##### Table of Contents









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,
2003



|  |                                                     
|- | ----------------------------------------------------
|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 CORPORATION LOGO

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)




---

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, 2003)** |  |  | 315,413,553 | 

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



---






|   |                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|*  | Not for trading, but only in connection with the
    registration of American Depositary Shares representing such
    ordinary shares.
|  
|** | Including 4,565,000 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                                           |                                                            |      | 6  |   
|                                | Item 4. |                                                        | Information about SAP                                      |      |    | 19 | 
|                                |         | Description of
    the Business                        |                                                            |      | 19 |   
|                                |         | Organizational
    Structure                           |                                                            |      | 34 |   
|                                |         | Description of
    Property                            |                                                            |      | 34 |   
|                                |         | Capital
    Expenditures                               |                                                            |      | 36 |   
|                                | Item 5. |                                                        | Operating and Financial
    Review and Prospects           |      |    | 37 | 
|                                |         | Overview                                               |                                                            |      | 37 |   
|                                |         | Key Factors                                            |                                                            |      | 37 |   
|                                |         | Operating
    Results                                  |                                                            |      | 39 |   
|                                |         | Outlook 2004                                           |                                                            |      | 51 |   
|                                |         | Foreign Currency
    Exchange Rate Exposure            |                                                            |      | 53 |   
|                                |         | Critical
    Accounting Policies                       |                                                            |      | 53 |   
|                                |         | New Accounting
    Standards Adopted and to be Adopted |                                                            |      | 59 |   
|                                |         | Liquidity and
    Capital Resources                    |                                                            |      | 59 |   
|                                |         | Research and
    Development                           |                                                            |      | 62 |   
|                                | Item 6. |                                                        | Directors, Senior Management
    and Employees             |      |    | 64 | 
|                                |         | Supervisory
    Board                                  |                                                            |      | 64 |   
|                                |         | Executive
    Board                                    |                                                            |      | 65 |   
|                                |         | Compensation of
    Directors and Officers             |                                                            |      | 66 |   
|                                |         | Employees                                              |                                                            |      | 67 |   
|                                |         | Share
    Ownership                                    |                                                            |      | 68 |   
|                                | Item 7. |                                                        | Major Shareholders and
    Related Party Transactions      |      |    | 72 | 
|                                |         | Major
    Shareholders                                 |                                                            |      | 72 |   
|                                |         | Related Party
    Transactions                         |                                                            |      | 73 |   
|                                | Item 8. |                                                        | Financial Information                                      |      |    | 75 | 
|                                |         | Consolidated
    Financial Statements                  |                                                            |      | 75 |   
|                                |         | Other Financial
    Information                        |                                                            |      | 75 |   
|                                |         | Dividend
    Policy                                    |                                                            |      | 75 |   

i



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|             |           |                                                                        |                                                                                   |      |    |    | 
|------------ | --------- | ---------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---- | -- | -- | 
|             |           |                                                                        |                                                                                   | Page
|             |           |                                                                        |                                                                                   |     
|             | Item 9.   |                                                                        | The Offer and Listing                                                             |      |    | 76 | 
|             | Item 10.  |                                                                        | Additional Information                                                            |      |    | 79 | 
|             |           | Articles of
    Incorporation                                          |                                                                                   |      | 79 |   
|             |           | Material
    Contracts                                                 |                                                                                   |      | 85 |   
|             |           | Exchange
    Controls and Other Limitations Affecting Security Holders |                                                                                   |      | 85 |   
|             |           | Taxation                                                               |                                                                                   |      | 86 |   
|             |           | Documents on
    Display                                               |                                                                                   |      | 92 |   
|             | Item 11.  |                                                                        | Quantitative and Qualitative
    Disclosures About Market Risk                    |      |    | 92 | 
|             |           | Foreign Currency
    Risk                                              |                                                                                   |      | 93 |   
|             |           | Interest Rate
    Risk                                                 |                                                                                   |      | 94 |   
|             |           | Equity Price
    Risk                                                  |                                                                                   |      | 95 |   
|             | Item 12.  |                                                                        | Description of Securities
    Other than Equity Securities*                       |      |    | 96 | 
|PART II      |           |                                                                        | 97                                                                                |     
|             | Item 13.  |                                                                        | Defaults, Dividend
    Arrearages and Delinquencies*                              |      |    | 97 | 
|             | Item 14.  |                                                                        | Material Modifications to
    the Rights of Security Holders and Use of Proceeds* |      |    | 97 | 
|             | Item 15.  |                                                                        | Controls and Procedures                                                           |      |    | 97 | 
|             | Item 16.  |                                                                        | Reserved                                                                          |      |    | 97 | 
|             | Item 16A. |                                                                        | Audit Committee Financial
    Expert                                              |      |    | 97 | 
|             | Item 16B. |                                                                        | Code of Ethics                                                                    |      |    | 97 | 
|             | Item 16C. |                                                                        | Principal Accountant Fees
    and Services                                        |      |    | 98 | 
|             | Item 16D. |                                                                        | Exemptions from the Listing
    Standards for Audit Committees*                   |      |    | 99 | 
|             | Item 16E. |                                                                        | Purchases of Equity
    Securities by the Issuer and Affiliated Purchasers*       |      |    | 99 | 
|PART III     |           |                                                                        | 99                                                                                |     
|             | Item 17.  |                                                                        | Financial Statements**                                                            |      |    | 99 | 
|             | Item 18.  |                                                                        | Financial Statements                                                              |      |    | 99 | 
|             | Item 19.  |                                                                        | Exhibits                                                                          |      |    | 99 | 
|EXHIBIT 1   
|EXHIBIT 8   
|EXHIBIT 10.1
|EXHIBIT 10.2
|EXHIBIT 12.1
|EXHIBIT 12.2
|EXHIBIT 13  






|   |                                                                          
|-- | -------------------------------------------------------------------------
|*  | 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
generally accepted accounting principles 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
 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 euro and/or dollars.

Unless otherwise specified herein, all euro
financial data that have 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, 2003, which was
1.00 per
$1.2597. No representation is made that such euro amounts
actually represent such dollar amounts or that such euro amounts
could have been or could be converted into dollars at that or
any other exchange rate on such date or on any other dates. The
rate used for the convenience translations also differs from the
currency exchange used for the preparation of the Consolidated
Financial Statements. For information regarding recent rates of
exchange between euro and dollars, see Item 3. Key
Information  Exchange Rates. At March 9,
2004, the Noon Buying Rate for converting euro to dollars was
U.S.$ 1.2428 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.
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.

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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, but not limited to:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | 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;                                                       
|
| |  | regulatory and political conditions;                                                                            
|
| |  | obtaining and expanding market acceptance of our
    services and products;                                     
|
| |  | terrorist attacks or other acts of violence or
    war;                                                         
|
| |  | meeting our requirements with customers; and                                                                    
|
| |  | other risks and uncertainties, some of which we
    describe under Item 3. Key Information 
    Risk Factors.

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 years ended December 31, 2003 and
2002 by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft (KPMG),
independent auditors and for the years ended December 31,
2001, 2000 and 1999 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. Key
Information  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, 2003, 2002 and 2001, and the
consolidated balance sheets at December 31, 2003 and 2002
are included in Item 18. Financial Statements.
Certain reclassifications have been made to prior year amounts
to conform to the current years presentation.

