SAP Reports 17% Growth in Software Revenues for the Third Quarter 2006
by SAP AG
Product Revenues Increased 13%
Earnings Per Share Increased 16%
SAP AG today announced its preliminary financial results for the third quarter and nine months ended September 30, 2006.
HIGHLIGHTS - Third Quarter 2006
Revenues
* Software revenues for the third quarter of 2006 were euro 691 million
(2005: euro 590 million), representing an increase of 17% (20% at
constant currencies(1)) compared to the third quarter of 2005.
* Product revenues for the 2006 third quarter were euro 1.6 billion
(2005: euro 1.4 billion), which is an increase of 13% (16% at constant
currencies(1)) compared to the same period in 2005.
* Total revenues were euro 2.2 billion for the third quarter of 2006
(2005: euro 2.0 billion), which represented an increase of 11% (14% at
constant currencies(1)) compared to the third quarter of 2005.
Core Enterprise Applications Vendor Share(2)
* Based on software revenues on a rolling four quarter basis, SAP's
worldwide share of Core Enterprise Applications vendors, which account
for approximately $16.4 billion in software revenues as defined by the
Company based on industry analyst research, continued to grow by 0.9
percentage points to 22.6% at the end of the third quarter of 2006.
This represents more than twice the share of the next largest vendor.
Regional Performance
The Company reported double digit growth rates in software revenues in each of its three regions for the third quarter of 2006. Software revenues in the Americas region grew 19% (23% at constant currencies(1)) to euro 292 million for the third quarter of 2006 with the U.S. reporting an increase of 15% (20% at constant currencies(1)) to euro 228 million. In the EMEA (Europe, Middle East and Africa) region, software revenues increased 14% (15% at constant currencies(1)) to euro 301 million with Germany reporting a 3% increase to euro 117 million for the third quarter of 2006. Software revenues in the Asia-Pacific region for the third quarter of 2006 increased 22% (28% at constant currencies(1)) to euro 98 million, with Japan reporting a 51% increase (65% at constant currencies(1)) to euro 39 million.
Income
* Operating income for the third quarter of 2006 was euro 583 million
(2005: euro 517 million), which was an increase of 13% compared to the
third quarter of 2005. Pro forma operating income(1) was euro 606
million (2005: euro 520 million) for the 2006 third quarter,
representing an increase of 17% compared to the same period last year.
* The operating margin for the third quarter of 2006 was 26.0%, which was
an increase of 0.3 percentage points compared to the third quarter of
2005. The pro forma operating margin(1) for the 2006 third quarter was
27.0%, which was an increase of 1.2 percentage points compared to the
2005 third quarter.
* Net income for the 2006 third quarter was euro 388 million (2005: euro
334 million), or euro 1.27 per share (2005: euro 1.08 per share),
representing an increase of 16% compared to the third quarter of 2005.
Third quarter 2006 pro forma net income(1) was euro 405 million (2005:
euro 337 million), or pro forma euro 1.32 earnings per share(1) (2005:
euro 1.09 per share), representing an increase of 20% compared to the
third quarter of 2005.
"We reported a strong third quarter with an impressive win rate and double digit software revenue growth in all regions," said Henning Kagermann, CEO of SAP. "At constant currencies, we have now reported 11 consecutive quarters of double digit software revenue growth. This long track record of outstanding performance can be largely attributed to our successful strategy of growing SAP organically. This disproves our major competitor's claim. SAP's strategy has worked very well for our customers and our company, resulting in an exceptional customer satisfaction rate and a considerable gain in SAP's worldwide share among Core Enterprise Applications vendors, which increased from 16.5% to 22.6% over the past three years."
Mr. Kagermann continued, "We provided a roadmap describing a planned 2007 completion of our enterprise service-oriented architecture. I am pleased to say that we remain on target and on schedule with all deliverables to complete this roadmap. Moreover, with the delivery of mySAP ERP 2005, we have provided our customers and partners the first services enabled suite in the industry, well ahead of the competition. Due to the flexible nature of an enterprise services-oriented architecture, mySAP ERP 2005 gives us the unique position to offer our customers accelerated continuous innovation without upgrades by providing optional Enhancement Packages for many years."
