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What are Non-IFRS Measures?
It is common across industries and particularly customary in our industry to report, in addition to the financial information under the applied accounting regime (IFRS or U.S. GAAP ) alternative performances that are calculated on a basis other than U.S. GAAP and IFRS and that are thus different from the measures presented in the financial statements. Such measures are commonly referred to as “Adjusted” or “Non-GAAP / Non-IFRS”.

Oftentimes, Non-GAAP/Non-IFRS measures disclosed by listed companies are identical to the measures that the companies use internally to plan and measure their performance and to determine variable compensation. Used in this manner, Non-GAAP/Non-IFRS measures provide a look on the company through the eyes of management.

Disclosing such Non-GAAP/Non-IFRS measures is allowed, both in Europe and the Unites States. However, requirements exist that such measures need to be accompanied by reconciliations and explanations to provide transparency regarding the nature and the use of the Non-GAAP/Non-IFRS measures.

Why does SAP use Non-IFRS Measures?
SAP provides to the public full year guidance on certain revenue, profit and margin measures and regularly reports on the progress towards achieving this guidance. To obtain alignment between the guidance communicated externally and internal planning on segment and total company level, SAP uses, for its external guidance, the same measures used in internal planning and reporting. The calculation of these measures differs from IFRS and thus, the measures are Non-IFRS measures.

What are the differences between SAP’s IFRS and Non-IFRS Measures?

IFRS Revenue Measure IFRS Profit Measure
+ Deferred Support Revenue Write-Down + Deferred Support Revenue Write-Down
= Non-IFRS Revenue Measure +/– Acquisition-related Charges
+/– Currency impact compared to previous year +/– Stock-based compensation expenses
= Non-IFRS Revenue Measure at Constant Currency +/– Discontinued Activities
+/– Restructuring
= Non-IFRS Profit Measure
+/– Currency impact compared to previous year
= Non-IFRS Profit Measure at Constant Currency
Non-IFRS Operating Margin at Constant Currency = Non-IFRS Operating Profit at Constant Currency
Non-IFRS Total Revenue at Constant Currency

1 IFRS = International Financial Reporting Standards; U.S. GAAP = U.S. Generally Accepted Accounting Principles

In brief, the differences between our IFRS and non-IFRS measures are described as following:

  • Deferred support revenue write-down:
    • When SAP acquires a business, SAP’s support revenue includes the post merger revenue from customer support contracts entered into by the acquired business before the acquisition. However, under IFRS, such post merger revenue is recorded based on a fair value approach and thus at amounts below the contracted rates. SAP adjusts its Non-IFRS revenue, profit and margin numbers to show the revenue that the acquired entity would have recorded absent the acquisition by SAP.
    • The effects recorded in 2010 and so far in 2011 result from the Sybase acquisition.
  • Discontinued activities:
    • IFRS requires to exclude from the results of continuing operations the profit or loss from operations that are either disposed of or planned to be sold, but only if these operations represent a major line of business or geographical area. SAP adjusts its Non-IFRS revenue, profit and margin numbers to also exclude operations that are disposed of but do not meet the threshold of major line of business or geographical area.
    • Discontinued activities currently relate to the activities of the TomorrowNow entities which SAP discontinued but which never represented a major line of SAP’s business.
  • Stock-based compensation expenses:
    • Certain elements of employee compensation at SAP are variable and depend on the absolute or relative future performance of SAP’s share price. The operating expense that SAP records for such compensation programs is based on the share price and may vary significantly from period to period depending on changes in the SAP share price and our performance against the TechPGI index. SAP adjusts its Non-IFRS profit and margin numbers to fully exclude share-based compensation.
  • Acquisition-related charges:
    • Acquisitions of other software companies or intellectual property usually result in recording a number of intangible assets that the acquired entity may not have had recorded in its balance sheet because they were created internally. Subsequent to the acquisition, such intangible assets are amortized over their useful lives. Additionally, acquisitions may result in other incremental expenses such as restructuring expenses, settlement of pre-existing relationships, fees for investment banks etc. SAP adjusts its Non-IFRS profit and margin numbers to exclude these acquisition-related charges.
    • The majority of SAP’s acquisition-related charges recorded in 2010 and so far in 2011 are from the acquisitions of Sybase and Business Objects.
  • Restructuring:
    • Under IFRS, the cost of a restructuring (i.e. a program planned and controlled by management that materially changes the scope of a business or the manner in which the business is conducted) are fully expensed when a formal restructuring plan is available and a valid expectation of execution has been raised in those affected. Thus, a large restructuring may result in a significant one-off expense. SAP adjusts its Non-IFRS profit and margin numbers to exclude restructuring expenses.
    • Expenses occurring outside a restructuring are not adjusted from even if they are similar to restructuring expenses. Severance charges, for example, would only be adjusted for if incurred as part of a restructuring plan.
  • Constant Currency Adjustment:
    • SAP’s revenue and profit measures are impacted by both, changes in volume and changes in foreign currency. To allow a focus on the volume impact, SAP adjusts for changes in foreign currency by translating foreign currency amounts using the average rates from the previous year instead of the current year.
    • SAP reports its Non-IFRS numbers at both, actual currencies and constant currencies. SAP’s outlook is, however, based on constant currency numbers.

For a more detailed description of these adjustments and their limitations as well as our constant currency and free cash flow figures see ‘Explanation of non-IFRS Measures’ which is available at http://www.sap.com/investor

Non-IFRS Measures (in € million) Actual Amounts from 2010 Estimated amounts for 20111)
Deferred support revenue write-down €74 Between €20 and €30
Discontinued activities2) €983 Less than €20
Stock-based compensation expenses 3), 4) €58 Between €140 and €160
Acquisition-related charges5) €300 Between €430 and €460
Restructuring €3 Less than €10
1) All adjusting items are partly incurred in currencies other than the Euro. Consequently, the amounts are subject to currency volatility. All estimates for 2011 provided in the table are at actual currency and are calculated based on certain assumptions regarding the developments of the different currency exchange rates. Depending on the future development of these exchange rates the total amounts for 2011 may differ significantly from the estimates provided in the table above. Please remember that SAP’s financial market outlook is based on constant currency.
2) We will consider all new information that emerge from further developments of the TomorrowNow lawsuit to determine if the provision should be adjusted in the future, which could result in a change to the estimate provided in the table above.
3) Our stock based compensation expenses are subject, among other factors, to share price volatility, volatility in SAP’s performance against the Tech PGI index and fluctuations in SAP’s workforce. The estimates in the table above are based on certain assumptions regarding these factors. Depending on the future development of these factors the total expense for 2011 may differ significantly from these estimates.
4) The estimates provided above for share-based compensation expenses are based on the share-based compensation plans in place on the day of this document and grants under these plans in 2011 as currently planned by management. New share-based compensation plans or changes to the existing plans may make the total amounts for 2011 differ significantly from these estimates.
5) The estimates provided above for acquisition-related charges are based on the acquisitions performed by SAP until the day of this document. Further acquisitions may make the total amounts for 2011 differ significantly from these estimates.

The above mentioned estimates are independent of and not included in SAP’s financial market outlook. This web message does not constitute an update of our outlook.