com solutions platform is the hub around which existing products are continuously improved, and new development initiatives and technologies are rapidly turned into the applications that the market wants. This includes work on the SAP R/3 components, the 19 industry solutions, and, above all, the e-business applications such as E-Commerce with mySAP.com, Customer Relationship Management with mySAP.com, Business Intelligence with mySAP.com, and Supply Chain Management with mySAP.com. The driving force behind this sustained development process are the 5,400 research and development employees worldwide. One in four of our employees are now working on developing new solutions or improving existing ones. In 1999 SAP again increased R&D investment -- by 30% to Euro 745 million, corresponding to 14.6% of 1999 revenues. The unstinting commitment of SAP's 21,700 employees rapidly established SAP as a major player in the Internet economy. The outlook for growth is very encouraging, considering that the new economy is just out of the blocks and that mySAP.com can offer superior software applications and services. SAP solutions give customers the strategic infrastructure that they want to grow the productivity and job satisfaction of their employees and to exploit new openings for business. Profile | 3 6 FROM THE EXECUTIVE BOARD [Graphic -- Picture of Hasso Plattner and Henning Kagermann] Dear shareholders, partners, and customers In 1999, SAP once again grew to meet bigger challenges and mastered difficult situations successfully. Nearly all providers of enterprise software suffered a negative impact from the millennium change in 1999, after having profited from a year-2000-driven boost in demand in the previous few years. SAP's customers prepared to pass the critical date change with as little disturbance as possible. Many therefore delayed decisions to implement new enterprise software. Parallel to the relatively subdued developments in our markets, there was a sea of change in our core business in the space of a few months. To succeed in the market of the future, enterprise software must not just be Internet-enabled, which SAP R/3 has been since 1996, it must access the new opportunities offered to enterprises by e-business. It was in our chief market, the United States, that it first became clear that the Internet was dramatically changing business-to-business trading, that is, the business processes between enterprises. With the double challenge of year-2000 issues and the Internet revolution, it is especially pleasing that SAP again increased its market lead in 1999. By the end of the year, there were more than 25,000 system and product installations worldwide. Revenues and income before income taxes (excluding expenses for the employee STAR program) grew by 18%. The speed and scale of the change to the Internet age surprised us, but we responded more quickly than our competitors, and totally reoriented SAP's business. Today the Internet is at the focus of all our initiatives and developments. As of 1999, SAP has become the number one supplier of end-to-end inter-enterprise solutions for collaborative business processes. The efforts of SAP's employees deserve special mention. It was their skills and dedication that enabled us not just to announce the redefinition of SAP in 1999, but also to deliver on that redefinition in the same year. SAP reworked its entire product offering and successfully introduced mySAP.com, a completely Internet-oriented, open software and service solution. Announced in May 1999, we supplied the first customers in September 1999. 4 | From the Executive Board 7 Employees of our customers using mySAP.com have new ways to take ownership of their work and working environment. At the enterprise level, SAP is giving its customers access to new added value and company growth, plus completely new business models. mySAP.com has struck a very positive note with customers and was already making a very substantial 16% contribution to sales revenues in our successful fourth quarter. In the final weeks of the year, we won over several prestigious partners to build and run Internet marketplaces -- the trading centers of the future. In 1999, SAP also managed to consolidate or build on its position as a strategic partner in several sectors, among others in the area served by our banking solution. This permanent realignment of SAP as an Internet business was also reflected in a reallocation of responsibilities on the Executive Board. Now these are no longer geographically defined; instead, responsibilities are oriented to the Internet strategy and the worldwide solutions offering. To secure and build on its success in this age of the Internet, SAP again invested massively in highly qualified new employees in 1999. The number of employees rose 12% to approximately 21,700. Very many of the employees participate in the success of our enterprise, measured by the rising share price, through the STAR program. SAP's attractiveness as an employer in the highly competitive market for IT specialists grew at the end of 1999 with the inception of the SAP AG 2000 Long Term Incentive Plan, which offers stock options and convertible bonds. SAP's mid- to long-term success as an Internet company depends heavily on intensifying research and development still further. One in four of our employees are now working on developing new solutions or improving existing ones. In 1999, we continued to decentralize development and bring it closer to our customers. A quarter of our R&D employees currently work at our SAP Labs outside Germany, be it in Silicon Valley or France, India or Japan. The focal points of development in 1999 and the current year include EnjoySAP -- making SAP solutions easier to use -- and the business solutions and many e-business applications for mySAP.com. Prestigious investment bankers Goldman Sachs see mySAP.com as a good strategy for SAP to extend its leadership in the enterprise software market into the promising market for business-to-business and e-business solutions. One route to benefiting from the growth opportunities is that the mySAP.com Workplace could increase the proportion of SAP users in a typical enterprise from today's approximately 15% to as much as 80%. We are also busy increasing our potential market with outsourcing offerings for midsize enterprises. The Executive Board stands by its prediction that within three years the Company can approximately double its 1998 revenue. We anticipate that product revenues will grow more than service revenues in 2000, which would further improve our profitability. Software revenue growth from mySAP.com should be particularly vigorous this year. We believe new product sales will account for about 50% of software license revenue. We expect especially strong growth in the United States and Asia. We hope you will accompany us along this road. Thank you for your continued interest and confidence in SAP. /s/ Hasso Plattner Hasso Plattner | Co-chairman and CEO, SAP AG /s/ Henning Kagermann Henning Kagermann | Co-chairman and CEO, SAP AG From the Executive Board | 5 8 [Graphic -- Picture of SAP web site] REVIEW OF OPERATIONS Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "believe", "estimate", "intend", "may", "will", "expect", "anticipate", "predict" and "project" and similar expressions as they relate to the Company are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the Company's future financial results are discussed more fully in the Company's filings with the U.S. Securities and Exchange Commission, including the Company's Form 20-F for 1999 that is expected to be filed before June 30, 2000. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. SUCCESS, DESPITE COMPANY'S MOST DIFFICULT YEAR TO DATE Overall, 1999 was a successful year for SAP in which the results contributed substantially to the growth of the Company's value. A tough market and generally sluggish progress in the enterprise software industry added up to the most difficult year SAP has experienced to date; nevertheless both consolidated revenues and income (excluding expenses for the employee stock appreciation rights (STAR) program) before income taxes grew 18%. SAP thus reinforced its position as clear leader in the business software market. MILLENNIUM CHANGE SLOWS DEMAND The global economy was generally stronger. Sustained expansion in the United States, accelerated recovery in East Asia, first signs of an end to the financial crisis in Latin America, and the beginnings of an upturn in Germany provided an encouraging background. However, exceptional circumstances specific to the business software industry meant that SAP enjoyed only limited success in riding the tide. Once again the millennium change influenced trends in the sector, but this year its impact was negative rather than positive. Particularly in the years 1996 to 1998, many enterprises replaced their non-2000-compliant software with new systems, leading to an increase in demand for standard enterprise resource planning (ERP) software. In 1999, in contrast, many companies decided against introducing new enterprise software at the same time as coping with the millennium change. As the millennium change approached, it became more difficult for companies to plan the necessary preparation time for software implementation projects. This resulted Pictures and graphs are included for illustrative purposes only and are not part of the Review of Operations. 6 Review of Operations 9 in considerably reduced demand in the sector, which was even more noticeable in the United States than in Europe. Demand did not start to pick up again until the last few months of 1999, when companies had for the most part dealt with the year-2000 compliance issue, and increasingly began to spend again independently of the millennium change. GROWING IMPACT OF INTERNET A second factor to decisively impact the business software market was the Internet. Especially in the United States, customers were unexpectedly quick to demand business software products that are not just Internet-enabled, but that fully exploit the Internet and the possibilities it offers. All vendors of "classic" ERP software were thus confronted with the need to demonstrate that they are fully Internet-oriented by reworking and expanding their product range. The same trend in demand also tended to continually reduce the differentiation between the markets for standard ERP software and new enterprise software on the one hand, and for e-commerce applications on the other. In the new unified market there are many more vendors than in the ERP market, which previously has been SAP's main target and in which SAP is the clear leader. REORIENTATION IN RESPONSE TO PROBLEMATIC MARKET ENVIRONMENT SAP met this challenge to its own industry by orienting its whole enterprise strategy to the Internet. The most important move in this realignment was a complete overhaul of its product range. The first step was to finalize the EnjoySAP development initiative to improve the usability of SAP software, which kicked off in 1998. Parallel to that, the New Dimension initiative was advanced, and the focus on the new Internet product line development was sharpened. Then all initiatives were gathered into the comprehensive Internet strategy mySAP.com, which was announced in May 1999. Just four months later, SAP presented the mySAP.com product to the public as a fully Internet-oriented software and service solution. It became available in October 1999. mySAP.com was well received in the market and already made a substantial contribution to the increase in SAP revenues in the final quarter of fiscal 1999. Orientation to the Internet also triggered other related changes. For example, the Company set up the new Internet Demonstration and Evaluation System (IDES), on which partners, prospects, and customers can test mySAP.com via Internet. For live use, mySAP.com can be transmitted via the Internet to the customer site, or SAP or a partner can run it for the customer. Customers can also draw on SAP and SAP partner consulting competencies via the Internet. Because the fields in which mySAP.com can be used are very diverse, the Company adopted a new price list for this product that ties the cost of licensing more closely to the level of usage or the transactions used. SAP's change from an intra-enterprise business software solution vendor to a provider of comprehensive inter-enterprise Internet solutions was advanced in June 1999 by a restructuring of portfolios on the SAP AG Executive Board. Board members' regional responsibilities were dissolved, and replaced by a division of responsibilities in line with the Internet strategy and the Company's global solutions offerings. Review of Operations 7 10 [Graphic -- Pictures of people at trader fair, stock quotes] REVENUES INCREASE BY 18% Despite the tough market in the ERP software sector, SAP consolidated revenues increased 18% to euro 5,110 million. Excluding the foreign exchange effect, which was positive in 1999, revenue growth was 16%. As in previous years, revenue performance was not even across 1999. Whereas in 1998 revenue growth eased off in the second half as the exceptional year-2000 boom receded and the effects of financial crises in Asia and Russia were felt, the pattern was reversed in 1999 when customers' reluctance to invest was overcome, the recovery in Asia began and the Internet strategy started to show results. The effect was that, in 1999, the fastest rate of revenue growth, 30%, was achieved in the final quarter. CONSOLIDATED REVENUE IN EURO MILLIONS, change since previous year [BAR CHART] 1999* 5,101 +18% 1998* 4,316 +43% 1997* 3,022 +59% 1996** 1,903 +38% 1995** 1,379 +47% ---------------------------------------------------------------- 0 1,000 2,000 3,000 4,000 5,000 * U.S. GAAP ** GERMAN GAAP MAINTENANCE AND CONSULTING REVENUES GROW FASTEST Different activities made varying contributions to the generally positive revenue picture. As expected, software revenues were hampered by the unusual conditions prevailing in the sector market. In this light, it is especially pleasing that SAP achieved a 2% increase in software license revenues (to euro 1,932 million) - primarily due to a strong fourth quarter. The number of installations from which the license revenues are derived grew by 31% to 25,412 in 1999. This means that, even in a difficult year, SAP managed to take a bigger market share in this segment. It is apparent that the strategic reorientation was crucial to maintaining revenues and market share growth from the fact that 17% of the software license revenues came from mySAP.com and its innovative components that were introduced as New REVENUE BREAKDOWN BY TYPES OF ACTIVITY IN EURO MILLIONS, percent, change since 1998 [PIE CHART] Other 74 1% +19% Software 1,932 38% +2% Maintenance 1,162 23% +42% Consulting 1,547 30% +38% Training 395 8% -4% ----- TOTAL 5,110 ===== 8 Review of Operations 11 Dimension products. Thanks to the exceptionally strong last quarter, the contribution made by the new products was considerably greater than expected, and exceeded the decline in revenues from SAP R/3. The new products also contributed to the rise in the number of new software installations by 9% to 7,091. Stimulated by the clear increase in software revenues in 1997 and 1998, maintenance revenues grew by 42% to euro 1,162 million. With the help of this growth, product revenues overall (software and maintenance revenues) rose 14% to euro 3,094 million. Income from consulting also developed strongly. SAP's consulting revenues increased 38% to euro 1,547 million. This is in part the dividend from the large-scale personnel expansion of 1998. In many enterprises, employee resources were tied down by work connected with the millennium change, so training revenues were not expected to rise. Also, training times decreased thanks to more efficient training and the improved user-friendliness of SAP software - a result of the EnjoySAP initiative. Nonetheless, the posted reduction to euro 394 million (a 4% decrease from 1998 training revenues) was disappointing. Improving training revenues will be one of the challenges for 2000. Other income grew 19% to euro 74 million. REVENUES RISE STEEPLY IN GERMANY The negative impact of the year-2000 issue on revenues was not as strong in Europe as in the United States. U.S. customers also hesitated in anticipation of SAP's Internet strategy, until mySAP.com was presented. Revenues climbed just 5% in the United States, and that growth was attained primarily in the strong fourth quarter. By contrast, 1999 witnessed an encouraging 34% revenue growth in Germany. These diverging trends in SOFTWARE LICENSE REVENUE BREAKDOWN BY PRODUCT IN EURO MILLIONS, percent [PIE CHARTS] 1999 FOURTH QUARTER 1999 ---- ------------------- 129 7% mySAP.con 16% 129 187 10% New Dimension 11% 92 1,616 83% R/3 73% 590 ---------------------------------------------------- 1,932 TOTAL 811 Review of Operations 9 12 [Graphic -- Picture of SAPnet homepage] SAP's two biggest markets were the main reason why revenues outside Germany declined as a proportion of total revenues from 82% to 79%. At 16%, revenue growth in the rest of the Americas region affected by the financial crisis in Latin America also lagged behind the Group average. In the Europe, Middle East, and Africa (EMEA) region (excluding Germany) SAP's revenues fared better, achieving a rise of 24%. One contributing factor was the improvement of conditions in Russia. After the disappointment of 1998, business in Japan did recover, but not enough to regain the momentum lost in the economic and financial decline. The organizational restructuring in Japan helped revenues there contribute to an overall rise of 30% in the Asia-Pacific region. The breakdown of total revenues by industry was similar to 1998. As before, discrete manufacturing (30% in 1999; 27% in 1998) and process industries (21% in 1999; 23% in 1998) made the biggest contributions to revenues. REASONABLE COST GROWTH, DESPITE EXCEPTIONAL CIRCUMSTANCES The unusual conditions prevailing in SAP's industry and the Company's strategic reorientation both affected expenditure trends in 1999. mySAP.com development and marketing in particular required a large outlay. Also, the steep rise in the price of the preference share at the end of the year gave rise to costs in connection with the employees' STAR program. At the same time, however, more stringency and centralization in purchasing, controls on travel expenses, the use of in-house services to replace those previously purchased, and other measures all produced savings. REVENUE BREAKDOWN BY SALES DESTINATION IN EURO MILLIONS, percent, change since 1998 [PIE CHART] Germany 1,067 21% +34% Rest of EMEA 1,407 27% +24% USA 1,638 32% +5% Rest of Americas 508 10% +16% Asia-Pacific 490 10% +30% ----- TOTAL 5,110 ===== REVENUE BREAKDOWN BY INDUSTRY IN EURO MILLIONS, percent, change since 1998 [PIE CHART] Process industries 1,082 21% +11% Discrete manufacturing 1,506 30% +30% Financial services and service providers 831 16% +1% Fast-moving consumer goods 770 15% +19% Utilities and communications 606 12% +34% Public Sector 315 6% +24% ----- TOTAL 5,110 ===== 10 Review of Operations 13 [Graphic -- Picture of SAPnet homepage] As a result, despite the specific circumstances in the business-software- industry, operating costs rose only 26% to euro 4,314 million. This figure is justifiable in the context of these circumstances and the 18% increase in revenues. After excluding STAR program expenditure (for better comparison with other companies and with 1998 results) the rise in costs was only 23%. As in 1998, the biggest expenditure was for personnel. Personnel expenses increased 31% to euro 2,032 million. After excluding the cost of the STAR program the rise in personnel expenses was only 24%. The rise in average personnel expenses per employee (excluding STAR expenses) was only 1.5%. EXPENSE DEVELOPMENTS Although SAP's own products are year-2000-compliant, extensive measures were taken in advance of the millennium change to ensure the proper functioning of customers' systems used in conjunction with non-SAP software products. This impacted cost of product, which totaled euro 527 million (1998: euro 372 million). Excluding STAR expenses, cost of product amounted to euro 511 million, representing an increase of 37% over 1998. This is a lower rate of increase than that for the corresponding maintenance revenues. The development and launch of mySAP.com and its components was associated with increased development and marketing expenses. This contributed to the rise in sales and marketing expenses by 17% to euro 1,132 million. Even after excluding the euro 25 million STAR expenses in that figure, sales and marketing expenses increased by a higher rate than that for the software revenues to which it largely corresponds. Research and development expenses climbed by 30% to euro 745 million (or by 23% to euro 705 million excluding STAR expenses). Costs of service totaled euro 1,625 million in 1999. The corresponding figure excluding STAR expenses, which is more comparable to