HIGHLIGHTS - Nine Months 2006
Revenues
* Software revenues increased 15% (15% at constant currencies(1)) to euro
1.8 billion (2005: euro 1.6 billion) for the first nine months of 2006
compared to the same period last year.
* Product revenues increased to euro 4.4 billion (2005: euro 3.9 billion)
for the first nine months of 2006, representing an increase of 13% (13%
at constant currencies(1)) compared to the first nine months of 2005.
* Total revenues were euro 6.5 billion (2005: euro 5.8 billion) for the
2006 first nine months, which was an increase of 13% (12% at constant
currencies(1)) compared to the same period last year.
Income
* Operating income for the first nine months of 2006 was euro 1.5 billion
(2005: euro 1.4 billion), which was an increase of 13% compared to the
same period last year. Pro forma operating income(1) for the 2006 nine
month period was euro 1.6 billion (2005: euro 1.4 billion),
representing an increase of 16% compared to the 2005 nine month period.
* The operating margin for the first nine months of 2006 was 23.5%, which
was flat compared to the 2005 nine month period. The pro forma
operating margin(1) was 25.0% for the first nine months of 2006, which
was an increase of 0.7 percentage points compared to the same period in
2005.
* Net income for the first nine months of 2006 was euro 1.1 billion
(2005: euro 877 million), or euro 3.53 per share (2005: euro 2.83 per
share), representing an increase of 24% compared to the same period in
2005. Pro forma net income(1) for the 2006 nine month period was euro
1.2 billion (2005: euro 910 million), or pro forma euro 3.75 per
share(1) (2005: euro 2.94 per share), representing an increase of 27%
compared to the same period in 2005. Nine months 2006 net income,
earnings per share, pro forma net income(1) and pro forma earnings per
share(1) were positively impacted by approximately euro 30 million, or
euro 0.10 per share, from a reduced second quarter effective tax rate
of 25% mainly due to a settlement with the fiscal authorities on one
specific item.
Cash Flow
* Operating cash flow for the first nine months of 2006 was euro 1.3
billion (2005: euro 1.1 billion). Free cash flow(1) for the 2006 nine
month period was euro 1.0 billion (2005: euro 901 million), which was
16% of total revenues for the first nine months of 2006 (2005: 16%).
At September 30, 2006, the Company had euro 2.8 billion in liquid
assets, including short term marketable securities (September 30, 2005:
euro 3.1 billion). The year-over-year decrease in liquid assets is
primarily the result of an increase in share buybacks in 2006,
expenditures on acquisitions and increased dividend payments.
Share Buy-Back Program
* In the first nine months of 2006, the Company bought back 5.81 million
shares at an average price of euro 165.25 (total amount: euro 960
million). This compares to 2.75 million shares bought back in the
first nine months of 2005. At September 30, 2006, treasury stock stood
at 11.35 million shares at an average price of euro 139.89. SAP's
current share buy-back program allows the Company to purchase up to 30
million shares. Given the Company's strong free cash flow(1)
generation, SAP plans to further evaluate opportunities to buy back
shares in the future.
BUSINESS OUTLOOK
The Company also announced an update to its outlook for the full-year 2006.
* The Company increased its expected full-year 2006 pro forma earnings
per share(1), which excludes stock-based compensation,
acquisition-related charges and impairment-related charges. The
Company now expects pro forma earnings per share to be slightly above
the previously communicated range of euro 5.80 to euro 6.00 per share.
* The Company reaffirmed that it expects full-year 2006 product revenues
to increase in a range of 13% - 15% compared to 2005. This growth rate
is based on the Company's expectation for full-year 2006 software
revenue growth in a range of 15% - 17% compared to 2005. From today's
perspective, it appears less likely that product or software revenue
growth will reach the upper end of the aforementioned ranges.
* The Company reaffirmed that it expects the full-year 2006 pro forma
operating margin(1), which excludes stock-based compensation and
acquisition-related charges, to increase in a range of 0.5 - 1.0
percentage points compared to 2005. From today's perspective it appears
less likely that the pro forma operating margin increase will be at the
upper end of the aforementioned range.
* The outlook continues to be based on a U.S. Dollar to Euro exchange
rate of $1.23 per euro 1.00.