3



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SELECTED FINANCIAL DATA

|                                                        |         |                                                         |           |         |  |      |           |         |  |         |           |         |  |  |           |         |  |  |           |         |  |  |           |         | 
|------------------------------------------------------- | ------- | ------------------------------------------------------- | --------- | ------- |  | ---- | --------- | ------- |  | ------- | --------- | ------- |  |  | --------- | ------- |  |  | --------- | ------- |  |  | --------- | ------- | 
|                                                        |         |                                                        
|                                                        |         | Year Ended December 31,                                
|                                                        |         | (in thousands, except per share and exchange rate data)
|                                                        |         |                                                        
|                                                        |         | 2003                                                    |           | 2003    |  | 2002 |           | 2001    |  | 2000(2) |           | 1999   
|                                                        |         |                                                         |           |         |  |      |           |         |  |         |           |        
|                                                        |         |                                                         |           |         |  |      |           |         |  |         |           |       
|                                                        |         | U.S.$(1)                                                |           |        |  |     |           |        |  |        |           |        
|Income Statement Data:                                  |         |                                                         |           |         |  |      |           |         |  |         |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Total revenue                                           |         |                                                         | 8,848,896 |         |  |      | 7,024,606 |         |  |         | 7,412,838 |         |  |  | 7,340,804 |         |  |  | 6,264,595 |         |  |  | 5,110,213 |        
|Operating income                                        |         |                                                         | 2,171,747 |         |  |      | 1,724,019 |         |  |         | 1,625,678 |         |  |  | 1,312,374 |         |  |  | 802,658   |         |  |  | 796,180   |        
|Income before income taxes and extraordinary gain       |         |                                                         | 2,238,002 |         |  |      | 1,776,615 |         |  |         | 1,107,698 |         |  |  | 1,068,757 |         |  |  | 1,012,869 |         |  |  | 980,347   |        
|Net income                                              |         |                                                         | 1,356,776 |         |  |      | 1,077,063 |         |  |         | 508,614   |         |  |  | 581,136   |         |  |  | 615,732   |         |  |  | 601,001   |        
|Earnings per share(3)                                   |         |                                                         |           |         |  |      |           |         |  |         |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Basic                                                   |         |                                                         | 4.37      |         |  |      | 3.47      |         |  |         | 1.62      |         |  |  | 1.85      |         |  |  | 1.96      |         |  |  | 1.92      |        
|Diluted                                                 |         |                                                         | 4.36      |         |  |      | 3.46      |         |  |         | 1.62      |         |  |  | 1.85      |         |  |  | 1.95      |         |  |  | 1.90      |        
|Other Data:                                             |         |                                                         |           |         |  |      |           |         |  |         |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Weighted average number of shares
    outstanding(3)(4) |         |                                                         |           |         |  |      |           |         |  |         |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|                                                        | Basic   |                                                         |           | 310,781 |  |      |           | 310,781 |  |         |           | 313,016 |  |  |           | 314,309 |  |  |           | 314,423 |  |  |           | 313,815 | 
|                                                        | Diluted |                                                         |           | 311,409 |  |      |           | 311,409 |  |         |           | 313,980 |  |  |           | 314,412 |  |  |           | 315,737 |  |  |           | 315,750 | 
|Balance Sheet Data:                                     |         |                                                         |           |         |  |      |           |         |  |         |           |         |  |  |           |         |  |  |           |         |  |  |           |        
|Total assets                                            |         |                                                         | 7,968,692 |         |  |      | 6,325,865 |         |  |         | 5,608,463 |         |  |  | 6,195,604 |         |  |  | 5,618,971 |         |  |  | 4,826,889 |        
|Shareholders equity                                    |         |                                                         | 4,672,788 |         |  |      | 3,709,445 |         |  |         | 2,872,091 |         |  |  | 3,109,513 |         |  |  | 2,517,081 |         |  |  | 2,559,355 |        
|Subscribed capital                                      |         |                                                         | 397,327   |         |  |      | 315,414   |         |  |         | 314,963   |         |  |  | 314,826   |         |  |  | 314,715   |         |  |  | 267,805   |        
|Short-term bank loans and overdrafts                    |         |                                                         | 23,988    |         |  |      | 19,043    |         |  |         | 22,657    |         |  |  | 458,266   |         |  |  | 146,877   |         |  |  | 24,600    |        
|Long-term financial debt(5)                             |         |                                                         | 15,051    |         |  |      | 11,948    |         |  |         | 11,318    |         |  |  | 7,375     |         |  |  | 6,543     |         |  |  | 32,913    |        






|    |                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts in the column are unaudited and
    translated for the convenience of the reader at
    1.00 to
    U.S.$ 1.2597, the Noon Buying Rate for converting
    1.00 into
    dollars on December 31, 2003. See
     Exchange Rates for recent exchange rates
    between the euro and the dollar. Our auditors have not audited
    these converted dollar amounts.
|   
|(2) | The 2000 figures have been adjusted for the
    effect of the change in the investment in Commerce One, Inc.
    (Commerce One) to the equity method. See Note 4
    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 and convertible bonds
    issued pursuant to stock-based compensation plans. See
    Item 6. Directors, Senior Management and
    Employees  Share Ownership  Stock-Based
    Compensation Plans.             




Exchange Rates

The prices for ordinary shares traded on German
stock exchanges are denominated in euro. 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 euro, 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 euro on the ordinary shares
represented by the ADSs. The deposit agreement for the ADSs
requires the depositary to convert any dividend payments from
euro into dollars as promptly as practicable upon receipt.

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 and the
respective currencies to which we are exposed may materially
affect our consolidated financial position, results of
operations and cash flows. See Item 5. Operating and
Financial Review and Prospects  Foreign Currency
Exchange Rate Exposure and for

4



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##### Table of Contents



our foreign currency risk and hedging strategy
see Item 11. Quantitative and Qualitative Disclosure
About Market Risk  Foreign Currency Risk.


The following table sets forth the average, high,
low and period-end Noon Buying Rates for the euro expressed as
dollars per 1.00.

|     |  |            |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|---- |  | ---------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|Year |  | Average(1) |        | High |  | Low |        | Period-End
|     |  |            |        |      |  |     |        |           
|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 | 
|2003 |  |            | 1.1411 |      |  |     | 1.2597 |            |  |  | 1.0361 |  |  |  | 1.2597 | 

|      |                               |      |  |        |  |            |  |        |  |  |  |        | 
|----- | ----------------------------- | ---- |  | ------ |  | ---------- |  | ------ |  |  |  | ------ | 
|Month |                               | High |  | Low    |  | Period-End
|      |                               |      |  |        |  |           
|2003  |                               |      |  |        |  |            |  |        |  |  |  |       
|      | July                          |      |  | 1.1580 |  |            |  | 1.1164 |  |  |  | 1.1231 | 
|      | August                        |      |  | 1.1390 |  |            |  | 1.0871 |  |  |  | 1.0986 | 
|      | September                     |      |  | 1.1650 |  |            |  | 1.0845 |  |  |  | 1.1650 | 
|      | October                       |      |  | 1.1833 |  |            |  | 1.1596 |  |  |  | 1.1609 | 
|      | November                      |      |  | 1.1995 |  |            |  | 1.1417 |  |  |  | 1.1995 | 
|      | December                      |      |  | 1.2597 |  |            |  | 1.1956 |  |  |  | 1.2597 | 
|2004  |                               |      |  |        |  |            |  |        |  |  |  |       
|      | January                       |      |  | 1.2853 |  |            |  | 1.2389 |  |  |  | 1.2452 | 
|      | February                      |      |  | 1.2848 |  |            |  | 1.2426 |  |  |  | 1.2441 | 
|      | March (through March 9, 2004) |      |  | 1.2431 |  |            |  | 1.2088 |  |  |  | 1.2428 | 






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

On March 9, 2004, the Noon Buying Rate for
converting euro to dollars was U.S.$1.2428 per
1.00.




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.

