##### 









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 20-F

(Mark One)



|  |                                                               
|- | --------------------------------------------------------------
|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    (g) OF

THE SECURITIES EXCHANGE ACT OF 1934




|  |                                                 
|- | ------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2002



|  |                                                     
|- | ----------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ______ to

Commission file number:

1-14251

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)


Federal Republic of Germany

(Jurisdiction of incorporation or organization)




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Neurottstrasse 16

69190 Walldorf


Federal Republic of Germany


(Address of principal executive offices)


Securities
registered or to be registered pursuant to Section 12(b) of
the Act:

|                                                                                                              |  |                                                      
|------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|Title of each class                                                                                           |  | Name of each exchange on which registered            
|                                                                                                              |  |                                                      
|American Depositary Shares, each representing
    one-fourth
    of one Ordinary Share, without nominal value |  | New York Stock Exchange                              
|                                                                                                             
|Ordinary Shares, without nominal value                                                                        |  | Frankfurt Stock Exchange
    New York Stock Exchange*

Securities
registered or to be registered pursuant to Section 12(g) of
the Act:None

Securities for
which there is a reporting obligation pursuant to
Section 15(d) of the Act:None

Indicate the number
of outstanding shares of each of the issuers classes of
capital or common stock at the close of the period covered by
the annual report:

|                                                                       |  |  |             | 
|---------------------------------------------------------------------- |  |  | ----------- | 
|Ordinary Shares, without nominal value (as of
    December 31, 2002)** |  |  | 314,962,606 | 

Indicate by check
mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes x     No o

Indicate by check
mark which financial statement item the registrant has elected
to follow.

Item 17 o     Item 18 x



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|   |                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|*  | Not for trading, but only in connection with the
    registration of American Depositary Shares representing such
    ordinary shares.
|** | Including 3,516,235 treasury shares.                                                                                                  



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TABLE OF CONTENTS

|                            |         |                                                 |                                                            |      |    |    | 
|--------------------------- | ------- | ----------------------------------------------- | ---------------------------------------------------------- | ---- | -- | -- | 
|                            |         |                                                 |                                                            | Page
|                            |         |                                                 |                                                            |     
|INTRODUCTION                |         |                                                 | 1                                                          |     
|FORWARD-LOOKING INFORMATION |         |                                                 | 2                                                          |     
|PART I                      |         |                                                 | 3                                                          |     
|                            | Item 1. |                                                 | Identity of Directors, Senior Management and
    Advisers* |      |    | 3  | 
|                            | Item 2. |                                                 | Offer Statistics and Expected Timetable*                   |      |    | 3  | 
|                            | Item 3. |                                                 | Key Information                                            |      |    | 3  | 
|                            |         | Selected Financial Data                         |                                                            |      | 3  |   
|                            |         | Exchange Rates                                  |                                                            |      | 4  |   
|                            |         | Dividends                                       |                                                            |      | 5  |   
|                            |         | Risk Factors                                    |                                                            |      | 5  |   
|                            | Item 4. |                                                 | Information about SAP                                      |      |    | 18 | 
|                            |         | Description of the Business                     |                                                            |      | 18 |   
|                            |         | Organizational Structure                        |                                                            |      | 33 |   
|                            |         | Description of Property                         |                                                            |      | 33 |   
|                            |         | Capital Expenditures                            |                                                            |      | 34 |   
|                            | Item 5. |                                                 | Operating and Financial Review and Prospects               |      |    | 35 | 
|                            |         | Critical Accounting Policies                    |                                                            |      | 35 |   
|                            |         | New Accounting Pronouncements to be
    Adopted |                                                            |      | 41 |   
|                            |         | Overview                                        |                                                            |      | 42 |   
|                            |         | Foreign Currency Exchange Rate
    Exposure     |                                                            |      | 43 |   
|                            |         | Interest Rate Exposure                          |                                                            |      | 44 |   
|                            |         | Inflation                                       |                                                            |      | 44 |   
|                            |         | Changes to German Tax Law                       |                                                            |      | 44 |   
|                            |         | Operating Results                               |                                                            |      | 45 |   
|                            |         | Liquidity and Capital Resources                 |                                                            |      | 53 |   
|                            |         | Research and Development                        |                                                            |      | 55 |   
|                            | Item 6. |                                                 | Directors, Senior Management and Employees                 |      |    | 56 | 
|                            |         | Supervisory Board                               |                                                            |      | 56 |   
|                            |         | Executive Board                                 |                                                            |      | 57 |   
|                            |         | Compensation of Directors and Officers          |                                                            |      | 58 |   
|                            |         | Employees                                       |                                                            |      | 59 |   
|                            |         | Share Ownership                                 |                                                            |      | 60 |   
|                            | Item 7. |                                                 | Major Shareholders and Related Party Transactions          |      |    | 64 | 
|                            |         | Major Shareholders                              |                                                            |      | 64 |   
|                            |         | Related Party Transactions                      |                                                            |      | 65 |   

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|         |          |                                                                        |                                                                                   |      |    |    | 
|-------- | -------- | ---------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---- | -- | -- | 
|         |          |                                                                        |                                                                                   | Page
|         |          |                                                                        |                                                                                   |     
|         | Item 8.  |                                                                        | Financial Information                                                             |      |    | 65 | 
|         |          | Consolidated Financial Statements                                      |                                                                                   |      | 65 |   
|         |          | Other Financial Information                                            |                                                                                   |      | 66 |   
|         |          | Dividend Policy                                                        |                                                                                   |      | 66 |   
|         |          | Significant Changes                                                    |                                                                                   |      | 66 |   
|         | Item 9.  |                                                                        | The Offer and Listing                                                             |      |    | 66 | 
|         |          | Nature of Trading Market                                               |                                                                                   |      | 66 |   
|         | Item 10. |                                                                        | Additional Information                                                            |      |    | 70 | 
|         |          | Articles of Incorporation                                              |                                                                                   |      | 70 |   
|         |          | Material Contracts                                                     |                                                                                   |      | 75 |   
|         |          | Exchange Controls and Other
    Limitations Affecting Security Holders |                                                                                   |      | 75 |   
|         |          | Taxation                                                               |                                                                                   |      | 76 |   
|         |          | Documents on Display                                                   |                                                                                   |      | 82 |   
|         | Item 11. |                                                                        | Quantitative and Qualitative Disclosures About
    Market Risk                    |      |    | 83 | 
|         |          | Foreign Currency Risk                                                  |                                                                                   |      | 83 |   
|         |          | Interest Rate Risk                                                     |                                                                                   |      | 85 |   
|         |          | Equity Price Risk                                                      |                                                                                   |      | 86 |   
|         | Item 12. |                                                                        | Description of Securities Other than Equity
    Securities*                       |      |    | 86 | 
|PART II  |          |                                                                        | 87                                                                                |     
|         | Item 13. |                                                                        | Defaults, Dividend Arrearages and Delinquencies*                                  |      |    | 87 | 
|         | Item 14. |                                                                        | Material Modifications to the Rights of Security
    Holders and Use of Proceeds* |      |    | 87 | 
|         | Item 15. |                                                                        | Controls and Procedures                                                           |      |    | 87 | 
|         | Item 16. |                                                                        | Reserved                                                                          |      |    | 87 | 
|PART III |          |                                                                        | 87                                                                                |     
|         | Item 17. |                                                                        | Financial Statements**                                                            |      |    | 87 | 
|         | Item 18. |                                                                        | Financial Statements                                                              |      |    | 87 | 
|         | Item 19. |                                                                        | Exhibits                                                                          |      |    | 88 | 




|   |                                                                          
|-- | -------------------------------------------------------------------------
|*  | Omitted because the Item is not applicable or the
    answer is negative.
|  
|** | The Registrant has responded to Item 18 in
    lieu of this Item.        

ii



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##### 



INTRODUCTION

SAP Aktiengesellschaft Systeme, Anwendungen,
Produkte in der Datenverarbeitung, is a German stock corporation
(Aktiengesellschaft) and is referred to in this Annual
Report on Form 20-F as SAP AG and, together with its
subsidiaries, as SAP, or as the Company,
we, our, or us. Our
consolidated financial statements included in
Item 18. Financial Statements in this Annual
Report on Form 20-F have been prepared in accordance with
accounting principles generally accepted in the United States of
America, referred to as U.S. GAAP.

In this Annual Report on Form 20-F:
(i) references to U.S.$, $, or
Dollars are to U.S. Dollars; (ii) references to
DM or Marks are to German Deutsche
Marks; and (iii) references to
 or
euro are to the euro, a currency of the countries
currently participating in the European Economic Monetary Union
(EMU). Certain amounts that appear in this Annual
Report on Form 20-F may not sum because of rounding
adjustments. In this Annual Report on Form 20-F, except as
otherwise specified, financial information with respect to SAP
has been expressed in euros and/or Dollars. The fixed exchange
rate for euros converted to Marks is DM 1.95583 per
 1.00
(Official Fixed Conversion Rate). Effective as of
January 1, 1999, we adopted the euro as our financial and
reporting currency. Effective February 26, 1999, all of SAP
AGs share capital was converted from Marks to the euro.

Unless otherwise specified herein, all euro
financial data that has been converted into Dollars have been
converted at the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the Noon
Buying Rate) on December 31, 2002, which was
 1.00 per
$ 1.0485. No representation is made that such euro amounts
actually represent such Dollar amounts or that such euro amounts
could have been or could be converted into Dollars at that or
any other exchange rate on such date or on any other dates. For
information regarding recent rates of exchange between euros and
Dollars, see Item 3. Key Information 
Exchange Rates. At March 7, 2003, the Noon Buying
Rate for converting euros to Dollars was U.S.$ 1.1014 per
 1.00.

Unless the context otherwise requires, references
in this Annual Report on Form 20-F to ordinary shares are
to SAP AGs ordinary shares, without nominal value, and
references to preference shares are to SAP AGs non-voting
preference shares, without nominal value, which were converted
to ordinary shares as of June 18, 2001. References in this
Annual Report on Form 20-F to ADSs are to SAP
AGs American Depositary Shares, each representing
one-fourth of an ordinary share.

On June 26, 2000, we effected a division of
our capital stock by means of a three-for-one stock split of the
ordinary shares and the preference shares. Contemporaneously
with the stock split, we reduced the ratio of ADSs to preference
shares from 12:1 to 4:1. All references to subscribed capital,
ordinary shares, preference shares, shares outstanding, average
number of shares outstanding, convertible bonds, stock options
or per share amounts in this Annual Report on Form 20-F
prior to the effectiveness of the stock split have been restated
to reflect the three-for-one stock split on a retroactive basis.

The annual general shareholders meeting and
a special meeting of holders of the preference shares on
May 3, 2001 approved a conversion of the preference shares
into ordinary shares on a share for share basis, which came into
effect on June 18, 2001. The amount of subscribed capital for
ordinary shares was therefore increased by the amount of the
outstanding preference shares on the effective date of the
conversion.

SAP, the SAP logo,
R/2, R/3, mySAP,
mySAP.com, xApp, xApps,
SAP NetWeaver and other SAP product and service
names mentioned herein are trademarks or registered trademarks
of SAP AG in Germany and/or in several other countries.
MarketSet is a jointly owned trademark of SAP AG and
Commerce One, Inc. (Commerce One). This Annual
Report on Form 20-F also contains product and service names
of companies other than SAP that are trademarks of their
respective owners.

1



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##### 



FORWARD-LOOKING INFORMATION

This Annual Report on Form 20-F contains
forward-looking statements based on beliefs of our management.
Any statements contained in this Annual Report on Form 20-F
that are not historical facts are forward-looking statements as
defined in the U.S. Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our
current expectations and projections about future events,
including:



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | general economic and business conditions;                                      
|
| |  | attracting and retaining personnel;                                            
|
| |  | competition in the software industry;                                          
|
| |  | implementing our business strategy;                                            
|
| |  | developing and introducing new services and
    products;                      
|
| |  | obtaining and expanding market acceptance of our
    services and products; and
|
| |  | meeting our requirements with customers.                                       

The words anticipate,
believe, continue, counting
on, is confident, estimate,
expect, forecast, intend,
may, plan, project,
predict, should, wants,
will, would and similar expressions as
they relate to us are intended to identify such forward-looking
statements. Such statements reflect our current views and
assumptions and 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 our future financial results are discussed more fully
under Item 3. Key Information  Risk
Factors, as well as elsewhere in this Annual Report on
Form 20-F and in our other filings with the U.S. Securities
and Exchange Commission (SEC). Readers are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of their dates. We undertake no obligation
to publicly update or revise any forward-looking statements.

2



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##### 



PART I

Item 1.     Identity
of Directors, Senior Management and Advisers

Not Applicable.

Item 2.     Offer
Statistics and Expected Timetable

Not Applicable.

Item 3.     Key
Information

Selected Financial Data

The following table represents selected
consolidated financial information of SAP. The table should be
read together with Item 5. Operating and Financial
Review and Prospects. The selected consolidated financial
data of SAP is a summary of, is derived from and is qualified by
reference to, our consolidated financial statements and notes
thereto audited for the year ended December 31, 2002 by
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft (KPMG),
independent auditors and for the years ended December 31,
2001, 2000, 1999 and 1998 by ARTHUR ANDERSEN
Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
mbH (Arthur Andersen), independent auditors. For a
discussion of the risks relating to Arthur Andersens audit
of our financial statements, please see Item 3. Risk
Factors  We and our shareholders face certain risks
related to our former employment of Arthur Andersen as our
independent auditors.

The audited consolidated income statements,
consolidated statements of cash flows and consolidated
statements of changes in shareholders equity for the years
ended December 31, 2002, 2001 and 2000, and the
consolidated balance sheets at December 31, 2002 and 2001
are included in Item 18. Financial Statements.
Certain reclassifications have been made to prior year amounts
to conform to the current years presentation.

SELECTED FINANCIAL DATA

|                                                        |         |                                                         |           |         |  |      |           |         |  |      |           |         |  |  |           |         |  |  |           |         |  |  |           |         | 
|------------------------------------------------------- | ------- | ------------------------------------------------------- | --------- | ------- |  | ---- | --------- | ------- |  | ---- | --------- | ------- |  |  | --------- | ------- |  |  | --------- | ------- |  |  | --------- | ------- | 
|                                                        |         |                                                        
|                                                        |         | Year Ended December 31,                                
|                                                        |         | (in thousands, except per share and exchange rate data)
|                                                        |         |                                                        
|                                                        |         | 2002                                                    |           | 2002    |  | 2001 |           | 2000(2) |  | 1999 |           | 1998   
|                                                        |         |                                                         |           |         |  |      |           |         |  |      |           |        
|                                                        |         | U.S.$(1)                                                |           |        |  |     |           |        |  |     |           |       
|Income Statement Data:                                  |         |                                                         |           |         |  |      |           |         |  |      |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Total revenue                                           |         |                                                         | 7,772,361 |         |  |      | 7,412,838 |         |  |      | 7,340,804 |         |  |  | 6,264,595 |         |  |  | 5,110,213 |         |  |  | 4,315,614 |        
|Operating income                                        |         |                                                         | 1,704,524 |         |  |      | 1,625,678 |         |  |      | 1,312,374 |         |  |  | 802,658   |         |  |  | 796,180   |         |  |  | 900,794   |        
|Income before income taxes and extraordinary gain       |         |                                                         | 1,161,421 |         |  |      | 1,107,698 |         |  |      | 1,068,757 |         |  |  | 1,012,869 |         |  |  | 980,347   |         |  |  | 931,952   |        
|Net income                                              |         |                                                         | 533,282   |         |  |      | 508,614   |         |  |      | 581,136   |         |  |  | 615,732   |         |  |  | 601,001   |         |  |  | 526,944   |        
|Earnings per share(3)                                   |         |                                                         |           |         |  |      |           |         |  |      |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Basic                                                   |         |                                                         | 1.70      |         |  |      | 1.62      |         |  |      | 1.85      |         |  |  | 1.96      |         |  |  | 1.92      |         |  |  | 1.68      |        
|Diluted                                                 |         |                                                         | 1.70      |         |  |      | 1.62      |         |  |      | 1.85      |         |  |  | 1.95      |         |  |  | 1.90      |         |  |  | 1.67      |        
|Other Data:                                             |         |                                                         |           |         |  |      |           |         |  |      |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Weighted average number of shares
    outstanding(3)(4) |         |                                                         |           |         |  |      |           |         |  |      |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|                                                        | Basic   |                                                         |           | 313,016 |  |      |           | 313,016 |  |      |           | 314,309 |  |  |           | 314,423 |  |  |           | 313,815 |  |  |           | 313,302 | 
|                                                        | Diluted |                                                         |           | 313,980 |  |      |           | 313,980 |  |      |           | 314,412 |  |  |           | 315,737 |  |  |           | 315,750 |  |  |           | 315,750 | 
|Balance Sheet Data:                                     |         |                                                         |           |         |  |      |           |         |  |      |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Total assets                                            |         |                                                         | 5,881,825 |         |  |      | 5,609,752 |         |  |      | 6,195,604 |         |  |  | 5,618,971 |         |  |  | 4,826,889 |         |  |  | 3,445,935 |        
|Shareholders equity                                    |         |                                                         | 3,011,387 |         |  |      | 2,872,091 |         |  |      | 3,109,513 |         |  |  | 2,517,081 |         |  |  | 2,559,355 |         |  |  | 1,818,267 |        
|Subscribed capital                                      |         |                                                         | 330,239   |         |  |      | 314,963   |         |  |      | 314,826   |         |  |  | 314,715   |         |  |  | 267,805   |         |  |  | 267,315   |        
|Short-term bank loans and overdrafts                    |         |                                                         | 23,756    |         |  |      | 22,657    |         |  |      | 458,266   |         |  |  | 146,877   |         |  |  | 24,600    |         |  |  | 96,290    |        
|Long-term financial debt(5)                             |         |                                                         | 11,867    |         |  |      | 11,318    |         |  |      | 7,375     |         |  |  | 6,543     |         |  |  | 32,913    |         |  |  | 26,457    |        

3



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##### 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts in the column are unaudited and
    translated for the convenience of the reader at
     1.00 to
    U.S.$ 1.0485, the Noon Buying Rate for converting
     1.00 into
    Dollars on December 31, 2002. See
     Exchange Rates for recent exchange rates
    between the euro and the Dollar.                                                                                                                     
|   
|(2) | The 2000 figures have been adjusted for the
    effect of the change in the investment in Commerce One to the
    equity method. See note 2 of Item 18. Financial
    Statements.                                                                                                                                                                                                                                             
|   
|(3) | Amounts are adjusted for our one-for-one
    conversion of preference shares to ordinary shares in 2001 and
    the three-for-one stock split in 2000.                                                                                                                                                                                                                                                                          
|   
|(4) | Includes preference and ordinary shares for
    periods prior to June 18, 2001, the effective date of the
    conversion of the preference shares into ordinary shares on a
    share-for-share basis.                                                                                                                                                                                                                          
|   
|(5) | Long-term financial debt represents financial
    liabilities with a remaining life beyond one year, which is
    comprised of bank loans and overdrafts, the outstanding 1994
    Bonds issued to SAP employees and convertible bonds issued
    pursuant to the LTI Plan. See Item 6. Directors,
    Senior Management and Employees  Share
    Ownership  Stock-Based Compensation Plans 
    LTI Plan and  1994 Bonds.

Exchange Rates

After the introduction of the euro on
January 1, 1999, the Federal Reserve Bank of New York
ceased to quote a Noon Buying Rate for the Mark. Accordingly,
the following table sets forth, for the periods after
January 1, 1999, the average, high, low and period-end Noon
Buying Rates for the euro expressed as Dollars per
 1.00. For 1998,
the table reflects the average, high, low and period-end Noon
Buying Rates for the Mark, shown after conversion into euros at
the Official Fixed Conversion Rate and expressed in Dollars per
 1.00.

|     |  |            |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|---- |  | ---------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|Year |  | Average(1) |        | High |  | Low |        | Period-End
|     |  |            |        |      |  |     |        |           
|1998 |  |            | 1.1120 |      |  |     | 1.2178 |            |  |  | 1.0548 |  |  |  | 1.1733 | 
|1999 |  |            | 1.0588 |      |  |     | 1.1812 |            |  |  | 1.0016 |  |  |  | 1.0070 | 
|2000 |  |            | 0.9207 |      |  |     | 1.0335 |            |  |  | 0.8270 |  |  |  | 0.9388 | 
|2001 |  |            | 0.8909 |      |  |     | 0.9535 |            |  |  | 0.8370 |  |  |  | 0.8901 | 
|2002 |  |            | 0.9495 |      |  |     | 1.0485 |            |  |  | 0.8594 |  |  |  | 1.0485 | 

|      |                               |      |  |        |  |            |  |        |  |  |  |        | 
|----- | ----------------------------- | ---- |  | ------ |  | ---------- |  | ------ |  |  |  | ------ | 
|Month |                               | High |  | Low    |  | Period-End
|      |                               |      |  |        |  |           
|2002  |                               |      |  |        |  |            |  |        |  |  |  |       
|      | July                          |      |  | 1.0156 |  |            |  | 0.9730 |  |  |  | 0.9796 | 
|      | August                        |      |  | 0.9882 |  |            |  | 0.9640 |  |  |  | 0.9806 | 
|      | September                     |      |  | 0.9959 |  |            |  | 0.9685 |  |  |  | 0.9879 | 
|      | October                       |      |  | 0.9881 |  |            |  | 0.9708 |  |  |  | 0.9881 | 
|      | November                      |      |  | 1.0139 |  |            |  | 0.9895 |  |  |  | 0.9932 | 
|      | December                      |      |  | 1.0485 |  |            |  | 0.9927 |  |  |  | 1.0485 | 
|2003  |                               |      |  |        |  |            |  |        |  |  |  |       
|      | January                       |      |  | 1.0861 |  |            |  | 1.0361 |  |  |  | 1.0739 | 
|      | February                      |      |  | 1.0875 |  |            |  | 1.0708 |  |  |  | 1.0779 | 
|      | March (through March 7, 2003) |      |  | 1.1014 |  |            |  | 1.0835 |  |  |  | 1.1014 | 






|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | The average of the applicable Noon Buying Rates
    on the last day of each month during the relevant period.

On March 7, 2003, the Noon Buying Rate for
converting euros to Dollars was U.S.$ 1.1014 per
 1.00.

The prices for ordinary shares traded on German
stock exchanges are denominated in euros. Fluctuations in the
exchange rate between the euro and the Dollar will affect the
Dollar equivalent of the euro price of the ordinary shares
traded on the German stock exchanges and, as a result, may
affect the price of the ADSs in the United States. In addition,
SAP AG pays cash dividends, if any, in euros, so that such
exchange rate fluctuations will also affect the Dollar amounts
received by the holders of ADSs on the conversion into Dollars
of cash dividends paid in euros on the ordinary shares
represented by the ADSs. The deposit agreement for the ADSs
requires the depositary to convert any dividend payments from
euros into Dollars as promptly as practicable upon receipt.

4



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A significant portion of our revenue and expenses
is denominated in currencies other than the euro. Therefore,
movements in the exchange rate between the euro, on the one
hand, and the respective currencies to which we are exposed, on
the other hand, may materially affect our consolidated financial
position, results of operations and cash flows. See
Item 5. Operating and Financial Review and
Prospects  Exchange Rate Exposure.

Dividends

Dividends are jointly proposed by SAP AGs
Supervisory Board (Aufsichtsrat) and Executive Board
(Vorstand) based on SAP AGs year-end stand-alone
financial statements, subject to approval by the shareholders,
and are officially declared for the prior year at SAP AGs
annual general shareholders meeting. Dividends paid to
holders of the ADSs may be subject to German withholding tax.
See Item 8. Financial Information 
Dividend Policy and Item 10. Additional
Information  Taxation. For 1998, the figures
shown reflect conversion into euros at the Official Fixed
Conversion Rate and expressed in Dollars per
 1.00.

The following table sets forth in euros the
annual dividends paid or proposed to be paid per ordinary share
and preference share in respect of each of the years indicated.

|                        |  |                   |      |                   |  |   |      |        |  |  |      |  |  |  |      |    
|----------------------- |  | ----------------- | ---- | ----------------- |  | - | ---- | ------ |  |  | ---- |  |  |  | ---- | ---
|                        |  |                   |      |                  
|                        |  | Dividend Paid per |      | Dividend Paid per
|Year Ended December 31, |  | Ordinary Share    |      | Preference Share 
|                        |  |                   |      |                  
|                        |  |                  |      | U.S.$             |  |  |      | U.S.$ 
|1998                    |  |                   | 0.52 |                   |  |   | 0.56 | (1)    |  |  | 0.53 |  |  |  | 0.57 | (1)
|1999                    |  |                   | 0.52 |                   |  |   | 0.47 | (1)    |  |  | 0.53 |  |  |  | 0.48 | (1)
|2000                    |  |                   | 0.57 |                   |  |   | 0.52 | (1)    |  |  | 0.58 |  |  |  | 0.53 | (1)
|2001                    |  |                   | 0.58 |                   |  |   | 0.53 | (1)    |  |  | N/A  |  |  |  | N/A  |    
|2002                    |  |                   | 0.60 | (2)               |  |   | 0.66 | (2)(3) |  |  | N/A  |  |  |  | N/A  |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Translated for the convenience of the reader from
    euros into Dollars at the Noon Buying Rate for converting euros
    into Dollars on the dividend payment date. The depositary is
    required to convert any dividend payments received from SAP as
    promptly as practicable upon receipt.                                                                                                  
|   
|(2) | Subject to approval of the holders of ordinary
    shares at the SAP AG annual general shareholders meeting
    to be held on May 9, 2003.                                                                                                                                                                                                                                                          
|   
|(3) | Translated for the convenience of the reader from
    euros into Dollars at the Noon Buying Rate for converting euros
    into Dollars on March 7, 2003 of U.S.$ 1.1014 per
     1.00. The
    depositary is required to convert any dividend payments received
    from SAP as promptly as practicable upon receipt. The dividend
    paid can actually differ due to changes in the exchange rate.

The amount of dividends paid on the ordinary
shares depends on the amount of SAP AG profits to be distributed
by SAP AG, which depends in part upon our performance. For years
prior to 2001, a holder of preference shares was entitled to a
cumulative annual preferred dividend which exceeded the annual
dividend paid to holders of ordinary shares by an amount equal
to  0.01
per preference share, but in no event less than a minimum
dividend equal to
 0.01 per
preference share. The timing and amount of future dividend
payments will depend upon our future earnings, capital needs and
other relevant factors in each case as proposed by the Executive
Board and the Supervisory Board of SAP AG and approved at the
annual general shareholders meeting.

Risk Factors

We operate in a dynamic and rapidly changing
environment that involves numerous risks and uncertainties, many
of which are beyond our control. An investor should carefully
consider the risks described below before purchasing SAP
AGs ordinary shares or ADSs. If any of the following risks
actually occur, our business, financial condition or results of
operations could be materially adversely affected, and the
trading price of our ordinary shares or ADSs could decline and
you may lose all or part of your investment.

5



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Substantial, prolonged declines in
European, U.S. and Asian global technology and software markets
resulting from general adverse economic conditions may cause our
revenues and profitability to suffer.

Implementation of SAP software products can
constitute a major portion of our customers overall
corporate budget, and the amount customers are willing to invest
in acquiring and implementing SAP products and the timing of our
customers investment has tended to vary due to economic or
financial crises or other business conditions. Prolonged
economic slowdowns may result in customers requiring us to
renegotiate existing contracts resulting in less advantageous
terms than those currently in place. A recession or other
difficulties in the economies where we license our products,
including Europe, North America, South America and Asia, could
have a material adverse effect on our business, financial
position, operating results or cash flows. In particular, our
profitability and cash flows may be significantly adversely
affected by a prolonged economic slowdown in Europe or the
United States because we derive a substantial portion of our
revenue from software licenses and services in those markets.

Undetected errors or delays in new products
and product enhancements may result in increased costs to us and
delayed market acceptance of our products.

To achieve market acceptance, new products and
product enhancements can require long development and testing
periods, which may result in delays in scheduled introduction.
Generally, first releases are licensed to a controlled group of
customers. Such new products and product enhancements may
contain a number of undetected errors or bugs when
they are first released. As a result, in the first year
following the introduction of certain releases, we generally
devote significant resources, primarily consulting and
development services, to work with early customers to correct
such errors. There can be no assurance, however, that all such
errors can be corrected to the customers satisfaction,
with the result that certain customers may bring claims for cash
refunds, damages, replacement software or other concessions. The
risks of errors and their adverse consequences may increase as
we seek simultaneously to introduce a variety of new software
products.

Although we test each new product and product
enhancement release before introducing it to the market, there
can be no assurance that significant errors will not be found in
existing or future releases of SAP software products, with the
possible result that significant resources and expenditures may
be required in order to correct such errors or otherwise satisfy
customer demands. In addition, the possibility cannot be
excluded that customers may bring actions for damages, make
claims for replacement of software, or demand other concessions
from SAP. Significant undetected errors or delays in new
products or product enhancements may affect market acceptance of
SAP software products.

We are subject to pricing
pressure.

In response to competition and general adverse
economic conditions, we have been required in the past, and may
be required in the future, to furnish additional discounts to
customers or otherwise modify our pricing practices. These
developments have and may increasingly negatively impact our
revenue and earnings. We generally license our products in
individual software components or a suite of software components
on a right to use basis pursuant to a perpetual
license providing for an initial license fee based on the number
and types of identified users or other applicable criteria.
Changes in our pricing model or any other future broadly-based
changes to our prices and pricing policies could lead to a
decline or delay in sales as our sales force and our customers
adjust to the new pricing policies.

We, together with certain business partners,
offer certain SAP software products to small and midsize
customers as a component of our hosted solutions or rental
offerings, in which license and maintenance fees or rental
payments may be paid to us on a per user, per month or similar
subscription basis rather than an upfront license fee payment as
under our standard pricing models. While our hosted solutions
and rental programs have not generated significant revenues
through 2002, we expect that these programs will generate
incremental revenue from small and midsize customers. There can
be no assurance that such programs will be successful or, if
successful, that they will not negatively impact our standard
pricing models. The proliferation of outsourcing of enterprise
business applications or business processes could result in
increased competition through the entry of systems integrators,
consulting firms, telecommunications firms, computer hardware
vendors and other applica-

6



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tion-hosting providers. In addition, the
distribution of applications through application service
providers may reduce the price paid for our products or
adversely affect other sales of our products.


We may not be able to protect our
intellectual property rights, which may cause us to incur
significant costs in litigation and an erosion in the value of
our brands and products.

We rely on a combination of the protections
provided by applicable trade secret, copyright, patent and
trademark laws, license and non-disclosure agreements and
technical measures to establish and protect our rights in our
products. There can be no assurance that these protections will
be adequate or that our competitors will not independently
develop technologies that are substantially equivalent or
superior to our technology. Despite our efforts, it may be
possible for third parties to copy certain portions of our
products or reverse-engineer or otherwise obtain and use
information that we regard as proprietary. In addition, the laws
of certain countries do not protect our proprietary rights to
the same extent as do the laws of the United States or Germany.
Accordingly, there can be no assurance that we will be able to
protect our proprietary software against unauthorized third
party copying or use, which could adversely affect our
competitive position.

Some of our competitors may have been more
aggressive than us in applying for or obtaining patent
protection for innovative proprietary technologies. Although we
have been issued patents under our patent program and have a
number of patent applications pending for inventions claimed by
us, there can be no assurance that, in the future, patents of
third parties will not preclude us from utilizing a technology
in our products or require us to enter into royalty and
licensing arrangements on terms that are not favorable to us.

Although we do not believe that we are infringing
any proprietary rights of others, third parties have claimed and
may claim in the future that we have infringed their
intellectual property rights. We expect that our software
products will increasingly be subject to such claims as the
number of products and competitors in our industry segment
grows, as we expand our products into new industry segments and
as the functionality of products overlap. There can be no
assurance that, in the future, a third party will not assert
that our technology violates its patents, copyrights or trade
secrets. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause product
shipment delays, subject our products to an injunction, require
a complete or partial re-design of the relevant product or
require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all.

Our encryption technology may be breached
or compromised.

Consumers have significant concerns about secure
transmissions of confidential information, especially financial
information, over public networks like the Internet. This
remains a significant barrier to general acceptance of
e-commerce and other aspects of SAPs business. We rely on
encryption, authentication technology and firewalls, to provide
the necessary security for the confidential information
transmitted to and from us over the Internet. Advances in
computer capabilities, new discoveries in the field of
cryptography or other events or developments could result in
compromises or breaches of our security systems or those of
other Web sites to protect proprietary information. If any
compromises of security were to occur, it could have the effect
of substantially reducing the use of the Web for commerce and
communications. Anyone who circumvents our security measures
could misappropriate proprietary information or cause
interruptions in our services or operations. The Internet is a
public network, and data is sent over this network from many
sources. In the past, computer viruses, software programs that
disable or impair computers, have been distributed and have
rapidly spread over the Internet. Computer viruses could be
introduced into our systems or those of our customers or
suppliers, which could disrupt our network or make it
inaccessible to customers or suppliers. Our security measures
may be inadequate to prevent security breaches, and our business
would be harmed if we do not prevent them. In addition, we may
be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate
problems caused by breaches.

7



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We depend on technology licensed to us by
third parties, and the loss of this technology could delay
implementation of our products or force us to pay higher license
fees.

We license numerous critical third-party software
products that we incorporate into our existing products. There
can be no assurance that the licenses for such third-party
software will not be terminated or that we will be able to
license critical third-party software for future products. In
addition, we may be unable to renegotiate acceptable third-party
license terms to reflect changes in our pricing models. Changes
in or the loss of a third party license could lead to a material
increase in the costs of licensing or to SAP software products
becoming inoperable or their performance being materially
reduced, with the result that we may need to incur additional
development costs to ensure continued performance of our
products.

Because our products are critical to the
operations of our customers businesses, we could incur
substantial costs as a result of warranty or product liability
claims.

The use of SAP software products by customers in
business-critical applications and processes creates the risk
that customers or other third parties may pursue warranty or
other claims against us in the event of actual or alleged
failures of SAP software products, the provision of services or
application hosting. We have in the past been, and may in the
future continue to be, subject to such warranty or other claims.
In addition, certain of our Internet browser-enabled products
include security features that are intended to protect the
privacy and integrity of customer data. Despite these security
features, our products may be vulnerable to break-ins and
similar problems caused by Internet users, such as hackers
bypassing firewalls and misappropriating confidential
information. Such break-ins or other disruptions could
jeopardize the security of information stored in and transmitted
through the computer systems of our customers. Addressing
problems and claims associated with such actual or alleged
failures could have a material adverse effect on our business,
financial position, results of operations or cash flows.

Although our agreements generally contain
provisions designed to limit our exposure as a result of actual
or alleged failures of SAP software products, the provision of
services or application hosting or security features, such
provisions may not cover every eventuality or be effective under
applicable law. Any claim, regardless of its merits, could
entail substantial expense and require the devotion of
significant time and attention by key management personnel.

Terrorist attacks and risk of war or
international hostilities could adversely impact our
business.

Further attacks like those of September 11,
2001 or longer-lasting war or international hostilities could
damage the world economy and affect our investment and our
customers investment decisions over an extended period of
time. We operate in a sector of the economy that may be impacted
by the effects of any such attack or war or international
hostilities.

Our failure to develop new relationships
and enhance existing relationships with third-party
distributors, software vendors and value-added resellers that
help sell our services and products may adversely affect our
revenues.

We have entered into agreements with a number of
leading computer software and hardware vendors and
telecommunications providers to cooperate and ensure that
certain of the software and hardware products produced by such
vendors are compatible with SAP software products. We have also
supplemented our consulting and support services (in the areas
of product implementation, training and maintenance) through
alliance partnerships with third-party hardware and
software vendors, systems integrators, consulting groups
formerly associated with major accounting firms and other
consulting firms. Most of these agreements and partnerships are
of relatively short duration and all are non-exclusive. In
addition, we have established relationships relating to the
resale of certain SAP software products by third parties. These
third parties include certain value-added resellers and, in the
area of application hosting services, certain computer hardware
vendors, systems integrators and telecommunications providers.

There can be no assurance that these third
parties or partners, most of which have similar arrangements
with our competitors and some of which also produce their own
standard application software in competition with us,

8



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will continue to cooperate with us when such
agreements or partnerships expire or are up for renewal. In
addition, there can be no assurance that such third parties or
partners will provide high-quality products or services or that
actions taken or omitted to be taken by such parties will not
adversely affect us. There can be no assurance that the slowing
economy will not affect such third parties or partners or the
products and services that they provide pursuant to the
agreements with us. The failure to obtain high quality products
or services or to renew such agreements or partnerships could
adversely affect our ability to continue to develop product
enhancements and new solutions that keep pace with anticipated
changes in hardware and software technology and
telecommunications, or could adversely affect the market for SAP
software products.


Because we conduct our operations
throughout the world, our results of operations may be affected
by currency fluctuations.

Although the euro has been our financial and
reporting currency since January 1, 1999, a significant
portion of our business is conducted in currencies other than
the euro. Approximately 60.4% of our consolidated revenue in
2002 was attributable to operations in non-EMU member states and
translated into euros. As a consequence, period-to-period
changes in the average exchange rate in a particular currency
can significantly affect reported revenue and operating results.
In general, appreciation of the euro relative to another
currency has a negative effect on reported results of
operations, while depreciation of the euro has a positive effect.

Because a significant portion of our revenue is
from countries other than EMU member states and denominated in
currencies other than the euro, we have significant exposure to
the risk of currency fluctuations, especially to fluctuations in
the value of the Dollar, the Japanese yen, the British pound,
the Swiss franc, the Canadian dollar, the Brazilian real, and
the Australian dollar. As of March 7, 2003, the Noon Buying
Rate for converting euros to Dollars was U.S.$ 1.1014 per
 1.00,
representing one of the lowest exchange rates since 1999.
Conversely, increases in the value of the Dollar or other
currencies relative to the euro may positively affect earnings,
although such positive effects may be only short-term in nature.

We continually monitor our exposure to currency
risk and pursue a company-wide foreign exchange risk management
policy and may hedge such risks with certain financial
instruments. However, there can be no assurance that our hedging
activities, if any, will be effective. See Item 11.
Quantitative and Qualitative Disclosure about Market
Risk  Foreign Currency Risk.

If we are unable to keep up with rapid
technological changes, we may not be able to compete
effectively.

Our future success will depend in part upon our
ability to:



| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continue to enhance and expand our existing
    products and services;                                                                                                                                                    
|
| |  | provide best-in-class e-business solutions and
    services; and                                                                                                                                                          
|
| |  | develop and introduce new products and provide
    new services that satisfy increasingly sophisticated customer
    requirements, that keep pace with technological developments and
    that are accepted in the market.

We continue to transform our suite of business
applications to reduce the total cost of IT ownership for our
customers and to allow our customers the integration of
heterogeneous systems. In addition we provide industry-specific
business solutions. There can be no assurance that we will be
successful in anticipating and developing product enhancements
or new solutions and services to adequately address changing
technologies and customer requirements. Any such enhancements,
solutions or services may not be successful in the marketplace
or may not generate increased revenue. We may fail to anticipate
and develop technological improvements, to adapt our products to
technological change, emerging industry standards and changing
customer requirements or to produce high-quality products,
enhancements and releases in a timely and cost-effective manner
in order to compete with applications offered by our competitors.

9



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Due to intense competition, our market
share and financial performance could suffer.

The software industry is intensely competitive.
As part of our business strategy, we have focused our efforts in
areas of our business where the market is expected to grow more
rapidly. In particular, we have expanded our focus on markets
for customer relationship management, supply chain management,
and technology integration platform solutions. Our expansion
from the traditional ERP market exposes us to different markets
and different competitors. Competition, including with respect
to pricing, product quality and consulting and support services,
could increase substantially and result in price reductions,
cost increases or loss of market share.

We compete with a wide range of global, regional
and local competitors. Some of our competitors and many of our
potential competitors are involved in a wider range of
businesses, and some competitors and potential competitors have
a larger installed customer base for their products and
services, or have significantly greater financial, technical,
marketing and other resources than us, enhancing their ability
to compete with us. There are many other companies engaged in
the research, development and marketing of integrated e-business
solutions, standard business application software and associated
applications development tools, decision support products and
services. Some of these companies may develop (or may have
already developed) an overall concept or individual product
offering, which may be perceived to be as good as or better than
our product offerings.

New distribution methods (e.g. electronic
channels) and opportunities presented by the Internet and
electronic commerce have removed many of the barriers to entry
to the markets in which we compete. Historically, most of our
competitors provided solutions which covered certain functional
areas offering the customer a software application product
designed for a specific business or manufacturing process. Such
products compete with individual functions offered by us. Our
competitors have already broadened, or are implementing plans to
broaden, the scope of their business activities into other areas
of the market. A competitor may be able to capitalize upon the
success of a niche product by developing and marketing broader
system applications in competition with us. Niche competitors
may also benefit from alternative delivery systems, such as the
Internet, to become more competitive with us.

Current and potential competitors have
established or may establish cooperative relationships among
themselves or with third parties to increase the ability of
their products to address customer needs. In addition, we
believe that competition will increase as a result of industry
consolidations. Accordingly, it is possible that new competitors
or alliances among competitors may emerge and rapidly acquire
significant market share.

Among the competitive advantages that are
decisive for predicted revenue growth is the fact that we are
one of the largest companies in our industry. Significant
mergers and/or acquisitions could alter the competitive
environment and impact SAPs future financial position and
results of operation.

We believe that our experience with business
process applications, our increasingly flexible, component-based
installation options and our focus on Internet and industry
solutions give us a strong competitive position. However, there
can be no assurance that our strategies will prove to be
successful or that our competitors strategies would not be
more successful than ours.

Our revenue mix may vary and may negatively
affect our profit margins.

In 2000, our software and maintenance revenue
increased, while service revenue decreased, as a percentage of
total revenue. For fiscal years 2002 and 2001, our service and
maintenance revenue increased, while software revenue decreased,
as a percentage of total revenue. Variances or slowdowns in our
licensing activity may negatively impact our current and future
revenue from services and maintenance since such services and
maintenance revenue typically lag behind license fee revenue. In
addition, growth in service revenue will depend on our ability
to compete effectively in obtaining customer engagements to
provide services related to SAP software products. On average,
our profit margins on service and maintenance revenue
historically are less than our profit margin on software
revenue. Any decrease in the percentage of our total revenue
derived from software licensing could have a material adverse
effect on our business, financial position, results of
operations or cash flows.

10



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Customer implementation and installation
involves significant resources and is subject to significant
risks.

Implementation of SAP software is a process that
often involves a significant commitment of resources by our
customers and is subject to a number of significant risks over
which we have little or no control. Some of our customers have
incurred significant third-party consulting costs and
experienced protracted implementation times in connection with
the purchase and installation of SAP software products. We
believe that these costs and delays were due in many cases to
the fact that, in connection with the implementation of the SAP
software products, these customers conducted extensive business
re-engineering projects involving complex changes relating to
business processes within the customers own organization.
We offer accelerated installation support and/or fixed fees for
certain SAP software products installation projects. However,
criticisms regarding these additional costs and protracted
implementation times have been directed at us, and there have
been, from time to time, shortages of our trained consultants
available to assist customers in the implementation of our
products. In addition, the success of new SAP software products
introduced by us may be adversely impacted by the perceived time
and cost to implement existing SAP software products or the
actual time and cost to implement such new products. We can not
provide assurance that protracted installation times or
criticisms of us will continue, that shortages of our trained
consultants will not occur or that the costs of installation
projects will not exceed the fixed fees being charged by us.

If we were to lose the services of members
of management and employees who possess specialized market
knowledge and technology skills, we may not be able to manage
our operations effectively or develop new products and
services.

Our operations could be adversely affected if
senior managers or other skilled personnel were to leave and
qualified replacements were not available. Despite recent
adverse economic trends, competition for managerial and skilled
personnel in the software industry remains intense. Such
personnel in certain regions (including the United States and
Europe) are in short supply. We expect continued increases in
compensation costs in order to attract and retain senior
managers and skilled employees, especially if the current
weakened economy improves. Most of our current key employees are
subject to employment agreements or conditions that (i) do
not contain post employment non-competition provisions and
(ii) in the case of most of our existing employees outside
of Germany, permit the employees to terminate their employment
on relatively short notice. There can be no assurance that we
will continue to be able to attract and retain the personnel we
require to develop and market new and enhanced products and to
market and service our existing products and conduct our
operations successfully.

Our joint product development relationships
may not be successful.

We have entered into relationships with various
companies to jointly develop and market new software products.
In connection with these relationships, we occasionally make
equity investments. These joint development and marketing
relationships can be difficult to implement and may not succeed
for various reasons, including:



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | operating differences between the companies or
    between their respective employees;                                        
|
| |  | financial difficulties experienced by the
    partners;                                                                       
|
| |  | difficulties in coordinating sales and marketing
    efforts;                                                                 
|
| |  | technical obstacles to combining existing
    software products or developing new compatible products; and                    
|
| |  | the need to divert significant management
    attention, technical and sales personnel and capital to these
    relationships.

There can be no assurance that these joint
development and marketing relationships will lead to successful
new products, greater market penetration or increased revenue
for us. Should these joint developments efforts fail, amounts we
have invested, including equity investments, may not be
recoverable, resulting in adverse effects on our financial
position and results of operations.

11



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Our internal risk management policies and
procedures may not be sufficient for us to identify, analyze and
respond appropriately in a timely manner.

We believe we have a system comprising multiple
mechanisms across the SAP group to recognize and analyze
risks early and respond appropriately. These mechanisms include
recording, monitoring and controlling internal enterprise
processes using internal reporting functions, a number of
management and controlling systems and a planning process that
is uniform throughout our group. Further elements of the system
include our internal audit function, comprehensive published
reports and the work of the Supervisory Board in monitoring and
controlling the Executive Board. SAPs Principles of
Corporate Governance, ratified by our Supervisory Board at the
end of 2001 and updated in August 2002, constitute the
remaining component in the system. They comprise, among others,
standards and guidelines for the work of the Executive Board and
Supervisory Board, and for the cooperation between them. In
addition, SAP promptly started to implement measures in
accordance with the Sarbanes-Oxley Act, a U.S. law on corporate
governance and financial reporting that came into effect on
July 30, 2002. Amongst other measures, we established a
Disclosure Committee, whose main task is to monitor the quality
of information released to the financial markets. For further
information on the measures we have undertaken relating to the
Sarbanes-Oxley Act, please refer to Item 6.
Directors, Senior Management and Employees and
Item 15. Controls and Procedures.

Although we believe our risk management policies
and procedures are sufficient, there is no guarantee that all
risks will be identified, analyzed or responded to appropriately
in a timely manner, especially those which are outside of our
control.

Future changes in financial accounting
standards regarding the accounting for stock based compensation
may have an adverse effect on our reported results of
operation.

The Financial Accounting Standards Board
(FASB) is currently deliberating whether it should
undertake a comprehensive reconsideration of accounting for
stock options in light of the recently proposed guidance issued
by the International Accounting Standards Board. Changes
requiring SAP to record stock-based compensation expense in the
income statements for our employee stock options using the fair
market value method could have a significant negative effect on
our reported operating results. Changes to existing accounting
standards or the questioning of current accounting practices may
adversely affect our reported financial results. See
Item 5. Operating and Financial Review and
Prospects  Critical Accounting Policies.

Managements use of estimates may
affect our results of operations and financial
position.

Our financial statements are based upon the
accounting policies as described in note 3 of our consolidated
financial statements and included in Item 18.
Financial Statements. Such policies may require management
to make significant estimates and assumptions. Facts and
circumstances which management uses in making estimates and
judgments may change from time to time and may result in
significant variations, including adverse effects on our results
of operation or financial position. See Item 5.
Operating and Financial Review and Prospects 
Critical Accounting Policies.

We and our shareholders face certain risks
related to our former employment of Arthur Andersen as our
independent auditors.

Prior to May 3, 2002, Arthur Andersen served
as our independent auditors. On May 3, 2002, we dismissed
Arthur Andersen and retained KPMG as our independent auditors
for the fiscal year ended December 31, 2002. On
August 31, 2002, Arthur Andersen LLP, an affiliate of
Arthur Andersen, ceased practicing before the SEC.

Because our former key audit engagement team
personnel have since left Arthur Andersen, Arthur Andersen did
not participate in the preparation of this report, reissue its
audit report with respect to the consolidated financial
statements included in this report, or consent to the inclusion
in this report of its audit report. As a result, investors in
SAP may have no effective remedy against Arthur Andersen in
connection with a material misstatement or omission in the
financial statements to which its audit report relates. In
addition, even if such investors were able to assert such a
claim, Arthur Andersen may fail or otherwise have insufficient
assets to

12



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##### 



satisfy claims made by investors that might arise
under Federal securities laws or otherwise with respect to its
audit report.


Issues related to Arthur Andersen may
impede our ability to access the capital markets.

SEC rules and regulations require us to present
historical audited financial statements in various SEC filings,
such as registration statements, along with Arthur
Andersens consent to our inclusion of its audit report in
those filings. If the SEC ceased accepting financial statements
audited by Arthur Andersen LLP and its affiliates, we would be
unable to access the public capital markets unless KPMG, our
current independent auditor, or another independent auditor, is
able to re-audit the financial statements originally audited by
Arthur Andersen. In addition, investors in any future offerings
we make for which we use Arthur Andersen audit reports will not
be entitled to recovery against Arthur Andersen under
Section 11 of the Securities Act for any material
misstatements or omissions in those financial statements.
Furthermore, Arthur Andersen will be unable to participate in
the due diligence process that would customarily be
performed by potential investors in our securities, which
process includes having Arthur Andersen perform procedures to
assure the continued accuracy of its report on our audited
financial statements and to confirm its review of unaudited
interim periods presented for comparative purposes. As a result,
we may not be able to bring to the market successfully an
offering of our securities. Consequently, our financing costs
may increase or we may miss attractive market opportunities.

The market in which we compete continues to
evolve and, if it does not grow rapidly in the long-term, our
business will be adversely affected.

SAP is investing significant resources in further
developing and marketing new and enhanced products and services.
The areas of customer relationship management, supply chain
management and technology integration solutions are expected to
experience higher growth rates than the traditional ERP market.
Demand and market acceptance for recently introduced products
and services in these new market areas are subject to a high
level of uncertainty, especially where acquisition of SAP
software products requires a large capital commitment or other
significant commitment of resources. This uncertainty is
compounded by the risk that consumers and enterprises will not
accept the mySAP Business Suite solutions. Moreover, the
adoption of mySAP Business Suite solutions, particularly by
those individuals and enterprises that have historically relied
upon traditional means of commerce and communication, will
require a broad acceptance of new and substantially different
methods of conducting business and exchanging information. These
products and services involve a new approach to the conduct of
business and, as a result, we have invested in, and intend to
continue to pursue, intensive marketing and sales efforts to
educate prospective customers regarding the uses and benefits of
these products and services in order to generate demand. The
markets for these products and services may not develop, or SAP
may not develop acceptable solutions in a timely or
cost-effective manner.

Our insurance coverage may not be
sufficient to avoid negative impacts on our financial position
or results of operations resulting from the settlement of
claims.

We maintain extensive insurance coverage for
protection against many risks of liability. The extent of
insurance coverage is under continuous review and is modified if
we deem it necessary. Our goal of insurance coverage is to
ensure that the financial effects, to the largest extent
possible, resulting from risk occurrences are excluded or at
least limited considering the costs associated with the
insurance coverage. Despite these measures, it is possible that
claims may have a significant adverse impact on our financial
position or results of operations.

Our sales forecasts may not be
accurate.

We use a pipeline system, a common
industry practice, to forecast sales and trends in our business.
Our sales personnel monitor the status of proposals, including
the date when they estimate that a customer will make a purchase
decision and the potential revenue from the sale. We aggregate
these estimates periodically in order to generate a sales
pipeline. We compare the pipeline at various points in time to
look for trends in our business. While this pipeline analysis
may provide us with some guidance in business planning and
budgeting, these pipeline estimates are necessarily speculative
and may not consistently correlate to revenue in a particular
quarter or over a longer period of time. A variation in the
conversion of the pipeline into revenue or in the pipeline itself

13



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could cause us to improperly plan or budget and
thereby adversely affect our business or results of operations.
In particular, a slowdown in the economy may cause customer
purchasing decisions to be delayed, reduced in amount or
cancelled, which will in turn reduce the overall license
pipeline conversion rates in a particular period of time.


If we do not effectively manage our growth,
our existing personnel and systems may be strained and our
business may not operate efficiently.

We have a history of rapid growth and will need
to effectively manage our future growth to be successful. In
order to support our future growth, we expect to continue in the
long-term to incur significant costs to increase headcount in
key areas of our business, explore and/or enter new markets and
build infrastructure ahead of anticipated revenue. Although
revenue on a per employee basis remained relatively flat from
2001 to 2002, there can be no assurance that significant
increases in employees and infrastructure will result in growth
in revenue or operating results in the future. There can be no
assurance that we can effectively retain and utilize our
personnel, accurately forecast revenue and control costs,
maintain and control adequate levels of quality of service
(especially of our partners or other third parties) or implement
and improve our operational and financial infrastructure.

If we acquire other companies, we may not
be able to integrate their operations effectively and, if we
enter into joint ventures, we may not work successfully with our
alliance partners.

In order to complement or expand our business,
SAP has made and expects to continue to make acquisitions of
additional businesses, products and technologies, and has
entered into, and expects to continue to enter into, alliance
arrangements. Managements negotiations of potential
acquisitions or alliances and managements integration of
acquired businesses, products or technologies could divert its
time and resources. In addition, risks commonly encountered in
such transactions include:



| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | inability to successfully integrate the acquired
    business;                                                                                                                                                    
|
| |  | inability to integrate the acquired technologies
    or products with our current products and technologies;                                                                                                      
|
| |  | potential disruption of our ongoing business;                                                                                                                                                                     
|
| |  | inability to retain key technical and managerial
    personnel;                                                                                                                                                   
|
| |  | dilution of existing equity holders caused by
    capital stock issuances to the stockholders of acquired
    companies or capital stock issuances to retain employees of the
    acquired companies;             
|
| |  | assumption of unknown material liabilities of
    acquired companies;                                                                                                                                             
|
| |  | incurrence of debt and/or significant cash
    expenditure;                                                                                                                                                       
|
| |  | difficulty in maintaining controls, procedures
    and policies;                                                                                                                                                  
|
| |  | potential adverse impact on our relationships
    with partner companies or third-party providers of technology or
    products;                                                                                  
|
| |  | impairment of relationships with employees and
    customers; and                                                                                                                                                 
|
| |  | problems in the area of product quality, product
    architecture, legal contingencies, product development issues or
    other significant issues that may not be detected through the
    due diligence process.

In addition, acquisitions of additional
businesses may require large write-offs of any in-process
research and development costs related to companies being
acquired and amortization costs related to certain acquired
intangible assets. Ultimately, certain acquired businesses may
not perform as anticipated, resulting in charges for the
impairment of goodwill and/or other intangible assets. Such
write-offs and amortization charges may have a significant
negative impact on operating margins and net income in the
quarter in which the business combination is completed and
subsequent periods. In addition, we have and expect to continue
to enter into alliance agreements for the purpose of developing
new products and services. There can be no assurances that any
such products or services will be successfully developed or that
we will not incur significant unanticipated liabilities in

14



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connection with such arrangements. We may not be
successful in overcoming these risks or any other problems
encountered in connection with any such transactions and may
therefore not be able to receive the intended benefits of those
acquisitions or alliances.


Currency fluctuations may impact the value
of the ADSs.

The currency in which the ordinary shares are
traded is the euro. While the currency in which the ADSs are
traded is the Dollar, the trading price of the ADSs is expected
to be largely based upon the trading price of the underlying
ordinary shares in its principal trading market in the Frankfurt
Stock Exchange. Cash dividends payable to holders of ADSs will
be paid to the depositary pursuant to the Amended and Restated
Deposit Agreement between SAP AG and the depositary in euros
and, subject to certain exceptions, will be converted by the
depositary into Dollars as promptly as practicable upon receipt
for payment to such holders. The amount of dividends received by
the holders of ADSs, therefore, will also be affected by
fluctuations in exchange rates as well as by the specific
exchange rate used by the depositary (which may incorporate fees
charged).

The market price for our ADSs and ordinary
shares may be volatile.

The trading prices of the ADSs and the ordinary
shares have experienced and may continue to experience
significant volatility. The current trading price of the ADSs
and the ordinary shares reflect certain expectations about the
future performance and growth of SAP, particularly on a
quarterly basis. However, our revenue can vary, sometimes
substantially, from quarter to quarter, causing significant
variations in operating results during certain quarters and in
growth rates compared to prior periods. Any shortfall in revenue
or earnings from levels projected by us or quarterly or other
projections made by securities analysts could have an immediate
and significant adverse effect on the trading price of the ADSs
or the ordinary shares in any given period. Additionally, we may
not be able to confirm any such shortfalls until late in the
quarter or following the end of the quarter because license
agreements are often executed late in a quarter. Finally, the
stock prices for many companies in the software sector have
experienced wide fluctuations, which have often not been
directly related to individual companys operating
performance. The trading price of the ADSs or the ordinary
shares may fluctuate in response to the announcement of new
products or product enhancements by us or our competitors,
technological innovation by us or our competitors, quarterly
variations in our competitors results of operations,
changes in revenue and revenue growth rates on a consolidated
basis or for specific geographic areas, business units, products
or product categories, speculation in the press or analyst
community and general market conditions specific to particular
industries. In the past, companies that have experienced
volatility in the market price of their stock have been the
object of securities class action litigation. Any such
securities class action litigation against us, with or without
merit, could result in substantial costs and the diversion of
managements attention and resources.

We may incur losses in connection with
strategic and venture capital investments.

SAP has acquired and expects to continue to
acquire equity interests in or makes advances to
technology-related companies, many of which currently generate
net losses. Such activities may involve significant capital
outlay. Most of these companies are recently established. It is
possible that changes in market conditions, the performance of
companies in which we hold investments or to which we made
advances or other factors will negatively impact our results of
operations and financial condition or our ability to recognize
gains from the sale of marketable equity securities. An
other than temporary impairment charge related to
our ability to recover the carrying value of our investment in
Commerce One adversely impacted our financial position and
results of operations in 2002. See Item 5. Operating
and Financial Review and Prospects  Critical
Accounting Principles. Additionally, due to changes in
German tax laws in 2000 and effective January 2001
(Steuersenkungsgesetz), capital losses or
write-downs of equity securities are no longer tax deductible,
which may negatively impact our effective tax rate, cash flows
and net income going forward.

Increasing government regulation of the
Internet could harm our business.

As Internet commerce evolves, we expect that U.S.
federal, U.S. state, German, European Union or other foreign
governments will adopt laws or regulations covering issues such
as taxation, user privacy, pricing, content

15



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and quality of products and services. For
example, the United States Telecommunications Act sought to
prohibit transmitting various types of information and content
over the Internet. Several telecommunications companies have
petitioned the U.S. Federal Communications Commission to
regulate Internet service providers and other online service
providers in a manner similar to long distance telephone
carriers and to impose access fees on those companies. This
could increase the cost of transmitting data over the Internet.
Moreover, it may take years to determine the extent to which
existing laws relating to issues such as property ownership,
libel and personal privacy are applicable to the Internet. It is
possible such laws or regulation could expose companies involved
in electronic commerce to liability, which could limit the
growth of electronic commerce generally. In addition, such
regulation could weaken growth in Internet usage and decrease
our acceptance as a communications and commercial medium. If
enacted, these laws or regulations could limit the market for
our products and services.


Because we expect to continue to expand
globally, we may face special economic and regulatory challenges
that we may not be able to meet.

Our products and services are currently marketed
in over 120 countries, with Europe, Middle East and Africa
(EMEA), North and South America
(Americas) and Asia-Pacific (APA)
regions being our principal markets. In 2002, revenue derived
from outside Germany totaled
 5,758.7 million,
representing approximately 78% of our total revenue. Sales in
our principal markets are subject to risks inherent in
international business activities, including, in particular:



| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | general economic or political conditions in each
    country;       
|
| |  | overlap of differing tax structures;                                
|
| |  | management of an organization spread over various
    jurisdictions;
|
| |  | unexpected changes in regulatory requirements;                      
|
| |  | exchange rate fluctuations; and                                     
|
| |  | compliance with a variety of foreign laws and
    regulations.      

Other general risks associated with international
operations include import and export licensing requirements,
trade restrictions, changes in tariff and freight rates and
travel and communication costs. There can be no assurance that
our international operations will continue to be successful or
that we will be able to manage effectively the increased level
of international operations.

Our principal shareholders may be able to
exert significant control over our future direction and
operations.

As of March 7, 2003, the beneficial holdings
of SAPs three principal shareholders and the holdings of
entities controlled by them, constituted in the aggregate
approximately 34.7% of the outstanding ordinary shares of
SAP AG. Related entities of the three principle
shareholders were formerly parties to a certain pooling
agreement (the Pooling Agreement). The Pooling
Agreement was terminated effective September 2, 2002.
Although the ordinary shares covered formerly by the Pooling
Agreement are no longer required to be voted as a block, if
these shares are otherwise voted together, it may have the
effect of delaying or preventing a change in control of SAP or
other significant changes to SAP or its capital structure. See
Item 7. Major Shareholders and Related Party
Transactions  Major Shareholders.

Sales of ordinary shares by our principal
shareholders could adversely affect the price of our capital
stock.

As stated, three principal shareholders and
related entities own beneficially approximately 34.7% of the
outstanding ordinary shares of SAP AG as of March 7,
2003. The sale of a large number of ordinary shares by any
of the three principal shareholders could have a negative effect
on the trading price of the ADSs or the ordinary shares. SAP is
not aware of any restrictions on the transferability of the
shares owned by the principal shareholders or any
related entity.

16



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The cost of derivative instruments for
hedging of the STAR Plan may exceed the benefits of those
arrangements.

Under our Stock Appreciation Rights Plan (the
STAR Plan), stock appreciation rights
(SARs) are granted to eligible employees of SAP. The
SARs are primarily granted in the first quarter of each year and
generally give the participants the right to a portion of the
appreciation in the market price of the ordinary shares for the
relevant measurement period. We have entered into in the past,
and expect to enter into in the future, derivative instruments
to hedge all or a portion of the anticipated cash flows in
connection with the SARs in the event cash payments to
participants are required as a result of an increase in the
market price of the ordinary shares. We believe hedging
anticipated cash flows in connection with the SARs limits the
potential exposure associated with the STAR Plan, including
potentially significant cash outlays and resulting compensation
expense. There can be no assurance that the benefits achieved
from hedging our STAR Plan exceed the related costs.

Our sales are subject to quarterly
fluctuations.

Our revenue and operating results can vary,
sometimes substantially, from quarter to quarter. Our revenue in
general, and in particular our software revenue, is difficult to
forecast for a number of reasons, including:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | the relatively long sales cycles for our products;                                                  
|
| |  | the size and timing of individual license
    transactions;                                         
|
| |  | the timing of the introduction of new products or
    product enhancements by us or our competitors;
|
| |  | the potential for delay of customer
    implementations of SAP software products;                   
|
| |  | changes in customer budgets;                                                                        
|
| |  | seasonality of a customers technology
    purchases; and                                           
|
| |  | other general economic and market conditions.                                                       

As is common in the software industry, our
business has historically experienced its highest revenue in the
fourth quarter of each year, due primarily to year-end capital
purchases by customers. Such factors have resulted in 2002,
2001, and 2000 first quarter revenue being lower than revenue in
the prior years fourth quarter. We believe that this trend
will continue in the future and that our revenue will peak in
the fourth quarter of each year and decline from that level in
the first quarter of the following year.

Because our operating expenses are based upon
anticipated revenue levels and because a high percentage of our
expenses are relatively fixed in the near term, any shortfall in
anticipated revenue or delay in recognition of revenue could
result in significant variations in our results of operations
from quarter to quarter. We significantly increased in 2000
through 2002, and plan to continue to increase throughout 2003
the following expenditures depending on our results and outlook
during 2003:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | expenditures to fund continued development of our
    operations;                                         
|
| |  | greater levels of research and development
    directed towards new products and product enhancements; and
|
| |  | development of new distribution and resale
    channels for small and midsize businesses.                 

Such increases in expenditures will depend, among
other things, upon ongoing results and evolving business needs.
To the extent such expenses precede or are not subsequently
followed by increased revenue, our quarterly operating results
would be materially adversely affected and may vary
significantly from preceding or subsequent quarters.

Revenue recognition accounting
pronouncements may adversely affect our reported results of
operations.

We continuously review our compliance with all
new and existing revenue recognition accounting pronouncements.
Depending upon the outcome of these ongoing reviews and the
potential issuance of further

17



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accounting pronouncements, implementation
guidelines and interpretations, we may be required to modify our
revenue recognition policies and business practices which could
have a material adverse effect on our results of operation. Our
existing revenue recognition policies are described in note 3 of
our consolidated financial statements included in
Item 18. Financial Statements and in
Item 5. Operating and Financial Review and
Prospects  Critical Accounting Policies.


U.S. judgments may be difficult or
impossible to enforce against us.

SAP AG is a stock corporation organized
under the laws of Germany. With one exception, all members of
SAP AGs Executive Board and Supervisory Board are
non-residents of the United States. A substantial
portion of the assets of SAP and such persons are located
outside the United States. As a result, it may not be
possible to effect service of process within the
United States upon such persons or us or to enforce against
them judgments obtained in U.S. courts predicated upon the civil
liability provisions of the securities laws of the
United States. In addition, awards of punitive damages in
actions brought in the United States or elsewhere may be
unenforceable in Germany.

Item 4.     Information
about SAP

SAP Aktiengesellschaft Systeme, Anwendungen,
Produkte in der Datenverarbeitung is our legal corporate name,
which is translated in English to SAP Corporation Systems,
Applications and Products in Data Processing. SAP AG was
incorporated under the laws of the Federal Republic of Germany
in 1972. Where the context requires, in the discussion below,
SAP AG refers to our predecessors, Systemanalyse und
Programmentwicklung GdbR (1972-1976) and SAP, Systeme,
Anwendungen, Produkte in der Datenverarbeitung GmbH (1976-1988).
SAP AG became a stock corporation
(Aktiengesellschaft) in 1988. Our principal executive
offices, headquarters and registered office are located at
Neurottstrasse 16, 69190 Walldorf, Germany. Our telephone number
is +49-6227-7-47474. SAP AGs agent for U.S. federal
securities law purposes in the United States is Brad
Brubaker. He can be reached c/o SAP America, Inc. at
3999 West Chester Pike, Newtown Square, PA 19073.

Availability of this Report

We intend to make this Annual Report on
Form 20-F and other periodic reports publicly available on
our web site (www.sap.com) without charge immediately following
our filing with the U.S. Securities and Exchange Commission. We
assume no obligation to update or revise any part of this Annual
Report on Form 20-F, whether as a result of new
information, future events or otherwise, unless we are required
to do so by law.

Description of the Business

Overview

SAP is a leading business software company and
the worlds third largest independent software supplier
overall based on license revenue. Headquartered in Walldorf,
Germany, SAP employs more than 29,000 people in more than 50
countries. SAP consists of SAP AG and our network of 91
operating subsidiaries and has a presence or a representation in
more than 120 countries. As of December 31, 2002, we had
more than 60,100 software installations at over 19,000
customers. Our customers include multinational enterprises as
well as small and midsize businesses. With more than 1,500
partners offering complementary software, services and hardware,
we have established a wide-ranging partner network.

SAP offers the mySAP Business Suite, which is a
family of integrated software solutions designed to empower
customers, partners and employees to work together in an open
collaborative Internet environment. Total 2002 revenues grew
1.0% over 2001 to
 7,412.8 million
(2001:
 7,340.8
million). Net income for 2002 decreased 12.5% to
 508.6 million
(2001:
 581.1 million).
In 2002, total revenues were derived as follows: sales of
software products
 2,290.8 million
(30.9%), maintenance
 2,422.8 million
(32.7%), consulting services
 2,204.2 million
(29.7%), training services
 413.9 million
(5.6%) and other revenue
 81.1 million
(1.1%).

See Item 4. Description of
Business  Revenue by Industry Sector and note
34 to our consolidated financial statements for further details
on revenues by industry sector.

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Evolution of SAPs Solutions and
Products

We introduced our first generation of software in
1973. It initially included only a financial accounting
application. In the following years the software was expanded to
include materials management.

Expanding from this first generation, we started
to develop integrated, cross-functional, multi-language,
multi-currency business process solutions applicable to several
business processes. As a result, in 1981, we introduced our
second generation of application software, the SAP R/2
system, which could be installed on an enterprise-wide basis.
SAP R/2 was our first Enterprise Resource Planning
(ERP) system, aiming at integrating all aspects of
business, including distribution centers, field operations
centers, corporate headquarters and sales offices. Beyond the
scope of our first generation software, SAP R/2 included,
among others, functionalities for cost accounting, human
resource management, logistics and manufacturing. We believe
that SAP R/2 also reduced bottlenecks by improving and
accelerating user access to data.