Regional Performance
Third Quarter 2006 Software Revenue by Region
(in euro millions, unaudited)
SAP Group
Software Software
Revenue Revenue
Q3 2006 Q3 2005 Change % Change
Total 691 590 +101 +17%
- at constant currency rates +20%
EMEA 301 263 +38 +14%
- at constant currency rates +15%
Asia-Pacific 98 81 +17 +22%
- at constant currency rates +28%
Americas 292 246 46 +19%
- at constant currency rates +23%
Third Quarter 2006 Total Revenue by Region (in euro millions, unaudited)
SAP Group
Revenue Revenue
Q3 2006 Q3 2005 Change % Change
Total 2,245 2,014 +231 +11%
- at constant currency rates +14%
EMEA 1,123 1,018 +105 +10%
- at constant currency rates 11%
Asia-Pacific 274 243 +31 +13%
- at constant currency rates +19%
Americas 848 753 +95 +13%
- at constant currency rates +17%
Nine Months 2006 Software Revenue by Region (in euro millions, unaudited)
SAP Group
Software Software
Revenue Revenue
9 Mos 2006 9 Mos 2005 Change % Change
Total 1,840 1,600 +240 +15%
- at constant currency rates +15%
EMEA 826 767 +59 +8%
- at constant currency rates +8%
Asia-Pacific 257 231 +26 +11%
- at constant currency rates +13%
Americas 757 602 +155 +26%
- at constant currency rates +24%
Nine Months 2006 Total Revenue by Region (in euro millions, unaudited)
SAP Group
Revenue Revenue
9 Mos 2006 9 Mos 2005 Change % Change
Total 6,481 5,759 +722 +13%
- at constant currency rates +12%
EMEA 3,264 3,030 +234 +8%
- at constant currency rates +8%
Asia-Pacific 785 699 +86 +12%
- at constant currency rates +14%
Americas 2,432 2,030 +402 +20%
- at constant currency rates +17%
KEY EVENTS - Third Quarter 2006
* In the third quarter of 2006, SAP demonstrated strong momentum,
announcing major contracts in all key regions: Au Bon Pain (ABP),
Beall's, Century Casinos Inc., Michigan Department of Treasury,
Pennsylvania Turnpike Commission (PTC), Philadelphia Newspapers LLC.,
and the State of North Carolina in the Americas; ABN AMRO, Belarus
Bank, BMW, City of Nuremberg and Fujitsu Siemens Computers in EMEA;
China National Offshore Oil Corp., Kyocera Mita Corporation and Wumart
in Asia Pacific.
* SAP announced that it is evolving its product release road map for
mySAP ERP. Moving forward, all new functional enhancements to mySAP ERP
through 2010 will be made available as extensions to mySAP ERP 2005 in
a series of optional enhancement packages.
* On September 29, 2006, SAP announced it has achieved Java Platform,
Enterprise Edition (Java EE) 5 compatibility. Achieving compatibility
means SAP customers and partners can develop robust Java applications
on the SAP NetWeaver platform using the latest mature technology
standards-simplifying and accelerating application development
projects.
* Validating its strategy of organic growth combined with strategic,
"tuck-in" acquisitions to add valuable software functionality that
fulfills customer demands worldwide, SAP announced on September 28,
2006 that more than 300 installations of the SAP xApp Manufacturing
Integration and Intelligence (SAP xMII) composite application are in
place. The milestone is reached just one year following SAP's 2005
acquisition of Lighthammer Software Development Corporation.
* On September 26, 2006, SAP announced the availability of the third wave
of SAP CRM on-demand solutions, successfully meeting its quarterly
product road map laid out in February of this year. SAP also unveiled
additional capabilities for the existing SAP CRM on-demand solutions.
* On September 20, 2006, Accenture and SAP announced a global agreement
to co-develop a collaborative health network (CHN) solution, which is
designed to help healthcare organizations improve patient care by
streamlining the way they access, integrate and share information.
* SAP launched the industry's first community for business process
experts. The objective of this Business Process Experts Community is to
facilitate the exchange between IT and business processes.
* SAP unveiled SAP Enterprise Search, an application that allows
information workers to easily locate and leverage critical business
data from internal and external sources to save time and increase
productivity. The application is available for developers to download
today; commercial availability is planned for 2007.
* SAP announced the availability of SAP Discovery System software for
enterprise SOA. With SAP Discovery System, developers and enterprise
architects have a clear risk-free first step in experimenting with
enterprise SOA.