The following table sets forth in euro the annual
dividends paid or proposed to be paid per ordinary share and
preference share in respect of each of the years indicated. The
table does not reflect tax credits that may be available to
German taxpayers who receive dividend payments. If you own our
ordinary shares or ADSs and if you are a U.S. resident,
please refer to Taxation in Item 10.

|                        |  |                   |      |                   |  |   |      |           |  |  |      |  |  |  |      |    
|----------------------- |  | ----------------- | ---- | ----------------- |  | - | ---- | --------- |  |  | ---- |  |  |  | ---- | ---
|                        |  |                   |      |                  
|                        |  | Dividend Paid per |      | Dividend Paid per
|Year Ended December 31, |  | Ordinary Share    |      | Preference Share 
|                        |  |                   |      |                  
|                        |  |                  |      | U.S.$             |  |  |      | U.S.$    
|1999                    |  |                   | 0.52 |                   |  |   | 0.47 | (1)(4)    |  |  | 0.53 |  |  |  | 0.48 | (1)
|2000                    |  |                   | 0.57 |                   |  |   | 0.52 | (1)(4)    |  |  | 0.58 |  |  |  | 0.53 | (1)
|2001                    |  |                   | 0.58 |                   |  |   | 0.53 | (1)(4)    |  |  | N/A  |  |  |  | N/A  |    
|2002                    |  |                   | 0.60 |                   |  |   | 0.69 | (1)(4)    |  |  | N/A  |  |  |  | N/A  |    
|2003 (proposed)         |  |                   | 0.80 | (2)               |  |   | 0.99 | (2)(3)(4) |  |  | N/A  |  |  |  | N/A  |    






|    |                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Translated for the convenience of the reader from
    euro into dollars at the Noon Buying Rate for converting euro
    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 Annual General
    Shareholders Meeting of SAP AG to be held on May 6,
    2004.                                                                                                                                                                                     

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|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Translated for the convenience of the reader from
    euro into dollars at the Noon Buying Rate for converting euro
    into dollars on March 9, 2004 of U.S.$1.2428 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.
|   
|(4) | One SAP ADR (American Depositary Receipt)
    represents one-fourth of SAP AGs ordinary share.
    Accordingly, the final dividend per ADR is calculated as
    one-fourth of the dividend for one SAP AG share and is
    dependent on the euro/dollar 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

Substantial, prolonged declines in and slow
or weak recovery of global technology and software markets in
Europe, the Americas and Asia 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 have tended to vary due to economic
or financial crises or other business conditions. Prolonged
economic slowdowns or slow or weak economic recoveries may
result in customers requiring us to renegotiate existing
contracts resulting in less advantageous terms than those
currently in place. A recession, slow or weak economic recovery
or other difficulties in the economies where we license our
products, including Europe, the Americas 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
U.S. because we derive a substantial portion of our revenue
from software licenses and services in those geographic regions.

One important feature of our long-term strategy
for growth is to increase our offerings for the small and
mid-market segment. A recession, slow or weak economic recovery
could inhibit the creation and financial strength of those
businesses and thereby delay that element of our expansion.

Undetected errors or delays in new products
and product enhancements may result in increased costs to us and
delayed demand for our new products.

To achieve customer acceptance, our 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 after a
validation process 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 working 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.

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We are subject to pricing
pressure.

In response to competition, consolidation within
the industries in which we operate 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.
Subsequent maintenance fees are typically established based on a
specified percentage of the initial license fee paid by the
customer. Our customers typically prepay maintenance for periods
of three to twelve months. 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 software sales
and/or a decline or delay in maintenance fees 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. Our hosted solutions and
rental programs have not generated significant revenues in 2003
and prior years. As part of our long-term strategy for growth,
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
recent trend of outsourcing 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
application-hosting providers. We may be unable to offer an
outsourcing model that customers demand, or competitors may
offer better, lower priced or more desirable outsourcing models.
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.

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

The financial, political, economic and other
uncertainties following terrorist attacks like those in the
U.S. and Spain, and other acts of violence or war, such as
the recent conflict in Iraq could damage the world economy and
affect our investment and our customers investment
decisions over an extended period of time. We believe that
geopolitical uncertainties, including hostilities against the
U.S., Europe or any other country, or war or any other
international hostilities may lead to cautiousness by our
customers in setting their capital spending budgets.
Furthermore, such occurrences could make travel more difficult,
thus interfering with customers decision making processes
and our ability to sell products and provide services to them.

Consolidation in the software industry may
result in instability of software demand and stronger peer
companies in the long term.

The entire IT sector, including the software
industry, is currently experiencing consolidation through
mergers and acquisitions, particularly involving larger
companies. Large companies continue to expand into related
industries. Transactions in which we or our competitors
participate could have a material adverse effect on us in a
variety of ways, such as delaying sales due to customer
uncertainty and subjecting us to competition from stronger
established or new peer group companies with more resources,
larger customer bases and a wider variety of products than we
have.

We may not be able to protect our
intellectual property rights, which may cause us to incur
significant costs in litigation and 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. Despite our efforts, 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

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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 proprietary. 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. In addition,
the laws of certain countries do not protect our proprietary
rights to the same extent as do the laws of the U.S. or
Germany.


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 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 products violate
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.

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. 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.

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. 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 and therefore could adversely impact our
long-term strategy for growth.

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 third-party technologies that
we incorporate into our existing products, on which, in the
aggregate, we may be substantially dependent. There can be no
assurance that the licenses for such third-party technologies
will not be terminated or that we will be able to license
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. While we believe that no
one individual technology we license is material to our
business, changes in or the loss of third party licenses 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.

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Our SAP NetWeaver integration and
application platform may not succeed or may make certain of our
products less desirable.

In 2003, we announced the introduction of SAP
NetWeaver, our new, web-based technology and application
platform. We have devoted a significant amount of resources to
the development and marketing of SAP NetWeaver. SAP NetWeaver is
a new and innovative solution serving as the basis of SAPs
current product strategy. While all components of SAP NetWeaver
are already released, we expect to release the complete SAP
NetWeaver solution to reference customers by the end of March
2004. It represents a technological shift to a web-based, open
platform design that we believe will make it easier for
customers to link non-SAP software related data with SAP
software. There are no assurances that customers will accept
this technology change or that our competitors will not develop
and market more effective technology platforms that better suit
the needs of customers. Further, as with the introduction of any
new product, there may be errors in the SAP NetWeaver component
technology that might require the devotion of a substantial
amount of resources to correct. SAP NetWeavers failure to
be accepted by customers, development by competitors of superior
technology or significant errors in the solution could have a
material adverse impact on our revenues, earnings and results of
operations. In addition, as with any open platform design, the
greater flexibility provided to customers to use data generated
by non-SAP software may reduce customer demand to elect and use
certain of our software 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 and the increased
complexity of our software create the risk that customers or
other third parties may pursue warranty, performance 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, performance 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 and 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. The
accompanying publicity of any claim, regardless of its merits,
could adversely affect the demand for our software.

Our failure to develop new relationships
and enhance existing relationships with third-party
distributors, software suppliers, system integrators 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 suppliers and technology
providers to cooperate and ensure that certain of the products
produced by such suppliers 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 suppliers, systems
integrators, consulting groups formerly associated with major
accounting firms and other consulting firms. Most of these
agreements and alliances are of relatively short duration and
non-exclusive. In addition, we have established relationships
relating to the resale of certain of our software products by
third parties. These third parties include value-added resellers
and, in the area of application hosting services, certain
computer hardware vendors, systems integrators and
telecommunications providers.

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There can be no assurance that these third
parties or business partners, most of whom have similar
arrangements with our competitors and some of whom also produce
their own standard application software in competition with us,
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 slow or weak economic
recovery 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 demand for our
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 59.3% of our consolidated revenue in
2003 was attributable to operations in non-EMU member states and
translated into euro. 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, and the Australian dollar.
As of March 9, 2004, the Noon Buying Rate for converting
euro to dollars was U.S.$1.2428
per 1.00 a
sharp decrease in the value of the dollar relative to the euro
compared to the Noon Buying Rate of December 31, 2002 of
1.0485 U.S.$.. Conversely, increases in the value of
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 Disclosures 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 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 to better integrate
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, changing country-specific regulatory
requirements, 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.

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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 demand is expected to grow more
rapidly. In particular, we have expanded our focus to include
customer relationship management, supply chain management,
technology integration platform solutions and the needs of small
and medium sized businesses. Our expansion from the traditional
large enterprise ERP product offerings exposes us to different
competitors. Competition, with respect to pricing, product
quality and consulting and support services, could increase
substantially and result in price reductions, cost increases or
loss of segment shares.

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 we have, enhancing their
ability to compete with us. There are many other companies
engaged in the research, development and marketing of integrated
web-based 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 segments 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. 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 among potential customers of our products as well
as among our competitors. It is possible that new competitors or
alliances among competitors may emerge and rapidly acquire
significant segment shares. There can be no assurance that our
strategies will prove to be successful or that our
competitors strategies will not be more successful than
ours.

