HIGHLIGHTS – Second Quarter 2006
Revenues
Software revenues were €621 million for the second quarter of 2006 (2005: €576 million), representing an increase of 8% (10% at constant currencies1) compared to the same period in 2005.
Product revenues for the 2006 second quarter were €1.5 billion (2005: €1.4 billion), which is an increase of 9% (10% at constant currencies1) compared to the second quarter of 2005.
Total revenues were €2.2 billion for the second quarter of 2006 (2005: €2.0 billion), which represented an increase of 9% (9% at constant currencies1) compared to the same period in 2005.
Core Enterprise Applications Vendor Share2
Based on software revenues on a rolling four quarter basis, SAP’s worldwide share of Core Enterprise Applications vendors, which account for approximately $16 billion in software revenues as defined by the Company based on industry analyst research, continued to grow and was 21.7% at the end of the second quarter of 2006.
Regional Performance
The Americas region remained the growth driver for SAP, reporting an 18% increase in software revenues (21% at constant currencies1) to €239 million for the second quarter of 2006 compared to the same quarter last year. In the U.S., software revenues increased to €201 million, or 16% (20% at constant currencies1). Second quarter software revenues in the EMEA (Europe, Middle East and Africa) region climbed to €296 million, or 3% (3% at constant currencies1), with Germany reporting an 8% increase to €100 million for the second quarter of 2006. Software revenues in the APA (Asia/Pacific) region for the second quarter of 2006 were flat (4% increase at constant currencies1) at €86 million, with Japan reporting a 4% decline (4% increase at constant currencies1) in software revenues to €23 million.

Income

Operating income for the second quarter of 2006 was €531 million (2005: €460 million), which was an increase of 15% compared to the 2005 second quarter. Pro forma operating income3 was €558 million (2005: €496 million) for 2005, representing an increase of 13% compared to the second quarter of 2005.
The operating margin for the 2006 second quarter was 24.2%, which was an increase of 1.4 percentage points compared to the second quarter of 2005. The pro forma operating margin3 for the 2006 second quarter was 25.4%, which was an increase of 0.80 percentage points compared to the 2005 second quarter.
Net income for the second quarter of 2006 was €414 million (2005: €289 million), or €1.35 per share (2005: €0.93 per share), representing an increase of 43% compared to the second quarter of 2005. Second quarter 2006 pro forma net income3 was €432 million (2005: €314 million), or pro forma €1.41 earnings per share3 (2005: €1.01 per share), representing an increase of 38% compared to the second quarter of 2005. Second quarter 2006 net income, earnings per share, pro forma net income and pro forma earnings per share were positively impacted by approximately €30 million, or €0.10 per share, from a reduced effective tax rate of 25% mainly due to a settlement with the fiscal authorities on one specific item.
“SAP is on track for another successful year. Product revenue, pro forma operating margin and pro forma earnings per share all gained strongly in the first half and we succeeded in extending our global market share,” said Henning Kagermann, CEO of SAP. “Software revenues were slightly below our expected full-year growth range, primarily due to order phasing and delayed contracts, but order entry – a key indicator for future software revenues – and our win rate against competitors both remained strong. The customer spending environment is stable and customer satisfaction is high, which has been helped by our clear product roadmap and well-defined product deliverables.”
Mr. Kagermann continued, “At the beginning of the year, we stated that 2006 would be a cornerstone year for SAP distinguished by a series of new product launches. We successfully delivered in the first half with new product launches such as SAP CRM on-demand solutions, Duet software and our flagship mySAP ERP 2005, the first services-enabled ERP suite in the industry. Customer feedback has been very positive on these products, including strong interest from our user groups about migrating to mySAP ERP 2005. These new products and other products we have announced for 2006, along with our enterprise service-oriented architecture (enterprise SOA), will allow us to deliver to customers increased simplicity by innovating the user experience, greater flexibility in building business processes, and provide for easier adoption by refining the way companies deploy software.”

HIGHLIGHTS – Six Months 2006
Revenues
Software revenues increased 14% (12% at constant currencies1) to €1.1 billion (2005: €1.0 billion) for the first half of 2006 compared to the same period last year.
Product revenues increased to €2.9 billion (2005: €2.5 billion) for the first six months of 2006, representing an increase of 13% (11% at constant currencies1) compared to the first six months of 2005.
Total revenues were €4.2 billion (2005: €3.7 billion) for the 2006 first half, which was an increase of 13% (11% at constant currencies1) compared to the first half of 2005.

Income

Operating income for the first six months of 2006 was €940 million (2005: €834 million), which was an increase of 13% compared to the same period last year. Pro forma operating income3 for the 2006 six month period was €1.0 billion (2005: €877 million), representing an increase of 16% compared to the 2005 six month period.
The operating margin for the first half of 2006 was 22.2%, which went down by 0.1 percentage points compared to the first half of 2005. The pro forma operating margin3 was 24.0% for the first six months of 2006, which was an increase of 0.6 percentage points compared to the same period in 2005.
Net income for the first half of 2006 was €696 million (2005: €543 million), or €2.26 per share (2005: €1.75 per share), representing an increase of 28% compared to the first half of 2005. Pro forma net income3 for the 2006 six month period was €747 million (2004: €573 million), or pro forma €2.43 per share3 (2005: €1.85 per share), representing an increase of 30% compared to the same period in 2005. First half 2006 net income, earnings per share, pro forma net income and pro forma earnings per share were positively impacted by approximately €30 million, or €0.10 per share, from a second quarter reduced effective tax rate of 25% mainly due to a settlement with the fiscal authorities on one specific item.
Cash Flow
Operating cash flow for the first half of 2006 was €963 million (2005: €832 million). Free cash flow3,4 for the first half of 2006 was €832 million (2005: €720 million), which was 20% as a percentage of total revenues in 2006 (2005: 19%). At June 30, 2006, the Company had €2.5 billion in liquid assets (June 30, 2005: €3.5 billion). The year-over-year decrease in liquid assets is primarily the result of an increase in expenditures on acquisitions and share buybacks in 2006.
Share Buy-Back Program
In the first half of 2006, the Company bought back 5.66 million shares at an average price of €165.72 (total amount: €938 million). This compares to 2.24 million shares bought back in the first half of 2005. At June 30, 2006, treasury stock stood at 11.31 million shares at an average price of €139.79. SAP’s current share buy-back program allows the Company to purchase up to 30 million shares. Given the Company’s strong free cash flow3,4 generation, SAP plans to further evaluate opportunities to buy back shares in the future.
BUSINESS OUTLOOK
The Company also announced that it reaffirmed its outlook for the full-year 2006 and as a result it continues to provide the following outlook for the full-year 2006 as described in its April 20, 2006 first quarter results press release.
The Company expects full-year 2006 product revenues to increase in a range of 13% - 15% compared to 2005. This growth rate is based on the Company's expectation for full-year 2006 software revenue growth in a range of 15% - 17% compared to 2005.
The Company expects the full-year 2006 pro forma operating margin3, which excludes stock-based compensation and acquisition-related charges, to increase in a range of 0.5 – 1.0 percentage points compared to 2005.
The Company expects full-year 2006 pro forma earnings per share3, which exclude stock-based compensation, acquisition-related charges and impairment-related charges, to be in a range of €5.80 to €6.00 per share.
The outlook is based on an assumed U.S. Dollar to Euro exchange rate of $1.23 per €1.00.