* Furthering its ongoing commitment to compliance market, SAP announced
on September 6, 2006 the expansion of its portfolio of solutions
designed to help large and small enterprises manage governance, risk
and compliance (GRC). SAP also announced a strategic relationship in
North America with Cisco Systems Inc. to enhance the effectiveness of
SAP solutions for GRC through access and identity intelligence.
* On August 15, 2006, SAP announced it has made an investment in Questra
Corporation, a leader in intelligent device management (IDM). The
announcement marks the first investment for SAP's $125 million global
SAP NetWeaver Fund and underscores SAP's commitment to fuel the
development of innovative solutions built on the SAP NetWeaver
platform.
* On July 26, 2006, SAP announced that the Pennsylvania Turnpike
Commission (PTC) will deploy Duet software, the first product jointly
developed and supported by industry leaders SAP and Microsoft, to drive
new business efficiencies and further extend the value of its
technology systems by enabling its employees to access SAP business
data and processes via the familiar Microsoft Office environment.
* On July 10, 2006, SAP announced that it will introduce new e-commerce
and web-based capabilities to SAP Business One. The new capabilities
enable companies to set up online stores easily and to deploy customer
relationship management (CRM) software quickly and simply via the
Internet, extending the reach and accessibility of SAP Business One to
a new set of users.
Webcast/Supplementary Financial Information
SAP senior management will host a conference call today at 3:00 PM (CET) / 2:00 PM (GMT) / 9:00 AM (Eastern) / 6:00 AM (Pacific). The conference call will be web cast live on the Company's website at http://www.sap.com/investor and will be available for replay purposes as well. Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.
About SAP
SAP is the world's leading provider of business software*. Today, more than 36,200 customers in more than 120 countries run SAP(R) applications -- from distinct solutions addressing the needs of small and midsize enterprises to suite offerings for global organizations. Powered by the SAP NetWeaver(R) platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol "SAP." (Additional information at http://www.sap.com/)
(*) SAP defines business software as comprising enterprise resource
planning and related applications such as supply chain management,
customer relationship management, product life-cycle management and
supplier relationship management.
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 "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should" and "will" and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP 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 SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission ("SEC"), including SAP's most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.
SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serve informational purposes only. National product specifications may vary.
For more information, press only:
Herbert Heitmann, +49 (6227) 7-61137, herbert.heitmann@sap.com, CET
Frank Hartmann, +49 (6227) 7-42548, f.hartmann@sap.com, CET
Steve Bauer +1 610 661-3951, steve.bauer@sap.com, EDT
For more information, financial community only:
Stefan Gruber, +49 (6227) 7-44872, investor@sap.com, CET
Martin Cohen, +1 (212) 653-9619, investor@sap.com, EST
Consolidated Income Statements
SAP-Group 3rd quarter
(unaudited)
(euro millions)
2006 2005 % Change
Software revenue 691 590 17%
Maintenance revenue 884 802 10%
Product revenue 1.575 1.392 13%
Consulting revenue 562 519 8%
Training revenue 91 84 8%
Service revenue 653 603 8%
Other revenue 17 19 -11%
Total revenue 2.245 2.014 11%
Cost of product -267 -241 11%
Cost of service -498 -464 7%
Research and development -330 -254 30%
Sales and marketing -452 -430 5%
General and administration -112 -107 5%
Other income/expense, net -3 -1 200%
Total operating expenses -1.662 -1.497 11%
Operating income 583 517 13%
Other non-operating income/