In 1988, we anticipated and capitalized upon
growth in the demand for more decentralized business software
solutions. During this period, we designed the initial version
of the SAP R/3 system moving from mainframe to open
systems. SAP R/3 offers the functionality of SAP R/2
in an open, three-tier client/server architecture. SAP R/3
was brought to the market in the early 1990s and quickly became
the category leader in ERP systems. We believe that SAP R/3 not
only improved manufacturing efficiency, but also distribution,
finance, sales, procurement, inventory and human resources. In
the years following the introduction of SAP R/3, we
introduced several new business software applications and
enhanced existing products to operate independently of
SAP R/3.

During the 1990s we introduced several industry
solutions which built on the SAP R/3 system and included
industry-specific functionalities. In 1996 we started to expand
our product offering by developing new solutions, such as SAP
Business Information Warehouse (BW) and SAP Advanced
Planner and Optimizer (APO). Emerging customer needs
led us to create more of these solutions designed to solve
particular business issues and foster inter-enterprise
cooperation. These solutions, such as SAP Customer Relationship
Management consist of a number of components that work together
due to the underlying technology.

In 1999 SAP introduced the mySAP.com e-business
platform. This Internet-based platform expanded the SAP products
with new solutions and offered extended functionality beyond
traditional ERP that not only linked together disparate
enterprises but also enabled collaboration across different
organizations. The mySAP.com e-business platform was designed to
enable companies to participate in a larger collaborative
community of customers, suppliers and partners. This
collaborative community permits customers, suppliers and
partners to shift functions and responsibilities as needed. It
also transformed the sequential supplier-to-customer value chain
into a collaborative dialogue, allowing companies to work in
parallel with their customers, suppliers and business partners,
each defining their needs in the relevant business process.

In 2002 we renamed mySAP.com as mySAP Business
Suite. The mySAP Business Suite is a suite of business
applications and an application and integration platform (SAP
NetWeaver) designed to enable companies to manage the entire
value chain across business networks. The mySAP Business Suite,
running on the SAP NetWeaver technology platform, is designed to
allow organizations to excel in a business environment requiring
rapid adaptation to changing business conditions. The mySAP
Business Suite is designed to lower our customers total
cost of IT ownership.

SAPs strategy

SAPs business and product strategy is
designed to grow the value and the size of our business
including revenues, profitability and customer base by extending
the range of software applications and solutions that can bring
more value, be implemented faster, attain better integration,
meet the needs of core customers and reach new customer
segments. Our business strategy is to increase our profitability
and market share by offering solutions, comprised of software
and services, to enable our large existing customer base and new
customer prospects to increase value. We expect to leverage our
large customer base to generate revenues through licenses of
additional software solutions, either individually by solution,
or collectively as the mySAP Business Suite.

19



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We believe we can increase our marketshare by
expanding footprint in ERP, such as basic finance, human
resources and logistics applications, and in other high
value-added solutions such as inter-enterprise integration and
collaboration.

The SAP NetWeaver application and integration
platform will play an increasing role in this process by
allowing integration of heterogeneous systems at the user level
through a portal, through information via the business warehouse
analytic application and through processes within the exchange
infrastructure levels. As discussed below, solutions for the
small and midsize business are another area of anticipated
growth for SAP.

As described below, our Customer Service Network
includes consulting, education, active global support, hosting
and global custom development services. Our strategy is to
derive 15%-20% of the overall SAP related service market, the
remainder to be provided by our partner network.

We intend to continue our growth primarily
organically and through selected acquisitions designed to
enhance our range of products and increase our installed
customer base, our industry knowledge and our geographic
penetration.

Software Products

We license components of our software solutions
on an individual user basis, either for a single solution or as
the mySAP Business Suite, as described below. In addition to the
user licenses for a solution, some specialized functionality and
software engines, which are not user specific, are licensed
separately.

(Product Graph)

mySAP Business Suite

The mySAP Business Suite is a suite of business
software applications and an application and integration
platform designed to enable companies to manage the entire value
chain across business networks, allowing the company to adapt
quickly and remain flexible when faced with changing business
conditions. mySAP Business

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Suite, based on the SAP NetWeaver platform, is
designed to reduce the total cost of IT infrastructure
ownership. The mySAP Business Suite can be deployed on a variety
of computer hardware types and different operating systems.


mySAP Business Suite consists of the following
SAP solutions:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | mySAP ERP (Enterprise Resource Planning),
    which includes mySAP FIN (Financials) and mySAP HR
    (Human Resources);
|
| |  | mySAP CRM (Customer Relationship
    Management);                                                                      
|
| |  | mySAP SCM (Supply Chain Management);                                                                                   
|
| |  | mySAP PLM (Product Life Cycle Management);                                                                             
|
| |  | mySAP SRM (Supplier Relationship
    Management); and                                                                  
|
| |  | mySAP Mobile Business.                                                                                                 

These applications run on the SAP NetWeaver
application platform, which includes:



| |   |                                                 
| | - | ------------------------------------------------
| |  | SAP Business Information Warehouse (SAP
    BW),
|
| |  | SAP Enterprise Portal (SAP EP),                 
|
| |  | SAP Exchange Infrastructure (SAP XI),           
|
| |  | SAP Mobile Infrastructure (SAP MI),             
|
| |  | SAP Master Data Management (SAP MDM) and        
|
| |  | SAP Web Application Server (SAP Web AS).        

The mySAP Business Suite can be tailored to suit
the requirements of most industries. Industry solutions employ
our substantial industry experience acquired over years of
providing industry-specific business solutions. Tailored
industry solutions use up to the entire scope of the mySAP
Business Suite. SAPs industry solutions are packaged and
configured with detailed features based on industry best
practices. We organized our industry business units (IBUs),
which develop our industry solutions, into two industry business
sectors (IBSs), named IBS Manufacturing and IBS Services, in
order to align them more closely with field operations and
facilitate our accumulation of industry expertise.

Industry solutions span over 23 different
industries and are grouped into six industry sectors as shown
below:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Process Industries  SAP for
    Chemicals    SAP for Mill
    Products    SAP for Oil &
    Gas    SAP for
    Pharmaceuticals    SAP for
    MiningDiscrete Industries    SAP for Aerospace &
    Defense    SAP for
    Automotive    SAP for Engineering,
    Construction &
    Operations    SAP for High
    Tech    SAP for Industrial
    Machinery and for ComponentsConsumer Industries    SAP for Consumer
    Products    SAP for Retail |  | Service Industries  SAP for
    Media    SAP for Service
    Providers    SAP for
    Telecommunications    SAP for
    Utilities    SAP for Professional
    ServicesFinancial Services    SAP for
    Banking    SAP for
    Insurance    SAP for Financial
    Service ProviderPublic Services    SAP for
    Healthcare    SAP for Higher
    Education & Research    SAP
    for Public Sector

21



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mySAP ERP

mySAP ERP is licensed both as an individual
product and as part of the mySAP Business Suite. mySAP ERP is
designed to enable companies to run the core business functions
of the enterprise, including human capital management,
financials and administration and operations. mySAP ERP includes
mySAP HR and mySAP FIN. It runs on the SAP NetWeaver application
platform. mySAP ERP provides our ERP solution along with the
business and technology foundation of SAP NetWeaver to extend
traditional ERP to be interoperable with mySAP Business Suite
solutions and third party solutions.

mySAP Financials

mySAP Financials is a finance and accounting
solution that helps companies to improve their ability to
process and interpret financial and business data and handle
financial transactions. Additionally, it includes functions that
allow companies to manage profitability, business performance
and growth. mySAP Financials enables company-wide control and
integration of financial and business information essential to
strategic and operational decision-making, including giving
companies the ability to track financial accounting data within
an international framework of multiple companies, languages,
currencies, and books of accounts.

mySAP Financials key components include
general ledger, special purpose ledger and sub ledger, cost
management and profitability analysis.

mySAP Human Resources

mySAP HR provides a comprehensive set of tools to
manage the human resources functions within an organization to
optimize its investment in its employees. mySAP HR supports
human resources professionals in managing employee capabilities
down to the line-management level and combines strategic human
capital management features with work-force analytics. The
employee transaction management capabilities allow a company to
streamline a wide range of essential human resources
transactions and processes necessary to run the business,
including support of regulatory compliance requirements on a
global basis.

Key functional areas of mySAP HR include
administration, payroll, benefits, legal reporting,
e-recruiting, blended learning, organizational management,
compensation, manager self-service, employee collaboration, and
work force analytics.

mySAP Customer Relationship
Management

mySAP CRM focuses on managing the relationship
between an enterprise and its customers. mySAP CRM comprises a
complete set of capabilities that help maximize the value
delivered to and derived from customers throughout all phases of
the customer relationship. mySAP CRM facilitates customer
interactions through the customer engagement, business
transaction, order fulfillment and customer service phases of
the customer interaction cycle. Within this cycle, mySAP CRM
continuously strives to optimize ways of:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | Identifying and engaging with potential customers;                      
|
| |  | Performing business transactions with customers;                        
|
| |  | Fulfilling individual customer needs as
    contracted; and             
|
| |  | Providing after-sales care such as maintenance
    and customer service.

Key functions include analytics that allow a
company to analyze data about its customers, and presents the
data so that the company can make better and quicker business
decisions. mySAP CRM also includes sales, customer service
management, marketing and other capabilities that are applicable
throughout the entire customer interaction cycle.

mySAP Supply Chain Management

mySAP SCM handles the oversight of materials,
information, and finances along the whole supply chain. The
supply chain management involves coordinating and integrating
these flows both within and among

22



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##### 



companies. mySAP SCM allows a company to react
quickly and remain flexible when faced with sudden changes in
factors such as demand or requirements.


mySAP SCM allows companies and their supply chain
partners to easily view supplier and customer allocations,
inventory levels, orders, forecasts, production plans and key
performance indicators to plan together for an efficient supply
chain. In addition, mySAP SCM supports fulfillment processes
through availability checks, inventory management and delivery.
It also monitors the execution of supply chain activities
creating alerts in the event of deviation from plans.

Key functions of mySAP SCM include supply chain
planning, execution, collaboration and coordination.

mySAP Product Lifecycle Management

mySAP PLM assists a company in managing the
complete product life cycle, including first product idea,
design and engineering, production ramp-up, product change
management and service and maintenance. mySAP PLM enables
collaborative engineering, custom product development, and
project, asset, and quality management among multiple business
partners.

mySAP PLM is typically applicable to industries
that require product innovation and fast product development,
such as high-tech, engineering and construction, aerospace and
defense and automotive. Process, consumer product and service
industries can also take advantage of the functions of mySAP PLM.

Key functional areas of mySAP PLM include
life-cycle data management, life-cycle collaboration, program
and project management, quality management, asset life-cycle
management and environmental, health and safety.

mySAP Supply Relationship Management

mySAP SRM is a comprehensive solution for
managing a companys interactions with the businesses that
supply the goods and services it uses by streamlining and making
more effective the processes between the company and its
suppliers. mySAP SRM, which became generally available in 2002,
incorporates and extends mySAP E-Procurement which was
introduced in 1999. mySAP SRM is designed to provide timely,
relevant information for every facet of the procurement and
sourcing process, creating value through higher compliance and
control throughout business operations.

mySAP SRM provides comprehensive electronic
sourcing functionality in the areas of supply strategy
development, supplier qualification, supplier selection and
contract negotiation and management. In addition, mySAP SRM
enables suppliers of all sizes to work closely together with
their customers, and to manage content for their electronic
sourcing and procurement activities. mySAP SRM also provides
extensive support for self-service procurement, plan-driven
procurement, operational procurement and relationship monitoring.

mySAP Mobile Business

mySAP Mobile Business allows users of SAPs
solutions to access various SAP mobile business software
applications beyond desktop PCs and wire-bound networks. The
foundation of mySAP Mobile Business is a technology platform
that enables this mobility. Online functionality enables users
to deploy mySAP Mobile Business inside a company through a
wireless local area network or outside the company through
wide-area mobile data networks. Off-line functionality allows
applications to function locally, so employees can use mobile
devices, such as smart phones and personal digital assistants,
without a network connection.

The two key functional areas of mySAP Mobile
Business are mobile access and mobile applications. Mobile
access can be provided through all popular devices in both wired
and wireless formats. mySAP Mobile Business also provides mobile
applications based on SAPs industry solutions and designed
to support industry-specific requirements.

mySAP Enterprise Portal

mySAP Enterprise Portal is a Web-based gateway
solution that brings together collaboration, knowledge
management, and relevant content by integrating diverse
information, applications, and services. The solution

23



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allows a user to access from one location all
types of company-wide information, including SAP applications,
third-party applications, databases, data warehouses, desktop
documents, and Web content and services. The mySAP Enterprise
Portal is designed to improve collaboration, speed information,
decision making and boost employee productivity.


mySAP Enterprise Portal includes patented
technology that allows users to work with information from
different sources. Drag and relate capabilities allow users to
access, interconnect, update, edit and delete information in
multiple software applications and data sources without
restrictions resulting from different technologies.

mySAP Business Intelligence

mySAP Business Intelligence is an information and
knowledge management solution that includes a business
intelligence platform, a comprehensive set of data management
tools and data warehousing capabilities. mySAP Business
Intelligence allows a company to access and disseminate
information based on user needs, allowing users to collaborate
throughout the organization. mySAP Business Intelligence is
designed to enable organizations to access, analyze, and
disseminate relevant and timely information. Information is
delivered through the mySAP Enterprise Portal.

Key features of mySAP Business Intelligence
include data warehousing, online analytical processing of
information, report design and creation and performance
management.

mySAP Marketplace

mySAP Marketplace provides a platform and
value-added services allowing multiple organizations to buy,
sell and conduct business over the Internet. mySAP Marketplace
combines electronic procurement and selling capabilities with
off-line trading services. mySAP Marketplace is delivered
through MarketSet, a joint marketplace solution from SAP and
Commerce One.

The solutions key capabilities include
business partner management, RFP and RFQ automation, reverse and
forward auctions, a variety of procurement functions, order
management, customer billing, marketplace analytics and content
management tools.

SAP xApps

In the second quarter of 2002, SAP announced the
launch of a new breed of applications called cross applications
(xApps). xApps build on existing software applications, connect
multiple applications from different software vendors and use
information from different companies.

Key features common to xApps are a portal that
takes into consideration individual user business roles, data
warehousing, information management and an exchange
infrastructure that allows a company to structure business
processes using various SAP and third-party applications.

The first xApp to be shipped is Resource and
Program Management (RPM). RPM includes a broad scope of existing
SAP functions to allow easier access to project costs, staffing
and schedules. RPM is currently in limited release. Other xApps
that are currently in development include xApp Mergers and
Acquisitions, xApp Product Definition and xApp Employee
Productivity, all of which have a planned release date in the
third quarter of 2003.

SAP R/3 Enterprise

In 2002, SAP delivered its latest release of SAP
R/3, SAP R/3 Enterprise. SAP R/3 Enterprise is licensed to
SAPs existing customer base as an individual solution. SAP
R/3 Enterprise consists of enterprise administration and
operations management functionality. The benefits of SAP R/3
Enterprise include new business process functionality,
continuity with pre-existing R/3 functionality, a more flexible
method for deployment of new functionality and the SAP Web
Application Server technology.

More than 10,000 SAP customers have implemented
SAP R/3, a stable and reliable software package that provides
them with the comprehensive functionality they need to run their
business processes successfully. For

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this reason, we will continue to provide both
functional and technical improvements for SAP R/3, in addition
to new technology that will allow our customers to migrate to
the mySAP Business Suite solutions as easily as possible.


Small and Midsize Business Solutions

SAP Smart Business Solutions (formerly mySAP
Small and Medium-Sized Enterprises and mySAP Small and Medium
Business) is SAPs umbrella offering for small and midsize
business (SMB). Two solutions fall under this
initiative, SAP Business One and mySAP All-in-One. SAP unveiled
the solutions at CeBIT 2002.

Both SAP Business One and mySAP All-in-One offer
SMBs integrated application packages that they can quickly
implement and that suit customer budgets. SAPs offering is
also of particular interest to smaller subsidiaries and business
partners of large corporations that already run SAP software.

To sell its new SMB solutions, SAP is primarily
relying on indirect sales through channel partners. For
instance, SAP is collaborating with the large IT company
Hewlett-Packard (HP). In the future, SAP and HP intend to market
SAP Business One in over 30 countries in Europe, the Middle
East, and Africa (EMEA) using HPs sales partner network.
HP will also select and train suitable retailers.

mySAP All-in-One

mySAP All-in-One is targeted at small and midsize
companies that require industry-specific functionality delivered
in a cost-effective, turnkey package. mySAP All-in-One solutions
are based on the mySAP Business Suite and are tailored,
configured, and complemented by SAP channel partners. The
solutions are prepackaged to meet the needs of specific
industries and can be fine-tuned to address the unique
requirements of an organization. SAP delivers mySAP All-in-One
through a network of certified solution providers and partners.
Several prepackaged mySAP All-in-One solutions are currently
available in North America, and more than 50 are under
development worldwide.

SAP Business One

SAP Business One is targeted at small and midsize
companies that do not require complex or industry-specific
functionality. It is based on the core product of TopManage,
which SAP acquired in early 2002. It is designed to meet common
business needs for accounting, reporting, logistics, sales force
automation, and more. It offers fast implementation, multiple
customization tools, high performance and scalability, security,
and the ability to evolve into more sophisticated solutions.
Using open standards, SAP Business One can be integrated with
other systems. Its drag and relate feature allows users to drag
information resources from different data sources and link them
on the computer desktop.

SAP Packaged Solutions

SAP Packaged Solution is a pre-defined
combination of applications/components, services and content
aimed at solving a specific business issue, with tightly
scoped/limited risk implementation, designed for an accelerated
return on investment (ROI).

These solutions can range from:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | stand-alone point solutions, like
    Demand Management,                       
|
| |  | role based packages, like Store
    Manager Portal,                            
|
| |  | issue based packages, like Service
    Management (that include the two above).

SAP Packaged Solution can be accompanied by
accelerated implementation methodologies delivered by SAP
s Global Professional Services Organization (Global
PSO) or SAP services partners to support fast
implementation and quick ROI. SAP Global Trade Services (SAP
GTS) is one of the SAP Packaged Solutions. It is a
cross-industry commerce application designed to help companies
manage the complexities and risks of global trade.

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SAP NetWeaver

In January 2003, SAP announced that, going
forward, it would develop all of its business solutions along
the lines of an Enterprise Services Architecture blueprint.
Enterprise Services Architecture combines SAPs enterprise
applications expertise with the flexibility of Web Services and
other open technologies into a blueprint for complete and
services-based business solutions. The technical foundation of
SAPs Enterprise Services Architecture is the next
generation of mySAP technology, called SAP NetWeaver. SAP
NetWeaver is an application and integration platform designed to
unify and align people, information and business processes
across technologies and organizations. SAP NetWeaver is
comprised of the following components:



| |   |                                                 
| | - | ------------------------------------------------
| |  | SAP Business Information Warehouse (SAP
    BW),
|
| |  | SAP Enterprise Portal (SAP EP),                 
|
| |  | SAP Exchange Infrastructure (SAP XI),           
|
| |  | SAP Mobile Infrastructure (SAP MI),             
|
| |  | SAP Master Data Management (SAP MDM), and       
|
| |  | SAP Web Application Server (SAP Web AS).        

The enhanced capabilities of SAP NetWeaver
include a composite application framework and master data
management. The new composite application framework enables SAP
and its partners to create new applications targeting
cross-functional business processes through tools, frameworks,
rules, and methodologies. SAP NetWeaver also includes master
data management (MDM) services. MDM is a standardized offering
designed to solve the widespread challenges of data integration
from multiple systems, physical locations, and vendors. MDM is
designed to achieve information integrity across a network of
suppliers and customers by allowing companies with different IT
systems, including different software systems, to consolidate,
harmonize, and centrally master data. SAP NetWeaver is designed
to be fully interoperable with two of the leading development
standards, Microsoft.NET and IBM Websphere (J2EE).

The SAP Customer Services Network (previously
mySAP Services)

In addition to our software solution portfolio,
SAP provides service offerings such as business solutions
consulting, solution operations services, educational services,
hosting services and support services that include project
planning, implementation assistance, ongoing post-implementation
support activities and virtual classroom training for new and
existing customers.

We have expanded our consulting, support and
training organization over the last several years. As of
December 31, 2002, 13,014 employees were committed to
consulting, support and training services, an increase of 16.4%
from December 31, 2001. Key functional areas of the SAP Customer
Services Network are described below.

SAP Consulting

We provide business solutions consulting services
and solutions operations services to customers throughout the
mySAP Business Suite product life cycle.

Business solutions consulting services include
identifying business opportunities and selecting the solution
that best fits the customers business strategy, managing
IT programs and projects and designing business processes,
information architectures, portals and user roles. These
services also include traditional solution elements such as
software, technology, services and content organizational change
management, and managing quality and risk.

Solution operations services offer implementation
assistance and operations planning that cover issues encountered
throughout the product life cycle.

We have established the Global PSO to provide
expert guidance in design, implementation and ongoing
optimization of new and existing SAP solutions. The SAP Global
PSO was created to more efficiently address the

26



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##### 



consulting needs of major multinational
corporations. The organization currently employs over 7,000
consultants worldwide. The SAP Global PSO supports the
international projects of SAP customers that are globally
active, offering a service that is consistent worldwide because
it applies uniform methodologies and procedural standards.


SAP Education

SAP is one of the largest training providers for
business software in the world. Our curriculum includes more
than 280 different courses, which are offered at more than 80
training centers worldwide or at customer sites. SAP focuses on
training project team members of our customers who, in turn,
typically train end-users, frequently with the support of SAP
and our implementation partners. SAP also trains end-users
directly. SAP offers training and certification for SAPs
consulting partners to ensure the availability of competent SAP
specialists.

SAP Active Global Support

SAP performs maintenance and information services
that provide customers with technical support. In the event that
a solution or program patch is not readily available, SAPs
technical support staff can remotely access the customers
system and analyze the problem directly. Customer issue
communication is also possible via phone, fax and the Internet.
We provide global coverage of all customers by one of our major
support hubs. We also offer protective services that provide
monitoring of key system parameters and reporting of recommended
actions.

We offer two premium support service levels,
MaxAttention ServiceLevel and MaxAttention OnSite, in addition
to our standard support services. MaxAttention provides a
comprehensive, premium support offering enhancing SAPs
standard support services. Fees charged for support services are
based upon fixed percentages, which vary for each service level,
calculated on the basis of the license fee paid by the customer.

SAP Hosting

mySAP Hosted Solutions are designed to allow
companies to move to SAP software solutions quickly, easily and
cost effectively. Application hosting provides infrastructure,
implementation and operational and ongoing support for selected
applications that can be accessed by the customer through a web
browser. Marketplace hosting includes hosting of marketplaces,
private exchanges, auction sites and specific, customized
applications. Applications service provider (ASP)
solutions combine software, infrastructure, service, support and
rapid implementation for turnkey solutions and deliver them as
services to customers from a single provider. With ASP,
customers do not obtain a perpetual license, but subscribe to
the application service for a periodic fee.

SAP Global Custom Development
Services

During the second half of 2002, we introduced SAP
Global Custom Development Services (GCDS), which gives customers
direct access to SAP developers, partners, and business
professionals. GCDS works with customers to successfully plan
and execute high-quality custom software development projects
that are consistent with our product strategy. One primary
objective of GCDS is to provide reduced maintenance which is
expected to result in substantial long-term savings for us and
our customer. We expect to begin to realize benefits from GCDS
in 2003.

Business Maps and Engagement Tools

SAP Business Maps allow customers to visualize
and design business processes and solutions, and to streamline
decision-making. They cover more than 20 industry sectors and
help customers to understand how SAP solutions support key
business processes in their industry. Collaborative Business
Maps show how the elements of mySAP Business Suite enable
effective collaboration across organizational boundaries. The
E-Business Case Builder guides customers through a step-by-step
process to produce a customized, high-level value proposition
tailored to customers unique business drivers.

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Seasonality

As is common in the software industry, our
business has historically experienced the highest revenue in the
fourth quarter of each year, due primarily to year-end capital
purchases by customers. Such factors have resulted in 2002, 2001
and 2000 first quarter revenue being lower than revenue in the
prior years fourth quarter. We believe that this trend
will continue in the future and that our revenue will continue
to peak in the fourth quarter of each year and decline from that
level in the first quarter of the following year.

Revenue by Geographic Region

We operate our business in three principal
geographic regions, namely EMEA, which represents Europe, Middle
East and Africa, the Americas, which represents both North
America and South America, and Asia-Pacific, which represents
Japan, Australia and parts of Asia. We allocate revenue amounts
to the region in which the customer is located. See note 34
to our consolidated financial statements included herein for
additional information with respect to operations by geographic
region.

SALES DESTINATION

The following table sets forth, for the years
indicated, the total revenue attributable to each of our three
principal geographic regions:

|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|---------------- |  | ------------------ | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                 |  | 2002               |         | 2001 |  | 2000
|                 |  |                    |         |      |  |     
|                 |  |                   
|                 |  | (in millions of )
|Germany          |  |                    | 1,654.1 |      |  |      | 1,468.7 |  |  |  | 1,237.4 | 
|Rest of EMEA     |  |                    | 2,394.1 |      |  |      | 2,317.5 |  |  |  | 1,836.5 | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|Total EMEA       |  |                    | 4,048.2 |      |  |      | 3,786.2 |  |  |  | 3,073.9 | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|United States    |  |                    | 1,969.7 |      |  |      | 2,084.1 |  |  |  | 1,848.3 | 
|Rest of Americas |  |                    | 531.9   |      |  |      | 640.0   |  |  |  | 587.3   | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|Total Americas   |  |                    | 2,501.6 |      |  |      | 2,724.1 |  |  |  | 2,435.6 | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|Japan            |  |                    | 485.9   |      |  |      | 444.1   |  |  |  | 343.6   | 
|Rest of APA      |  |                    | 377.1   |      |  |      | 386.4   |  |  |  | 411.5   | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|Total APA        |  |                    | 863.1   |      |  |      | 830.5   |  |  |  | 755.1   | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 
|Total revenue    |  |                    | 7,412.8 |      |  |      | 7,340.8 |  |  |  | 6,264.6 | 
|                 |  |                    |         |      |  |      |         |  |  |  |         | 

EMEA.In 2002 as in
previous years, we were especially successful in EMEA. Despite
the problematic economy, we increased revenues over the prior
year. Approximately 54.6% of our 2002 total revenue was derived
from the EMEA region compared to 51.6% in 2001. Approximately
40.9% of the revenue for the EMEA region in 2002 was derived
from Germany compared to 38.8% in 2001, despite the German
economy being weaker than that of other European countries. The
remainder of the revenue for the EMEA region in 2002 was derived
primarily from the United Kingdom, Switzerland, France, Italy
and the Netherlands. The number of our employees in the EMEA
region increased by 4.8% from 18,860 at December 31, 2001
to 19,760 at December 31, 2002. In Germany, the number of
our employees increased by 5.2% to 13,002 at December 31,
2002 compared to 12,356 at December 31, 2001. See Item 6.
Directors, Senior Management and Employees 
Employees.

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Americas.Approximately 33.7% of our 2002
revenue was derived from the Americas region compared to 37.1%
in 2001. Revenues declined 8.2% to
 2,501.6 million.
Revenue from the United States represented approximately 78.7%
of SAPs total for the Americas region for 2002 and 76.5%
of SAPs total for the Americas region for 2001. In the
United States, revenue declined 5.5% to
 1,969.7
million. During the later half of 2002, a new CEO was appointed
to head the North America region and the sales force was
subsequently reorganized. Based on our analysis of the key
competitors published license revenue figures, we believe
we again gained market share in the United States and we are now
the U.S. business software segment leader. The other countries
of the Americas region posted revenues of
 531.9 million,
a 16.9% decrease from 2001, and revenues for the entire region
decreased 8.2% to
 2,501.6 million.

The remainder of revenue for the Americas region
was derived primarily from Canada, Brazil, Mexico, Venezuela and
Columbia. The number of employees in the Americas region
decreased by 6.0% from 6,750 at December 31, 2001 to 6,345
at December 31, 2002.

Asia-Pacific.Approximately 11.6% of our 2002
revenue was derived from the Asia-Pacific region, compared to
11.3% in 2001. In 2002, SAPs revenue from the Asia-Pacific
region was derived primarily from Japan, Australia, Singapore,
India, South Korea and Malaysia. Our revenue in the APA region
increased 3.9% to
 863.1 million
in 2002. Revenue attributable to Japan increased
 41.8 million,
or 9.4% from
 444.1 million
for 2001 to
 485.9 million
for 2002, and accounted for more than half of the APA revenue.

In the Asia-Pacific region, the number of
employees remained relatively stable.

Software Revenue by Solution

In 2001, we began to allocate software revenues
to specific software solutions for the first time. These
allocations include revenues from contracts for specific
solutions and for integrated solution contracts, which are
mostly allocated based on usage surveys provided by our
customers. Such surveys reflect the customers expected use
of the various solutions within their integrated contract.
Customers actual use may differ from their expectations at
the time they complete the surveys and we have no ability to
monitor differences between actual use and amounts reported.
Nevertheless, for internal purposes, we allocate revenues based
upon the number of users and user type by solution as specified
in the initial customer surveys. Revenues recognized are
allocated to each applicable solution based upon weighted
average values per solution resulting from the number of each
user type per solution, as provided by the customer, multiplied
by the respective price per user type as set forth in our
standard price list. We then allocate the recognized revenue for
the software license based upon each solutions weighted
average values. The remainder of revenues, which relate to R/3,
industry solutions and software engines are specifically
identified in the license if applicable, and are allocated to
the specific software solutions at fixed ratios based upon the
functional capabilities to which they relate. This methodology
is applied to each individual mySAP Business Suite contract.
Although we believe this methodology in allocating revenue to
specific software solution to be reasonable, and we apply this
methodology on a consistent basis for informational purposes
only, there can be no assurance that such calculated amounts
reflect the amounts that would result from the individual
licensing of each software solution.

|                                        |  |                    |         |      |  |  |         | 
|--------------------------------------- |  | ------------------ | ------- | ---- |  |  | ------- | 
|                                        |  | 2002               |         | 2001
|                                        |  |                    |         |     
|                                        |  |                   
|                                        |  | (in millions of )
|mySAP SCM                               |  |                    | 464.0   |      |  |  | 582.9   | 
|mySAP CRM                               |  |                    | 473.0   |      |  |  | 444.9   | 
|mySAP PLM                               |  |                    | 168.0   |      |  |  | 196.0   | 
|mySAP BI/mySAP Enterprise Portals/mySAP |  |                    |         |      |  |  |         | 
|SRM/mySAP Marketplaces                  |  |                    | 259.0   |      |  |  | 415.9   | 
|mySAP Financials/mySAP Human Resources  |  |                    | 927.0   |      |  |  | 940.8   | 
|                                        |  |                    |         |      |  |  |         | 
|Total software revenue                  |  |                    | 2,291.0 |      |  |  | 2,580.5 | 
|                                        |  |                    |         |      |  |  |         | 

29



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Revenue by Industry Sector

We identified six industry sectors in order to
focus our product development efforts on key industries of our
existing and potential customers and to provide best business
practices and integrated business solutions specific to those
industries. We allocate our customers to a certain key industry
at the outset of an initial arrangement. All subsequent revenues
to a particular customer are recorded under that established
industry sector. The following table sets forth the total sales
revenue attributable to each sector for the years ended
December 31, 2002, 2001 and 2000.

|                    |  |                    |         |      |  |      |         |  |  |  |         | 
|------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                    |  | 2002               |         | 2001 |  | 2000
|                    |  |                    |         |      |  |     
|                    |  |                   
|                    |  | (in millions of )
|Process Industries  |  |                    | 1,537.0 |      |  |      | 1,524.3 |  |  |  | 1,342.1 | 
|Discrete Industries |  |                    | 1,764.1 |      |  |      | 1,807.5 |  |  |  | 1,582.7 | 
|Consumer Industries |  |                    | 1,299.7 |      |  |      | 1,186.8 |  |  |  | 999.3   | 
|Service Industries  |  |                    | 1,765.9 |      |  |      | 1,849.8 |  |  |  | 1,578.8 | 
|Financial Services  |  |                    | 514.8   |      |  |      | 448.2   |  |  |  | 336.0   | 
|Public Services     |  |                    | 531.3   |      |  |      | 524.2   |  |  |  | 425.7   | 
|                    |  |                    |         |      |  |      |         |  |  |  |         | 
|Total revenue       |  |                    | 7,412.8 |      |  |      | 7,340.8 |  |  |  | 6,264.6 | 
|                    |  |                    |         |      |  |      |         |  |  |  |         | 

We achieved our steepest growth rates in 2002 in
the financial services and consumer industries. Revenue growth
from the financial services sector was 14.9% and 9.5% for the
consumer industries sector, despite the difficult economic
background. As in 2001, the service and discrete industries
sectors generated the biggest revenue.

Euro Currency

Effective January 1, 1999, the euro was
introduced in the member states of the European Union (including
Germany) participating in the EMU as a common legal currency for
paperless transactions, pending the substitution of
euro bank notes and coins for the national currencies of the
participating EMU states. As of January 1, 1999, fixed
exchange rates were introduced, according to which funds
denominated in the currency of one participating EMU state are
convertible into the currency of another participating EMU
states. On January 1, 2002, the euro currency was introduced as
legal tender, and since March 1, 2002, business in
participating member states has been conducted exclusively in
the euro. As a result, companies operating in or conducting
business in these participating EMU states needed to ensure that
their financial and other software systems were capable of
processing transactions and properly handling the euro currency.

Competitive Implications.Neither the introduction of the euro
on January 1, 1999 nor the introduction of the euro currency as
legal tender on January 1, 2002 had a material effect on
the pricing of our products and services or on the markets for
SAP software products. We believe that the introduction of the
euro currency as legal tender on January 1, 2002 has not
and will not have a material adverse effect on our business,
financial position, and results of operations or cash flows.

Systems.Effective
as of January 1, 1999, we adopted the euro as our financial
accounting and reporting currency. SAPs internal business
information systems primarily comprise the same commercial
application software products generally offered for license by
SAP to end-user customers. We did not experience any material
problems to date as a result of the euro conversion.

Foreign Currency and Exchange Exposure.The introduction of fixed exchange
rates among the participating EMU states and the ultimate
transition to the euro has eliminated the impact on our
consolidated financial statements of foreign currency
translation from the participating EMU states national
currencies and foreign currency exchange risk associated with
transactions involving the participating EMU states
national currencies. As a result, the need for hedging and other
derivative transactions with respect to such national currencies
have been eliminated, thereby creating opportunities for cost
savings.

30



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Sales, Marketing and
Distribution

SAP AG primarily uses its worldwide network of
subsidiaries to market and distribute SAPs products and
services locally. Those subsidiaries have entered into license
agreements with SAP AG pursuant to which the subsidiary acquires
the right to sublicense SAP AGs products to customers
within a specific territory and agrees to provide primary
support to those customers. Under these agreements, the
subsidiaries retain a certain percentage of the revenue
generated by the sublicensing activity. We began operating in
the United States in 1988 through SAP America, Inc., a wholly
owned subsidiary of SAP AG. Since then, the United States has
become one of our most important markets. In certain countries,
we have established distribution agreements with independent
resellers rather than with subsidiaries particularly with regard
to the Business One and All-in-One solutions.

In addition to our subsidiaries sales
forces, SAP has developed an independent sales and support force
through value-added resellers who assume responsibility for the
licensing, implementing and supporting of SAP solutions. We have
also entered into alliances with major system integration firms,
telecommunication firms and computer hardware providers to offer
certain mySAP Business Suite solutions.

We supplement certain of our consulting and
support services through alliances with hardware and software
vendors, systems integrators and third-party consultants with
the goal of providing customers with a wide selection of
third-party competencies. The role of the alliance partner
ranges from pre-sales consulting for e-business solutions to the
implementation of our software products to project management
and end-user training for customers and, in the case of certain
hardware and software vendors, to technology support.

During 2000, we restructured our global marketing
operations and laid the foundations for more effective
communication of both our position as a leading e-business
solution provider and the quality of our solution offerings.
Subsequent to this reorganization, we ran a broad-based campaign
including television spots and newspaper advertisements in more
than 40 countries.

SAPs marketing efforts cover large,
multinational groups of companies as well as smaller and midsize
companies. We believe our solutions and services meet important
needs of all kinds of customers and are not dependent on the
size or industry of the customer.

Capitalizing on the new possibilities of the
Internet, we actively make use of online marketing. Solutions
such as the mySAP Enterprise Portal can be tested online via the
Internet Demonstration and Evaluation System, which also offers
special services to introduce customers and prospects to new
solutions and services.

Partnerships, Alliances and
Acquisitions

Partnerships and strategic alliances are a key
element of broadening the solutions and services offered to SAP
customers. SAPs close collaboration with partners across
the life cycle of a customer solution is a key element in
enhancing customer satisfaction. We characterize our
partnerships and strategic alliances into eight categories that
together constitute what we refer to as the SAP Partner Services
Network. Depending on the category, our partners may achieve the
status of a local or global partner. We expect our alliance
partnerships to provide customers with joint strategic
solutions. Our partners generally have a strong position in a
particular line of business or cross-industry and complement the
range of SAP solutions in these areas. The partner categories
are: Services Partners, Technology Partners, Software Partners,
Hosting Partners, Channel Partners, Content Partners, Education
Partners and Support Partners.

SAP has entered into agreements with a number of
leading software and hardware vendors to cooperate and ensure
that certain of the software, technology and services products
produced by such vendors complement SAP software products. Our
partner network includes more than 900 companies.

In 2001, we acquired the assets of TopTier, Inc.
for approximately U.S.$ 379 million in cash excluding
cash acquired. See notes 2, 4 and 16 to our consolidated
financial statements for more information on the acquisition of
TopTier and the investment in Commerce One. TopTier was renamed
SAP Portals, Inc. and specialized in technologies for
creating enterprise portals. During 2002, SAP Portals and
SAP Markets (another sub-group of

31



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SAP) and their subsidiaries were reintegrated and
merged with and into SAP AG and certain subsidiaries of
SAP AG.


In 2001 SAP expanded its strategic alliance with
Commerce One, which included an additional equity investment in
the common stock of Commerce One of approximately
U.S.$ 225 million in connection with establishing a
collaborative relationship to develop Internet based product
solutions. The strategic alliance focuses on jointly delivering
next-generation e-business marketplace solutions for the
Internet economy.

Under the terms of the strategic alliance
agreement, SAP AG has certain registration rights and
pro-rata rights to purchase additional shares of Commerce
Ones common stock in the future, as well as the right to
have a representative of SAP AG appointed to Commerce
Ones board of directors. In March 2002, SAP named a
non-voting observer to attend the board of directors
meetings. We have also agreed to certain limitations on our
ability to transfer our shares of Commerce One common stock, our
ability to acquire more than 23% of Commerce Ones
outstanding common stock or to attempt to acquire Commerce One
in a transaction not approved by Commerce Ones board of
directors. The carrying value of our investment in Commerce One
was zero as of December 31, 2002 as a result of the
recognition of impairment charges and the continued application
of the equity method of accounting. See additional discussion
under Item 5. Operating and Financial Review and
Prospects  Operating Results.

Intellectual Property, Proprietary Rights
and Licenses

SAP relies on a combination of the protections
provided by applicable trade secret, copyright, patent and
trademark laws, license and non-disclosure agreements and
technical measures to establish and protect our rights in our
software products.

We generally license our products to customers
pursuant to a perpetual license. These license agreements are
generally in standard form, although each license is
individually negotiated. The licenses generally restrict the use
of SAP software products to authorized users, which may include
(usually on a screen-only basis) access by a customers
dealers, distributors and suppliers, and prohibit a customer
from disseminating or distributing SAP software products to any
unauthorized person. The licenses are generally non-transferable
or, if transferable, the transfer is subject to our reasonable
approval. SAP software products are licensed to end-users not
only by SAP but also by independent third-party distributors or
by hosted solution providers and ASPs. Although we seek to
establish the conditions under which such distributors and
solution providers license our products, there can be no
assurance that such distributors or solution providers license
the SAP software products solely in compliance with such
conditions.

SAP software products are generally provided to
end-users in a combination of object code and certain source
code. Some SAP software products contain third-party
intellectual property that we license or otherwise acquire. In
addition, certain licensed end-user customers of SAP software
products can be beneficiaries of a master source code in escrow
for our products, pursuant to which the source code will be
released to such end-user customers upon the occurrence of
certain events, such as the commencement of bankruptcy or
insolvency proceedings by or against us, or certain material
breaches of the maintenance agreement by us. We have the right
to object to the release of source code in any such
circumstance, and to submit the matter to dispute resolution
procedures. In the event of any release of the source code from
escrow, the end-user customers license is limited to use
of the source code to maintain, support and customize SAP
software products.

SAP actively pursues trademark registrations and
patents in countries in which SAP software products are licensed
and used and in which our services are performed. We believe
that the trademarks, which are material to our business, are
registered in the countries in which we have significant sales.
SAP also pursues patents, to the extent adequate protection is
available, in select countries in which SAP software products
are licensed and used and in which our services are performed.
We continually review new developments for possible patent
applications.

32



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##### 



Organizational Structure

SAP AG is the holding company of 91 subsidiaries,
whose main task is the distribution of SAPs products and
services on a local basis, whereas the main research and
development facilities, the overall group strategy and the
corporate administration are concentrated at SAP AGs
headquarters in Walldorf, Germany.

The following table illustrates a list of our
significant subsidiaries:

|                                                                                |  |           |     |               |  |                 |  |                                                          |                                | 
|------------------------------------------------------------------------------- |  | --------- | --- | ------------- |  | --------------- |  | -------------------------------------------------------- | ------------------------------ | 
|                                                                                |  | Ownership |     | Country of    |  |                
|Name of Subsidiary                                                              |  | %         |     | Incorporation |  | Function       
|                                                                                |  |           |     |               |  |                
|Germany                                                                         |  |           |     |               |  |                 |  |                                                          |                                | 
|SAP Deutschland AG & Co. KG, Walldorf                                           |  |           | 100 |               |  | Germany         |  |                                                          | Sales, consulting and training | 
|Rest of Europe / Middle East /
    Africa                                       |  |           |     |               |  |                 |  |                                                          |                                | 
|SAP (UK) Limited, Feltham                                                       |  |           | 100 |               |  | Great Britain   |  |                                                          | Sales, consulting and training | 
|SAP FRANCE S.A., Paris                                                          |  |           | 100 |               |  | France          |  |                                                          | Sales, consulting and training | 
|SAP (Schweiz) AG, Biel                                                          |  |           | 100 |               |  | Switzerland     |  |                                                          | Sales, consulting and training | 
|SAP ITALIA Sistemi, applicazioni, prodotti in
    data processing s.p.a., Milan |  |           | 100 |               |  | Italy           |  |                                                          | Sales, consulting and training | 
|SAP Nederland B.V., s-Hertogenbosch                                            |  |           | 100 |               |  | The Netherlands |  |                                                          | Sales, consulting and training | 
|Americas                                                                        |  |           |     |               |  |                 |  |                                                          |                                | 
|SAP America, Inc., Newtown Square                                               |  |           | 100 |               |  | USA             |  |                                                          | Sales, consulting and training | 
|SAP Canada Inc., North York                                                     |  |           | 100 |               |  | Canada          |  |                                                          | Sales, consulting and training | 
|Asia / Pacific                                                                  |  |           |     |               |  |                 |  |                                                          |                                | 
|SAP JAPAN Co., Ltd., Tokyo                                                      |  |           | 100 |               |  | Japan           |  | Sales, consulting and training, research and development

Description of Property

Our principal executive, administrative,
marketing and sales, consulting, training, customer support and
research and development facilities are located in Walldorf,
Germany, 60 miles south of Frankfurt/ Main. We own our principal
Walldorf facilities, which are currently being expanded. This
expansion commenced in 2000. The primary reason for the
expansion is to provide additional space for our research and
development activities. The remaining cost to complete this
expansion, together with expansions to other facilities in
Walldorf, is not expected to exceed
 28.3 million
in total. In addition, during 2001, we commenced expansion of
our data center in St. Leon-Rot, Germany. The cost associated
with this expansion is not expected to exceed
 10.4 million
in 2003 and
 86.3 million
in total. We have financed such expansions through working
capital and existing credit facilities described herein under
Item 5. Operating and Financial Review and
Prospects  Liquidity and Capital Resources. We
own a site in Newtown Square, Pennsylvania, for use as our U.S.
headquarters for the Americas as well as for regional operations
for administration, marketing, sales, consulting, training,
customer support and research and development. We own or lease
sufficient undeveloped land to expand the facilities in Newtown
Square as required for currently foreseeable needs.

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The location of each of our other facilities in
excess of 40,000 square feet, all of which are leased (unless
otherwise indicated), is set forth below:

|                                  |                         |                                                             |                                                             
|--------------------------------- | ----------------------- | ----------------------------------------------------------- | ------------------------------------------------------------
|Country, City                     |                         | Facility Description                                       
|                                  |                         |                                                            
|Austria, Vienna                   |                         | Sales, consulting and training                             
|Belgium, Brussels                 |                         | Sales, consulting and training                             
|Brazil, São Paulo                 |                         | Sales, consulting and training                             
|Bulgaria, Sofia                   |                         | Sales, consulting and training                             
|Canada, North York, Ontario       |                         | Sales, consulting and training                             
|Czech Republic, Prague            |                         | Sales, consulting and training                             
|Denmark, Copenhagen               |                         | Sales, consulting and training                             
|France, Paris                     |                         | Sales, consulting and training                             
|Germany, Alsbach (owned)          |                         | Sales and consulting                                       
|                                  | Freiberg                |                                                             | Sales and consulting                                        
|                                  | Munich                  |                                                             | Research and development, sales, consulting
    and training
|                                  | Ratingen                |                                                             | Sales, consulting and training                              
|                                  | St. Ingbert (owned)     |                                                             | Research and development, sales, consulting                 
|                                  | St. Leon-Rot (owned)    |                                                             | Research and development, consulting and training           
|Hungary, Budapest                 |                         | Sales, consulting, training and customer support           
|India, Bangalore                  |                         | Research and development                                   
|Ireland, Dublin                   |                         | Customer support                                           
|Italy, Milan                      |                         | Sales, consulting and training                             
|Japan, Tokyo                      |                         | Research and development, sales, marketing
    and training
|Mexico, Mexico City               |                         | Sales and consulting                                       
|The Netherlands, s-Hertogenbosch |                         | Sales, consulting and training                             
|Portugal, Lisbon                  |                         | Sales, consulting and training                             
|Singapore, Singapore              |                         | Sales, consulting, training and customer support           
|South Africa, Johannesburg        |                         | Sales, consulting and training                             
|Spain, Madrid                     |                         | Sales, consulting and training                             
|Sweden, Stockholm                 |                         | Sales and consulting                                       
|Switzerland, Biel (owned)         |                         | Sales and marketing                                        
|United Kingdom, Feltham (owned)   |                         | Sales and consulting                                       
|                                  | Hayes                   |                                                             | Training                                                    
|United States,                    |                         |                                                            
|                                  | Palo Alto, California   |                                                             | Research and development and sales                          
|                                  | Waltham, Massachusetts  |                                                             | Sales, marketing, consulting and training                   
|                                  | Chicago, Illinois       |                                                             | Sales, marketing, consulting and training                   
|                                  | Foster City, California |                                                             | Sales, marketing, consulting and training                   
|                                  | Atlanta, Georgia        |                                                             | Sales, marketing, consulting and training                   

We believe that our facilities are in good
operating condition and adequate for their present and
anticipated usage.

Capital Expenditures

SAPs capital expenditures for intangible
assets and property, plant and equipment, excluding amounts
acquired as part of the 2001 Top Tier acquisition, were
 309 million
for the year ended December 31, 2002,
 378 million
for the year ended December 31, 2001 and
 286 million
for the year ended December 31, 2000. Principal areas of
investment during 2002 related to construction of buildings,
primarily in Germany, and to the purchase of computer hardware
to support ongoing increases in employees and global operations.
See note 34 in Item 18. Financial Statements
for capital expenditures by region included herein. During 2003,
we expect to spend approximately
 108 million
for the purchase of computer hardware and other business
equipment and

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approximately
 121 million
primarily for the construction of an additional IT-center in
Germany and additional facilities in the United States and
India. See Item 5. Operating and Financial Review and
Prospects  Liquidity and Capital Resources and
note 34 to our consolidated financial statements for
further details regarding capital expenditures.


Item 5.     Operating
and Financial Review and Prospects

Critical Accounting Policies

Our consolidated financial statements are
prepared based on the accounting policies described in
note 3 of our consolidated financial statements in
Item 18. Financial Statements in this Annual
Report on Form 20-F. The application of such policies may
require management to make significant estimates and
assumptions. We believe that the following are our more critical
accounting estimates used in the preparation of our consolidated
financial statements that could have a significant impact on our
future consolidated results of operations and financial position:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | Revenue Recognition;                                                    
|
| |  | Collection of Accounts Receivable;                                      
|
| |  | Accounting for Stock Based Compensation;                                
|
| |  | Accounting for Income Taxes and Other Income Tax
    Related Judgements;
|
| |  | Realizability of Strategic and Venture Capital
    Investments.         

Please refer to note 3 to the accompanying
financial statements for further discussion of SAPs
accounting policies.

Revenue Recognition

Substantially all of our revenues are derived
from the licensing of our software products and the sale of
related maintenance, consulting, and training services. Our
standard license agreement provides a perpetual license to use
our products based on the number of licensed users. We may
license our software in multiple element arrangements if the
customer purchases any combination of maintenance, consulting,
or training services in conjunction with the license.

We recognize revenue pursuant to the requirements
of AICPA Statement of Position (SOP) 97-2
Software Revenue Recognition
(SOP 97-2), as amended by SOP 98-9
Software Revenue Recognition, With Respect to Certain
Transactions, Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements
(SAB 101), and other authoritative accounting
guidance. Revenue is recognized using the residual method when
SAP-specific objective evidence of fair value exists for all of
the undelivered elements in the arrangement, but does not exist
for one or more delivered elements. We allocate revenue to each
undelivered element based on its respective fair value
determined by the price charged when that element is sold
separately. We defer revenue for the undelivered elements and
recognize the residual amount of the arrangement fee, if any,
when the basic criteria in SOP 97-2 have been met. If an
undelivered element is not sold separately, revenues for all
elements are deferred until the delivery criteria have been
satisfied.

Under SOP 97-2, provided that the
arrangement does not require significant production,
modification, or customization of the software, revenue is
recognized when the following four criteria have been met:



|   |                                              
|-- | ---------------------------------------------
|1. | Persuasive evidence of an arrangement exists,
|  
|2. | Delivery has occurred,                       
|  
|3. | The fee is fixed or determinable, and        
|  
|4. | Collectibility is probable.                  

If at the outset of an arrangement we determine
that the arrangement fee is not fixed or determinable, revenue
is deferred until the arrangement fee becomes due, assuming all
other revenue recognition criteria have

35



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##### 



been met. If at the outset of an arrangement we
determine that collectibility is not probable, revenue is
deferred until payment is received. If an arrangement allows for
customer acceptance of the software or services, we defer
revenue recognition until the earlier of customer acceptance or
when the acceptance right lapses.


We recognize revenue from resellers when the
software is licensed to the end-user based upon the terms and
conditions provided by the reseller.

Depending on the country in which the maintenance
agreement is executed, the initial maintenance term with our
customer is from one to three years. Maintenance is
renewable by the customer on an annual basis thereafter. The
maintenance fee, including subsequent renewal rates, is
typically established based on a specified percentage of the
license fee paid by the customer. Our customers typically prepay
maintenance for periods of three to twelve months. Maintenance
revenues are deferred and recognized ratably over the term of
the maintenance contract.

Our consulting and training revenues are
accounted for separately from the license revenues in situations
when the services are deemed not to be essential to the
functionality of the software. Consulting and training revenues
are recognized as the services are performed, generally on a
time and materials basis. Consulting revenues attributed to
fixed price arrangements are recognized using the percentage of
completion method based on direct labor costs incurred to date
as a percentage of total estimated costs to complete the
project. Consulting services primarily comprise implementation
support related to the installation and configuration of our
products and do not typically require significant production,
modification, or customization of the software. Arrangements
that require significant production, modification, or
customization of the software and where services are not
available from third party vendors, are recognized, depending on
the fee structure, on a time and materials basis or using the
percentage of completion method. When total cost estimates
exceed revenues in a fixed price arrangement, the estimated
losses are recognized immediately based upon an average fully
burdened daily cost rate applicable to the consulting
organization delivering the services.

The assumptions, risks, and uncertainties
inherent in the application of the percentage of completion
method affect the amounts and timing of revenue and related
expenses reported. Numerous internal and external factors can
affect estimates, including direct labor rates, utilization, and
efficiency variances.

For arrangements involving hosting, when all
other revenue recognition criteria have been met, we recognize
product revenue upon delivery of a software license key and
hosting revenue over the hosting period unless the customer
cannot take possession of the software at anytime during the
hosting period without significant penalty or cannot contract
with another hosting provider without significant effort or
expenditure or unless the softwares functionality is
compromised by the termination of our hosting services. Under
these circumstances, we recognize all revenue under the
arrangement ratably over the longer of the hosting period or the
maintenance period. Hosting revenues recognized to date have not
been significant.

We believe that our accounting estimates to apply
our revenue recognition policies are critical because:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The determination that it is probable that the
    customer will pay for the products and services purchased is
    inherently judgmental,                                                                          
|
| |  | The allocation of proceeds to certain elements in
    multiple-element arrangements is complex,                                                                                                                     
|
| |  | The determination of whether a service is
    essential to the functionality of the software is complex,                                                                                                            
|
| |  | Establishing company-specific fair values of
    elements in multiple-element arrangements requires adjustments
    from time-to-time to reflect recent prices charged when each
    element is sold separately, and
|
| |  | The determination of the stage of completion for
    certain consulting arrangements is complex.                                                                                                                    

Changes in the aforementioned items could have a
material affect on the type and timing of revenue recognized.

There have been no significant changes in our
accounting estimates related to our revenue recognition policies
that had a material impact on the amount of our reported
revenue, results of operations or our financial position in 2002
and 2001.

36



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##### 



Historically, SAP-specific objective evidence of
fair value for certain undelivered elements in multiple-element
arrangements has been determined on an enterprise-wide or
country-wide basis, depending on the nature of the undelivered
element. As economic conditions change in certain geographic
locations in which we operate, we may need to modify our
business practices in these locations. Accordingly, future
SAP-specific objective evidence of fair value for such
undelivered elements may deviate for historical fair values.
Consequently, the percentages and the amounts of revenue
recognized in the future for multi-element arrangements could
differ significantly from historical trends and could have a
material impact on our reported revenue, results of operations
and financial position in the future.

Collectibility of Accounts
Receivable

Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. Total accounts
receivable at December 31, 2002 were
 1,967.1
million, which is net of an allowance for bad debts of
 92.5 million.
Included in accounts receivable are unbilled receivables related
to costs and estimated earnings in excess of billings on
uncompleted fixed fee consulting arrangements of
 182.7 million
at December 31, 2002. The allowance for doubtful accounts
represents our best estimate of the amount of probable credit
losses in our existing accounts receivable portfolio. We base
our estimate on a systematic, ongoing review and evaluation
which we perform every month. As part of this evaluation, we
determine the allowance for doubtful accounts after giving
consideration to specific customer risks, regional economic
risks and the length of time certain accounts receivable have
been outstanding. Account balances are charged off against the
allowance after all means of collection have been exhausted and
the potential for recovery is considered remote.

Total provisions for bad debt expense charged to
costs and expenses approximated

39.0 million and
 63.2 million
during 2002 and 2001, respectively. The provision for bad debt
expense that is based on customer specific analysis is recorded
in the respective functional cost category. General bad debt
expense is recorded as a component of other operating
income/expense and is based on the portion of the total
remaining accounts receivable portfolio that is considered past
due. Accounts receivable written-off approximated
 21.2 million
and
 19.2 million
during 2002 and 2001, respectively.

We believe that the accounting estimate related
to the establishment of the allowance for credit losses is a
critical accounting policy because the evaluation is inherently
judgmental and requires the use of assumptions about customer
defaults which may be subject to significant change and because
changes in our estimates about the allowance for doubtful
accounts could have a material affect on our financial
statements. The recognition of allowances for doubtful accounts
initially has no impact on our reported cash flows. Our
liquidity, capital resources and net income could be adversely
affected if actual credit losses exceed our estimates.

Accounting for Stock Based
Compensation

As further explained in note 24 to the
consolidated financial statements, SAP has several stock-based
compensation plans. We apply the intrinsic-value-based method of
accounting for stock-based compensation prescribed by Accounting
Principles Board Opinion (APB) 25, Accounting
for Stock Issued to Employees (APB 25)
and related interpretations. Under this method we recognize
compensation expense only for awards for which the exercise
price is variable. For all of our fixed stock-based compensation
plans we do not recognize any compensation expense as the
exercise price, which is fixed on the grant date, at least
equals the SAP share price on such date. SFAS 123,
Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation
plans. As allowed by SFAS 123, we have elected to continue
to apply the intrinsic-value-based method of accounting
described above, and we have adopted the disclosure requirements
of SFAS 123 and SFAS 148. The summary of significant
accounting policies in note 3 to our consolidated financial
statements provides the

37



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required pro forma effects on our reported net
income for 2002, 2001 and 2000 as if the fair-value-based method
was used to recognize compensation expense as follows:


Net Income

|                                                                                  |  |        |         |        |  |        |         |  |  |  |         | 
|--------------------------------------------------------------------------------- |  | ------ | ------- | ------ |  | ------ | ------- |  |  |  | ------- | 
|                                                                                  |  | 2002   |         | 2001   |  | 2000  
|                                                                                  |  | (000) |         | (000) |  | (000)
|                                                                                  |  |        |         |        |  |       
|As reported                                                                       |  |        | 508,614 |        |  |        | 581,136 |  |  |  | 615,732 | 
|Add: Expense for stock-based compensation, net of
    tax according to APB 25     |  |        | 5,600   |        |  |        | 40,357  |  |  |  | 286,604 | 
|Deduct: Expense for stock-based compensation, net
    of tax according to FAS 123 |  |        | 138,203 |        |  |        | 131,272 |  |  |  | 360,428 | 
|                                                                                  |  |        |         |        |  |        |         |  |  |  |         | 
|Pro forma                                                                         |  |        | 376,011 |        |  |        | 490,221 |  |  |  | 541,908 | 
|                                                                                  |  |        |         |        |  |        |         |  |  |  |         | 

Earnings per share

|                      |  |   |      |   |  |   |      |  |  |  |      | 
|--------------------- |  | - | ---- | - |  | - | ---- |  |  |  | ---- | 
|                      |  |  |      |  |  | 
|                      |  |   |      |   |  |  
|Basic  as reported   |  |   | 1.62 |   |  |   | 1.85 |  |  |  | 1.96 | 
|Diluted  as reported |  |   | 1.62 |   |  |   | 1.85 |  |  |  | 1.95 | 
|Basic  pro forma     |  |   | 1.20 |   |  |   | 1.56 |  |  |  | 1.72 | 
|Diluted  pro forma   |  |   | 1.20 |   |  |   | 1.56 |  |  |  | 1.72 | 

SAP uses the Black-Scholes valuation model to
estimate the options fair value. As described in
note 24 to the consolidated financial statements, this
valuation model requires us to use a number of assumptions,
including future stock price volatility and expected option life
(which represents our estimate of the amount of time remaining
until the options are exercised or expire unexercised). Expected
option life is based on the vesting period, the expected
volatility of the underlying stock and on actual exercise
activity from previous option grants. Future stock price
volatility is estimated based upon historical stock price
movements over the most recent period equal to the expected
option life. Additionally, our share price on the date of grant
influences the option value. Notwithstanding the fact that the
exercise price of most options equals the quoted market price of
our stock on the date of grant, the higher the share price, the
more the option is worth. Changes in the option value after
grant day are not reflected in expense.

We intend to continue to use stock based
compensation plans in order to attract and retain senior
managers and selected employees. Further, it is reasonably
possible that changes in accounting standards may ultimately
require the use of a fair-value-based method. For these reasons,
we believe that the estimates used in determining and disclosing
the pro forma effects of our stock based compensation in our
consolidated financial statements is critical.

For purposes of determining the estimated fair
value of our stock options, we believe expected volatility is
the most sensitive assumption. We used an expected volatility of
50% as a weighted average assumption, based on information that
is specific to SAP provided by three independent financial
institutions. Changes in this assumption could significantly
impact the estimated fair values produced by the Black-Scholes
valuation model and, consequently, the required pro forma
information reported in our consolidated financial statements.

The trading prices of our ordinary shares have
experienced and may continue to experience significant
volatility. The following table shows the effect of assumed
changes in the volatility covering the major grants as of
December 31, 2002, on the pro forma net income of
 376 million
as disclosed in note 3 to our consolidated financial
statements:

|                                                                    |  |                    |     |     |  |     |     |      |  |  |     |   |  |  |     |  
|------------------------------------------------------------------- |  | ------------------ | --- | --- |  | --- | --- | ---- |  |  | --- | - |  |  | --- | -
|Assumed change in volatility in percentage-points                   |  | -10%               |     | -5% |  | +5% |     | +10%
|                                                                    |  |                    |     |     |  |     |     |     
|                                                                    |  |                   
|                                                                    |  | (in millions of )
|Effect on Pro forma net income for volatility
    assumption change |  |                    | 20  |     |  |     | 10  |      |  |  | (10 | ) |  |  | (19 | )
|Pro forma net income using revised volatility
    assumption        |  |                    | 396 |     |  |     | 386 |      |  |  | 366 |   |  |  | 357 |  

38



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Accounting for Income Taxes and Other
Income Tax Related Judgements

We conduct operations and earn income in numerous
foreign countries and are subject to the laws of taxing
jurisdictions within those countries. We currently have net
deferred tax assets related to activities in various countries
approximating
 291.2 million
at December 31, 2002 which is net of a valuation allowance
of approximately
 3.0 million.
At December 31, 2002, we have net operating loss carryforwards
in certain foreign tax jurisdictions of approximately
 140.5 million
that may be used to offset future taxable income in those
jurisdictions. Net operating loss carryforwards available in
certain state tax jurisdictions in the United States of America
approximate
 91.2 million
and will expire if unused in varying amounts over the next
twenty years. Approximately
 20.9 million
of net operating loss carryforwards are available in other
foreign tax jurisdictions that will expire if unused in varying
amounts over the next three to seven years. The remaining net
operating loss carryforwards currently have no expiration period
for usage. The carrying values and realization of our net
deferred tax assets are principally dependent upon our ability
to generate future taxable income, managements
interpretation of applicable tax laws and incorporate
managements assumptions and judgements regarding the use
of tax planning strategies in certain taxing jurisdictions.

We believe that our estimates pertaining to our
accounting for income taxes are critical because:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our judgments regarding future taxable income are
    based upon expectations of market conditions and other facts and
    circumstances. An adverse change to the underlying facts may
    require a reduction of the recorded deferred tax asset balances;                                                                                                                                            
|
| |  | Our use of different estimates, assumptions and
    judgements in connection with tax planning strategies could
    result in materially different carrying values; and                                                                                                                                                                                                                                 
|
| |  | At December 31, 2002, we have cumulative
    undistributed earnings at certain foreign subsidiaries of
     1,646.3 million
    that are currently deemed to be permanently reinvested. A change
    in economic or other circumstances could impact our decision to
    repatriate some or all of these earnings, which would then
    result in the recognition of additional income tax liabilities.

Changes in the aforementioned items could have a
material impact on our financial position and results of
operations. There have been no significant changes in our
estimates about our ability to realize our net deferred tax
assets nor have there been any significant changes to our plans
to repatriate undistributed earnings of those foreign
subsidiaries where such earnings are considered to be
permanently reinvested that had a material impact on our
consolidated results of operations or financial condition during
2002 and 2001.

Realizability of Strategic and Venture
Capital Investments

We have made investments and expect to continue
to make additional investments to take minority ownership equity
interests in or make advances to technology-related companies,
many of which are currently reporting net losses. Most of these
companies have only been established recently, so their
prospects could only be assessed based on a limited amount of
historical experience.

As disclosed in note 16 to our consolidated
financial statements, the net carrying value of such investments
at December 31, 2002 consisted of
 0.3 million
( 434.7 million
at December 31, 2001) for associated companies accounted
for using the equity method,
 44.6 million
( 160.5 million
at December 31, 2001) for investees accounted for at cost,
and
 58.2 million
( 49.6 million
at December 31, 2001) for related loans and advances. On a
continuous basis, but no less frequently than at the end of each
quarterly reporting period, we evaluate the recoverability of
our carrying value of our total investments (which includes
related loans and advances) for each of these investments for
possible impairment. A write-down in the carrying value and a
related charge to financial expense is recognized if the decline
in value is deemed to be other-than-temporary. Indications of
potential impairment include, but are not necessarily limited
to, an inability of the associated company or investee to
sustain an earnings capacity that would justify the carrying
amount of the investment, or a quoted market price per share
this is significantly below our carrying amount per share for
the investee for a sustained period of time. In determining
whether a decline in an investments value below our carrying
value is other-than-temporary, we consider the length of time
and the extent to which such value has been less than our
carrying

39



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##### 



value, the financial condition and prospects for
the associate company or investee, and our ability and intent to
retain our investment for a period of time sufficient to allow
for any anticipated recovery in value.


We believe that the accounting estimates about
our ability to recover the carrying values of these investments
are critical because:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Significant judgement involved in determining
    whether a decline in the value is deemed to be
    other-than-temporary; and      
|
| |  | Significant judgement is often necessary to
    estimate the amount we can expect to realize upon liquidation of
    the investment.

Changes in our estimates could have a material
impact on our financial position and results of operations. For
the years ended December 31, 2002 and 2001, we recognized
impairment charges pertaining to these investments of
 428.8 million
(of which
 297.6 million
was for our investment in Commerce One) and
 83.1 million,
respectively.

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New Accounting Pronouncements to be
Adopted

In June 2001, the FASB issued SFAS 143,
Accounting for Asset Retirement Obligations
(SFAS 143). The statement applies to legal
obligations associated with the retirement of tangible
long-lived assets that result from the acquisition,
construction, development, and/or the normal operation of a
long-lived asset, except for certain obligations of lessees.
SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset and
subsequently allocated to expense over the assets useful
life. We adopted SFAS 143 on January 1, 2003, and it did
not have a material impact on SAPs consolidated financial
statements.

In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146), superseding Emerging
Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The Statement requires that a liability
for costs associated with exit or disposal activities be
recognized in the period in which the costs are incurred if a
reasonable estimate of fair value can be made. Under current
accounting guidance, a liability can be recognized when
management has committed to an exit plan. The requirements under
SFAS 146 are effective prospectively for exit or disposal
activities initiated after December 31, 2002. Previously
issued financial statements cannot be restated for the effect of
the provisions of SFAS 146, and liabilities previously recorded
under EITF 94-3 are grandfathered. The adoption of this
Statement will affect our accounting for exit and disposal
activities initiated after December 31, 2002.

In November 2002, the EITF reached a final
consensus on EITF 00-21, Revenue Arrangements with
Multiple Deliverables. EITF 00-21 addresses certain
aspects of the accounting of revenue arrangements with multiple
deliverables by a vendor. EITF 00-21 outlines an approach to
determine when a revenue arrangement for multiple deliverables
should be divided into separate units of accounting and, if
separation is appropriate, how the arrangement consideration
should be allocated to the identified accounting units. The
consensus reached in the Issue will be effective for SAP in our
financial statements beginning July 1, 2003. We are
determining the impact of the adoption of EITF 00-21, although
we believe that the adoption will not have a material impact on
its consolidated financial statements.

Also in November 2002, the FASB issued FASB
Interpretation No. (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others  an
interpretation of FASB statements 5, 57, and 107 and rescission
of FASB Interpretation 34 (FIN 45). This
Interpretation elaborates on the disclosure to be made by a
guarantor in its financial statements regarding obligations
under certain guarantees that it has issued. FIN 45 also
clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the
obligation due to the issuance of the guarantee. The initial
recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after
December 31, 2002. The disclosures of guarantees required
by FIN 45 are included in notes 26 and 30 to our consolidated
financial statements. We occasionally grant function and/or
performance guarantees in routine consulting contracts and/or
customer development arrangements, standard guarantee provisions
and other items. Currently, we have several such agreements in
place with various expiration dates. Based on historical
experience and evaluation, we do not believe that any material
loss is likely, and therefore no related liability has been
recorded. We also provide a six to 12 month warranty period
on our software. Although product warranties are excluded from
the initial recognition and measurement provisions, FIN 45
requires certain additional disclosures about changes in
warranty accruals which have been included in note 26 to our
consolidated financial statements.

In December 2002, the FASB issued SFAS 148, which
amends SFAS 123 to provide alternative methods of transition for
a voluntary change to the fair-value-based method of accounting
for stock-based employee compensation. In addition, SFAS 148
requires more prominent disclosures in both interim and annual
financial statements about the method of accounting used for
stock-based employee compensation and the effect of the method
used on reported results. As described above, we apply APB 25,
and use an intrinsic-value-based approach to measure
compensation expense. Under SFAS 123, compensation expense of
stock option plans is measured at the grant date based on the
fair value of the award using an option-pricing model.
Compensation

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expense is recognized over the service period
with an offsetting credit to equity (paid-in capital). If
adopted, the additional compensation expense in the statements
of income will be dependent upon the number, price, and other
significant terms of the stock options granted.


