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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-_______.
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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
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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
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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
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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
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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.
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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:
<TABLE>
<S> <C>
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
</TABLE>
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.
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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.
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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.
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Annual General Meeting of Shareholders
<TABLE>
<S> <C>
Current subscribed capital stock E 267,804,752.97
Increase E 46,463,589.03
New subscribed capital stock E 314,268,342.00
</TABLE>
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
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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
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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
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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."
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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
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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.
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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
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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
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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.
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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
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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,
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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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 1
SAP Annual Report 1999
[Graphic -- Pictures of person typing, mySAP.com site logo, people in office
lobby, stock quotes and traders]
<PAGE> 2
INSIDE COVER PAGE
[Graphic -- Picture of mySAP.com business directory]
<PAGE> 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
<PAGE> 4
Selected Financial Highlights
<TABLE>
<CAPTION>
Selected Financial Highlights 1999 1998 1997
- ----------------------------- -------- --------- ---------
(in millions of Euros,
unless otherwise indicated)
<S> <C> <C> <C>
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
</TABLE>
(1) German Society of Investment Analysts and Asset Managers
(2) 1999 proposed dividend
2 | Selected Financial Highlights
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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)]
<TABLE>
<CAPTION>
END OF MONTH SAP PREFERENCE SHARES DAX* GSO**
------------ --------------------- ------ ------
<S> <C> <C> <C>
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
</TABLE>
* DAX (adjusted)
** Goldman Sachs Technology Software Index (adjusted)
16 Review of Operations
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 22
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
SAP GROUP
(in million of (euro), unless, otherwise stated)
HGB U.S. GAAP
___________________________ _________________________________
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
________________________________________________________________________________________
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
</TABLE>
74
<PAGE> 23
<TABLE>
<CAPTION>
SAP GROUP
(in millions of Euro, unless otherwise stated) HGB U.S. GAAP
----------------------- ---------------------------------
1995 1996 1997 1998 1999
--------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
SAP AG
(in millions of Euro, unless otherwise stated) HGB
------------------------------------------------------------
1995 1996 1997 1998 1999
--------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(1) German Society of Investment Analysts and Asset Managers
(2) 1999 proposed dividend
<PAGE> 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 [email protected]
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
<PAGE> 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
<PAGE> 26
SAP AG
Neurottstrasse 16
D-69190 Walldorf, Germany
[Graphic -- Pictures of city skyline, SAP logo, SAP conference, mySAP.com logo]
<PAGE> 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
<TABLE>
<S> <C>
PROF. DR. WEBER KLEIN
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
F-1
<PAGE> 2
SAP AKTIENGESELLSCHAFT
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
NOTE 1999 (2) 1999 1998 (1) 1997 (1)
---- ---------- ---------- ---------- ----------
$ (000) E (000) E (000) E (000)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 3
SAP AKTIENGESELLSCHAFT
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
NOTE 1999(2) 1999 1998(3)
---- --------- --------- ---------
$(000) E(000) E(000)
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 4
SAP AKTIENGESELLSCHAFT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
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
------- --------- ------- ------- ------- ---------
</TABLE>
- ---------------
(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
<PAGE> 5
SAP AKTIENGESELLSCHAFT
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
NOTE 1999(1) 1999 1998(2) 1997(2)
---- -------- -------- -------- --------
$(000) E(000) E(000) E(000)
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
- ---------------
(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
<PAGE> 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:
<TABLE>
<CAPTION>
GERMAN FOREIGN TOTAL
------ ------- -----
<S> <C> <C> <C>
December 31, 1998........................................ 7 45 52
Additions................................................ 4 6 10
Disposals................................................ -- -- --
--- --- ---
December 31, 1999........................................ 11 51 62
=== === ===
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
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
- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
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
<PAGE> 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.
<TABLE>
<CAPTION>
USEFUL LIVES OF PROPERTY,
PLANT AND EQUIPMENT
-----------------------------
<S> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
F-11
<PAGE> 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:
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Employees.............................................. 20,975 17,323 11,558
</TABLE>
(7) OTHER NON-OPERATING INCOME/EXPENSES, NET
Other non-operating expenses for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
F-12
<PAGE> 13
(8) FINANCE INCOME, NET
Finance income, net for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
Income before income taxes is attributable to the following geographic
locations:
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
Germany..................................................... 454,745 448,948 408,380
Foreign..................................................... 525,602 483,004 388,045
------- ------- -------
Income before income taxes.................................. 980,347 931,952 796,425
======= ======= =======
</TABLE>
F-13
<PAGE> 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.
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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
<PAGE> 15
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
With regard to their duration, deferred tax assets and deferred tax
liabilities are classified as follows:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
--------------------- --------------------- ---------------------
ORDINARY PREFERENCE ORDINARY PREFERENCE ORDINARY PREFERENCE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997(1)
--------------------- --------------------- ---------------------
ORDINARY PREFERENCE ORDINARY PREFERENCE ORDINARY PREFERENCE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(1) Amounts are in (i) thousands, except for per share information, and (ii) E,
except for share information.
F-16
<PAGE> 17
C. NOTES TO THE CONSOLIDATED BALANCE SHEET
(11) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
TRADEMARKS,
SIMILAR RIGHTS
E (000) AND ASSETS GOODWILL TOTAL
- ------- -------------- -------- -------
<S> <C> <C> <C>
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
====== ======= =======
</TABLE>
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
<PAGE> 18
(12) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
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
- ------- -------------------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
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
------- ------- -------- ---------
</TABLE>
The additions in other property, plant and equipment comprise primarily the
purchase of computer hardware.