expense, net -4 -11 -64%
Financial income, net 19 11 73%
Income before income taxes 598 517 16%
Income taxes -209 -182 15%
Minority interest -1 -1 0%
Net income 388 334 16%
Basic earnings per share
(in euros) 1.27 1.08 16%
Consolidated Income Statements
SAP-Group 3rd quarter
(unaudited)
Additional information
(euro millions)
2006 2005 % Change
Pro-forma operating income
reconciliation:
Operating income 583 517 13%
LTI/STAR/SOP 14 -6 N/A
Settlement of stock-based
compensation programs 0 0 N/A
Total stock-based compensation 14 -6 N/A
Acquisition-related charges 9 9 0%
Pro-forma operating income excluding
stock-based compensation and
acquisition-related charges(1) 606 520 17%
Operating margin 26.0% 25.7%
Pro-forma operating margin 27.0% 25.8%
Consolidated Income Statements
SAP-Group 3rd quarter
(unaudited)
Additional information
(euro millions)
2006 2005 % Change
Financial income, net 19 11 73%
- thereof impairment-related
charges -1 -1 0%
Income before income taxes 598 517 16%
Income taxes 209 182 15%
Effective tax rate 35% 35%
Pro-forma net income
reconciliation:
Net income 388 334 16%
Stock-based compensation,
net of tax 10 -4 N/A
Acquisition-related charges,
net of tax 6 6 0%
Impairment-related charges,
net of tax 1 1 0%
Pro-forma net income excluding
stock-based compensation,
acquisition-related charges,
and impairment-related charges(1) 405 337 20%
Pro-forma EPS reconciliation:
Earnings per share (in euros) 1.27 1.08 16%
Stock-based compensation 0.03 -0.01 N/A
Acquisition-related charges 0.02 0.02 0%
Impairment-related charges 0.00 0.00 0%
Pro-forma EPS excluding
stock-based compensation,
acquisition-related charges and
impairment-related charges
(in euros)(1) 1.32 1.09 20%
Weighted average number of
shares (in thousands) treasury
stock excluded 305.427 309.792
Consolidated Income Statements
SAP-Group nine months ended September 30
(unaudited)
(euro millions)
2006 2005 % Change
Software revenue 1.840 1.600 15%
Maintenance revenue 2.600 2.320 12%
Product revenue 4.440 3.920 13%
Consulting revenue 1.707 1.534 11%
Training revenue 278 247 13%
Service revenue 1.985 1.781 11%
Other revenue 56 58 -3%
Total revenue 6.481 5.759 13%
Cost of product -802 -698 15%
Cost of service -1.516 -1.386 9%
Research and development -955 -782 22%
Sales and marketing -1.360 -1.239 10%
General and administration -331 -308 7%
Other income/expense, net 6 5 20%
Total operating expenses -4.958 -4.408 12%
Operating income 1.523 1.351 13%
Other non-operating income/
expense, net -19 0 N/A
Financial income, net 76 3 N/A
Income before income taxes 1.580 1.354 17%
Income taxes -494 -475 4%
Minority interest -2 -2 0%
Net income 1.084 877 24%
Basic earnings per share
(in euros) 3.53 2.83 24%
Consolidated Income Statements
SAP-Group nine months ended September 30
(unaudited)
Additional information
(euro millions)
2006 2005 % Change
Pro-forma operating income
reconciliation:
Operating income 1.523 1.351 13%
LTI/STAR/SOP 64 23 178%
Settlement of stock-based
compensation programs 0 0 N/A
Total stock-based compensation 64 23 178%
Acquisition-related charges 34 23 48%
Pro-forma operating income excluding
stock-based compensation and
acquisition-related charges(1) 1.621 1.397 16%
Operating margin 23.5% 23.5%
Pro-forma operating margin 25.0% 24.3%
Consolidated Income Statements
SAP-Group Nine months ended September 30
(unaudited)
Additional information
(euro millions)
2006 2005 % Change
Financial income, net 76 3 N/A
- thereof impairment-related
charges -1 -3 -67%
Income before income taxes 1.580 1.354 17%
Income taxes 494 475 4%
Effective tax rate 31% 35%
Pro-forma net income
reconciliation:
Net income 1.084 877 24%
Stock-based compensation,
net of tax 46 16 188%
Acquisition-related charges,
net of tax 21 14 50%
Impairment-related charges,
net of tax 1 3 -67%
Pro-forma net income excluding
stock-based compensation,
acquisition-related charges, and
impairment-related charges(1) 1.152 910 27%
Pro-forma EPS reconciliation:
Earnings per share (in euros) 3.53 2.83 24%
Stock-based compensation 0.15 0.05 188%
Acquisition-related charges 0.07 0.05 50%
