SAP Announces Preliminary 2007 Third Quarter and Nine Months Results
by SAP AG
Company Reports Another Quarter of Strong Growth in Revenues from Software and Software Related Services
Earnings Per Share Increased 13%
SAP AG today announced its preliminary financial results for the third quarter and nine months ended September 30, 2007.
HIGHLIGHTS - Third Quarter 2007
Revenues
-- Software and software related service revenues for the 2007 third
quarter were euro 1.74 billion (2006: euro 1.54 billion(1)), which is
an increase of 13% (16% at constant currencies(2)) compared to the
third quarter of 2006.
-- Software revenues for the third quarter of 2007 were euro 715 million
(2006: euro 642 million(1)), representing an increase of 11% (15% at
constant currencies(2)) compared to the third quarter of 2006.
-- Total revenues were euro 2.42 billion for the 2007 third quarter (2006:
euro 2.21 billion(1)), which represented an increase of 9% (13% at
constant currencies(2)) compared to the same period of 2006.
Income
-- Operating income for the third quarter of 2007 was euro 601 million
(2006: euro 549 million), which was an increase of 9% compared to the
third quarter of 2006.
-- The operating margin for the 2007 third quarter was 24.8%, which was
flat compared to the same period last year. The 2007 third quarter
operating margin was impacted by investments of approximately euro 35
million to build a business around the new SAP Business ByDesign
solution to address new untapped segments in the midmarket.
-- Net income for the 2007 third quarter was euro 408 million (2006: euro
370 million), representing an increase of 10% compared to the third
quarter of 2006.
-- Earnings per share for the third quarter of 2007 was euro 0.34 (2006:
euro 0.30), which was an increase of 13% compared to the same period
last year.
Core Enterprise Applications Vendor Share(3)
SAP continued to gain share in the third quarter of 2007, marking the seventh consecutive quarter of share gains. Based on software and software related service revenues on a rolling four quarter basis, SAP's worldwide share of Core Enterprise Applications vendors(2), which account for approximately $35.9 billion in software and software related service revenues as defined by the Company based on industry analyst research, increased to 27.0% for the four quarter period ended September 30, 2007 compared to 26.0% for the four quarter period ended June 30, 2007, and 23.5% for the four quarter period ended September 30, 2006, representing a year-over-year share gain of 3.5 percentage points.
"We are pleased to announce another strong quarter in which we continued to report double-digit growth in software and software related service revenues in each region and additional share gains among core enterprise application vendors," said Henning Kagermann, CEO of SAP.
Mr. Kagermann continued, "The third quarter also showed excellent results on the product side. For our established business we demonstrated further progress on the business process platform with a continued increase in the number of customers adopting both SAP ERP and SAP NetWeaver. For our new business, we held the branding launch of our new breakthrough innovation solution SAP Business ByDesign, which has gone live with 20 customers. We look forward to the remainder of the year, as we continue to invest in our business for future growth."
HIGHLIGHTS - Nine Months 2007
Revenues
-- Software and software related service revenues for the first nine
months of 2007 were euro 4.97 billion (2006: euro 4.41 billion(1)),
which is an increase of 13% (16% at constant currencies(2)) compared to
the first nine months of 2006.
-- Software revenues for the 2007 nine month period were euro 1.99 billion
(2006: euro 1.76 billion(1)), representing an increase of 13% (17% at
constant currencies(2)) compared to the 2006 nine month period.
-- Total revenues were euro 7.01 billion for the first nine months of 2007
(2006: euro 6.45 billion(1)), which represented an increase of 9% (12%
at constant currencies(2)) compared to the same period of 2006.
Income
-- Operating income for the 2007 nine month period was euro 1.61 billion
(2006: euro 1.48 billion), which was an increase of 9% compared to the
2006 nine month period.
-- The operating margin for the first nine months of 2007 was 23.0%, which
was flat compared to the same period last year. The 2007 nine month
operating margin was impacted by investments of approximately euro 85
million to build a business around the new SAP Business ByDesign
solution to address new untapped segments in the midmarket.
-- Net income for the 2007 nine month period was euro 1.17 billion (2006:
euro 1.07 billion), representing an increase of 9% compared to the same
period of 2006. Net income for the 2007 nine month period was
positively impacted by a second quarter effective tax rate of 25.8%. As
in the second quarter of 2006, the effective tax rate was partly
influenced by non-recurring tax effects.