We believe that our experience with business
process applications, our increasingly flexible, component-based
installation options and our focus on flexible, open standards
technologies 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 future revenue is dependent in part
upon our installed customer base continuing to license
additional products, renew maintenance agreements and purchase
additional professional services.

Our large installed customer base has
traditionally generated additional new software, maintenance,
consulting and training revenues. In future periods, customers
may not necessarily license additional products or contract for
additional services or maintenance. After an initial term,
maintenance is generally renewable annually at a customers
option, and there are no mandatory payment obligations or
obligations to license additional software. If our customers
decide not to renew their maintenance agreements or license
additional products or contract for additional services, or if
they reduce the scope of their maintenance agreements, our
revenues could decrease and our operating results could be
adversely affected.

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

From 2001 to 2003, our software revenue has
decreased both in terms of absolute dollar value and as a
percentage of total revenue while our maintenance revenue
increased during the same period. Our service revenue increased
from 2001 to 2002 but decreased from 2002 to 2003. 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. Any decrease in the percentage of our total revenue
derived from software licensing could have a material adverse
effect on our business, financial position and results of
operations or cash flows.

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 cannot
provide assurances that protracted installation times or
criticisms of us will not 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.

Business process outsourcing may adversely
impact our business

Some of our customers offer other companies
business process outsourcing (BPO) services, which involve the
transfer by end user customers of all of or significant portions
of their internal processes to third-party BPO providers. Some
or all of our existing end user customers and potential
customers may decide to shift business process systems to BPO
providers rather than continue to run these systems themselves,
especially in the areas of human resources, finance, accounting
and supply chain. The perception of value created by our
products among end user customers could be diminished to the
extent BPO providers bundle our applications with their
services. While most of our revenues are currently derived from
contracts directly with end user customers, a general trend to
outsourcing business processes to BPO providers could have a
material adverse impact on our revenues, earnings and results of
operations.

If we were to lose the services of members
of management and employees or fail to attract new personnel who
possess specialized 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. Especially
as we embark on the introduction of new and innovative
technology offerings to our client base such as our SAP
NetWeaver platform initiative, we are relying on being able to
build up and maintain a specialized workforce with deep
technological know-how to ensure an optimal implementation of
such new technologies in accordance to our clients
demands. Such personnel in certain regions (including the
U.S. 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 as 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

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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 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. We have created standard
documentation of key business processes of SAP AG and its
largest subsidiaries, which will be extended to all major
subsidiaries in 2004. Further elements of the system include a
corporate-wide Code of Business Practice which was formalized in
2003, our internal audit function, comprehensive published
reports and the work of the Supervisory Board in monitoring and
controlling the Executive Board. In early 2003, we created a
central dedicated Corporate Risk Management function tasked to
consolidate and enhance SAPs various existing risk
management activities in accordance with a corporate-wide
uniform methodology. SAPs Principles of Corporate
Governance, ratified by our Supervisory Board at the end of 2001
and updated in August 2002 and March 2004, constitute a further
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.

As part of its convergence project, the Financial
Accounting Standards Board (FASB) is currently reconsidering
U.S. GAAP rules for stock-based compensation accounting in
light of the recent standard issued by the International
Accounting Standards Board that will require the expensing of
all stock-based compensation awards. Changes requiring SAP to
record stock-based compensation expense in the income statements
for our employee stock options using the fair market value
method would have a significant negative effect on our reported
operating results. Changes to other existing accounting
standards or the questioning of current accounting practices by
the SEC, analysts, or the investing public may also 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
require management to make significant estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. 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.

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The market in which we compete continues to
evolve and, if it does not grow rapidly in the longterm, 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, technology integration solutions (including SAP
NetWeaver) and solutions for the small and mid-market segment
are expected to experience high growth rates. Demand and
customer acceptance for recently introduced products and
services 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.
Moreover, the adoption of mySAP Business Suite solutions and
newer offerings that allow greater levels of flexibility in
software application and data utilization, 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. Demand for
these products and services may not develop, or SAP may not
develop acceptable solutions in a timely or cost-effective
manner. This could have a material adverse effect on our
business, financial position and results of operations or cash
flows.

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. Also, adequate insurance
coverage may not be available to us at all.

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 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
2003, we experienced an industry-wide trend in customer spending
away from a lower volume of very large contracts to a higher
volume of smaller contracts. 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. Revenue on a per
employee basis decreased from 2002 to 2003 by 8.0% from
252,361 to
232,211 and in
average full time equivalents by 5.4% from
255,140 to
241,412. As such
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

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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, a variety
of transactions, including alliance arrangements. Our current
strategy for growth includes, but is not limited to, the
acquisition of companies as a key element of future growth,
especially acquisitions of smaller companies that specifically
aim at strengthening our geographic reach, broadening our
offering in particular industries, or complementing our
technology portfolio. Managements negotiations of
potential transactions, including 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;                                                                        
|
| |  | regulatory constraints;                                                                                                                                                                                 
|
| |  | impairment of relationships with employees and
    customers; and                                                                                                                                       
|
| |  | problems with 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
tangible and 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 entered 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 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 our ADSs.

The currency in which our ordinary shares are
traded is the euro. While the currency in which our ADSs are
traded is the dollar, the trading price of our ADSs is expected
to be largely based upon the trading price of the underlying
ordinary shares in its principal trading market, 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

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between SAP AG and the depositary in euro 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 remain 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 and in growth rates compared to
prior periods. Any shortfall in revenue or earnings from levels
projected by us 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 our projections of 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 companies operating
performance. The trading price of the ADSs or the ordinary
shares may fluctuate in response to such factors, including but
not limited 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;                                                                                                               
|
| |  | general market conditions specific to particular
    industries;                                                                                             
|
| |  | general and/or country specific political
    conditions (particularly wars, terrorist attacks etc.); and                                                    
|
| |  | proposed and completed acquisitions or other
    significant transactions by us or our competitors.                                                          

Many of these factors are beyond our control. In
the past, companies that have experienced volatility in the
market price of their stock have been subject to 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 individually and in the
aggregate 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
position or our ability to recognize gains from the sale of
marketable equity securities. Additionally, due to changes in
German tax laws in 2000 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. See Item 4.
Partnerships, Alliances and Acquisitions.

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 a focus on Europe, Middle East and
Africa (EMEA), North and South America
(Americas) and Asia-Pacific (APA)
regions. In 2003,

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revenue derived from outside Germany totaled
5,354.3 million,
representing approximately 76% of our total revenue. Sales in
these regions 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;                                                                                                                               
|
| |  | exchange rate fluctuations; and                                                                                                                                                                    
|
| |  | regulatory constraints like export restrictions,
    governmental regulations of the Internet, additional
    requirements for the design and for the distribution of software
    and/or services.

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.

Principal shareholders may be able to exert
control over our future direction and operations.

As of March 9, 2004, the beneficial holdings
of SAPs principal shareholders (not counting immediate
family members) and/or the holdings of entities controlled by
them constituted in the aggregate approximately 34.568% of the
outstanding ordinary shares of SAP AG. If SAPs principal
shareholders and/or the holdings of entities controlled by them
vote the shares held by them in the same manner, it may have the
effect of delaying, preventing or facilitating 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 principal
shareholders could adversely affect the price of our capital
stock.

As stated above, SAPs principal
shareholders (not counting immediate family members) and/or
related entities own beneficially approximately 34.568% of the
outstanding ordinary shares of SAP AG as of March 9, 2004.
The sale of a large number of ordinary shares by any of the
principal shareholders and/or related entities 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.

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
(STARs) are granted to eligible employees of SAP.
The STARs 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 STARs 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 STARs 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;

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| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | 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 2003, 2002
and 2001 first quarter revenue being lower than revenue in the
prior years fourth quarter. We expect to experience a
similar trend of seasonality 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 2001
through 2003, and plan to continue to increase throughout 2004,
the following expenditures depending on our results and outlook
during 2004:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | expenditures to fund continued development of our
    operations;                                 
|
| |  | 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.

Increasing government regulation of the
Internet could harm our business.

As the 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 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.

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 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.

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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 years ended December 31, 2002. On
August 31, 2002, Arthur Andersen LLP, an affiliate of
Arthur Andersen, ceased practicing before the SEC.