Impairment-related charges 0.00 0.01 -67%
Pro-forma EPS excluding
stock-based compensation,
acquisition-related charges
and impairment-related charges
(in euro)(1) 3.75 2.94 27%
Weighted average number of
shares (in thousands) treasury
stock excluded 307.144 309.791
Consolidated Balance Sheets
SAP Group
PRELIMINARY and UNAUDITED
(euro millions)
ASSETS
09/30/2006 12/31/2005 % Change
Intangible assets 1,273 766 66%
Property, plant, and equipment 1.156 1,095 6%
Financial assets 425 534 -20%
FIXED ASSETS 2.854 2.395 19%
Accounts receivable 1.949 2.251 -13%
Inventories and other assets 777 655 19%
Liquid assets/Marketable securities 2.795 3.423 -18%
CURRENT ASSETS 5.521 6.329 -13%
DEFERRED TAXES 232 251 -8%
PREPAID EXPENSES 115 88 31%
TOTAL ASSETS 8.722 9.063 -4%
SHAREHOLDERS' EQUITY AND
LIABILITIES
09/30/2006 12/31/2005 % Change
SHAREHOLDERS' EQUITY 5.560 5.782 -4%
MINORITY INTEREST 9 8 13%
RESERVES AND ACCRUED LIABILITIES 1.784 2.023 -12%
OTHER LIABILITIES 678 846 -20%
DEFERRED INCOME 691 404 71%
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES 8.722 9.063 -4%
Days Sales Outstanding 69 68
Consolidated Statements of Cash Flows
SAP Group nine months ended September 30
(unaudited)
(in euro millions)
2006 2005
Net income 1,084 877
Minority interest 2 2
Income before minority interest 1,086 879
Depreciation and amortization 158 155
Gains on disposal of property, plant, and
equipment and equity securities -3 -4
Write-ups/downs of financial assets, net -1 3
Impacts of STAR hedging -62 27
Stock-based compensation including income
tax benefits 61 30
Change in accounts receivables and other assets 199 78
Change in reserves and liabilities -374 -338
Change in deferred taxes -52 3
Change in other assets -26 -45
Change in deferred income 281 296
Net cash provided by operating activities 1,267 1,084
Acquisition of minorities in subsidiaries 0 -28
Other acquisitions, net of cash and cash
equivalents acquired -497 -71
Purchase of intangible assets and property,
plant, and equipment -233 -183
Purchase of financial assets -279 -436
Proceeds from disposal of fixed assets 39 19
Purchase of marketable securities -47 -126
Change in liquid assets (maturities exceeding
3 months) 944 938
Net cash used in investing activities -73 113
Dividends paid -447 -340
Purchase of treasury stock -971 -376
Proceeds from reissuance of treasury stock 146 153
Proceeds from issuance of common stock
(Stock-based compensation) 44 34
Proceeds/repayment of short-term and long-term debt -1 0
Proceeds from the exercise of equity-based
derivatives (STAR hedge) 57 39
Acquisition of equity-based derivatives
(STAR hedge) -53 -47
Net cash used in financing activities -1,225 -537
Effect of foreign exchange rates on cash -33 80
Net change in cash and cash equivalents -64 740
Cash and cash equivalents at the beginning
of the period 2,064 1,506
Cash and cash equivalents at the end
of the period 2,000 2,246
Nine Months 2006 Free Cash Flow (in euro millions, unaudited)
SAP Group
9 Mos 2006 9 Mos 2005 % Change
Operating Cash Flow 1,267 1,084 +17
Capital Expenditure -233 -183 +27
Free Cash Flow(1) 1,034 901 +15
Free Cash Flow as a % of Revenue 16% 16% 0 PP
Total Revenue 6,481 5,759 +13
Footnotes
(1) Non-GAAP Measures:
This press release discloses certain financial measures, such as
pro-forma operating income, pro-forma operating margin, pro-forma
expenses, pro-forma net income, pro-forma earnings per share (EPS),
and currency-adjusted year-on-year changes in revenue and operating
income, which are not prepared in accordance with U.S. generally
accepted accounting principles (U.S. GAAP) and are therefore
considered non-GAAP measures. The non-GAAP measures that SAP reports
may not correspond to non-GAAP measures that other companies report.
The non-GAAP measures that SAP reports should be considered as
additional to, and not as a substitute for or superior to, operating
income, operating margin, cash flows, or other measure of financial
performance prepared in accordance with U.S. GAAP. The non-GAAP
measures included in this report are reconciled to the nearest U.S.