-- Earnings per share for the 2007 nine month period was euro 0.96 (2006:
euro 0.87), which was an increase of 10% compared to the same period
last year. Earnings per share for the 2007 nine month period was
positively impacted by a second quarter effective tax rate of 25.8%. As
in the second quarter of 2006, the effective tax rate was partly
influenced by non-recurring tax effects.
Cash Flow
Operating cash flow for the first nine months of 2007 was euro 1.34 billion (2006: euro 1.29 billion million). Free cash flow(2) for the 2007 nine month period was euro 1.05 billion (2006: euro 1.05 billion), which was 15% of total revenues (2006: 16%). At September 30, 2007, the Company had euro 2.6 billion in cash and cash equivalents and short term investments (December 31, 2006: euro 3.3 billion).
Share Buy-Back
In the third quarter of 2007, the Company bought back 6.2 million shares at an average price of euro 40.30 (total amount: euro 250 million). This compares to 600,000 shares (total amount: euro 22 million) bought back in the third quarter of 2006. Of the total shares purchased in the third quarter of 2007, approximately 3.0 million shares were used to serve exercises under SAP's share based compensation programs. The number of shares bought back in the third quarter of 2007 represented 0.50% of the total shares outstanding. On September 7, 2007, the SAP Executive Board announced that it decided to decrease the treasury stock by canceling 23,000,000 shares, representing approximately 1.81% of the capital stock before this corporate action. As of September 30, 2007, the Company held treasury stock in the amount of 42.2 million shares (approximately 3.4% of total shares outstanding) at an average price of euro 36.04. In the first nine months of 2007, the company invested euro 756 million buying back approximately 20.4 million shares at an average price of euro 37.05. Given the Company's strong free cash flow generation, SAP plans to spend a similar amount for share buy-backs in the fourth quarter of 2007 as it did in the third quarter of 2007 under its current share buy-back authorization. All prior year share related numbers above have been adjusted to account for the capital share increase that took effect in December 2006 that effectively increased the number of shares outstanding four-fold.
BUSINESS OUTLOOK
The Company reiterated its outlook and refined it for software and software related service revenues for the full-year 2007.
-- The Company reaffirmed its expectations for full-year 2007 software and
software related service revenues to increase in a range of 12% to 14%
at constant currencies(2) compared to 2006 growth of 12% at constant
currencies(2), but refined its expectations by indicating that it now
expects to reach the upper end of the range.
-- In order to address additional growth opportunities in new, untapped
segments in the midmarket, the Company will invest an additional euro
300 million to euro 400 million over eight quarters to build up a new
business, of which approximately euro 85 million was already invested
over the first three quarters of 2007. Depending on the exact timing of
these accelerated investments, this is equivalent to the Company
reinvesting approximately one to two percentage points of margin in
2007 into additional future growth opportunities. Therefore, the
Company expects the full-year 2007 operating margin to be in the range
of 26.0% to 27.0% compared to the 2006 operating margin of 27.3%. This
remains unchanged from the previous outlook.