the 1998 figure, was euro 1,584 million. This represents an increase of 27% over 1998, which is consistent with the increase in consulting and training service revenues. General and administrative expenses were euro 260 million (euro 241 million excluding STAR expenses). A relatively high portion of these expenses is attributable to the STAR accruals because the senior management expenses for all SAP Group companies are allocated to administrative expenses. The rise in general and administrative costs excluding STAR expenses was 19%, only slightly higher than the increase in revenues. HEALTHY GROWTH IN FINANCE INCOME In the conditions prevailing in 1999, the operating income of euro 796 million may be regarded as a satisfactory achievement. It represents a gross margin of 15.6%. Excluding the total 1999 expenses of euro 140 million for the employees' STAR program, the gross margin was 18.3% (1998: 21.3%). Finance income, net, increased significantly to euro 235 million (1998: euro 14 million). The main contributing factor was the sale of minority investments, which was undertaken for two reasons: pursuit of the corporate policy of reducing strategic minority holdings to 5% where SAP's original stake was less than 30%; and realization of profits from venture capital investments. These investments result from SAP's ongoing commitment to support promising startups in the software field with equity capital. SAP generally intends each such investment to be medium term, and to exit when the enterprise concerned is established on a sound financial footing. Review of Operations 11 14 [Graphic -- Pictures of person typing, customer relationship management - SAP] NET INCOME INCREASES BY 14% Income before income taxes rose 5% to euro 980 million. Excluding STAR expenses (for better comparison with other companies and with 1998), the income before income taxes was euro 1,121 million. This represents an increase of 18% over 1998, which matches the increase in revenues. Positive effects of German tax legislation and loss carryforwards resulting from the negative development in Japan in 1998 led to an effective tax rate that, at 38.4%, was lower than the 1998 rate of 43.3%. For this reason, the rise in net income (14%, to euro 601 million) was higher than the rise in income before income taxes. The margin on net income, at 11.8%, was slightly lower than in 1998 (12.2%). Earnings per share calculated in accordance with U.S. GAAP were euro 5.73 (1998: euro 5.03) for ordinary shares, and euro 5.76 (1998: euro 5.07) for preference shares. This calculation takes into account the fact that, because some employees exercised rights under the 1994/2004 convertible bonds program in December 1999, the number of preference shares was 0.17 million higher than in 1998. CHANGEOVER TO EURO AND U.S. GAAP On January 1, 1999, SAP changed over to the euro as the group currency. At the same time SAP fully adopted the United States Generally Accepted Accounting Principles (U.S. GAAP) as the basis for all of the group's financial accounting. With these measures, SAP further improved the transparency and international comparability of its consolidated financial statements. SAP reports its financial results solely in accordance with U.S. GAAP pursuant to an amendment to the German Commercial Code that permits listed companies to prepare their consolidated financial statements in accordance with internationally accepted accounting principles instead of German GAAP. VERY STRONG ASSET AND CAPITAL DEVELOPMENT CONTINUES SAP's total assets rose 40% to euro 4,827 million, due mainly to increases in fixed assets, which increased 69% to euro 1,524 million. Investment in intangible fixed assets included purchase of software programs and additions to goodwill. This increased by 67% to euro 95 million compared to 1998. Investment in property, plant, and equipment was mainly for office facility and computer capacity expansion and at euro 259 million was 22% less than in 1998. The increased stock market valuation of equity securities led to a 232% rise in financial assets OPERATING EXPENSES BREAKDOWN (excluding STAR) IN EURO MILLIONS, percent, change since 1998 [PIE CHART] Cost of product 511 12% +37% Cost of service 1,584 38% +27% Research and development 705 17% +23% Sales and marketing 1,107 27% +15% General and administration 241 6% +19% ----- TOTAL 4,174 ===== 12 Review of Operations 15 to euro 610 million, as under U.S. GAAP certain marketable securities are valued at fair value with the resulting unrealized gains and losses not affecting net income. The equity-to-fixed-assets ratio declined to 168%, but this is still extraordinarily high and again enabled SAP to fund all capital expenditures from its own resources. Current assets rose 27% to euro 2,967 million. The 17% rise in receivables was lower than revenue growth. The days sales outstanding (DSO) key figure, which permits evaluation of the average period of time until settlement of accounts receivable, decreased from 104 to 103 days as a result of tight receivables management. Other assets increased by euro 215 million to euro 308 million as a result of the sales of marketable equity securities that had not been settled at year-end. Liquid assets increased 21%. Shareholders' equity grew 41% to euro 2,559 million. Among the reasons for this increase were significant unrealized gains, recorded in other comprehensive income, associated with increase in market value of certain of the Company's marketable securities. The equity ratio was unchanged at 53%, and the return on equity fell from 29% to 23%. This fall - and the substantial increase in accrued liabilities - is explained largely by the impact of the STAR program. ANNUAL FINANCIAL STATEMENT FOR SAP AG SHOWS POSITIVE TREND The good results and the healthy balance sheet structure are also evident in SAP AG's annual financial statements, drawn up in accordance with German GAAP (HGB) as in previous years. In these financial statements, more significant for their role in determining distributable profits than from an information perspective, revenues increased 19% to euro 1,898 million. Like the consolidated statements, the SAP AG statements also show increases in costs. The entire expense of the STAR program is recognized in the SAP AG statements (which is not the case in the consolidated statements). This resulted in a decrease in net income of 24% to euro 361 million. Total SAP AG assets increased 41% to euro 1,986 million. Shareholders' equity NET INCOME IN EURO MILLIONS, change since 1998 [BAR CHART] 1999* 601 +14% 1998* 527 +18% 1997* 447 +54% 1996** 290 +40% 1995** 207 +44% -------------------------------------------------------- 0 100 200 300 400 500 600 * US-GAAP ** GERMAN GAAP CAPITAL EXPENDITURE (Intangible Assets and Property, Plant and Equipment) IN EURO MILLIONS, change since 1998 [BAR CHART] 1999* 355 -9% 1998* 388 +34% 1997* 290 +157% 1996** 113 -14% 1995** 131 +32% ------------------------------------------------------------- 0 50 100 150 200 250 300 350 * US-GAAP ** GERMAN GAAP Review of Operations 13 16 [Graphic -- Picture of SAP customer & partner event] easily covered fixed assets; the ratio was 128% compared to 137% in the previous year. Mainly due to the STAR program obligation, the equity ratio declined to 59% (72% in 1998). DIVIDEND UNCHANGED As in previous years it is the Executive Board's intention that value should be returned to the shareholders for 1999, and at the annual general meeting it will recommend paying the same dividend of euro 1.57 per ordinary share and euro 1.60 per preference share as for 1998. Should the annual general meeting agree to this dividend proposal, a total of euro 165.8 million (euro 165.5 million in 1998) will be paid to shareholders. With the tax credits of euro 0.67 and euro 0.69 respectively, shareholders entitled to tax credit will receive euro 2.24 per ordinary share and euro 2.29 per preference share. PERSONNEL EXPANSION In 1999, SAP again increased investment in its most important asset: its employees. In light of the more difficult surrounding circumstances, however, prudence was exercised in recruitment by restraining the number of new hires in line with the uneven development of business over the year. For this reason, personnel expansion was slower than in 1998, when it was deliberately forced ahead. Overall headcount increased 12% to 21,699. This figure includes employees of newly consolidated subsidiary companies. RESEARCH AND DEVELOPMENT INTENSIFIED 1999 saw intense research and development activity aimed at realizing the Company's Internet strategy. The developer headcount grew 12% to reach 5,403 at year-end. These employees are very highly qualified, as be-fits SAP's requirements: More than 90% have university degrees, predominantly in technical and scientific disciplines. The increase in the number of developers led to a rise in R&D expenses, which are overwhelmingly comprised of personnel costs. As a percentage of revenues, R&D costs excluding STAR expenses increased 0.5% to 13.8%. Thus once again, SAP's commitment to R&D was among the highest in the industry. The majority of SAP's development work takes place in Germany at the Walldorf headquarters. The Company also has major development facilities in California's Silicon Valley, in Japan, India, and France. With the aim of cultivating greater customer-proximity, CONSOLIDATED BALANCE SHEET BREAKDOWN in %, IN EURO MILLIONS [BAR CHART] ASSETS 1999 63% 3,056* 37% 1,771** 4,827 Assets 1998 69% 2,385* 31% 1,061** 3,446 LIABILITIES 1999 37% 1,784+ 10% 484++ 53% Liabilities 1998 42% 1,458+ 5% 170++ 53% SHAREHOLDERS EQUITY 1999 2,559+++ 4,827 Shareholders Equity 1,818+++ 3,446 ------------------------------------------------------ 0 20% 40% 60% 80% 100% Assets * Short-term assets ** Long-term assets Shareholders' Equity and Liabilities + Short-term liabilities ++ Long-term liabilities +++ Shareholders' Equity 14 Review of Operations 17 [Graphic -- Picture of SAP customer & partner event] the Company continued to push decentralization of development activities in 1999. The proportion of developers working outside Germany grew from 21% to 27% in the course of the year. ENJOYSAP IMPROVES WORKING EFFICIENCY The main focus of development in 1999 was the EnjoySAP and mySAP.com initiatives, as well as further development of the various industry solutions and New Dimensions products. The objective of the EnjoySAP initiative is to improve the ergonomics of SAP software, and in August 1999 the Company began shipment of the EnjoySAP Release of SAP R/3. An independent study concluded that EnjoySAP R/3 software is easier to learn, easier to tailor, and easier to use, and can improve working efficiency by as much as 65%. MYSAP.COM AS A COMPLETE INTERNET SOLUTION The outcome of the intensive development efforts aimed at completely reorienting SAP's product offerings to the Internet is mySAP.com. mySAP.com both unifies and enhances the Company's range of products. It comprises four main elements: o The mySAP.com Marketplace, an open electronic marketplace where business partners can conduct purchasing, selling, and other collaborative inter-enterprise processes together o The mySAP.com Workplace, an enterprise portal that provides employees in companies with a browser-based, personalized working environment from which they access all the functions they need daily in their particular role o mySAP.com Business Scenarios, providing inter-enterprise role-based solutions for business-to-business as well as business-to-consumer transactions using SAP or other software o mySAP.com Application Hosting, providing fast and inexpensive access to applications across the whole bandwidth of mySAP.com solutions The first few months since shipment of mySAP.com showed that the product is already favorably received by customers. The product innovation ratio, measuring the new product portion of total product revenues, rose from 6% in 1998 to 17% in 1999. In the new field of establishing and running Internet marketplaces, progress was also encouraging. By the end of the year more than 38,420 people and 2,630 companies registered in the open horizontal marketplace at http://my-sap.com. SAP also signed up partners who will cooperate in setting up vertical marketplaces, for example for the chemicals and pharmaceuticals industry and for healthcare. RESEARCH AND DEVELOPMENT EXPENSES (excluding STAR expenses) IN EURO MILLIONS, change since 1998 [BAR CHART] 1999* 705 +23% 1998* 572 +58% 1997* 363 +40% 1996** 259 +16% 1995** 224 +19% ------------------------------------------------------------- 0 100 200 300 400 500 600 700 * US-GAAP ** GERMAN GAAP Review of Operations 15 18 [Graphic -- Picture of people at work] QUIET MILLENNIUM CHANGE - EVENTFUL START TO 2000 Hardly any of the computer-related problems predicted by many all over the world for the millennium date change materialized. The opening weeks of the new fiscal year thus proved relatively quiet for the economy as a whole and for the business software industry in particular. SAP and its customers enjoyed a smooth start to the new year as a result of the effective precautions that had been taken. The repositioning of SAP as an Internet enterprise boosted public confidence in the Company's outlook. This was rewarded by a steep upturn in SAP stock prices early in 2000. From the beginning of the year to mid-February 2000, the SAP preference share climbed 42% to euro 852. For this success thanks are due first and foremost to SAP's employees. By setting up the 1999 STAR program at the beginning of the year, the Executive Board ensured that a substantial proportion of the employees would participate in the success of the enterprise as measured by the performance of the stock. The value of a STAR is the increase in the stock market price of the SAP preference share between the average of the first ten calendar days following announcement of the figures for the first quarter of 1999 (average price euro 337) and the average of the first twenty trading days following announcement of the preliminary results for the 1999 fiscal year (average price euro 822). Total expenses resulting from the 1999 STAR program depend upon forfeitures and are estimated to be in the range from euro 670 million to euro 720 million. Under U.S. GAAP, these expenses are distributed over the measurement period and the payout period. The final payment will be made in 2001, so the 1999 STAR program expenses will not only impact the Company's 1999 figures but also the 2000 and 2001 figures. In the software industry, the market for IT and management professionals is tight. In order to remain an attractive employer, at the end of 1999 SAP proposed a stock option and convertible bond program, the SAP AG 2000 Long Term Incentive Plan (LTI 2000 Plan). By an overwhelming majority, the shareholders approved SHARE PRICE 1999 in euro (based on closing price on last trading day of month) [SUMMARY OF LINE GRAPH CHART, BASED ON CLOSING PRICE ON LAST TRADING DAY OF MONTH (FEBRUARY 15, FOR FEB-00)]
END OF MONTH SAP PREFERENCE SHARES DAX* GSO** ------------ --------------------- ------ ------ Dec-98 409.54 409.54 409.54 Jan-99 349.80 423.75 486.73 Feb-99 346.00 401.07 436.48 Mar-99 296.90 397.98 453.04 Apr-99 357.00 397.98 439.88 May-99 376.50 438.49 439.84 Jun-99 392.10 414.61 503.21 Jul-99 353.02 439.97 469.74 Aug-99 374.00 417.34 490.63 Sep-99 422.00 431.15 534.93 Oct-99 420.00 421.26 568.44 Nov-99 399.07 451.98 689.18 Dec-99 599.00 482.30 949.04 Jan-99 783.50 569.18 836.78 Feb-00 812.00 605.01 950.07
* DAX (adjusted) ** Goldman Sachs Technology Software Index (adjusted) 16 Review of Operations 19 [Graphic -- Picture of mySAP.com web site] the adoption of the Plan at an extraordinary general meeting in January 2000. In addition, the shareholders authorized the Company to issue a maximum of 6.25 million additional preference shares (contingent capital) to satisfy shares needed in conjunction with the LTI 2000 Plan. Subject to certain regulations, the Company may also acquire shares from the market to satisfy obligations under the LTI 2000 Plan. The Plan adds another share-based component to SAP's compensation system that will motivate selected managers and top performers to grow the value of the enterprise and stay with the Company. ENCOURAGING OUTLOOK Economic researchers are expecting encouraging developments in the global economy in 2000. They predict sustained expansion in the United States, continued upward trends in Japan and the emerging East Asian economies, and stronger growth in Western Europe. Encouraging growth rates are also projected for South America and Eastern Europe. The outlook for the business software and Inter-net solutions industry is also promising. The market research institute Gartner Group, Inc., envisions average growth of 25% in the classic ERP software market for the period 2000 through 2001. In the business-to-business software market 178% growth in 2000 has been predicted, with average growth for the period 2000 through 2004 at 119%. Of this growth, 37% is expected to go to virtual marketplaces. Forrester Research, Inc. predicts that virtual marketplaces will enjoy average annual growth of 88% during the period through 2003. International Data Corporation, another market research institute, projects revenues of software for running such marketplaces to rise 102% per year on average. At the same time it is expected that the markets for ERP software and Internet solutions will continue to coalesce, and that the number of vendors in the unified market will decline. POTENTIAL FOR SUCCESS Strategic measures in 1999 have put SAP in a position to take a leading position in the developing integrated market for enterprise and Internet solutions. SAP has already undergone the reorientation to the Internet that experts foresaw business software vendors would take in the years to come. mySAP.com, the Company's comprehensive new product, has been very well received by customers and the public alike. The following strategic opportunities for the mySAP.com solution are expected to be highly significant for the future progress of SAP: o The wide variety of fields in which mySAP.com can be applied increases the number of customer employees who use SAP software in their work. The way is now open to increase the proportion of people PROJECTED GROWTH OF BUSINESS-TO-BUSINESS MARKET VOLUME IN US $ BILLIONS change since previous year (as predicted by Gartner Group, Inc.) [BAR CHART] 2004 7,290 +85% 2003 3,950 +81% 2002 2,180 +129% 2001 953 +136% 2000 403 +178% --------------------------------------------------------------- 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Review of Operations 17 20 [Graphic -- Picture of people at trade show] in a company who use SAP products from the previous average of about 15% to 80% in some industries. The new pricing model for mySAP.com encourages this trend by relating the cost of licensing more closely to usage or even to the number of transactions completed using the software. o Web-based mySAP.com Application Hosting allows enterprises to outsource their applications instead of installing and running a system. As this may be of special interest for smaller enterprises it puts SAP software within the range of a bigger potential market. o The availability of SAP software on leasing terms instead of purchase also puts it into range for more potential customers. If leasing proves popular with customers, it could make the development of SAP's revenues more constant over time. o Building and operating virtual marketplaces taps new sources of income in the medium term, especially in the light of the Company's broad customer base. o The IDES demonstration system, which anyone can access via Internet, gives prospects the opportunity to experience for themselves the superiority of the SAP solution. Using IDES is also expected to reduce sales and marketing costs in the medium term. STRONG REVENUE GROWTH EXPECTED In the context of the described general economic trends and developments specific to SAP's industry, and in the light of the mySAP.com growth potential, the Executive Board holds to the prediction it made early in 1999 that the year's revenues recorded for 1998 will be approximately doubled within three years. The rate of increase is expected to be higher in 2001 than in 2000. It is predicted that in 2000 the rate of product revenue growth will be higher than the rate of service revenue growth. In particular, it is believed that the mySAP.com portion of software revenues will grow strongly. Its proportion of software revenues from new business is expected to rise to 50%. The United States and Asia are expected to experience stronger growth compared to 1998. It is expected that the increase in 2000 research and development expenses will be in line with the rise in revenues. This in turn means that SAP expects to continue spending approximately 13% to 14% of its revenues on R&D. Excluding STAR expenses, the remaining expenses are projected to rise less quickly than the expected revenues in the next two years. It is believed this will be achieved with the help of cost-saving