GAAP measure.
Pro-forma operating income, pro-forma operating margin, pro-forma
expenses, pro-forma net income, pro-forma earnings per share
(pro-forma EPS)
SAP believes that pro-forma operating income, pro-forma operating
margin, pro-forma net income, and pro-forma EPS, all based on
pro-forma expenses, provide supplemental meaningful information that
can help investors assess the financial performance of the Company
using the same measures that SAP uses in its internal management
reporting.
The following expenses are eliminated from pro-forma expenses,
pro-forma operating income, pro-forma operating margin, pro-forma net
income, pro-forma EPS, and other pro-forma measures:
* Stock-based compensation, including expenses for stock-based
compensation as defined under U.S. GAAP, as well as expenses
related to the settlement of stock-based compensation plans in the
context of mergers and acquisitions. SAP excludes stock-based
compensation expenses because it has no direct influence over the
actual expense of these awards once it has entered into
stock-based compensation commitments.
* Acquisition-related charges, including amortization of
identifiable intangible assets acquired in acquisitions of
businesses or intellectual property. Although acquisition-related
charges include recurring items from past acquisitions, such as
amortization of acquired intangible assets, they also include an
unknown component relating to current year acquisitions for which
the Company has not yet finalized its purchase price allocation
and therefore, cannot accurately assess the impact of the
acquisition related charges.
* Impairment-related charges include other-than-temporary impairment
charges on minority equity investments. These charges are excluded
because they are outside the control of the Company's management.
The pro-forma measures disclosed are the same measures that SAP uses
in its internal management reporting. Pro-forma operating income is
one of the criteria, alongside the software revenue increase, for
performance-related elements of management compensation.
In addition, SAP gives full year and long term guidance based on
non-GAAP financial measures. The guidance is provided on pro-forma
operating performance excluding stock-based compensation expenses and
acquisition-related charges to focus on components that reflect the
operational performance that management can directly influence and
reasonably forecast for the periods covered by the guidance.
Free Cash Flow
Management believes that free cash flow is a widely accepted
supplemental measure of liquidity among companies. Free cash flow
measures a company's cash flow remaining after all expenditures
required to maintain or expand the business have been paid off. SAP
calculates free cash flow as operating cash flow minus capital
expenditures. Free cash flow should be considered in addition to, and
not as a substitute, or superior to, cash flow, or other measures of
liquidity and financial performance prepared in accordance with U.S.
GAAP.
Constant-Currency Period over Period Changes
SAP believes it is important for investors to have information that
provides insight into its sales growth. Revenue amounts determined
under U.S. GAAP provide information that is useful in this regard.
Period-over-period changes in such revenue amounts are impacted by
both growth in sales volume as well as currency effects. Under its
business model SAP does not sell standardized units of products and
services. Therefore SAP cannot provide relevant information on sales
volume growth by providing data on the growth in product and service
units sold. In order to provide additional information that is useful
to investors in evaluating sales volume growth SAP presents
information about its revenue and income growth adjusted for foreign
currency effects. SAP calculates constant-currency period over period
changes in revenue and income by translating foreign currencies using
the average exchange rates from 2005 instead of 2006. Constant-
currency period over period changes should be considered in addition
to, and not as a substitute, or superior to, changes in revenues,
expenses, income or other measures of financial performance prepared
in accordance with U.S. GAAP.
(2) Core Enterprise Applications Vendor Share
In previous quarters, worldwide peer group share was provided based
on a peer group of Microsoft Corp. (business solutions segment only),
Oracle Corp. (business applications only) and Siebel Systems, Inc.
The Company believes that after the large amount of consolidation
that has occurred among the larger companies in the software
industry, the peer group has become too small to provide an adequate
metric for the purpose of measuring growth of sales share.
Therefore, the Company will now be providing share data based on the
vendors of Core Enterprise Applications solutions, which account for
approximately $16 billion in software revenues as defined by the
Company based on industry analyst research. For 2006, industry
analysts project approximately 4% year-on-year growth for core
Enterprise Applications vendors. For its quarterly share
calculation, SAP assumes that this approximate 4% growth will not be
linear throughout the year. Instead, quarterly adjustments are made
based on the financial performance of a sub set (approximately 30) of
Core Enterprise Application vendors.
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