In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities  an
interpretation of ARB No. 51 (FIN 46),
which clarifies the application of the consolidation rules to
certain variable interest entities. In general, a variable
interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either
(a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities.
FIN 46 requires a variable interest entity to be consolidated by
a company if that company is subject to a majority of the risk
of loss from the variable interest entitys activities or
entitled to receive a majority of the entitys residual
returns, or both. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after
January 31, 2003. The consolidation requirements apply to
variable interest entities created before February 1, 2003,
in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply
in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established.
We currently believe the adoption of FIN 46 will have no impact
on our consolidated financial position or results of operations
because we currently hold no significant variable interests in
any variable interest entities.

Overview

For the year ended December 31, 2002, our
revenue and income before income taxes and extraordinary gain
were approximately
 7,412.8 million
and
 1,107.7
million, respectively, as compared with
 7,340.8 million
and
 1,068.8
million, respectively, for the year ended December 31,
2001. Net income was
 508.6 million
and
 581.1 million
for the years ended December 31, 2002 and 2001,
respectively. SAP consists of SAP AG and our network of
91 operating subsidiaries and has a presence or a
representation in over 120 countries.

We operate in three geographic regions, namely
EMEA, the Americas and Asia-Pacific. SAP has three lines of
business that constitute our reporting segments: products,
consulting and training. Furthermore, SAP focuses on six
industry sectors, namely process, discrete, consumer, service,
financial and public services. For a discussion of our
geographic regions and industry sectors, see Item 4.
Information on SAP  Description of the
Business  Revenue by Geographic Region,
 Revenue by Industry Sector,
 SAP Strategy  mySAP Business
Suite and note 34 to our consolidated financial statements
included herein.

SAPs principal sources of revenue are
through sales of products and services. Product revenue consists
primarily of software license fees and maintenance fees. License
fees are derived from the licensing of SAP software products to
customers. SAP provides optional maintenance for a fixed
percentage calculated on the basis of the initial license fee
paid by the customer. Maintenance entitles the customer to
upgrades and enhancements through new product releases, versions
and correction levels, telephone support on the use of the
products and assistance in resolving problems, remote support,
access to online bulletin board support services as well as a
world-wide remote monitoring and diagnostics service for the
mySAP Business Suite platform. Our service revenue consists of
consulting and training revenue, which is derived primarily from
the services rendered with respect to implementation and
training of customer project teams and end-users, as well as
training third-party consultants with respect to SAP software
products.

We generally license our products in individual
software components or a suite of software components on a
right to use basis pursuant to a perpetual license
providing for an initial license fee based on the number and
types of identified users. Additional license fees are charged
when the designated number of users or another relevant metric,
like the number of transactions in a marketplace, is increased.

Global economy remains weak

The global economy started to decelerate at the
end of 2000 and continued to weaken through 2002 
without, however, developing into a recession or causing
deflation. In December 2002, the World Bank estimated 2.9% world
trade growth for 2002.

42



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Despite some isolated positive economic
indicators, sustained recovery did not occur in the leading
economies in 2002  specifically North America,
Europe, and Japan, which are SAPs major markets. Drags on
the economy included continuing high unemployment, persistent
consumer cautiousness, damaging news decreasing investor
confidence in light of large corporate scandals, and
uncertainties in the geopolitical situation, of which, for
example, numerous terrorist attacks and the latent threat of war
were symptomatic.

IT markets first pronounced
downturn

In all sectors and all countries, anxiety
resulting from the global financial and economic situation
curbed companies willingness to commit to capital projects
in 2002. This also impacted IT vendors and service providers.

Faced with having to limit spending because of
acute pressure on costs, many companies responded by cutting
back IT budgets, which they had rapidly built up toward the late
1990s. More than ever, the need to minimize total cost of
ownership impacted their IT investment decisions.

Many companies downscaled or postponed their
plans to implement new software or to expand hardware and
network capacity. They placed substantially fewer contracts for
large capital projects, as all IT vendors and providers found.

Major long-term strategic investments lost favor
to smaller tactical projects offering a quick return on
investment.

Industry analysts originally predicted the IT
market would grow 11% in 2002, but they repeatedly adjusted
their figures downward. For example, at the beginning of 2003 IT
analyst IDC (International Data Corporation) estimates that the
global IT market shrank 2.4% in 2002, the biggest contraction
ever recorded in the IT market. On the other hand, industry
analyst Gartner Group estimates that global IT spending declined
only slightly, by 0.2%, in 2002.

Industry consolidation
continues

Consolidation continued in the industry in
response to the weakness of the IT market. However, it appears
that established manufacturers in the industry benefited from
customers growing appreciation of the importance of
lasting protection for their planned IT investments 
making sure that those investments will provide them with an
adequate return.

Customers face the problem that their IT
infrastructure grows increasingly complex, causing
disproportionate system maintenance and administration expenses.
As a result, more customers sought rapidly deployable
ready-integrated application technologies offering long-term
cost benefits and easy integration with solutions from other
vendors.

Foreign Currency Exchange Rate
Exposure

Although our reporting currency is the euro, a
significant portion of our business is nevertheless conducted in
currencies other than the euro. International sales are
primarily made through our subsidiaries in the respective
regions and are generally denominated in the local currency,
although in certain countries where foreign currency exchange
rate exposure is considered high, some sales may be denominated
in euros or Dollars. Expenses incurred by the subsidiaries are
generally denominated in the local currency. Accordingly, the
functional currency of our subsidiaries is generally the local
currency or the euro for countries that participate in the EMU.
Therefore, movements in the foreign currency exchange rates
between the euro, on the one hand, and the respective local
currencies to which our subsidiaries are exposed, on the other
hand, may materially affect our consolidated financial position,
results of operation and cash flows. In general, appreciation of
the euro relative to another currency has a negative effect on
our results of operations, while depreciation of the euro has a
positive effect. As a consequence, period-to-period changes in
the average exchange rate in a particular currency can
significantly affect our revenue and operating results. The
principal currencies in which our subsidiaries conduct business
that are subject to the risks described in this paragraph are
the Dollar, the Japanese Yen, the British Pound, the Swiss
Franc, the Brazilian Real, the Canadian Dollar and the
Australian Dollar.

43



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Approximately 60.4% of our consolidated revenue
in 2002 and approximately 63% in 2001, is attributable to
operations in non-EMU participating countries and such revenues
had to be translated into euros for financial reporting
purposes. Fluctuations in the value of the euro had
(negative) effects on our consolidated revenue of
 (348.2)
million, income before income taxes of
 (109.9)
million and net income, of
 (88.8)
million for 2002 and consolidated revenue of
 (64.7)
million, income before income taxes of
 (55.9)
million and net income of
 (52.2)
million for 2001. See Item 11. Quantitative and
Qualitative Disclosures About Market Risk  Foreign
Currency Risk.

Interest Rate Exposure

We invest our cash in Germany primarily in bank
time deposits and marketable securities, including fixed and
variable rate marketable debt securities. The majority of such
investments are denominated in euros and Dollars. Cash held by
foreign subsidiaries is generally held in short-term time
deposits denominated in the local currency.

Net interest income decreased to

24.8 million in 2002 compared to
 33.7 million
in 2001 and
 59.2 million
in 2000, primarily due to decreasing interest rates in 2002 and
2001 on cash and cash equivalents available to generate interest
income. In addition the strong euro decreased interest income
generated in U.S.$. The decline in interest income was partially
offset by the decrease in interest expense, which was due to
increased liquidity and decreased levels of bank loans during
2002.

While we are exposed generally to fluctuations in
the interest rates of many of the worlds leading
industrialized countries, our interest income and expense is
most sensitive to fluctuations in the level of U.S. and EMU
interest rates. The fair market values of both fixed and
variable rate investments are exposed to such interest rate
risk. To the extent that interest rates rise, fixed interest
securities may be adversely impacted, whereas a decline in
interest rates may decrease the anticipated interest income for
variable rate investments. See Item 11. Quantitative
and Qualitative Disclosures About Market Risk 
Interest Rate Risk.

Inflation

The rates of inflation on an average basis in
Germany were 1.3% during 2002, 2.5% during 2001, and 1.9% during
2000. The inflation rates on an annual average basis in the
United States for those years were 1.6%, 2.8%, and 3.4%,
respectively. The effects of inflation on our operations have
not been significant in recent years.

Changes to German Tax Law

In September 2002, the German government enacted
a new legislation (Flutopfersolidaritätsgesetz)
that increased our statutory corporate tax rate from 25% to
26.5%, effective only for the calendar year 2003. Accordingly,
deferred tax assets and liabilities in Germany at
December 31, 2002 are calculated using a corporate income
tax rate of 26.5% for temporary differences that are expected to
reverse in 2003 and 25% for temporary differences that are
expected to reverse thereafter. Deferred taxes are also
calculated using a solidarity surcharge of 5.5% on corporate
income taxes and a municipal trade tax, which is deductible for
corporate income tax purposes. Therefore, for SAP AG in Germany,
the combined tax rate used to calculate deferred tax assets and
liabilities for temporary differences that are expected to
reverse in 2003 is 37.76% and 36.39% for temporary differences
that are expected to reverse thereafter. The effect of the
increase in the tax rate on the deferred tax assets and
liabilities of our companies in Germany has to be recognized in
the year of enactment and as a result, a net charge of
 1,558
thousand is included in the consolidated statement of income in
2002.

In 2000, the German government enacted new tax
legislation (Steuersenkungsgesetz) which reduced the
statutory corporate income tax rate from 40% on retained
earnings and 30% on distributed earnings to a uniform 25%,
effective beginning January 1, 2001. The significant other
tax law change was the exemption from tax for certain gains and
non-recognition of losses from the sale of shares in affiliated
and unaffiliated companies. The effects of the reduction in the
tax rate and other changes on the deferred tax assets and
liabilities of our companies in Germany were recognized in the
year of enactment. As a result, an income tax benefit of
 4,869
thousand was recorded in the consolidated statement of income
for 2000.

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Operating Results

Year Ended December 31, 2002 Compared
with Year Ended December 31, 2001

Total Revenue

At the beginning of 2002 SAP expected a revenue
growth of 15% for the year with all sales regions and revenue
types (software, maintenance, consulting and training revenues)
contributing positively. During the year this expectation was
reduced due to the weak global economies and the strengthening
of the euro in relation to the local currencies in the major
geographic areas in which we operate. Based on realized results
of the second quarter of 2002, our 2002 annualized growth
expectations were reduced to 5%  10% and after our
third quarter 2002 results we reduced our 2002 annualized growth
even further. Consequently we focused on increasing our
operating margin. Total revenue increased from
 7,340.8 million
for 2001 to
 7,412.8 million
for 2002, representing an increase of
 72.0 million
or 1.0%. Foreign currency translation effects from the
strengthening value of the euro during 2002 negatively impacted
our total consolidated revenue by
 420.2 million
or 5.7%. The growth in 2002 total revenue was due to
increases in product revenue of 0.3%, consulting revenue of 5.8%
and a decrease in training revenue of 11.2% compared to 2001.

ACTIVITY

The following discussion is based on how we
allocate revenues for classification in our consolidated
statements of income, which is dependent on the nature of the
sales transaction regardless of the operating segment it was
provided by:

Product Revenue.Product revenue increased from
 4,701.8 million
in 2001 to
 4,713.6 million
in 2002, representing an increase of
 11.8
million or 0.3%. Software revenue decreased from
 2,580.5 million
in 2001 to
 2,290.8 million
in 2002, representing a decrease of
 289.7 million
or 11.2%. For a summary of software revenue by solution in 2002
see Item 4. Information on SAP  Software
Revenue by Solution. Based on orders received versus
revenue recognized, the installed customer base accounted for
77% of SAPs 2002 signed software contracts, with the
remaining 23% coming from new customers (68% for installed
customer base and 32% for new customers in 2001). SAP faced the
industry-wide trend away from fewer contracts for very large
capital projects to an increased volume of smaller contracts.
Maintenance revenue increased from
 2,121.3 million
in 2001 to
 2,422.8 million
in 2002, representing an increase of
 301.5
million or 14.2%. With the increase of our installed base, this
strong growth in maintenance revenue was due primarily to the
growth of the 2001 software sales and positively affected by the
additional software contracts closed during 2002. As a
significant portion of our software sales are entered in the
last quarter, the trend related to the increase in the
respective maintenance revenue that follows in subsequent
quarters is expected to continue. The biggest contributor to the
increase in maintenance revenues came from the sales region EMEA
in 2002, due to strong software sales and lower foreign currency
translation impact due to the weakened euro.

Product revenue as a percentage of total revenue
still remains relatively high at 63.6%. The slight decrease from
64.1% in 2001 was due primarily to the 11.2% decline of software
revenue and the 5.8% growth in our consulting revenue.

45



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Service Revenue.Service revenue increased by
 69.0 million,
or 2.7%, from
 2,549.1 million
for 2001 to
 2,618.1 million
for 2002. Consulting revenue increased from
 2,082.9 million
in 2001 to
 2,204.2 million
in 2002, representing an increase of 5.8% compared to the
extremely strong revenue growth of 27% in 2001 over 2000. The
difference in growth results mainly from the different hiring
pace. While our consulting workforce grew significantly in 2001,
there was almost no growth in 2002. In regards to the
subcontracting of third party consultants, the level as a
percentage of sales remained in 2002 compared to 2001 relatively
stable. Consulting revenue as a percentage of total revenue
increased from 28.4% in 2001 to 29.7% in 2002. With decreasing
rates in the consulting business, the increase was primarily due
to an increase in utilization rates of our own consultant,
supported by the establishment of the Global PSO, which
addresses the consulting needs of major multinational
corporations and leverages the utilization of consultants across
countries and regions. The increase in software sales in 2001
also had a positive impact on consulting revenues in 2002.
Furthermore, in 2002 a significant portion of our consulting
revenue was generated by sub-contracted external consultants.

Training revenue decreased by 11.2% from
 466.2 million
in 2001 to
 413.9 million
in 2002. This decrease was a result of an overall shrinking
market and the changed demand structure. Customers were willing
to invest less in classical classroom training and became more
reluctant to travel to training facilities of classroom training
providers. The strong decrease in classroom training was partly
offset by customer specific and end user trainings. We expect
that this trend will continue in 2003.

Total Operating Expenses

Total operating expenses decreased from
 6,028.4 million
for 2001 to
 5,787.2 million
for 2002, representing a decrease of
 241.2 million
or 4.0%. This was achieved by the stringent cost management
measures that SAP introduced in 2001 and accelerated during 2002
as the growth expectations were reduced in order to achieve the
targeted margin improvement. While total operating expenses in
the first half of 2002 increased by 5%, they were reduced by 12%
in the second half of 2002 compared to the same period of 2001
leading to the overall reduction of 4%. The reduction in overall
costs was achieved without significant reduction in our employee
workforce. Instead, the successful result was achieved by a
restrained hiring policy, cuts in variable compensation,
reassignment of outsourced development work to internal
resources, and tight control of other expenses including travel
expenses. We achieved further economies by simplifying our
global infrastructure, renegotiating vendor contracts to improve
efficiency, and general streamlining processes. As in previous
years, the biggest component of our operating expenses is our
personnel cost. In 2002, operating expenses of
 9 million
for stock-based compensation were 86% lower than in 2001. Total
personnel expenses in 2002 including all expenses for
stock-based compensation were
 2,965 million,
a 2% increase over 2001. This moderate increase is primarily due
to our restrained hiring policy and positive impact of foreign
currency translation effects due to the strengthened euro. While
in the first half of 2002 the number of full time equivalents
increased by 944, the number of fulltime equivalents was reduced
by 557 in the second half of 2002 following a cautious hiring
policy in the first half versus a stringent hiring freeze in the
second half of 2002.

As a result of our strict cost reduction
measures, operating income increased by 24% in 2002 to
 1,626 million.
The gross operating margin increased to 22% in 2002 from 18% in
2001.

Pro forma operating income

SAP has provided guidance and information in 2002
and 2001 using pro forma operating income on a consolidated
basis. We believe this pro forma measure provides meaningful
information to our investors because we exclude acquisition
related charges and settlements of stock-based compensation
plans to focus attention on the financial performance of our
core operations. We exclude stock-based compensation expenses
because we have no direct influence over the actual expense of
these awards once we enter into Stock-Based Compensation Plans.
This pro forma information is not prepared in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP or US GAAP)
and should not be considered a substitute for the historical
financial information presented in accordance with US GAAP.
The pro forma measures used by us may be different from
pro forma measures used by other companies.

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At the beginning of 2002 SAPs target was to
improve its pro forma operating margin (excluding expenses for
stock-based compensation and TopTier acquisition-related
charges) from 20% to at least 21%. Pro forma operating
income (excluding expenses for stock-based compensation and
TopTier acquisition-related charges) rose 18% in 2002 to
 1,686 million,
resulting in a pro forma operating margin of 22.7% 
significantly exceeding our target despite the poor economic
environment. Pro forma operating expenses (excluding expenses
for stock-based compensation and TopTier acquisition-related
charges) in 2002 were reduced by 2% in comparison with the
previous year, to
 5,727 million.

A reconciliation from US GAAP operating
income to pro-forma operating income is as follows:

|                                                                                                |                                                                                             |                    |       |      |  |  |       |    | 
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------ | ----- | ---- |  |  | ----- | -- | 
|                                                                                                |                                                                                             | 2002               |       | 2001
|                                                                                                |                                                                                             |                    |       |     
|                                                                                                |                                                                                             |                   
|                                                                                                |                                                                                             | (in millions of )
|US GAAP Operating income                                                                        |                                                                                             |                    | 1,626 |      |  |  | 1,312 |   
|                                                                                                | Amortization of intangible assets                                                           |                    |       | 24   |  |  |       | 18 | 
|                                                                                                | In process research and development                                                         |                    |       | 0    |  |  |       | 6  | 
|                                                                                                | Amortization of goodwill                                                                    |                    |       | 0    |  |  |       | 37 | 
|                                                                                                |                                                                                             |                    |       |      |  |  |       |   
|Total TopTier related acquisition
    costs                                                     |                                                                                             |                    | 24    |      |  |  | 61    |   
|                                                                                                |                                                                                             |                    |       |      |  |  |       |   
|                                                                                                | STAR Program                                                                                |                    |       | 1    |  |  |       | 50 | 
|                                                                                                | LTI 2000 Plan                                                                               |                    |       | 8    |  |  |       | 14 | 
|                                                                                                | Settlement of stock based compensation plans in
    the context of mergers and acquisitions |                    |       | 27   |  |  |       | 34 | 
|                                                                                                |                                                                                             |                    |       |      |  |  |       |   
|Total stock based compensation                                                                  |                                                                                             |                    | 36    |      |  |  | 98    |   
|                                                                                                |                                                                                             |                    |       |      |  |  |       |   
|Pro forma operating income excluding stock
    based compensation and TopTier acquisition costs |                                                                                             |                    | 1,686 |      |  |  | 1,471 |   
|                                                                                                |                                                                                             |                    |       |      |  |  |       |   

Cost of Product.Cost of product consists of customer
support costs and license fees and commissions paid to third
parties for databases and the other complementary third-party
products sublicensed by us to customers. Cost of product
decreased by 3.0% from
 887.4 million
for 2001 to
 860.4
million for 2002. As a percentage of product revenue, cost of
product decreased from 18.9% in 2001 to 18.3% in 2002. This
efficiency was achieved through a reduction of commissions paid
for third parties products as contracts were renegotiated.
Although the number of installations steadily increased during
2002, the increase in product related support was lower than in
2001.

Cost of Services.Cost of services consists largely of
consulting and training personnel expenses. Cost of services
decreased by 0.5% from
 1,965.0 million
for 2001 to
 1,955.8 million
for 2002. As a percentage of service revenue, cost of services
decreased to 74.7% in 2002 from 77.1% in 2001 as the overall
service profitability increased. While third party expenses
remained relatively stable, the average headcount in consulting
increased only moderately. The increase in consulting revenue
and utilization rates as noted above resulted in a profitability
increase. Our training profitability decreased, because the
shortfall in our training revenues as described above could not
be completely offset by our reduction in our training
infrastructure.

Research and Development.SAPs research and development
expenses include those personnel expenses related to our
research and development employees, amortization of computer
hardware costs used in our research and development activities
and costs incurred for independent contractors retained by us to
assist in our research and development activities. Research and
development expenses increased by
 11.1 million,
or 1.2%, from
 898.3 million
in 2001 to
 909.4 million
in 2002. As a percentage of total revenue, research and
development expenses increased from 12.2% for 2001 to 12.3% for
2002. The number of research and development employees increased
from 7,665 in 2001 to 8,173 in 2002, representing an increase of
6.6%. The percentage of employees working in the research and
development department compared to total employees increased to
27.8% for 2002 from 26.5% in 2001. The primary reason for the
increase of research and development expenses in 2002 compared
to 2001 is the increase in headcount during 2002. The increase
in expenses is lower than what could be expected due to the
increase in employees because of our ongoing replacement of
outsourced development activities to our inhouse resources.

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Sales and Marketing.Sales and marketing expenses decreased
by 9.5% from
 1,797.6 million
for 2001 to
 1,627.2 million
for 2002, representing 24.5% and 22.0% of total revenue,
respectively. The primary reasons for the reduction were
synergies caused by our reintegration of SAP Markets and SAP
Portals operations, selected adjustments of the sales workforce
which were dependent on the results achieved during the year,
and cuts in advertising and sponsoring expenditures. The number
of employees in sales and marketing grew by 1.4% from 5,071 in
2001 to 5,143 in 2002.

General and administrative.General and administrative expenses
increased by 3.4% from
 386.0 million
for 2001 to
 399.3 million
for 2002, representing 5.3% and 5.4% of total revenue,
respectively. During 2002 we took steps to substantially reduce
our general and administrative costs, however, these savings
were largely offset by additional charges for our internal
restructuring measures.

Other operating expenses, net.Other operating expenses, net
decreased by 62.7% from
 94.2 million
for 2001 to
 35.1 million
for 2002. The primary reason for the decrease was the
application of SFAS 142 in 2002. As a result of the
adoption of SFAS 142, we no longer amortize goodwill and,
therefore, unless goodwill is found to be impaired in the
future, it no longer affects net income. In 2002, other
operating expenses, net included restructuring charges of
 46.1 million
related to on-going employee termination costs in the
United States. The majority of these termination costs were
paid during 2002 and the remaining portion of these costs,
approximating
 13.0 million
are expected to be paid in the first quarter of 2003.

Other Non-operating Income/Expense,
Net

Other non-operating income, net was
 37.3 million
in 2002 compared to other non-operating expense of
 10.6
million in 2001. Net foreign currency transaction gains were
 35.3 million
in 2002 compared to net foreign currency transaction losses of
 5.7 million
in 2001 which primarily reflect the affects of the strengthening
euro during 2002.

Financial Expense, Net

Financial expense, net is comprised primarily of
(losses)/income from associated companies, (losses)/gains on
sales of marketable equity securities and net interest income.
Financial expense, net increased from
 233.0 million
for 2001 to
 555.3 million
for 2002, an increase of
 322.3 million.
The primary reason for this increase was the other than
temporary impairment charge of
 297.6 million
recognized in the second quarter of 2002 to write-down the
carrying value of our equity method investment in Commence One
to its estimated realizable value. Our equity in the net losses
of Commerce One was
 161.6 million
in 2001 and
 92.0 million
in 2002. The carrying value of our total investments in Commerce
One has been reduced to zero as of December 31, 2002 as a
result of the recognition of the impairment charge and through
the subsequent continuing application of the equity method of
accounting. In accordance with US GAAP, the application of the
equity method has been suspended and we will not recognize any
additional losses related to our interest in Commerce One as we
have not guaranteed any of their obligations nor are we
otherwise committed to provide Commerce One with further
financial support. Also during 2002 other minority investments
were written down to their respective fair values since the
decline in their respective values were also deemed to be other
than temporary. The investments were made primarily from
SAPs venture capital activities. The amount of impairment
charges plus our share in the net losses of these equity method
investees other than Commerce One totaled
 128.1 million
in 2002 and
 72.5 million
in 2001.

Net interest income decreased to
 24.8 million
in 2002 compared to
 33.7 million
in 2001, primarily due to lower interest rates in 2002. The
decline in net interest income was partially offset by the
decrease in interest expense, which was due to increased
liquidity and decreased levels of interest bearing obligations
during 2002.

Financial expense, net in 2002 and 2001 included
unrealized losses of

58.9 million and
 50.9. million,
respectively, related to the change in fair values of various
call options entered into in connection with certain stock-based
compensation plans. See note 24 to the consolidated financial
statements.

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Income Taxes

Our effective income tax rate increased from
44.6% for 2001 to 53.8% in 2002. This increase was primarily
attributable to the EUR 389.6 million loss associated
with our investment in Commerce One and EUR 98.5 million
loss of impairment charges for other investments, which are not
deductible for tax-purposes. Further, as a result of new German
tax legislation enacted in 2002, an incremental income tax
charge of EUR 1.6 million was recognized. Adjusted for the
affects of these and other unusual items, the adjusted effective
tax rate for 2002 was 36.7%, which was 1.3 percentage point
lower than the adjusted effective tax rate for 2001. See
note 11 to our consolidated financial statements.

Net Income

Net income decreased from
 581.1 million
in 2001 to
 508.6 million
in 2002, representing a decrease of
 72.5 million
or 12.5%. Net income as a percentage of total revenue decreased
from 7.9% for 2001 to 6.9% for 2002. This decrease was primarily
due to the impairment charge of
 297.6 million
related to the write-down of the carrying value of our
investment in Commerce One, the negative foreign currency
translation effects resulting from the strengthening euro
( 88.8 million)
and the incremental restructuring costs
( 32.5 million
pretax) partially offset by cost reductions in our sales and
marketing activities
( 170.3 million
pretax) and the net increase in foreign currency transactions
gains
( 41.0 million
pretax). Basic and diluted earnings per share were
 1.62 in
2002 compared to
 1.85 in
2001.

In accordance with the new U.S. accounting
standard, SFAS 142, amortization of goodwill no longer affects
our net income. If we had been able to apply this standard from
January 1, 2001, our reported net income for 2001 would
have been
 66.0 million
higher and our reported basic and diluted earnings per share
would have been increased by
 0.21.

Segment Discussion

As described in note 34 to our consolidated
financial statements, we have three operating segments, product,
consulting and training. Total revenue figures for each of our
operating segments differ from the revenue figures classified in
our consolidated statements of income because for segment
reporting purposes, revenue is generally allocated to the
segment that is responsible for the related project, regardless
of the nature of the sales transaction, and it also includes
inter-segment revenue. Segment contribution consists of total
segment revenue offset by only expenses directly attributable to
the segments. Expenses such as general and administrative costs,
research and development activities, stock based compensation
and other corporate costs which are included in determining our
consolidated operating income are not allocated to the operating
segments and therefore are not included in segment contribution.
Therefore, segment contribution is not indicative of the actual
profitability margin for the operating segments.

Product-segment revenue decreased from
 5,299.9 million
in 2001 to
 5,270.0 million,
or 0.4%. This slight decline is primarily attributable to the
decrease in our software product sales offset by the increase in
maintenance revenue, as discussed above. Furthermore, foreign
currency translation has effected our revenue negatively.
Segment contribution increased from
 2,424.1 million
(45.7% of total segment revenue) in 2001 to
 2,685.7 million
(51.0 % of total segment revenue) in 2002. This increase in
contribution and in margin in 2002 was achieved through our
reduction in expenses related to sales, marketing and
commissions paid for third parties products.

Consulting-segment revenue increased from
 2,458.3 million
in 2001 to
 2,654.2 million
in 2002, or 8.0%. The increase in software sales in 2001 had a
positive impact on consulting revenue in 2002. Further, we were
able to increase the utilization rates of our own consultants,
which was supported by the establishment of our Global PSO as
discussed above. Segment contribution increased from
 424.2 million
(17.3% of total consulting revenue) in 2001 to
 525.8 million
(19.8% of total consulting revenue) in 2002. This increase in
contribution and in margin is primarily due to the increase in
external revenues and the increase in utilization of our own
consultants.

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Training-segment revenue decreased from
 598.3 million
in 2001 to
 519.0 million
in 2002, or 13.2 %. This decrease was a result of an overall
shrinking market and the changed customer demand structure.
Customers became less willing to invest in traditional classroom
training and more reluctant to travel to training facilities.
This decline in classroom training was partially offset by
additional customer specific and end user training. We expect
that these trends will continue in 2003. Segment contribution
decreased from
 179.3 million
(30.0% of total training revenue) in 2001 to
 142.6 million
(27.5% of total training revenue) in 2002. This decrease in
contribution and in margin is due to the decrease in external
revenues and the fact that the cost reduction of our training
segment could not entirely compensate for this decline in
customer demand.

Year Ended December 31, 2001 Compared
with Year Ended December 31, 2000

Total Revenue

Total revenue increased from
 6,264.6 million
for 2000 to
 7,340.8
million for 2001, representing an increase of
 1,076.2 million
or 17.2%. Total revenue consists of product revenue (software
and maintenance) and service revenue (consulting and training).
The growth in 2001 total revenue was due to increases in product
revenue of 13.9%, consulting revenue of 26.6% and training
revenue of 16.4% compared to 2000. The following discussion is
based on how we allocate revenues for classification in our
consolidated statements of income, which is dependent on the
nature of the sales transaction regardless of the operating
segment it was provided by.

Product Revenue.Product revenue increased from
 4,129.1 million
for 2000 to
 4,701.8 million
for 2001, representing an increase of
 572.7
million or 13.9%. Software revenue increased from
 2,458.7 million
in 2000 to
 2,580.5 million
in 2001, representing an increase of
 121.8 million
or 5.0%. For a summary of software revenue by solution in 2001
see Item 4. Information on SAP  Software
Revenue by Solution. Based on orders booked, the installed
customer base accounted for 68% of SAPs 2001 software
revenue, with the remaining 32% coming from new customers (66%
and 34% respectively in 2000). During 2001 mySAP.com accounted
for 76% of software based on order entry values, thus continuing
to be our main source of revenue since being introduced in
October 1999. Fourth-quarter mySAP.com sales generated 75% of
software revenue for the quarter, twelve percentage points
higher than the corresponding quarter in 2000. Maintenance
revenue increased from
 1,670.4
million in 2000 to
 2,121.3 million
in 2001, representing an increase of
 450.9 million
or 27.0%. This strong growth was due primarily to the
significant growth of 2000 software sales.

Product revenue as a percentage of total revenue
decreased from 65.9% in 2000 to 64.1% in 2001. This decrease was
due primarily to strong growth in our 2001 service revenue, the
relatively flat growth of software revenue and a decline in
maintenance revenue growth from 43.7% in 2000 to 27% in 2001.

Service Revenue.Service revenue increased by
 503.3 million,
or 24.6%, from
 2,045.8 million
for 2000 to
 2,549.1 million
for 2001. Consulting revenue increased from
 1,645.2 million
in 2000 to
 2,082.9
million in 2001, representing an increase of 26.6%. Consulting
revenue as a percentage of total revenue increased from 26.3% in
2000 to 28.4% in 2001. Year-on-year consulting revenue growth in
2001 increased from the 6.4% year-on-year growth rate in 2000
due in part to establishment of the Global PSO, to more
efficiently address the consulting needs of major multinational
corporations. The increase in software sales in 2000 also had a
positive impact on consulting revenues in 2001.

Training revenue increased by 16.4% from
 400.6 million
in 2000 to
 466.2 million
in 2001. This increase was a result of an increase in
educational service providers as well as growth of the education
solution consultants which identified revenue opportunities at
existing customers.

Total Operating Expenses

Total operating expenses increased from
 5,461.9 million
for 2000 to
 6,028.4 million
for 2001, representing an increase of
 566.5 million
or 10.4%. The impact of employee stock-based compensation plans,
primarily the SARs granted to eligible employees in May 1999
(the 1999 SARs) under SAPs STAR Plan, was
 98.4 million
for 2001 operating expenses compared to
 440.8 million
for 2000. Additionally, our acquisition of TopTier in 2001
resulted in additional operating expenses, primarily from the
amortization of intangible assets. Disregarding expenses for the
stock-based compensation plans and TopTier acquisition costs,
the increase in

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operating expenses from 2000 to 2001 was 16.9%,
just below the 17.2% increase in revenues. During 2001 SAP
implemented costs-savings measures, which primarily impacted the
fourth quarter. In addition, the increase in operating expenses
resulted from the increase in sales and marketing costs
associated with continued intensification of marketing
activities. The increase in operating expenses also resulted
from our investment in personnel, facilities and equipment in an
effort to continue building a strong global infrastructure. The
growth in total operating expenses was also due to our
significant investment in the further development and support of
the mySAP.com e-business platform.


Cost of Product.Cost of product increased by 23.0%
from
 721.6 million
for 2000 to
 887.4 million
for 2001. As a percentage of product revenue, cost of product
increased from 17.5% in 2000 to 18.9% in 2001. As a result of
closer organizational links between maintenance and development
functions in 2001, SAPs development employees provided
more customer support activities. Consequently, the personnel
expense relating to those maintenance services (approximately
 60 million)
are considered cost of product, thus increasing such costs.
Excluding stock-based compensations and TopTier
acquisition-related charges, cost of product rose 27% to
 852 million
keeping pace with the increase in maintenance revenue to which
it substantially corresponds. Without the altered allocation of
efforts, the rise would have been 18% instead of 27%.

Cost of Services.Cost of services increased by 12.3%
from
 1,750.5 million
for 2000 to
 1,965.0 million
for 2001. As a percentage of service revenue, cost of services
decreased to 77.1% in fiscal 2001 from 85.6% in 2000. In 2001,
SAP also shifted certain responsibilities from the development
departments to the service area. Consequently, the associated
expense of
 18 million
was recorded not as a development expense but as a cost of
service. Including this element, service expenses totaled
 1,965 million.
The corresponding figure before stock-based compensation plans,
which gives a better comparison with previous years, was
 1,944 million.
It represents a 19% cost increase compared with 2000, which is
significantly less than the 25% improvement in service revenues
(that is, revenues from consulting and training).

Research and Development.Research and development expenses
decreased by
 71.1 million,
or 7.3%, from
 969.4 million
in 2000 to
 898.3 million
in 2001. As a percentage of total revenue, research and
development expenses decreased from 15.5% for 2000 to 12.2% for
2001. The number of research and development employees increased
from 6,211 in 2000 to 7,665 in 2001, representing an increase of
23.4%. The percentage of employees working in the research and
development department increased to 26.5% for 2001 from 25.4% in
2000. The primary reason for the decrease in 2001 research and
development costs compared to 2000 is a
 79 million
decline in stock-based compensation incurred for our research
and development employees for those periods. Furthermore, the
increase in maintenance work recorded by developers and the
reassignment of certain responsibilities to customer support and
services activities resulted in those costs being classified as
expenses other than for research and development. Finally, fewer
external services were bought in 2001 than in 2000. Excluding
both stock-based compensation and the effects from the
reallocation of efforts and responsibilities, research and
development expenses increased by 10% in 2001 and represented
12.9% and 13.7% as a percentage of revenue for 2001 and 2000,
respectively.

Sales and Marketing.Sales and marketing expenses increased
by 14.0% from
 1,577.3 million
for 2000 to
 1,797.6 million
for 2001, representing 25.2% and 24.5% of total revenue,
respectively. Sales and marketing expenses, excluding
stock-based compensation expenses, increased by approximately
19% to
 1,777 million.
This percentage increase exceeded the rate of growth in the
corresponding software revenues. The level of sales and
marketing costs increased primarily due to the intensification
of marketing activities to drive an improvement in awareness,
which we expect will generate revenue benefits in the future.
SAP regards the associated expense as an investment in the
future and expects that in the medium term it will have an
increasingly positive impact on the growth of our business. The
number of employees in sales and marketing grew by 18.9% from
4,266 in 2000 to 5,071 in 2001.

General and Administration.General and administrative expenses
decreased by 7.6% from
 417.6 million
for 2000 to
 386.0 million
for 2001, representing 6.7% and 5.3% of total revenue,
respectively. These decreases were mainly attributable to the
impact of the stock-based compensation expenses in 2000, as
administrative expenses include senior management expenses for
all SAP group companies. Excluding stock-based compensation
expenses and TopTier acquisition-related charges, general and
administration expenses was
 373 million
in

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2001, representing a 6.1% rise or
 21.3 million
from
 352 million
in 2000, which is well below SAPs revenue growth.


Other operating expenses, net.Other operating expenses, net
increased from
 25.6 million
in 2000 to
 94.2 million
for 2001. The primary reason for the increase was for additional
goodwill amortization of
 29.5 million
and the inclusion of restructuring charges of
 13.7 million
related to employee termination costs in the United States.

Other Non-operating Expense, Net

Other non-operating expense, net was
 10.6 million
in 2001 compared to
 55.3 million
in 2000. The primary reason for the decrease is attributable to
net foreign currency transaction losses of
 5.7 million
in 2001 compared to
 94.1 million
in 2000. In September 2000, SAP Systems Integration AG
(SAP SI) completed an initial public offering which
resulting in the dilution of our ownership interest in SAP SI
from 62% to 54%. Net proceeds received by SAP SI from the
offering totaled
 87.
3 million and consequently we recognized a dilution gain of
 44.2
million.

Financial Expense, Net

Financial expense, net was
 233.0 million
in 2001 compared to net financial income of
 265.6 million
in 2000. Realized gains from the sales of marketable securities
was
 355.1 million
in 2001 compared to
 23.6
million in 2000.

Financial expense, net includes our equity in the
net losses of Commerce One of
 161.6 million
in 2001 and
 18.6 million
in 2000. In addition, a write down of some minority investments
was necessary as the decline in the market value was deemed to
be other than temporary. These investments were made primarily
from SAPs venture capital activities.

Net interest income decreased to
 33.7 million
in 2001 from
 59.2
million in 2000, primarily due to increased levels of bank loans
and decreased liquidity resulting from our increased investing
activities and the affects of lower interest rates in 2001.

Finance expense, net in 2001 and 2000 included
unrealized losses of
 50.9 million
and
 29.4 million,
respectively, related to the change in fair values of various
call options entered into connection with certain stock-based
compensation plans. See note 24 to the consolidated
financial statements.

Income Taxes

SAPs effective income tax rate increased
from 38.7% for 2000 to 44.6% in 2001. This was primarily due to
our share of Commerce Ones net loss, which is not
deductible for income tax purposes.

Net Income

Net income decreased from
 615.7 million
in 2000 to
 581.1 million
in 2001, representing a decrease of
 34.6 million
or 5.6%. Net income as a percentage of total revenue decreased
from 9.8% for 2000 to 7.9% for 2001. This decrease was due to
expenses for the TopTier acquisition and our share of Commerce
Ones loss included in financial expense as well as reduced
gains on sales of securities, offset in part by the significant
decreased impact of lower stock-based compensation in 2001.
Basic earnings per share were
 1.85 in
2001 compared to
 1.96 in
2000. Excluding expenses for the TopTier acquisition and the
impact of the Commerce One interest on financial income, basic
earnings per share were
 2.53 in
2001 compared to
 2.02 in
2000.

Segment Discussion

As described in note 34 to our consolidated
financial statements, we have three operating segments, product,
consulting and training. Total revenue figures for each of our
operating segments differ from the revenue figures classified in
our consolidated statements of income because for segment
reporting purposes, revenue is generally allocated to the
segment that is responsible for the related project, regardless
of the nature of the sales transaction, and it also includes
inter-segment revenue. Segment contribution consists of total
segment revenue offset by only

52



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##### 



expenses directly attributable to the segments.
Expenses such as general and administrative costs, research and
development activities, stock based compensation and other
corporate costs which are included in determining our
consolidated operating income are not allocated to the operating
segments and therefore are not included in segment contribution.
Therefore, segment contribution is not indicative of the actual
profitability margin for the operating segments.


Product-segment revenue increased from
 4,326.9 million
in 2000 to
 5,299.9 million
in 2001, or 22.5%. The increase is primarily attributable to an
increase in software sales to external customers with
corresponding increases in external maintenance revenue, as well
as to a change in the way we reflect certain intercompany
charges. Segment contribution increased from
 2,256.5 million
(52.2% of total segment revenue) in 2000 to
 2,424.1 million
(45.7% of total segment revenue) in 2001. The decrease in
segment contribution as a percentage of segment revenue was due,
in part, to an overall increase in cost of product and
maintenance revenues as well as to an increase in segment
expenses resulting from the change in the way we allocate
intra-segment costs.

Consulting-segment revenue increased from
 1,955.1 million
in 2000 to
 2,458.3 in
2001, or 25.7%, primarily due to the increase in sales to
external customers. Segment contribution increased from
 292.0 million
(14.9% of total segment revenue) in 2000 to

424.2 million (17.3% of total segment revenue) primarily
due to the increase in sales to external customers and an
increase in utilization of our own consultants.

Training-segment revenue increased from
 468.6 million
in 2000 to
 598.3 million
in 2001, or 27.7%, due primarily to the increase in sales of
product to external customers, who in turn invested in
traditional classroom training. Segment contribution increased
from
 129.7 million
(27.7% of total segment revenue) in 2000 to
 179.3 million
(30.0% of total segment revenue) in 2001 due primarily to an
increase in external training revenue and more efficient use of
our training infrastructure.

Liquidity and Capital Resources

Historically, we have funded most of our growth
internally from cash flow provided from operations and the sale
of marketable securities. Over the past several years, our
principal use of cash has been to support continuing operations
and our capital expenditure requirements resulting from our
growth. Cash and cash equivalents are primarily held in
 and U.S.$ at
December 31, 2002.

For the year ended December 31, 2002,
SAPs net cash provided by operating activities amounted to
 1,686.7 million,
an increase of
 697.9 million,
or 70.6%, from
 988.8 million
for the year ended December 31, 2001. Accounts receivable
decreased from
 2,210.9 million
at December 31, 2001 to
 1,967.1 million
at December 31, 2002, representing a decrease of
 243.8 million
or 11.0%. Days sales outstanding decreased from
94 days in 2001 to 87 days in 2002 as a result of the
continued effectiveness of credit and collection management.
Other obligations to employees decreased by
 32.9 million
from
 540.2 million
at December 31, 2001 to
 507.3 million
at December 31, 2002 as a result of reduced bonuses for
2002 as compared to 2001. Accounts payable during the same
period decreased by 15.9%, or
 62.4 million,
to
 328.8 million
at December 31, 2002 from
 391.2 million
at December 31, 2001.

Net cash used in investing activities was
 223.5 million
in 2002, a decrease of
 842.4 million
from
 1,065.9 million
in 2001. Capital expenditures during 2002 for intangible assets
and property, plant and equipment were
 308.7 million,
a decrease of
 69.1 million
from
 377.8 million
in 2001. This included
 259.5 million
in property, plant and equipment additions, mainly additional IT
infrastructure and office facility construction during 2002 to
keep pace with the overall growth in business activities. In
2001, we used cash to invest in Commerce One and acquire
TopTier. During 2003, we expect to spend approximately
 108 million
for the purchase of computer hardware and other business
equipment and approximately
 121 million
primarily to further fund the IT-Center in Germany and
additional facilities in United States and India. The cash flow
impact of our continued venture capital and strategic investment
activities, including our investment in Commerce One and
acquisition of TopTier was partially offset by cash received
from the sale of marketable securities in 2001.

Net cash used in financing activities was
 935.9 million
in 2002, an increase of
 809.6 million
from the
 126.3 million
of net cash used in 2001. During 2002 we repaid
 428.9 million
in long term debt and amounts borrowed under line of credit
arrangements. Dividend payments were
 182.3
million and
 180.4 million
in 2002 and 2001, respectively. At December 31, 2002, we
had outstanding long-term financial debt of
 11.3 million
and

53



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##### 



outstanding short-term financial debt of
approximately
 22.7 million,
consisting primarily of amounts borrowed by SAP AG under lines
of credit and the outstanding bonds issued in connection with
the various employee stock-based compensation plans.
Additionally we spent approximately
 94.2
million in 2001 to purchase 500,000 of our own shares and
 279.3 million
in 2002 to purchase 3,016,235 of our own shares, which are held
in treasury at December 31, 2002.


Certain of our foreign subsidiaries have lines of
credit available that allow them to borrow funds in their
respective local currencies, generally to the extent SAP AG has
guaranteed such amounts. At December 31, 2002, we had
approximately
 1,185 million
available through such arrangements under which we may borrow on
an overdraft or short-term basis. Interest under these lines of
credit is determined at the time of borrowing based on current
market rates. At December 31, 2002, SAP AG had no
outstanding borrowings against these lines of credit. Our
subsidiaries have aggregate borrowings under their lines of
credit amounting to
 24.3 million
at December 31, 2002. SAP AG has provided guarantees for
its subsidiaries lines of credit, including unused
amounts, and other commitments of approximately
 204.8 million.

We also have available sources of cash through
authorized and contingent capital. By resolution of the annual
general shareholders meeting held May 3, 2001, the
Executive Board was authorized, subject to the consent of the
Supervisory Board, to increase subscribed capital up to
 60 million
through May 1, 2006 through the issuance of additional
ordinary shares in return for contributions in cash or in kind.
Subject to certain preconditions and the consent of the
Supervisory Board, the Executive Board is authorized to exclude
the shareholders preemptive rights. The annual general
shareholders meeting held on May 3, 2001 allows for
the issuance of bonds with detachable warrants and/or
convertible bonds carrying warrant rights or convertible rights,
as appropriate, with respect to ordinary voting shares up to a
maximum of
 25 million
through May 1, 2006. Shareholders preemptive rights
may be excluded. No ordinary shares have been issued as of
December 31, 2002 with regards to the aforementioned
authorized or contingent capital.

We believe that cash flow from operations,
existing cash and cash equivalents, short-term marketable
securities and available financing sources will be sufficient to
meet our working capital needs and our currently planned capital
expenditure requirements for the next twelve months. However,
there can be no assurance that a downturn in the economy
worldwide, or in a particular region, or for our products and
services in general, will not change this outlook.

In order to complement or expand our business, we
expect to make acquisitions of additional businesses, products
and technologies, and to enter into joint venture arrangements.
These acquisitions or joint venture arrangements may require
additional financing. In addition, continued growth in our
business may from time to time require additional capital. There
can be no assurance that additional capital will be available to
us if and when required, or that such additional capital will be
available on acceptable terms to us.

We have not entered into any significant
transactions, arrangements or other relationships with
unconsolidated, variable interest entities.

The table below presents our on- and off-balance
sheet contractual obligations as of December 31, 2002:

|                       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|---------------------- |  | ---------------------- | --------- | ---- |  | --------- | ------- | --------- |  | ---------- | ------- |  |  |  | ------- |  |  |  | ------- | 
|                       |  |                       
|                       |  | Payments due by period
|                       |  | (000)                
|                       |  |                       
|Contractual Obligation |  | Total                  |           | 2003 |  | 2004/2005 |         | 2006/2007 |  | Thereafter
|                       |  |                        |           |      |  |           |         |           |  |           
|Off-balance sheet      |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|Operating Leases       |  |                        | 681,222   |      |  |           | 163,683 |           |  |            | 211,306 |  |  |  | 124,965 |  |  |  | 181,268 | 
|Purchase Commitments   |  |                        | 83,277    |      |  |           | 83,277  |           |  |            |        |  |  |  |        |  |  |  |        | 
|Other Commitments      |  |                        | 22,063    |      |  |           | 13,658  |           |  |            | 8,405   |  |  |  |        |  |  |  |        | 
|                       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|                       |  |                        | 786,562   |      |  |           | 260,618 |           |  |            | 219,711 |  |  |  | 124,965 |  |  |  | 181,268 | 
|                       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|On-balance sheet       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|Bonds                  |  |                        | 9,668     |      |  |           |        |           |  |            | 691     |  |  |  |        |  |  |  | 8,977   | 
|Other Liabilities      |  |                        | 748,762   |      |  |           | 725,085 |           |  |            | 813     |  |  |  |        |  |  |  | 22,864  | 
|                       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|                       |  |                        | 758,430   |      |  |           | 725,085 |           |  |            | 1,504   |  |  |  |        |  |  |  | 31,841  | 
|                       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 
|Total                  |  |                        | 1,544,992 |      |  |           | 985,703 |           |  |            | 221,215 |  |  |  | 124,965 |  |  |  | 213,109 | 
|                       |  |                        |           |      |  |           |         |           |  |            |         |  |  |  |         |  |  |  |         | 

54



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##### 



Purchase commitments relate primarily to the
construction of facilities in Germany, office equipment and car
purchase commitments. Other commitments basically comprise food
and security services and other facility commitments.

Bonds consist primarily of outstanding
convertible bonds related to our LTI 2000 Plan as described in
note 24 to the consolidated financial statements.
Additional amounts pertain to outstanding bonds issued in
conjunction with our 1994/2004 convertible bond program.

Please refer to note 27 to our consolidated
financial statements for a detailed description of our other
liabilities.

The table below presents our off-balance sheet
contingent liabilities as of December 31, 2002:

|                                                                       |  |         |        | 
|---------------------------------------------------------------------- |  | ------- | ------ | 
|                                                                       |  |  (000)
|                                                                       |  |        
|Guarantees and other commitments to third parties                      |  |         | 11,329 | 
|Liabilities from the extension of collateral
    securities for others |  |         | 4,102  | 
|                                                                       |  |         |        | 
|                                                                       |  |         | 15,431 | 
|                                                                       |  |         |        | 

Research and Development

Since our inception, we have devoted significant
resources to research and development. Research and development
expenses for the years ending December 31, 2002, 2001 and 2000
were
 909.4 million,
 898.3 million
and 
969.4 million, respectively. Research and development
expenses as a percentage of revenue were 12.3%, 12.2% and 15.5%
for the years ended December 31, 2002, 2001 and 2000,
respectively. During each of 2002, 2001 and 2000, the percentage
of employees devoted to research and development was 27.8 %,
26.5% and 25.4%, respectively. A major focus of the research and
development effort has been to anticipate and use technological
changes in the data processing industry to develop new business
solutions. We have also entered into agreements with a number of
leading computer software and hardware vendors and
telecommunications providers to co-operate and enable certain of
the software and hardware products produced by such vendors to
be compatible with our solutions.

In 2000, we restructured our development area,
orienting development efforts more closely to market and our
customer needs. We set up six general business units for
application development and six industry business units to
develop industry solutions. Three other general business units
are dedicated to special technology projects.

Significant areas of current and future research
and development include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SAP software solutions offering, including mySAP
    CRM, mySAP SCM, mySAP ERP, mySAP PLM, mySAP SRM, mySAP
    Enterprise Portal and mySAP Mobile Business;
|
| |  | New SAP software solutions like xApps and SAP
    Business One;                                                                                             
|
| |  | The continuous innovation of Industry Solutions;                                                                                                            
|
| |  | The enhancement of the flexibility and openness
    of our technology and application infrastructure (SAP
    NetWeaver); and                               
|
| |  | The focus on new and innovative technologies.                                                                                                               

SAP maintains research and development facilities
in Germany, the United States, Japan, France, India,
Israel, Bulgaria and Russia. Through this regional
diversification, we maximize the efficient use of local
resources and leverage access to industry expertise and
customers.

55



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##### 



Item 6.     Directors,
Senior Management and Employees

Supervisory Board

The current members of the Supervisory Board of
SAP AG, each such members principal occupation, the
year in which each was first elected and the year in which the
term of each expires, respectively, are as follows:

|                                               |  |     |    |                      |  |                                                                                                                       |  |         |      |  |  |  |      | 
|---------------------------------------------- |  | --- | -- | -------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ------- | ---- |  |  |  | ---- | 
|                                               |  |     |    |                      |  | Year                                                                                                                  |  | Year   
|                                               |  |     |    |                      |  | First                                                                                                                 |  | Term   
|Name                                           |  | Age |    | Principal Occupation |  | Elected                                                                                                               |  | Expires
|                                               |  |     |    |                      |  |                                                                                                                       |  |        
|Dietmar Hopp, Chairperson
    (1)(2)(3)(5)(7)  |  |     | 62 |                      |  | Managing Director, Dietmar Hopp Stiftung GmbH                                                                         |  |         | 1998 |  |  |  | 2007 | 
|Pekka Ala-Pietilä(1)(8)                        |  |     | 46 |                      |  | President of Nokia Corporation                                                                                        |  |         | 2002 |  |  |  | 2007 | 
|Prof. Dr. Wilhelm Haarmann
    (1)(3)(4)(5)(9) |  |     | 52 |                      |  | Attorney at Law, Certified Public Auditor and
    Certified Tax Advisor; Haarmann, Hemmelrath & Partner               |  |         | 1988 |  |  |  | 2007 | 
|Klaus-Dieter Laidig(1)(6)(11)                  |  |     | 60 |                      |  | Managing Partner, Laidig Business Consulting GmbH                                                                     |  |         | 1996 |  |  |  | 2007 | 
|Hartmut Mehdorn(1)(7)                          |  |     | 60 |                      |  | Chairman of Executive Board, Deutsche Bahn AG                                                                         |  |         | 1998 |  |  |  | 2007 | 
|Prof. Dr. August-Wilhelm Scheer
    (1)(6)(8)  |  |     | 61 |                      |  | Director of the Institute for Information Systems
    at the German Research Center of Artificial Intelligence (DFKI) |  |         | 2002 |  |  |  | 2007 | 
|Dr. Dieter Spoeri(1)(5)                        |  |     | 59 |                      |  | Head of Corporate Representation Federal Affairs,
    DaimlerChrysler AG                                              |  |         | 1998 |  |  |  | 2007 | 
|Dr. h.c. Klaus Tschira(1)(2)(4)                |  |     | 62 |                      |  | Managing Director, Klaus Tschira Stiftung gGmbH                                                                       |  |         | 1998 |  |  |  | 2007 | 
|Hela Classen, Vice Chairperson
    (5)(7)(10)  |  |     | 52 |                      |  | Employee, Development Architect                                                                                       |  |         | 1993 |  |  |  | 2007 | 
|Willi Burbach(7)(8)(10)                        |  |     | 40 |                      |  | Employee, Developer                                                                                                   |  |         | 1993 |  |  |  | 2007 | 
|Bernhard Koller(4)(10)                         |  |     | 53 |                      |  | Employee, Manager of Idea Management                                                                                  |  |         | 1989 |  |  |  | 2007 | 
|Christiane Kuntz-Mayr(5)(8)(10)                |  |     | 40 |                      |  | Employee, Development Manager                                                                                         |  |         | 2002 |  |  |  | 2007 | 
|Lars Lamadé(6)(10)                             |  |     | 31 |                      |  | Employee, SAP Alliance Manager                                                                                        |  |         | 2002 |  |  |  | 2007 | 
|Dr. Gerhard Maier(3)(6)(10)                    |  |     | 49 |                      |  | Employee, Development Manager                                                                                         |  |         | 1989 |  |  |  | 2007 | 
|Dr. Barbara Schennerlein(5)(10)                |  |     | 46 |                      |  | Employee, Consultant                                                                                                  |  |         | 1998 |  |  |  | 2007 | 
|Stefan Schulz(4)(8)(10)                        |  |     | 33 |                      |  | Employee, Consultant                                                                                                  |  |         | 2002 |  |  |  | 2007 | 




|     |                                                                                                                                                                                                                                        
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  | Elected by SAP AGs shareholders on
    May 3, 2002.                                                                                                                                                                                   
|    
|(2)  | Member controls one or more entities that was a
    party to the Pooling Agreement, which was terminated effective
    September 2, 2002. See Item 7. Major
    Shareholders and Related Party Transactions  Major
    Shareholders.
|    
|(3)  | Member of the Compensation Committee.                                                                                                                                                                                                  
|    
|(4)  | Member of the Audit Committee.                                                                                                                                                                                                         
|    
|(5)  | Member of the General Committee.                                                                                                                                                                                                       
|    
|(6)  | Member of the Finance and Investment Committee.                                                                                                                                                                                        
|    
|(7)  | Member of the Mediation Committee.                                                                                                                                                                                                     
|    
|(8)  | Member of the Technology Committee.                                                                                                                                                                                                    
|    
|(9)  | Prof. Dr. Wilhelm Haarmann is a partner in
    Haarmann Hemmelrath & Partner, which serves as special
    German tax counsel to SAP AG and counsels SAP with regard to
    other legal matters.                                        
|    
|(10) | Elected by SAP AGs employees on
    April 9, 2002.                                                                                                                                                                                    
|    
|(11) | On March 13, 2003 Mr. Klaus-Dieter Laidig
    resigned as a member of the Supervisory Board effective
    May 9, 2003.                                                                                                                 

For detailed information on the Supervisory Board
committees and their tasks, please refer to Item 10.
Directors, Senior Management and Employees,
Supervisory Board.

56



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##### 



The current members of the Supervisory Board of
SAP AG that are members on other supervisory boards and
comparable governing bodies of enterprises, other than
SAPs, in Germany and other countries as of
December 31, 2002 are set forth in the note 35 to our
consolidated financial statements included in Item 18.
Financial Statements. SAP AG has not entered into
contracts with any member of the Supervisory Board that provide
for benefits upon a termination of the employment of service of
the member.

Pursuant to the German Co-determination Act of
1976 (Mitbestimmungsgesetz), SAP AG was required to
increase the number of members on the Supervisory Board from
twelve to sixteen, comprised of eight representatives of the
shareholders and eight representatives of the employees. German
law requires this increase since the number of employees of SAP
AG and its group companies exceeded 10,000 employees in Germany
in 2001. This increase was reflected in an amendment to
SAPs Articles of Incorporation, which was approved at the
annual general shareholders meeting on May 3, 2002.
All employees elected must be at least 18 years of age,
must have been in the employment of SAP AG for at least one year
and must fulfill the other qualifications for election codified
in Section 8 of the German Works Council Constitution Act.

Mr. Klaus-Dieter Laidig resigned on
March 13, 2003 as a member of the Supervisory Board
effective as of the close of the annual general
shareholders meeting on May 9, 2003. SAP announced on
March 13, 2003 that the Supervisory Board has moved to
propose the election of Prof. Dr. h.c. Hasso Plattner
to the Supervisory Board at the annual general
shareholders meeting as a shareholders
representative. Prof. Dr. h.c. Plattner, Co-Chairman
and CEO of SAPs Executive Board, if elected to the
Supervisory Board, would resign from the Executive Board
effective the close of the annual general shareholders
meeting. The current Co-Chairman and CEO of the Executive Board,
Prof. Dr. Henning Kagermann, would then become the
sole CEO and sole Chairman of the Executive Board. In the event
of Prof. Dr. h.c. Plattners election to the
Supervisory Board, Mr. Dietmar Hopp will propose that Prof.
Dr. h.c. Plattner be elected as Chairman of the
Supervisory Board, replacing Mr. Hopp.

Executive Board

The current members of the Executive Board, the
year in which each such member was first appointed and the year
in which the term of each expires, respectively, are as follows:

|                                                  |  |              |      |              |  |  |      | 
|------------------------------------------------- |  | ------------ | ---- | ------------ |  |  | ---- | 
|                                                  |  | Year First   |      | Year Current
|Name                                              |  | Appointed(1) |      | Term Expires
|                                                  |  |              |      |             
|Prof. Dr. h.c. Hasso Plattner,
    Co-Chairman(2) |  |              | 1988 |              |  |  | 2004 | 
|Prof. Dr. Henning Kagermann, Co-Chairman          |  |              | 1991 |              |  |  | 2007 | 
|Dr. Peter Zencke                                  |  |              | 1993 |              |  |  | 2004 | 
|Prof. Dr. Claus Heinrich                          |  |              | 1996 |              |  |  | 2005 | 
|Gerhard Oswald                                    |  |              | 1996 |              |  |  | 2005 | 
|Dr. Werner Brandt                                 |  |              | 2001 |              |  |  | 2005 | 
|Shai Agassi                                       |  |              | 2002 |              |  |  | 2005 | 
|Léo Apotheker                                     |  |              | 2002 |              |  |  | 2005 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | SAP AG became a stock corporation
    (Aktiengesellschaft) with an Executive Board in 1988.                                                                                                                                                                                                                                                                                         
|   
|(2) | On March 13, 2003 the Supervisory Board
    announced that it will propose Prof. Dr.
    h.c. Plattners election to the Supervisory Board at
    the annual general shareholders meeting on May 9,
    2003. In the event of his election Prof. Dr. h.c. Plattner
    will resign from the Executive Board effective at the close of
    the annual general shareholders meeting.

A description of the management responsibilities
and backgrounds of the current members of the Executive Board
are as follows:

Prof. Dr. h.c. Hasso Plattner,Co-Chairman (Vorstandssprecher) and
CEO, 59 years old, engineering graduate. Prof. Dr. h.c.
Plattner is one of the founders of SAP AG. He became Vice
Chairman of the Executive Board in 1988 and Co-Chairman in 1997.
He has overall responsibility for SAPs strategy and
business development, product and technology strategy as well as
for marketing and global communications. Further, he leads the
Product Technology Board.

57



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##### 



Prof. Dr. Henning Kagermann,Co-Chairman (Vorstandssprecher) and
CEO, 55 years old, mathematics and physics graduate. Prof.
Dr. Kagermann joined SAP AG in 1982. He became a member of
the Executive Board in 1991 and Co-Chairman in 1998. He has
overall responsibility for SAPs strategy and business
development as well as for consulting, customer development,
industry solutions, and strategic development projects. Further,
he leads the Field Management Board.

Shai Agassi,
34 years old, computer science graduate. Mr. Agassi
joined SAP in 2001 and became a member of the Executive Board in
2002. He is responsible for the technology strategy of the
company.

Léo Apotheker,
49 years old, business economist. Mr. Apotheker joined
SAP in 1988 and became a member of the Executive Board in 2002.
He is responsible for the activities of SAP Global Field
Operations.

Dr. Werner Brandt,49 years old, business
administration graduate. Dr. Brandt joined SAP on
February 1, 2001 as the Chief Financial Officer and member
of the Executive Board. He is responsible for finance and
administration.

Prof. Dr. Claus Heinrich,47 years old, business management
and operations research graduate. Prof. Dr. Heinrich
joined SAP AG in 1987 and became a member of the Executive Board
in 1996. He is responsible for the development of mySAP Business
Suite solutions in the area of finance and accounting, human
resources management, product life-cycle management,
manufacturing, and supply chain management. He has also been
responsible for labor relations at SAP since 1998.

Gerhard Oswald,49 years old, economics graduate.
Mr. Oswald joined SAP AG in 1981 and became a member of the
Executive Board in 1996. Mr. Oswald is responsible for
global support and the information-technology infrastructure.

Dr. Peter Zencke,53 years old, mathematics and
economics graduate. Dr. Zencke joined SAP AG in 1984 and
became a member of the Executive Board in 1993. He is
responsible for the development of new solutions, such as mySAP
CRM and mySAP Mobile Business. In addition, he coordinates
SAPs international research groups and development labs.

The current members of the Executive Board of SAP
AG that are members on other supervisory boards and comparable
governing bodies of enterprises, other than SAPs, in
Germany and other countries as of December 31, 2002 are set
forth in note 35 to our consolidated financial statements in
Item 18. Financial Statements. SAP AG has not
entered into contracts with any member of the Executive Board
that provide for benefits upon a termination of the employment
of service of the member.

Compensation of Directors and
Officers

Under SAP AGs articles of incorporation, in
addition to the reimbursement of their expenditures the members
of the Supervisory Board receive remuneration composed of a
fixed element and a variable element. The variable element
depends on the distributed dividends. Both the fixed and the
variable remuneration are higher for the chairperson and the
deputy chairperson than for the other members.

The total annual remunerations of the Supervisory
Board members for the year ended December 31, 2002, which
is subject to the adoption of the dividend resolution by the
shareholders at the annual general shareholders meeting on
May 9, 2003 is outlined in note 35 of our consolidated
financial statements in Item 18. Financial
Statements in this Annual Report on Form 20-F. The
total annual remuneration of the Supervisory Board for the year
ended December 31, 2002, will amount to
 843,000.
This consists of an annual fixed payment, which amounts to
 50,000 for
the Chairman,
 37,500 for
the Vice Chairman and
 25,000 for
all other members of the Supervisory Board, plus a variable
payment equal to
 2,000 for
the Chairman,
 1,500 for
the Vice Chairman and
 1,000 for
all other members of the Supervisory Board for each
 0.01
distributed dividends per share exceeding a dividend of
 0.40 in
relation to the share capital outstanding. Notwithstanding the
foregoing, the aggregate remuneration shall not exceed
 100,000
for the Chairman,
 75,000 for
the Vice Chairman and
 50,000 for
the other members of the Supervisory Board. The employee
representatives on the supervisory board receive stock-based
compensation for their services as employees only. Each employee
representative owns less than one percent of the outstanding
share capital. In addition, Supervisory Board members are
reimbursed for

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out-of-pocket expenses, and invoiced value-added
tax or a sales tax are paid by SAP to the Supervisory Board
members.


The total annual remuneration of the Executive
Board for the year ended December 31, 2002 was
 7,583,800.
This amount includes
 3,556,700
fixed and
 4,027,100
variable remuneration. The accrued benefit liability as of
December 31, 2002 for Executive Board members was
approximately
 4 million.
For a detailed breakdown of the total fixed and all other
variable remunerations, please see note 35 to our consolidated
financial statements.

As of December 31, 2002, 2001 and 2000, we
did not provide any loans, warranties or guaranties to members
of the Executive Board. Furthermore, Section 402 of the
Sarbanes-Oxley Act, which came into effect on July 30,
2002, precludes SAP AG from granting loans to members of the
Supervisory Board or the Executive Board.

Employees

At December 31, 2002, we employed 29,374
people worldwide, which represented an increase of 1.7% from
December 31, 2001. Of the total employees,
13,002 employees were based in Germany and 4,903 in the
United States. The following table sets forth the number of
employees at December 31, 2002, 2001 and 2000:

|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |      |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |       | 
|-------------------------- |  | ---------------------------- | ------ | ---- |  | -------- | ------ | ---- |  | ----- | ----- | ---- |  | -------- | ----- | ---- |  | ----- | ------ | ---- |  | -------- | ------ | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- |  |  |  | ----- | 
|                           |  |                             
|                           |  | Employees as of December 31,
|                           |  |                             
|                           |  |                              |        |      |  |         
|                           |  | 2002                         |        | 2001 |  | 2000    
|                           |  |                              |        |      |  |         
|                           |  | Total                        |        | EMEA |  | Americas |        | Asia |  | Total |       | EMEA |  | Americas |       | Asia |  | Total |        | EMEA |  | Americas |        | Asia
|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |     
|Customer Service & Support |  |                              | 12,939 |      |  |          | 8,318  |      |  |       | 3,014 |      |  |          | 1,607 |      |  |       | 13,014 |      |  |          | 8,159  |      |  |  | 3,311 |  |  |  | 1,544 |  |  |  | 11,177 |  |  |  | 6,169  |  |  |  | 3,202 |  |  |  | 1,286 | 
|Research & Development     |  |                              | 8,173  |      |  |          | 6,277  |      |  |       | 1,194 |      |  |          | 702   |      |  |       | 7,665  |      |  |          | 5,849  |      |  |  | 1,122 |  |  |  | 694   |  |  |  | 6,211  |  |  |  | 5,383  |  |  |  | 726   |  |  |  | 622   | 
|Sales & Marketing          |  |                              | 5,143  |      |  |          | 3,075  |      |  |       | 1,427 |      |  |          | 641   |      |  |       | 5,071  |      |  |          | 2,865  |      |  |  | 1,539 |  |  |  | 667   |  |  |  | 4,266  |  |  |  | 2,373  |  |  |  | 1,333 |  |  |  | 560   | 
|General & Administrative   |  |                              | 3,119  |      |  |          | 2,090  |      |  |       | 710   |      |  |          | 319   |      |  |       | 3,128  |      |  |          | 1,987  |      |  |  | 778   |  |  |  | 363   |  |  |  | 2,826  |  |  |  | 1,703  |  |  |  | 816   |  |  |  | 307   | 
|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |      |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |       | 
|SAP Group                  |  |                              | 29,374 |      |  |          | 19,760 |      |  |       | 6,345 |      |  |          | 3,269 |      |  |       | 28,878 |      |  |          | 18,860 |      |  |  | 6,750 |  |  |  | 3,268 |  |  |  | 24,480 |  |  |  | 15,628 |  |  |  | 6,077 |  |  |  | 2,775 | 
|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |      |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |       | 

Sales revenue per employee equaled
 250,451
for the year ended December 31, 2002, down from
 267,405
for the year ended December 31, 2001. The focus of the
systematic cost-containment measures in fiscal year 2002 was the
strict containment of recruitment, which had already taken
effect by the second quarter. However, apart from selective
measures, SAP managed to avoid significant layoffs despite the
difficult economic environment. SAP achieved this mainly by
improving the internal allocation of personnel resources and
drastically reducing third-party services requirements by
reassigning tasks to internal resources.