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

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. In light of the cessation of Arthur
Andersens SEC practice, we will not be able to obtain the
consent of Arthur Andersen to the inclusion of its audit report
in our relevant current and future filings. The SEC has provided
regulatory relief designed to allow companies that file reports
with the SEC to dispense with the requirement to file a consent
of Arthur Andersen in certain circumstances, but purchasers of
securities sold under our registration statements, which were
not filed with the consent of Arthur Andersen to the inclusion
of its audit report, will not be able to sue Arthur Andersen
pursuant to Section 11(a)(4) of the Securities Act of 1933
and, therefore, their right of recovery under that section may
be limited as a result of the lack of our ability to obtain
Arthur Andersens consent.

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 U.S. A substantial portion of the
assets of SAP and such persons are located outside the
U.S. As a result, it may not be possible to effect service
of process within the U.S. 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 U.S. In addition, awards of punitive damages in
actions brought in the U.S. 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 U.S. 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.

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Description of the Business

Overview

SAP is a leading provider of business
software solutions, with headquarters in Walldorf, Germany and
over 30,000 employees in more than 50 countries.

Our principal activities are the development,
marketing, sales and support of a variety of software solutions,
primarily enterprise application software products for
organizations including corporations, governmental agencies, and
educational institutions.

SAP solutions are designed to meet the
demands of companies of all sizes  from small via
midsize businesses to global enterprises. The SAP NetWeaver
open integration and application platform aims at reducing the
complexity and total cost of ownership (TCO) of a
customers information technology landscape business
process change and evolution. While SAP Business Suite
solutions are helping enterprises around the world improve
customer relationships, enhance partner collaboration, and
create efficiencies across their supply chains and business
operations. The core business processes of various industries,
from aerospace to utilities, are supported by SAPs
industry-specific solution portfolios. Today, more than 21,600
customers in over 120 countries run more than 69,700
installations of SAP software. With subsidiaries in more
than 50 countries, the company is listed on several
exchanges, including the Frankfurt Stock Exchange and NYSE under
the symbol SAP.

SAPs total 2003 revenues decreased by 5.2%
from 2002 to
7,024.6 million
(2002:
7,412.8 million).
Net income for 2003 increased by 111.8% to
1,077.1 million
(2002:
508.6 million).
In 2003, total revenues were derived as follows: sales of
software products
2,147.6 million
(30.6%), maintenance
2,568.8 million
(36.5%), consulting services
1,953.5 million
(27.8%), training services
299.3 million
(4.3%), and other revenue
55.4 million
(0.8%).

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

Evolution of SAPs
Solutions

We introduced our first generation of software in
1973, initially consisting of only a financial accounting
application. The software was later expanded to include
materials management.

Expanding beyond this first generation,
SAP began to develop integrated, cross-functional,
multi-language, multi-currency solutions for a broader range of
business processes. In 1981, SAP introduced its 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, designed to integrate all aspects of
business, including distribution centers, field operations
centers, corporate headquarters, and sales offices. Among its
many functions, SAP R/2 included cost accounting, human
resource management, logistics, and manufacturing. We believe
that SAP R/2 also reduced processing 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 computers to
open systems such as client/server networks composed of multiple
computers. Introduced in 1992, SAP R/3 offered the
functionality of SAP R/2 in an open, three-tier
client/server architecture, and quickly became the category
leader in ERP systems. We believe that SAP R/3 not only
improved manufacturing efficiency but also such processes as
distribution, finance, sales, procurement, inventory, and human
resources. In the years following the introduction of
SAP R/3, we also introduced several new business software
applications and enhanced existing products to operate
independently of SAP R/3.

During the 1990s, we introduced several solutions
built on SAP R/3 to provide capabilities tailored to
specific industries. In addition, we developed new solutions to
address a variety of critical business issues, such as SAP
Business Information Warehouse (SAP BW) for
managing large quantities of data and SAP Advanced Planner
and Optimizer (SAP APO) for managing supply and
demand trends. Emerging customer needs also led us to create
additional solutions.

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In 1999 we introduced the mySAP.com e-business
platform. This Internet-based platform not only linked together
disparate business functions but also enabled collaboration
among different organizations. As a result, it enabled companies
to participate in a larger collaborative community of customers,
suppliers, and partners, which could shift functions and
responsibilities as needed.

In 2002, we renamed mySAP.com into
mySAP Business Suite. mySAP Business Suite is a suite
of powerful business solutions that help companies manage the
entire value chain across business networks. mySAP Business
Suite is designed to allow organizations to excel in a business
environment that requires rapid adaptation to changing business
conditions. SAP NetWeaver aims at lowering customers
total cost of information technology (IT) ownership by
allowing easy integration of key business processes.

In 2003, we announced SAP NetWeaver, our open
integration and application platform. In addition, we announced
the successor to SAP R/3 called mySAP ERP. mySAP ERP
provides organizations with a complete enterprise resource
planning solution that can be extended through the addition of
other SAP solutions, for example: mySAP CRM, mySAP SCM and mySAP
SRM. mySAP ERP is part of the mySAP Business Suite
solution. In 2004 we intend to develop most of our SAP solutions
on our SAP NetWeaver platform.

SAPs Strategy

SAPs business and product strategies have
been designed to increase software license sales, segment share
and profitability by offering solutions composed of software and
services that enable the existing customer base and prospective
new customers to increase business performance and flexibility.
We expect to leverage our large customer base to generate
revenues through licenses of additional software solutions,
either individually by solution, or collectively as
mySAP Business Suite.

Our product strategy is to extend the range of
software applications and solutions that can deliver more value,
faster implementation, and better integration, to meet the needs
of core customers and reach new customer segments. As also
discussed below, our solutions for small and mid-market segment
are another area of anticipated growth for SAP.

One of the keys to our product strategy is the
use of Enterprise Services Architecture (ESA), which
SAP announced in January 2003. ESA represents an evolution
towards a services oriented architecture. The architecture is
designed to improve flexibility and reduce TCO. Based on open
standards the architecture aims at enabling customers to
integrate SAP and non-SAP solutions more quickly. In addition,
it will extend the reach of our solutions to yet unsupported
business processes. SAP NetWeaver is our open integration
and application platform in order to realize an enterprise
services architecture for our customers. SAP NetWeaver is
described in detail below.

In the services area, SAP Customer Services
Network (SAP CSN) offers consulting, education, active global
support, hosting, and custom development services. The strategy
is for SAP CSN to maintain 15%-20% of the overall SAP-related
service revenues, with the remainder to be provided by
SAPs global network of certified business partners. For
that reason, SAP CSN focuses on the ramp up of SAP solutions,
integration architecture and quality assurance.

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SAP intends to primarily pursue organic growth.
In addition, as an element of our future growth we intend to
acquire smaller companies to strengthen our geographic reach,
broadening our offering in particular industries, and
complementing our technology portfolio.

SAP Software Products

We license components of our software solutions
on an individual user basis. Licenses may be issued for
individual solutions or for mySAP Business Suite, which is
described below. In addition to the user licenses for a
solution, certain specialized functionality that is not
user-specific may be licensed separately as one of our software
engines.

(SAPSOFTWARE PRODUCTS)

mySAP Business Suite

mySAP Business Suite is a suite of business
solutions that aims at enabling companies to manage the entire
value chain across business networks. Each solution is based on
the SAP NetWeaver integration and application platform. As a
result, mySAP Business Suite solutions allow companies to adapt
quickly and remain flexible when faced with changing business
conditions. In addition, mySAP Business Suite solutions aims at
reducing TCO and managing a companys overall
information technology infrastructure. Because of their flexible
platform, mySAP Business Suite solutions may be deployed on a
variety of computer hardware types and software operating
systems.

mySAP Business Suite consists of the following
SAP solutions:

mySAP
Customer Relationship Management (mySAP CRM)



| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP CRM helps organizations manage virtually
    every aspect of their relationships with customers. It includes
    a complete set of capabilities that help maximize the value
    delivered to and the value derived from customers throughout the
    customer interaction cycle.