-- The Company is projecting an effective tax rate of 32.5% to 33.0% for
2007. This remains unchanged from the previous outlook.
Regional Performance - Third Quarter 2007
Third Quarter 2007 Software and Software Related Service Revenues by
Region (in euro millions, unaudited)
SAP Group
Software Software
& SW & SW
Related Related
Service Service Constant
Revenues Revenues Currency
Q3 2007 Q3 2006 Change % Change %Change
Total 1,739 1,544 +195 +13 % +16 %
EMEA 914 803 +111 +14 % +15 %
Asia Pacific Japan 237 196 +41 +21 % +24 %
Americas 588 545 +43 +8 % +15 %
Third Quarter 2007 Software Revenues by Region (in euro millions,
unaudited)
SAP Group
Software Software Constant
Revenues Revenues Currency
Q3 2007 Q3 2006 Change % Change %Change
Total 715 642 +73 +11 % +15 %
EMEA 331 290 +41 +14 % +15 %
Asia Pacific Japan 119 95 +24 +25 % +28 %
Americas 265 257 +8 +3 % +11 %
Third Quarter 2007 Total Revenues by Region (in euro millions, unaudited)
SAP Group
Revenues Revenues Currency
Q3 2007 Q3 2006 Change % Change %Change
Total 2,422 2,214 +208 +9 % +13 %
EMEA 1,242 1,125 +117 +10 % +11 %
Asia Pacific Japan 318 273 +45 +16 % +20 %
Americas 862 816 +46 +6 % +13 %
Regional Performance - Nine Months 2007
Nine Months 2007 Software and Software Related Service Revenues by Region
(in euro millions, unaudited)
SAP Group
Software Software
& SW & SW
Related Related
Service Service
Revenues Revenues Constant
9 Mos 9 Mos Currency
2007 2006 Change % Change %Change
Total 4,965 4,409 +556 +13 % +16 %
EMEA 2,582 2,280 +302 +13 % +14 %
Asia Pacific Japan 656 565 +91 +16 % +21 %
Americas 1,727 1,564 +163 +10 % +18 %
Nine Months 2007 Software Revenues by Region (in euro millions,
unaudited)
SAP Group
Software Software
Revenues Revenues Constant
9 Mos 9 Mos Currency
2007 2006 Change % Change %Change
Total 1,993 1,760 +233 +13 % +17 %
EMEA 918 796 +122 +15 % +16 %
Asia Pacific Japan 303 249 +54 +22 % +26 %
Americas 772 715 +57 +8 % +16 %
Nine Months 2007 Total Revenues by Region (in euro millions, unaudited)
SAP Group
Revenues Revenues Constant
9 Mos 9 Mos Currency
2007 2006 Change % Change %Change
Total 7,012 6,450 +562 +9 % +12 %
EMEA 3,590 3,267 +323 +10 % +11 %
Asia Pacific Japan 889 783 +106 +14 % +18 %
Americas 2,533 2,400 +133 +6 % +13 %
KEY EVENTS - Third Quarter 2007
-- In the third quarter of 2007, SAP announced major contracts in several
key regions: Belgian Ministry of Budget and Control, Thames Water
Utilities Ltd, and El Corte Ingles, S.A. in EMEA; Southwest Airlines
Co., Royal Bank of Canada, and Goodyear Tire & Rubber Company in the
Americas; Samsung SDS Co., Ltd., Tang Shan Iron and Steel Company,
Ltd., and Trouw Nutrition Indonesia in Asia Pacific Japan.
-- A major milestone in the third quarter was the signature of a Global
Enterprise Agreement with Apple, Inc. SAP has been a strategic
software partner for Apple since 1995, and Apple has deployed almost
the entire SAP Business Suite.
-- Demonstrating ongoing leadership in providing innovative solutions to
retailers worldwide, Wal-Mart Stores, Inc. will enhance its financial
information systems using SAP. Wal-Mart chose SAP ERP Financials for
its ability to support the retailer's global expansion and its need to
efficiently respond to changes in the business and regulatory
landscape. Wal-Mart plans to implement SAP globally in phases, with
the first phase expected to be completed in calendar year 2010.
-- On September 27, 2007, SAP announced that Gartner Research, the
renowned independent research firm, positioned SAP in the leader's
quadrant in the recent "Magic Quadrant for Horizontal Portal Products,
2007" report, based on completeness of vision and ability to execute.
Gartner defines leaders in the Magic Quadrant as companies that "have a
full range of capabilities to support all portal deployment scenarios,
and have demonstrated consistent product delivery over a considerable
period to meet customer needs, significant product innovation and
continued success in selling to new customers."
-- On September 26, 2007, SAP announced that Gartner Research has
recognized SAP as the worldwide 2006 market share leader for the
enterprise resource planning (ERP), customer relationship management
(CRM) and supply chain management (SCM) markets.
-- On September 19, 2007, SAP unveiled SAP Business ByDesign, the most
complete on-demand business software solution specifically addressing a
new market of prospective, fast-growing midsize customers. Designed
around four key principles-completeness, ease of use, adaptability and
significantly cutting total cost of ownership (TCO)-SAP Business
ByDesign delivers an on-demand software solution with built-in service
and support.
-- On September 18, 2007, SAP and Misys plc announced an agreement to
deliver integrated solutions for the global banking industry. The
integrated universal banking solution will integrate key SAP components
of SAP for Banking into Misys BankFusion.
