Walldorf, Germany

Realigned Structure of Income Statement

Background Information
As announced at SAP’s Q4 2006 earnings conference on January 24th, beginning in the first quarter 2007 the Company will realign its income statement in order to provide additional transparency for new revenue streams generated by innovative products and business models that correspond to evolving customer requirements and buying patterns.

The most important changes include the addition of a new revenue line item called ”Subscriptions and Other Software Related Services” and the renaming of “Product Revenues” to ”Software and Software Related Services”. Therefore, “Software and Software Related Services” equals the total of “Software Revenue” plus “Support Revenue” (formerly called “Maintenance Revenue”) plus “Subscription and Other Software Related Services Revenue.” Going forward, the Company regards “Software and Software Related Services” to be the most important indicator for revenue oriented analysis.

The following chart demonstrates the structural realignment. It compares the previous income statement structure to the realigned income statement structure, specifically the revenue line items in which the changes took place.

Access chart

2005 and Q1 – Q4 2006 Realigned Income Statements
Realigned income statements for the full year 2005 and for Q1 – Q4 2006 are provided below.

Access table (PDF)
Access table (XLS)

Details of ”Subscriptions and Other Software Related Services”
The new line item “Subscriptions and Other Software Related Services” contains the following revenue streams:

Subscription Revenue
  • Contracts include software and maintenance revenues
  • Customers have access to the licensed products and additionally to unspecified future products
  • SAP generally receives constant, periodic payments and recognizes revenue ratably over the subscription term (usually 5 years)
  • Subscription Revenue includes e.g. Global Enterprise Agreements (GEA’s)
Rental Revenue
  • Contracts include software and maintenance revenues
  • Customers have access only to the licensed products
  • Rental Revenue includes e.g. software rented by 3rd parties to offer business process outsourcing, demo licenses, etc.
Other Software Related Services
  • Other Software Related Service Revenues mainly include
  • On-Demand Solutions, e.g. CRM on demand
  • Mandatory Hosting

Currently, “Subscriptions and Other Software Related Services” is mostly comprised of subscription revenue, which itself is driven by Global Enterprise Agreements (GEAs). GEAs are high-volume contracts SAP closes with selected strategic customers. These contracts usually run for five years and allow customers to implement and use SAP solutions to the extent desired. Revenue for these contracts is recognized quarterly on a pro rata basis.

In a simplified, hypothetical example, a €100 million, 5-year term GEA would cover both software and maintenance and would be ratably recognized over 20 quarters, resulting in €5 million of subscription revenue per quarter.

The increase in ”Subscriptions and Other Software Related Services” over the course of 2006 was mainly due to an increase in GEAs.

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 Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.