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| |                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Key functions of mySAP CRM include support for
    sales, marketing, channel management, interaction center, and
    service management. In addition, mySAP CRM offers analytics that
    allow a company to leverage customer data for better and quicker
    business decisions. Through these capabilities, mySAP CRM
    continuously enhances an organizations ability to:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | identify and engage potential customers;                                      
|
| |  | perform business transactions with customers;                                 
|
| |  | fulfill individual customer needs as contracted;
    and                      
|
| |  | provide after-sales care such as customer service
    and product maintenance.

mySAP
ERP



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP ERP is an enterprise resource planning
    (ERP) solution that aims at enabling organizations to run
    their core business functions, including analytics, human
    resources, financials, operations, corporate services, and
    planning. mySAP Financials and mySAP Human Resources have been
    renamed to mySAP ERP Financials and mySAP ERP Human Capital
    Management, respectively. They are now part of mySAP ERP.                    
|
| | mySAP ERP addresses customer needs for an
    expandable enterprise resource planning environment. As such, it
    is available as an individual solution or as a part of mySAP
    Business Suite. Customers can upgrade from mySAP ERP to the full
    mySAP Business Suite  either in a single step or
    incrementally as their business needs change. As a result, mySAP
    ERP offers an easy path to a comprehensive business solutions
    suite.
|
| | mySAP ERP runs on the SAP NetWeaver technology
    platform, as described below.                                                                                                                                                                                                                                                                                                                                                                            



| |                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP ERP Financialsis a finance, analytics, and
    accounting solution that helps organizations process and
    interpret financial and business data, and handle financial
    transactions. In addition, it aims at an efficient management of
    profitability, business performance, and growth for
    organizations.                                      
|
| | mySAP ERP Financialshelps to gain organization-wide
    control over the business information that is essential to
    strategic and operational decision-making. This includes the
    ability to track financial accounting data within an
    international framework of multiple companies and organizations,
    languages, currencies, and books of accounts.
|
| | Key functional areas of mySAP ERP Financials
    include general ledger, special purpose ledger and subledger,
    cost management, and profitability analysis.                                                                                                                                                                                                    
|
| | mySAP ERP Human Capital Management(mySAP ERP HCM) provides comprehensive
    tools to help an organization optimize its investment in its
    employees. It supports human resources professionals in managing
    employee capabilities down to the line-management level.                                                                                        
|
| | mySAP ERP HCM combines strategic human capital
    management features with workforce analytics. In addition, its
    employee transaction management capabilities aims at allowing a
    company to streamline a wide range of essential HR transactions
    and processes, including compliance with global regulatory
    requirements.                         
|
| | Key functional areas of mySAP ERP HCM include
    administration, payroll, benefits, legal reporting, online
    recruiting, blended learning, organizational management,
    compensation, manager self-services, employee collaboration, and
    workforce analytics.                                                                                            

mySAP
Product Lifecycle Management (mySAP PLM)



| |                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP PLM helps companies manage the complete
    life cycle of a product, from initial concept, to design and
    engineering, to production, to product change management and to
    service and maintenance. It allows companies and their suppliers
    to collaborate in such key processes as engineering, custom
    product development, and project, asset, and quality management.

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| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 PLM is particularly valuable to industries
    that require product innovation and rapid product development,
    such as high-tech, industrial manufacturing, construction,
    aerospace and defense, and automotive. Process, consumer
    products, and service industries can also benefit from the
    functions of mySAP PLM.

mySAP
Supply Chain Management (mySAP SCM)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP SCM helps companies manage materials,
    information, and finances along the entire supply chain, which
    encompasses the many processes involved in sourcing,
    manufacturing, and distribution. Supply chain management
    involves coordinating and integrating these processes both
    within an enterprise and among suppliers, customers, and
    business partners.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Key functions of mySAP SCM include supply chain
    planning, execution, collaboration, and coordination. Through
    these functions, mySAP SCM helps companies and their partners to
    easily view inventory levels, orders, supplier and customer
    allocations, forecasts, production plans, and key performance
    indicators so that they can work collaboratively toward 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. This helps a company to react quickly and
    remain flexible when faced with sudden changes in customer
    demand or production requirements.

mySAP
Supplier Relationship Management (mySAP SRM)



| |                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP SRM helps organizations manage their
    spending practices to achieve lower costs and higher
    profitability. It helps to connect suppliers through automated
    bidding and procurement processes. As a result, it offers
    immediate insights into spending trends while helping reduce the
    cost of goods and services organization-wide.                    
|
| | From strategy to execution, mySAP SRM covers the
    full supply cycle, helping organizations optimize supplier
    selection, increase collaboration, and compress purchasing cycle
    times. By standardizing key purchasing processes, mySAP SRM
    helps ensure that all buyers throughout the organization follow
    established rules and contract pricing guidelines.
|
| | mySAP SRM aims at a full integration with other
    procurement-related business processes, including supply chain
    management, product life-cycle management, customer relationship
    management, and ERP.                                                                                                                                                               

SAP
R/3 Enterprise



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP R/3 Enterprise is the last release of SAP
    R/3, succeeded by mySAP ERP. Standard maintenance will be
    provided until March 2009, extended maintenance will be
    provided until March 2012.

SAP Industry-Specific Solutions

Because different industries have different
requirements and business processes, SAP has developed distinct
industry-specific solutions that contain tailored versions of
mySAP Business Suite solutions. These industry-specific
solutions draw on SAPs extensive experience in serving the
unique needs of each of these industries, and are frequently
updated based on information derived through our close
relationships with our customers and with various industry
groups. We believe our focus on industry-specific solutions
gives SAP a unique position in the marketplace over companies
that offer generic business solutions.

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Our different industry solutions 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 & ComponentsConsumer Industries    SAP for Consumer
    Products    SAP for Retail |  | Services Industries  SAP for
    Media    SAP for Hospitality
    Services    SAP for Logistics
    Service Providers    SAP for
    Postal Services    SAP for Railway
    Services    SAP for
    Telecommunications    SAP for
    Utilities    SAP for Professional
    ServicesFinancial Services    SAP for
    Banking    SAP for
    Insurance    SAP for Financial
    Service ProvidersPublic Services    SAP for
    Healthcare    SAP for Higher
    Education & Research    SAP
    for Public Sector    SAP for
    Defense & Security

SAP NetWeaver

The technical foundation of our Enterprise
Services Architecture is referred to as SAP NetWeaver. As
discussed above, with its integration and application
platform it allows users to integrate and process business
information from disparate sources in a variety of ways.

SAP NetWeaver incorporates the integration
capabilities of todays flexible Web Services architecture
and aims to be fully interoperable with two of the major
development standards, Microsoft .NET and IBM WebSphere (J2EE).
By doing so, SAP NetWeaver makes it easier for customers to link
both non-SAP and SAP applications to work together. SAP
NetWeaver also makes it easier for customers to evolve into a
more flexible technology architecture while containing costs.

Through its ability to integration of data from
different applications, SAP NetWeaver gives customers new ways
of making use of all their current application investments while
also allowing them to create new applications that are composed
of components from older, pre-existing applications. For
example, it brings together data from multiple SAP and non-SAP
applications to be viewed through a Web-based portal. In
addition, it enables analytical applications to gather the data
from every other application and create a single, unified view
for making better business decisions. SAP NetWeaver also aims at
allowing the customer to organize multiple applications into an
automated business process.

Because of its open platform design, we believe
that SAP NetWeaver will permit customers to reduce the
maintenance costs of all their IT systems. While all components
of SAP NetWeaver are already released, we expect to release the
complete SAP NetWeaver solution to reference customers by the
end of March 2004. Sales for SAP NetWeaver alone are not
expected to be significant as it is a value-added component of
our products, and the majority of our existing customers will
receive SAP NetWeaver as an upgrade to their current software
packages. But SAP NetWeaver will make it easier for customers to
upgrade older SAP applications and implement new ones.