-- On September 11, 2007, SAP and Callatay & Wouters announced a
collaboration to offer an end-to-end core banking solution for midsize
banks. The strategic collaboration will deploy Callatay & Wouters'
proven core banking product "Thaler" and SAP analytics capabilities on
a business process platform for banks globally.
-- On September 11, 2007, SAP announced the acquisition of the software
license and maintenance business of SAP Arabia, its exclusive long-term
partner in the region. Under the terms of the agreement, SAP will
acquire selected existing assets, including all existing software
license and maintenance customer contracts and trademarks from SAP
Arabia. Aligned with SAP's global go-to-market strategies, SAP will
first establish subsidiaries in Dubai and Saudi Arabia to reinforce its
ongoing commitment to deliver value and continuous innovation to
customers in the region.
-- On September 7, 2007, SAP announced that the Company reduced its
capital stock from euro 1,269,040,112 to euro 1,246,040,112 by
canceling 23,000,000 treasury shares, representing 1.8% of the capital
stock before this corporate action.
-- On September 5, 2007, SAP announced the availability of a new SAP Best
Practices offering in support of SAP GRC Access Control, a market-
leading application for monitoring and enforcing user access and
authorization controls.
-- On August 28, 2007, SAP announced accelerated customer adoption and
innovative new processes for SAP Real Estate Management, a full-
featured application for managing all types of real estate. Companies
in 40 countries across more than 20 industries use the application to
gain better control and analysis of their real estate portfolios.
-- On the occasion of the first-ever visit to India by the entire SAP
Executive Board, SAP announced on August 28, 2007 an expansion of their
existing partnership with the Global IT Services Division of Wipro
Limited aimed at enhancing development and implementation of best-in-
class solutions, especially around enterprise service-oriented
architecture (Enterprise SOA). As part of the agreement, Wipro will
become an SAP global services partner and will establish a solutions
lab in Bangalore.
-- During the SAP Executive Board visit to India, SAP also announced on
August 28, 2007, that within the space of just one year, SAP has
doubled the number of Indian customers to 2,000. SAP also reiterated
its plans to invest $1 billion in the country by 2010. The main portion
of SAP's investment in India is planned for expanding the company's
global development and services and support hub in India. SAP Labs
India in Bangalore and Gurgaon will also benefit from the investment.
-- Furthering its commitment to deliver business value via innovation, SAP
on August 8, 2007, unveiled its road map for the SAP Product Lifecycle
Management (SAP PLM) application. Over the next three years, the
extended application will build on existing SAP PLM capabilities to
provide an end-to-end solution that helps companies accelerate and
simplify the "business of products" as well as effectively collaborate
with their business networks.
-- As part of its ongoing commitment to deliver continuous innovation to
customers, SAP announced on July 31, 2007, the availability of the
second enhancement package for the SAP ERP application. Next to
functional enhancements, the enhancement package includes sector
specific innovations for the media, utilities, telecommunications, and
trading industries.
-- On July 30, 2007, SAP announced five new SAP Business All-in-One
prepackaged industry solutions for small businesses in Germany.
Consolidated Statements of Income SAP Group
3rd quarter
UNAUDITED
in euro millions
Change
const.
2007 2006 Change curr.(2)
Software revenue 715 642 11 % 15 %
Support revenue 978 866 13 % 16 %
Subscription and other software
related service revenue 46 36 28 % 31 %
Software and software related service
revenue 1,739 1,544 13 % 16 %
Consulting revenue 544 539 1 % 4 %
Training revenue 102 91 12 % 15 %
Other service revenue 28 24 17 % 17 %
Professional services and other
service revenue 674 654 3 % 6 %
Other revenue 9 16 -44 % -38 %
Total revenue 2,422 2,214 9 % 13 %
Cost of software and software related
services -334 -268 25 %
Cost of professional services and
other services -502 -499 1 %
Research and development -357 -332 8 %
Sales and marketing -512 -451 14 %
General and administration -121 -112 8 %
Other income/expense, net 5 -3 N/A
Total operating expenses -1,821 -1,665 9 %
Operating income 601 549 9 %
Other non-operating income/expense, net -1 -4 -75 %
Financial income, net 32 26 23 %
Income before income taxes and minority
interests 632 571 11 %
Income taxes -223 -200 12 %
Minority interests -1 -1 0 %
Net income 408 370 10 %
Earnings per share - basic in euro 0.34 0.30 13 %
Weighted average number of shares
(in thousands), treasury stock
excluded 1,206,193 1,221,709
Effective tax rate 35.3 % 35.0 %
Operating margin 24.8 % 24.8 %
Consolidated Statements of Income SAP Group
for nine months ended September 30
UNAUDITED
in euro millions
Change
const.