measures. These include more support for sales and marketing from IDES and organizational changes in the maintenance area. However, the first few months of 2000 will still see investment in mySAP.com causing expenses to rise. INCOME AND HEADCOUNT PREDICTED TO RISE Operating income (excluding expenses for the employees' STAR program) is predicted to rise in 2000 because revenues will grow faster than costs, and because product revenues will grow faster than service revenues. SAP intends to cover a major part of the STAR expenses by income from the sale of investments. This income is mainly expected from SAP's venture capital investments and will not require strategically detrimental divestitures. SAP may also sell portions of certain subsidiaries to the public, which could result in additional income. In this light, income before income taxes is projected to rise. The effective tax rate is expected to be approximately 40%, so an increase in net income is also predicted. SAP expects to continue its practice of 18 Review of Operations 21 [Graphic -- Picture of country selection and globe] returning value to shareholders with a dividend for 2000. In order to achieve its planned rise in revenues, SAP will hire more employees. Headcount growth is predicted to be greater in 2000 than in 1999, but not to reach the unprecedented 1998 growth numbers. RISK FACTORS Certain assumptions about the future underlie SAP's expectations of developments in the next two years. If the assumptions are wrong, actual results could differ materially from expectations. o Although SAP's business is not strongly cyclical, unexpected declines in economic activity or other major macroeconomic shifts, worldwide or in particular countries or regions, can negatively impact the development of revenues and incomes. Also, SAP's revenues and results are sensitive to exchange rate fluctuations because of the Company's highly internationalized business. SAP has an active foreign exchange management policy to address these risks, and this policy includes the use of derivative financial instruments. o Like any other enterprise, SAP is subject to the risk of bad debt. In 1999, this risk was addressed by an allowance for doubtful accounts, totaling euro 97 million (1998: euro 80 million). The risk of physical damage caused by catastrophe, accident, or other events is managed by insurance. An independent external appraisal was commissioned, and found that there were no substantial uninsured risks, and that levels of cover are adequate. Insurance is also in place for product and other liability risks. o Prospects for the future depend to a large extent on market acceptance of mySAP.com. The initial acceptance accorded to mySAP.com by customers and by the public so far is encouraging. There is, however, no guarantee that this level of acceptance will continue. The prediction that costs will grow more slowly than revenues is based on the assumption that mySAP.com will change the revenue profile with the effect that software license revenues will gain in importance. If, on the contrary, consulting revenues should grow in relative importance, there will be a corresponding increase in expenses, because experience has shown that consulting revenues are associated with higher expenses relative to the associated revenues. Customers' unwillingness to accept the new pricing concept introduced with mySAP.com could also impact the projected growth of revenues. o The Company's success will also depend in part on its ability to continue to develop and introduce to the market product enhancements and new solutions that respond to the rapid changes in hardware and software technology, and in communication and business channels, such as the Internet. o Like any other enterprise that makes use of the Inter-net, SAP is subject to the risks of relying on this global network. These include hacker and virus attacks. The company addresses this risk with extensive security measures. o Among the competitive advantages that are factors in the predicted revenue growth is the fact that SAP is the biggest company in its sector. Unexpected mergers could alter the competitive landscape and impact SAP's business development. Despite the risks described, SAP is confident that it will achieve the goals it has set itself and honor its responsibilities to its customers, shareholders, employees, and business partners. Review of Operations 19 22 FIVE-YEAR SUMMARY
SAP GROUP (in million of (euro), unless, otherwise stated) HGB U.S. GAAP ___________________________ _________________________________ 1995 1996 1997 1998 1999 ________________________________________________________________________________________ TOTAL REVENUE 1,378.6 1,903.1 3,021.8 4,315.6 5,110.2 - -- % generated by foreign subsidiaries 67 % 73 % 71 % 80 % 77 % - -- % product revenue 72 % 71 % 68 % 63 % 61 % - -- per employee (in thousands of (euro)) 214 233 261 249 244 NET INCOME 207.0 290.2 446.7 526.9 601.0 - -- Return on equity (net income as % of average equity) 30 % 30 % 35 % 32 % 27 % - -- Income before income taxes 339.2 485.7 796.4 932.0 980.3 - -- Return on sales (Income before income taxes as a % of total revenue) 25 % 26 % 26 % 22 % 19 % TOTAL ASSETS 1,134.2 1,721.5 2,755.2 3,445.9 4,826.9 FIXED ASSETS 384.5 403.4 601.0 903.9 1,524.0 - -- Intangible assets 3.8 2.9 39.9 74.6 119.9 - -- Property, plant & equipment 294.0 318.0 444.6 645.4 794.3 - --Financial assets 86.7 82.5 116.5 183.9 609.8 SHORT-TERM ASSETS (incl. deferred taxes and prepaid expenses and deferred charges) 749.7 1,318.1 2,154.2 2,542.0 3,302.9 - -- Inventories 2.9 4.0 3.8 2.8 3.1 - -- Accounts receivable 543.5 937.1 1,640.4 1,869.0 2,489.5 - -- Liquid Assets 203.3 377.0 510.0 670.2 810.3 SHAREHOLDERS' EQUITY 782.0 1,130.6 1,451.1 1,818.3 2,559.4 - -- as % of fixed assets 203 % 280 % 241 % 201 % 168 % - -- Subscribed capital 258.8 264.6 266.6 267.3 267.8 - -- Other shareholders' equity 523.2 866.0 1,184.5 1,551.0 2,291.6 LIABILITIES (incl. deferred charges and from 1997 onwards minority interests) 352.2 590.9 1,304.1 1,627.6 2,267.5 - -- Long term liabilities 21.6 38.1 178.1 170.0 483.6 - -- Current liabilities 330.6 552.8 1,126.0 1,457.6 1,783.9 % OF TOTAL ASSETS - -- Fixed assets 34 % 23 % 22 % 26 % 32 % - -- Short-term assets 66 % 77 % 78 % 74 % 68 % - -- Shareholders' equity 69 % 66 % 53 % 53 % 53 % - -- Liabilities 31 % 34 % 47 % 47 % 47 % FINANCIAL LIABILITIES 41.0 50.7 86.0 122.8 57.5 - -- Long-term 10.5 4.5 2.6 26.5 32.9 - -- Short-term 30.5 46.2 83.4 96.3 24.6 Interest Income, net +11.4 +14.2 +26.9 +31.1 +31.2
74 23
SAP GROUP (in millions of Euro, unless otherwise stated) HGB U.S. GAAP ----------------------- --------------------------------- 1995 1996 1997 1998 1999 --------- -------- ------------ --------- ---------- PURCHASES/DEPRECIATION AND AMORTIZATION - - Purchases of property, plant & equipment and intangible assets 130.7 112.8 289.9 388.1 354.8 - - Depreciation and amortization 73.9 84.2 101.3 139.8 172.7 - - Depreciation and amortization as % of purchases 57% 75% 35% 36% 49% CASH EARNINGS ACCORDING TO DVFA/SG(1) 281.2 351.2 547.2 586.1 896.9 - - as % of total revenue 20% 18% 18% 14% 18% - - as % of investments 215% 311% 189% 151% 253% EMPLOYEES AND PERSONNEL EXPENSES - - Number of employees, year end 6,857 9,202 12,856 19,308 21,699 - - Number of employees, annual average 6,443 8,177 11,558 17,323 20,975 - - Personnel expenses 489.2 684.4 1,059.9 1,547.4 2,031.7 - - Personnel expenses - excluding STAR 489.2 684.4 1,059.9 1,531.1 1,891.4 - - Personnel expenses per employee - excluding STAR (in thousands of euro) 76 84 92 88 90 RESEARCH AND DEVELOPMENT EXPENSES 224.0 258.5 362.7 572.4 744.7 - - as % of total revenue 16% 14% 12% 13% 15%
SAP AG (in millions of Euro, unless otherwise stated) HGB ------------------------------------------------------------ 1995 1996 1997 1998 1999 --------- -------- ------------ --------- ---------- Net income 97.0 155.7 228.7 268.7 312.2 Transfer to reserves 28.6 32.7 78.5 102.3 146.5 Dividend distributions 68.3 122.80 150.4 165.5 165.8 Dividend per ordinary share (in Euro)(2) 0.66 0.92 1.43 1.57 1.57 Dividend per preference share (in Euro)(2) 0.69 0.95 1.46 1.60 1.60 Stock prices at year-end (spot rate in Euro): ordinary share 113.51 107.63 278.91 368.13 488.00 preference share 111.36 108.29 298.70 408.78 605.50 Number of shares at year-end (in thousands): 101.233 103.507 104.303 104.565 104.756 - - ordinary shares 60.986 60.991 60.996 61.000 61.000 - - preference shares 40.247 42.516 43.307 43.565 43.756 Market capitalization (in billion Euro) 11.4 11.1 30.0 40.3 56.3
(1) German Society of Investment Analysts and Asset Managers (2) 1999 proposed dividend 24 ADDRESSES AND FINANCIAL CALENDAR HEADQUARTERS ADDRESS SAP AG Neurottstrasse 16 D-69190 Walldorf, Germany TELEPHONE +49/6227/7-47474 FAX +49/6227/7-57575 INTERNET www.sap.com E-MAIL info@sap.com All international subsidiaries and sales partners are listed at www.sap.com under "Contact us". FINANCIAL CALENDAR 2000 APRIL 19 Interim report: January - March 2000 MAY 5 Annual General Meeting, Mannheim MAY 25/26 Investor Workshop (SAPPHIRE Berlin) JULY 20 Interim report: January - June 2000 OCTOBER 19 Interim report: January - September 2000 2001 JANUARY 23 Preliminary figures for fiscal 2000 MAY 3 Annual General Meeting 76 | Addresses and Financial Calendar 25 | SAP ANNUAL REPORT DESIGN AND ART | SIGNUM communication GmbH, Mannheim ORIGINAL PHOTOGRAPHY | Sabine Kress, Mannheim LITHOS | Repro Braun, Neuhofen & Extrabyte GmbH, Mannheim PRINT | Color-Druck, Leimen BINDING | Thalhofer, Schonaich PICTURE SOURCES | Wolfram Scheible, Stuttgart SAP Picture Archive COPYRIGHT (c) 2000 | SAP AG Neurottstrasse 16 D-69190 Walldorf, Germany OVERALL RESPONSIBILITY | SAP AG Corporate Communications 26 SAP AG Neurottstrasse 16 D-69190 Walldorf, Germany [Graphic -- Pictures of city skyline, SAP logo, SAP conference, mySAP.com logo] EX-99.4 5 PAGES F-1 THROUGH F-41 OF FORM 20-F FOR 1999 1 REPORT OF INDEPENDENT AUDITORS We have audited the consolidated balance sheets of SAP Aktiengesellschaft Systeme, Anwendungen, Produkte in der Datenverarbeitung and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the years in the three-year period ended December 31, 1999. Company management is responsible for the preparation and content of the consolidated financial statements and the Schedule II. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with professional standards prescribed by the German Institute of Certified Public Accountants (IDW) and in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The determination of audit procedures considers the knowledge about the group's business and legal environment as well as expectations about possible errors. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The audit also includes stating an opinion on assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SAP Aktiengesellschaft Systeme, Anwendungen, Produkte in der Datenverarbeitung and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Furthermore we confirm that the consolidated financial statements for the fiscal year from January 1, 1999 through December 31, 1999, are in compliance with the exemption rules for the preparation of consolidated financial statements according to German law. Eschborn/Frankfurt am Main, February 21, 2000 ARTHUR ANDERSEN Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH PROF. DR. WEBER KLEIN Wirtschaftsprufer Wirtschaftsprufer
F-1 2 SAP AKTIENGESELLSCHAFT CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, IN THOUSANDS EXCEPT PER SHARE DATA
NOTE 1999 (2) 1999 1998 (1) 1997 (1) ---- ---------- ---------- ---------- ---------- $ (000) E (000) E (000) E (000) Software revenue................... 1,945,918 1,932,391 1,899,932 1,508,857 Maintenance revenue................ 1,170,196 1,162,062 819,824 531,057 ---------- ---------- ---------- ---------- Product revenue...................... 3,116,114 3,094,453 2,719,756 2,039,914 ---------- ---------- ---------- ---------- Consulting revenue................. 1,557,762 1,546,933 1,121,404 639,692 Training revenue................... 397,239 394,478 412,221 296,512 ---------- ---------- ---------- ---------- Service revenue...................... 1,955,001 1,941,411 1,533,625 936,204 ---------- ---------- ---------- ---------- Other revenue........................ 74,869 74,349 62,233 45,655 ---------- ---------- ---------- ---------- Total revenue........................ (4) 5,145,984 5,110,213 4,315,614 3,021,773 ---------- ---------- ---------- ---------- Cost of product.................... (530,339) (526,653) (372,365) (234,413) Cost of service.................... (1,636,472) (1,625,096) (1,255,805) (772,607) Research and development........... (749,879) (744,666) (572,382) (362,675) Sales and marketing................ (1,139,840) (1,131,917) (964,735) (673,264) General and administration......... (261,951) (260,130) (207,541) (186,041) Other operating income/expenses, net............................. (5) (25,750) (25,571) (41,992) (17,544) ---------- ---------- ---------- ---------- Total operating expenses............. (6) (4,344,231) (4,314,033) (3,414,820) (2,246,544) ---------- ---------- ---------- ---------- Operating income..................... 801,753 796,180 900,794 775,229 Other non-operating income/expenses, net................................ (7) (51,365) (51,008) 17,186 (8,548) Finance income, net.................. (8) 236,821 235,175 13,972 29,744 ---------- ---------- ---------- ---------- Income before income taxes........... 987,209 980,347 931,952 796,425 ---------- ---------- ---------- ---------- Income taxes......................... (9) (379,051) (376,416) (403,469) (348,626) Minority interest.................... (2,950) (2,930) (1,539) (1,148) ---------- ---------- ---------- ---------- Net income........................... 605,208 601,001 526,944 446,651 ========== ========== ========== ========== Earnings per share Basic................................ (10) Ordinary shares.................... 5.77 5.73 5.03 4.28 Preference shares.................. 5.80 5.76 5.07 4.33 Diluted.............................. (10) Ordinary shares.................... 5.75 5.71 5.00 4.24 Preference shares.................. 5.75 5.71 5.02 4.24
- --------------- (1) The 1998 and 1997 amounts have been restated from Deutsche Marks into euros at an exchange rate of DM 1.95583 to E 1.00, the fixed exchange rate as of January 1, 1999. (2) The 1999 figures have been translated solely for the convenience of the reader at an exchange rate of E 1.00 to $ 1.007, the Noon Buying Rate certified by the Federal Reserve Bank of New York on December 31, 1999. See Notes to Consolidated Financial Statements F-2 3 SAP AKTIENGESELLSCHAFT CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,
NOTE 1999(2) 1999 1998(3) ---- --------- --------- --------- $(000) E(000) E(000) ASSETS Intangible assets................................... (11) 120,724 119,885 74,607 Property, plant & equipment......................... (12) 799,836 794,276 645,412 Financial assets.................................... (13) 614,084 609,815 183,918 --------- --------- --------- Fixed assets........................................ 1,534,644 1,523,976 903,937 --------- --------- --------- Inventories......................................... (14) 3,160 3,138 2,772 Accounts receivable................................. (15) 1,858,315 1,845,397 1,572,730 Accounts due from related parties................... 224 222 329 Other assets........................................ (16) 310,066 307,911 92,829 --------- --------- --------- Accounts receivable and other assets.............. 2,168,605 2,153,530 1,665,888 --------- --------- --------- Liquid assets....................................... (17) 815,949 810,277 670,217 --------- --------- --------- Short-term assets................................... 2,987,714 2,966,945 2,338,877 --------- --------- --------- Deferred taxes...................................... 286,283 284,293 182,483 Prepaid expenses and deferred charges............... (18) 52,036 51,675 20,638 --------- --------- --------- Total assets........................................ 4,860,677 4,826,889 3,445,935 ========= ========= ========= (thereof current assets)............................ 3,540,178 3,515,569 2,453,982 SHAREHOLDERS' EQUITY AND LIABILITIES Subscribed capital(1)............................... (19) 269,680 267,805 267,315 Additional paid-in capital.......................... (20) 251,109 249,364 243,035 Retained earnings................................... 1,710,117 1,698,229 1,263,560 Other comprehensive income.......................... 346,365 343,957 44,357 --------- --------- --------- Shareholders' equity................................ 2,577,271 2,559,355 1,818,267 --------- --------- --------- Minority interests.................................. 8,798 8,737 7,233 --------- --------- --------- Special reserves for capital investment subsidies and allowances.................................... (21) 167 166 135 Pension liabilities and similar obligations......... (22) 11,669 11,588 14,445 Other reserves and accrued liabilities.............. (23) 1,275,427 1,266,561 699,056 --------- --------- --------- Reserves and accrued liabilities.................. 1,287,096 1,278,149 713,501 --------- --------- --------- Bonds............................................... (24) 1,272 1,263 1,752 Other liabilities................................... (25) 673,919 669,235 597,802 --------- --------- --------- Other liabilities................................. 675,191 670,498 599,554 Deferred income..................................... (26) 312,154 309,984 307,245 --------- --------- --------- Total shareholders' equity and liabilities.......... 4,860,677 4,826,889 3,445,935 ========= ========= ========= (thereof current liabilities)....................... 1,796,401 1,783,914 1,457,585
- --------------- (1) Includes contingent capital of E 1,263 thousand and E 1,753 thousand as of December 31, 1999 and 1998, respectively. (2) The 1999 figures have been translated solely for the convenience of the reader at an exchange rate of E 1.00 to $ 1.007, the Noon Buying Rate certified by the Federal Reserve Bank of New York on December 31, 1999. (3) The 1998 amounts have been restated from Deutsche Marks into euros at an exchange rate of DM 1.95583 to E 1.00, the fixed exchange rate as of January 1, 1999. See Notes to Consolidated Financial Statements F-3 4 SAP AKTIENGESELLSCHAFT CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
NUMBER OF SHARES ISSUED OTHER ADDITIONAL AND COMPREHENSIVE RETAINED COMPREHENSIVE PAID-IN SUBSCRIBED OUTSTANDING INCOME EARNINGS INCOME CAPITAL CAPITAL TOTAL ------------- ------------- --------- ------------- ---------- ---------- --------- E (000) E (000) E (000) E (000) E (000) E (000) January 1, 1997.............. 103,507 567,267 14,035 192,964 264,612 1,038,878 ------- Net income................... 446,651 446,651 446,651 Other comprehensive income, net of tax(1) Unrealized gains on marketable securities.... 2,487 Currency translation adjustment............... 49,050 ------- Other comprehensive income................... 51,537 51,537 51,537 ------- Comprehensive income......... 498,188 ======= Convertible bonds exercised.................. 795 38,411 2,033 40,444 Dividends.................... (122,808) (122,808) Other........................ (4,799) 1,174 (3,625) ------- --------- ------- ------- ------- --------- December 31, 1997............ 104,302 886,311 65,572 232,549 266,645 1,451,077 ------- --------- ------- ------- ------- --------- Net income................... 526,944 526,944 526,944 Other comprehensive income, net of tax(1) Unrealized gains on marketable securities.... 31,991 Currency translation adjustment............... (53,206) ------- Other comprehensive income................... (21,215) (21,215) (21,215) ------- Comprehensive income......... 505,729 ======= Convertible bonds exercised.................. 262 12,468 670 13,138 Dividends.................... (150,429) (150,429) Other........................ 734 (1,982) (1,248) ------- --------- ------- ------- ------- --------- December 31, 1998............ 104,564 1,263,560 44,357 243,035 267,315 1,818,267 ------- --------- ------- ------- ------- --------- Net income................... 601,001 601,001 601,001 Other comprehensive income, net of tax(1) Unrealized gains on marketable securities.... 224,127 Currency translation adjustment............... 90,628 Additional minimum pension liability................ (1,625) Cash flow hedges........... (13,530) ------- Other comprehensive income................... 299,600 299,600 299,600 ------- Comprehensive income......... 900,601 ======= Convertible bonds exercised.................. 192 9,307 490 9,797 Dividends.................... (165,473) (165,473) Other........................ (859) (2,978) (3,837) ------- --------- ------- ------- ------- --------- December 31, 1999............ 104,756 1,698,229 343,957 249,364 267,805 2,559,355 ------- --------- ------- ------- ------- ---------