SAP plans to adhere to a strict limit on hiring
in 2003 if the economic conditions do not change. Nevertheless,
we consider our employees as our most important success factor
and would therefore wish to recruit new highly qualified
employees in the future. At the same time, SAP continues to
actively train its existing employees. As in previous years, SAP
Universitys broad offering of classroom training and
Internet-based courses as well as the internal training
departments played a key role in 2002. Through such measures,
SAP ensures that its employees, maintain and build on their high
level of training.

None of our employees are subject to a collective
bargaining agreement. We have never experienced a work stoppage
and believe that our employee relations are excellent.

In January 2003 the SAP AG Executive Board
approved a framework for a code of conduct, which will be
applicable to all employees and management personnel of SAP
companies. In 2003, this framework will be communicated to all
companies of SAP, which are obliged to establish their own code
of conduct, the content of which must at least include the rules
codified in the framework.

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Share Ownership

Beneficial Ownership of
Shares

The ordinary shares beneficially owned by Dietmar
Hopp (Chairman of the Supervisory Board), Hasso Plattner
(Co-Chairman of the Executive Board (Vorstandssprecher)) and
Klaus Tschira (Member of the Supervisory Board) and/or companies
affiliated with aforementioned individuals are disclosed in
Item 7. Major Shareholders and Related Party
Transactions  Major Shareholders. We believe
each of the other members of the Supervisory Board and the
Executive Board beneficially owns less than 1% of the ordinary
shares as of March 7, 2003.

Stock-Based Compensation
Plans

SOP 2002 Plan

At the 2002 annual general meeting of
shareholders, our shareholders approved the SAP Stock Option
Plan (SAP SOP 2002). The SAP SOP 2002, which
provides for the issuance of stock options to the members of the
Executive Board as well as to eligible executives and other top
performers of SAP AG and its subsidiaries, is designed to
replace the LTI 2000 Plan described below. Under the SAP SOP
2002, the Executive Board is authorized to issue, with the
approval of the Supervisory Board, on or before April 30,
2007, up to 19,015,415 stock options.

Each stock option granted under SAP SOP 2002
entitles its holder to subscribe to one SAP share, against the
payment of an exercise price, which is composed of a base price
and a premium of 10% on the base price. The base price is the
average market price of the SAP share on the Frankfurt Stock
Exchange during the five trading days preceding the issuance of
the respective stock option, calculated on the basis of the
arithmetic mean of the closing auction prices of the SAP share
in the XETRA trading system. These provisions notwithstanding,
the exercise price can not be less than the closing auction
price on the day before the issue date. The term of the stock
options is five years. Subscription rights cannot be exercised
until a vesting period has elapsed. The vesting period of an
option holders subscription rights ends two years after
the issue date of that holders options.

SAP SOP 2002 is considered a fixed plan under APB
25. Since the exercise price, which is fixed one day before
grant, cannot be less than the share price on that date, no
expenses are recorded for awards granted under SAP SOP 2002.

As of March 7, 2003, 3,692,259 options have
been granted to participants under the SAP SOP 2002.

By resolution of the annual general
shareholders meeting held on May 3, 2002, the
Executive Board is authorized to acquire on or before
October 31, 2003 up to 30 million shares in SAP on the
condition such share purchases, together with any previously
acquired shares, do not account for more than 10% of SAPs
capital stock, and to use such repurchased ordinary shares to
satisfy our obligations upon exercise of the stock under the SAP
SOP 2002.

LTI Plan

On January 18, 2000, SAPs shareholders
approved the LTI Plan. The LTI 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 50% of each. Under the LTI Plan, 15 million
convertible bonds or 18.75 million stock options were
originally authorized, and a maximum of 18.75 million
ordinary shares were authorized pursuant to a contingent capital
increase for issuance upon conversion of the convertible bonds
and exercise of the stock options granted under the LTI Plan.
Upon conversion of the convertible bonds and exercise of the
stock options, we will be required to provide ordinary shares in
return for payment of the conversion or exercise price, as the
case may be, which will be less than the market price for the
ordinary shares at the time of such conversion or exercise.

By resolution of the annual general
shareholders meeting on May 3, 2002, the
authorization to issue convertible bonds and stock options under
the LTI Plan, to the extent not yet made use of, was revoked. In
addition, the contingent capital for issuance upon conversion of
the convertible bonds and exercise of the stock

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options granted under the LTI Plan was reduced to
the amount necessary to secure all convertible bonds and stock
options already granted under the LTI Plan. As of March 14,
2002, SAP AG had issued approximately 8.68 million convertible
bonds and approximately 3.63 million stock options under
the LTI Plan.


The conversion price of the convertible bonds for
one SAP AG ordinary share will equal the closing price of the
SAP AG ordinary share quoted in the XETRA trading system (or any
successor system) of the Frankfurt Stock Exchange on the last
trading day prior to the issue of the respective convertible
bond (the day on which SAP AG or the credit institution managing
the issue on behalf of SAP AG accepts the beneficiarys
subscription). Upon the exercise of the conversion rights, an
additional payment is due for each share equal to the amount by
which the conversion price of the share exceeds the nominal
amount of the converted bond.

The exercise price of the stock options issued
under the LTI Plan for one SAP ordinary share is calculated by
reference to the outperformance. The outperformance is the
percentage points by which the performance of the SAP ordinary
share exceeds the performance of the reference index (Goldman
Sachs Technology Index). The initial value for determining the
performance by the SAP ordinary shares is the closing price of
the SAP ordinary shares quoted in the XETRA trading system (or
any successor system) of the Frankfurt Stock Exchange on the
last trading day prior to the issue of the stock option (the day
on which SAP or the credit institution managing the issue for
SAP accepts the beneficiarys subscription). The initial
value for determining the performance of the reference index is
the last value recorded for the reference index on the same
trading day on the Chicago Board Options Exchange. The final
value for determining the performance of the SAP ordinary share
is the closing price of SAPs ordinary shares quoted in the
XETRA trading system (or any successor system) of the Frankfurt
Stock Exchange on the latest trading day prior to exercise of
the subscription right attaching to the stock option. The final
value for determining the performance of the reference index is
the last value for determining the performance of the reference
on the same trading day on the Chicago Board Options Exchange.
The initial value and the final value of the reference index
will be translated from U.S.$ to euros using the spot mid
cashpaper range rate on the Frankfurt interbank market.
Performance is the price change measured between the initial
value and the final value, expressed as percentage points. In
calculating the performance of the SAP ordinary share, the same
adjustment rules for dividend payments, subscription rights, and
other special rights are applied to the stock exchange prices
used as are applied in determining the relevant reference index.
The exercise price is the final value as determined above, less
the product of the initial value as determined above and the
outperformance.

The convertible bond program is considered a
fixed plan under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25), and will result in no
compensation expense under the current terms of the LTI Plan.
Under APB 25, the stock option program is a variable plan
because the exercise price varies depending upon the criteria
described above. As such, compensation expense is recorded over
the vesting period equal to the difference between the exercise
price of the stock options and the market value of the ordinary
share. Stock options may negatively impact our results of
operations and both stock options and convertible bonds may
negatively impact our earnings per share.

By resolution of the annual general
shareholders meeting held on May 3, 2002, the
Executive Board was authorized to acquire on or before
October 31, 2003 up to 30.0 million shares in SAP on
the condition such share purchases, together with any previously
acquired shares do not account for more than 10% of SAPs
capital stock. Such repurchased ordinary shares may be used to
satisfy our obligations upon conversion of the convertible bonds
or exercise of the stock options under the LTI Plan and the
exercise of stock options under the SAP SOP 2002. This
resolution replaced the resolution of the annual general
shareholders meeting of May 3, 2001, which authorized
to purchase up to 30.0 million of our ordinary shares and to use
such repurchased ordinary shares to satisfy our obligations upon
conversion of the convertible bonds or exercise of the stock
option under the LTI 2000 Plan. These repurchases of ordinary
shares are expected to reduce the dilutive effects on earnings
per share. As of March 7, 2003 we have repurchased 52,056
ordinary shares and issued them to stock option holders who have
exercised stock options under the LTI Plan.

STAR Plan

The STAR Plan provides for the grant of stock
appreciation rights (SARs) to eligible executives
and employees of SAP AG and our majority owned subsidiaries. The
STAR Plan is administered by SAP AGs

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Executive Board with respect to eligible
employees. Beginning with the introduction of the LTI Plan in
2000, LTI Plan participants and or SAP SOP 2002 participants
generally may not receive SARs under the STAR Plan in the same
fiscal year. The Executive Board or the Supervisory Board, as
applicable, has the authority to determine: (i) the persons to
whom grants may be made under the STAR Plan; (ii) the size
and other terms and conditions of each grant; (iii) the
time when the grants will be made and the duration of any
applicable exercise or restriction period, including the
criteria for vesting and the acceleration of vesting; and (iv)
any other matters arising under the STAR Plan.


2003 SARs.In March
2003 the Supervisory Board approved the granting of
approximately 4 million 2003 SARs to selected employees who
are not participants in the LTI Plan. The 2003 SARs grant value
of  84.91
is based upon the average fair market value of one ordinary
share over the 20 business days from the day after the
announcement of our 2002 preliminary results on January 30,
2003. The valuation of the 2003 SARs is calculated quarterly,
over a period of two years. Each quarterly valuation is weighted
as follows in determining the final valuation of the 2003 SARs:

|                   |  |                  |    |               |  |                    |  |  |    |   |  | 
|------------------ |  | ---------------- | -- | ------------- |  | ------------------ |  |  | -- | - |  | 
|Quarter Ended      |  | Weighting Factor |    | Quarter Ended |  | Weighting Factor  
|                   |  |                  |    |               |  |                   
|March 31, 2003     |  |                  | 5  | %             |  | March 31, 2004     |  |  | 10 | %
|June 30, 2003      |  |                  | 5  | %             |  | June 30, 2004      |  |  | 10 | %
|September 30, 2003 |  |                  | 10 | %             |  | September 30, 2004 |  |  | 10 | %
|December 31, 2003  |  |                  | 20 | %             |  | December 31, 2004  |  |  | 30 | %

The valuations for the quarterly periods ending
December 31 are based on the amount by which the grant
price of
 84.91 is
exceeded by the average fair market value of one ordinary share
as quoted on the XETRA trading system over the 20
consecutive business days commencing on the day after the
announcement of our preliminary annual results for 2003 and
2004. The other quarterly valuations are based on the amount by
which the grant price of
 84.91 is
exceeded by the average fair market value of an ordinary share
quoted on the XETRA trading system over the five
consecutive business days commencing on the day after the
announcement of our quarterly results. Because each quarterly
valuation is measured independently, it will be unaffected by
any other quarterly valuation.

The cash payout value of each 2003 SAR will be
calculated quarterly as follows: (i) 100% of the first
 50 value
appreciation for such quarter; (ii) 50% of the next
 50 value
appreciation; and (iii) 25% of any additional value
appreciation. Participants will, in the case such value
appreciation occurred, receive payments with respect to the 2003
SARs on March 31, 2005 and January 31, 2006, each payment
equal to 50% of the total payout amount. Participants will
receive 2003 SAR payments provided that (subject to certain
exceptions) they continue to be actively employed by us on the
payment dates.

2002 SARs.In
February 2002, we granted 3.6 million 2002 SARs to selected
employees who are not participants in the LTI Plan. The 2002
SARs grant value of
 158.80 is
based upon the average fair market value of one ordinary share
over the 20 business days from the day after the announcement of
our 2001 preliminary results on January 23, 2002. The
valuation of the 2002 SARs is calculated quarterly, over a
period of two years. Each quarterly valuation is weighted as
follows in determining the final valuation of the 2002 SARs:

|                    |  |                  |    |               |  |                    |  |  |    |   |  | 
|------------------- |  | ---------------- | -- | ------------- |  | ------------------ |  |  | -- | - |  | 
|Quarter Ended       |  | Weighting Factor |    | Quarter Ended |  | Weighting Factor  
|                    |  |                  |    |               |  |                   
|March 31, 2002.     |  |                  | 5  | %             |  | March 31, 2003     |  |  | 10 | %
|June 30, 2002.      |  |                  | 5  | %             |  | June 30, 2003      |  |  | 10 | %
|September 30, 2002. |  |                  | 10 | %             |  | September 30, 2003 |  |  | 10 | %
|December 31, 2002.  |  |                  | 20 | %             |  | December 31, 2003  |  |  | 30 | %

The valuations for the quarterly periods ending
December 31 are based on the amount by which the grant
price of
 158.80 is
exceeded by the average fair market value of one ordinary share
as quoted on the XETRA trading system over the 20
consecutive business days commencing on the day after the
announcement of our preliminary annual results for 2002 and
2003. The other quarterly valuations are based on the amount by
which the grant price of
 158.80 is
exceeded by the average fair market value of an ordinary share
quoted on the XETRA trading system over the five consecutive
business days commencing on the day after the announcement

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of our quarterly results. Because each quarterly
valuation is measured independently, it will be unaffected by
any other quarterly valuation.


The cash payout value of each 2002 SAR will be
calculated quarterly as follows: (i) 100% of the first
 50 value
appreciation for such quarter; (ii) 50% of the next
 50 value
appreciation; and (iii) 25% of any additional value
appreciation. Participants will receive payments with respect to
the 2002 SARs on March 31, 2004 and January 31, 2005,
each payment equal to 50% of the total payout amount.
Participants will receive 2002 SAR payments provided that
(subject to certain exceptions) they continue to be actively
employed by us on the payment dates.

2001 SARs.In 2001,
we granted 3.4 million 2001 SARs to selected employees who
are not participants in the LTI Plan. Additional information
regarding the 2001 SARs is included in note 24 of
Item 18. Financial Statements. Because the
grant price of the 2001 SARs was higher than the price of the
ordinary shares during the measurement period, no payments will
be made with respect to the 2001 SARs.

2000 SARs.In 2000,
we granted approximately 3.3 million 2000 SARs (after
consideration of the 3-for-1 stock split) to selected employees
who did not participate in the LTI Plan and were employed by us
on or prior to January 1, 1998. Because the grant price of
the 2000 SARs was higher than the price of the preference shares
during the measurement period, no payments will be made with
respect to the 2000 SARs.

1994 Bonds

SAP has outstanding convertible bonds issued in
1994 to eligible participants, each of which is convertible into
three preference shares (the 1994 Bonds). After the
conversion of the preference shares into ordinary shares, each
bond is convertible into three ordinary shares. The conversion
rights of the 1994 Bonds became exercisable for the first time
on September 30, 1996 and are thereafter exercisable on
each June 30, July 31, August 31,
September 30, October 31 and November 30, until
June 30, 2004. At December 31, 2002, 6.8% of the 1994
Bonds remained outstanding, and 811,000 ordinary shares would be
issued upon the conversion thereof. See note 23 to our
consolidated financial statements included herein.

German Employee Stock Purchase
Plans

SAP AG maintains two employee stock purchase
plans for our German employees: (i) an ongoing payroll
deduction plan (the German Payroll Deduction Plan);
and (ii) an annual purchase plan (the German Annual
Purchase Plan). Under the German Payroll Deduction Plan,
an eligible German employee is able to purchase ordinary shares
through payroll deductions of up to 10% of the gross monthly
salary of the employee and SAP contributions of 15% of the
ordinary share purchase price as well as the assumption of
ancillary purchase expenses. As soon as the amount available for
an employee is sufficient together with our contribution to
purchase an ordinary share, such purchase is effected at the
market price and credited to the employees account. The
acquired shares are not subject to a holding period. Under the
German Annual Purchase Plan, eligible German employees may buy a
determined number of ordinary shares per year on a set date.
Under such plan, SAP contributes
 260 per
year. The employee provides any additional amounts, if
necessary, to avoid the purchase of fractional shares. The
acquired shares are transferred to a special account of the
participating employee, and, as a result of a 2001 change in
German law, they are not subject to a holding period. Employees
must elect each year to participate in the German Annual
Purchase Plan.

U.S. Employee Stock Purchase
Plans

We maintain three plans which allow for our U.S.
employees to acquire equity securities of SAP AG as follows:
(i) an Employee Discount Stock Purchase Plan (U.S.
Discount Plan); (ii) an employee non-discount
purchase plan (the U.S. Non-discount Plan); and
(iii) the ADR Stock Fund (the ADR Stock Fund)
available under the SAP America, Inc. 401(k) Profit Sharing Plan
and Trust (401(k) Plan). Under the U.S. Discount
Plan, eligible employees are able to purchase ADRs through
payroll deductions of up to 10% of their annual compensation or
$ 21,250, whichever is less, and we contribute 15% of the
ADRs purchase price as well as the assumption of ancillary
purchase expenses. Under the U.S. Non-discount Plan, an
administrator makes open market purchases of ADRs for the
accounts of participating employees on a semi-monthly basis.
Such purchases

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are made out of amounts deducted from each
participating employees salary. We do not make any
contributions in connection with the U.S. Non-discount Plan. The
ADR Stock Fund was introduced in 2000 as an investment option
provided to certain U.S. employees under the 401(k) Plan. U.S.
employees may contribute up to 15% of their pretax and after tax
payroll under the 401(k) Plan, and we will contribute 50% of the
contributed amounts up to 6% of the pretax and after tax pay
(not to exceed $ 3,000 per year). Both employee and employer
contributions are submitted to a plan administrator who provides
various investment fund options at the election of each
participant.


Other Foreign Stock Purchase
Plans

Although we maintain and are in the process of
introducing various employee stock purchase plans similar to our
German and U.S. plans in the majority of our remaining foreign
subsidiaries, the combined impact of these plans on our results
of operations, net income and cash flows is not material.

Item 7.     Major
Shareholders and Related Party Transactions

Major Shareholders

The share capital of SAP AG consists of ordinary
shares, which are issued only in bearer form. Accordingly, SAP
AG generally has no way of determining who our shareholders are
or how many shares a particular shareholder owns. However, under
Section 21 of the German Securities Trading Act
(Wertpapierhandelsgesetz), holders of voting securities
of a German company admitted to official trading on a stock
exchange within the European Union or the European Economic Area
are obligated to notify a company of the level of their holdings
whenever such holdings reach, exceed or fall below certain
thresholds, which have been set at 5%, 10%, 25%, 50% and 75% of
a companys outstanding voting rights.

As of September 2, 2002, the Pooling
Agreement among several of our significant shareholders
(described below) was dissolved. The following table sets forth
certain information regarding the beneficial ownership of the
ordinary shares as of March 7, 2003 of: (i) each
person or group known by SAP AG to own beneficially 5% or more
of the outstanding ordinary shares; and (ii) the beneficial
ownership of all members of the Supervisory Board and all
members of the Executive Board, individually and as a group, in
each case as reported to SAP AG by such persons. Apart from the
shares transfer as set forth in the footnotes to this table,
there was, as far as we are able to tell given the nature of our
shares, no significant change in the percentage ownership held
by any major shareholder during the past three business years.
None of the major shareholders have special voting rights.

|                                                                                                                                                                                                  |  |                    |             |             |  |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | ----------- |  |  | ------ | -
|                                                                                                                                                                                                  |  |                   
|                                                                                                                                                                                                  |  | Ordinary Shares   
|                                                                                                                                                                                                  |  | Beneficially Owned
|                                                                                                                                                                                                  |  |                   
|                                                                                                                                                                                                  |  |                    |             | % of       
|Principal Shareholders                                                                                                                                                                            |  | Number             |             | Outstanding
|                                                                                                                                                                                                  |  |                    |             |            
|Dietmar Hopp Chairman Supervisory Board                                                                                                                                                           |  |                    | 33,028,795  | (1)         |  |  | 10.487 | %
|Dietmar Hopp Stiftung GmbH                                                                                                                                                                        |  |                    | 28,017,300  | (2)         |  |  | 8.895  | %
|Prof. Dr. h.c. Hasso Plattner Co-Chairman and
    CEO, Executive Board                                                                                                                            |  |                    | 37,240,500  | (3)         |  |  | 11.824 | %
|Hasso Plattner GmbH & Co. Beteiligungs-KG                                                                                                                                                         |  |                    | 31,240,500  | (4)         |  |  | 9.919  | %
|Hasso Plattner Förderstiftung, gGmbH                                                                                                                                                              |  |                    | 6,000,000   | (5)         |  |  | 1.905  | %
|Dr. h.c. Klaus Tschira Member, Supervisory Board                                                                                                                                                  |  |                    | 38,987,460  | (6)         |  |  | 12.378 | %
|Dr. h.c. Tschira Beteiligungs GmbH & Co. KG                                                                                                                                                       |  |                    | 15,832,660  | (7)         |  |  | 5.027  | %
|Klaus Tschira Stiftung gGmbH                                                                                                                                                                      |  |                    | 21,154,800  | (8)         |  |  | 6.717  | %
|Executive Board Members and Supervisory Board
    Members, as a group (24 persons)                                                                                                                |  |                    | 109,264,025 |             |  |  | 34.691 | %
|Options and convertible bonds that are vested and
    exercisable within 60 days of March 7, 2003, held by
    Executive Board Members and Supervisory Board Members, as a
    group (24 persons) |  |                    | 217,264     | (9)         |  |  | n.a.   |  






|    |                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes: (i) 28,017,300 ordinary shares
    owned by Dietmar Hopp Stiftung GmbH, and (ii) 5,011,495
    ordinary shares owned by Golfplatz St. Leon-Rot GmbH & Co.
    Beteiligungs-KG, to which Mr. Hopp transferred such shares
    on December 28, 2001, and as to which

64



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##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Mr. Hopp exercises sole voting and
    dispositive power. Mr. Hopp disclaims beneficial ownership
    with respect to 8,721,100 ordinary shares owned in the aggregate
    by Mr. Hopps immediate family and such shares are not
    included above.                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | The Dietmar Hopp Stiftung GmbH was a party to the
    Pooling Agreement described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(3) | Consists of: (i) 31,240,500 ordinary shares
    owned by Hasso Plattner GmbH & Co. Beteiligungs-KG, as to
    which Prof. Dr. h.c. Plattner exercises sole voting
    and dispositive power; and (ii) 6,000,000 ordinary shares
    owned by Hasso Plattner Förderstiftung, gGmbH, as to which
    Prof. Dr. h.c. Plattner exercises sole voting and
    dispositive power. Prof. Dr. h.c. Plattner disclaims
    beneficial ownership with respect to 130,000 ordinary shares
    owned in the aggregate by Prof.
    Dr. h.c. Plattners immediate family and such
    shares are not included above.
|   
|(4) | Prof. Dr. h.c. Plattner owns a 100%
    partnership interest in and controls the Hasso Plattner GmbH
    & Co. Beteiligungs-KG. The Hasso Plattner GmbH & Co.
    Beteiligungs-KG was a party to the Pooling Agreement described
    below, and 23,000,000 such ordinary shares were subject to the
    Pooling Agreement described below.                                                                                                                                                                                                                                                             
|   
|(5) | The Hasso Plattner Förderstiftung, gGmbH was
    a party to the Pooling Agreement described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(6) | Includes 21,154,800 ordinary shares owned by
    Klaus Tschira Stiftung gGmbH, as to which Dr. Tschira
    exercises shared voting and dispositive power. Dr. Tschira
    disclaims beneficial ownership with respect to 2,133,840
    ordinary shares owned in the aggregate by
    Dr. Tschiras immediate family and such shares are not
    included above.                                                                                                                                                                                                                                        
|   
|(7) | Effective as of December 2001, the
    Dr. h.c. Tschira Beteiligungs GmbH & Co. KG was a
    party to the Pooling Agreement described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(8) | The Klaus Tschira Stiftung gGmbH was a party to
    the Pooling Agreement described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(9) | Includes 111,032 stock options and 106,232
    convertible bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

We have been informed that entities controlled by
certain shareholders (the Pooling Shareholders), who
in the aggregate beneficially hold 109,256,755 ordinary shares
(which represent 34.689% of the outstanding ordinary shares as
of March 7, 2003), were parties to a pooling agreement (the
Pooling Agreement) with respect to shares owned by
them that constituted in the aggregate 26.675% of the
outstanding ordinary shares as of March 7, 2003 (the
Pooled Shares). Pursuant to the Pooling Agreement,
the Pooling Shareholders had agreed to vote their Pooled Shares
jointly with respect to certain matters coming before SAP
AGs general shareholders meetings, including the
election of the members of the Supervisory Board elected by SAP
AGs shareholders. The Pooling Agreement was terminated
effective as of September 2, 2002. For further information,
please refer to SAP AGs report on Form 6-K submitted
to the SEC on September 3, 2002. SAP AG at present has no
knowledge about any arrangements, the operation of which may at
a subsequent date result in a change in control of the company.

Related Party Transactions

On May 2, 2002, SAP agreed to purchase the
assets of Menahel  Management Data and Business
Accounting Ltd. (Menahel), seated in the State of
Israel, including all business intellectual property, contracts,
software and related know-how and substantially all of
Menahels workforce for U.S.$ 7.5 million.
Menahel has been renamed to SAP Manage Ltd. Mr. Reuven
Agassi, father of SAP AG Executive Board Member Shai Agassi, was
the managing director as well as the indirect owner of one of
Menahels largest shareholders. Mr. Shai Agassi did
not participate in the transaction, and a due diligence was
performed by an independent audit firm.

Prof. Dr. Wilhelm Haarmann is a partner in
Haarmann, Hemmelrath & Partner, which serves infrequently as
special German tax counsel and counsels SAP with regard to other
legal matters. According to the German Stock Corporation Act,
the validity of a service contract or a contract to undertake a
special assignment between the stock corporation and a member of
the supervisory board is contingent upon the consent of the
supervisory board. Prof. Dr. Haarmann received such consent
for every service contract between Haarmann, Hemmelrath &
Partner and SAP.

Other than the aforementioned items, we enter
into transactions with entities with which certain members of
the Supervisory Board, Executive Board or their relatives are
affiliated, which we do not consider to be material to the
business of SAP or the entities involved.

Item 8.     Financial
Information

Consolidated Financial Statements

See Item 18. Financial
Statements and pages F-1 through F-60 and S-1.

65



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##### 



Other Financial Information

Legal Proceedings

The German Federal Supervisory Office for
Securities Trading (Bundesaufsichtsamt für den
Wertpapierhandel) announced in January 1999 that it had
initiated an investigation regarding possible insider trading by
certain SAP AG employees prior to the release on January 5,
1999 of our preliminary results for 1998. We have cooperated
with this investigation and believe that these investigations
have been discontinued without seeking judgments against the
persons under investigation.

The bankruptcy trustee of the U.S. company
FoxMeyer Corp. (FoxMeyer) instituted legal
proceedings against SAP AG and SAP America Inc., the U.S.
subsidiary of SAP AG, in 1998. FoxMeyer was a pharmaceutical
wholesaler that filed for bankruptcy protection in 1996. The
discovery phase of the litigation is now proceeding. While the
ultimate outcome of this matter cannot be presently determined
with certainty, we believe that FoxMeyers claims in this
action are without merit. We are vigorously defending against
the claims, and believe that this action is not likely to have a
material effect on our business, results of operations,
financial condition or cash flows.

We are 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 our business, results of operations,
financial position or cash flows. Any litigation, however,
involves potential risk and potentially significant litigation
costs, and therefore there can be no assurance that any
litigation which is now pending or which may arise in the future
would not have such a material adverse effect on our business,
financial position, results of operations or cash flows.

Dividend Policy

Dividends are jointly proposed by SAP AGs
Supervisory Board and Executive Board based on SAP AGs
year-end stand-alone financial statements, subject to approval
at the annual general shareholders meeting and are
officially declared for the prior year at SAP AGs annual
general shareholders meeting. SAP AGs annual general
shareholders meeting usually convenes during the second
quarter of each year. Since ordinary shares are in bearer form,
dividends are usually remitted to the custodian bank on behalf
of the shareholder within one business day following the annual
general shareholders meeting. Record holders of the ADSs
on the dividend record date will be entitled to receive payment
in full of the dividend declared in respect of the year for
which it is declared. Cash dividends payable to such holders
will be paid to the Depositary in euros and, subject to certain
exceptions, will be converted by the Depositary into Dollars.
The amount of dividends received by holders of ADSs may be
affected by fluctuations in exchange rates. See
Item 3. Key Information  Exchange
Rates.

The amount of dividends paid on the ordinary
shares depends on the amount of profits to be distributed by SAP
AG, which depends in part upon our performance. The timing and
amount of future dividend payments will depend upon our future
earnings, capital needs and other relevant factors.

Significant Changes

No significant change has occurred since the
dates of the annual financial statements included in this Annual
Report on Form 20-F.

Item 9.     The
Offer and Listing

Nature of Trading Market

General

The ordinary shares are listed on each of the
Frankfurt Stock Exchange, the Berlin Stock Exchange,
the Stuttgart Stock Exchange and the Zürich Stock
Exchange. In addition, the ordinary shares are traded in the
over-the-counter markets (Freiverkehr) in Germany. The
principal trading market for the ordinary shares is the
Frankfurt Stock Exchange. The ordinary shares are issued only in
bearer form.

66



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##### 



Pursuant to resolutions adopted at our annual
general shareholders meeting and a special meeting of
holders of the preference shares on May 3, 2001, we
effected on June 18, 2001 a conversion of the preference
shares into ordinary shares on a share for share basis. The
amount of subscribed capital for ordinary shares was therefore
increased by the amount of preference shares converted on the
effective date of the conversion. Due to the conversion, the
ordinary shares are registered and listed on the various stock
exchanges in Europe.

Effective August 3, 1998, the ADSs were
listed on the New York Stock Exchange (NYSE)
originally representing a fraction of a preference share. Due to
the conversion, ordinary shares were registered with the NYSE as
the underlying security for the ADSs. The ADSs trade on the NYSE
under the symbol SAP and currently each represents
one-fourth of one ordinary share. The Depositary for the ADSs
pursuant to the Deposit Agreement is The Bank of New York.

Trading on the Frankfurt Stock
Exchange

The Frankfurt Stock Exchange is the largest of
the eight German stock exchanges. The aggregate annual turnover
of the Frankfurt Stock Exchange in 2002 amounted to
 3.0
trillion (based on the Frankfurt Stock Exchanges practice
of separately recording the sale and purchase components
involved in any trade) for both equity and debt instruments. At
December 31, 2002, the equity securities of 5,768
corporations, including 4,901 foreign corporations, were
traded on the Frankfurt Stock Exchange.

Prices are continuously quoted on the Frankfurt
Stock Exchange floor each business day between 9:00 a.m.
and 8:00 p.m. Central European Time for the ordinary shares
and for other actively traded securities. Markets in listed
securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets both
on and off the Stock Exchange. Price formation is determined by
open outcry by state-appointed specialists (amtliche
Kursmakler) who are themselves exchange members, but who do
not, as a rule, deal with the public. The Exchange continuously
quotes prices for active stocks during Stock Exchange hours.

Transactions on the Frankfurt Stock Exchange are
settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange (which may be the
case if one of the parties to the transaction is foreign) are
generally also settled on the second business day following
trading (although a different period may be agreed upon by the
parties). A quotation can be suspended if orderly stock exchange
trading is temporarily endangered or if a suspension is
necessary in order to protect the public interest. Under German
law, customers orders to buy or sell listed securities
must be executed on a stock exchange unless the customer gives
other specific instructions for an individual transaction or an
indeterminate number of transactions.

The ordinary shares are also traded on XETRA, a
computerized trading system of the Frankfurt Stock Exchange. The
trading hours for XETRA are from 9:00 a.m. until
8:00 p.m. Central European Time on each business day.
Securities traded on XETRA include the securities of the
30 companies comprising the Deutsche Aktienindex
(DAX), the leading index of trading on the Frankfurt
Stock Exchange, as well as other stocks, warrants, and bonds.
XETRA is subject to the rules and regulations of the Frankfurt
Stock Exchange. The SAP preference shares were included in the
DAX since beginning September 15, 1995 and were replaced by
ordinary shares upon the conversion on June 18, 2001.

67



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##### 



The table below sets forth, for the periods
indicated, the high and low closing sales prices for the
ordinary shares and for the preference shares, prior to
June 18, 2001, on the Frankfurt Stock Exchange, as provided
by the Deutsche Boerse AG, together with the closing highs and
lows of the DAX. Since January 4, 1999, the first official
trading day of 1999, the share prices of shares traded on the
German stock exchanges have been quoted in euros.

|                         |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |          | 
|------------------------ | ----------------------- | ----------------- | ------ | ----------- |  | ------ | ------ | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ |  |  | -------- | -------- |  |  | -------- | -------- | 
|                         |                         |                   |        |             |  |        |        |        |  |     
|                         |                         |                   |        | Price Per   |  |        |        |       
|                         |                         | Price Per         |        | Preference  |  |       
|                         |                         | Ordinary Share(1) |        | Share(1)(2) |  | DAX(3)
|                         |                         |                   |        |             |  |       
|                         |                         | High              |        | Low         |  | High   |        | Low    |  | High |        | Low   
|                         |                         |                   |        |             |  |        |        |        |  |      |        |       
|                         |                         |                   |        |             |  |        |        |       
|                         |                         | (in )            |        | (in )      |  |        |        |       
|Annual Highs and Lows    |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|1998(4)                  |                         |                   | 207.75 |             |  |        | 87.94  |        |  |      | 224.12 |        |  |  | 95.78  |        |  |  | 6,171.43 |          |  |  | 3,896.08 |         
|1999                     |                         |                   | 166.00 |             |  |        | 78.67  |        |  |      | 208.33 |        |  |  | 89.67  |        |  |  | 6,958.14 |          |  |  | 4,678.72 |         
|2000                     |                         |                   | 286.33 |             |  |        | 112.65 |        |  |      | 349.96 |        |  |  | 140.94 |        |  |  | 8,064.97 |          |  |  | 6,200.71 |         
|2001                     |                         |                   | 180.90 |             |  |        | 100.00 |        |  |      | N/A    |        |  |  | N/A    |        |  |  | 6,795.14 |          |  |  | 3,787.23 |         
|2002                     |                         |                   | 176.30 |             |  |        | 41.65  |        |  |      | N/A    |        |  |  | N/A    |        |  |  | 5,462.55 |          |  |  | 2,597.88 |         
|Quarterly Highs and Lows |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|2001                     |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|                         | First Quarter           |                   |        | 167.41      |  |        |        | 100.00 |  |      |        | 210.00 |  |  |        | 125.10 |  |  |          | 6,795.14 |  |  |          | 5,388.02 | 
|                         | Second Quarter          |                   |        | 180.90      |  |        |        | 108.25 |  |      |        | 181.00 |  |  |        | 110.00 |  |  |          | 6,278.90 |  |  |          | 5,553.46 | 
|                         | Third Quarter           |                   |        | 171.60      |  |        |        | 100.49 |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 6,109.50 |  |  |          | 3,787.23 | 
|                         | Fourth Quarter          |                   |        | 156.11      |  |        |        | 111.30 |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 5,271.29 |  |  |          | 4,239.97 | 
|2002                     |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|                         | First Quarter           |                   |        | 176.30      |  |        |        | 143.18 |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 5,462.55 |  |  |          | 4,745.58 | 
|                         | Second Quarter          |                   |        | 164.50      |  |        |        | 90.40  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 5,343.88 |  |  |          | 4,099.05 | 
|                         | Third Quarter           |                   |        | 95.59       |  |        |        | 46.34  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 4,483.03 |  |  |          | 2,769.03 | 
|                         | Fourth Quarter          |                   |        | 90.99       |  |        |        | 41.65  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,380.20 |  |  |          | 2,597.88 | 
|Monthly Highs and Lows   |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|2002                     |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|                         | July                    |                   |        | 95.59       |  |        |        | 71.85  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 4,483.03 |  |  |          | 3,515.83 | 
|                         | August                  |                   |        | 87.65       |  |        |        | 66.00  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,906.55 |  |  |          | 3,332.65 | 
|                         | September               |                   |        | 74.80       |  |        |        | 46.34  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,609.41 |  |  |          | 2,769.03 | 
|                         | October                 |                   |        | 77.84       |  |        |        | 41.65  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,282.67 |  |  |          | 2,597.88 | 
|                         | November                |                   |        | 90.99       |  |        |        | 74.29  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,360.76 |  |  |          | 3,042.06 | 
|                         | December                |                   |        | 90.35       |  |        |        | 74.38  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,380.20 |  |  |          | 2,840.00 | 
|2003                     |                         |                   |        |             |  |        |        |        |  |      |        |        |  |  |        |        |  |  |          |          |  |  |          |         
|                         | January                 |                   |        | 93.74       |  |        |        | 81.52  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 3,157.25 |  |  |          | 2,643.80 | 
|                         | February                |                   |        | 87.79       |  |        |        | 77.19  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 2,751.99 |  |  |          | 2,450.20 | 
|                         | March (through March 7) |                   |        | 76.55       |  |        |        | 70.08  |  |      |        | N/A    |  |  |        | N/A    |  |  |          | 2,549.65 |  |  |          | 2,431.66 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Since January 1, 2000, ordinary share prices
    are obtained from XETRA. Similarly, preference share prices
    between January 1, 2000 and June 18, 2001 were
    obtained from XETRA.                                                                                                                                                                                                                                                                      
|   
|(2) | All amounts for the preference shares shown
    reflect the highs and lows through June 18, 2001 due to the
    conversion of preference shares to ordinary shares.                                                                                                                                                                                                                                                                                           
|   
|(3) | The DAX is a continuously updated,
    capital-weighted performance index of 30 German blue chip
    companies. In principle, the shares included in the DAX are
    selected on the basis of their stock exchange turnover and the
    issuers market capitalization. Adjustments to the DAX are
    made for capital changes, subscription rights and dividends.
    Subsequent to June 18, 1999, the highs and lows of the DAX
    are disclosed on XETRA.
|   
|(4) | Translated for the convenience of the reader from
    Marks into euros at the Official Fixed Conversion Rate.                                                                                                                                                                                                                                                                                                                                                 

68



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##### 



On March 7, 2003, the closing sales price
per ordinary share on the Frankfurt Stock Exchange was
 70.60, as
provided by the Deutsche Boerse AG.

Trading on the NYSE

At March 7, 2003, based upon information
provided by the Depositary, there were 83,966,800 ADSs,
representing approximately 20,991,700 ordinary shares, held of
record by 1,313 registered holders. The ordinary shares
underlying such ADSs represented 6.7% of the then-outstanding
ordinary shares. Because the ordinary shares are issued in
bearer form only, we are unable to determine the number of
ordinary shares directly held by persons with U.S. addresses.

The table below sets forth, for the periods
indicated, the high and low closing sales prices for the ADSs on
the NYSE as reported on the NYSE Composite Tape.

|                              |                                     |               |       |       |  |  |       |       | 
|----------------------------- | ----------------------------------- | ------------- | ----- | ----- |  |  | ----- | ----- | 
|                              |                                     |              
|                              |                                     | Price Per ADS
|                              |                                     |              
|                              |                                     | High          |       | Low  
|                              |                                     |               |       |      
|                              |                                     |              
|                              |                                     | (in U.S.$)   
|Annual Highs and Lows         |                                     |               |       |       |  |  |       |      
|1998(commencing
    August 3) |                                     |               | 59.56 |       |  |  | 31.00 |      
|1999                          |                                     |               | 53.75 |       |  |  | 23.81 |      
|2000                          |                                     |               | 83.94 |       |  |  | 31.75 |      
|2001                          |                                     |               | 47.64 |       |  |  | 23.00 |      
|2002                          |                                     |               | 38.84 |       |  |  | 10.05 |      
|Quarterly Highs and Lows      |                                     |               |       |       |  |  |       |      
|1998                          |                                     |               |       |       |  |  |       |      
|                              | Third Quarter (commencing August 3) |               |       | 59.56 |  |  |       | 38.94 | 
|                              | Fourth Quarter                      |               |       | 44.88 |  |  |       | 31.00 | 
|1999                          |                                     |               |       |       |  |  |       |      
|                              | First Quarter                       |               |       | 37.00 |  |  |       | 23.81 | 
|                              | Second Quarter                      |               |       | 36.81 |  |  |       | 24.63 | 
|                              | Third Quarter                       |               |       | 39.25 |  |  |       | 30.31 | 
|                              | Fourth Quarter                      |               |       | 53.75 |  |  |       | 33.13 | 
|2000                          |                                     |               |       |       |  |  |       |      
|                              | First Quarter                       |               |       | 83.94 |  |  |       | 44.87 | 
|                              | Second Quarter                      |               |       | 59.19 |  |  |       | 40.94 | 
|                              | Third Quarter                       |               |       | 67.81 |  |  |       | 46.06 | 
|                              | Fourth Quarter                      |               |       | 62.19 |  |  |       | 31.75 | 
|2001                          |                                     |               |       |       |  |  |       |      
|                              | First Quarter                       |               |       | 47.64 |  |  |       | 28.59 | 
|                              | Second Quarter                      |               |       | 40.99 |  |  |       | 24.39 | 
|                              | Third Quarter                       |               |       | 37.73 |  |  |       | 23.00 | 
|                              | Fourth Quarter                      |               |       | 34.80 |  |  |       | 25.09 | 
|2002                          |                                     |               |       |       |  |  |       |      
|                              | First Quarter                       |               |       | 38.84 |  |  |       | 32.41 | 
|                              | Second Quarter                      |               |       | 38.30 |  |  |       | 22.68 | 
|                              | Third Quarter                       |               |       | 23.51 |  |  |       | 11.25 | 
|                              | Fourth Quarter                      |               |       | 22.65 |  |  |       | 10.05 | 

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|                       |                         |               |  |       |  |  |  |       | 
|---------------------- | ----------------------- | ------------- |  | ----- |  |  |  | ----- | 
|                       |                         |              
|                       |                         | Price Per ADS
|                       |                         |              
|                       |                         | High          |  | Low  
|                       |                         |               |  |      
|                       |                         |              
|                       |                         | (in U.S.$)   
|Monthly Highs and Lows |                         |               |  |       |  |  |  |      
|2002                   |                         |               |  |       |  |  |  |      
|                       | July                    |               |  | 23.51 |  |  |  | 17.80 | 
|                       | August                  |               |  | 21.44 |  |  |  | 16.33 | 
|                       | September               |               |  | 18.10 |  |  |  | 11.25 | 
|                       | October                 |               |  | 19.30 |  |  |  | 10.05 | 
|                       | November                |               |  | 22.65 |  |  |  | 18.73 | 
|                       | December                |               |  | 22.47 |  |  |  | 19.20 | 
|2003                   |                         |               |  |       |  |  |  |      
|                       | January                 |               |  | 25.00 |  |  |  | 21.16 | 
|                       | February                |               |  | 23.66 |  |  |  | 20.74 | 
|                       | March (through March 7) |               |  | 20.51 |  |  |  | 19.29 | 

On March 7, 2003, the closing sales price
per ADS on the NYSE was U.S.$ 19.50, as reported on the NYSE
Composite Tape.

Item 10.     Additional
Information

Articles of Incorporation

Organization and Register

SAP AG is a stock corporation organized in the
Federal Republic of Germany under the Stock Corporation Act
(Aktiengesetz). SAP AG is registered in the Commercial
Register (Handelsregister) maintained by the lower court
in Heidelberg, Germany, under the entry number
HRB 269-Wie. SAP AGs official notices are
published in the Federal Gazette (Bundesanzeiger); starting
January 1, 2003, SAP AGs official notes will be published
in the Internet version of the Federal Gazette
(www.ebundesanzeiger.de).

Corporate Governance

In contrast to corporations organized in the
United States, SAP AG, as a German stock corporation, is
governed by three separate bodies: the Supervisory Board, the
Executive Board and the annual general shareholders
meeting. Their roles are defined by German law and by SAP
AGs Articles of Incorporation (Satzung), and may be
described generally as follows:

The Supervisory Board

The Supervisory Board appoints and removes the
members of the Executive Board and oversees the management of
the corporation. Although prior approval of the Supervisory
Board may be required in connection with certain significant
matters, the law prohibits the Supervisory Board from making
management decisions. The Supervisory Board is also responsible
for representing SAP AG with respect to the Executive Board
members.

The Supervisory Board currently consists of 16
members, of which eight members are elected by SAP AGs
shareholders at a general shareholders meeting and eight
members are elected by SAP AGs employees pursuant to the
German Co-determination Act of 1976 (Mitbestimmungsgesetz).
Under German law, shareholders and employees of all corporations
with more than 2,000 employees elect or appoint an equal number
of representatives to the Supervisory Board. Since the number of
SAP AGs and its affiliates employees in Germany
exceeded 10,000 in 2001, the Supervisory Board was enlarged to
16 members subsequent to the shareholders meeting in May
2002, from the previous total number of members of the
Supervisory Board of 12, of which six were elected by the
shareholders and six were elected by SAP employees. Any
Supervisory Board member elected by the shareholders at the
general shareholders meeting may be removed by two-thirds
of the

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votes cast at a general shareholders
meeting. Any Supervisory Board member elected by the employees
may be removed by three-quarters of the votes cast by the
employees.


The Supervisory Board chooses a Chairman and a
Deputy Chairman from among its members by a majority vote of its
members. If such majority is not reached on the first vote, the
Chairman will be chosen solely by the members elected by the
shareholders, and the Deputy Chairman will be chosen solely by
the members elected by the employees. Unless otherwise provided
for by law, the Supervisory Board acts by simple majority. In
the case of any deadlock, the Chairman has the deciding vote.

The members of the Supervisory Board are each
elected for the same fixed term of approximately five years. The
term expires at the close of the annual general
shareholders meeting after the fourth fiscal year
following the year in which the Supervisory Board was elected
unless the general shareholders meeting specifies a
shorter term of office when electing individual members of the
Supervisory Board or the entire Supervisory Board. Reelection is
possible. The term of a member of the Supervisory Board
appointed by a court to cure a deficiency in the composition of
the Supervisory Board ends at the time when such deficiency is
cured. The term of a member of the Supervisory Board elected by
the shareholders to succeed a departing member ends at the time
when the term of the original member would have ended. A
substitute member of the Supervisory Board may be elected by the
shareholders at the same time as a member to replace such member
in case he or she departs. The term of a substitute member who
replaces a departing member ends with the conclusion of the next
general shareholders meeting where members of the
Supervisory Board are elected or, at the latest, at the time
when the term of the original member would have ended. The
remuneration of the members of the Supervisory Board is
determined by the Articles of Incorporation.

The Supervisory Board may appoint committees from
among its members and may, to the extent permitted by law,
entrusts committees with the authority to make decisions. Until
May 2002 seven committees existed: the Audit Committee
(Bilanzprüfungsausschuss), the Compensation Committee
(Personalausschuss), the Technology Committee
(Technologieausschuss), the Venture Capital Committee
(Venture-Capital-Ausschuss), the Finance Committee
(Finanzausschuss), the Mediation Committee
(Vermittlungsausschuss) and the Corporate Governance Committee
(Corporate Governance-Ausschuss). After the election of the
Supervisory Board at the general shareholders meeting in
2002 the committees were restructured. Currently, the
Supervisory Board maintains the following committees:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The focus of the Audit Committee(Bilanzprüfungsausschuss) is the discussion and the
    monitoring of the independent auditors reports about SAP
    companies and SAP AG financial statements as well as the
    summarized reviews of SAP companies and SAP AG operations. The
    Audit Committee proposes the appointment of the auditor and its
    compensation to the Supervisory Board, determines special audit
    areas and discusses critical accounting policies with and
    reviews audit issues identified by the auditor. Also, a process
    regarding the prior approval of all non-audit services of the
    auditor by the Audit Committee was established. The committee
    also reports on internal audit processes to the Supervisory
    Board.
|
| |  | The General Committee(Präsidialausschuss) was assigned the granting of LTI
    2000 and SAP SOP 2002 convertible bonds and/or stock options to
    all recipients with the exception of SAP AG Executive Board
    members. Additionally, this committee coordinates the
    Supervisory Boards agenda and meetings and deals with
    corporate governance issues.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The Compensation Committee(Personalausschuss) grants LTI 2000 and SAP SOP 2002
    convertible bonds and/or stock options to SAP AG Executive Board
    members, and was assigned the conclusion of employment contracts
    with and the determination of the remuneration of Executive
    Board members, the granting of loans to senior management with
    special power of attorney and general personnel-related issues.                                                                                                                                                                                                                                                                                                                                           
|
| |  | Amongst the tasks of the Finance and
    Investment Committee (Finanz- und Investitionsausschuss) are
    the approval and report to the Supervisory Board of venture
    capital investments above
     7.5 million
    and other investments between
     50 million
    and
     100 million.
    It also addresses general financing issues.                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Required by the German Co-determination Act of
    1976 (Mitbestimmungsgesetz), the Mediation Committee
    (Vermittlungsausschuss) convenes only if the two-thirds majority
    required for appointing/ revoking the appointment of Executive
    Board members is not attained.
|
| |  | The Technology Committee(Technologieausschuss) monitors technology trends and
    provides the Supervisory Board with in-depth technical knowledge.                                                                                                                               

The Executive Board

The Executive Board manages the
corporations business and represents it in dealings with
third parties. The Executive Board submits regular reports to
the Supervisory Board about SAP operations and business
strategies, and prepares special reports upon request. A person
may not serve on the Executive Board and the Supervisory Board
of a corporation at the same time.

Pursuant to the Articles of Incorporation, the
Executive Board must consist of at least two members. Any two
members of the Executive Board jointly or one member of the
Executive Board and the holder of a special power of attorney
jointly may legally represent SAP AG. Each member of the
Executive Board is appointed by the Supervisory Board for a
maximum term of five years and is eligible for reappointment
thereafter. Under certain circumstances, such as a serious
breach of duty or following a vote of no confidence
(Vertrauensentzug) by a majority of shareholders at a general
shareholders meeting, a member of the Executive Board may
be removed by the Supervisory Board prior to the expiration of
such term. A member of the Executive Board may not vote on
matters relating to certain contractual agreements between such
member and SAP and may be liable to SAP if such member has a
material interest in any contractual agreement between SAP and a
third party, which was not disclosed to, and approved by, the
Supervisory Board.

Under German law, SAP AGs Supervisory Board
members and Executive Board members owe a duty of loyalty and
care to SAP AG. They must exercise the standard of care of a
prudent and diligent businessman and bear the burden of proving
they did so if their actions are contested. Both boards must
consider the interests of SAP AGs shareholders and our
employees and, to some extent, the common interest. Those who
violate their duties may be held jointly and severally liable
for any resulting damages, unless their actions were validly
approved by resolution at a shareholders meeting.

The corporate governance standards and guidelines
that SAPs Executive Board and Supervisory Board follow in
carrying out their duties are collected in the SAPs
Principles of Corporate Governance. In the interest of
transparency, the Executive Board and Supervisory Board
formalized the SAP corporate governance principles in October
2001 for the benefit of shareholders, customers, employees, and
other stakeholders. The corporate governance principles are
available on our website (www.sap.com). In February 2002
the German government published the German Code of Corporate
Governance (German Code), which was issued by a
government appointed commission. The German Code recommends
specific governance practices. After a change in the German
Stock Corporation Act, the supervisory board and the executive
board of a listed company are required to declare annually
whether or not the company complies with these recommendations.
Based on the German Code SAP examined its own principles to see
if they could be improved. A large majority of the
recommendations of the German Code were incorporated into
SAPs principles and an update of SAPs
Principles of Corporate Governance was published in August
2002. In accordance with the new German legal requirement SAP
documented deviations from the German Code in the declaration of
compliance, which is also available on the SAP website.

The Annual General Shareholders
Meeting

The annual general shareholders meeting
ratifies the actions of SAP AGs Supervisory Board and the
Executive Board. It approves the amount of the appropriation of
retained earnings, the appointment of an independent auditor and
certain significant corporate transactions. The Executive Board
calls the annual general shareholders meeting. The annual
general shareholders meeting must be held within the first
eight months of each fiscal year.

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Objectives and Purposes

Section 2 of SAP AGs Articles of
Incorporation states that our objectives involve direct or
indirect activity in the area of development, production and
marketing of products and the provisions of services in the
field of information technology, including:



| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 related equipment; and                                       
|
| |  | 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.

SAP AG is authorized to act in all the business
areas listed above and to delegate such activities to affiliated
enterprises within the meaning of the German Stock Corporation
Act; in particular SAP AG is authorized to delegate its business
in whole or in part to such enterprises. SAP AG is authorized to
establish branch offices in Germany and other countries, as well
as to form, acquire or invest in other companies of the same or
related kind and to enter into collaboration and joint venture
agreements. SAP AG is further authorized to invest in
enterprises of all kinds principally for the purpose of placing
financial resources. SAP AG 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 shareholdings.

Share Capital

As of December 31, 2002 the share capital of
SAP AG amounts to
 314,962,606
consisting of 314,962,606 no-par ordinary shares. The ordinary
shares are issued only in bearer form.

SAP AGs shareholders approved at the annual
general shareholders meeting and a special meeting of
holders of preference shares held on May 3, 2001 the
conversion of each preference share into one ordinary share. The
conversion was effective as of June 18, 2001.

Some of the significant provisions under German
law and SAP AGs Articles of Incorporation relating to the
capital stock of SAP AG may be summarized as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capital Increases.The capital stock may be increased in
    consideration of contributions in cash or in property, or by
    establishing authorized capital or contingent capital or by
    share capital reserves. Authorized capital provides the
    Executive Board with the flexibility to issue new shares for a
    period of up to five years, generally to preserve liquidity.
    Contingent capital allows the Executive Board to issue new
    shares for specified purposes, including employee stock option
    plans and the issuance of shares upon conversion of convertible
    bonds and exercise of stock options. Capital increases of
    ordinary shares require an amendment of the Articles of
    Incorporation approved by 75% of the issued shares present at
    the general shareholders meeting at which the increase is
    proposed. The Executive Board must also obtain the approval of
    the Supervisory Board before issuing new shares. SAP AGs
    Articles of Incorporation do not contain conditions regarding
    changes in the capital stock that are more stringent than the
    law requires.
|
| |  | Authorized and Contingent Capital.Information regarding our authorized
    and contingent capital is included in note 23 of our
    consolidated financial statements included herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Capital Reduction.The share capital may be reduced by an
    amendment of the Articles of Incorporation approved by 75% of
    the issued shares present at the general shareholders
    meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Preemptive Rights.Shareholders have preemptive rights
    for capital increases. Subject to an authorization of the
    shareholders meeting and consent of the Supervisory Board,
    these preemptive rights may be excluded by the Executive Board.                                                                                                                                                                                                         
|
| |  | Liquidation.If SAP
    AG were to be liquidated, any liquidation proceeds remaining
    after all of our liabilities were paid would be distributed to
    our shareholders in proportion to their shareholdings.                                                                                                                                                                                                                                               
|
| |  | No Limitation on the right to own securities,
    including on Foreign Ownership.With
    the exception to buy back treasury stock by a stock corporation,
    which is limited to 10 % of the share capital, there are no
    limitations under German law or in SAP AGs Articles of
    Incorporation on the right to own securities, including on the
    right of persons who are not citizens or residents of Germany to
    hold or vote ordinary shares.

According to the German stock corporation law,
the rights of shareholders can not be amended without
shareholders consent. The Articles of Incorporation do not
provide more stringent conditions than are required by German
law.

Voting Rights

Each ordinary share represents one vote.
Cumulative voting is not permitted under German law. SAP
AGs Articles of Incorporation provide that resolutions are
passed at general shareholders meetings by a majority of
votes cast, unless the law requires a higher vote. Additionally,
German law requires that the following matters, among others, be
approved by the affirmative vote of 75% of the issued shares
present at the general shareholders meeting at which the
matter is proposed:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | changing the objectives provision in the articles
    of incorporation;     
|
| |  | capital increases and capital decreases;                                    
|
| |  | excluding preemptive rights of shareholders to
    subscribe for new shares;
|
| |  | dissolution;                                                                
|
| |  | a merger into, or a consolidation with, another
    company;                
|
| |  | a transfer of all or virtually all of the assets;
    and                   
|
| |  | a change of corporate form.                                                 

Shareholder Meetings

The Executive Board calls the annual general
shareholders meeting. The Supervisory Board or the
Executive Board may call an extraordinary meeting of the
shareholders, if the interests of the stock corporation so
require. Additionally, shareholders of SAP AG holding in the
aggregate at least 5% of SAP AGs issued share capital may
call an extraordinary meeting of the shareholders.

Among other things, the annual general
shareholders meeting is asked to ratify the actions of the
Executive Board and the Supervisory Board during the prior year,
approve the distribution of the corporations profits and
to appoint an independent auditor. Shareholder representatives
to the Supervisory Board are elected at the annual general
shareholders meeting for terms of approximately five years.

Amendments to our Articles of Incorporation and
other items for the agenda may be proposed either by our
Supervisory Board and Executive Board, or by a shareholder or
group of shareholders holding a minimum of either 5% of the
issued shares or shares representing at least
 500,000 of the
companys capital stock.

Change in Control

There are no provisions in the Articles of
Incorporation of SAP AG that would have an effect of delaying,
deferring or preventing a change in control of SAP AG and that
would only operate with respect to a merger, acquisition or
corporate restructuring involving it or any of its subsidiaries.

74



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On January 1, 2002, the German Takeover Act
(Wertpapiererwerbs- und Übernahmegesetz) became
effective. It requires, among other things, that a bidder
seeking control of a company with its corporate seat in Germany
and traded on a European Union stock exchange must publish
advance notice of a tender offer, submit a draft offer statement
to the Federal Authority for Financial Services Supervision
(Bundesanstalt für Finanzdienstleistungsaufsicht)
for review, and obtain certification from a qualified financial
institution that adequate financing is in place to complete the
offer. Once a bidder has acquired shares representing 30% of the
voting power, it must make an offer for all remaining shares of
the target. The Takeover Act requires the Executive Board of the
target to refrain from taking any measures that may frustrate
the success of the takeover offer. However, the target executive
board is permitted to take any action which a prudent and
diligent management of a company that is not the target of a
takeover bid would also take. Moreover, the target executive
board may search for other bidders and, with the prior approval
of the supervisory board, may take other defensive measures,
provided that both boards act within the parameters of their
general authority under the German Stock Corporation Act. An
executive board may also adopt specific defensive measures if
such measures have been approved by the supervisory board and
were specifically authorized by the shareholders no later than
eighteen months in advance of a takeover bid by resolution of
75% of the votes cast.

Disclosure of Share Holdings

SAP AGs Articles of Incorporation do not
require shareholders to disclose their share holdings. The
Securities Trading Act (Wertpapierhandelsgesetz),
however, requires holders of voting securities of a corporation
whose shares are listed on a stock exchange to notify SAP AG of
the number or shares they hold if that number reaches, exceeds
of falls below specified thresholds. These thresholds are 5%,
10%, 25%, 50% and 75% of the corporations outstanding
voting rights.

Currency Conversion 
Dividends

See Item 3. Key
Information  Dividends and Item 8.
Financial Information  Dividend Policy.

Material Contracts

We do not believe that any one particular
contract, if terminated, would have a material adverse effect on
our business, results of operations, financial condition or cash
flows.

Exchange Controls and Other Limitations
Affecting Security Holders

The euro is a fully convertible currency. At the
present time, Germany does not restrict the export or import of
capital, except for investments in certain areas in accordance
with applicable resolutions adopted by the United Nations and
the European Union. However, for statistical purposes only,
every individual or corporation residing in Germany
(Resident) must report to the German Central Bank
(Deutsche Bundesbank), subject only to certain immaterial
exceptions, any payment received from or made to an individual
or a corporation residing (Non-Resident) outside of
Germany if such payment exceeds
 12,500 (or the
equivalent in a foreign currency). In addition, German Residents
must report any claims against or any liabilities payable to
Non-Residents if such claims or liabilities, in the aggregate,
exceed 
5 million (or the equivalent in a foreign currency) at the
end of any calendar month. Residents are also required to report
annually to the German Central Bank any shares or voting rights
of 10% or more they hold in non-resident corporations with total
assets of more than
 3 million.
Corporations residing in Germany with assets in excess of
 3 million
must report annually to the German Central Bank any shares or
voting rights of 10% held by a Non-Resident. For a discussion of
the treatment of remittance of dividends, interest or other
payments to Non-Resident holders of ADSs or ordinary shares, see
below  Taxation  German Taxation of
Holders of ADSs or Ordinary Shares.

There are no limitations imposed by German law or
the Articles of Incorporation of SAP AG on the right of
non-residents or foreign holders to hold the ADSs or ordinary
shares or to receive dividends or other payments on such shares.

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Taxation

General

The following discussion summarizes certain
German tax and U.S. federal income tax consequences of the
acquisition, ownership and disposition of ADSs or ordinary
shares. Although the following discussion does not purport to
describe all of the tax considerations that may be relevant to a
prospective purchaser of ADSs or ordinary shares, such
discussion: (i) summarizes the material German tax
consequences to a holder of ADSs or ordinary shares; and
(ii) summarizes certain material U.S. federal income tax
consequences to a U.S. Holder (as hereinafter defined) of ADSs
or ordinary shares that is not resident (in the case of an
individual) or domiciled (in the case of a legal entity), as the
case may be, in Germany (in either case, referred to herein as
not resident or as a non-resident) and
does not have a permanent establishment or fixed base located in
Germany through which such ADSs or ordinary shares are held.

German Taxation of Holders of ADSs or
Ordinary Shares

The following discussion generally summarizes the
principal German tax consequences of the acquisition, ownership
and disposition of ADSs or ordinary shares to a beneficial
owner. This summary is based on the laws that are in force at
the date of this Annual Report on Form 20-F and is subject
to any changes in German law, or in any applicable double
taxation conventions to which Germany is a party, occurring
after such date. This discussion is also based, in part, on
representations of the Depositary and assumes that each
obligation of the Deposit Agreement and any related agreements
will be performed in accordance with its terms.

The following discussion is not a complete
analysis or listing of all potential German tax consequences to
holders of ADSs or Ordinary Shares and does not address all tax
considerations that may be relevant to all categories of
potential purchasers or owners of ADSs or Ordinary Shares. In
particular, the following discussion does not address the tax
consequences for: (i) a person that owns, directly or
indirectly, 1% or more of SAP AGs shares; (ii) a
holding which forms part of a German permanent establishment of
a person not resident in Germany; or (iii) a person that is
resident in Germany and at the same time resident in another
country.

OWNERS AND PROSPECTIVE PURCHASERS OF ADSs OR
ORDINARY SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE OVERALL GERMAN TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION THEREOF.

For purposes of applying German tax law and the
double tax conventions to which Germany is a party, a holder of
ADSs will generally be treated as owning the ordinary shares
represented thereby.

German Taxation of Dividends

With regard to the taxation of dividends, the
half-income system applies. Under this system only half of the
distributed profits of a corporation will be included in the
personal income tax base of an individual shareholder resident
in Germany. It is not possible to credit the corporation tax
paid by the company against the shareholders income tax.
Dividends received by corporate shareholders domiciled in
Germany will be tax-exempt in order to avoid double taxation.
These rules have some exceptions, which especially apply to
financial institutions.

Based on these considerations the German taxation
of dividends can be summarized as follows:

Under German domestic income tax laws, German
corporations are required to withhold tax on dividends in an
amount equal to 20% of the gross amount paid to resident and
non-resident shareholders. As the basis for deduction of the
withholding tax is the gross amount, withholding tax will be
deducted on the taxable and tax-exempt portion of the dividend
received. A 5.5% surtax on the German withholding tax is
currently levied on dividend distributions paid by a German
corporation, such as SAP AG. The surtax equals 1.1% (5.5% of
20%) of the gross amount of a cash dividend. Certain persons
resident in Germany (e.g., qualifying investment funds or
tax-exempt organizations) may obtain a partial or full refund of
such taxes.

For an individual holder of ADSs or ordinary
shares that is resident in Germany, according to German income
tax law, half of the dividends received are subject to German
income tax. For such a holder, the taxable amount will be the
sum of: (i) half of the cash payment by SAP AG and
(ii) half of the taxes withheld. For a

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corporate holder of ADSs or ordinary shares that
is domiciled in Germany, according to German income tax law,
dividends are exempt from corporation tax. These rules have some
exceptions, which especially apply to financial institutions.


Subject to certain conditions, the tax withheld
on the gross amount will be eligible for credit against the
holders income tax or corporation tax liability. Exceeding
amounts are refunded upon filing and assessment of the tax
return. For holders subject to German trade tax, such tax is
imposed in general only on the amount of the dividends received,
which is subject to income tax. On the portion of the dividends
received which is exempt from income tax or corporation tax,
trade tax will become due if the holder of ADSs or ordinary
shares does not own at least 10% of the shares in the
distributing corporation at the beginning of the tax year.

Refund of German Tax to U.S. Holders

A partial refund of the 20% withholding tax equal
to 5% of the gross amount of the dividend and a full refund of
the surtax can be obtained by a U.S. Holder (as hereinafter
defined) under the U.S.-German income tax treaty (Convention
between the Federal Republic of Germany and the United States of
America for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with respect to taxes on Income, German
Federal Law Gazette 1991 II page 355) (the Treaty).
Thus, for each U.S.$ 100 of gross dividends paid by SAP AG
to a U.S. Holder, the dividends after partial refund of the 20%
withholding tax and a refund of the surtax under the Treaty will
be subject to a German withholding tax of U.S.$ 15.

U.S. Holders were entitled to a further refund
equal to 5% of the gross amount of the dividend in accordance
with the Treaty so long as the German imputation system provided
German resident individual shareholders with a tax credit for
corporation taxes with respect to dividends paid by German
corporations. The German full imputation system has been
repealed with effect of the tax year 2002 for distributing
companies whose fiscal year is the calendar year such as SAP AG.

To claim the refund of amounts withheld in excess
of the Treaty rate, a U.S. Holder must submit (either directly
or, as described below, through the Depositary) a claim for
refund to the German tax authorities, with, in the case of a
direct claim, the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax
withheld, within four years from the end of the calendar year in
which the dividend is received. Claims for refund are made on a
special German claim for refund form, which must be filed with
the German tax authorities: Bundesamt für Finanzen, 53221
Bonn, Germany. The German claim for refund form may be obtained
from the German tax authorities at the same address where
applications are filed, or from the Embassy of the Federal
Republic of Germany, 4645 Reservoir Road, N.W., Washington, D.C.
20007-1998.

U.S. Holders must also submit to the German tax
authorities certification of their most recently filed U.S.
federal income tax return (IRS Form 6166). Certification is
obtained from the office of the Director of the Internal Revenue
Service Center by filing a request for certification with the
Internal Revenue Service (IRS), Philadelphia Service
Center Foreign Certification Request, P.O. Box 16347,
Philadelphia, PA 19114-0447. Requests for certification are to
be made in writing and must include the U.S. Holders name,
social security number or employer identification number, tax
return form number, and tax period for which certification is
requested. This certification is valid for three years and need
only be resubmitted in a fourth year in the event of a
subsequent application for refund.

In accordance with arrangements under the Deposit
Agreement, the Depositary (or a custodian as its designated
agent) holds the ordinary shares and receives and distributes
dividends to the U.S. Holders. The Depositary has agreed, to the
extent practicable, to perform administrative functions
necessary to obtain the refund of amounts withheld in excess of
the Treaty rate for the benefit of U.S. Holders who supply the
necessary documentation.

Under the Deposit Agreement, the Depositary has
agreed to send to the U.S. Holders of ADSs a notice explaining
how to claim a refund, the form required to obtain the IRS
Form 6166 certification and the German claim for refund
form. The notice will describe how to obtain the certification
on IRS Form 6166. In order to claim a refund, the U.S.
Holder should deliver the certification provided to it by the
IRS to the Depositary along with the completed claim for refund
form. In the case of ADSs held through a broker or other
financial

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intermediary, the required documentation should
be delivered to such broker or financial intermediary for
forwarding to the Depositary. In all other cases, the U.S.
Holders should deliver the required documentation directly to
the Depositary. The Depositary will file the required
documentation with the German tax authorities on behalf of the
U.S. Holders.


The German tax authorities will issue the
refunds, which will be denominated in euros, in the name of the
Depositary. The Depositary will convert the refunds into Dollars
and issue corresponding refund checks to the U.S. Holders or
their brokers.

Refund of German Tax to Holders of ADSs or
Ordinary Shares in Other Countries

A holder of ADSs or ordinary shares resident in a
country other than Germany or the United States that has a
double taxation convention with Germany may obtain a full or
partial refund of German withholding taxes. Rates and procedures
may vary according to the applicable treaty. For details, such
holders are urged to consult their own tax advisors.

Taxation of Capital Gains

Half of a capital gain derived from the sale or
other disposition by an individual holder resident in Germany of
ADSs or ordinary shares is subject to income tax if the ADSs or
ordinary shares are held as part of his or her trade or business
or if the ADSs or ordinary shares held as part of his or her
private assets are sold within a period of one year after
acquisition.

Under the draft of the Tax Subsidies Reduction
Act (Steuervergünstigungsabbaugesetz) it is
envisaged to abolish the one year period. If the draft becomes
law, half of a capital gain from the sale of privately held
shares would be subject to income tax at a special rate of 15%.
For shares acquired before the date of the legislative
resolution, it is envisaged that the capital gain in principle
amounts to 10% of the sales price.

A capital gain derived from the sale or other
disposition by a corporate holder domiciled in Germany of ADSs
or ordinary shares in general is exempt from corporation tax.
These rules have some exceptions, which especially apply to
financial institutions.

Special rules apply for individual and corporate
holders resident in Germany if the shares have been received in
the course of a tax-exempt reorganization.