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SAP NetWeaver currently includes the following
components:



| |                                   
| | ----------------------------------
| | SAP Business Intelligence (SAP BI)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Business Intelligence is an information and
    knowledge management component that includes a business
    intelligence platform, a comprehensive set of data management
    tools, and data warehousing capabilities. It enables
    organizations to access, analyze, and disseminate relevant and
    timely information. Key features of SAP Business Intelligence
    include data warehousing, online analytical processing of
    information, report design and creation, and performance
    management.



| |                               
| | ------------------------------
| | SAP Enterprise Portal (SAP EP)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP 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 aims at
    allowing a user to access from one location many types of
    company-wide information, including SAP applications,
    third-party applications, databases, data warehouses, desktop
    documents, and Web content and services. SAP Enterprise Portal
    is designed to improve collaboration, speed information sharing,
    enhance availability of information for decision making and
    boost employee productivity. SAP Enterprise Portal includes
    patented technology that allows users to work with information
    from different sources. Drag and relate capabilities
    are designed to allow users to access, interconnect, update,
    edit, and delete information in multiple software applications
    and data sources without restrictions resulting from different
    technologies.



| |                                     
| | ------------------------------------
| | SAP Exchange Infrastructure (SAP XI)



| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Exchange Infrastructure provides open
    integration technologies that support SAP and non-SAP software
    components working together, whether those solutions are being
    run by the same or different organizations.



| |                                   
| | ----------------------------------
| | SAP Mobile Infrastructure (SAP MI)



| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Mobile Infrastructure is the foundation for
    all SAP solutions for mobile business. It provides an open and
    secure platform that permits mobile computing users to access
    software and data  in either connected or
    disconnected mode.



| |                                     
| | ------------------------------------
| | SAP Master Data Management (SAP MDM)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Master Data Management is a standardized
    offering designed to solve the challenges of data integration
    from multiple systems, physical locations, and vendors. SAP
    Master Data Management helps 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
    control data.



| |                                            
| | -------------------------------------------
| | SAP Web Application Server (SAP Web
    AS)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Web Application Server is the application
    platform of SAP NetWeaver. It is designed to allow an
    organization to gain more value from its existing IT assets by
    permitting the organization to deploy flexible solutions and
    develop new applications based on existing applications. It also
    facilitates the creation of Web-based services. This flexibility
    supports the exchange of data between different organizations,
    and the creation of business applications and processes that
    incorporate solutions from multiple entities IT systems
    with which the customer interfaces in its business.

SAP Solutions for Small and Mid-Market
Segments

SAP provides a broad range of business solutions
for the small and mid-market segments. In general, the
combination of certain criteria such as:



| |   |                         
| | - | ------------------------
| |  | company revenue;        
|
| |  | the number of employees;

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| |   |                                                          
| | - | ---------------------------------------------------------
| |  | standardized versus more sophisticated solutions;
    and
|
| |  | level of desired partner involvement                     

will determine the solutions and channel by which
our customers purchase and implement SAP solutions. The
boundaries of these market segment definitions vary from country
to country on a relative scale.

The small business market segment is served
through a network of approved SAP business partners. Two
families of solutions fall under this initiative: mySAP
All-in-One and SAP Business One. Both offerings provide
integrated application packages that are designed for quick
implementation and priced for the small and mid-market segments.
They are targeted primarily to independent small and midsize
businesses, but are also of interest to subsidiaries of larger
corporations in which the corporate applications are from SAP.

The mid-market segment includes two sub-segments:
First, at the lower end, are those companies that require
pre-packaged business solutions. These companies are served
through a network of approved SAP business partners selling the
mySAP All-in-One and SAP Business One solutions. Second, at the
higher end of the mid-market segment, are those companies that
require more sophisticated mySAP Business Suite solutions, which
are delivered through SAPs direct sales and support
organization.

SAP also collaborates with partners such as IBM,
HP, American Express, and Dell, leveraging the distribution
models of these companies to extend the customer and channel
reach of mySAP All-in-One and SAP Business One solutions
worldwide.

SAP solutions for the small and mid-market
segments range in scope from mySAP Business Suite to SAP
Business One:



| |                     
| | --------------------
| | mySAP Business Suite



| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Many mid-market organizations find that mySAP
    Business Suite offers scalable solutions that fit their
    requirements and budgets. These organizations are served through
    the SAP direct sales organization.



| |                 
| | ----------------
| | mySAP All-in-One



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mySAP All-in-One solutions are software
    applications created and delivered through a network of approved
    SAP business partners. These solutions meet the needs of
    companies that require a high degree of industry-specific
    functionality. mySAP All-in-One solutions are based on
    components of mySAP Business Suite solutions and incorporate
    pre-defined business process knowledge that can be tailored to
    the specific needs of a customer. There are currently over 350
    mySAP All-in-One certified solutions available worldwide.



| |                 
| | ----------------
| | SAP Business One



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Business One is an easy-to-use business
    automation software solution that aims at enabling emerging
    businesses to streamline their operational and managerial
    processes and gain better control of their organizations.
    Through its intuitive user interface, SAP Business One helps
    delivering on-demand access to critical real-time information.
    In addition, it supports standard horizontal (non-industry
    specific) business processes such as financial management,
    warehouse management, purchasing, inventory management, payment,
    and sales force automation. SAP Business One targets
    organizations with up to 250 employees. SAP Business One is
    based on the technology gained through SAPs 2002
    acquisition of TopManage.

SAP xApps

In 2002 we announced a new breed of applications.
SAP xApps composite applications deliver advanced business
practices in applications that are easy to implement and that
are built on existing software applications. SAP xApps are
designed for SAP NetWeaver.

The first SAP xApps introduced was SAP xApp
Resource and Program Management (SAP xRPM). SAP xRPM is a
comprehensive project portfolio management application that aims
at synchronizing information and processes from project, human
resources, financial, and time-tracking systems  both
SAP and non-SAP.

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Other SAP xApps currently available include SAP
xApp Emissions Management (SAP xEM) and SAP xApp Product
Definition (SAP xPD). Certified partners can develop certain
xApp solutions.

SAP Solutions for Mobile Business

SAP Solutions for Mobile Business allow 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 SAP solutions for 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 SAP solutions for
mobile business are mobile access and mobile applications.
Mobile access can be provided through all popular devices in
both wired and wireless formats. SAP solutions for mobile
business also provides mobile applications based on SAPs
industry solutions and is designed to support industry-specific
requirements.

Packaged Solutions

SAP packaged solutions comprise predefined
combinations of applications, components, services, and content
aimed at solving a specific business issue. They feature tightly
scoped and limited-risk implementation, and are designed to
mitigate risk and deliver faster return on investment.

SAP packaged solutions are delivered by SAP
Consulting or SAP services partners, using accelerated
implementation methodologies to help customers achieve a quick
return on investment.

SAP Customer Services Network

In addition to its software solution portfolio,
SAP provides comprehensive service offerings such as consulting,
custom development, education, hosting, and support services in
SAP Customer Services Network (SAP CSN). Delivered by SAP and
its partners, these services focus on customers unique
business requirements. SAP Customer Services Network helps
customers to optimize benefit, cost and return on SAP and
related IT investments.

As of December 31, 2003, 12,713 employees
were providing consulting, support, and training services.

SAP CSN includes the following business areas:

SAP
Consulting



| |                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Consulting offers consulting, implementation,
    and optimization services to minimize risk and maximize return
    on an organizations investment in SAP software.                                                                                                                                                                                                        
|
| | SAP Consulting brings together SAP specialists,
    SAP product development professionals, and certified partners to
    provide a single point of contact for customers seeking
    assistance with their SAP systems through the system life cycle.
    SAP Consulting offers the delivery of consistent services and
    methodologies at customer locations around the world.

SAP
Consulting covers:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | strategic consulting services  to
    ensure that an organizations IT infrastructure supports
    its business goals;
|
| |  | solution delivery services  to get
    software up and running quickly and cost-effectively;                          
|
| |  | operations services  to enable
    solutions to grow and adapt with changing customer
    needs; and                  
|
| |  | life-cycle management services  to
    cover every phase of deploying and operating a customers
    solution.        