2007 2006 Change curr.(2)
Software revenue 1,993 1,760 13 % 17 %
Support revenue 2,843 2,556 11 % 15 %
Subscription and other software
related service revenue 129 93 39 % 43 %
Software and software related service
revenue 4,965 4,409 13 % 16 %
Consulting revenue 1,618 1,641 -1 % 2 %
Training revenue 300 278 8 % 12 %
Other service revenue 84 69 22 % 26 %
Professional services and other
service revenue 2,002 1,988 1 % 4 %
-15
Other revenue 45 53 % -9 %
Total revenue 7,012 6,450 9 % 12 %
Cost of software and software related
services -935 -805 16 %
Cost of professional services and
other services -1,531 -1,518 1 %
Research and development -1,049 -959 9 %
Sales and marketing -1,530 -1,361 12 %
General and administration -367 -331 11 %
Other income/expense, net 11 6 83 %
Total operating expenses -5,401 -4,968 9 %
Operating income 1,611 1,482 9 %
Other non-operating income/expense, net -8 -19 -58 %
Financial income, net 103 91 13 %
Income before income taxes and minority
interests 1,706 1,554 10 %
Income taxes -536 -485 11 %
Minority interests -3 -2 50 %
Net income 1,167 1,067 9 %
Earnings per share - basic in euro 0.96 0.87 10 %
Weighted average number of shares
(in thousands), treasury stock
excluded 1,209,416 1,228,574
Effective tax rate 31.4 % 31.2 %
Operating margin 23.0 % 23.0 %
Consolidated Balance Sheets SAP Group
CONDENSED AND UNAUDITED
in euro millions
Assets
09/30/2007 12/31/2006 Change
Cash and cash equivalents 1,609 2,399 -33 %
Short-term investments 962 931 3 %
Accounts receivable, net 2,158 2,440 -12 %
Other assets, inventories 438 371 18 %
Deferred income taxes 117 108 8 %
Prepaid expenses/deferred charges 100 75 33 %
Current assets 5,384 6,324 -15 %
Goodwill, intangible assets, net 1,602 1,250 28 %
Property, plant, and equipment, net 1,291 1,206 7 %
Investments 78 95 -18 %
Accounts receivable, net 3 3 0 %
Other assets 877 533 65 %
Deferred income taxes 94 69 36 %
Prepaid expenses/deferred charges 24 23 4 %
Noncurrent assets 3,969 3,179 25 %
Total assets 9,353 9,503 -2 %
Liabilities, Minority interests and
Shareholders' equity
09/30/2007 12/31/2006 Change
Accounts payable 543 610 -11 %
Income tax obligations 88 297 -70 %
Other liabilities, provisions 1,201 1,461 -18 %
Deferred income 717 405 77 %
Current liabilities 2,549 2,773 -8 %
Accounts payable 12 34 -65 %
Income tax obligations 170 83 105 %
Other liabilities, provisions 478 412 16 %
Deferred income 69 55 25 %
Total liabilities 3,278 3,357 -2 %
Minority interests 1 10 -90 %
Shareholders' equity 6,074 6,136 -1 %
Total liabilities, Minority interests and
Shareholders' equity 9,353 9,503 -2 %
Days Sales Outstanding 67 68
Consolidated Statements of Cash Flows SAP Group
for nine months ended September 30, unaudited
in euro millions
2007 2006
Net income 1,167 1,067
Minority interests 3 2
Income before minority interests 1,170 1,069
Adjustments to reconcile income before minority interests
to net cash provided by operating activities:
Depreciation and amortization 188 158
Loss from equity investees 1 0
Gains on disposal of property, plant, and equipment 0 -3
Gains on disposal of investments -2 0
Write-ups/downs of financial assets 2 -1
Impacts of STAR hedging 13 -64
Stock-based compensation including income tax benefits 31 61
Deferred income taxes 2 -62
Change in accounts receivables 246 245
Change in other assets -232 -159
Change in accrued and other liabilities -448 -327
Change in deferred income 373 369
Net cash provided by operating activities 1,344 1,286
Acquisition of minority interests in subsidiaries -48 0
Business combinations, net of cash and cash equivalents
acquired (including prepayments) -656 -497
Purchase of intangible assets and property, plant, and
equipment -293 -233
Proceeds from disposal of intangible assets and property,
plant, and equipment 22 21
Purchase of investments -720 -1,414
Sales of investments 646 2,016
Purchase of other financial assets -15 -10
Sales of other financial assets 11 7
Net cash used in investing activities -1,053 -110
Dividends paid -556 -447
Purchase of treasury stock -756 -971
Proceeds from reissuance of treasury stock 130 146
Proceeds from issuance of common stock (stock-based