For holders subject to German trade tax, such tax
is imposed in general only on the portion of the capital gain,
which is subject to income tax. Special rules may apply for
shares hold indirectly via trading partnerships.

The above mentioned half-income system therefore
does apply to the taxation of dividends and capital gains.

A holder resident or domiciled in a country other
than Germany is not subject to German income or corporation tax
on the capital gain derived from the sale or other disposition
of ADSs or ordinary shares.

Other German Taxes

There are no German net worth, transfer, stamp or
similar taxes on the holding, purchase or sale of ADSs or
ordinary shares.

German Estate and Gift Taxes

A transfer of ADSs or ordinary shares by gift or
by reason of death of a holder will be subject to German gift or
inheritance tax, respectively, if one of the following persons
is resident in Germany: the donor or transferor or his or her
heir, or the donee or other beneficiary. If one of the
aforementioned persons is resident in Germany and another is
resident in a country having a treaty with Germany, regarding
gift or inheritance taxes, different rules may apply. If none of
the aforementioned persons is resident in Germany, the transfer
is not subject to German gift or inheritance tax. For persons
giving up German residence, special rules apply during the first
five years, and under specific circumstances, during the first
ten years, after the end of the year in which the person left
Germany. In general, in the case of a U.S. Holder, a transfer of
ADSs or ordinary shares by gift or by reason

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of death that would otherwise be subject to
German gift or inheritance tax, respectively, will not be
subject to such German tax by reason of the U.S.-German estate
tax treaty (Convention between the Federal Republic of Germany
and the United States of America for the Avoidance of Double
Taxation with respect to Estate, Gift and Inheritance Taxes,
German Federal Law Gazette 1982 II page 847, amended by the
Protocol of September 15, 2000, German Federal Law Gazette
2000 II, page 1170 and as published on December 21, 2000,
German Federal Law Gazette 2001 II, page 65) (the Estate
Tax Treaty) unless the donor or transferor, or the heir,
donee or other beneficiary, is domiciled in Germany for purposes
of the Estate Tax Treaty between the United States and Germany
at the time of the making of the gift or at the time of the
donors or transferors death.


In general, the Estate Tax Treaty provides a
credit against U.S. federal estate and gift tax liability for
the amount of inheritance and gift tax paid in Germany, subject
to certain limitations, in a case where the ADSs or ordinary
shares are subject to German inheritance or gift tax and U.S.
federal estate or gift tax.

U.S. Taxation of U.S. Holders of Ordinary
Shares or ADSs

The following discussion generally summarizes
certain U.S. federal income tax consequences of the acquisition,
ownership and disposition of ADSs or ordinary shares to a
beneficial owner: (i) who is an individual citizen or
resident of the United States or a corporation organized under
the laws of the United States or any political subdivision
thereof, an estate whose income is subject to U.S. federal
income tax regardless of its source or a trust, if a U.S. court
can exercise primary supervision over its administration and one
or more United States persons are authorized to control all
substantial decisions of the trust; (ii) who is not
resident in Germany for German tax purposes; (iii) whose
holding of ADSs or ordinary shares does not form part of the
business property or assets of a permanent establishment or
fixed base in Germany; and (iv) who is fully entitled to
the benefits of the Treaty in respect of such ADSs or ordinary
shares (a U.S. Holder).

This summary deals only with ADSs and ordinary
shares that are held as capital assets and does not address tax
considerations applicable to U.S. Holders that may be subject to
special tax rules, such as dealers or traders in securities,
financial institutions, insurance companies, tax-exempt
entities, regulated investment companies, U.S. Holders that hold
ordinary shares or ADSs as a part of a straddle, conversion
transaction or other arrangement involving more than one
position, U.S. Holders that own (or are deemed for U.S. tax
purposes to own) 10% or more of the total combined voting power
of all classes of voting stock of SAP AG, U.S. Holders that have
a principal place of business or tax home outside
the United States or U.S. Holders whose functional
currency is not the Dollar and U.S. Holders that hold ADSs
or ordinary shares through partnerships or other pass-through
entities.

The discussion below is based upon the U.S.
Internal Revenue Code of 1986, as amended (the
Code), the Treaty and regulations, rulings and
judicial decisions there under at the date of this Annual Report
on Form 20-F. Any such authority may be repealed, revoked
or modified, perhaps with retroactive effect, so as to result in
U.S. federal income tax consequences different from those
discussed below. No assurance can be given that the conclusions
set out below would be sustained by a court if challenged by the
IRS. The discussion below is based, in part, on representations
of the Depositary, and assumes that each obligation in the
Deposit Agreement and any related agreements will be performed
in accordance with its terms.

For changes caused by the German Tax Reduction
Act and the Act on Further Development of Company Taxation
especially with regard to withholding taxes on dividends and the
taxation of capital gains and foreign tax credits, please refer
to the statements above in the section 
Taxation  German Taxation of Holders of ADSs or
ordinary shares. As mentioned, in the case of SAP AG the
new rules in principle will be effective from the tax year 2002.

THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS
A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN ADSs OR ORDINARY SHARES. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE APPLICATION TO
THEIR PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED
BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL OR FOREIGN TAX
LAW. THE STATEMENTS OF U.S. TAX LAW SET OUT BELOW ARE BASED ON
THE LAWS IN FORCE AND

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INTERPRETATIONS THEREOF AT THE DATE OF THIS
ANNUAL REPORT ON FORM 20-F AND ARE SUBJECT TO ANY CHANGES
OCCURRING AFTER THAT DATE.


For U.S. federal income tax purposes, a U.S.
Holder of ADSs will be considered to own the ordinary shares
represented thereby. Accordingly, unless the context otherwise
requires, all references in this section to ordinary shares are
deemed to refer likewise to ADSs representing an ownership
interest in ordinary shares.

Distributions

Subject to the discussion below under
Passive Foreign Investment Company Considerations,
distributions made by SAP AG with respect to ordinary shares
(other than distributions in liquidation and certain
distributions in redemption of stock), including the amount of
German tax deemed to have been withheld in respect of such
distributions, will be taxed to U.S. Holders as ordinary
dividend income to the extent that such distributions do not
exceed the current and accumulated earnings and profits of SAP
AG as computed for U.S. federal income tax purposes. As
discussed above, a U.S. Holder may obtain a refund of German
withholding tax to the extent that the German withholding tax
exceeds 15% of the amount of the associated distribution. For
example, if SAP AG distributes a cash dividend equal to
U.S.$ 100 to a U.S. Holder, the distribution currently will
be subject to German withholding tax of U.S.$ 20 plus
U.S.$ 1.10 surtax, and the U.S. Holder will receive
U.S.$ 78.90. If the U.S. Holder obtains the Treaty refund,
he will receive an additional U.S.$ 6.10 from the German
tax authorities. For U.S. tax purposes, such U.S. Holder will be
considered to have received a total distribution of
U.S.$ 100, which will be deemed to have been subject to
German withholding tax of U.S.$ 15 (15% of U.S.$100)
resulting in the net receipt of U.S.$ 85. Distributions, if
any, in excess of SAP AGs current and accumulated earnings
and profits will constitute a non-taxable return of capital to a
U.S. Holder and will be applied against and reduce the U.S.
Holders tax basis in his or her ordinary shares. To the
extent that such distributions exceed the tax basis of the U.S.
Holder in his or her ordinary shares, the excess generally will
be treated as capital gain.

In the case of a distribution in euros, the
amount of the distribution generally will equal the Dollar value
of the euros distributed (determined by reference to the spot
currency exchange rate on the date of receipt of the
distribution (receipt by the Depositary in the case of a
distribution on ADSs)), regardless of whether the holder in fact
converts the euro into Dollars, and the U.S. Holder will not
realize any separate foreign currency gain or loss (except to
the extent that such gain or loss arises on the actual
disposition of foreign currency received).

Dividends paid by SAP AG generally will
constitute portfolio income for purposes of the
limitations on the use of passive activity losses (and,
therefore, generally may not be offset by passive activity
losses) and as investment income for purposes of the
limitation on the deduction of investment interest expense.
Dividends paid by SAP AG will not be eligible for the dividends
received deduction generally allowed to U.S. corporations under
Section 243 of the Code.

Under certain circumstances, a U.S. Holder may be
deemed to have received a distribution for U.S. federal income
tax purposes upon an adjustment, or the failure to make an
adjustment, to the conversion price of the 1994 Bonds.

Sale or Exchange

In general, assuming that SAP AG at no time is a
passive foreign investment company, upon a sale or exchange of
ordinary shares to a person other than SAP AG, a U.S. Holder
will recognize gain or loss in an amount equal to the difference
between the amount realized on the sale or exchange and the U.S.
Holders adjusted tax basis in the ordinary shares. Such
gain or loss will be capital gain or loss and will be long-term
capital gain (taxable at a reduced rate for individuals) if the
ordinary shares were held for more than one year. A further
reduced tax rate may apply if an individual holds ordinary
shares for more than five years. The deductibility of capital
losses is subject to significant limitations. Upon a sale of
ordinary shares to SAP AG, a U.S. Holder may recognize capital
gain or loss or, alternatively, may be considered to have
received a distribution with respect to the ordinary shares, in
each case depending upon the application to such sale of the
rules of Section 302 of the Code.

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Deposit and withdrawal of ordinary shares in
exchange for ADSs by a U.S. Holder will not result in its
realization of gain or loss for U.S. federal income tax purposes.

Foreign Tax Credit

In general, in computing its U.S. federal income
tax liability, a U.S. Holder may elect for each taxable year to
claim a deduction or, subject to the limitations on foreign tax
credits generally, a credit for foreign income taxes paid or
accrued by it. For U.S. foreign tax credit purposes, subject to
the applicable limitations under the foreign tax credit rules,
the 15% German tax that is treated as having been withheld from
dividends paid to a U.S. Holder will be eligible for credit
against the U.S. Holders federal income tax liability.
Thus, in the numerical example set out above, a U.S. Holder who
receives a cash distribution of U.S.$ 85 from SAP AG
(U.S.$ 100 of the initial distribution net of U.S.$ 20
of German withholding tax and U.S.$ 1.10 of surtax plus the
Treaty refund of U.S.$ 6.10) will be treated as having been
subject to German withholding tax in the amount of U.S.$ 15
(15% of U.S.$ 100) and will be able to claim the U.S.
foreign tax credit, subject to applicable foreign tax credit
limitations, in the amount of U.S.$ 15.

For U.S. foreign tax credit purposes, dividends
paid by SAP AG generally will be treated as foreign-source
income and as passive income (or in the case of
certain holders, as financial services income).
Gains or losses realized by a U.S. Holder on the sale or
exchange of ordinary shares generally will be treated as
U.S.-source gain or loss.

The availability of foreign tax credits depends
on the particular circumstances of each U.S. Holder.
U.S. Holders are advised to consult their own tax advisors.

Foreign Personal Holding Company
Considerations

SAP AG does not believe that it or any of its
subsidiaries currently is a foreign personal holding
company (an FPHC) for U.S. federal income tax
purposes. SAP AG is not aware of any changes that would affect
this conclusion in the foreseeable future. A foreign corporation
is an FPHC for a taxable year if (i) at any time, more than
50% of its stock (by vote or by value) is owned (directly,
indirectly or by attribution) by or for not more than five
individuals who are citizens or residents of the United States
(the ownership requirement) and (ii) at least
60% (50% in certain cases) of its gross income is FPHC income,
which generally includes dividends, interest, royalties (except
certain active business computer software royalties) and other
types of investment income (the income requirement).
If SAP AG or one of its subsidiaries were treated as an FPHC,
then each U.S. Holder owning ADSs or ordinary shares on the last
day in the taxable year on which the ownership requirement with
respect to SAP AG or its subsidiary is met would be required to
include currently in taxable income as a dividend, a pro ratashare of SAP AGs or the subsidiarys
undistributed FPHC income, which is, generally, SAP AGs or
the subsidiarys taxable income with certain adjustments
and after reduction for certain dividend payments.

SAP AG does not believe that the ownership
requirement is met at the date hereof with respect to SAP AG or
any of its subsidiaries. However, there can be no assurance that
the ownership requirement will not be met at some later time.
Whether the income requirement would be met with respect to SAP
AG or any of its subsidiaries at any such later date would
depend on the nature and sources of SAP AGs and each
subsidiarys income at that time.

Passive Foreign Investment Company
Considerations

Classification as a PFIC.Special and adverse U.S. tax rules
apply to a U.S. Holder that holds an interest in a passive
foreign investment company (a PFIC). In
general, a PFIC is any non-U.S. corporation, if (i) 75% or
more of the gross income of such corporation for the taxable
year is passive income (the income test) or
(ii) the average percentage of assets (by value) held by
such corporation during the taxable year that produce passive
income (e.g., dividends, interest, royalties, rents and
annuities) or that are held for the production of passive income
is at least 50% (the asset test). A corporation that
owns, directly or indirectly, at least 25% by value of the stock
of a second corporation must take into account its proportionate
share of the second corporations income and assets in
applying the income test and the asset test.

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Based on current projections concerning the
composition of SAP AGs income and assets, SAP AG does not
believe that it will be treated as a PFIC for its current or
future taxable years. However, because this conclusion is based
on our current projections and expectations as to its future
business activity, SAP AG can provide no assurance that it will
not be treated as a PFIC in respect of its current or any future
taxable years.

Consequences of PFIC Status.If SAP AG is treated as a PFIC for any
taxable year during which a U.S. Holder holds ordinary shares,
then, subject to the discussion of the qualified electing fund
(QEF) and mark-to-market rules below,
such U.S. Holder generally will be subject to a special and
adverse tax regime with respect to any gain realized on the
disposition of the ordinary shares and with respect to certain
excess distributions made to it by SAP AG. The
adverse tax consequences include taxation of such gain or excess
distribution at ordinary-income rates and payment of an interest
charge on tax, which is deemed to have been deferred with
respect to such gain or excess distributions. Under the PFIC
rules, excess distributions include dividends or other
distributions received with respect to the ordinary shares, if
the aggregate amount of such distributions in any taxable year
exceeds 125% of the average amount of distributions from SAP AG
made during a specified base period.

In some circumstances, a U.S. Holder may avoid
certain of the unfavorable consequences of the PFIC rules by
making a QEF election in respect of SAP AG. A QEF election
effectively would require an electing U.S. Holder to include in
income currently its pro ratashare of the ordinary
earnings and net capital gain of SAP AG. However, a U.S. Holder
cannot elect QEF status with respect to SAP AG unless SAP AG
complies with certain reporting requirements and there can be no
assurance that SAP AG will provide such information.

A U.S. Holder that holds marketable
stock in a PFIC may, in lieu of making a QEF election, also
avoid certain unfavorable consequences of the PFIC rules by
electing to mark the PFIC stock to market at the close of each
taxable year. SAP AG expects that the ordinary shares will be
marketable for this purpose. A U.S. Holder that
makes the mark-to-market election will be required to include in
income each year as ordinary income an amount equal to the
excess, if any, of the fair market value of the stock at the
close of the year over the U.S. Holders adjusted tax basis
in the stock. If, at the close of the year, the U.S.
Holders adjusted tax basis exceeds the fair market value
of the stock, then the U.S. Holder may deduct any such excess
from ordinary income, but only to the extent of net
mark-to-market gains previously included in income. Any gain
from the actual sale of the PFIC stock will be treated as
ordinary income, and any loss will be treated as ordinary loss
to the extent of net mark-to-market gains previously included in
income.

Taxation of Holders of ADSs or Ordinary
Shares in Other Countries

HOLDERS OR POTENTIAL HOLDERS OF ADSs OR ORDINARY
SHARES WHO ARE RESIDENT OR OTHERWISE TAXABLE IN COUNTRIES OTHER
THAN GERMANY AND THE UNITED STATES ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE OVERALL TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY
SHARES.

Documents on Display

We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file reports and other
information as a foreign private issuer with the SEC. These
materials, including this Annual Report on Form 20-F and
the exhibits thereto, may be inspected and copied at the
SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the materials may be
obtained from the Public Reference Room of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The public may obtain information on the operation of the
SECs Public Reference Room by calling the SEC in the
United States at 1-800-SEC-0330. The SEC also maintains a Web
site at www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically
with the SEC. Our annual report and some of the other
information submitted by us to the SEC may be accessed through
this Web site. In addition, material filed by SAP can be
inspected at the offices of the New York Stock Exchange at
20 Broad Street, New York, New York 10005.

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Item 11.     Quantitative
and Qualitative Disclosures About Market Risk

To ensure the adequacy and effectiveness of our
foreign exchange hedge positions, and to monitor the risks and
opportunities of our non-hedge portfolios, we continually
monitor our foreign forward and option positions. In addition,
we monitor our interest rate exposure, if any, both on a
stand-alone basis and in conjunction with our underlying foreign
currency risk, from an economic and an accounting perspective.
However, there can be no assurance that the programs described
below with respect to the management of currency exchange and
interest rate risk will offset more than a portion of the
adverse financial impact resulting from unfavorable movements in
either the foreign exchange rates or interest rates. In
addition, we have entered into in the past, and expect to enter
into in the future, derivative instruments to hedge all or a
portion of the anticipated cash flows in connection with the
SARs in the event cash payments to participants are required as
a result of an increase in the market price of the ordinary
shares. There can be no assurance that the benefits achieved
from hedging our STAR Plans exceed the related costs.

Foreign Currency Risk

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 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 30 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. In certain countries,
subsidiaries submit royalties to SAP AG in U.S.$. Because
these royalties are denominated in the local currencies of the
various subsidiaries or U.S.$, whereas the functional currency
of SAP AG is the euro, SAP AGs anticipated cash flows are
subjected to foreign currency exchange risks. In addition, the
delay between the date when the subsidiary records revenue and
the date when the subsidiary remits payment to SAP AG also
exposes us to foreign exchange risk. See Item 5.
Operating and Financial Review and Prospects 
Exchange Rate Exposure.

We enter into derivative instruments, primarily
foreign exchange forward contracts, to protect anticipated cash
flows from foreign subsidiaries from foreign currency exchange
fluctuations. Specifically, these foreign exchange contracts
offset risks associated with fluctuations in anticipated cash
flows and existing intercompany receivables relating to
subsidiaries in countries with significant operations, including
the United States, Japan, the United Kingdom, Switzerland,
Australia and Canada. We use foreign exchange forwards that
generally have maturities of twelve months or less, which are
rolled over if necessary to provide continuing coverage until
the applicable royalties are received.

Generally, anticipated cash flows represent
expected intercompany amounts resulting from revenue generated
within the next twelve months from the purchase date of the
derivative instrument. However, management infrequently extends
the future periods being hedged for a period of up to two years
from the purchase date of the derivative instrument based on our
forecasts and anticipated exchange rate fluctuations in various
currencies.

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The table below provides information about the
derivative financial instruments we have entered into that are
sensitive to foreign currency exchange rates. The table presents
fair values, notional amounts (at the contract exchange rates)
and the respective weighted average contractual foreign currency
exchange rates. The fair values do not reflect any foreign
exchange gains or losses on the underlying intercompany
receivables and payables. In addition, the table below does not
include foreign currency risks associated with third-party
receivables and payables denominated in currencies other than
the functional currency of the reporting subsidiary. See our
consolidated financial statements included in
Item 18. Financial Statements for further
information on our foreign exchange derivative instruments.

|                                                |                                             |                     |         |              |  |  |        |   | 
|----------------------------------------------- | ------------------------------------------- | ------------------- | ------- | ------------ |  |  | ------ | - | 
|                                                |                                             |                    
|                                                |                                             |  (000), except for
|                                                |                                             | exchange rate data 
|                                                |                                             |                    
|                                                |                                             |                     |         | Fair Value  
|                                                |                                             | Contract            |         | December 31,
|Foreign Currency Risk                           |                                             | Notional Amounts    |         | 2002(1)     
|                                                |                                             |                     |         |             
|                                                |                                             | Expected            |         |             
|                                                |                                             | Maturity Date       |         |             
|                                                |                                             | 2003                |         |             
|Derivatives used to manage firm
    commitments |                                             |                     |         |              |  |  |        |  
|                                                | Foreign Currency Forward Contracts          |                     |         |              |  |  |        |   | 
|                                                | (Receive Local Currency, Sell euros)        |                     |         |              |  |  |        |   | 
|U.S. Dollars                                    |                                             |                     | 391,125 |              |  |  | (9,478 | )
|Weighted Average Contractual Exchange Rate      |                                             |                     | 1.0227  |              |  |  |        |  
|Japanese Yen                                    |                                             |                     | 44,391  |              |  |  | (125   | )
|Weighted Average Contractual Exchange Rate      |                                             |                     | 123.90  |              |  |  |        |  
|Swiss Franks                                    |                                             |                     | 44,621  |              |  |  | 290    |  
|Weighted Average Contractual Exchange Rate      |                                             |                     | 1.4567  |              |  |  |        |  
|British Pounds                                  |                                             |                     | 4,919   |              |  |  | (96    | )
|Weighted Average Contractual Exchange Rate      |                                             |                     | 0.6404  |              |  |  |        |  
|                                                | Foreign Currency Forward Contracts          |                     |         |              |  |  |        |   | 
|                                                | (Receive Japanese Yen, Sell U.S. Dollars)   |                     |         |              |  |  |        |   | 
|U.S. Dollars                                    |                                             |                     | 492     |              |  |  | 17     |  
|Weighted Average Contractual Exchange Rate      |                                             |                     | 122.60  |              |  |  |        |  
|                                                | Foreign Currency Forward Contracts          |                     |         |              |  |  |        |   | 
|                                                | (Receive U.S. Dollars, Sell Brazilian Real) |                     |         |              |  |  |        |   | 
|U.S. Dollars                                    |                                             |                     | 1,400   |              |  |  | (12    | )
|Weighted Average Contractual Exchange Rate      |                                             |                     | 3.5560  |              |  |  |        |  
|                                                | Foreign Currency Forward Contracts          |                     |         |              |  |  |        |   | 
|                                                | (Receive British Pounds, Sell U.S. Dollars) |                     |         |              |  |  |        |   | 
|U.S. Dollars                                    |                                             |                     | 10,661  |              |  |  | 306    |  
|Weighted Average Contractual Exchange Rate      |                                             |                     | 1.5537  |              |  |  |        |  
|Foreign Currency Options                        |                                             |                     |         |              |  |  |        |  
|British Pounds                                  |                                             |                     | 15,873  |              |  |  | 31     |  
|Weighted Average Contractual Exchange Rate      |                                             |                     | 0.6300  |              |  |  |        |  

84



---



##### 



|                                                      |                                      |                     |        |              |  |  |       |   | 
|----------------------------------------------------- | ------------------------------------ | ------------------- | ------ | ------------ |  |  | ----- | - | 
|                                                      |                                      |                    
|                                                      |                                      |  (000), except for
|                                                      |                                      | exchange rate data 
|                                                      |                                      |                    
|                                                      |                                      |                     |        | Fair Value  
|                                                      |                                      | Contract            |        | December 31,
|Foreign Currency Risk                                 |                                      | Notional Amounts    |        | 2002(1)     
|                                                      |                                      |                     |        |             
|                                                      |                                      | Expected            |        |             
|                                                      |                                      | Maturity Date       |        |             
|                                                      |                                      | 2003                |        |             
|Derivatives Used to Manage Anticipated Cash
    Flows |                                      |                     |        |              |  |  |       |  
|                                                      | Foreign Currency Forward Contracts   |                     |        |              |  |  |       |   | 
|                                                      | (Receive euros, Sell Local Currency) |                     |        |              |  |  |       |   | 
|Canadian Dollars                                      |                                      |                     | 22,099 |              |  |  | 926   |  
|Weighted Average Contractual Exchange Rate            |                                      |                     | 1.5838 |              |  |  |       |  
|Australian Dollars                                    |                                      |                     | 11,970 |              |  |  | 224   |  
|Weighted Average Contractual Exchange Rate            |                                      |                     | 1.8379 |              |  |  |       |  
|Swiss Franks                                          |                                      |                     | 27,797 |              |  |  | (46   | )
|Weighted Average Contractual Exchange Rate            |                                      |                     | 1.4390 |              |  |  |       |  
|Polish Zloty                                          |                                      |                     | 281    |              |  |  | (6    | )
|Weighted Average Contractual Exchange Rate            |                                      |                     | 4.1559 |              |  |  |       |  
|U.S. Dollars                                          |                                      |                     | 8,786  |              |  |  | 197   |  
|Weighted Average Contractual Exchange Rate            |                                      |                     | 1.0130 |              |  |  |       |  
|Foreign Currency Options                              |                                      |                     |        |              |  |  |       |  
|(Receive euros, Sell Local Currency) U.S. Dollars     |                                      |                     | 67,499 |              |  |  | 1,075 |  
|Weighted Average Contractual Exchange Rate            |                                      |                     | 1.0371 |              |  |  |       |  

|                                                |                                      |               |         |  |  |  |        |  | 
|----------------------------------------------- | ------------------------------------ | ------------- | ------- |  |  |  | ------ |  | 
|                                                |                                      |               |         | 
|                                                |                                      | Expected      |         | 
|                                                |                                      | Maturity Date |         | 
|                                                |                                      | 2004          |         | 
|Derivatives used to manage firm
    commitments |                                      |               |         |  |  |  |        | 
|                                                | (Receive euros, Sell Local Currency) |               |         |  |  |  |        |  | 
|                                                | Foreign Currency Forward Contracts   |               |         |  |  |  |        |  | 
|U.S. Dollars                                    |                                      |               | 715,161 |  |  |  | 36,118 | 
|Weighted Average Contractual Exchange Rate      |                                      |               | 0.9788  |  |  |  |        | 






|    |                                                          
|--- | ---------------------------------------------------------
|(1) | Amounts included on SAPs consolidated
    balance sheet.

Interest Rate Risk

We invest cash primarily in bank time deposits,
marketable equity securities and fixed and variable rate
marketable debt securities. See Item 5.
Operating and Financial Review and Prospects 
Interest Rate Exposure. In 2002, 2001 and 2000, we
invested in funds (the Funds) created by three
creditworthy financial institutions in which such financial
institutions independently trade securities, subject to
guidelines prescribed by us. Such guidelines limited investments
in equity securities to 20% of the total value with remaining
amounts in interest bearing securities. The quoted market prices
of time deposits or fixed rate securities held within the Funds
had no material effect on results of operations or cash flows.
We liquidated these funds in 2002. We have in the past entered
into, and in the future may enter into, interest rate swaps to
better manage the interest income on our cash equivalents and
marketable securities and to partially mitigate the impact of
EMU interest rate fluctuations on these investments. We hold
such derivative instruments for purposes other than trading. No
swaps were outstanding at December 31, 2002.

The table below presents principal (or notional)
amounts (in thousands of euros unless otherwise indicated),
respective fair values at December 31, 2002 and related
weighted average interest rates by year of maturity for
SAPs investment portfolio.

85



---



##### 



|                           |  |                                     |       |      |  |              |        |      |  |      |   |            |  |       |   |      |  |  |   |  |  |  |   |  |  |  |        |  |  |  |        | 
|-------------------------- |  | ----------------------------------- | ----- | ---- |  | ------------ | ------ | ---- |  | ---- | - | ---------- |  | ----- | - | ---- |  |  | - |  |  |  | - |  |  |  | ------ |  |  |  | ------ | 
|                           |  |                                     |       |      |  |             
|                           |  | Expected Maturity Date              |       |      |  |             
|                           |  |  (000), unless otherwise indicated |       |      |  | Fair Value  
|                           |  |                                     |       |      |  | December 31,
|Marketable debt securities |  | 2003                                |       | 2004 |  | 2005         |        | 2006 |  | 2007 |   | Thereafter |  | Total |   | 2002
|                           |  |                                     |       |      |  |              |        |      |  |      |   |            |  |       |   |     
|Fixed rate                 |  |                                     |      |      |  |              | 51,129 |      |  |      |  |            |  |       |  |      |  |  |  |  |  |  |  |  |  |  | 51,129 |  |  |  | 53,266 | 
|Average interest rate      |  |                                     |      |      |  |              | 6.12%  |      |  |      |  |            |  |       |  |      |  |  |  |  |  |  |  |  |  |  |        |  |  |  |        | 
|Variable rate              |  |                                     | 7,283 |      |  |              |       |      |  |      |  |            |  |       |  |      |  |  |  |  |  |  |  |  |  |  | 7,283  |  |  |  | 7,302  | 
|                           |  |                                     |       |      |  |              |        |      |  |      |   |            |  |       |   |      |  |  |   |  |  |  |   |  |  |  |        |  |  |  |        | 
|Total investments          |  |                                     | 7,283 |      |  |              | 51,129 |      |  |      |  |            |  |       |  |      |  |  |  |  |  |  |  |  |  |  | 58,412 |  |  |  | 60,568 | 
|                           |  |                                     |       |      |  |              |        |      |  |      |   |            |  |       |   |      |  |  |   |  |  |  |   |  |  |  |        |  |  |  |        | 

We have lines of credit available that allow us
to borrow in the local currency. Interest under these lines of
credit is determined at the time of borrowing based on current
market rates. The table below presents principal amounts
outstanding at December 31, 2002 (in thousands of euros
unless otherwise indicated), and related weighted average
interest rates by year of maturity for the bank loans
outstanding under lines of credit and overdrafts. Because the
maturities are short term and the amounts borrowed are rolled
over as necessary at current market rates of interest at such
time, fair values of bank loans and overdrafts approximate
carrying values.

|                          |  |      |        |  
|------------------------- |  | ---- | ------ | -
|Bank loans and overdrafts |  | 2002
|                          |  |     
|Fixed rate
    ( 000)    |  |      | 24,307 |  
|Average interest rate     |  |      | 5.01   | %

Equity Price Risk

We are exposed to equity price risks on the
marketable portion of our equity securities. Our available for
sale securities consist of investments in the high-technology
industry, which historically have experienced high volatility.
We typically do not attempt to reduce or eliminate market
exposure on these securities.

We hold such equity securities purchased through
our venture operations and strategic global partnering programs.
The purpose of venture investments is to provide funding to
companies that, in the opinion of our management, have promising
technologies. The venture funding represents an equity
investment, and/or loans, and does not represent a commitment of
further business development initiatives by us. Investments made
in conjunction with strategic global partnering differ from
those of the venture operations since such investments are made
in software and service partners who are expected to complement
our existing or future product and/or service offerings.
Frequently, SAP and our partners may also enter into development
or sublicense agreements to further align the strategies of SAP
and the partner.

In many instances, we invest in privately held
companies in which an initial public offering is planned. Such
investments are recorded at cost and therefore do not expose us
to equity price risk as long as they are privately owned. We
recognized in financial income, net gains from the sale of
marketable equity securities of approximately
 3 million
in 2002 and
 24 million
in 2001. In 2002 we further recorded approximately
 389.6 million
of losses from associated companies related to our investment in
Commerce One, of which
 297.6 million
is due to an other-than-temporary impairment charge. In addition
we recorded an impairment charge of approximately
 133.1 million,
primarily for venture capital investments. In 2001 the
impairment charge was approximately
 75.6 million.
There can be no assurance that changes in market conditions, the
performance of companies in which we hold investments or other
factors will not negatively impact our ability to recognize
gains from the sale of marketable equity securities on
conditions similar to those existing in 2002, or result in the
loss of amounts invested.

Item 12.     Description
of Securities Other than Equity Securities

Not Applicable.

86



---



##### 



PART II

Item 13.     Defaults,
Dividend Arrearages and Delinquencies

Not Applicable

Item 14.     Material
Modifications to the Rights of Security Holders and Use of
Proceeds

Not Applicable

Item 15.     Controls
and Procedures

Within 90 days prior to the date of this
report, SAP performed an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures.
Disclosure controls and procedures are designed to ensure that
the material financial and non-financial information required to
be disclosed in Form 20-F and filed with the Securities and
Exchange Commission is recorded, processed, summarized and
reported in a timely manner. The evaluation was performed with
the participation of our key corporate senior management, senior
management of each business group, and under the supervision of
our Chief Executive Officers (CEOs), Prof. Dr. h.c.
Hasso Plattner and Prof. Dr. Henning Kagermann, and our Chief
Financial Officer (CFO), Dr. Werner Brandt. In
designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable, rather than absolute, assurances of achieving the
desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the
foregoing, SAPs management, including the CEOs and CFO,
concluded that SAPs disclosure controls and procedures
were effective.

There have been no significant changes in
SAPs internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
the evaluation. Therefore, no corrective actions were taken.

Item 16.     [Reserved]

PART III

Item 17.     Financial
Statements

Not Applicable

Item 18.     Financial
Statements

Reference is made to pages F-1 through F-60,
incorporated herein by reference.

The following consolidated financial statements
are filed as part of this Annual Report on Form 20-F:

Reports of Independent Auditors.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Income for the years
    ended 2002, 2001 and 2000.                                          
|
| | Consolidated Balance Sheets as of
    December 31, 2002 and 2001.                                                       
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000.
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000.                         
|
| | Notes to the Consolidated Financial Statements.                                                                         
|
| | Schedule for the years ended December 31,
    2002, 2001 and 2000:                                                      
|
| | Schedule II  Valuation and
    Qualifying Accounts and Reserves.                                                       

Separate financial statements for Commerce One
will be filed as an amendment to this Form 20-F in
accordance with Rule 3-09 of Regulation S-X. SAP
expects to file the separate financial statements of Commerce

87



---



##### 



One no later than May 31, 2002. The
amendment will be available through the Securities and Exchange
Commissions web site at www.sec.gov or SAPs web site
at www.sap.com shortly after its filing with the Commission.
Summarized financial information for Commerce One is set forth
in note 16 to the consolidated financial statements.


Item 19.     Exhibits

The following documents are filed as exhibits to
this Annual Report on Form 20-F:



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1     Articles of
    Incorporation (Satzung) of SAP AG, as amended to date (English
    translation).                                                                                                                                                                        
|
| | 2.1   Form of global share
    certificate for ordinary shares (English
    translation).(1)                                                                                                                                                                                  
|
| | 2.2   Form of American Depositary
    Receipt.(2)                                                                                                                                                                                                                             
|
| | 4.1   Form of Amended and Restated
    Deposit Agreement among SAP AG, The Bank of New York, as
    Depositary, and all owners and holders from time to time of
    American Depositary Receipts issued thereunder, including the
    form of American Depositary Receipts.(3)
|
| | 4.2   Share Purchase Agreement by
    and among Commerce One, Inc., New Commerce One Holding Inc. and
    SAP AG, dated as of June 28, 2001.(4)                                                                                                                               
|
| | 4.3   Amended and Restated
    Standstill and Stock Restriction Agreement by and among Commerce
    One, Inc., New Commerce One Holding, Inc. and SAP AG, dated as
    of June 28, 2001.(5)                                                                                   
|
| | 4.4   Investor Rights Agreement by
    and among Commerce One, Inc., New Commerce One Holding, Inc. and
    SAP AG, dated as of June 28, 2001.(6)                                                                                                                             
|
| | 4.5   Strategic Alliance Agreement
    by and among Commerce One, Inc., SAPMarkets, Inc. and
    SAP AG, dated as of September 18, 2000.(7)                                                                                                                                   
|
| | 4.6   Strategic Alliance Agreement
    Amendment No. 2 by and among Commerce One, Inc.,
    SAPMarkets, Inc. and SAP AG, dated as of June 29,
    2001.(8)                                                                                                                    
|
| | 4.7   Strategic Alliance Agreement
    Amendment No. 3 by and among Commerce One, Inc.,
    SAPMarkets, Inc. and SAP AG, dated as of June 29,
    2001.(8)                                                                                                                    
|
| | 8     Subsidiaries,
    Associated Companies and Other Investments of SAP AG.                                                                                                                                                                                                 
|
| | 10.1 Independent Auditors Consent.                                                                                                                                                                                                                                           
|
| | 10.2 Statement regarding Auditors
    Consent.                                                                                                                                                                                                                               
|
| | 99   Certification pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                          






|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|   
|(2) | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|   
|(3) | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|   
|(4) | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|   
|(5) | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|   
|(6) | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|   
|(7) | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    November 14, 2000.
|   
|(8) | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    August 14, 2001.  

88



---



##### 



SIGNATURE

Pursuant to the requirements of Section 12
of the Securities Exchange Act of 1934, the Registrant certifies
that it meets all of the requirements for filing this Annual
Report on Form 20-F and has duly caused this Annual Report
to be signed on our behalf by the undersigned, thereunto duly
authorized.



| |                                
| | -------------------------------
| | SAP AKTIENGESELLSCHAFT SYSTEME,
| | ANWENDUNGEN, PRODUKTE IN DER   
| | DATENVERARBEITUNG              
| | (Registrant)                   



| |     |                   
| | --- | ------------------
| | By: | /s/ HASSO PLATTNER

| |                                    
| | -----------------------------------
| |                                    
| | Name: Prof. Dr. h.c. Hasso Plattner
| | Title: Co-Chairman and CEO         



| |     |                      
| | --- | ---------------------
| | By: | /s/ HENNING KAGERMANN

| |                                  
| | ---------------------------------
| |                                  
| | Name: Prof. Dr. Henning Kagermann
| | Title: Co-Chairman and CEO       

Dated: March 21, 2003

| |     |                  
| | --- | -----------------
| | By: | /s/ WERNER BRANDT

| |                        
| | -----------------------
| |                        
| | Name: Dr. Werner Brandt
| | Title: CFO             

89



---



##### 



Section 302 Certifications

I, Prof. Dr. h.c. Hasso Plattner, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of SAP Aktiengesellschaft Systeme, Anwendungen,
    Produkte in der Datenverarbeitung;                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 21, 2003



| |     |                   
| | --- | ------------------
| | By: | /s/ HASSO PLATTNER

| |                                    
| | -----------------------------------
| |                                    
| | Name: Prof. Dr. h.c. Hasso Plattner
| | Title: Co-Chairman and CEO         

90



---



##### 



I, Prof. Dr. Henning Kagermann, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of SAP Aktiengesellschaft Systeme, Anwendungen,
    Produkte in der Datenverarbeitung;                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 21, 2003



| |                      
| | ---------------------
| | /s/ HENNING KAGERMANN

| |     |                                       
| | --- | --------------------------------------
| | By: | --------------------------------------

| |                                  
| | ---------------------------------
| | Name: Prof. Dr. Henning Kagermann
| | Title: Co-Chairman and CEO       

91



---



##### 



I, Dr. Werner Brandt, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of SAP Aktiengesellschaft Systeme, Anwendungen,
    Produkte in der Datenverarbeitung;                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 21, 2003



| |                  
| | -----------------
| | /s/ WERNER BRANDT

| |     |                                       
| | --- | --------------------------------------
| | By: | --------------------------------------

| |                        
| | -----------------------
| | Name: Dr. Werner Brandt
| | Title: CEO             

92



---



##### 



SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                   |                                                                                                                          |      |     |     | 
|------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | ---- | --- | --- | 
|                                                                   |                                                                                                                          | Page
|                                                                   |                                                                                                                          |     
|Reports of Independent Auditors                                    |                                                                                                                          |      | F-1 |    
|Consolidated Financial Statements:                                 |                                                                                                                          |      |     |    
|                                                                   | Consolidated Statements of Income for the years
    ended December 31, 2002, 2001, and 2000.                             |      |     | F-3 | 
|                                                                   | Consolidated Balance Sheets as of
    December 31, 2002 and 2001.                                                        |      |     | F-4 | 
|                                                                   | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000. |      |     | F-5 | 
|                                                                   | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000.                          |      |     | F-6 | 
|                                                                   | Notes to Consolidated Financial Statements                                                                               |      |     | F-7 | 
|Schedule for the years ended December 31,
    2002, 2001 and 2000: |                                                                                                                          |      |     |    
|                                                                   | Schedule II  Valuation and
    Qualifying Accounts and Reserves                                                         |      |     | S-1 | 



---



##### 



INDEPENDENT AUDITORS REPORT

The Supervisory Board

SAP Aktiengesellschaft Systeme, Anwendungen,
Produkte in der Datenverarbeitung:


We have audited the 2002 consolidated financial
statements of SAP Aktiengesellschaft and subsidiaries
(SAP AG or the Company) as listed
in the accompanying index. In connection with our audit of the
2002 consolidated financial statements, we also have audited the
2002 financial statement schedule as listed in the accompanying
index. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audit. The 2001 and 2000 consolidated
financial statements and financial statement schedule of
SAP AG as listed in the accompanying index were audited by
other auditors who have ceased operations. Those auditors
report, dated January 21, 2002, on those financial
statements and financial statement schedule was unqualified,
before the revisions described in Note 14 and 21 to the
consolidated financial statements, and included an explanatory
paragraph that described the retroactive effect to the year
ended December 31, 2000, for the change in accounting
related to an investment that qualified for the equity method of
accounting during the year ended December 31, 2001, as
described in Note 2 to the consolidated financial statements.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of SAP AG as of
December 31, 2002, and the results of their operations and
their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the related 2002 financial
statement schedule, when considered in relation to the basic
2002 consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.

As described in Note 3 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and intangible assets in 2002.

As discussed above, the 2001 and 2000
consolidated financial statements of SAP AG as listed in
the accompanying index were audited by other auditors who have
ceased operations. As described in Note 14, these financial
statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting
Standards No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, which was adopted by the Company as of January 1,
2002. In our opinion, the disclosures for 2001 and 2000 in Note
14 as it pertains to the adoption of SFAS 142 are appropriate.
As described in Note 21, the Company adjusted the amounts
reported in 2001 and 2000 for cash and cash equivalents to
exclude restricted cash. We audited the adjustments described in
Note 21 that were applied to revise the 2001 and 2000
consolidated financial statements. In our opinion such
adjustments are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any
procedures to the 2001 and 2000 consolidated financial
statements and financial statement schedules of SAP AG
other than with respect to such disclosures and adjustments and,
accordingly, we do not express an opinion or any other form of
assurance on the 2001 and 2000 consolidated financial statements
and financial statement schedules taken as a whole.

Mannheim, Germany

February 21, 2003


KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft


Wirtschaftsprüfungsgesellschaft


|                                 |  |                                 
|-------------------------------- |  | --------------------------------
|/s/ Schmid
    Wirtschaftsprüfer |  | /s/ Walter
    Wirtschaftsprüfer

F-1



---



##### 



This is a copy of the audit report previously
issued by Arthur Andersen Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft mbH in connection with SAPs
filing on Form 20-F for the year ended December 31,
2001. This audit report has not been reissued by Arthur Andersen
Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
mbH in connection with this filing on Form 20-F. See
Exhibit 10.2 for further discussion. The consolidated
balance sheet as of December 31, 2000, the consolidated
statements of operations, stockholders equity and cash
flows for the year ended December 31, 1999 and the
information in the schedule for 1999 referred to in this report
have not been included in the accompanying financial statements
or schedule.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

We have audited the accompanying consolidated
balance sheets of SAP Aktiengesellschaft Systeme, Anwendungen,
Produkte in der Datenverarbeitung and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated
statements of income, changes in shareholders equity and
cash flows for each of the years in the three-year period ended
December 31, 2001. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits 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 financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of SAP Aktiengesellschaft Systeme, Anwendungen,
Produkte in der Datenverarbeitung and subsidiaries as of
December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United
States.

As explained in Note 2 to the financial
statements, the Company has given retroactive effect to the year
ended December 31, 2000, for the change in accounting
related to an investment that qualifies for the equity method of
accounting during the year ended December 31, 2001.

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 the purpose of complying with the Securities and
Exchange Commissions 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.

Eschborn/ Frankfurt am Main

January 21, 2002


ARTHUR ANDERSEN

Wirtschaftsprüfungsgesellschaft


Steuerberatungsgesellschaft mbH


|                                |  |                                   
|------------------------------- |  | ----------------------------------
|/s/ Gross
    Wirtschaftsprüfer |  | /s/ Turowski
    Wirtschaftsprüfer

F-2



---



##### 



SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

for the years ended December 31,


(in thousands except for per share and
exchange rate data)


|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |            |  
|------------------------------------------------- | --------------------------------------- | ---- | ---- | ------- |  | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | - |  | ---------- | ---------- | - |  | ---------- | ---------- | -
|                                                  |                                         | Note |      | 2002(1) |  | 2002 |            | 2001       |   | 2000
|                                                  |                                         |      |      |         |  |      |            |            |   |     
|                                                  |                                         |      |      |         |  |      |            |            |   |    
|                                                  |                                         |      |      | US$     |  |     |            |           |   |     
|                                                  | Software revenue                        |      |      |         |  |      |            | 2,401,940  |   |      |            | 2,290,834  |   |  |            | 2,580,518  |   |  |            | 2,458,725  |  
|                                                  | Maintenance revenue                     |      |      |         |  |      |            | 2,540,291  |   |      |            | 2,422,786  |   |  |            | 2,121,250  |   |  |            | 1,670,364  |  
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Product revenue                                   |                                         |      |      |         |  |      | 4,942,231  |            |   |      | 4,713,620  |            |   |  | 4,701,768  |            |   |  | 4,129,089  |           
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|                                                  | Consulting revenue                      |      |      |         |  |      |            | 2,311,094  |   |      |            | 2,204,191  |   |  |            | 2,082,855  |   |  |            | 1,645,198  |  
|                                                  | Training revenue                        |      |      |         |  |      |            | 433,979    |   |      |            | 413,904    |   |  |            | 466,224    |   |  |            | 400,566    |  
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Service revenue                                   |                                         |      |      |         |  |      | 2,745,073  |            |   |      | 2,618,095  |            |   |  | 2,549,079  |            |   |  | 2,045,764  |           
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Other revenue                                     |                                         |      |      |         |  |      | 85,057     |            |   |      | 81,123     |            |   |  | 89,957     |            |   |  | 89,742     |           
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Total revenue                                     |                                         |      | (5)  |         |  |      | 7,772,361  |            |   |      | 7,412,838  |            |   |  | 7,340,804  |            |   |  | 6,264,595  |           
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|                                                  | Cost of product                         |      |      |         |  |      |            | (902,101   | ) |      |            | (860,373   | ) |  |            | (887,429   | ) |  |            | (721,556   | )
|                                                  | Cost of service                         |      |      |         |  |      |            | (2,050,641 | ) |      |            | (1,955,785 | ) |  |            | (1,965,000 | ) |  |            | (1,750,487 | )
|                                                  | Research and development                |      |      |         |  |      |            | (953,495   | ) |      |            | (909,390   | ) |  |            | (898,251   | ) |  |            | (969,377   | )
|                                                  | Sales and marketing                     |      |      | (6)     |  |      |            | (1,706,156 | ) |      |            | (1,627,235 | ) |  |            | (1,797,546 | ) |  |            | (1,577,330 | )
|                                                  | General and administration              |      |      |         |  |      |            | (418,633   | ) |      |            | (399,269   | ) |  |            | (385,990   | ) |  |            | (417,570   | )
|                                                  | Other operating expense, net            |      |      | (7)     |  |      |            | (36,811    | ) |      |            | (35,108    | ) |  |            | (94,214    | ) |  |            | (25,617    | )
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Total operating expenses                          |                                         |      | (8)  |         |  |      | (6,067,837 | )          |   |      | (5,787,160 | )          |   |  | (6,028,430 | )          |   |  | (5,461,937 | )         
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Operating income                                  |                                         |      |      |         |  |      | 1,704,524  |            |   |      | 1,625,678  |            |   |  | 1,312,374  |            |   |  | 802,658    |           
|                                                  | Other non-operating income/expense, net |      |      | (9)     |  |      |            | 39,128     |   |      |            | 37,319     |   |  |            | (10,643    | ) |  |            | (55,340    | )
|                                                  | Financial income/expense, net           |      |      | (10)    |  |      |            | (582,231   | ) |      |            | (555,299   | ) |  |            | (232,974   | ) |  |            | 265,551    |  
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Income before income taxes and extraordinary gain |                                         |      |      |         |  |      | 1,161,421  |            |   |      | 1,107,698  |            |   |  | 1,068,757  |            |   |  | 1,012,869  |           
|                                                  | Income taxes                            |      |      | (11)    |  |      |            | (627,742   | ) |      |            | (598,705   | ) |  |            | (476,293   | ) |  |            | (391,807   | )
|                                                  | Minority interest                       |      |      |         |  |      |            | (6,453     | ) |      |            | (6,155     | ) |  |            | (11,328    | ) |  |            | (5,330     | )
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Income before extraordinary gain                  |                                         |      |      |         |  |      | 527,226    |            |   |      | 502,838    |            |   |  | 581,136    |            |   |  | 615,732    |           
|                                                  | Extraordinary gain, net of tax          |      |      | (12)    |  |      |            | 6,056      |   |      |            | 5,776      |   |  |            |           |   |  |            |           |  
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Net income                                        |                                         |      |      |         |  |      | 533,282    |            |   |      | 508,614    |            |   |  | 581,136    |            |   |  | 615,732    |           
|                                                  |                                         |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Earnings per share  basic                        |                                         |      | (13) |         |  |      | 1.70       |            |   |      | 1.62       |            |   |  | 1.85       |            |   |  | 1.96       |           
|Earnings per share  diluted                      |                                         |      | (13) |         |  |      | 1.70       |            |   |      | 1.62       |            |   |  | 1.85       |            |   |  | 1.95       |           






|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2002 figures have been translated solely for
    the convenience of the reader at an exchange rate of
     1.00 to
    US$ 1,0485, the Noon Buying Rate certified by the Federal
    Reserve Bank of New York on December 31, 2002.

See Notes to Consolidated Financial Statements.

F-3



---



##### 



SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

as of December 31,


(in thousands except for exchange rate
data)


Assets

|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |           | 
|------------------------------------------- | ------------------------------------------- | ---- | ---- | ------- |  | ---- | --------- | --------- |  |  | --------- | --------- |  |  | --------- | --------- | 
|                                            |                                             | Note |      | 2002(2) |  | 2002 |           | 2001     
|                                            |                                             |      |      |         |  |      |           |          
|                                            |                                             |      |      |         |  |      |           |         
|                                            |                                             |      |      | US$     |  |     |           |          
|Intangible assets                           |                                             |      | (14) |         |  |      | 462,142   |           |  |  | 440,765   |           |  |  | 499,352   |          
|Property, plant and equipment               |                                             |      | (15) |         |  |      | 1,084,376 |           |  |  | 1,034,217 |           |  |  | 997,052   |          
|Financial assets                            |                                             |      | (16) |         |  |      | 171,515   |           |  |  | 163,581   |           |  |  | 707,083   |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Fixed assets                                |                                             |      |      |         |  |      | 1,718,033 |           |  |  | 1,638,563 |           |  |  | 2,203,487 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Inventories                                 |                                             |      | (17) |         |  |      | 11,249    |           |  |  | 10,729    |           |  |  | 4,593     |          
|                                            | Accounts receivable, net                    |      |      | (18)    |  |      |           | 2,062,512 |  |  |           | 1,967,107 |  |  |           | 2,210,913 | 
|                                            | Accounts due from related parties           |      |      |         |  |      |           |          |  |  |           |          |  |  |           | 723       | 
|                                            | Other assets                                |      |      | (19)    |  |      |           | 276,705   |  |  |           | 263,906   |  |  |           | 177,624   | 
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Accounts receivable and other assets        |                                             |      |      |         |  |      | 2,339,217 |           |  |  | 2,231,013 |           |  |  | 2,389,260 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Marketable securities                       |                                             |      | (20) |         |  |      | 1,415     |           |  |  | 1,349     |           |  |  | 98,143    |          
|Liquid assets                               |                                             |      | (21) |         |  |      | 1,297,935 |           |  |  | 1,237,897 |           |  |  | 866,050   |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Non fixed assets                            |                                             |      |      |         |  |      | 3,649,816 |           |  |  | 3,480,988 |           |  |  | 3,358,046 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Deferred taxes                              |                                             |      |      |         |  |      | 421,801   |           |  |  | 402,290   |           |  |  | 479,747   |          
|Prepaid expenses and deferred charges       |                                             |      | (22) |         |  |      | 92,175    |           |  |  | 87,911    |           |  |  | 154,324   |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Total assets                                |                                             |      |      |         |  |      | 5,881,825 |           |  |  | 5,609,752 |           |  |  | 6,195,604 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|(thereof total current
    assets)(3)       |                                             |      |      |         |  |      | 3,683,675 |           |  |  | 3,513,281 |           |  |  | 3,540,349 |          
|Shareholders Equity and
    Liabilities    |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Subscribed capital(1)                       |                                             |      |      |         |  |      | 330,239   |           |  |  | 314,963   |           |  |  | 314,826   |          
|Treasury stock                              |                                             |      |      |         |  |      | (391,591  | )         |  |  | (373,477  | )         |  |  | (94,212   | )        
|Additional paid-in capital                  |                                             |      |      |         |  |      | 194,161   |           |  |  | 185,180   |           |  |  | 162,719   |          
|Retained earnings                           |                                             |      |      |         |  |      | 3,010,355 |           |  |  | 2,871,106 |           |  |  | 2,547,419 |          
|Accumulated other comprehensive income/loss |                                             |      |      |         |  |      | (131,777  | )         |  |  | (125,681  | )         |  |  | 178,761   |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Shareholders equity                        |                                             |      | (23) |         |  |      | 3,011,387 |           |  |  | 2,872,091 |           |  |  | 3,109,513 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Minority interests                          |                                             |      |      |         |  |      | 58,904    |           |  |  | 56,179    |           |  |  | 62,805    |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|                                            | Pension liabilities and similar obligations |      |      | (25)    |  |      |           | 87,626    |  |  |           | 83,573    |  |  |           | 51,823    | 
|                                            | Other reserves and accrued liabilities      |      |      | (26)    |  |      |           | 1,549,706 |  |  |           | 1,478,022 |  |  |           | 1,376,547 | 
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Reserves and accrued liabilities            |                                             |      |      |         |  |      | 1,637,332 |           |  |  | 1,561,595 |           |  |  | 1,428,370 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|                                            | Bonds                                       |      |      |         |  |      |           | 10,137    |  |  |           | 9,668     |  |  |           | 7,296     | 
|                                            | Other liabilities                           |      |      | (27)    |  |      |           | 785,077   |  |  |           | 748,762   |  |  |           | 1,210,214 | 
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Other liabilities                           |                                             |      |      |         |  |      | 795,214   |           |  |  | 758,430   |           |  |  | 1,217,510 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Deferred income                             |                                             |      | (28) |         |  |      | 378,988   |           |  |  | 361,457   |           |  |  | 377,406   |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Total shareholders equity and liabilities  |                                             |      |      |         |  |      | 5,881,825 |           |  |  | 5,609,752 |           |  |  | 6,195,604 |          
|                                            |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|(thereof current liabilities)               |                                             |      |      |         |  |      | 2,544,651 |           |  |  | 2,426,944 |           |  |  | 2,797,833 |          






|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Contingent capital
     56,271
    thousand (2001:
     43,276
    thousand)                                                                                                                                                         
|   
|(2) | The 2002 figures have been translated solely for
    the convenience of the reader at an exchange rate of
     1.00 to
    US$ 1.0485 the Noon Buying Rate certified by the Federal Reserve
    Bank of New York on December 31, 2002.
|   
|(3) | See note 21.                                                                                                                                                                                                                           

See Notes to Consolidated Financial Statements.

F-4



---



##### 



SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

for the years ended
December 31,


|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|--------------------------------------------- | ------------------------------------------ | --------------- | ------- | ------------------- |  | ------------- | ------- | -------- | - | ---------- | -------- | -------- | - | ---------- | --------- | ----- |  |  | -------- | - |  |  | -------- | - |  |  | ------- |  |  |  | --------- | -------- | -
|                                              |                                            |                 |         |                    
|                                              |                                            |                 |         | (in thousands of )
|                                              |                                            |                 |         |                    
|                                              |                                            | Number of       |         |                     |  | Accumulated   |         |         
|                                              |                                            | shares issued   |         |                     |  | other         |         |          |   | Additional |          |         
|                                              |                                            | and outstanding |         | Comprehensive       |  | comprehensive |         | Retained |   | paid-in    |          | Treasury |   | Subscribed |           |      
|                                              |                                            | (000)           |         | income              |  | income/loss   |         | earnings |   | capital    |          | stock    |   | capital    |           | Total
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |      
|December 31, 1999                             |                                            |                 | 104,756 |                     |  |               |         |          |   |            | 343,957  |          |   |            | 1,698,229 |       |  |  | 249,364  |   |  |  |         |   |  |  | 267,805 |  |  |  | 2,559,355 |         
|Effect of 3-for-1 stock split                 |                                            |                 | 209,512 |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  | (46,463  | ) |  |  |          |   |  |  | 46,463  |  |  |  |           |         
|Net income                                    |                                            |                 |         |                     |  |               | 615,732 |          |   |            |          |          |   |            | 615,732   |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  | 615,732   |         
|Other comprehensive income/loss, net of tax   |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                              | Unrealized losses on marketable securities |                 |         |                     |  |               |         | (233,868 | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Currency translation adjustment            |                 |         |                     |  |               |         | 45,207   |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Additional minimum pension liability       |                 |         |                     |  |               |         | (3,780   | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Unrealized gains on cash flow hedges       |                 |         |                     |  |               |         | 39,059   |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Other comprehensive loss                   |                 |         |                     |  |               |         | (153,382 | ) |            |          | (153,382 | ) |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           | (153,382 | )
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Comprehensive income                          |                                            |                 |         |                     |  |               | 462,350 |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Convertible bonds exercised                   |                                            |                 | 447     |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  | 7,160    |   |  |  |          |   |  |  | 447     |  |  |  | 7,607     |         
|Dividends                                     |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (165,780  | )     |  |  |          |   |  |  |          |   |  |  |         |  |  |  | (165,780  | )       
|Effect of put option                          |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (170,232  | )     |  |  | (209,699 | ) |  |  |          |   |  |  |         |  |  |  | (379,931  | )       
|Other                                         |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (1,361    | )     |  |  | 34,841   |   |  |  |          |   |  |  |         |  |  |  | 33,480    |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|December 31, 2000                             |                                            |                 | 314,715 |                     |  |               |         |          |   |            | 190,575  |          |   |            | 1,976,588 |       |  |  | 35,203   |   |  |  |         |   |  |  | 314,715 |  |  |  | 2,517,081 |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Net income                                    |                                            |                 |         |                     |  |               | 581,136 |          |   |            |          |          |   |            | 581,136   |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  | 581,136   |         
|Other comprehensive income/loss, net of tax   |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                              | Unrealized losses on marketable securities |                 |         |                     |  |               |         | (24,241  | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Currency translation adjustment            |                 |         |                     |  |               |         | 41,098   |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Additional minimum pension liability       |                 |         |                     |  |               |         | (3,142   | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Unrealized losses on cash flow hedges      |                 |         |                     |  |               |         | (25,529  | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Other comprehensive loss                   |                 |         |                     |  |               |         | (11,814  | ) |            |          | (11,814  | ) |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           | (11,814  | )
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Comprehensive income                          |                                            |                 |         |                     |  |               | 569,322 |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Convertible bonds exercised                   |                                            |                 | 111     |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  | 1,781    |   |  |  |          |   |  |  | 111     |  |  |  | 1,892     |         
|Dividends                                     |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (180,414  | )     |  |  |          |   |  |  |          |   |  |  |         |  |  |  | (180,414  | )       
|Share repurchase                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  | (94,212  | ) |  |  |         |  |  |  | (94,212   | )       
|Effect of put option                          |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | 170,232   |       |  |  | 152,177  |   |  |  |          |   |  |  |         |  |  |  | 322,409   |         
|Other                                         |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (123      | )     |  |  | (26,442  | ) |  |  |          |   |  |  |         |  |  |  | (26,565   | )       
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|December 31, 2001                             |                                            |                 | 314,826 |                     |  |               |         |          |   |            | 178,761  |          |   |            | 2,547,419 |       |  |  | 162,719  |   |  |  | (94,212  | ) |  |  | 314,826 |  |  |  | 3,109,513 |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Net income                                    |                                            |                 |         |                     |  |               | 508,614 |          |   |            |          |          |   |            | 508,614   |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  | 508,614   |         
|Other comprehensive income/loss, net of tax   |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                              | Unrealized losses on marketable securities |                 |         |                     |  |               |         | (3,946   | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Currency translation adjustment            |                 |         |                     |  |               |         | (289,750 | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Additional minimum pension liability       |                 |         |                     |  |               |         | (11,458  | ) |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Unrealized gains on cash flow hedges       |                 |         |                     |  |               |         | 712      |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                              | Other comprehensive loss                   |                 |         |                     |  |               |         | (304,442 | ) |            |          | (304,442 | ) |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           | (304,442 | )
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Comprehensive income                          |                                            |                 |         |                     |  |               | 204,172 |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|Convertible bonds and stock options exercised |                                            |                 | 137     |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  | 29,709   |   |  |  |          |   |  |  | 137     |  |  |  | 29,846    |         
|Dividends                                     |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (182,319  | )     |  |  |          |   |  |  |          |   |  |  |         |  |  |  | (182,319  | )       
|Share repurchase                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  | (279,265 | ) |  |  |         |  |  |  | (279,265  | )       
|Effect of put option                          |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  | 4,342    |   |  |  |          |   |  |  |         |  |  |  | 4,342     |         
|Other                                         |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            | (2,608    | )     |  |  | (11,590  | ) |  |  |          |   |  |  |         |  |  |  | (14,198   | )       
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         
|December 31, 2002                             |                                            |                 | 314,963 |                     |  |               |         |          |   |            | (125,681 | )        |   |            | 2,871,106 |       |  |  | 185,180  |   |  |  | (373,477 | ) |  |  | 314,963 |  |  |  | 2,872,091 |         
|                                              |                                            |                 |         |                     |  |               |         |          |   |            |          |          |   |            |           |       |  |  |          |   |  |  |          |   |  |  |         |  |  |  |           |         

See Notes to Consolidated Financial Statements.

F-5



---



##### 



SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

for the years ended
December 31,


(in thousands except exchange rate
data)


|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|------------------------------------------------------------------------------------------------- |  | ---- | ---- | ------- |  | ---- | --------- | ------- |  | ------- | --------- | - |  |  | ---------- | - |  |  | -------- | -
|                                                                                                  |  | Note |      | 2002(1) |  | 2002 |           | 2001(2) |  | 2000(2)
|                                                                                                  |  |      |      |         |  |      |           |         |  |        
|                                                                                                  |  |      |      |         |  |      |           |         |  |       
|                                                                                                  |  |      |      | US$     |  |     |           |        |  |        
|Net income                                                                                        |  |      |      |         |  |      | 533,282   |         |  |         | 508,614   |   |  |  | 581,136    |   |  |  | 615,732  |  
|Minority interest                                                                                 |  |      |      |         |  |      | 6,453     |         |  |         | 6,155     |   |  |  | 11,328     |   |  |  | 5,330    |  
|Extraordinary gain                                                                                |  |      |      |         |  |      | (6,056    | )       |  |         | (5,776    | ) |  |  |           |   |  |  |         |  
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Income from operations                                                                            |  |      |      |         |  |      | 533,679   |         |  |         | 508,993   |   |  |  | 592,464    |   |  |  | 621,062  |  
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Dilution gain from initial public offering of a
    subsidiary                                    |  |      |      |         |  |      |          |         |  |         |          |   |  |  |           |   |  |  | (44,234  | )
|Depreciation and amortization                                                                     |  |      |      |         |  |      | 231,943   |         |  |         | 221,214   |   |  |  | 279,792    |   |  |  | 223,308  |  
|Losses from equity investments, net                                                               |  |      |      |         |  |      | 413,727   |         |  |         | 394,589   |   |  |  | 165,499    |   |  |  | 96,943   |  
|In-process research and development                                                               |  |      |      |         |  |      |          |         |  |         |          |   |  |  | 5,596      |   |  |  |         |  
|Gains on disposal of property, plant and
    equipment and marketable equity securities, net      |  |      |      |         |  |      | (4,092    | )       |  |         | (3,903    | ) |  |  | (22,678    | ) |  |  | (348,692 | )
|Write-downs of financial assets, net                                                              |  |      |      |         |  |      | 132,538   |         |  |         | 126,407   |   |  |  | 71,332     |   |  |  | 19,137   |  
|Impacts of hedging                                                                                |  |      |      |         |  |      | 61,766    |         |  |         | 58,909    |   |  |  | 82,279     |   |  |  | 29,436   |  
|Change in accounts receivables and other assets                                                   |  |      |      |         |  |      | 150,048   |         |  |         | 143,107   |   |  |  | (18,892    | ) |  |  | (202,275 | )
|Changes in deferred stock compensation                                                            |  |      |      |         |  |      | 25,111    |         |  |         | 23,949    |   |  |  | (11,641    | ) |  |  |         |  
|Change in reserves and liabilities                                                                |  |      |      |         |  |      | 68,515    |         |  |         | 65,346    |   |  |  | 15,377     |   |  |  | 553,776  |  
|Change in deferred taxes                                                                          |  |      |      |         |  |      | 108,793   |         |  |         | 103,761   |   |  |  | (144,642   | ) |  |  | (132,001 | )
|Change in other non-fixed assets                                                                  |  |      |      |         |  |      | 63,201    |         |  |         | 60,278    |   |  |  | (37,590    | ) |  |  | (65,744  | )
|Change in deferred income                                                                         |  |      |      |         |  |      | (16,723   | )       |  |         | (15,949   | ) |  |  | 11,950     |   |  |  | (10,743  | )
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Net cash provided by operating
    activities                                                     |  |      | (29) |         |  |      | 1,768,506 |         |  |         | 1,686,701 |   |  |  | 988,846    |   |  |  | 739,973  |  
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Purchase of intangible assets and property, plant
    and equipment                               |  |      |      |         |  |      | (323,721  | )       |  |         | (308,747  | ) |  |  | (377,844   | ) |  |  | (285,435 | )
|Purchase of financial assets                                                                      |  |      |      |         |  |      | (46,027   | )       |  |         | (43,898   | ) |  |  | (76,716    | ) |  |  | (216,975 | )
|Change in the scope of consolidation                                                              |  |      |      |         |  |      | 1,690     |         |  |         | 1,612     |   |  |  | (4,591     | ) |  |  | (4,129   | )
|Proceeds from disposal of fixed assets                                                            |  |      |      |         |  |      | 39,633    |         |  |         | 37,800    |   |  |  | 65,572     |   |  |  | 370,367  |  
|Investment in Commerce One                                                                        |  |      |      |         |  |      | (2,013    | )       |  |         | (1,920    | ) |  |  | (304,037   | ) |  |  | (270,442 | )
|Purchase of Top Tier, net of cash acquired                                                        |  |      |      |         |  |      |          |         |  |         |          |   |  |  | (378,993   | ) |  |  |         |  
|Change in liquid assets (maturities greater than
    90 days) and marketable securities           |  |      |      |         |  |      | 96,151    |         |  |         | 91,703    |   |  |  | 10,678     |   |  |  | (119,103 | )
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Net cash used in investing
    activities                                                         |  |      |      |         |  |      | (234,287  | )       |  |         | (223,450  | ) |  |  | (1,065,931 | ) |  |  | (525,717 | )
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Dividends paid                                                                                    |  |      |      |         |  |      | (191,161  | )       |  |         | (182,319  | ) |  |  | (180,414   | ) |  |  | (165,780 | )
|Purchase of treasury stock                                                                        |  |      |      |         |  |      | (292,809  | )       |  |         | (279,265  | ) |  |  | (94,212    | ) |  |  |         |  
|Change in bonds, net                                                                              |  |      |      |         |  |      | 7,182     |         |  |         | 6,850     |   |  |  | 4,776      |   |  |  | 10,756   |  
|Other changes to additional paid-in-capital                                                       |  |      |      |         |  |      | (11,003   | )       |  |         | (10,494   | ) |  |  | (4,682     | ) |  |  | 8,537    |  
|Proceeds from line of credit and long-term debt                                                   |  |      |      |         |  |      | 1,647     |         |  |         | 1,571     |   |  |  | 338,663    |   |  |  | 100,000  |  
|Principal payments made on line of credit and
    long-term debt                                  |  |      |      |         |  |      | (449,697  | )       |  |         | (428,896  | ) |  |  | (2,052     | ) |  |  | (29,519  | )
|Effect of 2000 STAR hedge, net                                                                    |  |      |      |         |  |      |          |         |  |         |          |   |  |  | (119,931   | ) |  |  | 29,569   |  
|Effect of 2001 STAR hedge                                                                         |  |      |      |         |  |      |          |         |  |         |          |   |  |  | (68,440    | ) |  |  |         |  
|Effect of 2002 STAR hedge                                                                         |  |      |      |         |  |      | (45,433   | )       |  |         | (43,331   | ) |  |  |           |   |  |  |         |  
|Proceeds from initial public offering of a
    subsidiary                                         |  |      |      |         |  |      |          |         |  |         |          |   |  |  |           |   |  |  | 87,324   |  
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Net cash provided by/used in financing
    activities                                             |  |      |      |         |  |      | (981,274  | )       |  |         | (935,884  | ) |  |  | (126,292   | ) |  |  | 40,887   |  
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Effect of foreign exchange rates on cash                                                          |  |      |      |         |  |      | (168,400  | )       |  |         | (160,610  | ) |  |  | (4,117     | ) |  |  | (2,159   | )
|Net increase/decrease in cash and cash
    equivalents                                            |  |      |      |         |  |      | 384,545   |         |  |         | 366,757   |   |  |  | (207,494   | ) |  |  | 252,984  |  
|Cash and cash equivalents at the beginning of
    the year                                        |  |      |      |         |  |      | 791,566   |         |  |         | 754,951   |   |  |  | 962,445    |   |  |  | 709,461  |  
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  
|Cash and cash equivalents at the end of the
    year                                              |  |      | (21) |         |  |      | 1,176,111 |         |  |         | 1,121,708 |   |  |  | 754,951    |   |  |  | 962,445  |  
|                                                                                                  |  |      |      |         |  |      |           |         |  |         |           |   |  |  |            |   |  |  |          |  






|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2002 figures have been translated solely for
    the convenience of the reader at an exchange rate of
     1.00 to
    US$ 1.0485, the Noon Buying Rate certified by the Federal
    Reserve Bank of New York on December 31, 2002.
|   
|(2) | See note 21.                                                                                                                                                                                                                            

See Notes to Consolidated Financial Statements.