- --------------- (1) Taxes related to other comprehensive income are E 142,563 thousand, E 25,944 thousand and E 1,866 thousand for the years ended December 31, 1999, 1998 and 1997, respectively. The 1998 and 1997 amounts have been restated from Deutsche Marks into euros at an exchange rate of DM 1.95583 to E 1.00, the fixed exchange rate as of January 1, 1999. See Notes to Consolidated Financial Statements F-4 5 SAP AKTIENGESELLSCHAFT CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
NOTE 1999(1) 1999 1998(2) 1997(2) ---- -------- -------- -------- -------- $(000) E(000) E(000) E(000) Net income.................................................. 605,208 601,001 526,944 446,651 Minority interest......................................... 2,951 2,930 1,539 1,148 Depreciation and amortization............................. 173,889 172,680 139,836 101,298 Write-up of property, plant and equipment................. -- -- -- (52) Gain on disposal of property, plant and equipment......... 1,072 1,065 (692) (1,057) Write-downs of financial assets........................... 2,255 2,239 2,094 1,437 Write-up of financial assets.............................. (617) (613) (553) (441) Change in pension reserves................................ (6,357) (6,313) 3,081 5,130 Change in other long-term liabilities..................... 95,153 94,492 (28,375) 13,006 Change in deferred taxes.................................. 14,817 14,714 (92,061) (41,574) Change in inventories..................................... (369) (366) 1,070 145 Change in accounts receivable and other assets............ (491,055) (487,642) (268,685) (542,855) Change in short-term liabilities.......................... 209,143 207,689 175,832 235,150 Change in long-term liabilities........................... 64,938 64,487 129,201 163,409 Change in prepaid expenses and deferred charges........... (31,254) (31,037) (1,736) (9,331) Change in deferred income................................. 2,758 2,739 27,451 88,365 -------- -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... (27) 642,532 638,065 614,946 460,429 -------- -------- -------- -------- Purchase of intangible assets and property, plant and equipment................................................. (356,708) (354,228) (388,588) (289,873) Purchase of financial assets................................ (97,054) (96,380) (38,838) (40,446) Changes in the scope of consolidation....................... (2,026) (2,012) -- -- Proceeds from disposal of fixed assets...................... 50,385 50,035 35,009 43,656 Change in special reserves for capital Investment subsidies and allowances............................................ 31 31 (78) 180 Change in liquid assets (maturities greater than 90 days)... (51,815) (51,455) 155,084 (31,086) -------- -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES....................... (28) (457,187) (454,009) (237,411) (317,569) -------- -------- -------- -------- Dividends paid.............................................. (166,631) (165,473) (150,429) (122,809) Proceeds from premium on convertible bonds.................. 9,372 9,307 12,468 38,411 Other changes to additional paid-in capital................. (2,999) (2,978) (1,982) 1,174 Proceeds from the increase in capital stock from the exercise of the conversion rights......................... 493 490 670 2,033 Payments made on the conversion of the convertible bonds.... (492) (489) (657) (2,023) Proceeds from the issuance of long-term debt................ -- -- 24,596 162 Principal payments made on long-term debt................... (289) (287) (103) (30) -------- -------- -------- -------- NET CASH USED IN FINANCING ACTIVITIES....................... (29) (160,546) (159,430) (115,437) (83,082) -------- -------- -------- -------- Effect of foreign exchange rates on cash.................... 64,426 63,979 (46,599) 44,380 NET INCREASE IN CASH AND CASH EQUIVALENTS................... 89,225 88,605 215,499 104,158 -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR...... 625,202 620,856 405,357 301,199 -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR............ (17) 714,427 709,461 620,856 405,357 ======== ======== ======== ========
- --------------- (1) The 1999 figures have been translated solely for the convenience of the reader at an exchange rate of E 1.00 to $1.007, the Noon Buying Rate certified by the Federal Reserve Bank of New York on December 31, 1999. (2) The 1998 and 1997 amounts have been restated from Deutsche Marks into euros at an exchange rate of DM 1.95583 to E 1.00, the fixed exchange rate as of January 1, 1999. See Notes to Consolidated Financial Statements F-5 6 SAP AKTIENGESELLSCHAFT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFCANT ACCOUNTING PRINCIPLES (1) BASIS OF PRESENTATION The consolidated financial statements of the SAP Aktiengesellschaft Systeme, Anwendungen, Produkte in der Datenverarbeitung ("SAP AG"), together with its subsidiaries (collectively, "SAP," "Group" or "Company"), have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). In 1998 and 1997 the consolidated financial statements were prepared in accordance with accounting principles generally accepted in Germany ("German GAAP") with a reconciliation to U.S. GAAP. For purposes of the 1999 presentation, the 1998 and 1997 consolidated financial statements have been restated to reflect U.S. GAAP for comparative purposes. The consolidated income statements have been presented using the cost of sales format. Certain reclassifications were made to prior year amounts to conform them to the current year presentation. SAP is using the relief outlined in section 292a of the German Commercial Code ("HGB"), which exempts companies from preparing consolidated financial statements in accordance with German GAAP if the consolidated financial statements are prepared in accordance with an internationally accepted accounting principle (i.e. U.S. GAAP or International Accounting Standards). A description of the significant differences between US GAAP and HGB is set forth in note 36. Effective January 1, 1999 the Company converted its internal and external reporting to the euro and, therefore, restated the consolidated financial statements to euro using the exchange rate as of January 1, 1999. Accordingly, the Deutsche Mark ("DM") consolidated financial statements for each period prior to 1999 have been restated to euro ("E") using the official fixed DM/E exchange rate as of January 1, 1999, of E 1.00 = DM 1.95583. SAP's restated euro financial statements depict the same trends as would have been presented if it had continued to present its consolidated financial statements in DM. All euro financial data that has been presented in U.S. Dollars ("$" or "Dollars") 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, 1999, which was E 1.00 per $1.007. (2) SCOPE OF CONSOLIDATION The consolidated financial statements include SAP AG and subsidiaries in which SAP AG holds, directly or indirectly, a majority of the voting rights. The following table summarizes the number of companies included in the consolidated financial statements:
GERMAN FOREIGN TOTAL ------ ------- ----- December 31, 1998........................................ 7 45 52 Additions................................................ 4 6 10 Disposals................................................ -- -- -- --- --- --- December 31, 1999........................................ 11 51 62 === === ===
Three companies in which SAP AG directly holds between 20% and 50% of the voting rights ("associated companies") are reported under the equity method. The impact of including new companies in the consolidated financial statements during 1999 does not limit comparability of the annual financial statements with those of the previous years. F-6 7 All affiliated companies and other associated companies are listed on page F-40 to F-42 with ownership percentages, revenues, net income, equity, and numbers of employees. (3) SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICIES The Company accounts for its business combinations using the purchase accounting method. At the date of acquisition differences between acquisition costs and attributable shareholders' equity are first allocated to identifiable assets acquired or liabilities assumed to the extent of their fair market values. Any remaining goodwill is capitalized as an intangible asset and amortized using the straight-line method over its estimated useful life. Intercompany receivables, payables, revenues, expenses and profits among the consolidated companies are eliminated. Deferred taxes are calculated for consolidation entries affecting income. Minority interest is identified for subsidiaries not wholly owned by the parent company. Goodwill arising from associated companies' equity is calculated based upon the same principles. USE OF ESTIMATES The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CURRENCY TRANSLATION The financial statements of the fully consolidated foreign subsidiaries are translated according to the functional currency method. Since all subsidiaries are economically independent, and thus their functional currency is the local currency, their balance sheets are translated into the Group's functional currency at median rates on the balance sheet date ("closing rate") and their income statements are translated at annual average rates. Differences from the prior year's translation of assets and liabilities and translation differences between the balance sheet and the income statement do not affect income. The effects of foreign currency translation are included in other comprehensive income in the consolidated statements of changes in shareholders' equity. Assets and liabilities denominated in foreign currencies are translated at the closing rate with resulting gains and losses reflected in income. The exchange rates of key currencies affecting the Group changed as follows:
CLOSING RATE AT DECEMBER 31, TO ANNUAL AVERAGE EXCHANGE TO E 1.00 E 1.00 FOR THE YEAR ENDED ------------------- --------------------------- CURRENCY ISO CODE 1999 1998 1999 1998 1997 - -------- -------- -------- -------- ------- ------- ------- U.S. Dollar............................ USD 1.0028 1.1691 1.0595 1.1196 1.1259 Japanese Yen........................... JPY 102.51 134.84 119.28 147.61 136.69 British Pound.......................... GBP 0.6202 0.6990 0.6525 0.6762 0.6864 Canadian Dollar........................ CAD 1.4574 1.8160 1.5582 1.6735 1.5639 Australian Dollar...................... AUD 1.5570 1.9119 1.6349 1.8076 1.5274
- --------------- The exchange rates for 1998 and 1997 have been restated for comparative purposes at the fixed rate of E 1.00 = DM 1.95583. REVENUE RECOGNITION The Company recognizes software revenue in accordance with the American Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), F-7 8 which is effective for transactions entered into in fiscal years beginning after December 15, 1997. Because prior to the issuance of SOP 97-2 the Company had not previously issued financial information or financial statements on a U.S. GAAP basis, SOP 97-2 has been applied for all years reported. In accordance with SOP 97-2, software license fee revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the license fee is fixed and determinable and the collection of the fee is probable. The Company allocates a portion of its software revenues to post-contract support activities or other services or products provided to the customer free of charge or at non-standard discounts when included under the licensing arrangement. Amounts allocated are based upon standard prices charged for those services or products. Revenues from post-contract support are recognized ratably over the term of the maintenance contract on a straight-line basis. Consulting and training services are generally recognized at the time the service is performed. Fees from licenses sold together with consulting services are generally recognized upon shipment provided that the contract has been executed, delivery of the software has occurred, fees are fixed and determinable and collection is probable. In instances where the aforementioned criteria have not been met both the license and the consulting fees are recognized under the percentage of completion method of contract accounting. The Company provides for sales returns and allowances. In limited instances, the Company will enter into fixed fee consulting arrangements. Revenues under such arrangements are recognized using the percentage of completion method. Provisions for estimated losses on uncompleted contracts are made in the period such losses are determined. RESEARCH AND DEVELOPMENT Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"), requires the capitalization of research and development costs incurred upon achieving technological feasibility until such product is available for sale. Historically such costs have not been material. Development costs incurred prior to achieving technological feasibility are expensed as incurred. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT Purchased intangible assets are recorded at cost and amortized on a straight-line basis over a maximum of five years. All existing goodwill included in the consolidated financial statements is derived from the acquisition of software related companies and is amortized on a straight-line basis over its estimated life of five years. In 1997, the Company expensed E 4.0 million of acquired in-process research and development costs relating to software products for which technological feasibility had not yet been established at the date of acquisition. Acquisitions in 1999 and 1998 did not result in a charge for in-process research and development. Property, plant and equipment are shown at cost less accumulated depreciation, where appropriate, based on their expected useful lives. If assets are deemed to be permanently impaired, carrying amounts are reduced accordingly. For the years ended December 31, 1999, 1998 and 1997, no such write-offs have been made.
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT ----------------------------- Buildings (placed in service until the end of 1990)..... 50 years Buildings (placed in service after 1990)................ 25 years Leasehold improvements.................................. Based upon the lease contract IT equipment............................................ 3 to 5 years Office furniture........................................ 4 to 20 years Automobiles............................................. 5 years
Buildings and leasehold improvements are depreciated using the straight-line method. Other fixed assets are generally depreciated using the straight-line method. Certain assets with expected useful lives in excess of F-8 9 three years are depreciated using the declining balance. Low-value assets are expensed in the year of acquisition. FINANCIAL ASSETS Shares in affiliated companies and other loans are recorded at cost. A write-down in the value of such financial assets at the balance sheet date only occurs if there is a permanent impairment. There were no such write-downs for any periods presented. Interest-free loans to employees and to third parties are discounted to their present value. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," marketable debt and equity securities, other than investments accounted for by the equity method, are categorized as either trading, available-for-sale or held-to-maturity, depending on management's intent with respect to holding such investments. The Company's securities are considered to be available-for-sale and, therefore, are valued at fair market value at the balance sheet date. Unrealized gains and losses are excluded from earnings and reported net of tax in comprehensive income within shareholders' equity. Market values were obtained based on available market prices as of December 31, 1999, 1998 and 1997. Gains or losses recognized on sales of securities are based on specific identification. SHORT-TERM ASSETS Inventories are shown at the lower of purchase/production cost or market value. Production costs consist of direct salaries, indirect salaries, and materials. Other costs are not included in inventories. No write-downs of inventory were necessary for the periods presented. Accounts receivable are stated at their nominal value, which approximates fair market value. Included in accounts receivable are unbilled receivables related to fixed fee consulting arrangements. Receivables with foreseeable individual and country risks are written down to their net realizable value. Non-interest bearing receivables with a term exceeding one year are discounted to their present value using local interest rates. During the fiscal year, SAP AG acquired 58,048 of its own shares, representing 0.06 % of the capital stock, at an average market price of E 355. Such shares were transferred to employees during the year at an average price of E 275 per share. Certain of the Company's foreign subsidiaries purchased 472,446 American Depository Receipts ("ADRs"), at an average price of $33 and were distributed by an administrator to employees. Twelve ADRs are equivalent to one preference share. The Company did not hold any of its own shares or ADRs as of the balance sheet closing date. Shares and ADRs acquired by the Company were transferred to employees under various employee stock purchase plans. Discounts provided to employees through such plans are treated either as expense if such discounts exceed 15% or as a direct reduction of equity if such discounts are less than 15%. Other assets are shown at their nominal value, which approximates fair value. Liquid assets are comprised of cash and cash equivalents and time deposits with maturities exceeding 90 days. Cash and cash equivalents consist of cash at banks and highly liquid investments with original maturities of 90 days or less. Liquid assets are reconciled to cash and cash equivalents in note 17. PREPAID EXPENSES AND DEFERRED CHARGES Prepaid expenses and deferred charges are determined by allocating expenses to the periods to which they are attributable. DEFERRED TAXES Deferred taxes are established for temporary differences between assets, liabilities and net income calculated for tax purposes and for financial reporting purposes. Moreover, deferred taxes are established on the consolidated balance sheets for temporary differences resulting from consolidation measures. F-9 10 Deferred taxes are computed by the "liability method," under which the enacted tax rate applicable to the local subsidiaries is applied. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax amounts are shown gross on the consolidated balance sheets. Net operating loss carryforwards that are available to reduce future taxes are recognized as deferred tax assets. Such amounts 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. LIABILITIES Provisions for pensions of domestic and foreign subsidiaries are based on actuarial computations according to the "Projected Unit Credit Method." In accordance with the Projected Unit Credit Method, current pensions and remuneration existing at the balance sheet date as well as expected future increases in these obligations are included in the valuation. The assumptions used to calculate the provision for pensions are shown in note 22. Accrued taxes are calculated on the basis of the planned distribution of income. Other reserves and accrued liabilities are recorded when an obligation to a third party has been incurred, payment is probable and reasonably estimable. In determining other accrued liabilities all applicable costs are taken into consideration. Liabilities are shown at the amounts payable, which approximate fair market value. DERIVATIVES The Group primarily uses forward exchange derivatives to reduce the currency risk that results from engaging in transactions denominated in currencies other than the E, including anticipated cash flows resulting from transactions with subsidiaries. These anticipated cash flows reflect forecast assumptions, which historically have reflected actual results. Effective January 1, 1999, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires derivative financial instruments to be recorded in the balance sheet at their fair value. The effective portion of the realized and unrealized gain or loss on a derivative designated as a cash flow hedge is reported net of tax in other comprehensive income at the time related changes in the fair value of such instruments occur. 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. The ineffective portion of gain or loss on a derivative designated as a cash flow hedge is reported in earnings when the ineffectiveness occurs. In measuring the effectiveness of cash flow hedges, the Company excludes differences resulting from the time value (i.e. spot rates versus forward rates for forward contracts). Changes in value resulting from the excluded component are recognized in earnings immediately. Prior to the implementation of SFAS 133, the Company accounted for its foreign exchange forward contracts in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). Forward contracts used to manage risk relating to anticipated cash flows do not qualify for hedge accounting treatment under SFAS 52 and are therefore recorded on the balance sheet at fair value with changes in fair value recognized in earnings immediately. Forward contracts hedging firm commitments are also recorded at fair value with changes in value offset against the foreign exchange gains or losses recognized on the item being hedged. CREDIT ARRANGEMENTS Certain of the Company's foreign subsidiaries have lines of credit available which allow them to borrow in the local currency to the extent SAP AG has guaranteed such amounts. At December 31, 1999, the Company had approximately E 327 million available through such arrangements under which the Company may borrow F-10 11 on an overdraft or short-term basis. Interest under all lines is determined at the time of borrowing based on current market rates. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), requires companies to separately report the components of comprehensive income which is comprised of net income and other comprehensive income. Other comprehensive income comprises the change in equity from transactions and other events not affecting net income except those resulting from investments by owners and distributions to owners. Both other comprehensive income and comprehensive income are disclosed in the consolidated statements of changes in shareholders' equity. Other comprehensive income includes currency translation differences, additional minimum pension liabilities, unrecognized gains and losses from derivatives designated as cash flow hedges and unrealized gains and losses from marketable debt and equity securities. CASH FLOWS The consolidated statements of cash flows show the effect of inflows and outflows during the course of the fiscal year on the Group's cash and cash equivalents, and has been prepared in accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows" ("SFAS 95"). The statement distinguishes between cash flows from operating activities, investing activities, and financing activities. The statement of cash flows is reconciled to cash and cash equivalents, which are reconciled to liquid assets in note 17. B. NOTES TO THE CONSOLIDATED INCOME STATEMENTS (4) OTHER REVENUE Other revenue is derived mainly from marketing events. Segment information with respect to revenue is disclosed in note 34. (5) OTHER OPERATING INCOME / EXPENSES, NET Other operating expenses for the years ended December 31, are as follows:
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Amortization expense........................................ (16,725) (11,319) (7,396) General bad debt expense.................................... (9,582) (17,339) (11,708) Other operating expenses.................................... (3,083) (15,863) (2,206) ------- ------- ------- Other operating expenses.................................. (29,390) (44,521) (21,310) ------- ------- ------- Receipt of insurance proceeds............................... 1,535 684 619 Rental income............................................... 1,510 1,375 1,819 Other operating income...................................... 774 470 1,328 ------- ------- ------- Other operating income.................................... 3,819 2,529 3,766 ------- ------- ------- Other operating income/(expenses), net...................... (25,571) (41,992) (17,544) ======= ======= =======
F-11 12 (6) FUNCTIONAL COSTS AND OTHER EXPENSES COST OF SERVICES AND MATERIALS Cost of services and materials, which is included in various operating expenses in the consolidated financial statements for the years ended December 31, are as follows:
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Raw materials and supplies, purchased goods................. 15,176 12,069 8,429 Purchased services.......................................... 758,238 591,329 301,270 ------- ------- ------- Total....................................................... 773,414 603,398 309,699 ======= ======= =======
The changes in purchased services resulted from additional purchases of consulting services. PERSONNEL EXPENSES/NUMBER OF EMPLOYEES Personnel expenses, which are included in various operating expenses in the consolidated financial statements for the years ended December 31, are as follows:
1999 1998 1997 E (000) E (000) E (000) --------- --------- --------- Salaries................................................ 1,750,770 1,326,505 913,668 Social costs............................................ 226,736 171,434 111,455 Pension expense......................................... 54,233 49,508 34,794 --------- --------- --------- Total................................................... 2,031,739 1,547,447 1,059,917 ========= ========= =========
Included in personnel expenses for the years ended December 31, 1999 and 1998, are expenses associated with the stock appreciation rights program ("STAR program"), in the amount of E 140,324 thousand and E 16,327 thousand, respectively. The average number of employees was as follows:
1999 1998 1997 ------ ------ ------ Employees.............................................. 20,975 17,323 11,558
(7) OTHER NON-OPERATING INCOME/EXPENSES, NET Other non-operating expenses for the years ended December 31, are as follows:
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Foreign currency losses..................................... (89,707) (44,014) (35,826) Losses on disposals of fixed assets......................... (3,131) (2,293) (1,477) Other non-operating expenses................................ (2,916) (1,937) (3,564) ------- ------- ------- Other non-operating expenses.............................. (95,754) (48,244) (40,867) ------- ------- ------- Foreign currency gains...................................... 34,828 59,609 26,182 Gains on disposals of fixed assets.......................... 2,066 2,987 2,518 Other non-operating income.................................. 7,852 2,834 3,619 ------- ------- ------- Other non-operating income................................ 44,746 65,430 32,319 ------- ------- ------- Other non-operating income/(expenses), net.................. (51,008) 17,186 (8,548) ======= ======= =======
F-12 13 (8) FINANCE INCOME, NET Finance income, net for the years ended December 31, are as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Interest and similar income................................. 34,472 34,635 28,808 Interest and similar expenses............................... (3,265) (3,540) (1,933) ------- ------- ------- INTEREST INCOME, NET........................................ 31,207 31,095 26,875 ------- ------- ------- Income from unconsolidated affiliated companies............. 16 441 302 Income/(loss) from associated companies..................... (19,647) (16,558) 1,487 ------- ------- ------- INCOME/(LOSS) FROM INVESTMENTS, NET......................... (19,631) (16,117) 1,789 ------- ------- ------- Income from marketable securities and loans of financial assets.................................................... 910 958 751 Write-down of financial assets.............................. (2,239) (2,094) (1,437) Gains on sales of marketable equity securities.............. 224,912 1,769 574 Other net................................................... 16 (1,639) 1,192 ------- ------- ------- OTHER FINANCE INCOME/(LOSS), NET............................ 223,599 (1,006) 1,080 ------- ------- ------- FINANCE INCOME, NET......................................... 235,175 13,972 29,744 ======= ======= =======
Interest income is derived primarily from cash and cash equivalents, long term investments and other assets. The negative results from associated companies includes a E 23,354 thousand and E 18,687 thousand loss from Pandesic LLC, for 1999 and 1998, respectively. (9) INCOME TAXES Income tax expense for the years ended December 31, are as follows:
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Current taxes Germany................................................... 110,071 209,755 172,059 Foreign................................................... 226,442 226,145 213,291 ------- ------- ------- 336,513 435,900 385,350 Deferred taxes Germany................................................... 88,183 (1,922) (2,554) Foreign................................................... (48,280) (30,509) (34,170) ------- ------- ------- 39,903 (32,431) (36,724) ------- ------- ------- Total taxes on income....................................... 376,416 403,469 348,626 ======= ======= =======
Income before income taxes is attributable to the following geographic locations:
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Germany..................................................... 454,745 448,948 408,380 Foreign..................................................... 525,602 483,004 388,045 ------- ------- ------- Income before income taxes.................................. 980,347 931,952 796,425 ======= ======= =======
F-13 14 The effective tax rate of the SAP Group for the years ended December 31, 1999, 1998 and 1997, was 38.4%, 43.3% and 43.8%, respectively. The table below shows the reconciliation of the current German statutory retained earnings corporate income tax rate of 40% (45% for 1998 and 1997) and the effective tax rate. Because of the lower German tax rate for income distributed to shareholders, the domestic corporation tax is reduced according to the Executive Board's proposal for income appropriation. The corporation tax reduction applies to the year that gives rise to dividend distribution. In addition, shareholders tax-resident in Germany receive a credit of the full corporation tax against their personal income tax liability. A solidarity surcharge of 5.5% is imposed in respect of German corporation tax liability. The effective German trade tax rate, before income taxes, for the years ended December 31, 1999, 1998 and 1997 was 13.8%, 14.3% and 13.7%, respectively.
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Income before income taxes.................................. 980,347 931,952 796,425 German trade tax on income.................................. (62,742) (66,554) (54,836) ------- ------- ------- Income after German trade tax on income................... 917,605 865,398 741,589 Corporation tax on income (40% in 1999, 45% in 1998 and 1997)..................................................... 367,042 389,429 333,715 German trade tax on income.................................. 62,742 66,554 54,836 Solidarity charge........................................... 1,611 6,544 8,143 Tax reduction for dividend payments......................... (28,331) (35,459) (32,235) Foreign tax rate differential, net.......................... (28,006) (49,035) (24,908) Utilization of loss carryforwards........................... (19,938) (475) (313) Tax on non-deductible expenses.............................. 11,383 9,736 5,671 Tax effect on current year losses........................... 395 27,265 870 Consolidation effects....................................... (3,130) (3,937) 1,017 Other....................................................... 12,648 (7,153) 1,830 ------- ------- ------- Total....................................................... 376,416 403,469 348,626 ======= ======= =======
In accordance with the liability method, the differences between assets, liabilities and net income calculated for tax purposes and for financial reporting purposes that are expected to reverse in the future are shown below. Based upon past results of subsidiaries and expectations of similar performance in the future, the taxable income of these subsidiaries will more likely than not be sufficient to fully recognize the net deferred tax assets related to these subsidiaries. F-14 15
1999 1998 E (000) E (000) ------- ------- DEFERRED TAX ASSETS Fixed assets.............................................. 13,026 13,939 Financial assets.......................................... 3,763 2,214 Accounts receivable....................................... 70,395 14,852 Net operating loss carry forwards......................... 11,317 28,314 Pension provisions........................................ 2,214 298 STAR provisions........................................... 23,001 2,899 Other provisions.......................................... 81,484 49,648 Deferred income........................................... 76,977 81,932 Other..................................................... 2,588 7,668 ------- ------- 284,765 201,764 ------- ------- Less: Valuation allowance................................. (472) (19,281) ------- ------- Deferred tax assets......................................... 284,293 182,483 ======= ======= DEFERRED TAX LIABILITIES Fixed assets.............................................. 19,291 28,679 Financial assets.......................................... 146,665 24,181 Accounts receivable....................................... 18 1,668 Pension provisions........................................ 3,324 3,329 STAR provisions........................................... 111,850 1,723 Other provisions.......................................... 14,244 4,616 Deferred income........................................... 10,992 1,753 Other..................................................... 68 2,321 ------- ------- Deferred tax liabilities.................................... 306,452 68,270 ======= ======= Net deferred tax (liabilities)/assets.................. (22,159) 114,213 ======= =======
With regard to their duration, deferred tax assets and deferred tax liabilities are classified as follows:
1999 1998 E (000) E (000) ------- ------- DEFERRED TAX ASSETS Short-term................................................ 224,333 139,336 Long-term................................................. 59,960 43,147 ------- ------- 284,293 182,483 ======= ======= DEFERRED TAX LIABILITIES Short-term................................................ 60,503 10,596 Long-term................................................. 245,949 57,674 ------- ------- 306,452 68,270 ======= =======
Certain foreign subsidiaries of the Company have net operating loss carryforwards at December 31, 1999 and 1998, totaling approximately E 30,393 thousand and E 64,409 thousand, respectively, which may be used to offset future taxable income. These net operating loss carryforwards include E 25,015 thousand for 1999 and E 56,358 thousand for 1998 relating to the Japanese subsidiary. The majority of net operating loss carryforwards will expire at different dates over the next three to five years. The deferred tax assets, which have been established for these net operating loss carryforwards, have been 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. The F-15 16 valuation allowance relating to Japan was reduced by E 17,850 thousand in 1999 as a result of net operating loss utilization and changes in facts and circumstances. Deferred tax liabilities are provided for the unremitted earnings of non-German subsidiaries unless management considers such amounts to be permanently reinvested. As of December 31, 1999 the cumulative amount of earnings considered permanently reinvested is approximately E 793 million. (10) EARNINGS PER SHARE Earnings per ordinary share and preference share for the years ended December 31, 1999, 1998 and 1997 have been calculated using the two-class method in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Net income is allocated between ordinary shares and preference shares in calculating earnings per share for each class of stock. This allocation weights net income available (net income less dividends) to the extent that each class of stock may participate in the earnings as if all of the earnings for the period had been distributed. Distributed earnings are allocated to each class of stock based on the respective dividends paid. In arriving at earnings per share, the total allocated earnings for each class of stock is divided by the weighted average number of shares outstanding to which the earnings are allocated. Because the Company's convertible bonds have a dilutive effect, they were considered outstanding for the diluted earnings per ordinary and preference share calculations.
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Net income applicable to basic and diluted EPS:............. 601,001 526,944 446,651 Less dividends: Ordinary shares........................................... 95,770 87,323 71,725 Preference shares......................................... 69,703 63,106 51,084 ------- ------- ------- Net income available to holders of ordinary shares and preference shares......................................... 435,528 376,515 323,842 ======= ======= =======
1999 1998 1997 E (000) E (000) E (000) --------------------- --------------------- --------------------- ORDINARY PREFERENCE ORDINARY PREFERENCE ORDINARY PREFERENCE -------- ---------- -------- ---------- -------- ---------- Allocated net income available......... 253,977 181,551 219,267 157,248 189,607 134,235 Distributed earnings................... 95,770 69,703 87,323 63,106 71,725 51,084 ------- ------- ------- ------- ------- ------- Total allocated earnings -- basic EPS.................................. 349,747 251,254 306,590 220,354 261,332 185,319 Conversion of convertible bonds........ (1,557) 1,557 (1,707) 1,707 (2,563) 2,563 ------- ------- ------- ------- ------- ------- Total allocated earnings -- diluted EPS.................................. 348,190 252,811 304,883 222,061 258,769 187,882 ======= ======= ======= ======= ======= =======
1999(1) 1998(1) 1997(1) --------------------- --------------------- --------------------- ORDINARY PREFERENCE ORDINARY PREFERENCE ORDINARY PREFERENCE -------- ---------- -------- ---------- -------- ---------- Weighted average shares -- basic....... 61,000 43,605 60,998 43,436 60,994 42,842 Conversion convertible bonds........... -- 645 2 814 6 1,408 ------- ------- ------- ------- ------- ------- Weighted average shares -- diluted..... 61,000 44,250 61,000 44,250 61,000 44,250 ======= ======= ======= ======= ======= ======= Earnings per share -- basic............ 5.73 5.76 5.03 5.07 4.28 4.33 Earnings per share -- diluted.......... 5.71 5.71 5.00 5.02 4.24 4.24
- --------------- (1) Amounts are in (i) thousands, except for per share information, and (ii) E, except for share information. F-16 17 C. NOTES TO THE CONSOLIDATED BALANCE SHEET (11) INTANGIBLE ASSETS
TRADEMARKS, SIMILAR RIGHTS E (000) AND ASSETS GOODWILL TOTAL - ------- -------------- -------- ------- PURCHASE COST 1/1/99.................................................... 49,965 59,783 109,748 Foreign currency exchange rate changes.................... 680 -- 680 Changes in the scope of consolidation..................... 639 -- 639 Additions................................................. 39,178 56,301 95,479 Retirements/disposals..................................... (164) (177) (341) Transfers................................................. (8,676) (14,565) (23,241) ------ ------- ------- 12/31/99.................................................. 81,622 101,342 182,964 ACCUMULATED AMORTIZATION 1/1/99.................................................... 20,658 14,483 35,141 Foreign currency exchange rate changes.................... 556 60 616 Changes in the scope of consolidation..................... 483 -- 483 Additions................................................. 21,131 16,725 37,856 Retirements/disposals..................................... (164) (47) (211) Transfers................................................. (5,238) (5,568) (10,806) ------ ------- ------- 12/31/99.................................................. 37,426 25,653 63,079 ------ ------- ------- BOOK VALUE 12/31/99....................................... 44,196 75,689 119,885 ====== ======= ======= Book value 12/31/98....................................... 29,307 45,300 74,607 ====== ======= =======
The additions to trademarks, similar rights and assets relate to acquired software programs. The additions to goodwill in the Group relate to acquisitions during the year. F-17 18 (12) PROPERTY, PLANT AND EQUIPMENT
LAND, LEASEHOLD IMPROVEMENTS, AND ADVANCE BUILDINGS, INCLUDING OTHER PROPERTY, PAYMENTS AND BUILDINGS ON PLANT AND CONSTRUCTION E (000) THIRD-PARTY LAND EQUIPMENT IN PROGRESS TOTAL - ------- -------------------- --------------- ------------ --------- PURCHASE COST 1/1/99................................ 431,018 443,282 124,152 998,452 Foreign currency exchange rate changes............................. 15,954 21,101 12,422 49,477 Changes in the scope of consolidation....................... 267 4,386 63 4,716 Additions............................. 110,746 135,912 12,652 259,310 Retirements/disposals................. (5,141) (35,255) (69) (40,465) Transfers............................. 129,494 5,089 (134,788) (205) ------- ------- -------- --------- 12/31/99.............................. 682,338 574,515 14,432 1,271,285 ------- ------- -------- --------- ACCUMULATED DEPRECIATION 1/1/99................................ 75,454 277,586 -- 353,040 Foreign currency exchange rate changes............................. 5,268 14,847 -- 20,115 Changes in the scope of consolidation....................... 104 2,756 -- 2,860 Additions............................. 33,831 100,993 -- 134,824 Retirements/disposals................. (4,097) (29,727) -- (33,824) Transfers............................. 208 (214) -- (6) ------- ------- -------- --------- 12/31/99.............................. 110,768 366,241 -- 477,009 ------- ------- -------- --------- BOOK VALUE 12/31/99................... 571,570 208,274 14,432 794,276 ------- ------- -------- --------- Book value 12/31/98................... 355,564 165,696 124,152 645,412 ------- ------- -------- ---------