compensation) 39 44
Proceeds from short-term and long-term debt 32 40
Repayments of short-term and long-term debt -32 -39
Proceeds from the exercise of equity-based derivative
instruments (STAR hedge) 75 57
Purchase of equity-based derivative instruments (STAR
hedge) 0 -53
Net cash used in financing activities -1,068 -1,223
Effect of foreign exchange rates on cash and cash
equivalents -13 -17
Net change in cash and cash equivalents -790 -64
Cash and cash equivalents at the beginning of the period 2,399 2,064
Cash and cash equivalents at the end of the period 1,609 2,000
Footnotes
1) As stated in its January 24, 2007 press release, the Company disclosed that it accommodated a US customer with a modification of contracts signed between SAP and this customer prior to 2006 (1997 - 2005). This accommodation entered into by the end of September, 2006 resulted in a reduction of license revenues by euro 31 million for the third quarter of 2006, but it did not impact the value of licenses sold in the US in 2006. In January, the Company stated that it expected to reinstate a portion of the euro 31 million of software revenue with this US customer in the first quarter of 2007. In the first quarter of 2007, the Company reinstated in software revenue euro 19 million of the euro 31 million reduction from the third quarter of 2006. The Company does not expect to recover any further software revenue amounts.
2) Non-GAAP Measures
This press release discloses certain financial measures, such as free cash flow, and constant currency period-over-period changes in revenue and operating income, that are not prepared in accordance with U.S. GAAP and are therefore considered non-GAAP measures. Our non-GAAP measures may not correspond to non-GAAP measures that other companies report. The non-GAAP measures that we report should be considered as additional to, and not as substitutes for or superior to, revenue, operating income, cash flows, or other measures of financial performance prepared in accordance with U.S. GAAP. Our non-GAAP measures are reconciled to the nearest U.S. GAAP measure in this press release.
Free Cash Flow: We believe that free cash flow is a widely accepted supplemental measure of liquidity. Free cash flow measures a company's cash flow remaining after all expenditures required to maintain or expand the business have been paid off. We calculate free cash flow as operating cash flow minus additions to long-lived assets excluding additions from acquisitions. Free cash flow should be considered in addition to, and not as a substitute for or superior to, cash flow or other measures of liquidity and financial performance prepared in accordance with U.S. GAAP.
Free cash flow reconciles to the nearest U.S. GAAP measure as follows:
Reconciliation for nine months ended September 30
In euro millions
2007 2006
Net cash provided by operating activities 1,344 1,286
Additions to long-lived assets
excluding additions from acquisitions -293 -233
Free cash flow 1,051 1,053
CONSTANT CURRENCY PERIOD-OVER-PERIOD CHANGES
We believe it is important for investors to have information that provides insight into our sales growth. Revenue measures determined under U.S. GAAP provide information that is useful in this regard. However, both growth in sales volume and currency effects impact period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide relevant information on sales volume growth by providing data on the growth in product and service units sold. To provide additional information that may be useful to investors in breaking down and evaluating sales volume growth, we present information about our revenue growth and various values and components relating to operating income that are adjusted for foreign currency effects. We calculate constant currency year-over-year changes in revenue and operating income by translating foreign currencies using the average exchange rates from the previous (comparator) year instead of the report year.
Constant currency period-over-period changes should be considered in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP.
We believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated constitute a significant element of our revenues and expenses and may severely impact our performance. We therefore limit our use of constant currency period-over-period changes to the analysis of changes in volume as one element of the full change in a financial measure. We do not evaluate our growth and performance without considering both constant currency period-over-period changes on the one hand and changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP on the other. We caution the readers of this press release to follow a similar approach by considering data on constant currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP.
Constant currency year-over-year changes in revenue and operating income reconcile to the respective unadjusted year-over-year changes as follows:
Reconciliation of constant currency period-over-period changes for third
quarter
Percentage Constant
change from currency Currency
2006 to percentage effect
2007 change from
as reported 2006 to 2007
Percentage
% % points
Software revenue 11 15 -4
Support revenue 13 16 -3
Subscription and other software
related service revenue 28 31 -3
Software and software related
service revenue 13 16 -3
Consulting revenue 1 4 -3
Training revenue 12 15 -3
Other service revenue 17 17 0
Professional services and other
service revenue 3 6 -3
Other revenue -44 -38 -6
Total revenue 9 13 -4
Software revenue by region*:
EMEA region 14 15 -1
Americas region 3 11 -8
Asia Pacific Japan region 25 28 -3
Software revenue 11 15 -4
Software and software related
service revenue by region:
Germany 3 3 0
Rest of EMEA region 21 22 -1
EMEA region 14 15 -1
United States 9 18 -9
Rest of Americas region 4 6 -2
Americas region 8 15 -7
Japan 6 16 -10
Rest of Asia Pacific Japan region 31 30 1
Asia Pacific Japan region 21 24 -3
Software and software related
service revenue 13 16 -3
Total revenues by region:
Germany 4 4 0
Rest of EMEA region 15 16 -1
EMEA region 10 11 -1
United States 7 15 -8
Rest of Americas region 2 4 -2
Americas region 6 13 -7
Japan 1 10 -9
Rest of Asia Pacific Japan region 27 27 0
Asia Pacific Japan region 16 20 -4
Total revenue 9 13 -4
Operating Income 9 14 -5
*) Based on customer location
Reconciliation of constant currency period-over-period changes for nine
months ended September 30
Percentage Constant
change from currency Currency
2006 to percentage effect
2007 change from
as reported 2006 to 2007
Percentage
% % points
Software revenue 13 17 -4
Support revenue 11 15 -4
Subscription and other software
related service revenue 39 43 -4
Software and software related
service revenue 13 16 -3
Consulting revenue -1 2 -3
Training revenue 8 12 -4
Other service revenue 22 26 -4
Professional services and other
service revenue 1 4 -3
Other revenue -15 -9 -6
Total revenue 9 12 -3
Software revenue by region*:
EMEA region 15 16 -1
Americas region 8 16 -8
Asia Pacific Japan region 22 26 -4
Software revenue 13 17 -4
Software and software related
service revenue by region:
Germany 5 5 0
Rest of EMEA region 19 20 -1
EMEA region 13 14 -1
United States 9 17 -8
Rest of Americas region 16 21 -5
Americas region 10 18 -8
Japan 8 20 -12
Rest of Asia Pacific Japan region 21 22 -1
Asia Pacific Japan region 16 21 -5
Software and software related
service revenue 13 16 -3
Total revenue by region:
Germany 4 4 0
Rest of EMEA region 14 15 -1
EMEA region 10 11 -1
United States 4 13 -9
Rest of Americas region 11 15 -4
Americas region 6 13 -7
Japan 3 14 -11
Rest of Asia Pacific Japan region 20 21 -1
Asia Pacific Japan region 14 18 -4
Total revenue 9 12 -3
Operating Income 9 14 -5
(*) Based on customer location
3) Core Enterprise Applications Vendor Share
Beginning in the first quarter of 2007, the Company began using software and software related service revenues for defining Core Enterprise Application Vendor Share because the Company believes that this is the most important indicator for vendor share oriented analysis with the realignment of its income statement structure. Prior to the first quarter of 2007, the Company had been using software revenues for defining Core Enterprise Application Vendor Share.
The Company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $35.9 billion in software and software related service revenues as defined by the Company based on industry analyst research. For 2007, industry analysts project approximately 7% year-on-year growth for core Enterprise Applications vendors. For its quarterly share calculation, SAP assumes that this approximate 7% growth will not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set (approximately 25) of Core Enterprise Application vendors.
©2012