F-6



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##### 



SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

A.     BASIS OF
PRESENTATION

(1)     General

The consolidated financial statements of the SAP
Aktiengesellschaft Systeme, Anwendungen, Produkte in der
Datenverarbeitung (SAP AG), together with its
subsidiaries (collectively, SAP, the
Group, or the Company), have been
prepared in accordance with accounting principles generally
accepted in the United States of America
(U.S. GAAP). Certain amounts reported in
previous years have been reclassified to conform to the 2002
presentation.

Amounts included in the consolidated financial
statements are reported in euro
()
unless otherwise stated. All euro financial data that is
presented in U.S. dollars (US$) 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, 2002, which was
 1.00 per
$1.0485. Financial data that has been presented in
U.S. dollars is unaudited and presented solely for the
convenience of the reader.

SAP operates in a dynamic and rapidly changing
environment that involves numerous risks and uncertainties, many
of which are beyond the Companys control. The Company
derives a substantial portion of its revenue from software
licenses and services sold to customers in Germany, the United
States, and Japan (see note 34). SAPs future
revenue and results of operations may be significantly adversely
affected by a prolonged economic slow-down in these countries.
Further, a significant portion of the Companys business is
conducted in currencies other than the euro. SAP continually
monitors its exposure to foreign currency exchange risk and has
a Company-wide foreign currency exchange risk policy and may
hedge such risks with certain financial instruments. However,
fluctuations in foreign currency exchange rates, especially the
value of the U.S. dollar, Japanese yen, British pound, Swiss
franc, Canadian dollar, Brazilian real, and Australian dollar
could significantly impact the Companys reported results
of operations.

(2)     Scope
of Consolidation

The consolidated financial statements include
SAP AG and all of its material majority-owned subsidiaries.
All significant intercompany transactions and balances relating
to these majority-owned entities have been eliminated.

The following table summarizes the change in the
number of companies included in the consolidated financial
statements:

|                                 |  |        |    |         |  |       |    |  |  |  |    | 
|-------------------------------- |  | ------ | -- | ------- |  | ----- | -- |  |  |  | -- | 
|Number of companies consolidated |  |        |    |         |  |      
|in the financial statements      |  | German |    | Foreign |  | Total
|                                 |  |        |    |         |  |      
|December 31, 2001                |  |        | 20 |         |  |       | 71 |  |  |  | 91 | 
|Additions                        |  |        | 2  |         |  |       | 4  |  |  |  | 6  | 
|Disposals                        |  |        | 4  |         |  |       | 2  |  |  |  | 6  | 
|                                 |  |        |    |         |  |       |    |  |  |  |    | 
|December 31, 2002                |  |        | 18 |         |  |       | 73 |  |  |  | 91 | 
|                                 |  |        |    |         |  |       |    |  |  |  |    | 

The impact of changes in the scope of companies
included in the consolidated financial statements during 2002
has an immaterial effect on the comparability of the
consolidated financial statements presented. All disposals are
due to mergers within the Group.

Five companies, in which SAP directly holds
between 20% and 50% of the voting rights or has the ability to
exercise significant influence over the operating and financial
policies (associated companies), are accounted for
using the equity method.

In August 2001, SAP retroactively applied the
equity method as a result of surpassing the 20% ownership
threshold in Commerce One, Inc. (Commerce One) and
obtaining the ability to exercise significant influence.

F-7



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##### 



U.S. GAAP requires retroactive restatement
when an investment in common stock previously accounted for
under the cost method of accounting qualifies for use of the
equity method. Prior to August 2001, the investment in Commerce
One was accounted for in accordance with Statement of Financial
Accounting Standard (SFAS) 115 Accounting for
Certain Investments in Debt and Equity Securities
(SFAS 115). This retroactive restatement
resulted in a
 18,593
thousand reduction of 2000 net income
(0.06 reduction
in basic earnings per share). Financial assets and certain
amounts within the consolidated statements of changes in
shareholders equity previously reported in 2000 were also
impacted.


(3)     Summary
of Significant Accounting Policies

Business Combinations

The Company accounts for its business
combinations using the purchase method. As of the date of
acquisition, the purchase price is allocated to the fair market
value of the net assets acquired. The fair value of any
identifiable in-process research and development
(in-process R&D), which represents functions
that have not reached technological feasibility, and research
and development having no alternative future uses, is expensed
immediately. Any excess purchase price over the fair value of
the net assets acquired is capitalized as goodwill.

Use of Estimates

The preparation of financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. In making
estimates, the Company may use historical and forecast
information. Changes in regional and industry economic
conditions in which the Company and/or its customers participate
may negatively impact the estimates made by management, in
particular assessing the valuation and recoverability of
investments and other assets. Actual results could differ from
those estimates.

Foreign Currency Translation and
Transactions

The assets and liabilities of foreign operations
where the functional currency is not the euro are generally
translated using period-end exchange rates while the statements
of income are translated using average exchange rates during the
respective periods. The resulting foreign currency translation
adjustments are included in other comprehensive income in the
consolidated statements of changes in shareholders equity.

Assets and liabilities that are denominated in
foreign currencies other than the functional currency are
translated at the period-end closing rate with resulting gains
and losses reflected in income.

The exchange rates of key currencies affecting
the Group are as follows:

|                  |  |     |     |                        |  |                                 |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|----------------- |  | --- | --- | ---------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                  |  |     |     |                        |  |                                
|                  |  |     |     | Closing rate at        |  | Annual average exchange rate to
|                  |  |     |     | December 31, to  1.00 |  |  1.00                         
|                  |  |     |     |                        |  |                                
|Exchange Rates    |  |     |     | 2002                   |  | 2001                            |        | 2002 |  | 2001 |        | 2000
|                  |  |     |     |                        |  |                                 |        |      |  |      |        |     
|U.S. dollar       |  | US$ |     |                        |  |                                 | 1.0494 |      |  |      | 0.8823 |      |  |  | 0.9499 |  |  |  | 0.8929 |  |  |  | 0.9162 | 
|Japanese yen      |  |     | JPY |                        |  |                                 | 124.49 |      |  |      | 115.69 |      |  |  | 118.83 |  |  |  | 108.85 |  |  |  | 99.071 | 
|British pound     |  |     | GBP |                        |  |                                 | 0.6509 |      |  |      | 0.6091 |      |  |  | 0.6305 |  |  |  | 0.6207 |  |  |  | 0.6087 | 
|Canadian dollar   |  |     | CAD |                        |  |                                 | 1.6536 |      |  |      | 1.4101 |      |  |  | 1.4906 |  |  |  | 1.3871 |  |  |  | 1.3716 | 
|Australian dollar |  |     | AUD |                        |  |                                 | 1.8600 |      |  |      | 1.7310 |      |  |  | 1.7425 |  |  |  | 1.7297 |  |  |  | 1.5932 | 

Revenue Recognition

Substantially all of the Companys revenues
are derived from the license of the Companys software
products and the sale of related maintenance, consulting, and
training services. The Companys standard license agreement
provides a perpetual license to use the Companys products
based on the number of licensed users. The Company may license
its software in multiple element arrangements if the customer
purchases any combination of maintenance, consulting, or
training services in conjunction with the license.

F-8



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##### 



The Company recognizes revenue pursuant to the
requirements of AICPA Statement of Position
(SOP) 97-2 Software Revenue
Recognition (SOP 97-2), as amended by
SOP 98-9 Software Revenue Recognition, With Respect
to Certain Transactions. Revenue is recognized using the
residual method when Company-specific objective evidence of fair
value exists for all of the undelivered elements in the
arrangement, but does not exist for one or more delivered
elements. The Company allocates revenue to each undelivered
element based on its respective fair value determined by the
price charged when that element is sold separately. The Company
defers revenue for the undelivered elements and recognizes the
residual amount of the arrangement fee, if any, when the basic
criteria in SOP 97-2 have been met.

Under SOP 97-2, provided that the
arrangement does not require significant production,
modification, or customization of the software, revenue is
recognized when the following four criteria have been met:



| |    |                                             
| | -- | --------------------------------------------
| | 1. | Persuasive evidence of an arrangement exists
|
| | 2. | Delivery has occurred                       
|
| | 3. | The fee is fixed or determinable, and       
|
| | 4. | Collectibility is probable.                 

If at the outset of an arrangement the Company
determines that the arrangement fee is not fixed or
determinable, revenue is deferred until the arrangement fee
becomes due. If at the outset of an arrangement the Company
determines that collectibility is not probable, revenue is
deferred until payment is received. If an arrangement allows for
customer acceptance of the software or services, the Company
defers revenue recognition until the earlier of customer
acceptance or when the acceptance right lapses.

The Company recognizes revenue from resellers
when the software is licensed to the end-user based upon the
terms and conditions provided by the reseller.

Maintenance revenues are recognized ratably over
the term of the maintenance contract.

In situations when the services are deemed not to
be essential to the functionality of the software, consulting
and training revenues are accounted for separately from the
license revenues. Consulting and training revenues are
recognized as the services are performed, generally on a time
and materials basis. Consulting revenues attributed to fixed
price arrangements are recognized using the percentage of
completion method based on direct labor costs incurred to date
as a percentage of total estimated costs to complete the
project. Consulting services primarily comprise implementation
support related to the installation and configuration of the
Companys products and do not typically require significant
production, modification, or customization of the software.
Arrangements that require significant production, modification,
or customization of the software, where services are not
available from third party vendors, are recognized, depending on
the fee structure, on a time and materials basis or using the
percentage of completion method. When total cost estimates
exceed revenues in a fixed price arrangement, the estimated
losses are recognized immediately based upon an average fully
burdened daily rate applicable to the consulting organization
delivering the services.

The assumptions, risks, and uncertainties
inherent with the application of the percentage of completion
method affect the amounts of revenue and related expenses
reported. Numerous internal and external factors can affect
estimates, including direct labor rates, utilization, and
efficiency variances.

The Company accounts for out-of-pocket expenses
rebilled to customers as maintenance, consulting, and training
revenues.

Research and Development

Research and development costs are generally
expensed as incurred. SFAS 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, 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 and consequently
have not been capitalized.

F-9



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##### 



The Company has entered into several joint
development agreements with certain customers in order to
leverage their industry expertise in an effort to provide
standard software solutions for selected vertical markets. These
customers generally contribute cash, resources, and industry
expertise in exchange for license rights of the future solution.
The Company recognizes software revenue in conjunction with
these arrangements based upon the percentage of completion
method.

Advertising Costs

Advertising costs are generally expensed as
incurred.

Sales of Newly Issued Subsidiary
Shares

Gains resulting from the issuance of stock by a
Group subsidiary, which reduces SAPs percentage ownership
(dilution gains) are recorded in the consolidated
statements of income.

Earnings per Share

Basic earnings per share are computed by dividing
consolidated net income by the weighted average number of
ordinary shares outstanding. Diluted earnings per share reflect
the potential dilution that would occur if all in the
money securities and other contracts to issue ordinary
shares were exercised or converted.

Intangible Assets and Property, Plant, and
Equipment

Purchased intangible assets, other than goodwill,
are recorded at cost and amortized on a straight-line basis over
their estimated useful life, generally three to five years. All
of SAPs intangible assets, other than goodwill, have
definite useful lives and are therefore subject to amortization.

With the adoption of SFAS 142,
Goodwill and Other Intangible Assets
(SFAS 142) on January 1, 2002, goodwill
arising from business combinations consummated prior to
July 1, 2001 is no longer amortized (see New Accounting
Pronouncements). Goodwill is now subject to an assessment for
impairment at least annually or when significant events occur or
there are changes in circumstances that indicate the fair value
of a reporting unit of the Group is less than its carrying
value. In 2001, goodwill arising from business combinations
consummated prior to July 1, 2001 was amortized through
December 31, 2001, using the straight-line method over its
estimated useful life, which did not exceed five years. Goodwill
resulting from business combinations after June 30, 2001,
was accounted for in accordance with SFAS 142.

Property, plant, and equipment is valued at cost
less accumulated depreciation, where appropriate, based on its
expected useful life. Interest incurred during the construction
of qualifying assets is capitalized and amortized over the
related assets estimated useful lives.

|                                 |  |                           |                               | 
|-------------------------------- |  | ------------------------- | ----------------------------- | 
|                                 |  | Useful lives of property,
|                                 |  | plant and equipment      
|                                 |  |                          
|Buildings                        |  |                           | 25 to 50 years                | 
|Leasehold improvements           |  |                           | Based upon the lease contract | 
|Information technology equipment |  |                           | 3 to 5 years                  | 
|Office furniture                 |  |                           | 4 to 20 years                 | 
|Automobiles                      |  |                           | 5 years                       | 

Generally, property, plant, and equipment are
depreciated using the straight-line method. Certain assets with
expected useful lives in excess of three years are depreciated
using the declining balance method.

SAP evaluates its long-lived assets (which
consists of property, plant, equipment and intangible assets,
excluding goodwill) in accordance with the provisions of
SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144)
(see New Accounting Pronouncements). This statement
requires that these long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset or group of assets may not be
recoverable. Recoverability of assets to be held and used is
assessed by comparing their carrying amount to the expected
future undiscounted net cash flows they are

F-10



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##### 



expected to generate. If an asset or group of
assets is considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying
amount of the asset or group of assets exceeds fair value.
Long-lived assets meeting the criteria to be considered as held
for sale are reported at the lower of their carrying amount or
fair value less anticipated disposal costs. In the years
presented, the Company recognized no impairment charges on
long-lived assets.


Financial Assets

In accordance with SFAS 115, 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 marketable securities within financial assets 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 as
a component of other comprehensive income within
shareholders equity. Investments in privately held
companies for which the Company does not have the ability to
exercise significant influence are accounted for under the cost
method of accounting. An impairment charge is recorded in
financial income as expense, if a decline in realizable value
below carrying value is deemed to be other than temporary. Gains
or losses realized on sales of securities are based on the
average-cost method.

Investments in associated companies are accounted
for under the equity method. Such investments are initially
recorded at cost, are adjusted for the Companys share of
the investees net income or loss, and reduced for
amortization of any step up in the value of acquired assets over
the investees book value. With the adoption of
SFAS 142, goodwill related to associated companies is no
longer subject to amortization. An impairment loss on SAPs
total investment in an associated company is recognized when the
carrying value exceeds the realizable value on an
other-than-temporary basis.

Non-interest-bearing or below market rate loans
to employees and to third parties are discounted to their
present value.

Non fixed Assets

Inventories are shown at the lower of
purchase/production cost or market value. Production costs
consist of direct salaries, materials, and production overhead.
No write-downs of inventory were necessary for the periods
presented.

Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. Included in accounts
receivable are unbilled receivables related to fixed fee
consulting arrangements. The allowance for doubtful accounts is
the Companys best estimate of the amount of probable
credit losses in the Companys existing accounts
receivable. The Company determines the allowance for doubtful
accounts after giving consideration to specific customer past
due amounts based on due dates and regional economic risks.
Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for
recovery is considered remote. Non-interest-bearing receivables
with a term exceeding one year are discounted to their present
value using local interest rates.

Other assets are shown at their historical cost,
which approximates fair value.

Marketable securities within non-fixed assets are
considered as trading. Accordingly, these securities are valued
at fair market value at the balance sheet date with realized and
unrealized gains/losses included in earnings. Recognized gains
or losses are based on the average-cost method.

Liquid assets are comprised of cash and cash
equivalents, time deposits with original maturities exceeding
90 days, and restricted cash. Cash and cash equivalents for
purposes of the consolidated statements of cash flows consist of
cash at banks and highly liquid investments with original
maturities of 90 days or less.

F-11



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##### 



Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.

Deferred tax assets 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.

Prepaid Expenses and Deferred
Charges

Prepaid expenses and deferred charges are
primarily composed of prepayments of software royalties,
operating leases, and maintenance contracts which will be
charged to expense in the future periods as such costs are
incurred.

Pension Benefit Liabilities

The measurement of pension-benefit liabilities is
based on actuarial computations using the projected-unit-credit
method. The assumptions used to calculate pension liabilities
and costs are shown in note 25. Changes in the amount of
the projected benefit obligation or plan assets resulting from
experience different from that assumed and from changes in
assumptions can result in gains or losses not yet recognized in
the Groups consolidated financial statements. Amortization
of an unrecognized net gain or loss is included as a component
of the Groups net periodic benefit plan cost for a year
if, as of the beginning of the year, that unrecognized net gain
or loss exceeds 10% of the greater of the projected benefit
obligation or the fair value of that plans assets. In that
case, the amount of amortization recognized by the Group is the
resulting excess divided by the average remaining service period
of the active employees expected to receive benefits under
the plan.

In addition, the Company records a liability for
amounts payable under the provisions of its various defined
contribution plans.

Accounting for Stock-Based
Compensation

The Company applies the intrinsic-value-based
method prescribed by Accounting Principles Board Opinion
(APB) 25, Accounting for Stock Issued to
Employees (APB 25) and related
interpretations. Under this method, compensation expense is
recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price or the
exercise price is not fixed at the grant date.

SFAS 123 Accounting for Stock-Based
Compensation, established accounting and disclosure
requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS 123,
the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and
has adopted only the disclosure requirements of SFAS 123. As
required by SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an
amendment of FASB Statement No. 123 (SFAS
148), the following table illustrates the effect on net
income if the fair-value-based method had been applied to all
outstanding and unvested awards in each period.

F-12



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##### 



|                                                                                  |  |      |         |      |  |      |         |  |  |  |         | 
|--------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                                                  |  | 2002 |         | 2001 |  | 2000
|                                                                                  |  |      |         |      |  |     
|Net income (in thousands of
    )                                                |  |      |         |      |  |      |         |  |  |  |         | 
|As reported                                                                       |  |      | 508,614 |      |  |      | 581,136 |  |  |  | 615,732 | 
|Add: Expense for stock-based compensation, net of
    tax according to APB25      |  |      | 5,600   |      |  |      | 40,357  |  |  |  | 286,604 | 
|Deduct: Expense for stock based compensation, net
    of tax according to FAS 123 |  |      | 138,203 |      |  |      | 131,272 |  |  |  | 360,428 | 
|                                                                                  |  |      |         |      |  |      |         |  |  |  |         | 
|Pro forma                                                                         |  |      | 376,011 |      |  |      | 490,221 |  |  |  | 541,908 | 
|                                                                                  |  |      |         |      |  |      |         |  |  |  |         | 
|Earnings per share (in
    )                                                     |  |      |         |      |  |      |         |  |  |  |         | 
|Basic  as reported                                                               |  |      | 1.62    |      |  |      | 1.85    |  |  |  | 1.96    | 
|Diluted  as reported                                                             |  |      | 1.62    |      |  |      | 1.85    |  |  |  | 1.95    | 
|Basic  pro forma                                                                 |  |      | 1.20    |      |  |      | 1.56    |  |  |  | 1.72    | 
|Diluted  pro forma                                                               |  |      | 1.20    |      |  |      | 1.56    |  |  |  | 1.72    | 

Derivative Financial Instruments

The Company primarily uses forward exchange
derivative financial instruments to reduce the foreign currency
exchange risk of anticipated cash flows from transactions with
subsidiaries denominated in currencies other than the euro. As
discussed in note 33, the Company uses call options to hedge its
anticipated cash flow exposure attributable to changes in the
market value of stock appreciation rights under various plans.

The Company accounts for derivative financial
instruments based on the provisions of SFAS 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 137 and 138. SFAS 133
requires that all derivative financial instruments be recorded
on the balance sheet at their fair value, regardless of purpose
or intent for holding them. The effective portion of the
realized and unrealized gain or loss on derivatives designated
as cash flow hedges is reported net of tax, as a component of
other comprehensive income. 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 gains or losses on derivatives designated as cash-flow hedges
are reported in earnings when the ineffectiveness occurs. In
measuring the effectiveness of foreign currency related cash
flow hedges, the Company excludes differences resulting from
time value (that is, spot rates versus forward rates for forward
contracts). Changes in value resulting from the excluded
component are recognized in earnings immediately. Foreign
exchange derivatives entered into by the Company to offset
exposure to anticipated cash flows that do not meet the
requirements for applying hedge accounting are marked to market
each reporting period with unrealized gains and losses
recognized in income.

Comprehensive Income

Comprehensive income is comprised of net income
and other comprehensive income (loss). Other comprehensive
income/loss includes foreign currency translation adjustments,
changes in additional minimum pension liabilities, unrealized
gains and losses from derivatives designated as cash flow
hedges, and unrealized gains and losses from marketable debt and
equity securities considered available for sale. Both other
comprehensive income and comprehensive income are disclosed in
the consolidated statements of changes in shareholders
equity.

Cash Flows

The consolidated statements of cash flows
illustrate the effect of inflows and outflows during the course
of the fiscal year on the Groups cash and cash
equivalents, and have been prepared in accordance with SFAS 95,
Statement of Cash Flows. The consolidated statements
of cash flows distinguish 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 21.

F-13



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##### 



New Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS 141, Business
Combinations (SFAS 141) and SFAS 142. SFAS 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS
141 also specifies the types of acquired intangible assets that
are required to be recognized and reported separately from
goodwill and those acquired intangible assets that are required
to be included in goodwill. SFAS 142 requires that goodwill no
longer be amortized, but instead tested for impairment at least
annually. SFAS 142 also requires recognized intangible assets
with a definite useful life to be amortized over their
respective estimated useful lives and reviewed for impairment in
accordance with SFAS 144 (see below).

SAP adopted the provisions of SFAS 141 and SFAS
142 as of July 1, 2001, and January 1, 2002
respectively. These Statements require that goodwill acquired in
a business combination completed after June 30, 2001 should
not be amortized. Goodwill acquired in business combinations
completed before July 1, 2001 was amortized until
December 31, 2001.

SFAS 142 required the Group to evaluate its
existing intangible assets and goodwill and to make any
necessary reclassifications in order to conform to the new
separation requirements at the date of adoption. Accordingly, at
January 1, 2002, the Group reclassified intangible assets
for assembled workforce with a net carrying value of
 8,735
thousand into goodwill. The Group reassessed the estimated
useful lives and residual values of all intangible assets other
than goodwill and determined that no adjustments regarding
amortization periods were necessary.

In connection with the transitional impairment
evaluation, SFAS 142 required SAP to perform an assessment of
whether there is an indication that goodwill is impaired as of
January 1, 2002. To accomplish this, SAP
(1) identified its reporting units, (2) determined the
carrying value of each reporting unit by assigning the assets
and liabilities, including the existing goodwill and intangible
assets, to those reporting units, and (3) determined the
fair value of each reporting unit. SAP completed this first step
of the transitional assessment for all of the Groups
reporting units, and determined there was no indication that
goodwill had been impaired as of January 1, 2002.
Accordingly, no transitional goodwill impairment charge was
necessary.

In June 2001, the FASB issued SFAS 143,
Accounting for Asset Retirement Obligations
(SFAS 143). The statement applies to legal
obligations associated with the retirement of tangible
long-lived assets that result from the acquisition,
construction, development, and/or the normal operation of a
long-lived asset, except for certain obligations of lessees.
SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset and
subsequently allocated to expense over the assets useful
life. SAP adopted SFAS 143 on January 1, 2003 and it did
not have a material impact on SAPs consolidated financial
statements.

In August 2001, the FASB issued SFAS 144. This
Statement supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and APB 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of
a business. SFAS 144 establishes a single accounting model based
on SFAS 121 for long-lived assets to be disposed of by sale,
including discontinued operations. It retains the previous
requirement to recognize an impairment loss only if the carrying
amounts of long-lived assets to be held and used are not
recoverable from their expected undiscounted future cash flows.
Major changes include additional criteria for long-lived assets
to qualify as held for sale and the requirement that long-lived
assets to be disposed of other than by sale be classified as
held and used until the disposal transaction occurs. SFAS 144
retains the current requirement to report separately
discontinued operations but expands that reporting to include a
component of an entity (rather than only a segment of a
business) that either has been disposed of or is classified as
held for sale. The new rules require long-lived assets to be
disposed of by sale to be recorded at the lower of carrying
amount or fair value less costs to sell and to cease
depreciation. Therefore, discontinued operations are no longer
measured at net realizable value. As a result, expected future
operating losses are no longer recognized before they are
actually incurred. SAP adopted SFAS

F-14



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##### 



144 on January 1, 2002. The adoption of SFAS
144 compared to previous requirements, except for goodwill, did
not have an impact on SAPs consolidated financial
statements.


In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146), superseding Emerging
Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The Statement requires that a liability
for costs associated with exit or disposal activities be
recognized in the period in which the costs are incurred if a
reasonable estimate of fair value can be made. Under current
accounting guidance, a liability can be recognized when
management has committed to an exit plan. The requirements under
SFAS 146 are effective prospectively for exit or disposal
activities initiated after December 31, 2002. Previously
issued financial statements cannot be restated for the effect of
the provisions of SFAS 146, and liabilities previously recorded
under EITF 94-3 are grandfathered. The adoption of this
Statement will affect SAPs accounting for exit and
disposal activities initiated after December 31, 2002.

In November 2002, the EITF reached a final
consensus on EITF 00-21, Revenue Arrangements with
Multiple Deliverables. EITF 00-21 addresses certain
aspects of the accounting of revenue arrangements with multiple
deliverables by a vendor. EITF 00-21 outlines an approach to
determine when a revenue arrangement for multiple deliverables
should be divided into separate units of accounting and, if
separation is appropriate, how the arrangement consideration
should be allocated to the identified accounting units. The
consensus reached in the Issue will be effective for SAP in its
financial statements beginning July 1, 2003. SAP is
determining the impact of the adoption of EITF 00-21, although
SAP believes that the adoption will not have a material impact
on its consolidated financial statements.

Also in November 2002, the FASB issued FASB
Interpretation No. (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others  an
interpretation of FASB statements 5, 57, and 107 and rescission
of FASB Interpretation 34 (FIN 45). This
Interpretation elaborates on the disclosure to be made by a
guarantor in its financial statements regarding obligations
under certain guarantees that it has issued. FIN 45 also
clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the
obligation due to the issuance of the guarantee. The initial
recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after
December 31, 2002. The disclosures of guarantees required
by FIN 45 are included in notes 26 and 30. SAP occasionally
grants function and/or performance guarantees in routine
consulting contracts and/or customer development arrangements,
standard guarantee provisions and other items. Currently, the
Company has several such agreements in place with various
expiration dates. Based on historical experience and evaluation,
SAP does not believe that any material loss is likely, and
therefore no related liability has been recorded. The Company
also provides a six to 12 month warranty period on its
software.

In December 2002, the FASB issued SFAS 148, which
amends SFAS 123 to provide alternative methods of transition for
a voluntary change to the fair-value-based method of accounting
for stock-based employee compensation. In addition, SFAS 148
requires more prominent disclosures in both interim and annual
financial statements about the method of accounting used for
stock-based employee compensation and the effect of the method
used on reported results. As described above, SAP applies APB
25, which uses an intrinsic-value-based approach to measure
compensation expense. Under SFAS 123, compensation expense of
stock option plans is measured at the grant date based on the
fair value of the award using an option-pricing model.
Compensation expense is recognized over the service period with
an offsetting credit to equity (paid-in capital). If adopted,
the additional compensation expense in the statements of income
will be dependent upon the number, price, and other significant
terms of the stock options granted.

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities  an
interpretation of ARB No. 51 (FIN 46),
which clarifies the application of the consolidation rules to
certain variable interest entities. In general, a variable
interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either
(a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities.
FIN 46 requires a variable interest entity to be consolidated by
a company if that company is subject to a majority of the risk
of loss from the variable interest entitys activities or
entitled to receive a majority of the entitys residual
returns, or both. The

F-15



---



##### 



consolidation requirements of FIN 46 apply
immediately to variable interest entities created after
January 31, 2003. The consolidation requirements apply to
variable interest entities created before February 1, 2003,
in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply
in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established.
The adoption of FIN 46 will have no impact on SAPs
consolidated financial position or results of operations because
SAP currently holds no significant variable interests in any
variable interest entities.


(4)  Acquisitions

During the year ended December 31, 2002, SAP
completed certain acquisitions, which are immaterial
individually and in the aggregate. These acquisitions have been
accounted for using the purchase method and are included in
SAPs consolidated financial statements since the date of
acquisition. The aggregate purchase price of these acquisitions
in 2002 was
 36.8 million,
of which
 5.4
million was assigned to identifiable intangible assets and
 20.5 million
was recorded as goodwill.

In April 2001, SAP acquired 100% of the
outstanding shares of TopTier Inc. (TopTier), for
approximately $379 million in cash excluding cash acquired.
TopTier, renamed SAP Portals Inc., specialized in technologies
and know-how for creating enterprise portals. The acquisition
was accounted for using the purchase method and accordingly the
operating results have been included in the Companys
consolidated results of operations from the date of acquisition.

Based on their respective fair values,
approximately
 138 million
of the purchase price was allocated to identifiable intangible
assets including technology, workforce, and trade names. In
addition, approximately
 6 million
of purchase price was allocated to acquired in-process R&D,
which was expensed as of the acquisition date. Goodwill
resulting from the purchase price allocation was approximately
 278 million.
Amounts paid to settle the portion of TopTiers outstanding
vested stock options are included in the purchase price. SAP
agreed to compensate former TopTier employees for the unvested
portion of such outstanding options based upon the original
vesting schedule provided such employees remain continuously
employed by the Company. These amounts are included as deferred
compensation within shareholders equity and are recorded
as compensation expense over the remaining vesting period.

In the second quarter of 2000, SAP acquired 2.4%
and 0.6% respectively of the outstanding voting shares of
Commerce One, for approximately
 270 million.
The investment was accounted for as an available for sale
security to the extent the underlying shares were not
restricted. Restricted shares were recorded at cost until
considered available for sale, 12 months prior to the date
they were no longer restricted. SAP made additional investments
in Commerce One during the second quarter of 2001, resulting in
a cumulative ownership interest of slightly less than 5%. In
August 2001, SAP acquired approximately 17% of the outstanding
voting stock of Commerce One resulting in SAP obtaining
significant influence. Amounts invested in 2001 approximated
 304 million.
See note 2 for a description of the retroactive application of
the equity method of accounting relating to acquisitions of
Commerce One shares. SAP allocated the purchase price for each
step in the acquisition based on the ownership percentage of
Commerce Ones recorded net equity at such time. The
purchase price allocation resulted in acquired intangibles
totaling approximately
 44 million
including primarily software and technology,
 11 million
for in-process R&D, and
 300
million of goodwill.

B.  NOTES TO THE CONSOLIDATED INCOME
STATEMENTS

(5)     Revenue

Revenue information by segment and geographic
region is disclosed in note 34. Other revenue is derived
mainly from marketing events.

(6)     Sales
and Marketing

Sales and marketing expense includes advertising
costs, which amounted to
 151,300 thousand,
 188,546 thousand,
and
 197,070 thousand
in 2002, 2001, and 2000 respectively.

F-16



---



##### 



(7)     Other
Operating Expense, Net

Other operating income/expense for the years
ended December 31 are as follows:

|                                         |                         |         |         |         |   |         |         |          |   |  |         |         |  
|---------------------------------------- | ----------------------- | ------- | ------- | ------- | - | ------- | ------- | -------- | - |  | ------- | ------- | -
|                                         |                         | 2002    |         | 2001    |   | 2000   
|                                         |                         |  (000) |         |  (000) |   |  (000)
|                                         |                         |         |         |         |   |        
|Restructuring costs                      |                         |         | (46,107 | )       |   |         | (13,636 | )        |   |  |        |        
|Expenses to obtain rental income         |                         |         | (4,989  | )       |   |         | (7,737  | )        |   |  | (5,308  | )      
|Amortization of goodwill                 |                         |         |        |         |   |         | (62,884 | )        |   |  | (33,485 | )      
|General bad debt expense                 |                         |         |        |         |   |         | (14,706 | )        |   |  |        |        
|Other                                    |                         |         | (1,537  | )       |   |         | (6,667  | )        |   |  | (5,477  | )      
|                                         |                         |         |         |         |   |         |         |          |   |  |         |        
|                                         | Other operating expense |         |         | (52,633 | ) |         |         | (105,630 | ) |  |         | (44,270 | )
|                                         |                         |         |         |         |   |         |         |          |   |  |         |        
|Rental income                            |                         |         | 9,228   |         |   |         | 9,774   |          |   |  | 6,988   |        
|Reductions of general bad debt allowance |                         |         | 5,288   |         |   |         |        |          |   |  | 5,792   |        
|Receipt of insurance proceeds            |                         |         | 2,246   |         |   |         | 1,137   |          |   |  | 1,389   |        
|Other                                    |                         |         | 763     |         |   |         | 505     |          |   |  | 4,484   |        
|                                         |                         |         |         |         |   |         |         |          |   |  |         |        
|                                         | Other operating income  |         |         | 17,525  |   |         |         | 11,416   |   |  |         | 18,653  |  
|                                         |                         |         |         |         |   |         |         |          |   |  |         |        
|                                         |                         |         | (35,108 | )       |   |         | (94,214 | )        |   |  | (25,617 | )      
|                                         |                         |         |         |         |   |         |         |          |   |  |         |        

Restructuring costs primarily relate to severance
packages for personnel located in the United States. The
majority of the payments were made during 2002, whereas the
remaining liability for those severance packages, in the amount
of approximately
 13 million,
is expected to be made in the first quarter of 2003.

(8)     Functional
Costs and Other Expenses

The information provided below is classified
based upon the type of expense. The consolidated statements of
income include these amounts in various expenses based upon the
applicable line of business.

Cost of Services and Materials

Cost of services and materials, which are
included in various operating expense line items in the
consolidated statements of income for the years ended
December 31 are as follows:

|                                            |  |         |         |         |  |         |         |  |  |  |         | 
|------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- |  |  |  | ------- | 
|                                            |  | 2002    |         | 2001    |  | 2000   
|                                            |  |  (000) |         |  (000) |  |  (000)
|                                            |  |         |         |         |  |        
|Raw materials and supplies, purchased goods |  |         | 23,515  |         |  |         | 22,033  |  |  |  | 18,444  | 
|Purchased services                          |  |         | 824,752 |         |  |         | 806,550 |  |  |  | 725,097 | 
|                                            |  |         |         |         |  |         |         |  |  |  |         | 
|                                            |  |         | 848,267 |         |  |         | 828,583 |  |  |  | 743,541 | 
|                                            |  |         |         |         |  |         |         |  |  |  |         | 

Personnel Expenses/ Number of
Employees

Personnel expenses, which are included in various
operating expenses in the consolidated statements of income for
the years ended December 31 are as follows:

|                |  |         |           |         |  |         |           |  |  |  |           | 
|--------------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|                |  | 2002    |           | 2001    |  | 2000   
|                |  |  (000) |           |  (000) |  |  (000)
|                |  |         |           |         |  |        
|Salaries        |  |         | 2,519,054 |         |  |         | 2,497,261 |  |  |  | 2,450,329 | 
|Social costs    |  |         | 345,798   |         |  |         | 313,813   |  |  |  | 275,839   | 
|Pension expense |  |         | 100,397   |         |  |         | 97,030    |  |  |  | 86,599    | 
|                |  |         |           |         |  |         |           |  |  |  |           | 
|                |  |         | 2,965,249 |         |  |         | 2,908,104 |  |  |  | 2,812,767 | 
|                |  |         |           |         |  |         |           |  |  |  |           | 

Included in personnel expenses for the years
ended December 31, 2002, 2001, and 2000, are expenses
associated with the stock-based compensation as described in
note 24.

F-17



---



##### 



The average number of employees was as follows:

|          |  |      |        |      |  |      |        |  |  |  |        | 
|--------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|          |  | 2002 |        | 2001 |  | 2000
|          |  |      |        |      |  |     
|Employees |  |      | 29,598 |      |  |      | 27,452 |  |  |  | 23,335 | 
|          |  |      |        |      |  |      |        |  |  |  |        | 

(9)     Other
Non-Operating Income/ Expense, Net

Other non-operating income/expenses for the years
ended December 31 are as follows:

|                                   |                              |         |          |          |   |         |          |          |   |  |          |          |  
|---------------------------------- | ---------------------------- | ------- | -------- | -------- | - | ------- | -------- | -------- | - |  | -------- | -------- | -
|                                   |                              | 2002    |          | 2001     |   | 2000   
|                                   |                              |  (000) |          |  (000)  |   |  (000)
|                                   |                              |         |          |          |   |        
|Foreign currency losses            |                              |         | (201,097 | )        |   |         | (145,318 | )        |   |  | (176,785 | )       
|Losses on disposal of fixed assets |                              |         | (3,850   | )        |   |         | (4,419   | )        |   |  | (9,192   | )       
|Other                              |                              |         | (7,552   | )        |   |         | (10,041  | )        |   |  | (5,333   | )       
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|                                   | Other non-operating expenses |         |          | (212,499 | ) |         |          | (159,778 | ) |  |          | (191,310 | )
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|Foreign currency gains             |                              |         | 236,401  |          |   |         | 139,589  |          |   |  | 82,729   |         
|Gains on disposal of fixed assets  |                              |         | 4,696    |          |   |         | 3,465    |          |   |  | 2,745    |         
|Gain from IPO of subsidiary        |                              |         |         |          |   |         |         |          |   |  | 44,234   |         
|Other                              |                              |         | 8,721    |          |   |         | 6,081    |          |   |  | 6,262    |         
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|                                   | Other non-operating income   |         |          | 249,818  |   |         |          | 149,135  |   |  |          | 135,970  |  
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|                                   |                              |         | 37,319   |          |   |         | (10,643  | )        |   |  | (55,340  | )       
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         

SAP Systems Integration AG (SAP SI)
completed an initial public offering in September 2000, which
resulted in the dilution of the Companys beneficial
ownership of SAP SI voting shares from 62% to 54%. Net proceeds
received by SAP SI from the offering, based on the offering
price of
 19 per
share, totaled
 87,324 thousand,
resulting in a dilution gain of
 44,234 thousand,
which is included in the Companys 2000 consolidated
statement of income.

(10)     Financial
Income/ Expense, Net

Financial income/expense, net for the years ended
December 31 is as follows:

|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  
|------------------------------------------------------------------- |  | ------- | -------- | ------- |  | ------- | -------- | - |  |  | ------- | -
|                                                                    |  | 2002    |          | 2001    |  | 2000   
|                                                                    |  |  (000) |          |  (000) |  |  (000)
|                                                                    |  |         |          |         |  |        
|Interest and similar income                                         |  |         | 38,311   |         |  |         | 55,910   |   |  |  | 69,658  |  
|Interest and similar expenses                                       |  |         | (13,524  | )       |  |         | (22,244  | ) |  |  | (10,464 | )
|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  
|Interest income, net                                                |  |         | 24,787   |         |  |         | 33,666   |   |  |  | 59,194  |  
|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  
|Loss from investments, net                                          |  |         | (394,039 | )       |  |         | (165,499 | ) |  |  | (96,943 | )
|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  
| thereof from associated companies                                 |  |         | (394,589 | )       |  |         | (165,499 | ) |  |  | (96,943 | )
|Income from marketable securities and loans of
    financial assets |  |         | 2,647    |         |  |         | 1,771    |   |  |  | 1,071   |  
|Write-down of financial assets                                      |  |         | (133,098 | )       |  |         | (75,586  | ) |  |  | (19,845 | )
|Gains on sales of marketable equity securities                      |  |         | 3,057    |         |  |         | 23,632   |   |  |  | 355,139 |  
|Unrealized loss on STAR hedge                                       |  |         | (58,909  | )       |  |         | (50,901  | ) |  |  | (29,436 | )
|Other net                                                           |  |         | 256      |         |  |         | (57      | ) |  |  | (3,629  | )
|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  
|Other financial income/loss, net                                    |  |         | (186,047 | )       |  |         | (101,141 | ) |  |  | 303,300 |  
|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  
|                                                                    |  |         | (555,299 | )       |  |         | (232,974 | ) |  |  | 265,551 |  
|                                                                    |  |         |          |         |  |         |          |   |  |  |         |  

Interest income is derived primarily from cash
and cash equivalents, long-term investments, and other assets.

The loss from associated companies in 2002
includes
 389,630 thousand
related to the Companys investment in Commerce One, of
which
 297,632 thousand
is due to an other-than-temporary impairment charge.

F-18



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##### 



See notes 16 and 24 regarding write-downs of
financial assets and unrealized losses on STAR hedges
respectively.

(11)     Income
Taxes

Income tax expense for the years ended
December 31 is comprised of the following components:

|                         |  |         |         |         |  |         |          |   |  |  |          |  
|------------------------ |  | ------- | ------- | ------- |  | ------- | -------- | - |  |  | -------- | -
|                         |  | 2002    |         | 2001    |  | 2000   
|                         |  |  (000) |         |  (000) |  |  (000)
|                         |  |         |         |         |  |        
|Current taxes  Germany  |  |         | 302,533 |         |  |         | 461,890  |   |  |  | 235,679  |  
|Current taxes  Foreign  |  |         | 221,452 |         |  |         | 170,878  |   |  |  | 279,342  |  
|                         |  |         |         |         |  |         |          |   |  |  |          |  
|                         |  |         | 523,985 |         |  |         | 632,768  |   |  |  | 515,021  |  
|                         |  |         |         |         |  |         |          |   |  |  |          |  
|Deferred taxes  Germany |  |         | 56,155  |         |  |         | (124,552 | ) |  |  | (106,752 | )
|Deferred taxes  Foreign |  |         | 18,565  |         |  |         | (31,923  | ) |  |  | (16,462  | )
|                         |  |         |         |         |  |         |          |   |  |  |          |  
|                         |  |         | 74,720  |         |  |         | (156,475 | ) |  |  | (123,214 | )
|                         |  |         |         |         |  |         |          |   |  |  |          |  
|Income tax expense       |  |         | 598,705 |         |  |         | 476,293  |   |  |  | 391,807  |  
|                         |  |         |         |         |  |         |          |   |  |  |          |  

In September 2002, the German government enacted
new tax legislation
(Flutopfersolidaritätsgesetz) effective
January 1, 2003. The most significant change of the law
consisted in the increase of the statutory corporate income tax
rate from 25% to 26.5% for a limited period of one year. In the
year 2002 the new law only had effects on deferred taxes.
Deferred taxes have to be calculated with that tax rate which is
effective, when the effect on which the deferred tax is based
upon, reverses. Accordingly, that part of deferred taxes of
German companies of the Group which reverses in the year 2003
has been calculated with a corporate income tax rate of 26.5%.
As far as the reversal is deemed to take place after the year
2003, the respective tax has been calculated with the thus
following corporate income tax rate of 25%. As effect of such
increase in the tax rate on the deferred tax assets and
liabilities of Group companies in Germany the consolidated
statement of income in 2002 includes a net charge of
 1,558
thousand.

Effects of prior tax law changes have been
reflected in the above mentioned prior year figures as follows:
New tax legislation enacted in October 2000 and effective
beginning January 1, 2001
(Steuersenkungsgesetz) reduced the statutory
corporate income tax rate from 40% on retained earnings and 30%
on distributed earnings to a uniform rate of 25%. The other
significant tax law change was the exemption from tax for
certain gains or losses from the sale of shares in affiliated
and unaffiliated companies. The effects of such tax law changes
on the deferred tax assets and liabilities of Group companies in
Germany have been considered as a tax reduction of
 4,869
thousand in the consolidated statement of income for 2000. For
the year 2001 no effects of tax law changes had to be considered.

Income before income taxes consists of the
following:

|        |  |         |           |         |  |         |           |  |  |  |           | 
|------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|        |  | 2002    |           | 2001    |  | 2000   
|        |  |  (000) |           |  (000) |  |  (000)
|        |  |         |           |         |  |        
|Germany |  |         | 450,864   |         |  |         | 802,375   |  |  |  | 288,827   | 
|Foreign |  |         | 656,834   |         |  |         | 266,382   |  |  |  | 724,042   | 
|        |  |         |           |         |  |         |           |  |  |  |           | 
|        |  |         | 1,107,698 |         |  |         | 1,068,757 |  |  |  | 1,012,869 | 
|        |  |         |           |         |  |         |           |  |  |  |           | 

In 2002 the company showed an extraordinary gain
of  5,776
thousand. The income before income taxes after extraordinary
gain therefore amounts to
 1,113,474 thousand.
The effective tax rate referring to this income before income
taxes for the years ended December 31, 2002, 2001, and 2000
is 53.8%, 44.6%, and 38.7% respectively. The table below shows a
reconciliation of expected income taxes to the actual income tax
expense determined using the Companys combined German
corporate tax rate of 36.39% in 2002 (2001: 36.51%; 2000:
50.15%). This combined rate includes a corporate income tax rate
(after the benefit of deductible trade tax) of 21.60% (2001:
21.56%; 2000: 34.50%) plus a solidarity surcharge of 5.5%
thereon and trade taxes of 13.60% (2001: 13.77%; 2000: 13.76%).

F-19



---



##### 



|                                                                          |  |         |           |         |  |         |           |   |  |  |           |  
|------------------------------------------------------------------------- |  | ------- | --------- | ------- |  | ------- | --------- | - |  |  | --------- | -
|                                                                          |  | 2002    |           | 2001    |  | 2000   
|                                                                          |  |  (000) |           |  (000) |  |  (000)
|                                                                          |  |         |           |         |  |        
|Income before income taxes                                                |  |         | 1,107,698 |         |  |         | 1,068,757 |   |  |  | 1,012,869 |  
|Expected Income Taxes 36.39% in 2002 (36.51% in
    2001, 50.15% in 2000) |  |         | 403,091   |         |  |         | 390,203   |   |  |  | 507,954   |  
|Tax deduction for dividend payments                                       |  |         |          |         |  |         |          |   |  |  | (28,014   | )
|Foreign tax rate differential                                             |  |         | (4,316    | )       |  |         | 30,993    |   |  |  | (115,575  | )
|Tax on non-deductible expenses                                            |  |         | 11,450    |         |  |         | 5,705     |   |  |  | 24,495    |  
|Tax effect on losses                                                      |  |         | (130      | )       |  |         | 3,611     |   |  |  | 588       |  
|Tax effect on equity investments and securities                           |  |         | 177,639   |         |  |         | 54,766    |   |  |  |          |  
|Other                                                                     |  |         | 10,971    |         |  |         | (8,985    | ) |  |  | 2,359     |  
|                                                                          |  |         |           |         |  |         |           |   |  |  |           |  
|Income taxes                                                              |  |         | 598,705   |         |  |         | 476,293   |   |  |  | 391,807   |  
|                                                                          |  |         |           |         |  |         |           |   |  |  |           |  

Deferred income tax assets and liabilities at
December 31 are summarized as follows:

|                                           |  |         |         |         |  |  |         |  
|------------------------------------------ |  | ------- | ------- | ------- |  |  | ------- | -
|                                           |  | 2002    |         | 2001   
|                                           |  |  (000) |         |  (000)
|                                           |  |         |         |        
|Deferred tax assets                        |  |         |         |         |  |  |         |  
|Property plant & equipment and intangibles |  |         | 172,051 |         |  |  | 122,112 |  
|Financial assets                           |  |         | 22,249  |         |  |  | 24,828  |  
|Accounts receivable                        |  |         | 22,177  |         |  |  | 41,752  |  
|Net operating loss carryforwards           |  |         | 25,874  |         |  |  | 123,615 |  
|Pension liabilities                        |  |         | 28,028  |         |  |  | 14,283  |  
|Other liabilities                          |  |         | 86,004  |         |  |  | 100,936 |  
|Deferred income                            |  |         | 48,156  |         |  |  | 46,990  |  
|Other                                      |  |         | 762     |         |  |  | 8,842   |  
|                                           |  |         |         |         |  |  |         |  
|                                           |  |         | 405,301 |         |  |  | 483,358 |  
|Less: Valuation allowance                  |  |         | (3,011  | )       |  |  | (3,611  | )
|                                           |  |         |         |         |  |  |         |  
|Deferred tax assets                        |  |         | 402,290 |         |  |  | 479,747 |  
|                                           |  |         |         |         |  |  |         |  
|Deferred tax liabilities                   |  |         |         |         |  |  |         |  
|Property plant & equipment and intangibles |  |         | 35,417  |         |  |  | 55,045  |  
|Financial assets                           |  |         | 5,774   |         |  |  | 21      |  
|Accounts receivable                        |  |         | 35,918  |         |  |  | 1,583   |  
|Pension liabilities                        |  |         | 5,537   |         |  |  | 2,695   |  
|Other liabilities                          |  |         | 25,168  |         |  |  | 14,123  |  
|Deferred income                            |  |         | 3,134   |         |  |  | 7,201   |  
|Other                                      |  |         | 147     |         |  |  | 282     |  
|                                           |  |         |         |         |  |  |         |  
|Deferred tax liabilities                   |  |         | 111,095 |         |  |  | 80,950  |  
|                                           |  |         |         |         |  |  |         |  
|Net deferred tax
    (liabilities)/assets  |  |         | 291,195 |         |  |  | 398,797 |  
|                                           |  |         |         |         |  |  |         |  

F-20



---



##### 



With regard to their duration, deferred tax
assets and liabilities at December 31, are classified as
follows:

|                         |  |         |         |         |  |  |         | 
|------------------------ |  | ------- | ------- | ------- |  |  | ------- | 
|                         |  | 2002    |         | 2001   
|                         |  |  (000) |         |  (000)
|                         |  |         |         |        
|Deferred tax assets      |  |         |         |         |  |  |         | 
|Short-term               |  |         | 146,520 |         |  |  | 188,432 | 
|Long-term                |  |         | 255,770 |         |  |  | 291,315 | 
|                         |  |         |         |         |  |  |         | 
|                         |  |         | 402,290 |         |  |  | 479,747 | 
|                         |  |         |         |         |  |  |         | 
|Deferred tax liabilities |  |         |         |         |  |  |         | 
|Short-term               |  |         | 63,678  |         |  |  | 21,643  | 
|Long-term                |  |         | 47,417  |         |  |  | 59,307  | 
|                         |  |         |         |         |  |  |         | 
|                         |  |         | 111,095 |         |  |  | 80,950  | 
|                         |  |         |         |         |  |  |         | 

On December 31, 2002, certain foreign
subsidiaries of the Company had net operating loss carryforwards
amounting to
 140,452
thousand (2001:
 343,623
thousand) which may be used to offset future taxable income. Net
operating loss carryforwards principally exist in the
United States
(91,203
thousand). These are mainly only for US State tax purposes and
can be utilized within 20 years. Further
 28,357
thousand can be utilized within an unlimited period of time, the
rest of
 20,892
thousand with different expiration periods between three and
seven years. Deferred tax assets relating to net operating loss
carryforwards have been reduced by a valuation allowance to the
extent that it is more likely than not that those carryforwards
will not be realized.

The Company recorded tax liabilities of
 3,816 thousand
(2001:
 3,805 thousand)
for taxes on future dividend distributions from foreign
subsidiaries. It considers
 205,298
thousand (2001:
 71,274 thousand)
in cumulative undistributed earnings of foreign subsidiaries
because such earnings are not intended to be permanently
reinvested in those operations. The Company did not provide
income taxes on
 1,646,258 thousand
(2001: 1,499,320 thousand) in cumulative earnings of
foreign subsidiaries because the earnings are intended to be
indefinitely reinvested in those operations. It is not
practicable to estimate the amount of unrecognized tax
liabilities for these undistributed foreign earnings.

Furthermore, there are deferred taxes not
affecting earnings (charge or credit on other comprehensive
income). Including those items charged or credited directly to
related components of accumulated other comprehensive
income/loss, the expense for income taxes was
 593,219
thousand,
 443,328
thousand and
 275,189
thousand for the years ended December 31, 2002, 2001 and
2000, respectively (see note 23).

(12)  Extraordinary
Gain

The Company recorded an extraordinary gain
related to negative goodwill that resulted from the acquisition
of the outstanding shares of an associated company, which was
subsequently merged into SAP AG. The excess of the fair value of
the net assets acquired over the purchase price (that is,
negative goodwill) primarily relates to the recognition of
deferred tax assets for acquired net operating loss
carryforwards that SAP was able to utilize and realize
immediately.

(13)  Earnings Per
Share

Convertible bonds and stock options granted to
employees under SAPs stock-based compensation programs are
included in the diluted earnings per share calculations to the
extent they have a dilutive effect. The dilutive impact is
calculated using the treasury stock method. As their effect
would have been antidilutive, all outstanding convertible bonds
have not been included in the computation of earnings per share.
The number of outstanding stock options and convertible bonds is
presented in note 24.

F-21



---



##### 



|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |      | 
|-------------------------------------------- | -------------------------------------------- | ------------------------------ | ------- | ---- |  | ---- | ------- | ---- |  |  | ------- | ---- | 
|                                             |                                              | 2002                           |         | 2001 |  | 2000
|                                             |                                              |                                |         |      |  |     
|                                             |                                              |                               
|                                             |                                              | (In thousands except per share
|                                             |                                              | data)                         
|Net income before extraordinary gain
    () |                                              |                                | 502,838 |      |  |      | 581,136 |      |  |  | 615,732 |     
|Extraordinary gain, net of tax
    ()       |                                              |                                | 5,776   |      |  |      |        |      |  |  |        |     
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|Net income
    ()                           |                                              |                                | 508,614 |      |  |      | 581,136 |      |  |  | 615,732 |     
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|Weighted average shares  basic              |                                              |                                | 313,016 |      |  |      | 314,309 |      |  |  | 314,423 |     
|Convertible bonds and stock options          |                                              |                                | 964     |      |  |      | 103     |      |  |  | 1,216   |     
|Put options                                  |                                              |                                |        |      |  |      |        |      |  |  | 98      |     
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|Weighted average shares  diluted            |                                              |                                | 313,980 |      |  |      | 314,412 |      |  |  | 315,737 |     
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|Earnings per share  basic
    ()           |                                              |                                |         |      |  |      |         |      |  |  |         |     
|                                             | Net income before extraordinary gain
    () |                                |         | 1.60 |  |      |         | 1.85 |  |  |         | 1.96 | 
|                                             | Extraordinary gain, net of tax
    ()       |                                |         | 0.02 |  |      |         |     |  |  |         |     | 
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|                                             | Net income
    ()                           |                                |         | 1.62 |  |      |         | 1.85 |  |  |         | 1.96 | 
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|Earnings per share  diluted
    ()         |                                              |                                |         |      |  |      |         |      |  |  |         |     
|                                             | Net income before extraordinary gain
    () |                                |         | 1.60 |  |      |         | 1.85 |  |  |         | 1.95 | 
|                                             | Extraordinary gain, net of tax
    ()       |                                |         | 0.02 |  |      |         |     |  |  |         |     | 
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     
|                                             | Net income
    ()                           |                                |         | 1.62 |  |      |         | 1.85 |  |  |         | 1.95 | 
|                                             |                                              |                                |         |      |  |      |         |      |  |  |         |     

Prior year amounts are adjusted for the
Companys one-for-one conversion of preference shares to
ordinary shares in 2001 and the Companys three-for-one
stock split in 2000.

C.     NOTES TO THE
CONSOLIDATED BALANCE SHEET

(14)     Intangible
Assets

|                                      |  |                    |         |          |  |         |         |   |  |  |         |  
|------------------------------------- |  | ------------------ | ------- | -------- |  | ------- | ------- | - |  |  | ------- | -
|                                      |  | Trademarks,        |         |          |  |        
|                                      |  | similar rights and |         |          |  |        
|                                      |  | other intangibles  |         | Goodwill |  | Total  
|                                      |  |  (000)            |         |  (000)  |  |  (000)
|                                      |  |                    |         |          |  |        
|Purchase cost                         |  |                    |         |          |  |         |         |   |  |  |         |  
|1/1/02                                |  |                    | 258,007 |          |  |         | 452,584 |   |  |  | 710,591 |  
|Exchange rate differences             |  |                    | (24,263 | )        |  |         | (46,045 | ) |  |  | (70,308 | )
|Changes in the scope of consolidation |  |                    | 207     |          |  |         |        |   |  |  | 207     |  
|Additions                             |  |                    | 28,758  |          |  |         | 20,491  |   |  |  | 49,249  |  
|Retirements/disposals                 |  |                    | (20,664 | )        |  |         | (3,560  | ) |  |  | (24,224 | )
|Reclassifications                     |  |                    | (10,434 | )        |  |         | 13,791  |   |  |  | 3,357   |  
|                                      |  |                    |         |          |  |         |         |   |  |  |         |  
|12/31/02                              |  |                    | 231,611 |          |  |         | 437,261 |   |  |  | 668,872 |  
|                                      |  |                    |         |          |  |         |         |   |  |  |         |  
|Accumulated amortization              |  |                    |         |          |  |         |         |   |  |  |         |  
|1/1/02                                |  |                    | 100,956 |          |  |         | 110,283 |   |  |  | 211,239 |  
|Exchange rate differences             |  |                    | (7,056  | )        |  |         | (6,822  | ) |  |  | (13,878 | )
|Changes in the scope of consolidation |  |                    | 69      |          |  |         |        |   |  |  | 69      |  
|Additions                             |  |                    | 49,408  |          |  |         |        |   |  |  | 49,408  |  
|Retirements/disposals                 |  |                    | (19,698 | )        |  |         |        |   |  |  | (19,698 | )
|Reclassifications                     |  |                    | (1,718  | )        |  |         | 2,685   |   |  |  | 967     |  
|                                      |  |                    |         |          |  |         |         |   |  |  |         |  
|12/31/02                              |  |                    | 121,961 |          |  |         | 106,146 |   |  |  | 228,107 |  
|                                      |  |                    |         |          |  |         |         |   |  |  |         |  
|Book value 12/31/02                   |  |                    | 109,650 |          |  |         | 331,115 |   |  |  | 440,765 |  
|                                      |  |                    |         |          |  |         |         |   |  |  |         |  
|Book value 12/31/01                   |  |                    | 157,051 |          |  |         | 342,301 |   |  |  | 499,352 |  
|                                      |  |                    |         |          |  |         |         |   |  |  |         |  

Intangible assets, other than goodwill, as of
December 31, 2002 include
 77,310
thousand
(2001:  124,893
thousand) of acquired technology. The related accumulated
amortization totaled
 40,822
thousand as of December 31, 2002 (2001:
 20,535
thousand). The remaining weighted-average amortization period
for this

F-22



---



##### 



asset class approximates three years. The
estimated aggregate amortization expense for intangible assets,
other than goodwill, for each of the five succeeding years is as
follows:


|     |  |         |        | 
|---- |  | ------- | ------ | 
|     |  |  (000)
|     |  |        
|2003 |  |         | 41,004 | 
|2004 |  |         | 33.292 | 
|2005 |  |         | 24,505 | 
|2006 |  |         | 9,434  | 
|2007 |  |         | 1,381  | 

The carrying amount of goodwill by reportable
segment at December 31, 2002 is as follows (for further
information see note 34):

|           |  |         |         |                   |  |  |        | 
|---------- |  | ------- | ------- | ----------------- |  |  | ------ | 
|           |  |         |         | Thereof additions
|           |  |         |         | in 2002          
|           |  |  (000) |         |  (000)          
|           |  |         |         |                  
|Product    |  |         | 228,120 |                   |  |  | 4,549  | 
|Consulting |  |         | 95,779  |                   |  |  | 15,761 | 
|Training   |  |         | 7,216   |                   |  |  | 181    | 
|           |  |         |         |                   |  |  |        | 
|Total      |  |         | 331,115 |                   |  |  | 20,491 | 
|           |  |         |         |                   |  |  |        | 

With the adoption of SFAS 142 in 2002
goodwill is no longer amortized. Net income and earnings per
share for 2001 and 2000 adjusted to exclude amortization
expense, net of tax, is as follows:

|                                                         |  |      |         |      |  |  |         | 
|-------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                         |  | 2001 |         | 2000
|                                                         |  |      |         |     
|Reported net income (in thousands
    of )              |  |      | 581,136 |      |  |  | 615,732 | 
|Add back: Goodwill amortization                          |  |      | 62,884  |      |  |  | 21,756  | 
|Add back: Goodwill amortization 
    equity investments |  |      | 1,069   |      |  |  | 11,729  | 
|Add back: Workforce amortization                         |  |      | 2,025   |      |  |  |        | 
|                                                         |  |      |         |      |  |  |         | 
|Adjusted net income                                      |  |      | 647,114 |      |  |  | 649,217 | 
|                                                         |  |      |         |      |  |  |         | 
|Basic earnings per share (in
    )                      |  |      | 1.85    |      |  |  | 1.96    | 
|Add back: Goodwill amortization                          |  |      | 0.20    |      |  |  | 0.07    | 
|Add back: Goodwill amortization 
    equity investments |  |      |        |      |  |  | 0.04    | 
|Add back: Workforce amortization                         |  |      | 0.01    |      |  |  |        | 
|                                                         |  |      |         |      |  |  |         | 
|Adjusted basic earnings per share                        |  |      | 2.06    |      |  |  | 2.07    | 
|                                                         |  |      |         |      |  |  |         | 
|Diluted earnings per share (in
    )                    |  |      | 1.85    |      |  |  | 1.95    | 
|Add back: Goodwill amortization                          |  |      | 0.20    |      |  |  | 0.07    | 
|Add back: Goodwill amortization 
    equity investments |  |      |        |      |  |  | 0.04    | 
|Add back: Workforce amortization                         |  |      | 0.01    |      |  |  |        | 
|                                                         |  |      |         |      |  |  |         | 
|Adjusted diluted earnings per share                      |  |      | 2.06    |      |  |  | 2.06    | 
|                                                         |  |      |         |      |  |  |         | 

F-23



---



##### 



(15)     Property,
Plant and Equipment

|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|------------------------------------- |  | -------------------- | ------- | --------------- |  | ------------ | ------- | ------- |  |  | ------- | - |  |  | --------- | -
|                                      |  | Land, leasehold      |         |                 |  |              |         |        
|                                      |  | improvements and     |         |                 |  | Payments     |         |        
|                                      |  | buildings, including |         | Other property, |  | and          |         |        
|                                      |  | buildings on         |         | plant and       |  | construction |         |        
|                                      |  | third-party land     |         | equipment       |  | in progress  |         | Total  
|                                      |  |  (000)              |         |  (000)         |  |  (000)      |         |  (000)
|                                      |  |                      |         |                 |  |              |         |        
|Purchase cost                         |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|1/1/02                                |  |                      | 785,939 |                 |  |              | 803,371 |         |  |  | 90,885  |   |  |  | 1,680,195 |  
|Exchange rate differences             |  |                      | (39,069 | )               |  |              | (35,063 | )       |  |  | (4,237  | ) |  |  | (78,369   | )
|Changes in the scope of consolidation |  |                      | 622     |                 |  |              | 1,635   |         |  |  |        |   |  |  | 2,257     |  
|Additions                             |  |                      | 48,185  |                 |  |              | 117,928 |         |  |  | 93,385  |   |  |  | 259,498   |  
|Retirements/disposals                 |  |                      | (5,805  | )               |  |              | (71,744 | )       |  |  |        |   |  |  | (77,549   | )
|Reclassifications                     |  |                      | 56,018  |                 |  |              | 1,844   |         |  |  | (57,954 | ) |  |  | (92       | )
|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|12/31/02                              |  |                      | 845,890 |                 |  |              | 817,971 |         |  |  | 122,079 |   |  |  | 1,785,940 |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|Accumulated depreciation              |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|1/1/02                                |  |                      | 174,027 |                 |  |              | 509,116 |         |  |  |        |   |  |  | 683,143   |  
|Exchange rate differences             |  |                      | (11,431 | )               |  |              | (24,770 | )       |  |  |        |   |  |  | (36,201   | )
|Changes in the scope of consolidation |  |                      | 243     |                 |  |              | 826     |         |  |  |        |   |  |  | 1,069     |  
|Additions                             |  |                      | 42,276  |                 |  |              | 129,530 |         |  |  |        |   |  |  | 171,806   |  
|Retirements/disposals                 |  |                      | (4,911  | )               |  |              | (63,110 | )       |  |  |        |   |  |  | (68,021   | )
|Reclassifications                     |  |                      | (34     | )               |  |              | (39     | )       |  |  |        |   |  |  | (73       | )
|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|12/31/02                              |  |                      | 200,170 |                 |  |              | 551,553 |         |  |  |        |   |  |  | 751,723   |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|Book value 12/31/02                   |  |                      | 645,720 |                 |  |              | 266,418 |         |  |  | 122,079 |   |  |  | 1,034,217 |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  
|Book value 12/31/01                   |  |                      | 611,912 |                 |  |              | 294,255 |         |  |  | 90,885  |   |  |  | 997,052   |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |         |   |  |  |           |  

The additions in other property, plant, and
equipment relate primarily to the purchase of computer hardware
acquired in the normal course of business. Payments and
construction in progress increased in 2002 primarily due to the
construction of facilities in Germany.

F-24



---



##### 



(16)  Financial
Assets

|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|-------------------------------------------------- |  | ------------- | ------- | ---------- |  | ---------- | ------- | ----------- |  | ------- | ------ | - |  |  | ------ | - |  |  | -------- | -
|                                                   |  | Investments   |         |            |  |            |         |             |  |        
|                                                   |  | in associated |         | Equity     |  | Debt       |         |             |  |        
|                                                   |  | companies     |         | securities |  | securities |         | Other loans |  | Total  
|                                                   |  |  (000)       |         |  (000)    |  |  (000)    |         |  (000)     |  |  (000)
|                                                   |  |               |         |            |  |            |         |             |  |        
|Cost                                               |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|1/1/02                                             |  |               | 472,139 |            |  |            | 242,083 |             |  |         | 61,240 |   |  |  | 58,280 |   |  |  | 833,742  |  
|Exchange rate differences                          |  |               | (42,241 | )          |  |            | (10,342 | )           |  |         | (1,490 | ) |  |  | (59    | ) |  |  | (54,132  | )
|Change in the scope of consolidation               |  |               | (3,910  | )          |  |            |        |             |  |         |       |   |  |  |       |   |  |  | (3,910   | )
|Additions                                          |  |               | 12,476  |            |  |            | 13,110  |             |  |         | 493    |   |  |  | 25,743 |   |  |  | 51,822   |  
|Retirements                                        |  |               | (94,429 | )          |  |            | (12,366 | )           |  |         | (1,831 | ) |  |  | (6,983 | ) |  |  | (115,609 | )
|Reclassifications                                  |  |               | (4,289  | )          |  |            | 980     |             |  |         |       |   |  |  |       |   |  |  | (3,309   | )
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|12/31/02                                           |  |               | 339,746 |            |  |            | 233,465 |             |  |         | 58,412 |   |  |  | 76,981 |   |  |  | 708,604  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|Changes in fair value of marketable
    securities |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|1/1/02                                             |  |               |        |            |  |            | (2,727  | )           |  |         | 1,968  |   |  |  |       |   |  |  | (759     | )
|Exchange rate differences                          |  |               |        |            |  |            | 231     |             |  |         |       |   |  |  |       |   |  |  | 231      |  
|Changes in unrealized gains/losses                 |  |               |        |            |  |            | (2,626  | )           |  |         | 194    |   |  |  |       |   |  |  | (2,432   | )
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|12/31/02                                           |  |               |        |            |  |            | (5,122  | )           |  |         | 2,162  |   |  |  |       |   |  |  | (2,960   | )
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|Accumulated write off                              |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|1/1/02                                             |  |               | 38,442  |            |  |            | 78,817  |             |  |         | 6      |   |  |  | 8,635  |   |  |  | 125,900  |  
|Exchange rate differences                          |  |               |        |            |  |            | (8,714  | )           |  |         |       |   |  |  | 11     |   |  |  | (8,703   | )
|Change in the scope of consolidation               |  |               | (972    | )          |  |            |        |             |  |         |       |   |  |  |       |   |  |  | (972     | )
|Additions                                          |  |               | 302,963 |            |  |            | 113,648 |             |  |         |       |   |  |  | 12,223 |   |  |  | 428,834  |  
|Retirements                                        |  |               |        |            |  |            |        |             |  |         |       |   |  |  | (1,340 | ) |  |  | (1,340   | )
|Reclassifications                                  |  |               | (938    | )          |  |            |        |             |  |         |       |   |  |  |       |   |  |  | (938     | )
|Write-ups                                          |  |               |        |            |  |            |        |             |  |         |       |   |  |  | (718   | ) |  |  | (718     | )
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|12/31/02                                           |  |               | 339,495 |            |  |            | 183,751 |             |  |         | 6      |   |  |  | 18,811 |   |  |  | 542,063  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|Book value 12/31/02                                |  |               | 251     |            |  |            | 44,592  |             |  |         | 60,568 |   |  |  | 58,170 |   |  |  | 163,581  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  
|Book value 12/31/01                                |  |               | 433,697 |            |  |            | 160,539 |             |  |         | 63,202 |   |  |  | 49,645 |   |  |  | 707,083  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |        |   |  |  |          |  

Under US-GAAP, the write-off of financial assets
establishes a new cost basis.