The additions in other property, plant and equipment comprise primarily the purchase of computer hardware. F-18 19 (13) FINANCIAL ASSETS
INVESTMENTS SHARES IN IN OTHER AFFILIATED ASSOCIATED EQUITY DEBT OTHER E (000) COMPANIES COMPANIES SECURITIES SECURITIES LOANS TOTAL - ------- ---------- ----------- ---------- ---------- ------- ------- PURCHASE COST 1/1/99..................... 6,441 13,141 32,268 54,669 23,639 130,158 Foreign currency exchange rate changes............. (188) 144 1,666 493 56 2,171 Additions.................. -- 8,220 78,291 -- 9,869 96,380 Retirements................ (6,240) (3,272) (29,770) (489) (5,014) (44,785) ------- ------- ------- ------- ------- ------- Transfers.................. -- (10,930) 23,564 -- -- 12,634 ------- ------- ------- ------- ------- ------- 12/31/99................... 13 7,303 106,019 54,673 28,550 196,558 ------- ------- ------- ------- ------- ------- MARKETABLE SECURITIES 01/01/99................... -- -- 54,955 4,014 -- 58,969 Changes in unrealized gains/losses............. -- -- 363,556 (2,889) -- 360,667 12/31/99................... -- 418,511 -- 1,125 -- 419,636 ------- ------- ------- ------- ------- ------- ACCUMULATED DEPRECIATION 1/1/99..................... 52 -- -- -- 5,157 5,209 Additions.................. -- -- -- -- 2,239 2,239 Retirements................ (52) -- -- -- (404) (456) Write-ups.................. -- -- -- -- (613) (613) ------- ------- ------- ------- ------- ------- 12/31/99................... -- -- -- -- 6,379 6,379 BOOK VALUE 12/31/99................. 13 7,303 524,530 55,798 22,171 609,815 ------- ------- ------- ------- ------- ------- Book value 12/31/98........ 6,389 13,141 87,223 58,683 18,482 183,918 ------- ------- ------- ------- ------- -------
Amounts pertaining to equity and debt securities at December 31, 1999 and 1998, are as follows:
1999 ------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE E (000) E (000) E (000) E (000) --------- ---------- ---------- ------- Equity securities............................... 106,019 421,730 3,219 524,530 Debt securities................................. 54,673 1,125 -- 55,798 ------- ------- ----- ------- Total........................................... 160,692 422,855 3,219 580,328 ======= ======= ===== =======
1999 1998 ------------------------------------- ------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE E (000) E (000) E (000) E (000) --------- ---------- ---------- ------- Equity securities............................... 32,268 57,886 2,931 87,223 Debt securities................................. 54,669 4,014 -- 58,683 ------ ------ ----- ------- Total........................................... 86,937 61,900 2,931 145,906 ====== ====== ===== =======
F-19 20 Upon sales of marketable equity securities in 1999, the Company reclassified E 22,542 thousand of gains/ losses included in other comprehensive income as of December 31, 1998, into finance income/loss. As of December 31, 1999 and 1998, unrealized losses were not considered permanent in nature. Financial assets include marketable debt securities at December 31, as follows:
1999 1998 -------------------------------- -------------------------------- AMORTIZED MARKET UNREALIZED AMORTIZED MARKET UNREALIZED COST VALUES GAINS COST VALUE GAINS E (000) E (000) E (000) E (000) E (000) E (000) --------- ------- ---------- --------- ------- ---------- Securities with fixed maturities........ 51,129 52,254 1,125 51,129 55,143 4,014 Other securities........................ 3,544 3,544 -- 3,540 3,540 -- ------ ------ ----- ------ ------ ----- 54,673 55,798 1,125 54,669 58,683 4,014 ====== ====== ===== ====== ====== =====
Securities with fixed maturities mature within five years. The other loans include interest bearing and non-interest bearing loans to employees and third parties. (14) INVENTORIES Inventories consist of office supplies and documentation. (15) ACCOUNTS RECEIVABLE Amounts shown on the consolidated balance sheets are net of allowance for bad debts of E 96,734 thousand and E 80,364 thousand at December 31, 1999 and 1998, respectively. Accounts receivable based on due dates at December 31, are as follows:
1999 1998 E (000) E (000) --------- --------- Due within one year......................................... 1,742,219 1,544,026 Due between one and five years.............................. 103,178 28,704 Due in greater than five years.............................. -- -- --------- --------- Total....................................................... 1,845,397 1,572,730 ========= =========
License fees having extended payment terms are deferred if such payments are not considered fixed and determinable under SOP 97-2. Included in accounts receivable are unbilled receivables related to fixed fee consulting arrangements. Concentrations of operating risks are limited due to the Company's large customer base and its dispersion across many different industries and countries worldwide. No single customer accounted for 10% or more of revenues for fiscal year 1999, 1998 or 1997. (16) OTHER ASSETS
1999 1998 E (000) E (000) ------- ------- Other assets................................................ 307,911 92,829 - -- thereof with a remaining term greater than 1 year........ 43,174 49,637
The increase in other assets is primarily related to the sale of marketable equity securities for which the sales proceeds were received in January 2000. Other assets also include interest receivable for the period, tax refund claims, notes receivable, cash surrender value of insurance policies and rental deposits. F-20 21 (17) LIQUID ASSETS Liquid assets at December 31, consists of the following:
1999 1998 E (000) E (000) ------- ------- Cash at banks............................................... 195,889 160,190 Time deposits with maturities of 3 months or less at the date of acquisition....................................... 513,572 460,666 ------- ------- CASH AND CASH EQUIVALENTS................................... 709,461 620,856 ------- ------- Time deposits with maturities greater than 3 months and less than 1 year............................................... 60,125 13,571 Time deposits with maturities exceeding 1 year.............. 40,691 35,790 ------- ------- LIQUID ASSETS............................................... 810,277 670,217 ======= =======
(18) PREPAID EXPENSES AND DEFERRED CHARGES This balance sheet line item is mainly comprised of prepayments for rental contracts, leases and maintenance contracts. (19) SUBSCRIBED CAPITAL At December 31, 1999, issued and outstanding subscribed capital of SAP AG was as follows:
NUMBER AND TYPE OF SHARES E - ------------------------- ----------- 61,000,000 no-par ordinary shares...................................... 155,944,024 43,756,114 no-par preference shares.................................... 111,860,729 ----------- 267,804,753 ===========
Preference shares rank equally with the ordinary shares with respect to liquidation rights and pre-emptive rights. A holder of preference shares is entitled to a cumulative annual preferred dividend which exceeds the annual dividend paid to holders of ordinary shares by an amount equal to E 0.03 per preference share but in no event less than a minimum dividend equal to E 0.03 per preference share. Holders of preference shares have no voting rights except in limited instances. The preference shares are not entitled to a preference in liquidation but rank pari passu with the ordinary shares. By resolution of the Annual General Meeting held May 7, 1998, the Executive Board was authorized, subject to the approval of the Supervisory Board, to issue additional no-par bearer preference shares which may be issued through the period ending May 15, 2003. The issuance of all of these additional preference shares would increase capital stock by E 5,113 thousand. The additional shares are subject to the preemptive rights of existing preference shareholders. No such additional preference shares were issued during the fiscal year. The subscribed capital increased only to the extent holders exercised their conversion rights under convertible bonds. As conversion rights under the 1994/2004 convertible bond issue were exercised in 1999, E 490 thousand of contingent capital (corresponding to 191,615 no-par preference shares) was converted into capital stock. As a result, contingent capital decreased by E 490 thousand, and totaled E 1,263 thousand on December 31, 1999. Subsequent to the conversion of these bonds, there were 493,886 approved preference shares remaining that had not yet been converted at December 31, 1999. Contingent capital represents share which have been authorized in conjunction with a convertible bond or stock option program which are not yet issued or outstanding. Refer to the Consolidated Statements of Changes in Shareholders' Equity in the consolidated financial statements. F-21 22 (20) ADDITIONAL PAID-IN CAPITAL The increase of additional paid-in capital of E 6,329 thousand is primarily related to an increase from the exercise of convertible bonds of E 9,307 thousand and a decrease of E 2,978 thousand related to discounts provided to employees under stock purchase programs. (21) SPECIAL RESERVES FOR CAPITAL INVESTMENT SUBSIDIES AND ALLOWANCES The consolidated balance sheets include special reserves for capital investment subsidies and allowances pursuant to regional development programs. (22) PENSION LIABILITIES AND SIMILAR OBLIGATIONS The accrued pension and other similar obligations at December 31, consist of the following:
1999 1998 ------- ------- E (000) E (000) Domestic pension plans...................................... 5,245 11,302 Foreign pension plans....................................... 4,330 -- Other pension plans and similar obligations................. 2,013 3,143 ------ ------ 11,588 14,445 ====== ======
Reserves for pension obligations are established on the basis of benefit plans that promise old age, disability and survivors' benefits. In most cases, the benefit plans are performance-oriented, based on the length of service and compensation of employees. DOMESTIC PLANS The pension plans in Germany are performance-oriented and the related plan assets are held in accordance with the Company's policies by SAP Altersvorsorge e.V., a legally independent relief fund sponsored by SAP AG. Members of the Executive Board are covered by individual, performance-oriented benefit plans, for which reserves have been established. During 1999, the Company implemented a defined contribution plan which replaced the benefits of the existing defined benefit plan for certain eligible employees. In accordance with the provisions of Statement of Financial Accounting Standards No. 88, "Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" ("SFAS 88"), this change resulted in net curtailment gain of E 10,763 thousand and a net settlement gain of E 374 thousand. F-22 23 The change of the pension obligation and the change in plan assets for the domestic plans are as follows:
1999 1998 E (000) E (000) ------- ------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year..................... 95,641 77,511 Service cost................................................ 4,582 11,146 Interest cost............................................... 2,440 5,042 Liability decreased due to curtailment...................... (38,628) -- Liability decreased due to settlement....................... (42,176) -- Actuarial loss.............................................. 1,088 2,013 Benefits paid............................................... (98) (71) Payments for settlement of deferred vested employees........ (155) -- ------- ------- BENEFIT OBLIGATION AT END OF YEAR........................... 22,694 95,641 ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of the year.......... 54,211 40,525 Actual return on plan assets................................ 8,353 3,197 Employer contributions...................................... 1,597 12,366 Life/disability insurance premiums and expenses............. (298) (1,806) Benefits paid............................................... (98) (71) Payments for settlement of deferred vested employees........ (155) -- Assets transferred to defined contribution plan............. (48,619) -- ------- ------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR.................... 14,991 54,211 ======= ======= Funded status............................................... 7,703 41,430 Unrecognized net actuarial loss............................. (2,687) (16,261) Unrecognized transition asset............................... (703) (13,867) ------- ------- NET AMOUNT RECOGNIZED....................................... 4,313 11,302 ======= ======= AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS: Accrued benefit liability................................... 5,245 11,302 Accumulated other comprehensive income...................... (932) -- ------- ------- Net amount recognized....................................... 4,313 11,302 ======= =======
The following assumptions were used to develop the changes in pension obligation and the changes in plan assets of the German plans:
1999 1998 1997 % % % ---- ---- ---- Discount rate............................................... 6.5 6.0 6.0 Expected return on plan assets.............................. 6.5 6.5 6.5 Rate of compensation increase............................... 4.0 4.0 4.0
F-23 24 COMPONENTS OF NET PERIODIC BENEFIT COST . 1999 1998 1997 E (000) E (000) E (000) ------ ------ ------ Service cost................................................ 4,582 11,146 9,370 Interest cost............................................... 2,440 5,042 4,071 Expected return on plan assets.............................. (2,013) (3,384) (2,626) Net amortization............................................ 741 1,329 1,311 ------ ------ ------ NET PERIODIC BENEFIT COST................................... 5,750 14,133 12,126 ====== ====== ======
FOREIGN PLANS SAP has non-contributory defined benefit plans for certain of its foreign employees. These plans provide benefits based upon compensation levels, age and years of service. The change of the pension obligation and the change in plan assets for the foreign plans are as follows:
1999 1998 E (000) E (000) ------- ------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year..................... 19,422 11,492 Service cost................................................ 12,283 6,829 Interest cost............................................... 1,544 831 Actuarial loss.............................................. 2,869 1,486 Benefits paid............................................... (1,956) -- Foreign currency exchange rate changes...................... 4,475 (1,216) ------ ------ BENEFIT OBLIGATION AT END OF YEAR........................... 38,637 19,422 ====== ====== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year.............. 19,808 10,693 Actual return on plan assets................................ 4,533 1,125 Employer contribution....................................... 9,307 9,215 Benefits paid............................................... (1,956) -- Foreign currency exchange rate changes...................... 3,649 (1,225) ------ ------ FAIR VALUE OF PLAN ASSETS AT END OF YEAR.................... 35,341 19,808 ====== ====== Funded status............................................... 3,296 (386) Unrecognized net actuarial gain/(loss)...................... (3,335) (2,982) ------ ------ NET AMOUNT RECOGNIZED....................................... (39) (3,368) ====== ====== AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS: Prepaid benefit cost........................................ (1,688) (3,368) Accrued benefit liability................................... 4,330 -- Intangible asset............................................ (677) -- Accumulated other comprehensive income...................... (2,004) -- ------ ------ Net amount recognized....................................... (39) (3,368) ====== ======
F-24 25 The following assumptions were used to develop the change in pension obligation and the change in plan assets of the foreign plans:
1999 1998 1997 % % % ---- ---- ---- Discount rate............................................... 7.75 6.75 7.0 Expected return on plan assets.............................. 8.0 8.0 8.0 Rate of compensation increase............................... 6.0 6.0 6.0
COMPONENTS OF NET PERIODIC BENEFIT COST
1999 1998 1997 E (000) E (000) E (000) ------- ------- ------- Service cost................................................ 12,283 6,829 3,566 Interest cost............................................... 1,544 831 712 Expected return on plan assets.............................. (1,766) (1,013) (460) Net amortization and deferral............................... 175 59 30 ------ ------ ----- NET PERIODIC BENEFIT COST................................... 12,236 6,706 3,848 ====== ====== =====
(23) OTHER RESERVES AND ACCRUED LIABILITIES
1999 1998 E (000) E (000) --------- ------- Current and deferred taxes.................................. 456,916 221,051 Other reserves and accrued liabilities...................... 809,645 478,005 --------- ------- 1,266,561 699,056 ========= =======
Accrued taxes include current and prior year tax obligations. Other reserves and accrued liabilities at December 31, are as follows:
1999 1998 E (000) E (000) ------- ------- Obligations to employees.................................... 342,525 294,183 STAR program obligations.................................... 157,397 16,327 Obligations to suppliers.................................... 142,267 88,923 Vacation entitlement........................................ 79,479 57,435 Customer claims............................................. 36,393 6,614 Fair value of foreign exchange contracts.................... 29,363 111 Warranty and service costs.................................. 7,955 3,861 Auditing and reporting costs................................ 3,261 1,878 Contribution to employees' accident insurance account....... 2,330 2,784 Other....................................................... 8,675 5,899 ------- ------- 809,645 478,005 ======= =======
Other reserves and accrued liabilities of E 107,376 thousand (E 11,908 thousand in 1998) are due in greater than one year. Obligations to employees relate primarily to variable bonus payments tied to earnings performance, paid out after the balance sheet date. Obligations to suppliers represent services received or goods purchased for which SAP has not yet been invoiced. Warranty and service costs accruals represent estimated future warranty obligations and other minor routine items provided under maintenance. F-25 26 STOCK APPRECIATION RIGHTS PLAN In 1998, the Company implemented a stock appreciation rights ("1998 STAR") plan. Under the 1998 STAR plan, eligible employees were entitled to receive cash equal to a portion of the appreciation in SAP AG preference shares during the measurement period, approximately one year. The grant price of the 1998 plan was DM 785 (E 401), the end price was DM 659 (E 337). Accordingly no payments were made with respect to the 1998 STARs. In May 1999, the Company granted stock appreciation rights ("1999 STAR") to eligible employees. Amounts to be paid are based upon the appreciation in SAP AG preference shares during the measurement period, approximately 9 months. The grant price was set at E 337. The end price for the 1999 Plan of E 822, was the average mid-session auction price of a preference share over the 20 business days immediately following the announcement of the SAP's preliminary 1999 full year earnings on January 24, 2000. As a result, each STAR has a value of E 485. Although the ultimate payout will depend upon forfeitures, management estimates additional expenses in 2000 ranging from E 460 million to E 500 million with slightly over 50% of such expenses recorded in the first quarter of 2000. Payments under the STAR plan will be made in three equal installments (July 2000, January 2001 and July 2001) provided that, subject to certain exceptions, the eligible employee continues to be actively employed on the payment dates. Compensation expenses related to STARs are recorded based upon the appreciation of the STAR's market price over the vesting period (May 1999 -- July 2001) after consideration of estimated forfeitures. Due to the reversal of E 16,327 thousand accrual for the 1998 STAR program, as well as the impact of currency exchange rates, the 1999 accrual exceeds the 1999 expense for this program. See note 5. LONG TERM INCENTIVE PLAN On January 18, 2000, the Company's shareholders approved the SAP AG 2000 Long Term Incentive Plan (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 chosen, the participant receives 25% more stock options than convertible bonds. Under the LTI 2000 Plan, each convertible bond having a E 3 nominal value may be converted into one Preference Share over a maximum of 10 years subject to certain vesting requirements. The conversion price is equal to the market price of a Preference Share as quoted on the XETRA trading system the day immediately preceding the granting. Each stock option may be exercised in exchange for one Preference share over a maximum of 10 years subject to the same vesting requirements. The exercise price varies based upon the outperformance of the preference share price appreciation versus the appreciation of the Goldman Sachs Technology Software Index from the day immediately preceding granting to the date being measured. In addition, the shareholders authorized the Company to issue a maximum of 6,250,000 additional Preference Shares (contingent capital) to satisfy shares needed in conjunction with the LTI 2000 Plan. Subject to certain regulations, the Company may also acquire shares from the market to satisfy obligations under the LTI 2000 Plan. (24) BONDS This item comprises the outstanding portion of the SAP AG 6% 1994/2004 convertible bond issue, which amounts to E 1,263 thousand (E 1,752 thousand as of December 31, 1998). The 1994/2004 convertible bond issue is comprised of 4,000,000 registered convertible bonds with a value of DM 5 each. These convertible bonds carry a right, which can be exercised on June 30, July 31, August 31, September 30, October 31, or November 30 of any year up until June 30, 2004, to convert to preference shares. The exercise of remaining conversion rights would result in the issuance of 493,886 no-par preference shares. F-26 27 (25) OTHER LIABILITIES Other liabilities based on due dates at December 31, are as follows:
TERM TERM LESS BETWEEN 1 TERM MORE BALANCE ON BALANCE ON THAN 1 YEAR AND 5 YEARS THAN 5 YEARS 12/31/1999 12/31/1998 E (000) E (000) E (000) E (000) E (000) ----------- ----------- ------------ ---------- ---------- Bank loans and overdrafts............... 24,600 31,637 13 56,250 120,994 Advance payments received............... 63,626 2,687 -- 66,313 78,386 Accounts payable........................ 300,799 33 -- 300,832 230,174 Payables due to unconsolidated affiliates............................ 2,769 -- -- 2,769 4,319 Taxes................................... 137,902 -- -- 137,902 92,906 Social security......................... 38,762 -- -- 38,762 30,151 Other liabilities....................... 51,849 36 14,522 66,407 40,872 --------- ------ ------ --------- --------- 620,307 34,393 14,535 669,235 597,802 ========= ====== ====== ========= =========
The liabilities are unsecured, excluding retention of title and similar rights customary in the industry. The bank loans and overdrafts relate primarily to loans taken out in Japan due to the low interest rates prevailing in that country (E 39,996 thousand). In 1998, liabilities with a remaining term not exceeding one year amounted to E 560,573 thousand and those with a remaining term exceeding five years amounted to E 12,520 thousand. (26) DEFERRED INCOME Deferred income consists mainly of deferred software license revenues. Such amounts will reverse as software, maintenance or service revenue depending upon the reasons for the deferral. D. INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS See the reconciliation from cash and cash equivalents to liquid assets in note 17. (27) NET CASH PROVIDED BY OPERATING ACTIVITIES Net cash provided by operating activities increased in 1999 and 1998 due to an increase in the Company's net income. The 1999 net cash increase was lowered by an increase in other assets, which primarily resulted from the sale of marketable equity securities for which the sales proceeds were received in January 2000. Interest payments in 1999, 1998 and 1997 were E 3,511 thousand, E 3,122 thousand and E 1,944 thousand, respectively. Income taxes paid in fiscal 1999, 1998 and 1997, net of refunds were E 419,471 thousand, E 450,575 thousand and E 286,694 thousand, respectively. (28) NET CASH USED BY INVESTING ACTIVITIES In 1998 net cash used by investing activities decreased as a result of a decrease in liquid assets with maturities greater than 90 days. This was not the case in 1999. Furthermore in 1999 financial assets increased mainly as a result of SAP's venture capital activities. This resulted in net cash used by investing activities being higher in 1999 than in 1998. In all years shown, cash provided by operating activities was sufficient to fund the Company's investing activities. (29) NET CASH USED FOR FINANCING ACTIVITIES Financing activities used cash primarily for payments of dividends for the prior year. Net cash used for financing activities was higher in 1999 than in 1998 as the total dividends paid in 1999 for 1998 were higher than the dividends paid in 1998 for 1997. F-27 28 E. ADDITIONAL INFORMATION (30) CONTINGENT LIABILITIES
1999 1998 E (000) E (000) ------- ------- Notes receivable sold....................................... 9 21 Guarantees and endorsements................................. 2,331 1,542 Guarantees for unused lines of credit and other commitments............................................... 278,066 223,705 Liabilities from the extension of collateral securities for other..................................................... 27,253 28,243 ------- ------- 307,659 253,510 ======= =======
Contingent liabilities listed above have not been accrued because the associated risk of loss is not probable. (31) OTHER FINANCIAL COMMITMENTS Other financial commitments amounted to E 562,721 thousand and E 442,469 thousand as of December 31, 1999 and 1998, respectively, and are comprised of commitments under rental and operating leases of E 488,814 thousand and E 356,541 thousand as of December 31, 1999 and 1998, respectively, and purchase commitments of E 73,907 thousand and E 85,928 thousand as of December 31, 1999 and 1998, respectively. Commitments under rental and operating leasing contracts as of December 31, 1999:
E (000) ------- Due 2000.................................................... 148,346 Due 2001.................................................... 113,912 Due 2002.................................................... 66,864 Due 2003.................................................... 41,581 Due 2004.................................................... 33,189 Due thereafter.............................................. 84,922
Rent expense was E 182,064 thousand, E 143,271 thousand and E 103,315 thousand for the years ended December 31, 1999, 1998 and 1997, respectively. (32) LITIGATION AND CLAIMS The bankruptcy trustee of the U.S. company FoxMeyer Corp. ("FoxMeyer") has instituted legal proceedings against SAP America, Inc., the American subsidiary of SAP AG, and SAP AG, claiming damages in an amount in excess of $500 million, punitive damages and other relief. FoxMeyer was a pharmaceutical wholesaler that filed for bankruptcy protection in 1996. FoxMeyer's bankruptcy trustee has alleged that SAP America, Inc. and SAP AG made false assurances concerning the functionality of the R/3 System software. A motion to dismiss brought by SAP AG and SAP America, Inc., was ruled by the court on September 13, 1999, dismissing five of the trustees counts against SAP America and one of the trustee's counts against SAP AG. The discovery phase of the litigation is now proceeding. While the ultimate outcome of this matter cannot be determined presently with certainty, the Company believes that FoxMeyer's claims in this action are without merit. The Company is vigorously defending against the claims, and believes that this action is not likely to have a material effect on its results of operations, financial condition or cash flows. SAP is subject to 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 the Company's results of operations, financial condition or cash flows. F-28 29 (33) FINANCIAL INSTRUMENTS Fair Value of Financial Instruments The Company utilizes various types of financial instruments in the ordinary course of business. 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. -- Derivative financial instruments: The fair value of derivatives generally reflects the estimated amounts the Company would pay or receive to terminate the contracts at the reporting date
AT DECEMBER 31, ------------------------------------------------ 1999 1998 ---------------------- ---------------------- CARRYING CARRYING VALUE FAIR VALUE VALUE FAIR VALUE E (000) E (000) E (000) E (000) -------- ---------- -------- ---------- Equity securities................................ 524,530 524,530 87,223 87,223 Debt securities.................................. 55,798 55,798 58,683 58,683 Other loans...................................... 22,171 22,171 18,482 18,482 Bank loans and overdrafts........................ 56,250 56,250 120,994 120,994 DERIVATIVE FINANCIAL INSTRUMENTS Forward exchange contracts....................... (29,355) (29,355) 310 310 Equity Swap...................................... 5,070 5,070 -- -- ------- ------- ------- ------- Total............................................ 634,464 634,464 285,692 285,692 ======= ======= ======= =======
Detailed information about the fair value of the Company's financial instruments is included in note 13. Derivative Financial Instruments As an internationally active enterprise, the Company is subject to risks from interest-rate and 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. The Company is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. To avoid these counterparty risks, the Company conducts business exclusively with major financial institutions. Foreign Exchange Risk Management Most of SAP AG's subsidiaries have entered into license agreements with SAP AG pursuant to which the 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 90 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 subsidiary's local currency in order to centralize foreign currency risk with SAP AG in Germany. Because these royalties are denominated in the various subsidiaries local currencies, whereas the functional currency of the Company is Euro, SAP AG's anticipated cash flows are subjected to foreign exchange risks. In addition, the delay between the date when the subsidiary records F-29 30 product revenue and the date when the subsidiary remits payment to SAP AG also exposes the Company to foreign exchange risk. The Company enters into derivative instruments, primarily foreign exchange forward contracts, to protect all or a portion of anticipated cash flows from foreign subsidiaries. Specifically, these foreign exchange 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, Australia and Canada. The Company uses foreign exchange forwards that generally have maturities of six months or less, which are usually 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 from the purchase date of the derivative instrument. However, management 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 Company's forecasts and anticipated exchange rate fluctuations in various currencies. Management 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 contracts are recorded at fair value in the consolidated balance sheets. Gains or losses on derivatives hedging anticipated cash flows are included in accumulated other comprehensive income, net of tax. When intercompany accounts receivables resulting from product revenue royalties are recorded, the applicable gain or loss is reclassified to other non-operating income/expense. Going forward, any additional gains or losses relating to that derivative are posted to other non-operating income/expense until the position is closed or the derivative expires. At December 31, 1999, approximately E 13.5 million of losses net of tax were deferred on foreign exchange contracts, of which E 13.0 are expected to be recognized into income within the next 12 months. During 1999 E 47.0 million of net losses were reclassified into earnings of which E 15.0 million was reclassified due to ineffectiveness when it became probable that the originally forecasted transactions would not occur in the period of time designated. Equity Derivative In conjunction with the 1999 sale of a certain equity security which resulted in substantial finance income, the Company entered into an equity swap whereby the Company receives or pays money to the extent the value of the underlying share price increases or decreases compared to the value of such shares at the inception of the swap. Amounts are received or paid monthly until the earlier of the expiration of the swap in 2000 or termination. At any time during the life of the derivative, both the Company and the counterparty may terminate the equity swap at fair value. The equity swap is recorded at fair value in the consolidated balance sheets. Gains or losses are based on changes in the fair market value and are immediately recognized in non-operating income. The notional values and fair values of the derivative financial instruments as of December 31, are as follows:
1999 1998 ---------------------- ---------------------- NOTIONAL NOTIONAL VALUE FAIR VALUE VALUE FAIR VALUE FOREIGN EXCHANGE DERIVATIVES E (000) E (000) E (000) E (000) - ---------------------------- -------- ---------- -------- ---------- Forward exchange contracts Gains.......................................... 4,978 8 227,519 421 Losses......................................... 476,752 (29,363) 86,611 (111) ------- ------- ------- ---- 481,730 (29,355) 314,130 310 ======= ======= ======= ==== Equity swap Gains.......................................... 69,030 5,070 -- --
F-30 31 (34) SEGMENT INFORMATION SAP discloses segment information in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Disclosures" ("SFAS 131"). SFAS 131 presents standards for reporting information about operating segments as well as for related disclosures about products and services and geographic areas. SFAS 131 generally 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. Through 1998, SAP did not have a structure of operational segments for which separate financial data was available. In 1999, SAP adopted the cost of sales-format for its consolidated income statements and changed the accounting principles under which its consolidated financial statements are prepared from German GAAP to U.S. GAAP. These changes also resulted in a major change in the Company's internal reporting. The Company now prepares its internal use financial data based upon its major line of business operating segments; however, such line of business information has only been prepared as far as it was necessary for consolidated income statement purposes. It would therefore be impracticable to disclose operating segment data for the fiscal years 1998 and 1997. SAP is organized by line of business and geographically. Furthermore, certain subsets of the Company are organized by industry segments. The Company's internal reporting system produces reports in which business activities are presented in a variety of different 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. Therefore, in accordance with SFAS 131, the line of business structure is regarded as constituting the operating segments. SAP has three line of business operating segments: "Product", "Consulting" and "Training". The Product segment is primarily engaged in the marketing and licensing of the Company's software products and in the performance of maintenance services that include technical support for the Company's products, assistance in resolving problems, the provision of user documentation, updates for software products, and new releases, versions and correction levels. The Consulting segment assists customers in the implementation of SAP software products. It furthermore supports the customer in project planning, feasibility studies, analyses, organizational consulting, system adaptation, system optimization, release change, and interface setup. The Training segment provides training services on the use of SAP software products and related topics. Accounting policies for each of the line of businesses 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 that results in minor differences between the figures reported internally and the respective figures of the financial statements. Depending on the type of service provided, SAP accounts for internal sales and transfers either on a cost basis or at current market prices.
1999 ---------------------------------------------------- PRODUCT CONSULTING TRAINING TOTAL E (000) E (000) E (000) E (000) ---------- ---------- ---------- ---------- External revenue.......................... 3,091,511 1,514,030 453,758 5,059,299 Internal revenue.......................... 68,253 276,905 60,007 405,165 ---------- ---------- ---------- ---------- TOTAL REVENUE............................. 3,159,764 1,790,935 513,765 5,464,464 ---------- ---------- ---------- ---------- Segment expenses.......................... (1,477,462) (1,527,995) (334,871) (3,340,328) ---------- ---------- ---------- ---------- SEGMENT CONTRIBUTION...................... 1,682,302 262,940 178,894 2,124,136 ========== ========== ========== ========== SEGMENT PROFITABILITY..................... 53.2% 14.7% 34.8%
F-31 32 Revenues The reported external revenue figures for the operating segments differ from the respective figures disclosed in the consolidated income statements as internally revenues are generally allocated to the segment that is responsible for the related project while the figures reported in the consolidated income statements reflect the kind of transaction regardless of the segment it was provided by. Internal revenues comprise revenues from transactions with other parts of the Company. The following table represents a reconciliation from the total of the segments' revenues to the total consolidated revenues as reported in the consolidated income statements:
1999 E (000) --------- Total revenue for reportable segments....................... 5,464,464 Elimination of internal revenues............................ (405,165) Other external revenues..................................... 62,298 Other differences........................................... (11,385) --------- Total consolidated revenues................................. 5,110,213 =========
Other external revenues result from services provided from outside the reportable segments. Other differences primarily comprise currency translation differences. Segment Contribution The segment contributions reported reflect only expenses that are allocated to the segments. They do not represent the actual margins for the operating segments since general and administrative, development and other expenses are not allocated to the segments. Interest revenues and expenses are not included in segment contributions. Depreciation, depletion and amortization expenses are mainly charged to the segments indirectly as part of cost allocations. They are therefore not identified separately on the segment level in the internal reporting system. It would therefore be impractical to provide such disclosure. The following table represents a reconciliation from the total of the segment contribution to the income before income taxes as reported on the face of the consolidated income statements:
1999 E (000) ---------- Total contribution for reportable segments.................. 2,124,137 Contribution from activities outside the reportable segments.................................................. (1,181,841) STAR expenses............................................... (140,324) Other differences........................................... (5,792) ---------- Operating income............................................ 796,180 ========== Other non-operating income/expenses, net.................... (51,008) Finance income, net......................................... 235,175 ---------- Income before income taxes.................................. 980,347 ==========
The contribution from activities outside the reportable segments mainly comprises research and development, general and administrative and other corporate expenses that are not allocated to the operating segments. Other differences primarily comprise currency translation differences. Segment Profitability A segment's profitability is calculated as the ratio of the segment's contribution to the segment's total revenues. F-32 33 Segment Assets The Company does not track assets or capital expenditures by operating segments. It would therefore be impractical to show assets, capital expenditures or related data by operating segments. Geographic Information The following table presents a summary of operations by geographic region. The Company did not prepare geographic information on a U.S. GAAP basis for 1997. The following amounts are based upon consolidated data. Therefore, the total of each of the following categories reconciles to the consolidated financial statements.