F-18
<PAGE> 19
(13) FINANCIAL ASSETS
<TABLE>
<CAPTION>
INVESTMENTS
SHARES IN IN OTHER
AFFILIATED ASSOCIATED EQUITY DEBT OTHER
E (000) COMPANIES COMPANIES SECURITIES SECURITIES LOANS TOTAL
- ------- ---------- ----------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
------- ------- ------- ------- ------- -------
</TABLE>
Amounts pertaining to equity and debt securities at December 31, 1999 and
1998, are as follows:
<TABLE>
<CAPTION>
1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
E (000) E (000) E (000) E (000)
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
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
======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
E (000) E (000) E (000) E (000)
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
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
====== ====== ===== =======
</TABLE>
F-19
<PAGE> 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:
<TABLE>
<CAPTION>
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)
--------- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
====== ====== ===== ====== ====== =====
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
Other assets................................................ 307,911 92,829
- -- thereof with a remaining term greater than 1 year........ 43,174 49,637
</TABLE>
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
<PAGE> 21
(17) LIQUID ASSETS
Liquid assets at December 31, consists of the following:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
(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:
<TABLE>
<CAPTION>
NUMBER AND TYPE OF SHARES E
- ------------------------- -----------
<S> <C> <C>
61,000,000 no-par ordinary shares...................................... 155,944,024
43,756,114 no-par preference shares.................................... 111,860,729
-----------
267,804,753
===========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1999 1998
------- -------
E (000) E (000)
<S> <C> <C>
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
====== ======
</TABLE>
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
<PAGE> 23
The change of the pension obligation and the change in plan assets for the
domestic plans are as follows:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
The following assumptions were used to develop the changes in pension
obligation and the changes in plan assets of the German plans:
<TABLE>
<CAPTION>
1999 1998 1997
% % %
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
F-23
<PAGE> 24
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
.
1999 1998 1997
E (000) E (000) E (000)
------ ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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)
====== ======
</TABLE>
F-24
<PAGE> 25
The following assumptions were used to develop the change in pension
obligation and the change in plan assets of the foreign plans:
<TABLE>
<CAPTION>
1999 1998 1997
% % %
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
<CAPTION>
1999 1998 1997
E (000) E (000) E (000)
------- ------- -------
<S> <C> <C> <C>
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
====== ====== =====
</TABLE>
(23) OTHER RESERVES AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
--------- -------
<S> <C> <C>
Current and deferred taxes.................................. 456,916 221,051
Other reserves and accrued liabilities...................... 809,645 478,005
--------- -------
1,266,561 699,056
========= =======
</TABLE>
Accrued taxes include current and prior year tax obligations.
Other reserves and accrued liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 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
<PAGE> 27
(25) OTHER LIABILITIES
Other liabilities based on due dates at December 31, are as follows:
<TABLE>
<CAPTION>
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)
----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
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
========= ====== ====== ========= =========
</TABLE>
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
<PAGE> 28
E. ADDITIONAL INFORMATION
(30) CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
E (000)
-------
<S> <C>
Due 2000.................................................... 148,346
Due 2001.................................................... 113,912
Due 2002.................................................... 66,864
Due 2003.................................................... 41,581
Due 2004.................................................... 33,189
Due thereafter.............................................. 84,922
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1999 1998
---------------------- ----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
E (000) E (000) E (000) E (000)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
NOTIONAL NOTIONAL
VALUE FAIR VALUE VALUE FAIR VALUE
FOREIGN EXCHANGE DERIVATIVES E (000) E (000) E (000) E (000)
- ---------------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
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 -- --
</TABLE>
F-30
<PAGE> 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.
<TABLE>
<CAPTION>
1999
----------------------------------------------------
PRODUCT CONSULTING TRAINING TOTAL
E (000) E (000) E (000) E (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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%
</TABLE>
F-31
<PAGE> 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:
<TABLE>
<CAPTION>
1999
E (000)
---------
<S> <C>
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
=========
</TABLE>
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:
<TABLE>
<CAPTION>
1999
E (000)
----------
<S> <C>
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
==========
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
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)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) Europe/Middle East/Africa
<TABLE>
<CAPTION>
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
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(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
<PAGE> 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:
<TABLE>
<CAPTION>
1999 1998
E (000) E (000)
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
The following table represents software revenue by type for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
1999
E (000)
---------
<S> <C>
R/3......................................................... 1,616,179
mySAP.com................................................... 128,792
New Dimension............................................... 187,420
---------
Total....................................................... 1,932,391
=========
</TABLE>
(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
<PAGE> 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
<PAGE> 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
<PAGE> 37
#
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
F-37
<PAGE> 38
<TABLE>
<S> <C>
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
</TABLE>
- ---------------
(*) elected by the employees
F-38
<PAGE> 39
INVESTMENTS OF SAP AKTIENGESELLSCHAFT
AND THE COMPANY
As of December 31, 1999, figures in E (000), except for % and employee
information
<TABLE>
<CAPTION>
NUMBER OF
NET INCOME/ EMPLOYEES
OWNERSHIP (LOSS)(1) EQUITY AS OF
% REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2)
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
F-39
<PAGE> 40
<TABLE>
<CAPTION>
NUMBER OF
NET INCOME/ EMPLOYEES
OWNERSHIP (LOSS)(1) EQUITY AS OF
% REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2)
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
F-40
<PAGE> 41
<TABLE>
<CAPTION>
NUMBER OF
NET INCOME/ EMPLOYEES
OWNERSHIP (LOSS)(1) EQUITY AS OF
% REVENUE FOR 1999 12/31/1999(1) 12/31/1999(2)
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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 --
</TABLE>
- ---------------
(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.
<TABLE>
<CAPTION>
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)
- ---------------------------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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 -- -- -- --
</TABLE>
- ---------------
(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