Investment in Associated Companies

As described in note 10, SAP recorded a loss
of  389,630
thousand due to an impairment charge and losses attributable to
the investment in Commerce One in 2002. The carrying value of
the Companys investment in Commerce One was
 425.2 million
as of December 31, 2001.

The market value and the carrying value of the
Companys investment in Commerce One at December 31,
2002 were
 15.4 million
(based on the quoted share price of US$2.77) and
 0
respectively. The following table presents summarized
consolidated financial information for Commerce One for the
years ended December 31, 2002, 2001, and 2000 respectively.

F-25



---



##### 



|                             |  |            |          |          |  |          |          |          |  |  |            |   |  |  |           |  
|---------------------------- |  | ---------- | -------- | -------- |  | -------- | -------- | -------- |  |  | ---------- | - |  |  | --------- | -
|                             |  |            |          |          |  |         
|                             |  | 2002       |          | 2001     |  | 2000    
|                             |  |            |          |          |  |         
|                             |  |  (000)(1) |          | US$(000) |  | US$(000) |          | US$(000)
|Net revenues                 |  |            | 100,648  |          |  |          | 105,529  |          |  |  | 408,569    |   |  |  | 401,796   |  
|Loss from operations         |  |            | (566,730 | )        |  |          | (594,216 | )        |  |  | (2,582,669 | ) |  |  | (345,564  | )
|Net loss                     |  |            | (562,552 | )        |  |          | (589,836 | )        |  |  | (2,584,099 | ) |  |  | (344,947  | )
|Current assets               |  |            | 119,398  |          |  |          | 125,189  |          |  |  | 343,792    |   |  |  | 512,768   |  
|Non-current assets           |  |            | 32,650   |          |  |          | 34,233   |          |  |  | 485,149    |   |  |  | 2,557,787 |  
|                             |  |            |          |          |  |          |          |          |  |  |            |   |  |  |           |  
|Total assets                 |  |            | 152,048  |          |  |          | 159,422  |          |  |  | 828,941    |   |  |  | 3,070,555 |  
|                             |  |            |          |          |  |          |          |          |  |  |            |   |  |  |           |  
|Current liabilities          |  |            | 61,784   |          |  |          | 64,781   |          |  |  | 149,121    |   |  |  | 266,805   |  
|Non-current liabilities      |  |            | 44,970   |          |  |          | 47,151   |          |  |  | 56,005     |   |  |  | 4,339     |  
|Shareholders equity         |  |            | 45,294   |          |  |          | 47,490   |          |  |  | 623,815    |   |  |  | 2,799,411 |  
|                             |  |            |          |          |  |          |          |          |  |  |            |   |  |  |           |  
|Total liabilities and equity |  |            | 152,048  |          |  |          | 159,422  |          |  |  | 828,941    |   |  |  | 3,070,555 |  
|                             |  |            |          |          |  |          |          |          |  |  |            |   |  |  |           |  






|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2002 figures have been translated for the
    convenience of the reader at an exchange rate of
     1.00 to
    U.S. $ 1.0485, the Noon Buying Rate certified by the Federal
    Reserve Bank of New York on December 31, 2002.

Equity and Debt Securities

Amounts pertaining to equity and debt securities
at December 31 are as follows:

|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |         | 
|----------------------------------------------------- |  | ------- | ------- | ---------- |  | ---------- | ----- | -------- |  |  | ------- |  |  |  | ------- | 
|                                                      |  |        
|                                                      |  | 2002   
|                                                      |  |        
|                                                      |  |         |         | Gross      |  | Gross      |       |         
|                                                      |  |         |         | unrealized |  | unrealized |       | Carrying
|                                                      |  | Cost    |         | gains      |  | losses     |       | value   
|                                                      |  |  (000) |         |  (000)    |  |  (000)    |       |  (000) 
|                                                      |  |         |         |            |  |            |       |         
|Marketable equity securities  available for
    sale |  |         | 46,927  |            |  |            | 1,788 |          |  |  | 37,465  |  |  |  | 11,250  | 
|Other equity securities                               |  |         | 186,538 |            |  |            |      |          |  |  | 153,196 |  |  |  | 33,342  | 
|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |         | 
|Equity securities                                     |  |         | 233,465 |            |  |            | 1,788 |          |  |  | 190,661 |  |  |  | 44,592  | 
|Marketable debt securities  available for
    sale   |  |         | 58,412  |            |  |            | 2,162 |          |  |  | 6       |  |  |  | 60,568  | 
|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |         | 
|                                                      |  |         | 291,877 |            |  |            | 3,950 |          |  |  | 190,667 |  |  |  | 105,160 | 
|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |         | 

|                                                      |  |         |         |            |  |            |       |          |  |  |        |  |  |  |         | 
|----------------------------------------------------- |  | ------- | ------- | ---------- |  | ---------- | ----- | -------- |  |  | ------ |  |  |  | ------- | 
|                                                      |  |        
|                                                      |  | 2001   
|                                                      |  |        
|                                                      |  |         |         | Gross      |  | Gross      |       |         
|                                                      |  |         |         | unrealized |  | unrealized |       | Carrying
|                                                      |  | Cost    |         | gains      |  | losses     |       | value   
|                                                      |  |  (000) |         |  (000)    |  |  (000)    |       |  (000) 
|                                                      |  |         |         |            |  |            |       |         
|Marketable equity securities  available for
    sale |  |         | 44,285  |            |  |            | 5,090 |          |  |  | 21,992 |  |  |  | 27,383  | 
|Other equity securities                               |  |         | 197,798 |            |  |            |      |          |  |  | 64,642 |  |  |  | 133,156 | 
|                                                      |  |         |         |            |  |            |       |          |  |  |        |  |  |  |         | 
|Equity securities                                     |  |         | 242,083 |            |  |            | 5,090 |          |  |  | 86,634 |  |  |  | 160,539 | 
|Marketable debt securities  available for
    sale   |  |         | 61,240  |            |  |            | 1,968 |          |  |  | 6      |  |  |  | 63,202  | 
|                                                      |  |         |         |            |  |            |       |          |  |  |        |  |  |  |         | 
|                                                      |  |         | 303,323 |            |  |            | 7,058 |          |  |  | 86,640 |  |  |  | 223,741 | 
|                                                      |  |         |         |            |  |            |       |          |  |  |        |  |  |  |         | 

Other equity securities include interests in
privately held companies, primarily venture capital investments.
As a market value for those securities is generally not readily
obtainable, the cost method of accounting is applied.
Impairments in value of cost method investments that are
considered to be other than temporary are recognized immediately
as expense.

Debt securities with a market value of
 53,266
thousand (2001:
 53,097
thousand) mature in 2004.

F-26



---



##### 



Other Loans

Other loans include interest-bearing and non
interest-bearing or below-market-interest loans to employees and
third parties.

(17)  Inventories

Inventories consist of costs for office supplies
and documentation and services for which revenues have been
deferred.

(18)  Accounts
Receivable, Net

Accounts receivable included costs and estimated
earnings in excess of billings on uncompleted contracts of
 182,686
thousand and
 223,578
thousand at December 31, 2002 and 2001, respectively.

Amounts shown on the consolidated balance sheets
are net of allowance for bad debts of
 92,511 thousand
and
 110,269
thousand at December 31, 2002 and 2001 respectively. Net
accounts receivable based on due dates at December 31 are
as follows:

|                               |  |           |  |          
|------------------------------ |  | --------- |  | ---------
|                               |  | 2002      |  | 2001     
|                               |  |  (000)   |  |  (000)  
|                               |  |           |  |          
|Due within one year            |  | 1,952,758 |  | 2,202,055
|Due between one and five years |  | 14,349    |  | 8,858    
|                               |  |           |  |          
|                               |  | 1,967,107 |  | 2,210,913
|                               |  |           |  |          

Concentrations of credit 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 5% or more of total revenues in 2002,
2001, or 2000.

(19)  Other
Assets

|                                                        |  |         |  |        
|------------------------------------------------------- |  | ------- |  | -------
|                                                        |  | 2002    |  | 2001   
|                                                        |  |  (000) |  |  (000)
|                                                        |  |         |  |        
|Income tax receivables                                  |  | 64,197  |  | 38,444 
|Assets held for employee financed benefit plans         |  | 60,664  |  | 29,679 
|Fair value of derivatives                               |  | 41,850  |  | 20,162 
|Rent deposits                                           |  | 25,687  |  | 26,116 
|Others                                                  |  | 71,508  |  | 63,223 
|                                                        |  |         |  |        
|Total other assets                                      |  | 263,906 |  | 177,624
|                                                        |  |         |  |        
| thereof with a remaining term greater
    than 1 year |  | 102,112 |  | 67,407 
|                                                        |  |         |  |        

Others include interest receivable
and short-term loans.

(20)  Marketable
Securities

The decline in marketable securities held for
trading purposes in 2002 is primarily due to the sale of certain
investments that the Company previously made in 2000 with three
creditworthy financial institutions.

Amounts pertaining to marketable securities held
for trading purposes at December 31 are as follows:

|     |  |                |        |                  |  |                   |       |                |  |  |     |  |  |  |        | 
|---- |  | -------------- | ------ | ---------------- |  | ----------------- | ----- | -------------- |  |  | --- |  |  |  | ------ | 
|     |  | Amortized cost |        | Unrealized gains |  | Unrealized losses |       | Carrying value
|     |  |  (000)        |        |  (000)          |  |  (000)           |       |  (000)       
|     |  |                |        |                  |  |                   |       |               
|2002 |  |                | 1,478  |                  |  |                   |      |                |  |  | 129 |  |  |  | 1,349  | 
|2001 |  |                | 95,193 |                  |  |                   | 2,950 |                |  |  |    |  |  |  | 98,143 | 

F-27



---



##### 



(21)  Liquid
Assets

Liquid assets at December 31 consist of the
following:

|                                                               |  |         |           |         |  |  |         | 
|-------------------------------------------------------------- |  | ------- | --------- | ------- |  |  | ------- | 
|                                                               |  | 2002    |           | 2001   
|                                                               |  |  (000) |           |  (000)
|                                                               |  |         |           |        
|Cash at banks                                                  |  |         | 279,920   |         |  |  | 296,285 | 
|Time deposits with original maturities of
    3 months or less |  |         | 841,788   |         |  |  | 458,666 | 
|                                                               |  |         |           |         |  |  |         | 
|Cash and cash equivalents                                      |  |         | 1,121,708 |         |  |  | 754,951 | 
|                                                               |  |         |           |         |  |  |         | 
|Time deposits which mature in less than
    1 year             |  |         | 26,281    |         |  |  | 4,278   | 
|Time deposits with maturities exceeding
    1 year             |  |         | 478       |         |  |  | 454     | 
|Restricted cash with maturity exceeding
    1 year             |  |         | 89,430    |         |  |  | 106,367 | 
|                                                               |  |         |           |         |  |  |         | 
|                                                               |  |         | 1,237,897 |         |  |  | 866,050 | 
|                                                               |  |         |           |         |  |  |         | 

Restricted cash is used to collateralize the
Companys obligation under an operating lease arrangement
with a financial institution in conjunction with capital
expenditures made for SAP Properties, Inc. (SAP
Properties). Amounts collateralized increase as the
Company incurs additional obligations under the lease
arrangement. Interest earned on restricted funds is
substantially equal to amounts accrued as rent expense under the
terms of the lease. See note 31.

The Company eliminated restricted cash from cash
and cash equivalents in the consolidated statements of cash
flows for the years ended December 31, 2001 and 2000. The
Company previously recorded these amounts as cash and cash
equivalents and the effects of these adjustments are as follows
for the years ended December 31, 2001 and 2000:

|                                                                                    |  |         |            |         |  |  |           |  
|----------------------------------------------------------------------------------- |  | ------- | ---------- | ------- |  |  | --------- | -
|                                                                                    |  | 2001    |            | 2000   
|                                                                                    |  |  (000) |            |  (000)
|                                                                                    |  |         |            |        
|Changes in liquid assets  as
    previously reported                               |  |         | 36,581     |         |  |  | (38,639   | )
|Adjustments                                                                         |  |         | (25,903    | )       |  |  | (80,464   | )
|                                                                                    |  |         |            |         |  |  |           |  
|Changes in liquid assets  as adjusted                                              |  |         | 10,678     |         |  |  | (119,103  | )
|                                                                                    |  |         |            |         |  |  |           |  
|Net cash used in investing activities 
    as previously reported                  |  |         | (1,040,028 | )       |  |  | (445,253  | )
|Adjustments                                                                         |  |         | (25,903    | )       |  |  | (80,464   | )
|                                                                                    |  |         |            |         |  |  |           |  
|Net cash used in investing activities 
    as adjusted                             |  |         | (1,065,931 | )       |  |  | (525,717  | )
|                                                                                    |  |         |            |         |  |  |           |  
|Net increase (decrease) in cash and cash
    equivalents  as previously reported   |  |         | (181,591   | )       |  |  | 333,448   |  
|Adjustments                                                                         |  |         | (25,903    | )       |  |  | (80,464   | )
|                                                                                    |  |         |            |         |  |  |           |  
|Net increase (decrease) in cash and cash
    equivalents  as adjusted              |  |         | (207,494   | )       |  |  | 252,984   |  
|                                                                                    |  |         |            |         |  |  |           |  
|Cash and cash equivalents at the beginning of the
    year  as previously reported |  |         | 1,042,909  |         |  |  | 709,461   |  
|Adjustments                                                                         |  |         | (80,464    | )       |  |  |          |  
|                                                                                    |  |         |            |         |  |  |           |  
|Cash and cash equivalents at the beginning of the
    year  as adjusted            |  |         | 962,445    |         |  |  | 709,461   |  
|                                                                                    |  |         |            |         |  |  |           |  
|Cash and cash equivalents at the end of the
    year  as previously reported       |  |         | 861,318    |         |  |  | 1,042,909 |  
|Adjustments                                                                         |  |         | (106,367   | )       |  |  | (80,464   | )
|                                                                                    |  |         |            |         |  |  |           |  
|Cash and cash equivalents at the end of the
    year  as adjusted                  |  |         | 754,951    |         |  |  | 962,445   |  
|                                                                                    |  |         |            |         |  |  |           |  

Further, the Company adjusted its consolidated
balance sheet at December 31, 2001 by
 106,367
thousand to reduce previously reported total current assets from
 3,646,716
thousand to
 3,540,349
thousand to eliminate restricted cash from total current assets.

F-28



---



##### 



(22)  Prepaid Expenses
and Deferred Charges

Prepaid expenses and deferred charges are mainly
comprised of prepayments for software royalties, operating
leases, and maintenance contracts.

(23)  Shareholders
Equity

By resolution of the Annual General
Shareholders Meeting held on May 3, 2001, the
Companys outstanding preference shares were converted on a
one-for-one basis into fully voting ordinary shares, effective
June 2001. Following the share conversion, special rights and
provisions previously held by preference shareholders ceased to
exist. SAPs American Depositary Receipts
(ADRs), which trade on the New York Stock Exchange
and previously were based on the preference share, are now based
on the ordinary share.

Accordingly, the resolutions discussed below were
modified through resolutions affected by the Annual General
Shareholders Meeting held on May 3, 2001. References
to preference shares have been replaced by ordinary shares as
appropriate due to the conversion of preference shares to
ordinary shares.

Subscribed Capital

At December 31, 2002, SAP AG had 314,962,606
no-par ordinary shares issued and outstanding with a calculated
nominal value of
 1 per
share.

The number of ordinary shares increased by
136,921 (corresponding to
 136,921)
resulting from the conversion of 1994/2004 convertible bonds and
the exercise of stock options granted under the LTI
2000 Plan.

The shareholdings in SAP AG at December 31,
2002 were as follows:

|                                                      |  |           |         |            |  |            |       |  |  |  |       | 
|----------------------------------------------------- |  | --------- | ------- | ---------- |  | ---------- | ----- |  |  |  | ----- | 
|                                                      |  |           |         |           
|                                                      |  | 2002      |         | 2001      
|                                                      |  |           |         |           
|                                                      |  | Number of |         | % of       |  | % of      
|                                                      |  | shares    |         | subscribed |  | subscribed
|                                                      |  | (000)     |         | capital    |  | capital   
|                                                      |  |           |         |            |  |           
|Hasso Plattner GmbH&Co. Beteiligungs-KG               |  |           | 31,241  |            |  |            | 9.9   |  |  |  | 9.9   | 
|Dietmar Hopp Stiftung GmbH                            |  |           | 28,017  |            |  |            | 8.9   |  |  |  | 8.9   | 
|Klaus Tschira Stiftung GmbH                           |  |           | 21,155  |            |  |            | 6.7   |  |  |  | 6.7   | 
|Dr. h. c. Tschira Beteiligungs GmbH & Co. KG          |  |           | 15,833  |            |  |            | 5.0   |  |  |  | 5.0   | 
|Immediate family of Dietmar Hopp                      |  |           | 9,721   |            |  |            | 3.1   |  |  |  | 2.8   | 
|Hasso Plattner Förderstiftung
    gemeinnützige GmbH  |  |           | 6,000   |            |  |            | 1.9   |  |  |  | 1.9   | 
|Golfplatz St. Leon-Rot GmbH & Co.
    Beteiligungs-KG |  |           | 5,012   |            |  |            | 1.6   |  |  |  | 1.6   | 
|Immediate family of Dr. h. c. Klaus Tschira           |  |           | 4,134   |            |  |            | 1.3   |  |  |  | 1.3   | 
|Treasury Stock                                        |  |           | 3,516   |            |  |            | 1.1   |  |  |  | 0.2   | 
|Free float                                            |  |           | 190,334 |            |  |            | 60.5  |  |  |  | 61.7  | 
|                                                      |  |           |         |            |  |            |       |  |  |  |       | 
|                                                      |  |           | 314,963 |            |  |            | 100.0 |  |  |  | 100.0 | 
|                                                      |  |           |         |            |  |            |       |  |  |  |       | 

In 2001, all shares directly owned by Dietmar
Hopp were transferred to Golfplatz St. Leon-Rot GmbH &
Co. Beteiligungs-KG, which he wholly owns.

Authorized Capital

By resolution of the Annual General
Shareholders Meeting held on May 3, 2001, the
Executive Board of SAP AG (the Executive Board) was
authorized, subject to consent of the Supervisory Board, to
increase the subscribed capital on or before May 1, 2006,
by up to a total amount of
 60 million
through the issuance of new ordinary shares in return for
contributions in cash (Authorized Capital I).
The issuance of the additional ordinary shares is subject to the
statutory subscription rights of existing shareholders. No such
additional ordinary shares were issued during fiscal years 2002
or 2001.

F-29



---



##### 



At the same Annual General Shareholders
Meeting on May 3, 2001, the Executive Board was authorized,
subject to the consent of the Supervisory Board, to increase the
subscribed capital on or before May 1, 2006, up to a total
amount of
 60 million
through the issuance of new ordinary shares in return for
contributions in cash or in kind (Authorized
Capital II). Subject to certain preconditions and the
consent of the Supervisory Board, the Executive Board is
authorized to exclude the shareholders statutory
subscription rights. No additional ordinary shares were issued
under Authorized Capital II in fiscal years 2002 or 2001.

The Annual General Shareholders Meeting
held on May 3, 2002 authorized the Executive Board, subject
to the consent of the Supervisory Board, to increase the capital
stock on or before May 1, 2007 by up to an aggregate amount
of
 15 million
against contribution in cash by issuing new ordinary shares
(Authorized Capital III). The new shares may be
subscribed by a credit institution only, and only to the extent
that such credit institution, releasing SAP from its
corresponding obligation, satisfies the conversion and
subscription rights granted under the SAP AG 2000 Long
Term Incentive Plan (LTI 2000 Plan) or
SAP Stock Option Plan 2002 (SAP SOP 2002)
respectively. The Executive Board may exercise this
authorization only to the extent that the capital stock
attributable to the new shares issued from this Authorized
Capital III together with new shares from contingent
capital and treasury shares issued or transferred after the
effectiveness of this authorization for the purposes of
satisfying subscription rights under the German Stock
Corporation Act does not amount to more than 10% of the capital
stock at the time of adoption of the resolution by the General
Meeting of Shareholders of May 3, 2002. The
shareholders statutory subscription rights are excluded
from this capital increase. No authorization to increase the
capital stock was exercised in fiscal year 2002.

Contingent Capital

Contingent capital represents shares that have
been authorized in conjunction with a convertible bond or stock
option program and that are not yet issued or outstanding.

Contingent Capital II, which was authorized by
resolution of the Annual General Shareholders Meeting held
on June 22, 1994 to satisfy conversion rights issued under
the 1994/2004 Convertible Bond Program, was cancelled by the
Annual General Shareholders Meeting held on May 3,
2002. To satisfy the remaining conversion rights issued under
the 1994/2004 Convertible Bond Program, Contingent Capital IIa,
which authorizes the Board to issue up to 1,032,495 new no-par
ordinary shares, was established in 2001. On December 31,
2002, remaining Contingent Capital IIa was
 811
thousand due to prior exercises by participants of the 1994/2004
Convertible Bond Program.

The Company received authorization by the
Extraordinary General Shareholders Meeting on
January 18, 2000, to issue a maximum of 6,250 thousand
(18,750 thousand after 3-for-1 stock split which was resolved at
the Annual General Shareholders Meeting held on
May 5, 2000) ordinary shares (Contingent
Capital III) to satisfy conversion rights from the
LTI 2000 Plan. On or before March 16, 2001, 7,376,311
awards were granted under the LTI 2000 Plan carrying
subscription rights in respect to preference shares. At the
Annual General Shareholders Meeting on May 3, 2001,
Contingent Capital IIIa was authorized to secure the conversion
and subscription rights with respect to ordinary shares accruing
to the holders of the convertible bonds and stock options issued
on or before March 16, 2001 under the LTI 2000 Plan. As a
precautionary measure, Contingent Capital III is maintained at
the same level as Contingent Capital IIIa in case any
participants insist on receiving preference shares upon exercise
of the awards. As of December 31, 2002 Contingent
Capital III and IIIa amount to
 7,376
thousand each. The Annual General Shareholders Meeting
held on May 3, 2002, resolved to reduce Contingent
Capital III to
 515
thousand and Contingent Capital IIIa to
 6,564
thousand. To secure the conversion rights and subscription
rights in respect of ordinary shares accruing to the holders of
the convertible bonds and stock options under the LTI 2000
Plan issued subsequent to May 4, 2001, Contingent Capital V
was authorized at the Annual General Shareholders Meeting
on May 3, 2001, permitting the Board to issue a maximum of
9,978,199 ordinary shares. By resolution of the Annual
Shareholders Meeting held on May 3, 2002 Contingent
Capital V was reduced to
 4,924
thousand. At the same time it was decided to combine the
remaining amounts of Contingent Capital IIIa and Contingent
Capital V to a new Contingent Capital IIIa of
 11,488
thousand. After reductions due to exercises of rights of the LTI
2000 Plan, Contingent Capital IIIa amounted to
 11,445 thousand
at December 31, 2002. Increases of Contingent
capital III and IIIa can only be effected to the extent
that conversion rights and subscription rights issued under the
LTI 2000 Plan are actually

F-30



---



##### 



exercised and the Company does not grant its own
shares in satisfaction of the conversion rights or subscription
rights.


The Annual General Shareholders Meeting
held on May 3, 2001 authorized the Executive Board to issue
bonds with detachable warrants and/or convertible bonds carrying
warrant rights or convertible rights with respect to ordinary
shares up to a maximum of
 25 million
on or before May 1, 2006 (Contingent
Capital IV). No additional ordinary shares were
issued under Contingent Capital IV in fiscal years 2002 or
2001.

The Companys capital stock is subject to a
further contingent increase by
 19,015
thousand by issuing up to 19,015,415 new ordinary shares
(Contingent Capital VI). This contingent
capital increase was authorized by the General Meeting of
Shareholders of May 3, 2002 to satisfy the rights for stock
options from the SAP SOP 2002 on or before April 30,
2007.

Treasury Stock

By resolution of the Annual General
Shareholders Meeting held on May 3, 2002, the
Executive Board was authorized to acquire, on or before
October 31, 2003, up to 30 million shares in the
Company on the condition that such share purchases, together
with any previously acquired shares, do not account for more
than 10% of the Companys capital stock. This resolution
supersedes the resolution of the Annual General
Shareholders Meeting held on May 3, 2001, which
authorized the Executive Board to acquire up to 30 million
of SAP AG ordinary shares through October 31, 2002.

Although treasury stock is legally considered
outstanding, SAP has no dividend or voting rights associated
with treasury stock. SAP may redeem or resell shares held in
treasury or may use treasury stock for the purpose of servicing
subscription rights and conversion rights under the
Companys stock-based compensation plans. Also, SAP may use
the shares as consideration in connection with the acquisition
of enterprises.

As of December 31, 2002, SAP had acquired
3,516 thousand of its own shares, representing
 3,516 thousand
or 1.12% of capital stock. In 2002, 3,016 thousand shares in
aggregate were acquired under the buyback program at an average
price of approximately
 92.59 per
share, representing
 3,016
thousand or 0.96% of capital stock.

In order to settle stock options granted under
the LTI 2000 Plan, SAP acquired an additional 48,967 of its
own shares, representing 0.02% of the total shares outstanding
at December 31, 2002, at an average market price of
 140.06 per
share. Such shares were transferred to employees during the year
at an average price of
 92.72 per
share. See note 24 for further information.

In 2002, SAP AG acquired an additional 238,919 of
its own ordinary shares, representing 0.08% of the total shares
outstanding at December 31, 2002, at an average market
price of
 98.33 per
share in conjunction with its Employee Discounted Stock Purchase
Programs. Such shares were transferred to employees during the
year at an average price of
 76.43 per
share. See note 24 for further information.

Certain of SAP AGs foreign subsidiaries
purchased an additional 567,568 ADRs (each ADR represents
one-fourth of an ordinary share), at an average price of $24.54
per ADR. Such ADRs were distributed to employees during the year
at an average price of $21.62 per ADR by an administrator. The
Company held no ADRs at December 31, 2002 or 2001.

F-31



---



##### 



Accumulated Other Comprehensive
Income/(Loss)

Accumulated other comprehensive income/(loss)
consists of the following at December 31:

|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |          |  
|----------------- | ---------- | ------------- | ------- | ----------- | - | ---------- | -------- | --------- | - | ------- | ------ | ------- | - |  | ------- | ------- | - |  | -------- | -------- | -
|                  |            |               |         |             |   | Additional |          |           |   |        
|                  |            | Unrealized    |         | Currency    |   | minimum    |          |           |   |        
|                  |            | gains/losses  |         | translation |   | pension    |          | Cash flow |   |        
|                  |            | on securities |         | adjustment  |   | liability  |          | hedges    |   | Total  
|                  |            |  (000)       |         |  (000)     |   |  (000)    |          |  (000)   |   |  (000)
|                  |            |               |         |             |   |            |          |           |   |        
|December 31, 2002 |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|                  | Before tax |               |         | 2,960       |   |            |          | 103,249   |   |         |        | 33,096  |   |  |         | (1,117  | ) |  |          | 138,188  |  
|                  | Tax impact |               |         | 179         |   |            |          |          |   |         |        | (13,091 | ) |  |         | 405     |   |  |          | (12,507  | )
|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|Net amount        |            |               | 3,139   |             |   |            | 103,249  |           |   |         | 20,005 |         |   |  | (712    | )       |   |  | 125,681  |         
|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|                 
|December 31, 2001 |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|                  | Before tax |               |         | 759         |   |            |          | (186,501  | ) |         |        | 14,002  |   |  |         |        |   |  |          | (171,740 | )
|                  | Tax impact |               |         | (1,566      | ) |            |          |          |   |         |        | (5,455  | ) |  |         |        |   |  |          | (7,021   | )
|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|Net amount        |            |               | (807    | )           |   |            | (186,501 | )         |   |         | 8,547  |         |   |  |        |         |   |  | (178,761 | )       
|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|                 
|December 31, 2000 |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|                  | Before tax |               |         | (42,628     | ) |            |          | (145,403  | ) |         |        | 8,783   |   |  |         | (37,271 | ) |  |          | (216,519 | )
|                  | Tax impact |               |         | 17,580      |   |            |          |          |   |         |        | (3,378  | ) |  |         | 11,742  |   |  |          | 25,944   |  
|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         
|Net amount        |            |               | (25,048 | )           |   |            | (145,403 | )         |   |         | 5,405  |         |   |  | (25,529 | )       |   |  | (190,575 | )       
|                  |            |               |         |             |   |            |          |           |   |         |        |         |   |  |         |         |   |  |          |         

In connection with sales of marketable equity
securities, the Company reclassified
 130 thousand
of previously unrealized losses in 2002,
 9,901 thousand
of unrealized gains in 2001, and
 174,827 thousand
of unrealized gains in 2000, net of tax, from accumulated
other comprehensive income to financial income/expense, net. The
Company reclassified
 12,483 thousand
of net foreign exchange gains and
 53,161 thousand
of net foreign exchange losses, net of tax, relating to the
Companys anticipated cash-flow hedges in 2001 and 2000,
respectively, from accumulated other comprehensive income to
other non-operating income/expenses, net.

Miscellaneous

Under the German Stock Corporation Act
(Aktiengesetz), the amount of dividends available for
distribution to shareholders is based upon the earnings of SAP
AG as reported in its statutory financial statements determined
in accordance with the German Commercial Code
(Handelsgesetzbuch). For the year ended December 31, 2002,
SAP management has proposed a distribution in 2003 of
 0.60 per
share relating to the 2002 earnings of SAP AG as a dividend to
the shareholders. Dividends paid for 2001 and 2000 were as
follows:

|                              |  |      |      |      |  |  |      | 
|----------------------------- |  | ---- | ---- | ---- |  |  | ---- | 
|                              |  | 2001 |      | 2000
|                              |  |     |      |    
|                              |  |      |      |     
|Dividend per ordinary share   |  |      | 0.58 |      |  |  | 0.57 | 
|Dividend per preference share |  |      | n/a  |      |  |  | 0.58 | 

(24)     Stock
Based Compensation Plans

Employee Discounted Stock Purchase
Programs

The Company acquires SAP AG ordinary shares and
ADRs under various employee stock purchase plans and transfers
the shares to employees. Discounts provided to employees through
such plans do not exceed 15% and are treated as a direct
reduction of equity.

F-32



---



##### 



Stock Appreciation Right
(STAR) Plans

In February 2002 and 2001, the Company granted
approximately 3.6 million and 3.4 million stock
appreciation rights (2002 STARs and 2001
STARs respectively) to selected employees who are not
participants in the LTI 2000 Plan. The 2002 and 2001 STAR grant
values of
 158.80 and
 193.51,
respectively, are based upon the average fair market value of
one ordinary share over the 20 business days commencing the
day after the announcement of the Companys preliminary
results for the preceding fiscal year. The valuation of the
STARs is calculated quarterly, over a period of two years. Each
quarterly valuation is weighted as follows in determining the
final valuation:

|                         |  |                  |    |                           |  |                  |  |  |    |   |  | 
|------------------------ |  | ---------------- | -- | ------------------------- |  | ---------------- |  |  | -- | - |  | 
|Quarter ended first year |  | Weighting factor |    | Quarter ended second year |  | Weighting factor
|                         |  |                  |    |                           |  |                 
|March 31                 |  |                  | 5  | %                         |  | March 31         |  |  | 10 | %
|June 30                  |  |                  | 5  | %                         |  | June 30          |  |  | 10 | %
|September 30             |  |                  | 10 | %                         |  | September 30     |  |  | 10 | %
|December 31              |  |                  | 20 | %                         |  | December 31      |  |  | 30 | %

The valuations for the quarterly periods ending
December 31 are based on the amount by which the grant
price is exceeded by the average fair market value of one
ordinary share as quoted on Xetra, the trading system of the
Frankfurt Stock Exchange, over the 20 consecutive business days
commencing on the day after the announcement of the
Companys preliminary annual results. The other quarterly
valuations are based on the amount by which the grant price is
exceeded by the average fair market value of one ordinary share
quoted on Xetra over the five consecutive business days
commencing on the day after the announcement of the
Companys quarterly results. Because each quarterly
valuation is measured independently, it will be unaffected by
any other quarterly valuation.

The cash payout value of each STAR will be
calculated quarterly as follows: (i) 100% of the first
 50 value
appreciation for such quarter; (ii) 50% of the next
 50 value
appreciation; and (iii) 25% of any additional value
appreciation. Participants will receive payments with respect to
the 2002 STARs as follows: 50% each on both March 31, 2004,
and January 31, 2005. Under the terms of the 2001 STAR
Plan, participants were scheduled to receive an initial payment
on June 30, 2002, equal to 50% of the first year
measurement value and are scheduled to receive two installments
on March 31, 2003 and January 31, 2004, each equal to
50% of the total payout amount minus the initial payment.
Participants will receive STAR payments provided that, subject
to certain exceptions, they continue to be actively employed by
the Company on the payment dates.

As of December 31, 2002, no STAR expenses
were accrued as the grant price of the 2002 and 2001 STARs
exceeded the average fair market value for all quarters.

STAR Hedges

SAP purchased various call options from
sophisticated financial institutions to hedge the anticipated
cash-flow exposure resulting from the nonvested expense relating
to the STAR Plans.

These call options have been structured to
replicate the payouts required, if any, under the terms of the
2002 or 2001 STAR Plans. As a result of the Companys
hedging strategy, expenses incurred in connection with the STAR
Plans, if any, will be reduced by a corresponding gain on the
hedging instruments. The premiums paid by the Company to
purchase the derivative instruments will be recognized as
financial expense over the lives of the derivatives.

As of December 31, 2002 and 2001,
approximately
 59 million
and
 51 million
has been recorded as an expense in financial income/expense,
net. These amounts represent fair market value changes
attributable to time value, which on a cumulative basis through
expiration are equal to the original cost of the option.

Stock Option Plan 2002

At the 2002 Annual General Meeting of
Shareholders, the Companys shareholders approved the SAP
SOP 2002. The SAP SOP 2002, which provides for the issuance of
stock options to the members of the Executive Board as well as
to eligible executives and other top performers of SAP AG and
its subsidiaries, is designed to

F-33



---



##### 



replace the LTI 2000 Plan, described below. Under
the SAP SOP 2002, the Executive Board is authorized to issue, on
or before April 30, 2007, up to 19,015,415 stock options.


Each stock option granted under SAP SOP 2002
entitles its holder to subscribe to one share in the Company,
against the payment of an exercise price, which is composed of a
base price and a premium of 10% thereon. The base price is the
average market price of the SAP share on the Frankfurt Stock
Exchange during the five trading days preceding the issue of the
respective stock option, calculated on the basis of the
arithmetic mean of the closing auction prices of the SAP share
in the Xetra trading system. These provisions notwithstanding,
the exercise price should not be less than the closing auction
price on the day before the issue date. The term of the stock
options is five years. Subscription rights cannot be exercised
until a vesting period has elapsed. The vesting period of an
option holders subscription rights ends two years after
the issue date of that holders options.

SAP SOP 2002 is considered a fixed plan under APB
25. Since the exercise price, which is fixed one day before
grant, cannot exceed the share price on that date, no expenses
are recorded for awards granted under SAP SOP 2002.

As of December 31, 2002, no stock options
have been granted under SAP SOP 2002.

Long Term Incentive 2000 Plan

On January 18, 2000, the Companys
shareholders approved the 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 stock options are chosen,
the participant receives 25% more stock options than convertible
bonds. Under the LTI 2000 Plan, each convertible bond having a
 1 nominal
value may be converted into one ordinary share over a maximum of
10 years subject to vesting requirements. The conversion
price is equal to the market price of an ordinary share as
quoted on the Xetra trading system the day immediately preceding
the grant. Each stock option may be exercised in exchange for
one ordinary share over a maximum of 10 years subject to
the same vesting requirements. The exercise price varies based
upon the outperformance of the ordinary share price appreciation
versus the appreciation of the Goldman Sachs Technology Software
Index from the day immediately preceding grant to the day on
which the exercise price is being determined. Both the
convertible bonds and stock options vest as follows: 33% after
two years from date of grant, 33% after three years and 34%
after four years. Forfeited convertible bonds or stock options
are disqualified and may not be reissued.

Under APB 25, the Company records no expenses
relating to the convertible bonds issued under its LTI 2000 Plan
since the conversion price is equal to the market price of an
SAP ordinary share on the date of grant. Because the exercise
price for stock options issued under the LTI 2000 Plan is
variable, an expense is recorded over the vesting period based
upon the stock options intrinsic value on the reporting
date.

In total, 12,305,271 conversion and subscription
rights have been issued under the LTI 2000 Plan through
March 14, 2002. At the 2002 Annual General Meeting of
Shareholders, the Companys shareholders revoked the
authorization to issue further convertible bonds and stock
options under the LTI 2000 Plan.

F-34



---



##### 



A summary of the LTI 2000 Plan activity for both
convertible bonds and stock options is as follows:

|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|------------------------------------------------------------ |  | --------- | ------ | ------------- |  | ----------------- | ----- | ----------- |  | ---------------- | ------ |  |  |  | ----- |  |  |  | ------ | 
|                                                             |  |           |        |               |  |                  
|                                                             |  |           |        | Stock Options |  | Convertible Bonds
|                                                             |  |           |        |               |  |                  
|                                                             |  | Shares    |        | Number of     |  |                   |       |            
|                                                             |  | available |        | options       |  | Weighted average  |       | Number of   |  | Weighted average
|                                                             |  | for grant |        | outstanding   |  | exercise price    |       | bonds       |  | exercise price  
|                                                             |  | (000)     |        | (000)         |  | per option        |       | outstanding |  | per bond        
|                                                             |  |           |        |               |  |                  |       | (000)       |  |                
|                                                             |  |           |        |               |  |                   |       |             |  |                 
|January 1, 2000                                              |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Additional shares authorized                                 |  |           | 18,750 |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Granted                                                      |  |           | 3,145  |               |  |                   | 767   |             |  |                  | 167.08 |  |  |  | 2,378 |  |  |  | 289.78 | 
|Reduction due to option/bond ratio
    (25% of bonds issued) |  |           | 595    |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Exercised                                                    |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Forfeited                                                    |  |           |       |               |  |                   | 111   |             |  |                  | 168.07 |  |  |  | 216   |  |  |  | 293.25 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|December 31, 2000                                            |  |           | 15,010 |               |  |                   | 656   |             |  |                  | 166.91 |  |  |  | 2,162 |  |  |  | 289.43 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|Additional shares authorized                                 |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Granted                                                      |  |           | 4,352  |               |  |                   | 1,075 |             |  |                  | 142.37 |  |  |  | 3,277 |  |  |  | 190.43 | 
|Reduction due to option/bond ratio
    (25% of bonds issued) |  |           | 819    |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Exercised                                                    |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Forfeited                                                    |  |           |       |               |  |                   | 153   |             |  |                  | 128.78 |  |  |  | 248   |  |  |  | 237.83 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|December 31, 2001                                            |  |           | 9,839  |               |  |                   | 1,578 |             |  |                  | 132.73 |  |  |  | 5,191 |  |  |  | 229.40 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|Additional shares authorized                                 |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Granted                                                      |  |           | 4,807  |               |  |                   | 1,787 |             |  |                  | 81.39  |  |  |  | 3,020 |  |  |  | 151.50 | 
|Reduction due to option/bond ratio
    (25% of bonds issued) |  |           | 755    |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Exercised                                                    |  |           |       |               |  |                   | 76    |             |  |                  | 94.53  |  |  |  |      |  |  |  |       | 
|Forfeited                                                    |  |           | 4,277  |               |  |                   | 222   |             |  |                  | 72.81  |  |  |  | 408   |  |  |  | 200.78 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|December 31, 2002                                            |  |           |       |               |  |                   | 3,067 |             |  |                  | 72.51  |  |  |  | 7,803 |  |  |  | 200.74 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 

In 2002, the Company recorded compensation
expense for the LTI 2000 Plan in the amount of
 8,418 thousand
(2001:
 13,776 thousand;
2000:
 72 thousand).

F-35



---



##### 



The following tables summarize information about
stock options and convertible bonds outstanding as of
December 31, 2002:

|                |                |                           |  |                           |         |                  |  |           |      |                  |  |  |       |  |  |  |     |  |  |  |       | 
|--------------- | -------------- | ------------------------- |  | ------------------------- | ------- | ---------------- |  | --------- | ---- | ---------------- |  |  | ----- |  |  |  | --- |  |  |  | ----- | 
|                |                |                           |  |                          
|                |                | Outstanding Stock Options |  | Exercisable Stock Options
|                |                |                           |  |                          
|                |                |                           |  | Weighted average          |         |                  |  |          
|Range of        |                | Number of                 |  | remaining                 |         | Weighted average |  | Number of |      | Weighted average
|exercise prices |                | options                   |  | contractual life          |         | exercise price   |  | options   |      | exercise price  
|               |                | (000)                     |  | (in years)                |         |                 |  | (000)     |      |                
|                |                |                           |  |                           |         |                  |  |           |      |                 
|                | 40.31 -  50.90 |                           |  |                           | 14      |                  |  |           | 7.32 |                  |  |  | 46.37 |  |  |  | 5   |  |  |  | 46.37 | 
|                | 54.22 -  65.8  |                           |  |                           | 8 1,353 |                  |  |           | 7.74 |                  |  |  | 61.75 |  |  |  | 159 |  |  |  | 54.22 | 
|                | 73.54 -  81.3  |                           |  |                           | 9 1,700 |                  |  |           | 9.08 |                  |  |  | 81.30 |  |  |  | 0   |  |  |  | n/a   | 
|                |                |                           |  |                           |         |                  |  |           |      |                  |  |  |       |  |  |  |     |  |  |  |       | 
|                | 40.31 -  81.3  |                           |  |                           | 9 3,067 |                  |  |           | 8.48 |                  |  |  | 72.51 |  |  |  | 164 |  |  |  | 54.00 | 
|                |                |                           |  |                           |         |                  |  |           |      |                  |  |  |       |  |  |  |     |  |  |  |       | 

|                |                 |                               |  |                               |       |                  |  |           |      |                  |  |  |        |  |  |  |     |  |  |  |        | 
|--------------- | --------------- | ----------------------------- |  | ----------------------------- | ----- | ---------------- |  | --------- | ---- | ---------------- |  |  | ------ |  |  |  | --- |  |  |  | ------ | 
|                |                 |                               |  |                              
|                |                 | Outstanding Convertible Bonds |  | Exercisable Convertible Bonds
|                |                 |                               |  |                              
|                |                 |                               |  | Weighted average              |       |                  |  |          
|Range of        |                 | Number of                     |  | remaining                     |       | Weighted average |  | Number of |      | Weighted average
|exercise prices |                 | bonds                         |  | contractual life              |       | exercise price   |  | bonds     |      | exercise price  
|               |                 | (000)                         |  | (in years)                    |       |                 |  | (000)     |      |                
|                |                 |                               |  |                               |       |                  |  |           |      |                 
|                | 131.81 - 183.67 |                               |  |                               | 2.970 |                  |  |           | 9.08 |                  |  |  | 151.67 |  |  |  | 3   |  |  |  | 183.67 | 
|                | 191.25 - 247.00 |                               |  |                               | 2.946 |                  |  |           | 8.08 |                  |  |  | 192.00 |  |  |  | 16  |  |  |  | 238.46 | 
|                | 290.32 - 334.67 |                               |  |                               | 1.887 |                  |  |           | 7.09 |                  |  |  | 291.61 |  |  |  | 629 |  |  |  | 291.61 | 
|                |                 |                               |  |                               |       |                  |  |           |      |                  |  |  |        |  |  |  |     |  |  |  |        | 
|                | 131.81 - 334.67 |                               |  |                               | 7.803 |                  |  |           | 8.21 |                  |  |  | 200.74 |  |  |  | 648 |  |  |  | 289.84 | 
|                |                 |                               |  |                               |       |                  |  |           |      |                  |  |  |        |  |  |  |     |  |  |  |        | 

See note 35 for stock options and convertible
bonds awarded to members of the board.

Stock-Based Compensation Plan of SAP System
Integrations AG (SAP SI)

On August 16, 2000, by resolution of SAP
SIs stockholders, SAP SI introduced an employee stock
option plan in the form of convertible bonds, which allows SAP
SI to issue up to 2 million convertible bonds to members of
the Executive Board and other employees of SAP SI and its
subsidiaries. As of December 31, 2002, a total of 1,209,647
(2001: 1,303,347) convertible bonds were outstanding.

Each participating employee can exchange his or
her convertible bonds for an equal number of shares of SAP SI
stock. The conversion price corresponds to the issue price of
SAP SI stock on the date they are granted. The bonds have a term
of eight years. The convertible bonds vest as follows: 33% after
two years from date of grant, 33% after three years and 34%
after four years.

Pro-Forma Information

SFAS 123 requires disclosure of pro-forma
information regarding net income and earnings per share as if
the Company had accounted for its stock-based awards granted to
employees using the fair value method. The fair value of the
Companys stock-based awards was estimated as of the date
of grant using the Black-Scholes option-pricing model.

The fair value of the Companys stock-based
awards granted under the LTI 2000 Plan was calculated using the
following weighted average assumptions:

|                         |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                         |  | 2002 |      | 2001 |  | 2000
|                         |  |      |      |      |  |     
|Expected life (in years) |  |      | 4.5  |      |  |      | 4.5  |   |  |  | 4.5  |  
|Risk free interest rate  |  |      | 4.68 | %    |  |      | 4.96 | % |  |  | 5.36 | %
|Expected volatility      |  |      | 50   | %    |  |      | 50   | % |  |  | 50   | %
|Expected dividends       |  |      | 0.38 | %    |  |      | 0.30 | % |  |  | 0.25 | %

The weighted-average fair value of all stock
options and convertible bonds granted under the LTI 2000 Plan
during 2002 was
 55.11 and
 68.89,
respectively (2001:
 69.77 and
 87.71;
2000:
 96.33 and
 120.95).
As of December 31, 2002 no awards have been granted under
SAP SOP 2002.

F-36



---



##### 



For pro-forma purposes, the estimated fair value
of the Companys stock-based awards is amortized over the
vesting period. The Companys pro-forma information is
presented in note 3.

(25)     Pension
Liabilities and Similar Obligations

The Company maintains several defined benefit and
defined contribution plans for its employees both in Germany and
at its foreign subsidiaries, which provide for old age,
disability, and survivors benefits. Individual benefit
plans have been established for members of the Executive Board.
The accrued liabilities on the balance sheet for pension and
other similar obligations at December 31 consists of the
following:

|                                      |  |         |        |         |  |  |        | 
|------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | 
|                                      |  | 2002    |        | 2001   
|                                      |  |  (000) |        |  (000)
|                                      |  |         |        |        
|Domestic benefit plans                |  |         | 5,909  |         |  |  | 6,149  | 
|Foreign benefit plans                 |  |         | 23,904 |         |  |  | 14,358 | 
|Employee financed plans               |  |         | 51,304 |         |  |  | 29,679 | 
|Other pension and similar obligations |  |         | 2,456  |         |  |  | 1,637  | 
|                                      |  |         |        |         |  |  |        | 
|                                      |  |         | 83,573 |         |  |  | 51,823 | 
|                                      |  |         |        |         |  |  |        | 

Domestic Benefit Plans

The defined benefit plans provide participants
with pension benefits that are based on the length of service
and compensation of employees.

The change of the pension obligation and the
change in plan assets for the domestic plans are as follows:

|                                                         |  |         |        |         |  |  |        |  
|-------------------------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | -
|                                                         |  | 2002    |        | 2001   
|                                                         |  |  (000) |        |  (000)
|                                                         |  |         |        |        
|Change in benefit obligation:                            |  |         |        |         |  |  |        |  
|Benefit obligation at beginning of year                  |  |         | 27,289 |         |  |  | 25,616 |  
|Service costs                                            |  |         | 561    |         |  |  | 590    |  
|Interest costs                                           |  |         | 1,631  |         |  |  | 1,657  |  
|Liability decreased due to settlement                    |  |         |       |         |  |  | (503   | )
|Actuarial gain/loss                                      |  |         | (908   | )       |  |  | 125    |  
|Benefits paid                                            |  |         | (222   | )       |  |  | (192   | )
|Payments for settlement of deferred vested
    employees |  |         |       |         |  |  | (4     | )
|                                                         |  |         |        |         |  |  |        |  
|Benefit obligation at end of year                        |  |         | 28,351 |         |  |  | 27,289 |  
|                                                         |  |         |        |         |  |  |        |  
|Change in plan assets:                                   |  |         |        |         |  |  |        |  
|Fair value of plan assets at beginning of year           |  |         | 20,449 |         |  |  | 17,391 |  
|Actual return on plan assets                             |  |         | 1,078  |         |  |  | 1,474  |  
|Employer contributions                                   |  |         | 2,279  |         |  |  | 2,346  |  
|Life/disability insurance premiums and expenses          |  |         | 407    |         |  |  | (372   | )
|Benefits paid                                            |  |         | (222   | )       |  |  | (192   | )
|Payments for settlement of deferred vested
    employees |  |         |       |         |  |  | (4     | )
|Assets transferred to defined contribution plan          |  |         | (333   | )       |  |  | (194   | )
|                                                         |  |         |        |         |  |  |        |  
|Fair value of plan assets at end of
    year             |  |         | 23,658 |         |  |  | 20,449 |  
|                                                         |  |         |        |         |  |  |        |  
|Funded status                                            |  |         | 4,693  |         |  |  | 6,840  |  
|Unrecognized net actuarial loss                          |  |         | (3,583 | )       |  |  | (4,657 | )
|Unrecognized prior service cost                          |  |         |       |         |  |  | (1     | )
|Unrecognized transition assets                           |  |         | (574   | )       |  |  | (616   | )
|                                                         |  |         |        |         |  |  |        |  
|Net amount recognized                                    |  |         | 536    |         |  |  | 1,566  |  
|                                                         |  |         |        |         |  |  |        |  

F-37



---



##### 



|                                                           |  |         |        |         |  |  |        |  
|---------------------------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | -
|                                                           |  | 2002    |        | 2001   
|                                                           |  |  (000) |        |  (000)
|                                                           |  |         |        |        
|Amounts recognized in the consolidated balance
    sheets: |  |         |        |         |  |  |        |  
|Accrued benefit liability                                  |  |         | 5,909  |         |  |  | 6,149  |  
|Intangible asset                                           |  |         | (33    | )       |  |  | (37    | )
|Accumulated other comprehensive income                     |  |         | (5,340 | )       |  |  | (4,546 | )
|                                                           |  |         |        |         |  |  |        |  
|Net amount recognized                                      |  |         | 536    |         |  |  | 1,566  |  
|                                                           |  |         |        |         |  |  |        |  

The following assumptions were used to develop
the changes in pension obligation and the changes in plan assets
of the German plans:

|                               |  |      |     |      |  |      |     |  |  |  |     | 
|------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                               |  | 2002 |     | 2001 |  | 2000
|                               |  | %    |     | %    |  | %   
|                               |  |      |     |      |  |     
|Discount rate                  |  |      | 5.8 |      |  |      | 6.6 |  |  |  | 6.5 | 
|Expected return on plan assets |  |      | 6.3 |      |  |      | 6.5 |  |  |  | 6.5 | 
|Rate of compensation increase  |  |      | 3.6 |      |  |      | 4.0 |  |  |  | 4.0 | 

The components of net periodic benefit cost are
as follows for the years ended December 31:

|                               |  |         |        |         |  |         |        |   |  |  |        |  
|------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | - |  |  | ------ | -
|                               |  | 2002    |        | 2001    |  | 2000   
|                               |  |  (000) |        |  (000) |  |  (000)
|                               |  |         |        |         |  |        
|Service cost                   |  |         | 561    |         |  |         | 590    |   |  |  | 1,002  |  
|Interest cost                  |  |         | 1,631  |         |  |         | 1,657  |   |  |  | 1,438  |  
|Expected return on plan assets |  |         | (1,399 | )       |  |         | (1,303 | ) |  |  | (1,096 | )
|Net amortization               |  |         | 456    |         |  |         | 456    |   |  |  | 246    |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  
|                               |  |         | 1,249  |         |  |         | 1,400  |   |  |  | 1,590  |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  

Foreign Benefit Plans

Defined benefit plans provide participants with
pension benefits that are 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:

|                                        |  |         |         |         |  |  |        |  
|--------------------------------------- |  | ------- | ------- | ------- |  |  | ------ | -
|                                        |  | 2002    |         | 2001   
|                                        |  |  (000) |         |  (000)
|                                        |  |         |         |        
|Change in benefit obligation:           |  |         |         |         |  |  |        |  
|Benefit obligation at beginning of year |  |         | 96,370  |         |  |  | 68,229 |  
|Service costs                           |  |         | 31,100  |         |  |  | 24,466 |  
|Interest costs                          |  |         | 8,146   |         |  |  | 5,446  |  
|Plan transfer                           |  |         | 42,614  |         |  |  |       |  
|Plan amendments                         |  |         | 1,053   |         |  |  | (4,065 | )
|Curtailment                             |  |         | (5,772  | )       |  |  |       |  
|Settlement                              |  |         | (4,594  | )       |  |  |       |  
|Employee contributions                  |  |         | 1,976   |         |  |  |       |  
|Actuarial loss                          |  |         | 10,176  |         |  |  | 1,952  |  
|Benefits paid                           |  |         | (6,187  | )       |  |  | (2,404 | )
|Foreign currency exchange rate changes  |  |         | (15,480 | )       |  |  | 2,746  |  
|                                        |  |         |         |         |  |  |        |  
|Benefit obligation at end of year       |  |         | 159,402 |         |  |  | 96,370 |  
|                                        |  |         |         |         |  |  |        |  

F-38



---



##### 



|                                                           |  |         |         |         |  |  |         |  
|---------------------------------------------------------- |  | ------- | ------- | ------- |  |  | ------- | -
|                                                           |  | 2002    |         | 2001   
|                                                           |  |  (000) |         |  (000)
|                                                           |  |         |         |        
|Change in plan assets:                                     |  |         |         |         |  |  |         |  
|Fair value of plan assets at beginning of year             |  |         | 77,803  |         |  |  | 50,106  |  
|Actual return on plan assets                               |  |         | (6,417  | )       |  |  | (3,444  | )
|Plan transfer                                              |  |         | 40,343  |         |  |  |        |  
|Settlement                                                 |  |         | (7,184  | )       |  |  |        |  
|Employer contributions                                     |  |         | 41,704  |         |  |  | 30,043  |  
|Employee contributions                                     |  |         | 1,976   |         |  |  |        |  
|Benefits paid                                              |  |         | (5,758  | )       |  |  | (1,855  | )
|Foreign currency exchange rate changes                     |  |         | (12,276 | )       |  |  | 2,953   |  
|                                                           |  |         |         |         |  |  |         |  
|Fair value of plan assets at end of
    year               |  |         | 130,191 |         |  |  | 77,803  |  
|                                                           |  |         |         |         |  |  |         |  
|Funded status                                              |  |         | 29,211  |         |  |  | 18,567  |  
|Unrecognized transition assets                             |  |         | (2,619  | )       |  |  | (526    | )
|Unrecognized prior service cost                            |  |         | 1,993   |         |  |  | 3,766   |  
|Unrecognized net actuarial loss                            |  |         | (35,424 | )       |  |  | (16,905 | )
|                                                           |  |         |         |         |  |  |         |  
|Net amount recognized                                      |  |         | (6,839  | )       |  |  | 4,902   |  
|                                                           |  |         |         |         |  |  |         |  
|Amounts recognized in the consolidated balance
    sheets: |  |         |         |         |  |  |         |  
|Prepaid benefit cost                                       |  |         | (2,987  | )       |  |  |        |  
|Accrued benefit liability                                  |  |         | 23,904  |         |  |  | 14,358  |  
|Accumulated other comprehensive income                     |  |         | (27,756 | )       |  |  | (9,456  | )
|                                                           |  |         |         |         |  |  |         |  
|Net amount recognized                                      |  |         | (6,839  | )       |  |  | 4,902   |  
|                                                           |  |         |         |         |  |  |         |  

SAP (Schweiz) AG (SAP Switzerland)
maintains a defined benefit pension plan covering the majority
of its employees and retirees in Switzerland. Due to changes in
legislation, SAP Switzerland founded a trust in
January 2002 and transferred the plans assets and
liabilities from an insurance company to the trust. SAP
increased the pension benefit obligation by
 42,614
thousand and plan assets by
 40,343
thousand, the fair value of the plans assets as of the
date of the transfer. In accordance with the provisions of
SFAS 88, Employers accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, SAP Nederland B.V. implemented a
defined contribution plan in 2002 which replaced the benefits of
the existing defined benefit plan for certain eligible employees.

The following weighted average assumptions were
used to develop the change in pension obligation and the change
in plan assets of the foreign plans:

|                               |  |      |     |      |  |      |     |  |  |  |     | 
|------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                               |  | 2002 |     | 2001 |  | 2000
|                               |  | %    |     | %    |  | %   
|                               |  |      |     |      |  |     
|Discount rate                  |  |      | 5.2 |      |  |      | 6.6 |  |  |  | 7.5 | 
|Expected return on plan assets |  |      | 6.5 |      |  |      | 8.0 |  |  |  | 8.0 | 
|Rate of compensation increase  |  |      | 4.8 |      |  |      | 6.0 |  |  |  | 6.0 | 

The components of net periodic benefit cost are
as follows for the years ended December 31:

|                               |  |         |        |         |  |         |        |   |  |  |        |  
|------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | - |  |  | ------ | -
|                               |  | 2002    |        | 2001    |  | 2000   
|                               |  |  (000) |        |  (000) |  |  (000)
|                               |  |         |        |         |  |        
|Service cost                   |  |         | 31,100 |         |  |         | 24,466 |   |  |  | 20,944 |  
|Interest cost                  |  |         | 8,146  |         |  |         | 5,446  |   |  |  | 3,246  |  
|Expected return on plan assets |  |         | (8,020 | )       |  |         | (4,975 | ) |  |  | (3,358 | )
|Net amortization               |  |         | 674    |         |  |         | 596    |   |  |  | 517    |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  
|                               |  |         | 31,900 |         |  |         | 25,533 |   |  |  | 21,349 |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  

F-39



---



##### 



Additional Information on Funded
Status

The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for the
defined benefit pension plans with accumulated benefit
obligations in excess of plan assets are as follows:

|                                               |  |            |         |            |  |         |        |       |  |          |         |         |  |  |         |  |  |  |        |  |  |  |        | 
|---------------------------------------------- |  | ---------- | ------- | ---------- |  | ------- | ------ | ----- |  | -------- | ------- | ------- |  |  | ------- |  |  |  | ------ |  |  |  | ------ | 
|                                               |  |            |         |           
|                                               |  | 12/31/2002 |         | 12/31/2001
|                                               |  | (000)     |         | (000)    
|                                               |  |            |         |           
|                                               |  |            |         | Domestic   |  | Foreign |        |       |  | Domestic |         | Foreign
|                                               |  | Total      |         | Plans      |  | Plans   |        | Total |  | Plans    |         | Plans  
|                                               |  |            |         |            |  |         |        |       |  |          |         |        
|Projected benefit obligation                   |  |            | 134,767 |            |  |         | 27,581 |       |  |          | 107,186 |         |  |  | 122,885 |  |  |  | 26,515 |  |  |  | 96,370 | 
|Accumulated benefit obligation                 |  |            | 127,569 |            |  |         | 26,690 |       |  |          | 100,879 |         |  |  | 117,039 |  |  |  | 24,960 |  |  |  | 92,079 | 
|Fair value of plan assets                      |  |            | 99,773  |            |  |         | 22,620 |       |  |          | 77,153  |         |  |  | 97,566  |  |  |  | 19,763 |  |  |  | 77,803 | 
|Underfunding of accumulated benefit obligation |  |            | 27,796  |            |  |         | 4,070  |       |  |          | 23,726  |         |  |  | 19,473  |  |  |  | 5,197  |  |  |  | 14,276 | 

Contribution Plans

The Company also maintains domestic and foreign
defined contribution plans. Amounts contributed by the
Company under such plans are based upon a percentage of the
employees salary or the amount of contributions made
by employees. The costs associated with defined contribution
plans were
 67,248
thousand,
 70,097 thousand,
and  63,660
thousand in 2002, 2001, and 2000 respectively.

Germany maintains an unqualified employee
financed plan, whereby employees may contribute a limited
portion of their salary. SAP purchases and holds guaranteed
fixed rate insurance contracts, which are recorded in other
assets and are equal to the obligations under the plan.

(26)  Other Reserves and
Accrued Liabilities

|                                       |  |         |           |         |  |  |           | 
|-------------------------------------- |  | ------- | --------- | ------- |  |  | --------- | 
|                                       |  | 2002    |           | 2001   
|                                       |  |  (000) |           |  (000)
|                                       |  |         |           |        
|Current and deferred taxes             |  |         | 594,042   |         |  |  | 476,700   | 
|Other reserves and accrued liabilities |  |         | 883,980   |         |  |  | 899,847   | 
|                                       |  |         |           |         |  |  |           | 
|                                       |  |         | 1,478,022 |         |  |  | 1,376,547 | 
|                                       |  |         |           |         |  |  |           | 

Accrued taxes include current and prior year tax
obligations in the amount of
 482,947
thousand and deferred tax liabilities in the amount of
 111,095
thousand.

Other reserves and accrued liabilities at
December 31 are as follows:

|                                                          |  |         |         |         |  |  |         | 
|--------------------------------------------------------- |  | ------- | ------- | ------- |  |  | ------- | 
|                                                          |  | 2002    |         | 2001   
|                                                          |  |  (000) |         |  (000)
|                                                          |  |         |         |        
|Other obligations to employees                            |  |         | 507,267 |         |  |  | 540,174 | 
|Obligations to suppliers                                  |  |         | 173,782 |         |  |  | 184,174 | 
|Vacation and other absences                               |  |         | 126,765 |         |  |  | 120,560 | 
|Customer claims                                           |  |         | 41,159  |         |  |  | 29,873  | 
|Fair value of foreign exchange contracts                  |  |         | 11,079  |         |  |  | 2,973   | 
|Auditing and reporting costs                              |  |         | 4,905   |         |  |  | 4,803   | 
|Warranty and service costs                                |  |         | 4,729   |         |  |  | 4,600   | 
|Contribution to employees accident
    insurance account |  |         | 4,019   |         |  |  | 3,150   | 
|Other                                                     |  |         | 10,275  |         |  |  | 9,540   | 
|                                                          |  |         |         |         |  |  |         | 
|                                                          |  |         | 883,980 |         |  |  | 899,847 | 
|                                                          |  |         |         |         |  |  |         | 

Other reserves and accrued liabilities payable
after one year as of December 31, 2002 are
 9,146
thousand
( 5,557
thousand in 2001). Obligations to employees relate primarily to
variable bonus payments tied to earnings performance, paid out
after the balance sheet date. Other obligations to employees
also includes termination

F-40



---



##### 



benefits required by law in certain foreign
subsidiaries that constitute defined benefit plans under
SFAS 87, Employers Accounting for
Pensions. Such benefits are payable in a lump sum upon
separation from the Company. The accrued liability for such
plans amounts to
 11,432
thousand as of December 31, 2002 (2001:
 9,383
thousand).


Obligations to suppliers represent services
received or goods purchased for which SAP has not yet been
invoiced. Warranty and service cost accruals represent estimated
future warranty obligations and other minor routine items
provided under maintenance. SAP provides a six to 12 month
warranty on its software. SAP determines the warranty accrual
based on the historical average cost of fulfilling its
obligations under these commitments. At December 31, 2002
and 2001, SAP accrued
 4,729
thousand and
 4,600
thousand respectively. The aggregate utilization of the warranty
accrual in 2002 was
 4,633
thousand and the aggregate warranty expense was
 4,762
thousand in 2002.

(27)  Other
Liabilities

Other liabilities based on due dates at
December 31 are as follows:

|                           |  |           |         |             |  |           |     |            |  |            |        |  |  |  |         |  |  |  |           | 
|-------------------------- |  | --------- | ------- | ----------- |  | --------- | --- | ---------- |  | ---------- | ------ |  |  |  | ------- |  |  |  | --------- | 
|                           |  | Term      |         | Term        |  | Term      |     | Balance    |  | Balance   
|                           |  | less than |         | between 1   |  | more than |     | on         |  | on        
|                           |  | 1 year    |         | and 5 years |  | 5 years   |     | 12/31/2002 |  | 12/31/2001
|                           |  |  (000)   |         |  (000)     |  |  (000)   |     |  (000)    |  |  (000)   
|                           |  |           |         |             |  |           |     |            |  |           
|Bank loans and overdrafts  |  |           | 22,657  |             |  |           |    |            |  |            | 1,650  |  |  |  | 24,307  |  |  |  | 458,345   | 
|Advanced payments received |  |           | 44,011  |             |  |           |    |            |  |            |       |  |  |  | 44,011  |  |  |  | 34,213    | 
|Accounts payable           |  |           | 328,826 |             |  |           | 15  |            |  |            |       |  |  |  | 328,841 |  |  |  | 391,208   | 
|Taxes                      |  |           | 166,056 |             |  |           |    |            |  |            |       |  |  |  | 166,056 |  |  |  | 160,288   | 
|Social security            |  |           | 35,824  |             |  |           |    |            |  |            |       |  |  |  | 35,824  |  |  |  | 38,439    | 
|Other liabilities          |  |           | 127,711 |             |  |           | 798 |            |  |            | 21,214 |  |  |  | 149,723 |  |  |  | 127,721   | 
|                           |  |           |         |             |  |           |     |            |  |            |        |  |  |  |         |  |  |  |           | 
|                           |  |           | 725,085 |             |  |           | 813 |            |  |            | 22,864 |  |  |  | 748,762 |  |  |  | 1,210,214 | 
|                           |  |           |         |             |  |           |     |            |  |            |        |  |  |  |         |  |  |  |           | 

Liabilities are unsecured, excluding retention of
title and similar rights customary in the industry. The bank
loans and overdrafts as of 2001 relate primarily to outstanding
lines of credit in Germany. Effective interest rates of bank
loans and overdrafts are 5.01% and 3.86% in 2002 and 2001
respectively.

In 2001, liabilities with a remaining term not
exceeding one year amounted to
 1,189,774
thousand and those with a remaining term exceeding five years
amounted to
 19,577
thousand.

As of December 31, 2002 and 2001, SAP AG had
available lines of credit totaling
 980,000
thousand and
 1,016,000
thousand respectively. No borrowings were made under these lines
of credit in 2002
(2001:  430 million).

As of December 31, 2002 and 2001, certain of
SAPs subsidiaries had lines of credit available that
allowed them to borrow in local currencies at prevailing
interest rates up to
 204,756
thousand and
 200,386 thousand
respectively. Total aggregate borrowings under these lines of
credit, which are guaranteed by SAP AG, amounted to
 24,307
thousand at December 31, 2002 and
 28,345
thousand at December 31, 2001.

(28)  Deferred
Income

Deferred income consists mainly of prepayments
for maintenance and deferred software license revenues. Such
amounts will be recognized as software, maintenance, or service
revenue, depending upon the reasons for the deferral.

D.  ADDITIONAL INFORMATION

(29) Supplemental Cash Flow
Information

Interest paid included in net cash provided by
operating activities in 2002, 2001, and 2000 was
 12,858 thousand,
 20,834
thousand, and
 6,847
thousand respectively. Income taxes paid in fiscal years 2002,

F-41



---



##### 



2001, and 2000, net of refunds was
 366,642
thousand,
 500,098
thousand, and
 459,629
thousand respectively.


See the reconciliation from cash and cash
equivalents to liquid assets in note 21.

(30)  Contingent
Liabilities

|                                                                       |  |         |        |         |  |  |        | 
|---------------------------------------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | 
|                                                                       |  | 2002    |        | 2001   
|                                                                       |  |  (000) |        |  (000)
|                                                                       |  |         |        |        
|Guarantees and other commitments to third parties                      |  |         | 11,329 |         |  |  | 13,713 | 
|Liabilities from the extension of collateral
    securities for others |  |         | 4,102  |         |  |  | 642    | 
|Notes receivable sold                                                  |  |         |       |         |  |  | 11     | 
|Guarantees and endorsements                                            |  |         |       |         |  |  | 1,304  | 
|                                                                       |  |         |        |         |  |  |        | 
|                                                                       |  |         | 15,431 |         |  |  | 15,670 | 
|                                                                       |  |         |        |         |  |  |        | 

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
 786,562
thousand and
 771,641
thousand as of December 31, 2002 and 2001, respectively,
and are comprised primarily of commitments under rental and
operating leases of
 681,222
thousand and
 660,936
thousand as of December 31, 2002 and 2001 respectively.
Those commitments relate primarily to the lease of office space,
cars, and office equipment. In addition, financial commitments
exist in the form of purchase commitments totaling
 83,277
thousand and
 102,191
thousand as of December 31, 2002 and 2001 respectively.
These commitments primarily relate to the construction of
facilities in Germany, office equipment, and car purchase
commitments. Historically, the majority of those purchase
commitments have been utilized.