INCOME BEFORE SALES BY DESTINATION SALES BY OPERATION INCOME TAXES TOTAL ASSETS --------------------- --------------------- --------------------- --------------------- 1999 1998 1999 1998 1999 1998 1999 1998 E (000) E (000) E (000) E (000) E (000) E (000) E (000) E (000) --------- --------- --------- --------- --------- --------- --------- --------- Germany.................... 1,067,266 797,883 1,154,288 882,387 454,746 448,948 1,525,095 1,078,513 Rest of EMEA(1)............ 1,407,437 1,138,714 1,347,150 1,058,877 199,968 174,694 997,172 820,359 --------- --------- --------- --------- --------- --------- --------- --------- Total EMEA............... 2,474,703 1,936,597 2,501,438 1,941,264 654,714 623,642 2,522,267 1,898,872 --------- --------- --------- --------- --------- --------- --------- --------- United States.............. 1,638,277 1,564,320 1,630,094 1,570,541 234,974 257,866 1,634,374 1,002,311 Rest of Americas........... 507,528 437,602 506,255 437,230 75,657 58,334 333,556 223,737 --------- --------- --------- --------- --------- --------- --------- --------- Total Americas........... 2,145,805 2,001,922 2,136,349 2,007,771 310,631 316,200 1,967,930 1,226,048 --------- --------- --------- --------- --------- --------- --------- --------- Asia-Pacific............. 489,705 377,095 472,426 366,579 15,002 (7,890) 336,692 321,015 --------- --------- --------- --------- --------- --------- --------- --------- Total.................... 5,110,213 4,315,614 5,110,213 4,315,614 980,347 931,952 4,826,889 3,445,935 ========= ========= ========= ========= ========= ========= ========= =========
- --------------- (1) Europe/Middle East/Africa
PROPERTY, PLANT AND EMPLOYEES EQUIPMENT CAPITAL EXPENDITURES DEPRECIATION AS OF DECEMBER 31, --------------------- --------------------- --------------------- --------------------- 1999 1998 1999 1998 1999 1998 E (000) E (000) E (000) E (000) E (000) E (000) 1999 1998 --------- --------- --------- --------- --------- --------- --------- --------- Germany.................... 433,059 345,160 156,160 162,766 67,226 61,174 8,912 7,679 Rest of EMEA(1)............ 137,337 130,442 35,075 57,346 29,695 24,164 4,162 3,281 --------- --------- --------- --------- --------- --------- --------- --------- Total EMEA............... 570,396 475,602 191,235 220,112 96,921 85,338 13,074 10,960 --------- --------- --------- --------- --------- --------- --------- --------- United States.............. 177,433 130,866 43,690 90,128 16,994 13,899 4,408 4,463 Rest of Americas........... 16,586 15,624 8,286 9,149 7,598 7,892 1,597 1,521 --------- --------- --------- --------- --------- --------- --------- --------- Total Americas........... 194,019 146,490 51,976 99,277 24,592 21,791 6,005 5,984 --------- --------- --------- --------- --------- --------- --------- --------- Asia-Pacific............. 29,861 23,320 16,099 12,023 13,311 9,960 2,620 2,364 --------- --------- --------- --------- --------- --------- --------- --------- Total.................... 794,276 645,412 259,310 331,412 134,824 117,089 21,699 19,308 ========= ========= ========= ========= ========= ========= ========= =========
- --------------- (1) Europe/Middle East/Africa Germany incurs all research and development as SAP AG has title to all internally developed software. Approximately 73% of the research and development personnel are located in Germany, 6% in the rest of EMEA, 13% in the United States and 8% in the Asia-Pacific region. F-33 34 In 1998, the Company allocated total sales revenues by industry sectors for the first time. The six major groups of industry sectors generated the following total sales revenues for the year ended:
1999 1998 E (000) E (000) --------- --------- Process industries.......................................... 1,082,198 974,219 Discrete manufacturing...................................... 1,506,534 1,159,823 Fast-moving consumer goods.................................. 770,309 649,569 Utilities and communication................................. 605,609 452,143 Financial services and service providers.................... 831,031 826,657 Public sector............................................... 314,532 253,203 --------- --------- Total sales revenue......................................... 5,110,213 4,315,614 ========= =========
The following table represents software revenue by type for the year ended December 31, 1999:
1999 E (000) --------- R/3......................................................... 1,616,179 mySAP.com................................................... 128,792 New Dimension............................................... 187,420 --------- Total....................................................... 1,932,391 =========
(35) BOARD OF DIRECTORS Subject to the adoption of the dividend resolution by the shareholders at the Annual General Shareholders' Meeting on May 5, 2000, the total annual remuneration of the Supervisory Board for the year ended December 31, 1999, will amount to E 560 thousand. The total annual remuneration of the Executive Board for the year ended December 31, 1999 was E 5,529 thousand. Additionally, the Executive Board received E 3,351 thousand related to the STAR program. As of December 31, 1999 and 1998, the Company did not provide any loans, warranties or guaranties to the Executive Board. The pension accrual as of December 31, 1999, for former Executive Board members was E 1,263 thousand. The members of the Supervisory Board and Executive Board of SAP AG are listed on pages F-37 and F-43. (36) MAJOR DIFFERENCES BETWEEN GERMAN AND U.S. ACCOUNTING PRINCIPLES INTRODUCTION Being a holding corporation that owns the majority of voting rights in other enterprises, SAP AG is generally obliged to prepare consolidated financial statements in accordance with the accounting regulations set out in the German Commercial Code ("Handelsgesetzbuch -- HGB"). Section 292a HGB offers however an exemption from this obligation if consolidated financial statements are prepared and published that are in accordance with an internationally accepted accounting principle (U.S. GAAP or IAS). To make use of this exemption, the Company is required to describe the significant differences between the accounting methods applied and German accounting methods. FUNDAMENTAL DIFFERENCES German HGB accounting rules and U.S. GAAP are based on fundamentally different perspectives. While accounting under the German HGB emphasizes the principle of caution and creditor protection, the availability of relevant information for shareholder decision-making is the chief objective of U.S. GAAP. The comparability of the financial statements -- both from year to year and from company to company -- and the determination of performance on an accrual basis therefore rank higher under U.S. GAAP than under HGB. F-34 35 REVENUE RECOGNITION Under German HGB, payment terms generally have no impact on revenue recognition. Under the American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2") extended payment terms may indicate that license fees are not fixed and determinable and should therefore be recognized as payments become due. Generally, software maintenance agreements are concluded in conjunction with the software license agreement. Maintenance fees are mostly based upon a standard percentage of the related software license fee. Under German HGB, the expected costs of the maintenance service are accrued if a free-of-charge service period is provided. SOP 97-2 regards both maintenance fees below the standard percentage and the provision of free maintenance service as discounts to be considered in recognizing software revenue. Therefore the relative fair market value of nonstandard maintenance arrangements including free service periods reduce the related software license revenue and are recognized as maintenance revenue when such services are provided in subsequent periods. PENSION BENEFITS Until 1997, reserves for pension obligations in Germany were determined by the ongoing-concern method applying an interest rate of 6% per annum, in accordance with German tax law. In 1998 the Company adopted the Projected Unit Credit Method, which is required under U.S. GAAP and permitted under German tax law. In contrast to the ongoing-concern method, the Projected Unit Credit Method makes allowance for projected compensation and pension increases and is based on actual rates of interest derived from the long-term borrowing rates in the countries concerned. IN-PROCESS RESEARCH AND DEVELOPMENT Under German GAAP, the in-process research and development costs of companies acquired are not identified separately. Under U.S. GAAP, these costs are separately determined at the time of acquisition and charged to expense. DEFERRED TAXES Under German GAAP, deferred tax assets are not recorded for net operating losses. Under U.S. GAAP, deferred tax assets are recorded for net operating losses and a valuation allowance is established when it is more likely than not that deferred tax assets will not be realized. STOCK APPRECIATION RIGHTS PROGRAM ("STAR") The STAR program rewards selected employees based on the appreciation of SAP's preference share price over a predetermined period of time, the nine month period between May 1999 through February 2000, for the 1999 STAR program. The compensation arising from this measurement period is paid to participants in three installments. Under German GAAP, the total expense is recognized in 1999 as the STAR program was established as a 1999 compensation program. In addition, the accrual is based on the SAP Preference Share appreciation through the last date available before the preparation of the financial statements is finished. Under U.S. GAAP, the expense is recognized over a period beginning with the start of the STAR program in May 1999 and ending with the payment of the last installment in the middle of 2001. In addition, the accrual is based on the SAP preference share appreciation through December 31, 1999. Since the preference share price increased significantly after December 31, 1999, the accrual was larger under German GAAP. MARKETABLE SECURITIES Under German GAAP, marketable debt and equity securities are valued at the lower of acquisition cost or market value at the balance sheet date. Under U.S. GAAP, marketable debt and equity securities are categorized as either trading, available-for-sale or held to maturity. The Company's securities are considered to be available-for-sale and, therefore, are valued under U.S. GAAP at fair market value as of the balance sheet date. Unrealized gains and losses are excluded from earnings and reported net of deferred tax in other comprehensive income. F-35 36 DERIVATIVES Under German GAAP, most derivatives are not recorded on the balance sheet. Unrealized gains are not recognized, unrealized losses are accrued. Under SFAS 133 (which SAP implemented in 1999), derivatives are recorded on the balance sheet at their fair value. Gains or losses on derivatives qualifying as cash flow hedges are reported in other comprehensive income net of tax and are realized in earnings in conjunction with the gain or loss on the hedged item or transaction. EMPLOYEE DISCOUNTED STOCK PURCHASE PROGRAM Under certain employee discounted stock purchase programs, SAP employees are provided a discount on the purchase of SAP shares. Under German GAAP, all discounts provided under these programs are expensed whereas under U.S. GAAP, certain discounts provided are recorded as a direct reduction in additional paid-in capital. F-36 37 # EXECUTIVE BOARD Membership of supervisory boards and other comparable governing bodies of enterprises in Germany and other countries on December 31, 1999 - --------------------------------------------------------------------------------------------------- PROF. DR. H.C. HASSO PLATTNER Management Board, SAP (Schweiz) AG Systeme, Anwendungen Schriesheim-Altenbach Produkte der Datenverarbeitung, Biel, Switzerland Co-Chairman and CEO mySAP.com Internet strategy, industry solution development, basis technology, marketing, corporate communications PROF. DR. HENNING KAGERMANN Supervisory Board, DaimlerChrysler Services (debis) AG, Hockenheim Berlin Supervisory Board, IDS Scheer AG, Saarbrucken Co-Chairman and CEO Supervisory Board, Municher Ruckversicherungs-Gesellschaft Sales, distribution, consulting, and AG, Munich global customer relations, industry Supervisory Board, SAP Solutions GmbH, Freiberg a. N. solutions, strategic development projects, finance and administration PROF. DR. CLAUS E. HEINRICH Supervisory Board, SVC AG Schmidt Vogel Consulting, Walldorf Bielefeld Development of industry solutions, development SAP R/3 product, supply chain management, human resources GERHARD OSWALD Supervisory Board, SAP Systems Integration GmbH, Alsbach- Wiesloch Hahnlein SAP R/3 corporate services, IT infrastructure DR. PETER ZENCKE Supervisory Board, iXOS AG, Grasbrunn Gorxheimertal Supervisory Board, Pixelpark AG, Berlin Development of industry solutions, customer relationship management, e-business, coordination of global research
EXTENDED MANAGEMENT BOARD - ---------------------------------------------------------------------------------------------------- KARL-HEINZ HESS Stutensee Basis and mySAP.com development DIETER MATHEIS Muhlhausen Chief Financial Officer KEVIN S. MCKAY Doylestown, PA, United States SAP America, Inc. (CEO) Americas LEO APOTHEKER Fourqueux, France Southwest Europe as of July 22, 1999 LES HAYMAN Singapore Asia-Pacific as of July 22, 1999
F-37 38 SUPERVISORY BOARD Membership of other supervisory boards and comparable governing bodies of enterprises in Germany and other countries on December 31, 1999 - --------------------------------------------------------------------------------------------------- DIETMAR HOPP Supervisory Board, SAP Solutions GmbH, Freiberg a.N. Walldorf Chairperson HELGA CLASSEN(*) St. Leon-Rot Service manager Deputy Chairperson WILLI BURBACH(*) Ratingen Developer DR. WILHELM HAARMANN Supervisory Board, iXOS AG, Grasbrunn Kronberg/Taunus Supervisory Board, Haussler AG, Stuttgart RA WP StB Haarmann, Hemmelrath & Management Board, R. Oldenbourg GmbH & Co. KG, Munich Partner Supervisory Board, Immobilien- und Baumanagement der Frankfurt am Main Bankgesellschaft Berlin GmbH, Berlin BERNHARD KOLLER(*) Walldorf Development leader Remote Services KLAUS-DIETER LAIDIG Supervisory Board, Heiler Software AG, Stuttgart Boblingen Supervisory Board, Henninger-Brau AG, Frankfurt Business consultant Supervisory Board, Varetis AG, Munich Laidig Business Consulting GmbH Board of Directors, Agile Software Corporation, San Jose, CA, United States Board of Directors, Latitude Communications, Santa Clara, CA, United States DR. GERHARD MAIER(*) Wiesloch Development manager HARTMUT MEHDORN Supervisory Board, Lufthansa Technik AG, Hamburg Heidelberg Supervisory Board, DB Station & Service AG, Berlin Chairman of the Executive Board Supervisory Board, DB Reise & Touristik AG, Berlin Deutsche Bahn AG, Berlin Supervisory Board, DB Regio AG, Berlin Supervisory Board, DB Cargo AG, Berlin Supervisory Board, DB Netz AG, Berlin DR. BARBARA SCHENNERLEIN(*) Dresden Consultant ALFRED SIMON(*) Malsch Documentation shipping associate DR. DIETER SPORI Advisory Council, Contraf Nicotex Tobacco GmbH, Heilbronn Backnang Head of Corporate Representation Federal Affairs, DaimlerChrysler AG, Berlin DR. H.C. KLAUS TSCHIRA Supervisory Board, Lion bioscience AG, Heidelberg Heidelberg Managing director, Klaus Tschira Foundation
- --------------- (*) elected by the employees F-38 39 INVESTMENTS OF SAP AKTIENGESELLSCHAFT AND THE COMPANY As of December 31, 1999, figures in E (000), except for % and employee information
NUMBER OF NET INCOME/ EMPLOYEES OWNERSHIP (LOSS)(1) EQUITY AS OF % REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2) --------- --------- ----------- ------------- ------------- I. AFFILIATED COMPANIES GERMANY SAP Retail Solutions GmbH & Co., St. Ingbert (4).......................... 100 79,807 16,150 24,916 570 SAP Systems Integration GmbH, Alsbach- Hahnlein................................. 60 63,584 5,670 18,809 347 SAP Solutions GmbH Systeme, Anwendungen, Produkte in der Datenverarbeitung, Freiberg a.N............................. 90 35,269 7,169 2,363 226 Steeb Anwendungssysteme GmbH, Abstatt...... 100 28,869 1,907 6,526 158 SAP CRM Consulting GmbH & Co. KG, Mannheim................................. 100 21,658 2,220 3,473 208 SAP Learning Solutions GmbH, Immenstaad.... 85 3,584 404 1,373 16 e-SAP.de GmbH & Co. KG, Walldorf(3)........ 100 925 (468) 1,631 33 DACOS Software Holding GmbH, St. Ingbert... 100 -- 3,339 8,617 -- SAP Retail Solutions Beteiligungsgesellschaft mbH, Walldorf... 100 -- 5 30 -- e-SAP.de Beteiligungs GmbH, Walldorf(3).... 100 -- -- 25 -- SAP CRM Consulting Beteiligungsgesellschaft mbH, Mannheim(3)......................... 100 -- (1) 24 -- REST OF EUROPE, MIDDLE EAST AND AFRICA SAP (UK) Limited, Feltham/UK............... 100 248,534 (2,007) 64,669 560 SAP France Systemes Applications et Progiciels S.A., Paris/France............ 100 203,559 13,618 31,368 522 SAP (Schweiz) AG Systeme, Anwendungen und Produkte der Datenverabeitung, Biel/ Switzerland.............................. 100 176,667 34,462 103,578 315 S.A.P. Italia Sistemi Applicazioni Prodotti in Data Processing S.p.A., Milan/Italy... 100 109,915 14,296 31,034 248 SAP Nederland B.V., 's Hertogenbosch/The Netherlands.............................. 100 106,401 16,611 36,013 318 SAP Osterreich, GmbH, Vienna/Austria....... 100 74,296 8,612 26,411 218 SAP ESPANA Y PORTUGAL SISTEMAS APLICACIONES Y PRODUCTOS EN LA INFORMATICA, S.A., Madrid/Spain...... 100 67,843 6,478 17,851 184 NV SAP BELGIUM SA, Brussels/Belgium........ 100 67,365 9,790 21,188 165 SAP Svenska Aktiebolag, Stockholm/Sweden... 100 52,772 4,551 14,403 183 SYSTEMS APPLICATIONS PRODUCTS (SOUTHERN AFRICA) (PTY) LTD, Woodmead/South Africa................................... 100 44,486 1,492 11,037 293 SAP Danmark A/S, Brondby/Denmark........... 100 44,278 7,893 13,231 180 SAP Finland Oy, Espoo/Finland(3)........... 100 34,492 4,022 13,993 102 SAP Portugal Sistemas, Aplicacoes e Productos Informaticos, Sociedade Unipessoal, Lda. Paco d'Arcos/Portugal(3)...................... 100 33,885 4,415 12,536 87
F-39 40
NUMBER OF NET INCOME/ EMPLOYEES OWNERSHIP (LOSS)(1) EQUITY AS OF % REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2) --------- --------- ----------- ------------- ------------- SAP CR, spol. s.r.o., Prague/Czech Republic................................. 100 32,160 2,156 10,138 141 SAP Norge AS, Lysaker/Norway(3)............ 100 25,805 (3,647) 8,528 88 SAP Polska Sp. z.o.o., Warsaw/Poland....... 100 23,451 173 6,289 121 SAP Hungary Rendszerek, Alkalmazasok es Termekek az Adatfeldolgozasban Informatikai Kft., Budapest/Hungary...... 100 13,149 588 5,043 86 SAP Slovensko s.r.o., Bratislava/Slovakia...................... 100 9,189 673 934 42 SAP Consult C.I.S., Moscow/Russia.......... 100 8,707 1,347 1,778 85 SAP Retail Solutions Nederland B.V., 's Hertogenbosch/The Netherlands(4)......... 100 6,792 26 227 -- SAP Service and Support Centre (Ireland) Limited, Dublin/Ireland.................. 100 5,824 1,818 3,608 99 SAP-OFEK Ltd., Industrial Area Herzliya/ Israel(3)................................ 58 4,250 810 1,974 47 SAP Labs France S.A., Paris/France......... 100 2,409 266 2,043 17 CADRA S.A., Chazay D'Azergues/France(3),(4)................. 100 2,268 192 1,784 55 SAP Ireland Ltd., Dublin/Ireland........... 100 -- 811 26,607 6 AMERICAS SAP America, Inc., Newtown Square/USA...... 100 1,617,889 87,787 528,637 3,584 SAP Canada Inc., North York/Canada......... 100 187,065 16,545 43,041 469 SAP BRASIL LTDA., Sao Paulo/Brazil......... 100 137,104 8,385 20,714 505 SAP Labs, Inc. , Palo Alto,CA/USA(4)....... 100 125,045 4,736 12,713 490 SAP MEXICO S.A. DE C.V., Mexico City/ Mexico................................... 100 91,888 11,724 31,373 255 SAP Public Sector and Education, Inc., Washington D.C./USA(4)................... 100 88,370 (19,917) (26,772) 233 SAP ARGENTINA S.A., Buenos Aires/ Argentina................................ 100 52,655 5,903 21,889 184 SAP Andina y del Caribe S.A., Caracas/ Venezuela................................ 100 50,544 5,697 8,935 184 Campbell Software Inc., Chicago/USA(3),(4)....................... 100 13,359 668 4,408 58 SAP International, Inc., Miami, FL/USA(4)................................ 100 11,493 (1,086) (2,013) 43 SAP Investment Inc., Wilmington, DE/USA(4)................................ 100 -- 71,279 388,705 -- ASIA-PACIFIC SAP Japan Co., Ltd., Tokyo/Japan........... 100 184,994 7,994 2,455 999 SAP AUSTRALIA PTY LTD, Sydney/ Australia... 100 152,582 3,389 20,221 367 SAP Asia Pte. Ltd., Singapore.............. 100 61,969 2,360 13,761 268 SAP India Systems, Applications and Products in Data Processing Private Limited, Bangalore/India(4).............. 100 31,766 2,950 10,240 106 SAP Taiwan Co. Ltd., Taipei/Taiwan......... 100 21,220 4,791 11,173 86 SAP Korea Limited, Seoul/Korea............. 100 19,265 884 10,034 121 SAP Malaysia Sdn. Bhd., Kuala Lumpur/ Malaysia................................. 100 18,834 1,317 4,895 69 SAP (Beijing) Software System Co., Ltd., Beijing/China............................ 100 18,177 1,028 4,102 182 SAP New Zealand Limited, Auckland/New Zealand.................................. 100 12,819 119 6,551 43
F-40 41
NUMBER OF NET INCOME/ EMPLOYEES OWNERSHIP (LOSS)(1) EQUITY AS OF % REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2) --------- --------- ----------- ------------- ------------- SAP HONG KONG CO. LIMITED, Taikoo Shing/Hong Kong.......................... 100 12,148 1,393 6,367 56 SAP Philippines, Inc., Makati City/Philippines......................... 100 7,566 598 1,873 39 SAP SYSTEMS, APPLICATIONS AND PRODUCTS IN DATA PROCESSING (THAILAND) LTD., Bangkok/Thailand......................... 100 7,347 30 3,682 48 SAP Labs India Pvt. Ltd. Bangalore/India... 100 6,694 (5) 3,256 224 PT SAP Asia, Jakarta/Indonesia............. 100 2,027 219 (434) 12 SAP India (Holding) Pte. Ltd., Singapore... 100 -- (14) 406 --
- --------------- (1) These figures do not include eliminations resulting from consolidation and therefore do not reflect the contribution of these Companies included in the consolidated financial statements. (2) As of December 31, 1999, including managing directors. (3) Consolidated for the first time in 1999. (4) Represents a wholly owned entity of a subsidiary.
NUMBER OF NET INCOME/ EMPLOYEES OWNERSHIP (LOSS)(1) EQUITY AS OF NAME AND LOCATION OF COMPANY % REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2) - ---------------------------- --------- --------- ----------- ------------- ------------- II. OTHER ASSOCIATED COMPANIES SRS AG, Dresden/Germany................ 50.0 53,274 5,893 9,956 410 Pandesic LLC, Santa Clara/ USA......... 50.0 7,064 (44,109) (8,400) 278 Industry To Industry Inc., Boston/USA(3)........................ 34.3 161 (8,173) 20,989 29 SAP Hellas S.A. -- SOCIETE ANONYME OF SYSTEMS, APPLICATIONS & PRODUCTS IN DATA PROCESSING, Athens/ Greece(5)... 25.0 -- -- -- --
- --------------- (1) These figures do not include eliminations resulting from consolidation and therefore do not reflect the contribution of these companies included in the consolidated financial statements. (2) As of December 31, 1999, including managing directors (3) Consolidated for the first time in 1999 (4) Represents a wholly owned entity of a subsidiary F-41 -----END PRIVACY-ENHANCED MESSAGE-----