In October 2000, SAP Properties, a wholly owned
subsidiary of SAP America, Inc. entered into a seven year lease
arrangement with a sophisticated financial institution for
office space and also agreed to serve as an agent to oversee the
renovations of the office space. The operating lease agreement
is between SAP Properties and the financial institution
directly, with no involvement of any variable interest entity.
Under the terms of the lease, SAP Properties is required to
restrict cash equal to the amount spent by the financial
institution on such renovations. See note 21. This lease is
accounted for as an operating lease in accordance with
SFAS 13, Accounting for Leases.

Commitments under rental and operating leasing
contracts as of December 31, 2002:

|               |  |         |         | 
|-------------- |  | ------- | ------- | 
|               |  |  (000)
|               |  |        
|Due 2003       |  |         | 163,683 | 
|Due 2004       |  |         | 119,330 | 
|Due 2005       |  |         | 91,976  | 
|Due 2006       |  |         | 70,144  | 
|Due 2007       |  |         | 54,821  | 
|Due thereafter |  |         | 181,268 | 

Rent expense was
 207,087
thousand,
 208,908
thousand, and
 209,172
thousand for the years ended December 31, 2002, 2001, and
2000 respectively.

(32)  Litigation and
Claims

The bankruptcy trustee of the U.S. company
FoxMeyer Corp. (FoxMeyer) instituted legal
proceedings against SAP America, Inc. and SAP AG, in 1998.
FoxMeyer was a pharmaceutical wholesaler that filed for
bankruptcy protection in 1996. The discovery phase of the
litigation is proceeding. While the ultimate outcome of this
matter cannot be presently determined with certainty, the
Company believes that FoxMeyers claims in this

F-42



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##### 



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.

(33)  Financial
Instruments

Fair
Value of Financial Instruments

The Company utilizes various types of financial
instruments in the ordinary course of business. The carrying
amounts and fair values of SAPs financial instruments are
as follows:

|                                                      |  |                |         |            |  |                |         |            |  |  |          |   |  |  |          |  
|----------------------------------------------------- |  | -------------- | ------- | ---------- |  | -------------- | ------- | ---------- |  |  | -------- | - |  |  | -------- | -
|                                                      |  |                |         |           
|                                                      |  | 2002           |         | 2001      
|                                                      |  |                |         |           
|                                                      |  | Carrying value |         | Fair value |  | Carrying value |         | Fair value
|                                                      |  |  (000)        |         |  (000)    |  |  (000)        |         |  (000)   
|                                                      |  |                |         |            |  |                |         |           
|Marketable equity securities 
    available for sale |  |                | 11,250  |            |  |                | 11,250  |            |  |  | 27,383   |   |  |  | 27,383   |  
|Marketable debt securities  available
    for sale   |  |                | 60,568  |            |  |                | 60,568  |            |  |  | 63,202   |   |  |  | 63,202   |  
|Marketable securities                                 |  |                | 1,349   |            |  |                | 1,349   |            |  |  | 98,143   |   |  |  | 98,143   |  
|Other loans                                           |  |                | 58,170  |            |  |                | 58,170  |            |  |  | 49,645   |   |  |  | 49,645   |  
|Bank loans and overdrafts                             |  |                | (24,307 | )          |  |                | (24,307 | )          |  |  | (458,345 | ) |  |  | (458,345 | )
|Derivative financial instruments                      |  |                |         |            |  |                |         |            |  |  |          |   |  |  |          |  
|Forward exchange contracts                            |  |                | 28,315  |            |  |                | 28,315  |            |  |  | (467     | ) |  |  | (467     | )
|Currency options                                      |  |                | 1,106   |            |  |                | 1,106   |            |  |  |         |   |  |  |         |  
|Call options (STAR hedge)                             |  |                | 1,350   |            |  |                | 1,350   |            |  |  | 17,656   |   |  |  | 17,656   |  
|                                                      |  |                |         |            |  |                |         |            |  |  |          |   |  |  |          |  
|                                                      |  |                | 137,801 |            |  |                | 137,801 |            |  |  | (202,783 | ) |  |  | (202,783 | )
|                                                      |  |                |         |            |  |                |         |            |  |  |          |   |  |  |          |  

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.

Detailed information about the fair value of the
Companys financial instruments is included in
notes 16 and 20.

Accounting
and Use of Derivative Financial Instruments

As an internationally active enterprise, the
Company is subject to risks from 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.

Foreign
Exchange Risk Management

Most of SAP AGs subsidiaries have
entered into license agreements with SAP AG pursuant to
which each 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 30 days following the end of the month

F-43



---



##### 



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 SAP AG is the euro,
SAP AGs anticipated cash flows are subject to foreign
exchange risks. In addition, the delay between the date when the
subsidiary records product revenue and the date when the
subsidiary remits payment to SAP AG exposes SAP AG to
foreign exchange risk.


SAP enters into derivative instruments, primarily
foreign exchange forward contracts and currency options, to
hedge anticipated cash flows in foreign currencies from foreign
subsidiaries. Specifically, these foreign exchange forward
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, Canada and Australia. SAP uses
foreign exchange derivatives that generally have maturities of
12 months or less, which may be 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 12 months following the purchase date of the
derivative instrument. However, management infrequently 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 derivatives are recorded at fair
value in the consolidated balance sheets. Gains or losses on
derivatives designated and qualifying as cashflow hedges 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, net. Going
forward, any additional gains or losses relating to that
derivative are posted to other non-operating income/expense, net
until the position is closed or the derivative expires.

Net gains of
 2,352
thousand are also included in earnings for the year ended
December 31, 2002 (2001: net gains of
 468
thousand; 2000: net losses of
 4,885
thousand), reclassified from accumulated other comprehensive
income as a result of the discontinuance of foreign currency
cash flow hedges because it was probable that the original
forecasted transaction would not occur. It is estimated that
 712
thousand of net gains included in accumulated other
comprehensive income at December 31, 2002, will be
reclassified into earnings during the next year. As of
December 31, 2002, SAP held derivative financial
instruments with a maximum term of 12 months to hedge its
exposure to the variability in future cash flows for forecasted
transactions.

Foreign exchange derivatives entered into by SAP
to offset exposure to anticipated cash flows that do not meet
the requirements for applying hedge accounting are marked to
market at each reporting period with unrealized gains and losses
recognized in earnings.

Equity
Derivatives

SAP enters into call options with sophisticated
financial institutions to hedge the anticipated cash flow
exposure resulting from the non-vested expense relating to its
various stock appreciation rights programs. The fair values
recorded at December 31 represent the amount the Company
would be required to pay in order to purchase a call option with
those similar terms. See note 24 for additional information.

F-44



---



##### 



The notional values and fair values of the
derivative financial instruments as of December 31 are as
follows:

|                            |  |          |           |            |  |          |        |            |  |  |         |  |  |  |        |  
|--------------------------- |  | -------- | --------- | ---------- |  | -------- | ------ | ---------- |  |  | ------- |  |  |  | ------ | -
|                            |  |          |           |           
|                            |  | 2002     |           | 2001      
|                            |  |          |           |           
|                            |  | Notional |           |            |  | Notional |        |           
|                            |  | value    |           | Fair value |  | value    |        | Fair value
|                            |  |  (000)  |           |  (000)    |  |  (000)  |        |  (000)   
|                            |  |          |           |            |  |          |        |           
|Forward exchange contracts: |  |          |           |            |  |          |        |            |  |  |         |  |  |  |        |  
|Gains                       |  |          | 836,772   |            |  |          | 38,105 |            |  |  | 403,164 |  |  |  | 2,506  |  
|Losses                      |  |          | 446,930   |            |  |          | (9,790 | )          |  |  | 194,503 |  |  |  | (2,973 | )
|                            |  |          |           |            |  |          |        |            |  |  |         |  |  |  |        |  
|                            |  |          | 1,283,702 |            |  |          | 28,315 |            |  |  | 597,667 |  |  |  | (467   | )
|Currency options            |  |          | 83,372    |            |  |          | 1,106  |            |  |  |        |  |  |  |       |  
|Call options (STAR hedge)   |  |          | n/a       |            |  |          | 1,350  |            |  |  | n/a     |  |  |  | 17,656 |  

Credit Risk

The Company is exposed to credit-related losses
in the event of non-performance by counterparties to financial
instruments. To avoid these counterparty risks, the Company
conducts business exclusively with major financial institutions.
SAP does not have a significant exposure to any individual
counterparty.

(34)  Segment
Information

SAP discloses segment information in accordance
with SFAS 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 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.

The Companys internal reporting system
produces reports in which business activities are presented in a
variety of 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 operating segments:
Product, Consulting, and
Training. The Product segment is primarily engaged
in marketing and licensing the Companys software products
and performing maintenance services that include technical
support for the Companys products, assistance in resolving
problems, and provision of user documentation, updates for
software products, and new releases, versions and support
packages. The Consulting segment assists customers in the
implementation of SAP software products. Consulting services
also include customer support in project planning, feasibility
studies, analyses, organizational consulting, system adaptation,
system optimization, release change and interface setup. The
Training segment provides educational services on the use of SAP
software products and related topics.

Accounting policies for each segment 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 and stock-based compensation expenses.
Under managements view, certain deferred compensation
charges for settlements of stock-based compensation plans are
also considered stock-based compensation. Differences in the
foreign currency translation result in minor deviations between
the figures reported internally and the figures reported in 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.

F-45



---



##### 



|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|--------------------- |  | ------- | ---------- | ---------- |  | -------- | ---------- | ------- |  |  | -------- | - |  |  | ---------- | -
|                      |  |        
|                      |  | 2002   
|                      |  |        
|                      |  | Product |            | Consulting |  | Training |            | Total  
|                      |  |  (000) |            |  (000)    |  |  (000)  |            |  (000)
|                      |  |         |            |            |  |          |            |        
|External revenue      |  |         | 4,805,339  |            |  |          | 2,141,154  |         |  |  | 435,098  |   |  |  | 7,381,591  |  
|Internal revenue      |  |         | 464,669    |            |  |          | 513,064    |         |  |  | 83,860   |   |  |  | 1,061,593  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Total revenue         |  |         | 5,270,008  |            |  |          | 2,654,218  |         |  |  | 518,958  |   |  |  | 8,443,184  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment expenses      |  |         | (2,584,305 | )          |  |          | (2,128,383 | )       |  |  | (376,378 | ) |  |  | (5,089,066 | )
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment contribution  |  |         | 2,685,703  |            |  |          | 525,835    |         |  |  | 142,580  |   |  |  | 3,354,118  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment profitability |  |         | 51.0%      |            |  |          | 19.8%      |         |  |  | 27.5%    |   |  |  |            |  

|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|--------------------- |  | ------- | ---------- | ---------- |  | -------- | ---------- | ------- |  |  | -------- | - |  |  | ---------- | -
|                      |  |        
|                      |  | 2001   
|                      |  |        
|                      |  | Product |            | Consulting |  | Training |            | Total  
|                      |  |  (000) |            |  (000)    |  |  (000)  |            |  (000)
|                      |  |         |            |            |  |          |            |        
|External revenue      |  |         | 4,819,436  |            |  |          | 2,012,749  |         |  |  | 479,817  |   |  |  | 7,312,002  |  
|Internal revenue      |  |         | 480,457    |            |  |          | 445,589    |         |  |  | 118,451  |   |  |  | 1,044,497  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Total revenue         |  |         | 5,299,893  |            |  |          | 2,458,338  |         |  |  | 598,268  |   |  |  | 8,356,499  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment expenses      |  |         | (2,875,836 | )          |  |          | (2,034,119 | )       |  |  | (419,008 | ) |  |  | (5,328,963 | )
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment contribution  |  |         | 2,424,057  |            |  |          | 424,219    |         |  |  | 179,260  |   |  |  | 3,027,536  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment profitability |  |         | 45.7%      |            |  |          | 17.3%      |         |  |  | 30.0%    |   |  |  |            |  

|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|--------------------- |  | ------- | ---------- | ---------- |  | -------- | ---------- | ------- |  |  | -------- | - |  |  | ---------- | -
|                      |  |        
|                      |  | 2000   
|                      |  |        
|                      |  | Product |            | Consulting |  | Training |            | Total  
|                      |  |  (000) |            |  (000)    |  |  (000)  |            |  (000)
|                      |  |         |            |            |  |          |            |        
|External revenue      |  |         | 4,208,863  |            |  |          | 1,575,490  |         |  |  | 401,260  |   |  |  | 6,185,613  |  
|Internal revenue      |  |         | 118,024    |            |  |          | 379,587    |         |  |  | 67,322   |   |  |  | 564,933    |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Total revenue         |  |         | 4,326,887  |            |  |          | 1,955,077  |         |  |  | 468,582  |   |  |  | 6,750,546  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment expenses      |  |         | (2,070,409 | )          |  |          | (1,663,082 | )       |  |  | (338,910 | ) |  |  | (4,072,401 | )
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment contribution  |  |         | 2,256,478  |            |  |          | 291,995    |         |  |  | 129,672  |   |  |  | 2,678,145  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment profitability |  |         | 52.2%      |            |  |          | 14.9%      |         |  |  | 27.7%    |   |  |  |            |  

Revenues

The external revenue figures for the operating
segments differ from the revenue figures disclosed in the
consolidated statements of income because for internal reporting
purposes revenue is generally allocated to the segment that is
responsible for the related project, whereas in the consolidated
statements of income, revenue is allocated based on the nature
of the transaction regardless of the segment it was provided by.
Internal revenues comprise revenues from transactions with other
parts of the Company. In 2001, internal revenues increased
mainly due to a change in the intercompany allocation of support
and marketing expenses.

The following table presents a reconciliation of
total segment revenues to total consolidated revenues as
reported in the consolidated statements of income:

|                                      |  |         |            |         |  |         |            |   |  |  |           |  
|------------------------------------- |  | ------- | ---------- | ------- |  | ------- | ---------- | - |  |  | --------- | -
|                                      |  | 2002    |            | 2001    |  | 2000   
|                                      |  |  (000) |            |  (000) |  |  (000)
|                                      |  |         |            |         |  |        
|Total revenue for reportable segments |  |         | 8,443,184  |         |  |         | 8,356,499  |   |  |  | 6,750,546 |  
|Elimination of internal revenues      |  |         | (1,061,593 | )       |  |         | (1,044,497 | ) |  |  | (564,934  | )
|Other external revenues               |  |         | 31,225     |         |  |         | 28,503     |   |  |  | 78,808    |  
|Other differences                     |  |         | 22         |         |  |         | 299        |   |  |  | 175       |  
|                                      |  |         |            |         |  |         |            |   |  |  |           |  
|                                      |  |         | 7,412,838  |         |  |         | 7,340,804  |   |  |  | 6,264,595 |  
|                                      |  |         |            |         |  |         |            |   |  |  |           |  

F-46



---



##### 



Other external revenues result from services
provided from outside the reportable segments. Other differences
primarily comprise currency translation differences.

Segment
Contribution

The segment contributions reflect only expenses
directly attributable to the segments and do not represent the
actual margins for the operating segments. Indirect costs such
as general and administrative, research and development and
other corporate expenses, which are not allocated to the
operating segments and therefore are not included in segment
contribution. Charges for stock-based compensation,
depreciation, and amortization of all long-lived assets are also
not allocated to the operating segments. Other differences
primarily relate to currency translation differences.

The following table presents a reconciliation of
total segment contribution to income before income taxes and
extraordinary gain as reported in the consolidated statements of
income:

|                                                                 |  |         |            |         |  |         |            |   |  |  |            |  
|---------------------------------------------------------------- |  | ------- | ---------- | ------- |  | ------- | ---------- | - |  |  | ---------- | -
|                                                                 |  | 2002    |            | 2001    |  | 2000   
|                                                                 |  |  (000) |            |  (000) |  |  (000)
|                                                                 |  |         |            |         |  |        
|Total contribution for reportable segments                       |  |         | 3,354,118  |         |  |         | 3,027,537  |   |  |  | 2,678,145  |  
|Contribution from activities outside the
    reportable segments |  |         | (1,692,548 | )       |  |         | (1,616,697 | ) |  |  | (1,440,777 | )
|Stock based compensation expenses                                |  |         | (35,868    | )       |  |         | (98,377    | ) |  |  | (440,818   | )
|Other differences                                                |  |         | (24        | )       |  |         | (89        | ) |  |  | 6,108      |  
|                                                                 |  |         |            |         |  |         |            |   |  |  |            |  
|Operating income                                                 |  |         | 1,625,678  |         |  |         | 1,312,374  |   |  |  | 802,658    |  
|                                                                 |  |         |            |         |  |         |            |   |  |  |            |  
|Other non-operating income/expenses, net                         |  |         | 37,319     |         |  |         | (10,643    | ) |  |  | (55,340    | )
|Finance income, net                                              |  |         | (555,299   | )       |  |         | (232,974   | ) |  |  | 265,551    |  
|                                                                 |  |         |            |         |  |         |            |   |  |  |            |  
|Income before income taxes and extraordinary
    gain            |  |         | 1,107,698  |         |  |         | 1,068,757  |   |  |  | 1,012,869  |  
|                                                                 |  |         |            |         |  |         |            |   |  |  |            |  

Segment
Profitability

A segments profitability is calculated as
the ratio of segment contribution to segment total revenues.

Segment
Assets

The Company does not currently track assets or
capital expenditures by operating segments in its internal
reporting system nor is such information used by the Executive
Board.

F-47



---



##### 



Geographic
Information

The following tables present a summary of
operations by geographic region. The following amounts are based
on consolidated data. Therefore, the total of each of the
following categories reconciles to the consolidated financial
statements.

Sales by destination are based upon the location
of the customer whereas sales by operation reflect the location
of the SAP subsidiary responsible for the sale.

|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |           | 
|-------------------- | ------------- | -------------------- | --------- | ------------------ |  | ------- | --------- | --------- |  | ------- | --------- | --------- |  |  | --------- | --------- |  |  | --------- | --------- |  |  | --------- | --------- | 
|                     |               |                      |           |                   
|                     |               | Sales by destination |           | Sales by operation
|                     |               |                      |           |                   
|                     |               | 2002                 |           | 2001               |  | 2000    |           | 2002      |  | 2001    |           | 2000     
|                     |               |  (000)              |           |  (000)            |  |  (000) |           |  (000)   |  |  (000) |           |  (000)  
|                     |               |                      |           |                    |  |         |           |           |  |         |           |          
|Germany              |               |                      | 1,654,144 |                    |  |         | 1,468,726 |           |  |         | 1,237,383 |           |  |  | 1,793,961 |           |  |  | 1,615,777 |           |  |  | 1,380,439 |          
|Rest of EMEA(1)      |               |                      | 2,394,011 |                    |  |         | 2,317,456 |           |  |         | 1,836,550 |           |  |  | 2,301,660 |           |  |  | 2,211,982 |           |  |  | 1,710,632 |          
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total EMEA    |                      |           | 4,048,155          |  |         |           | 3,786,182 |  |         |           | 3,073,933 |  |  |           | 4,095,621 |  |  |           | 3,827,759 |  |  |           | 3,091,071 | 
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|United States        |               |                      | 1,969,748 |                    |  |         | 2,084,140 |           |  |         | 1,848,281 |           |  |  | 1,954,427 |           |  |  | 2,102,136 |           |  |  | 1,877,879 |          
|Rest of America      |               |                      | 531,880   |                    |  |         | 639,980   |           |  |         | 587,287   |           |  |  | 525,657   |           |  |  | 613,503   |           |  |  | 561,973   |          
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total America |                      |           | 2,501,628          |  |         |           | 2,724,120 |  |         |           | 2,435,568 |  |  |           | 2,480,084 |  |  |           | 2,715,639 |  |  |           | 2,439,852 | 
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|Japan                |               |                      | 485,939   |                    |  |         | 444,090   |           |  |         | 343,600   |           |  |  | 485,605   |           |  |  | 434,163   |           |  |  | 346,708   |          
|Rest of Asia-Pacific |               |                      | 377,116   |                    |  |         | 386,412   |           |  |         | 411,494   |           |  |  | 351,528   |           |  |  | 363,243   |           |  |  | 386,964   |          
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|Total Asia-Pacific   |               |                      | 863,055   |                    |  |         | 830,502   |           |  |         | 755,094   |           |  |  | 837,133   |           |  |  | 797,406   |           |  |  | 733,672   |          
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     |               |                      | 7,412,838 |                    |  |         | 7,340,804 |           |  |         | 6,264,595 |           |  |  | 7,412,838 |           |  |  | 7,340,804 |           |  |  | 6,264,595 |          
|                     |               |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          






|    |                            
|--- | ---------------------------
|(1) | Europe/ Middle East/ Africa

|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |           | 
|-------------------- | ------------- | ------------------------ | --------- | ------------ |  | ------- | --------- | --------- | - | ------- | --------- | ------- |  |  | --------- | --------- |  |  | --------- | --------- |  |  | --------- | --------- | 
|                     |               |                          |           |             
|                     |               | Income before income tax |           | Total assets
|                     |               |                          |           |             
|                     |               | 2002                     |           | 2001         |  | 2000    |           | 2002      |   | 2001    |           | 2000   
|                     |               |  (000)                  |           |  (000)      |  |  (000) |           |  (000)   |   |  (000) |           |  (000)
|                     |               |                          |           |              |  |         |           |           |   |         |           |        
|Germany              |               |                          | 450,864   |              |  |         | 802,375   |           |   |         | 288,827   |         |  |  | 1,968,456 |           |  |  | 2,276,865 |           |  |  | 1,965,450 |          
|Rest of EMEA(1)      |               |                          | 298,442   |              |  |         | 250,458   |           |   |         | 239,773   |         |  |  | 1,301,115 |           |  |  | 1,247,286 |           |  |  | 1,235,233 |          
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total EMEA    |                          |           | 749,306      |  |         |           | 1,052,833 |   |         |           | 528,600 |  |  |           | 3,269,571 |  |  |           | 3,524,151 |  |  |           | 3,200,683 | 
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          
|United States        |               |                          | 157,393   |              |  |         | (128,792  | )         |   |         | 336,299   |         |  |  | 1,616,408 |           |  |  | 1,905,382 |           |  |  | 1,647,102 |          
|Rest of America      |               |                          | 81,424    |              |  |         | 53,846    |           |   |         | 70,041    |         |  |  | 326,496   |           |  |  | 355,646   |           |  |  | 356,925   |          
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total America |                          |           | 238,817      |  |         |           | (74,946   | ) |         |           | 406,340 |  |  |           | 1,942,904 |  |  |           | 2,261,028 |  |  |           | 2,004,027 | 
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          
|Japan                |               |                          | 83,767    |              |  |         | 73,840    |           |   |         | 50,359    |         |  |  | 177,624   |           |  |  | 178,411   |           |  |  | 142,468   |          
|Rest of Asia-Pacific |               |                          | 35,808    |              |  |         | 17,030    |           |   |         | 27,570    |         |  |  | 219,653   |           |  |  | 232,014   |           |  |  | 271,793   |          
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          
|Total Asia-Pacific   |               |                          | 119,575   |              |  |         | 90,870    |           |   |         | 77,929    |         |  |  | 397,277   |           |  |  | 410,425   |           |  |  | 414,261   |          
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          
|                     |               |                          | 1,107,698 |              |  |         | 1,068,757 |           |   |         | 1,012,869 |         |  |  | 5,609,752 |           |  |  | 6,195,604 |           |  |  | 5,618,971 |          
|                     |               |                          |           |              |  |         |           |           |   |         |           |         |  |  |           |           |  |  |           |           |  |  |           |          






|    |                            
|--- | ---------------------------
|(1) | Europe/ Middle East/ Africa

F-48



---



##### 



|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |         | 
|-------------------- | ------------------ | ----------------------------- | --------- | -------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                     |                    |                               |           |                     
|                     |                    | Property, plant and equipment |           | Capital expenditures
|                     |                    |                               |           |                     
|                     |                    | 2002                          |           | 2001                 |  | 2000    |         | 2002    |  | 2001    |         | 2000   
|                     |                    |  (000)                       |           |  (000)              |  |  (000) |         |  (000) |  |  (000) |         |  (000)
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |        
|Germany              |                    |                               | 648,828   |                      |  |         | 543,954 |         |  |         | 472,900 |         |  |  | 201,799 |         |  |  | 168,964 |         |  |  | 117,758 |        
|Rest of EMEA(1)      |                    |                               | 148,564   |                      |  |         | 158,284 |         |  |         | 136,353 |         |  |  | 23,924  |         |  |  | 54,593  |         |  |  | 30,143  |        
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     | Total EMEA         |                               |           | 797,392              |  |         |         | 702,238 |  |         |         | 609,253 |  |  |         | 225,723 |  |  |         | 223,557 |  |  |         | 147,901 | 
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|United States        |                    |                               | 208,466   |                      |  |         | 257,757 |         |  |         | 215,916 |         |  |  | 21,423  |         |  |  | 58,396  |         |  |  | 46,874  |        
|Rest of America      |                    |                               | 4,876     |                      |  |         | 9,791   |         |  |         | 13,608  |         |  |  | 2,235   |         |  |  | 2,592   |         |  |  | 3,960   |        
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     | Total America      |                               |           | 213,342              |  |         |         | 267,548 |  |         |         | 229,524 |  |  |         | 23,658  |  |  |         | 60,988  |  |  |         | 50,834  | 
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|Japan                |                    |                               | 11,019    |                      |  |         | 14,476  |         |  |         | 16,009  |         |  |  | 2,424   |         |  |  | 4,230   |         |  |  | 15,197  |        
|Rest of Asia-Pacific |                    |                               | 12,464    |                      |  |         | 12,790  |         |  |         | 15,890  |         |  |  | 7,693   |         |  |  | 6,521   |         |  |  | 8,018   |        
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     | Total Asia-Pacific |                               |           | 23,483               |  |         |         | 27,266  |  |         |         | 31,899  |  |  |         | 10,117  |  |  |         | 10,751  |  |  |         | 23,215  | 
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     |                    |                               | 1,034,217 |                      |  |         | 997,052 |         |  |         | 870,676 |         |  |  | 259,498 |         |  |  | 295,296 |         |  |  | 221,950 |        
|                     |                    |                               |           |                      |  |         |         |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        






|    |                            
|--- | ---------------------------
|(1) | Europe/ Middle East/ Africa

|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |        | 
|-------------------- | ------------- | ------------ | ------- | ---------------------------- |  | ------- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ | 
|                     |               |              |         |                             
|                     |               | Depreciation |         | Employees as of December 31,
|                     |               |              |         |                             
|                     |               | 2002         |         | 2001                         |  | 2000    |         |        
|                     |               |  (000)      |         |  (000)                      |  |  (000) |         | 2002    |  | 2001 |         | 2000   
|                     |               |              |         |                              |  |         |         |         |  |      |         |        
|Germany              |               |              | 92,509  |                              |  |         | 86,419  |         |  |      | 75,350  |         |  |  | 13,002 |        |  |  | 12,356 |        |  |  | 10,432 |       
|Rest of EMEA(1)      |               |              | 31,513  |                              |  |         | 32,638  |         |  |      | 33,914  |         |  |  | 6,758  |        |  |  | 6,504  |        |  |  | 5,196  |       
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     | Total EMEA    |              |         | 124,022                      |  |         |         | 119,057 |  |      |         | 109,264 |  |  |        | 19,760 |  |  |        | 18,860 |  |  |        | 15,628 | 
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|United States        |               |              | 31,773  |                              |  |         | 29,674  |         |  |      | 21,784  |         |  |  | 4,903  |        |  |  | 5,228  |        |  |  | 4,498  |       
|Rest of America      |               |              | 4,009   |                              |  |         | 5,934   |         |  |      | 7,592   |         |  |  | 1,442  |        |  |  | 1,522  |        |  |  | 1,579  |       
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     | Total America |              |         | 35,782                       |  |         |         | 35,608  |  |      |         | 29,376  |  |  |        | 6,345  |  |  |        | 6,750  |  |  |        | 6,077  | 
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|Japan                |               |              | 5,093   |                              |  |         | 4,760   |         |  |      | 4,971   |         |  |  | 1,260  |        |  |  | 1,149  |        |  |  | 951    |       
|Rest of Asia-Pacific |               |              | 6,909   |                              |  |         | 9,636   |         |  |      | 11,307  |         |  |  | 2,009  |        |  |  | 2,119  |        |  |  | 1,824  |       
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     | Asia-Pacific  |              |         | 12,002                       |  |         |         | 14,396  |  |      |         | 16,278  |  |  |        | 3,269  |  |  |        | 3,268  |  |  |        | 2,775  | 
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     |               |              | 171,806 |                              |  |         | 169,061 |         |  |      | 154,918 |         |  |  | 29,374 |        |  |  | 28,878 |        |  |  | 24,480 |       
|                     |               |              |         |                              |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       






|    |                            
|--- | ---------------------------
|(1) | Europe/ Middle East/ Africa

The majority of research and development costs
are occurred in Germany as SAP AG has title to the majority of
internally developed software. As of December 31, 2002,
approximately 69% of the research and development personnel are
located in Germany, 8% in the rest of EMEA, 14% in the United
States and 9% in the Asia-Pacific region.

Six groups of industry sectors generated the
following total sales revenues for the year ended
December 31:

|                    |  |         |           |         |  |         |           |  |  |  |           | 
|------------------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|                    |  | 2002    |           | 2001    |  | 2000   
|                    |  |  (000) |           |  (000) |  |  (000)
|                    |  |         |           |         |  |        
|Process industries  |  |         | 1,537,033 |         |  |         | 1,524,330 |  |  |  | 1,342,149 | 
|Discrete industries |  |         | 1,764,154 |         |  |         | 1,807,468 |  |  |  | 1,582,676 | 
|Consumer industries |  |         | 1,299,694 |         |  |         | 1,186,839 |  |  |  | 999,299   | 
|Service industries  |  |         | 1,765,903 |         |  |         | 1,849,741 |  |  |  | 1,578,801 | 
|Financial services  |  |         | 514,760   |         |  |         | 448,229   |  |  |  | 336,028   | 
|Public services     |  |         | 531,294   |         |  |         | 524,197   |  |  |  | 425,642   | 
|                    |  |         |           |         |  |         |           |  |  |  |           | 
|                    |  |         | 7,412,838 |         |  |         | 7,340,804 |  |  |  | 6,264,595 | 
|                    |  |         |           |         |  |         |           |  |  |  |           | 

F-49



---



##### 



In 2001, the Company allocated software revenues
to specific software solutions for the first time. These
allocations include revenues from designated solution contracts,
as well as figures from integrated solution contracts, which are
allocated based on usage surveys:

|                                                                                      |  |         |           |         |  |  |           | 
|------------------------------------------------------------------------------------- |  | ------- | --------- | ------- |  |  | --------- | 
|                                                                                      |  | 2002    |           | 2001   
|                                                                                      |  |  (000) |           |  (000)
|                                                                                      |  |         |           |        
|mySAP SCM                                                                             |  |         | 463,966   |         |  |  | 582,892   | 
|mySAP CRM                                                                             |  |         | 472,966   |         |  |  | 444,918   | 
|mySAP PLM                                                                             |  |         | 167,988   |         |  |  | 195,963   | 
|mySAP Business Intelligence/ mySAP Enterprise
    Portal/ mySAP SRM/
    Marketplaces |  |         | 258,981   |         |  |  | 415,922   | 
|mySAP Financials  mySAP Human Resources                                              |  |         | 926,933   |         |  |  | 940,823   | 
|                                                                                      |  |         |           |         |  |  |           | 
|                                                                                      |  |         | 2,290,834 |         |  |  | 2,580,518 | 
|                                                                                      |  |         |           |         |  |  |           | 

F-50



---



##### 



(35)  Board of
Directors

|                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXECUTIVE BOARD                                                                                                                                                                                                     |  | Membership of supervisory boards and other
    comparable governing bodies of enterprises, other than
    subsidiaries of the Company, in Germany and other countries, on
    December 31, 2002*                                           
|                                                                                                                                                                                                                   
|Prof. Dr. h. c. Hasso PlattnerCo-Chairman and CEO
    Overall responsibility for SAPs strategy and business
    development, product and technology strategy, marketing, global
    communications                 |  |                                                                                                                                                                                                                                            
|Prof. Dr. Henning KagermannCo-Chairman and CEO
    Overall responsibility for SAPs strategy and business
    development, consulting, customer development, industry
    solutions, strategic development projects |  | Supervisory Board, Deutsche Bank AG, Frankfurt am
    Main, Germany
    Supervisory Board, DaimlerChrysler Services (debis) AG, Berlin,
    Germany
    Supervisory Board, Münchener
    Rückversicherungs-Gesellschaft AG, Munich, Germany
|                                                                                                                                                                                                                   
|Shai AgassiTechnology strategy
    (from April 17, 2002)                                                                                                                                                            |  |                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                   
|Léo ApothekerGlobal Field Operations
    (from August 1, 2002)                                                                                                                                                      |  | Board of Directors, Enigma, Inc., Burlington,
    Mass., United States                                                                                                                                                                     
|                                                                                                                                                                                                                   
|Dr. Werner BrandtChief Financial Officer
    Finance and administration                                                                                                                                             |  | Supervisory Board, LSG Lufthansa Service Holding
    AG, Kriftel, Germany                                                                                                                                                                  
|                                                                                                                                                                                                                   
|Prof. Dr. Claus E. HeinrichDevelopment of mySAP
    Business Suite,
    labor relations at SAP                                                                                                                      |  |                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                   
|Gerhard OswaldGlobal support,
    IT infrastructure                                                                                                                                                                 |  |                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                   
|Dr. Peter ZenckeDevelopment of mySAP Business Suite,
    coordination of research groups and SAP Labs                                                                                                               |  | Supervisory Board, SupplyOn AG, Hallbergmoos,
    Germany                                                                                                                                                                                  






|  |                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Memberships of supervisory boards and comparable
    governing bodies of subsidiaries and changes in other membership
    that occurred during the year are shown in the financial
    statements of SAP AG, which can be obtained from the Company
    upon request.

F-51



---



##### 



|                                                                                                                          |  |                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXTENDED MANAGEMENT BOARD                                                                                                 |  |                                                                                                                                                                                      
|                                                                                                                         
|Léo Apotheker(up to July 31, 2002)
    EMEA
    (up to June 30, 2002)
    Global Field Operations
    (from July 1, 2002) |  | Leslie HaymanAsia-Pacific (up to June 30,
    2002)
    EMEA (from July 1, 2002 to February 4, 2003)
    Head of Global SAP Human Resources and
    Education (from February 5, 2003)
|Karl-Heinz HessBasis technology development                                                                               |  | Martin J. Homlish(from March 19, 2002)
    Global Marketing                                                                                                                          
|Wolfgang KemnaAmericas (up to May 21, 2002)
    Global Initiatives (from May 22, 2002)                                    |  | Peter J. Kirschbauer(from September 13, 2002)
    Strategic research and development projects                                                                                        
|Klaus Kreplin(from February 12, 2003)
    Development of integration platform components of SAP NetWeaver                 |  |                                                                                                                                                                                      

F-52



---



##### 



|                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SUPERVISORY BOARD                                                                                                                                                                                                    |  | Membership of other supervisory boards and
    comparable governing bodies of enterprises other than the
    Company, in Germany and other countries on December 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                    
|Dietmar Hopp(2)(4)(7)Chairperson
    Managing Director, Dietmar Hopp
    Stiftung GmbH, Walldorf, Germany                                                                                                            |  | Supervisory Board, MLP AG, Heidelberg, Germany
    Supervisory Board, Actris AG, Frankfurt am
    Main, Germany                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Helga Classen(1)(4)(7)Deputy Chairperson
    Development architect                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Pekka Ala-Pietilä(5)President, Nokia Corporation,
    Espoo, Finland                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Willi Burbach(1)(4)(5)Developer                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Prof. Dr. Wilhelm Haarmann
    (2)(3)(7)Attorney-at-law, certified
    public auditor, certified tax advisor, Kronberg, Germany
    Managing Partner, Haarmann,
    Hemmelrath & Partner, Frankfurt am Main, Germany |  | Supervisory Board, Häussler AG,
    Stuttgart,
    Germany
    Supervisory Board, Aareon AG (formerly Depfa
    IT Services), Mainz, Germany
    Supervisory Board, Vodafone Holding GmbH
    (formerly Vodafone AG), Düsseldorf, Germany
    Supervisory Board, Vodafone Deutschland GmbH, Düsseldorf,
    Germany                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Bernhard Koller(1)(3)Manager of idea management                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Christiane Kuntz-Mayr(1)(5)(7)Development manager                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Klaus-Dieter Laidig(6)Business consultant
    Laidig Business Consulting GmbH,
    Böblingen, Germany                                                                                                                |  | Supervisory Board, Heiler Software AG,
    Stuttgart,
    Germany
    Supervisory Board, Varetis AG, Munich,
    Germany
    Supervisory Board, Grau Data Storage AG, Schwäbisch
    Gmünd
    Germany
    Supervisory Board, ProSyst AG, Cologne,
    Germany
    Supervisory Board, Bauerfeind AG, Zeulenroda,
    Germany
    Supervisory Board, ProLeiT AG,
    Herzogenaurach, Germany
    Board of directors, Agile Software Corporation,
    San José, California, United States
    Board of Directors, Latitude Communications,
    Santa Clara, California, United States
    Board of Directors, Insevo Inc., Pleasanton,
    California, United States
    Board of Directors, TRADOS Inc.,
    Alexandria, Virginia, United States
    Advisory Management Council, Mach HiTECH
    AG, Zug, Switzerland
|Lars Lamadé(1)(6)SAP Alliance manager                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Dr. Gerhard Maier(1)(2)(6)Development manager                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-53



---



##### 



|                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Hartmut Mehdorn(4)Chairman of the Executive
    Board
    Deutsche Bahn AG, Berlin, Germany                                                                                                               |  | Supervisory Board, Lufthansa Technik AG, Hamburg,
    Germany
    Supervisory Board, DB Station&Service AG,
    Frankfurt am Main, Germany
    Supervisory Board, DB Reise&Touristik AG,
    Frankfurt am Main, Germany
    Supervisory Board, DB Regio AG,
    Frankfurt am Main, Germany
    Supervisory Board, DB Cargo AG,
    Mainz, Germany
    Supervisory Board, Stinnes AG,
    Mülheim, Germany
    Supervisory Board, DB Netz AG,
    Frankfurt am Main, Germany
    Supervisory Board, S-Bahn München GmbH,
    Munich, Germany
    Supervisory Board, DEVK Deutsche Eisenbahn Versicherung
    Lebensversicherungsverein a.G.,
    Cologne, Germany
    Supervisory Board, DEVK Deutsche Eisenbahn
    Versicherung Sach-und HUK-Versicherungsverein a.G.,
    Cologne, Germany
    Supervisory Board, Vattenfall Europe AG,
    Berlin, Germany
    Supervisory Board, Bayerische
    Magnetbahnvorbereitungsgesellschaft mbH,
    Munich, Germany
    Advisory Council, Railog GmbH,
    Kriftel, Germany
|Prof. Dr. Dr. h. c. mult. August- Wilhelm
    Scheer(5)(6)Director of the Institute for
    Information Systems at the German Research Center of Artificial
    Intelligence (DFKI), Saarbrücken, Germany |  | Supervisory Board, IDS Scheer AG,
    Saarbrücken, Germany
    Supervisory Board, abaXX Technology AG,
    Stuttgart, Germany
    Supervisory Board, imc information multimedia
    communication AG, Saarbrücken, Germany
    Board of Trustees, Hasso Plattner Stiftung für
    Softwaresystemtechnik, Potsdam, Germany                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Dr. Barbara Schennerlein(1)(7)Consultant                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Stefan Schulz(1)(3)(5)Consultant                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Dr. Dieter Spoeri(7)Head of Corporate Representation
    Federal Affairs, DaimlerChrysler AG, Berlin, Germany                                                                                             |  | Advisory Council, Contraf Nicotex Tobacco GmbH,
    Heilbronn, Germany                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Dr. h. c. Klaus Tschira(3)Managing Director, Klaus Tschira
    Foundation gGmbH, Heidelberg, Germany                                                                                                      |  | Supervisory Board, Lion bioscience AG,
    Heidelberg, Germany
    Supervisory Board, SRH Learnlife AG, Heidelberg, Germany
    Member of the Senate, Max-Planck-Gesellschaft
    zur Förderung der Wissenschaften e.V.,
    Munich, Germany                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            






|    |                                                             
|--- | ------------------------------------------------------------
|(1) | Elected by the employees                                    
|   
|(2) | Member of the Companys Compensation
    Committee          
|   
|(3) | Member of the Companys Audit Committee                     
|   
|(4) | Member of the Companys Mediation Committee                 
|   
|(5) | Member of the Companys Technology Committee                
|   
|(6) | Member of the Companys Finance and
    Investment Committee
|   
|(7) | Member of Companys General Committee                       

F-54



---



##### 



Remuneration of the Supervisory
Board

Under SAP AGs articles of incorporation the
members of the Supervisory Board shall, in addition to the
reimbursement of their expenditures, receive remuneration
composed of a fixed element and a variable element. The variable
element is dependent upon the distributed dividends. Both the
fixed and the variable remuneration are higher for the
chairperson and the deputy chairperson than for the other
members.

Subject to the adoption of the dividend
resolution by the shareholders at the Annual General
Shareholders Meeting on May 9, 2003, the total annual
remunerations of the Supervisory Board members for the year
ended December 31, 2002, are as follows:

|                                                                          |                               |         |     |     | 
|------------------------------------------------------------------------- | ----------------------------- | ------- | --- | --- | 
|                                                                          |                               | 2002   
|                                                                          |                               |        
|                                                                          |                               |  (000)
|Dietmar Hopp (Chairperson)                                                |                               |         | 105 | (1)
|Helga Classen (Deputy Chairperson)                                        |                               |         | 78  |    
|Willi Burbach                                                             |                               |         | 52  |    
|Prof. Dr. Wilhelm Haarmann                                                |                               |         | 52  |    
|Bernhard Koller                                                           |                               |         | 52  |    
|Christiane Kuntz-Mayr (Member from May 3,
    2002)                       |                               |         | 35  |    
|Klaus-Dieter Laidig                                                       |                               |         | 52  |    
|Lars Lamadé (Member from May 3, 2002)                                     |                               |         | 35  |    
|Dr. Gerhard Maier                                                         |                               |         | 52  |    
|Hartmut Mehdorn                                                           |                               |         | 52  |    
|Pekka Ala-Pietilä (Member from May 3,
    2002)                           |                               |         | 30  |    
|Prof. Dr. h. c. mult. August-Wilhelm Scheer
    (Member from May 3, 2002) |                               |         | 35  |    
|Dr. Barbara Schennerlein                                                  |                               |         | 52  |    
|Stefan Schulz (Member from May 3, 2002)                                   |                               |         | 35  |    
|Alfred Simon (Member until May 3, 2002)                                   |                               |         | 22  |    
|Dr. Dieter Spöri                                                          |                               |         | 52  |    
|Dr. h. c. Klaus Tschira                                                   |                               |         | 52  |    
|                                                                          |                               |         |     |    
|                                                                          |                               |         | 843 |    
|                                                                          |                               |         |     |    
|                                                                          | thereof fixed remuneration    |         |     | 468 | 
|                                                                          |                               |         |     |    
|                                                                          | thereof variable remuneration |         |     | 375 | 
|                                                                          |                               |         |     |    






|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Dietmar Hopp donated the fixed portion of his
    remuneration, which has already been paid out, to charity
    immediately on receiving it. He has announced that he will do
    the same with the variable portion of his remuneration.

The total annual remuneration of the Supervisory
Board for the year ended December 31, 2001 amounted to
 560
thousand. This amount includes
 80
thousand fixed and
 480
thousand variable remuneration. The difference between the total
remuneration for 2002 and 2001 results from the increase in the
number of members from 12 to 16 and from a change in the
remuneration terms which was approved by the annual
shareholders meeting on May 3, 2002.

The Supervisory Board members do not receive any
stock based compensation for their services. As far as members
who are employee representatives on the Supervisory Board
receive stock-based compensation, such compensation is for their
services as employees only and unrelated to their status as
members of the Supervisory Board.

Remuneration of the Executive Board

The members of the Executive board receive for
their services salaries, stock-based awards under SAPs
stock based compensation plans and certain non-cash benefits.
Details and amounts of the remuneration are determined by the
Supervisory Boards compensation committee.

F-55



---



##### 



The Executive Board members salaries
consist of a fixed element and a variable bonus. The variable
bonus depends on the achievement of the companys overall
target operating income before stock based compensation
and acquisition-related charges.

For the fiscal year 2002, the members of the
Executive Board received the following remuneration (including
salaries, cash value of non-cash benefits and insurance
premiums):

|                                                         |                               |         |       |       | 
|-------------------------------------------------------- | ----------------------------- | ------- | ----- | ----- | 
|                                                         |                               | 2002   
|                                                         |                               |  (000)
|                                                         |                               |        
|Prof. Dr. h. c. Hasso Plattner (Co-Chairman and
    CEO) |                               |         | 1,748 |      
|Prof. Dr. Henning Kagermann (Co-Chairman and
    CEO)    |                               |         | 1,301 |      
|Shai Agassi (Member from April 17, 2002)                 |                               |         | 666   |      
|Léo Apotheker (Member from August 1,
    2002)           |                               |         | 379   |      
|Dr. Werner Brandt                                        |                               |         | 722   |      
|Prof. Dr. Claus E. Heinrich                              |                               |         | 919   |      
|Gerhard Oswald                                           |                               |         | 920   |      
|Dr. Peter Zencke                                         |                               |         | 929   |      
|                                                         |                               |         |       |      
|                                                         |                               |         | 7,584 |      
|                                                         |                               |         |       |      
|                                                         | thereof fixed remuneration    |         |       | 3,557 | 
|                                                         |                               |         |       |      
|                                                         | thereof variable remuneration |         |       | 4,027 | 
|                                                         |                               |         |       |      

The amounts stated for members who joined the
Executive Board in the course of 2002 do only represent their
remuneration for the period since their nomination.

The total annual remuneration (including
salaries, cash value of non-cash benefits and insurance
premiums) of the Executive Board for the year ended
December 31, 2001 amounted to
 8,085
thousand. This amount includes
 3,044
thousand fixed and
 5,041
thousand variable remuneration. The difference between the total
remuneration for 2002 and 2001 results, among other factors,
from a lower variable remuneration. The 2002 figures are also
impacted by the increase in the number of members from six to
eight.

During the fiscal year 2002 the members of the
Executive Board received the following awards granted under the
LTI 2000 Plan:

|                                                         |  |               |        |                   |  |  |         | 
|-------------------------------------------------------- |  | ------------- | ------ | ----------------- |  |  | ------- | 
|                                                         |  | Stock Options |        | Convertible Bonds
|                                                         |  |               |        |                  
|Prof. Dr. h. c. Hasso Plattner (Co-Chairman and
    CEO) |  |               |       |                   |  |  |        | 
|Prof. Dr. Henning Kagermann (Co-Chairman and
    CEO)    |  |               |       |                   |  |  | 90,000  | 
|Shai Agassi (Member from April 17, 2002)                 |  |               |       |                   |  |  |        | 
|Léo Apotheker (Member from August 1,
    2002)           |  |               |       |                   |  |  |        | 
|Dr. Werner Brandt                                        |  |               |       |                   |  |  | 30,000  | 
|Prof. Dr. Claus E. Heinrich                              |  |               |       |                   |  |  | 50,000  | 
|Gerhard Oswald                                           |  |               | 31,250 |                   |  |  | 25,000  | 
|Dr. Peter Zencke                                         |  |               |       |                   |  |  | 50,000  | 
|                                                         |  |               |        |                   |  |  |         | 
|                                                         |  |               | 31,250 |                   |  |  | 245,000 | 
|                                                         |  |               |        |                   |  |  |         | 

For the members who joined the Executive Board
during 2002 these figures do not include any stock options and
convertible bonds that were granted before their appointment to
the board.

The fair value at the granting date of the stock
options and convertible bonds granted to the Executive Board
members were
 55.11 per
option and
 68.89 per
bond. The contractual life of the stock options and convertible
bonds is 10 years.

F-56



---



##### 



During the fiscal year 2002, the members of the
Executive Board exercised awards granted under the LTI 2000 Plan
as follows:

|                 |  |               |       |                   |  |             |       |                |  |  |   |  |  |  |   | 
|---------------- |  | ------------- | ----- | ----------------- |  | ----------- | ----- | -------------- |  |  | - |  |  |  | - | 
|                 |  |               |       |                  
|                 |  | Stock Options |       | Convertible Bonds
|                 |  |               |       |                  
|                 |  |               |       |                   |  | Weighted   
|                 |  |               |       | Weighted          |  |             |       | average       
|                 |  |               |       | average           |  | Number of   |       | exercise price
|                 |  | Number of     |       | exercise price    |  | convertible |       | per bond      
|                 |  | stock options |       | per option ()    |  | bonds       |       | ()           
|                 |  |               |       |                   |  |             |       |               
|Dr. Peter Zencke |  |               | 6,775 |                   |  |             | 81.72 |                |  |  |  |  |  |  |  | 
|                 |  |               |       |                   |  |             |       |                |  |  |   |  |  |  |   | 
|                 |  |               | 6,775 |                   |  |             | 81.72 |                |  |  |  |  |  |  |  | 
|                 |  |               |       |                   |  |             |       |                |  |  |   |  |  |  |   | 

As of December 31, 2002, the members of the
Executive Board held the following stock options granted under
the LTI 2000 Plan:

|                                                         |  |          |       |                   |  |                       |        |           |  |             |      |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|-------------------------------------------------------- |  | -------- | ----- | ----------------- |  | --------------------- | ------ | --------- |  | ----------- | ---- | --------- |  | ----------- | ------- |  |  |  | ---- |  |  |  | ------- |  |  |  | ---- | 
|                                                         |  |          |       |                   |  |                       |        |           |  |            
|                                                         |  |          |       | Exercisable as of |  | Not exercisable as of |        |          
|                                                         |  |          |       | December 31, 2002 |  | December 31, 2002     |        | Total    
|                                                         |  |          |       |                   |  |                       |        |          
|                                                         |  |          |       |                   |  | Weighted              |        |           |  | Weighted    |      |           |  | Weighted   
|                                                         |  |          |       |                   |  | average               |        |           |  | average     |      |           |  | average    
|                                                         |  |          |       |                   |  | remaining             |        |           |  | remaining   |      |           |  | remaining  
|                                                         |  | Exercise |       |                   |  | contractual           |        |           |  | contractual |      |           |  | contractual
|                                                         |  | price    |       | Number of         |  | life (in              |        | Number of |  | life (in    |      | Number of |  | life (in   
|                                                         |  |         |       | options           |  | years)                |        | options   |  | years)      |      | options   |  | years)     
|                                                         |  |          |       |                   |  |                       |        |           |  |             |      |           |  |            
|Prof. Dr. h. c. Hasso Plattner
    (Co-Chairman and CEO) |  |          |      |                   |  |                       |       |           |  |             |     |           |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Prof. Dr. Henning Kagermann
    (Co-Chairman and CEO)    |  |          | 54.22 |                   |  |                       | 9,250  |           |  |             | 7.14 |           |  |             | 18,782  |  |  |  | 7.14 |  |  |  | 28,032  |  |  |  | 7.14 | 
|                                                         |  |          | 65.88 |                   |  |                       |       |           |  |             |     |           |  |             | 39,375  |  |  |  | 8.14 |  |  |  | 39,375  |  |  |  | 8.14 | 
|Shai Agassi
    (Member from April 17, 2002)             |  |          |      |                   |  |                       |       |           |  |             |     |           |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Léo Apotheker
    (Member from August 1, 2002)           |  |          | 81.39 |                   |  |                       |       |           |  |             |     |           |  |             | 21,875  |  |  |  | 9.14 |  |  |  | 21,875  |  |  |  | 9.14 | 
|Dr. Werner Brandt                                        |  |          | 65.88 |                   |  |                       |       |           |  |             |     |           |  |             | 6,250   |  |  |  | 8.14 |  |  |  | 6,250   |  |  |  | 8.14 | 
|Prof. Dr. Claus E. Heinrich                              |  |          | 54.22 |                   |  |                       | 6,775  |           |  |             | 7.14 |           |  |             | 13,757  |  |  |  | 7.14 |  |  |  | 20,532  |  |  |  | 7.14 | 
|                                                         |  |          | 65.88 |                   |  |                       |       |           |  |             |      |           |  |             | 27.500  |  |  |  | 8.14 |  |  |  | 27,500  |  |  |  | 8.14 | 
|Gerhard Oswald                                           |  |          | 54.22 |                   |  |                       | 6,775  |           |  |             | 7.14 |           |  |             | 13,757  |  |  |  | 7.14 |  |  |  | 20,532  |  |  |  | 7.14 | 
|                                                         |  |          | 65.88 |                   |  |                       |       |           |  |             |     |           |  |             | 27,500  |  |  |  | 8.14 |  |  |  | 27,500  |  |  |  | 8.14 | 
|                                                         |  |          | 81.39 |                   |  |                       |       |           |  |             |     |           |  |             | 31,250  |  |  |  | 9.14 |  |  |  | 31,250  |  |  |  | 9.14 | 
|Dr. Peter Zencke                                         |  |          | 54,22 |                   |  |                       |       |           |  |             |     |           |  |             | 13.757  |  |  |  | 7.14 |  |  |  | 13,757  |  |  |  | 7.14 | 
|                                                         |  |          | 65.88 |                   |  |                       |       |           |  |             |     |           |  |             | 27,500  |  |  |  | 8.14 |  |  |  | 27,500  |  |  |  | 8.14 | 
|                                                         |  |          |       |                   |  |                       |        |           |  |             |      |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|                                                         |  |          |       |                   |  |                       | 22,800 |           |  |             |      |           |  |             | 241,303 |  |  |  |      |  |  |  | 264,103 |  |  |  |      | 
|                                                         |  |          |       |                   |  |                       |        |           |  |             |      |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 

The strike prices for stock options listed above
reflect the prices that an Executive Board member would have to
pay for one SAP ordinary share upon exercising the stock option
on December 31, 2002. The strike prices vary based upon the
outperformance of the SAP ordinary share price appreciation
versus the appreciation of the Goldman Sachs Technology Software
Index.

F-57



---



##### 



As of December 31, 2002, the members of the
Executive Board held the following convertible bonds granted
under the LTI 2000 Plan:

|                                                         |  |          |        |                   |  |                       |        |             |  |             |      |             |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|-------------------------------------------------------- |  | -------- | ------ | ----------------- |  | --------------------- | ------ | ----------- |  | ----------- | ---- | ----------- |  | ----------- | ------- |  |  |  | ---- |  |  |  | ------- |  |  |  | ---- | 
|                                                         |  |          |        |                   |  |                       |        |             |  |            
|                                                         |  |          |        | Exercisable as of |  | Not exercisable as of |        |            
|                                                         |  |          |        | December 31, 2002 |  | December 31, 2002     |        | Total      
|                                                         |  |          |        |                   |  |                       |        |            
|                                                         |  |          |        |                   |  | Weighted              |        |             |  | Weighted    |      |             |  | Weighted   
|                                                         |  |          |        |                   |  | average               |        |             |  | average     |      |             |  | average    
|                                                         |  |          |        |                   |  | remaining             |        |             |  | remaining   |      |             |  | remaining  
|                                                         |  | Exercise |        | Number of         |  | contractual           |        | Number of   |  | contractual |      | Number of   |  | contractual
|                                                         |  | prices   |        | convertible       |  | life (in              |        | convertible |  | life (in    |      | convertible |  | life (in   
|                                                         |  |         |        | bonds             |  | years)                |        | bonds       |  | years)      |      | bonds       |  | years)     
|                                                         |  |          |        |                   |  |                       |        |             |  |             |      |             |  |            
|Prof. Dr. h. c. Hasso Plattner
    (Co-Chairman and CEO) |  |          |       |                   |  |                       |       |             |  |             |     |             |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Prof. Dr. Henning Kagermann
    (Co-Chairman and CEO)    |  |          | 290.32 |                   |  |                       | 7,400  |             |  |             | 7.14 |             |  |             | 15,025  |  |  |  | 7.14 |  |  |  | 22,425  |  |  |  | 7.14 | 
|                                                         |  |          | 191.25 |                   |  |                       |       |             |  |             |     |             |  |             | 31,500  |  |  |  | 8.14 |  |  |  | 31,500  |  |  |  | 8.14 | 
|                                                         |  |          | 151.50 |                   |  |                       |       |             |  |             |     |             |  |             | 90,000  |  |  |  | 9.14 |  |  |  | 90,000  |  |  |  | 9.14 | 
|Shai Agassi
    (Member from April 17, 2002)             |  |          |       |                   |  |                       |       |             |  |             |     |             |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Léo Apotheker
    (Member from August 1, 2002)           |  |          | 290.32 |                   |  |                       | 7,870  |             |  |             | 7.14 |             |  |             | 15,980  |  |  |  | 7.14 |  |  |  | 23,850  |  |  |  | 7.14 | 
|                                                         |  |          | 191.25 |                   |  |                       |       |             |  |             |     |             |  |             | 30,000  |  |  |  | 8.14 |  |  |  | 30,000  |  |  |  | 8.14 | 
|                                                         |  |          | 151.50 |                   |  |                       |       |             |  |             |     |             |  |             | 17,500  |  |  |  | 9.14 |  |  |  | 17,500  |  |  |  | 9.14 | 
|Dr. Werner Brandt                                        |  |          | 191.25 |                   |  |                       |       |             |  |             |     |             |  |             | 5,000   |  |  |  | 8.14 |  |  |  | 5,000   |  |  |  | 8.14 | 
|                                                         |  |          | 151.50 |                   |  |                       |       |             |  |             |     |             |  |             | 30,000  |  |  |  | 9.14 |  |  |  | 30,000  |  |  |  | 9.14 | 
|Prof. Dr. Claus E. Heinrich                              |  |          | 290.32 |                   |  |                       | 5,420  |             |  |             | 7.14 |             |  |             | 11,005  |  |  |  | 7.14 |  |  |  | 16,425  |  |  |  | 7.14 | 
|                                                         |  |          | 191.25 |                   |  |                       |       |             |  |             |     |             |  |             | 22,000  |  |  |  | 8.14 |  |  |  | 22,000  |  |  |  | 8.14 | 
|                                                         |  |          | 151.50 |                   |  |                       |       |             |  |             |     |             |  |             | 50,000  |  |  |  | 9.14 |  |  |  | 50,000  |  |  |  | 9.14 | 
|Gerhard Oswald                                           |  |          | 290.32 |                   |  |                       | 5,420  |             |  |             | 7.14 |             |  |             | 11,005  |  |  |  | 7.14 |  |  |  | 16,425  |  |  |  | 7.14 | 
|                                                         |  |          | 191.25 |                   |  |                       |       |             |  |             |     |             |  |             | 22,000  |  |  |  | 8.14 |  |  |  | 22,000  |  |  |  | 8.14 | 
|                                                         |  |          | 151.50 |                   |  |                       |       |             |  |             |     |             |  |             | 25,000  |  |  |  | 9.14 |  |  |  | 25,000  |  |  |  | 9.14 | 
|Dr. Peter Zencke                                         |  |          | 290.32 |                   |  |                       | 5,420  |             |  |             | 7.14 |             |  |             | 11,005  |  |  |  | 7.14 |  |  |  | 16,425  |  |  |  | 7.14 | 
|                                                         |  |          | 191.25 |                   |  |                       |       |             |  |             |     |             |  |             | 22,000  |  |  |  | 8.14 |  |  |  | 22,000  |  |  |  | 8.14 | 
|                                                         |  |          | 151.50 |                   |  |                       |       |             |  |             |     |             |  |             | 50,000  |  |  |  | 9.14 |  |  |  | 50,000  |  |  |  | 9.14 | 
|                                                         |  |          |        |                   |  |                       |        |             |  |             |      |             |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|                                                         |  |          |        |                   |  |                       | 31,530 |             |  |             |      |             |  |             | 459,020 |  |  |  |      |  |  |  | 490,550 |  |  |  |      | 
|                                                         |  |          |        |                   |  |                       |        |             |  |             |      |             |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 

The strike prices for convertible bonds listed
above reflect the prices that an Executive Board member would
have to pay for one SAP ordinary share upon conversion of the
bond. The strike prices are fixed and equal the market price of
an ordinary share as quoted on the day immediately preceding the
granting of the convertible bond.

As of December 31, 2002, 2001 and 2000, the
Company did not provide any loans, warranties or guarantees to
members of the Executive Board and Supervisory Board.

The projected benefit obligation as of
December 31, 2002 for former Executive Board members was
 1,507
thousand (2001:
 1,396
thousand).

Shareholdings of members of the Supervisory
Board and Executive Board

The number of SAP AG shares owned by Dietmar Hopp
(Chairman of the Supervisory Board), Hasso Plattner (Co-Chairman
of the Executive Board) and Klaus Tschira (Member of the
Supervisory Board), their family members and related entities
are disclosed in note 23. All other members of the
Supervisory Board and the Executive Board own less than 1% of
SAP AG shares.

F-58



---



##### 



In 2002 SAP received from members of the
Supervisory Board and Executive Board and spouses, registered
partners for life, parents, and children of board members the
following notifications under section 15a of the German
Securities Trade Act regarding acquisitions and sales of SAP
shares (directors dealing):

|                               |  |                                   |               |           |  |           |         |  |  |  |       | 
|------------------------------ |  | --------------------------------- | ------------- | --------- |  | --------- | ------- |  |  |  | ----- | 
|                               |  |                                  
|                               |  | Acquisitions of SAP shares       
|                               |  | (WKN 716460/ISIN DE 0007 164 600)
|                               |  |                                  
|                               |  |                                   |               | Number    |  | Price    
|Notifying Party                |  | Transaction Date                  |               | of shares |  | per share
|                               |  |                                   |               |           |  |          
|                               |  |                                   |               |           |  | ()      
|Oliver Hopp, Walldorf, Germany |  |                                   | July 22, 2002 |           |  |           | 64,700  |  |  |  | 72.11 | 
|                               |  |                                   | July 23, 2002 |           |  |           | 83,737  |  |  |  | 72.09 | 
|                               |  |                                   | July 24, 2002 |           |  |           | 263,763 |  |  |  | 71.30 | 
|                               |  |                                   | July 25, 2002 |           |  |           | 37,800  |  |  |  | 71.99 | 
|                               |  |                                   | July 26, 2002 |           |  |           | 50,000  |  |  |  | 70.41 | 
|Daniel Hopp, Walldorf, Germany |  |                                   | July 24, 2002 |           |  |           | 282,700 |  |  |  | 69.51 | 
|                               |  |                                   | July 25, 2002 |           |  |           | 90,700  |  |  |  | 71.98 | 
|                               |  |                                   | July 26, 2002 |           |  |           | 126,600 |  |  |  | 71.39 | 

(36)  Related Party
Transactions

Certain board members of SAP AG currently held or
have held within the last year positions of significant
responsibility with other entities as presented in note 35. The
Company has relationships with certain of these entities in the
ordinary course of business, whereby it buys and sells a wide
variety of services and software at arms length.

On May 2, 2002, SAP agreed to purchase the
assets of Menahel  Management Data and Business
Accounting Ltd. (Menahel), seated in the State of
Israel, including all business intellectual property, contracts,
software and related know-how and substantially all of
Menahels workforce for U.S. $7.5 million.
Menahel has been renamed to SAP Manage Ltd.

Mr Reuven Agassi, father of SAP AG
Executive Board Member Shai Agassi, was the managing director as
well as the indirect owner of one of Menahels largest
shareholders.

Prof. Dr. Wilhelm Haarmann is a partner
in Haarmann Hemmelrath & Partner, which serves
infrequently as special German tax counsel and counsels
SAP AG with regard to other legal matters.

At December 31, 2002 the Company held no
note receivables from any member of the Executive Board and
Supervisory Board. There were no significant transactions
between the Company and the major shareholders as outlined in
note 23.

(37)  German Code of
Corporate Governance

The German federal government published the
German Code of Corporate Governance in February 2002. The Code
contains statutory requirements and a number of recommendations
and suggestions. Only the legal requirements are binding for
German companies. With regard to the recommendations, the German
Stock Corporate Act, section 161, requires that listed companies
publicly state every year the extent to which they comply with
them. Companies can deviate from the suggestions without having
to make any public statements.

In 2002 the Executive Boards and Supervisory
Boards both of SAP AG and SAPs publicly traded subsidiary
SAP Systems Integration AG issued the required compliance
statements. These statements are available on the websites of
the two companies.

F-59



---



##### 



Walldorf, February 21, 2003


SAP Aktiengesellschaft


Systeme, Anwendungen, Produkte in der
Datenverarbeitung

Walldorf/ Baden


Executive Board

Plattner Kagermann Agassi Apotheker Brandt
Heinrich Oswald Zencke


F-60



---



##### 



SCHEDULE II

Valuation and Qualifying Accounts and
Reserves

Years Ended December 31, 2002, 2001 and
2000


(000)


|                                  |  |           |         |              |  |            |        |            |  |         |         |   |  |  |         |   |  |  |         | 
|--------------------------------- |  | --------- | ------- | ------------ |  | ---------- | ------ | ---------- |  | ------- | ------- | - |  |  | ------- | - |  |  | ------- | 
|                                  |  |           |         | Charged      |  |            |        |            |  |        
|                                  |  | Beginning |         | to Costs     |  |            |        | Other      |  | Ending 
|Description                       |  | Balance   |         | and Expenses |  | Write-offs |        | Deductions |  | Balance
|                                  |  |           |         |              |  |            |        |            |  |        
|Allowances for doubtful accounts: |  |           |         |              |  |            |        |            |  |         |         |   |  |  |         |   |  |  |         | 
|Year ended December 31, 2000      |  |           | 96,734  |              |  |            | 25,135 |            |  |         | (20,417 | ) |  |  | (25,229 | ) |  |  | 76,223  | 
|Year ended December 31, 2001      |  |           | 76,223  |              |  |            | 63,192 |            |  |         | (19,184 | ) |  |  | (9,962  | ) |  |  | 110,269 | 
|Year ended December 31, 2002      |  |           | 110,269 |              |  |            | 39,013 |            |  |         | (21,222 | ) |  |  | (35,549 | ) |  |  | 92,511  | 

S-1



---



##### 



EXHIBIT INDEX

|        |     |             |  |                                                                                                                                                                                                                                                                          
|------- | --- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|No.     |     | Description
|        |     |            
|        | 1   |             |  | Articles of Incorporation (Satzung) of SAP AG, as
    amended to date (English translation).                                                                                                                                                                             
|        | 2.  | 1           |  | Form of global share certificate for ordinary
    shares (English translation).(1)                                                                                                                                                                                       
|        | 2.  | 2           |  | Form of American Depositary Receipt.(2)                                                                                                                                                                                                                                  
|        | 4.  | 1           |  | Form of Amended and Restated Deposit Agreement
    among SAP AG, The Bank of New York, as Depositary, and all
    owners and holders from time to time of American Depositary
    Receipts issued there under, including the form of American
    Depositary Receipts.(3)
|        | 4.  | 2           |  | Share Purchase Agreement by and among Commerce
    One, Inc., New Commerce One Holding Inc. and SAP AG, dated as of
    June 28, 2001.(4)                                                                                                                                
|        | 4.  | 3           |  | Amended and Restated Standstill and Stock
    Restriction Agreement by and among Commerce One, Inc., New
    Commerce One Holding, Inc. and SAP AG, dated as of June 28,
    2001.(5)                                                                                    
|        | 4.  | 4           |  | Investor Rights Agreement by and among Commerce
    One, Inc., New Commerce One Holding, Inc. and SAP AG, dated as
    of June 28, 2001.(6)                                                                                                                              
|        | 4.  | 5           |  | Strategic Alliance Agreement by and among
    Commerce One, Inc., SAPMarkets, Inc. and SAP AG, dated as of
    September 18, 2000.(7)                                                                                                                                    
|        | 4.  | 6           |  | Strategic Alliance Agreement Amendment No. 2
    by and among Commerce One, Inc., SAPMarkets, Inc. and SAP AG,
    dated as of June 29, 2001.(8)                                                                                                                         
|        | 4.  | 7           |  | Strategic Alliance Agreement Amendment No. 3
    by and among Commerce One, Inc., SAPMarkets, Inc. and SAP AG,
    dated as of June 29, 2001.(8)                                                                                                                         
|        | 8   |             |  | Subsidiaries, Associated Companies and Other
    Investments of SAP AG.                                                                                                                                                                                                  
|        | 10. | 1           |  | Independent Auditors Consent.                                                                                                                                                                                                                                           
|        | 10. | 2           |  | Statement regarding Auditors Consent.                                                                                                                                                                                                                                   
|        | 99  |             |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                          






|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|   
|(2) | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|   
|(3) | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|   
|(4) | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|   
|(5) | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|   
|(6) | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|   
|(7) | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    November 14, 2000.
|   
|(8) | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    August 14, 2001.