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SAP
Education



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Education provides training required for SAP
    customers and partners to maximize the benefits attained from
    SAP systems. SAP Education services include assessment,
    education delivery, testing and certification, and continuous
    improvement.
|
| | SAP Educations curriculum includes more
    than 280 different courses, offered at more than 80 training
    centers worldwide, and onsite at customer locations.                                                                                               

SAP
Active Global Support



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Active Global Support offers a broad range of
    services to cover planning, implementation, operations,
    upgrades, and continuous improvement.                                                                                                                                                                                                                                                                                                               
|
| | SAP Active Global Support aims at ensuring the
    optimum performance of customers SAP solutions 
    and the maximum benefit to their business. For example, SAP
    experts advise customers on choosing and deploying the support
    structures and processes that best meet their needs. In
    addition, they can resolve system issues  before the
    customers system goes live. As a result,
    customers benefit from optimized system performance.
|
| | Once a customers SAP solution is up and
    running, support and maintenance continue with help-desk
    services, online monitoring, remote maintenance, and on-site
    assistance. SAP Active Global Support can help customers spot
    bottlenecks, plan resources, and migrate to new releases and
    technologies.                                                                                                                                           

SAP
Custom Development



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SAP Custom Development (formerly known as SAP
    Global Custom Development Services) aims at delivering custom
    designed solutions to solve our customers unique business
    needs. The service portfolio includes not only full-scale custom
    development projects, but also spot-services such as custom
    development strategic planning, project management, and quality
    and risk assessment services for those customers that may
    already have development teams at hand. The services portfolio
    also includes continuous improvement services like maintenance
    to ensure the long-term health of our customers
    custom-developed solutions, as well as SAP Modification
    Clearing for those customers ready to remove existing software
    modifications as they move to newer releases of
    SAP software.

SAP
Hosting



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | SAP Hosting allows organizations to move to SAP
    software solutions quickly, easily, and cost effectively. Its
    services include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Application hosting: Provides infrastructure,
    implementation, 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.                                                                                                                                                                                                                                           
|
| |  | Application service provisioning
    (ASP) solutions: Combine software, infrastructure,
    service, support, and rapid implementation for turnkey
    solutions. These are delivered to customers as services from a
    single provider. With ASP solutions, customers do not obtain a
    perpetual license, but subscribe to the application service for
    a periodic fee.

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 2003, 2002
and 2001 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.

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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 in
Item 18. Financial Statements for additional
information with respect to operations by geographic region.

(REVENUE BREAKDOWN BY SALES DESTINATION CHART)

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

|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|-------------------- |  | --------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                     |  | 2003            |         | 2002 |  | 2001
|                     |  |                 |         |      |  |     
|                     |  |                
|                     |  | (in  millions)
|Germany              |  |                 | 1,670.3 |      |  |      | 1,654.1 |  |  |  | 1,468.7 | 
|Rest of EMEA         |  |                 | 2,299.6 |      |  |      | 2,394.1 |  |  |  | 2,317.5 | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|Total EMEA           |  |                 | 3,969.9 |      |  |      | 4,048.2 |  |  |  | 3,786.2 | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|United States        |  |                 | 1,736.4 |      |  |      | 1,969.7 |  |  |  | 2,084.1 | 
|Rest of Americas     |  |                 | 479.8   |      |  |      | 531.9   |  |  |  | 640.0   | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|Total Americas       |  |                 | 2,216.2 |      |  |      | 2,501.6 |  |  |  | 2,724.1 | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|Japan                |  |                 | 441.5   |      |  |      | 485.9   |  |  |  | 444.1   | 
|Rest of Asia-Pacific |  |                 | 397.0   |      |  |      | 377.1   |  |  |  | 386.4   | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|Total Asia-Pacific   |  |                 | 838.5   |      |  |      | 863.0   |  |  |  | 830.5   | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 
|Total revenue        |  |                 | 7,024.6 |      |  |      | 7,412.8 |  |  |  | 7,340.8 | 
|                     |  |                 |         |      |  |      |         |  |  |  |         | 

EMEA.In recent
years EMEA was the source of SAPs strongest revenue
growth, but in 2003 revenue growth stalled in that region. In
Germany, SAPs home country, where double-digit growth
percentages were achieved in the past, economic conditions were
particularly difficult in 2003, and revenue increased only
slightly, by 1% to
1,670.3 million
from 2002. Quarterly revenues in Germany were also uneven during
2003. For the first three quarters, revenues in Germany were
lower in 2003 than for each corresponding quarter in 2002,
whereas revenues in the fourth quarter of 2003 were up 4% as
compared with the fourth quarter of 2002. Approximately 56.5% of
our 2003 total revenue was derived from the EMEA region compared
to 54.6% in 2002. Approximately 42.1% of revenue for the EMEA
region in 2003 was derived from Germany compared to 40.9% in
2002. The remainder of the revenue for the EMEA region in 2003
was derived primarily from the United Kingdom, Switzerland,
France, Italy and the Netherlands. The number of our employees
in the EMEA region increased by 3.4% from 19,760 at
December 31, 2002 to 20,428 at December 31, 2003. In
Germany, the number of our employees increased by 3.6% to 13,475
at December 31, 2003 compared to 13,002 at
December 31, 2002. See Item 6. Directors, Senior
Management and Employees  Employees.

Americas.Approximately 31.5% of our 2003 total revenue was derived from
the Americas region compared to 33.7% in 2002. Revenues declined
from 2002 to 2003 by 11.4% to
2,216.2 million.
Revenue from the United States in 2003 was
1,736.4 million,
representing approximately 78.3% of SAPs total revenue for
the Americas

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region compared with
1,969.7 million
and 78.7% of SAPs total for the Americas region for 2002,
a decline of 11.8%. Exchange rate fluctuations in favor of the
euro had a particularly strong negative impact on revenue
figures for the Americas region. SAPs United States
subsidiary reflected a 5% revenue growth figure on a constant
currency basis. The 9.8% annual revenue decline in the remaining
Americas regions from 2002 to 2003 also resulted primarily from
currency translation effects. On a constant currency basis,
SAPs revenue for the Americas region excluding the
U.S. increased 8% from 2002 to 2003. The
non-U.S. countries of the Americas region recorded total
revenues of
479.8 million,
a 9.8% decrease from 2002. Most non-U.S. revenue for the
Americas region was derived from Canada, Brazil, Mexico,
Venezuela and Colombia. The number of employees in the Americas
region decreased by 4.2% from 6,345 at December 31, 2002 to
6,080 at December 31, 2003.


Asia-Pacific.Approximately 11.9% of our 2003 total revenue was derived from
the Asia-Pacific region, compared to 11.6% in 2002. In 2003,
SAPs revenue for the Asia-Pacific region was derived
primarily from Japan, Australia, Singapore, India, South Korea
and Malaysia. Our revenue in the Asia-Pacific region decreased
from 2002 by 2.8% to
838.5 million
in 2003. Revenue attributable to Japan decreased
44.4 million,
or 9.1% from
485.9 million
in 2002 to
441.5 million
in 2003, and accounted for more than half of total revenues in
the Asia-Pacific region. Exchange-rate fluctuations were a
substantial factor in the revenue decline in Japan from 2002 to
2003. On a constant currency basis, revenues derived in Japan
were essentially unchanged from 2002 to 2003. In the rest of the
Asia/ Pacific region, total revenue increased 5.3% from 2002 to
2003 (16% increase on a constant currency basis) In the
Asia-Pacific region, the number of employees increased by 14.5%
from 3,269 as of December 31, 2002 to 3,743 as of
December 31, 2003, which is mainly due to the expansion of
our research and development facilities in India and China.

Software Revenue by Solution

In 2001 we began to allocate software revenues to
specific software solutions for internal reporting purposes.
These allocations include revenues from contracts for specific
solutions and for integrated solution contracts, which are
mostly allocated based on the results of usage surveys provided
by our customers for solutions that are licensed in a suite of
business solutions. Such surveys reflect the customers
expected use of the various solutions within their integrated
contract, although customers actual use may differ from
their expectations at the time they complete the surveys. We are
only able to monitor the total number of seats deployed but we
have no ability to monitor differences between a customers
actual use of the specific software solutions and the usage
reported in the surveys. Nevertheless, we allocate revenues for
internal purposes, 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 of allocating revenue to specific software solutions
reasonable, and we apply this methodology on a consistent basis,
there can be no assurance that such calculated amounts reflect
the amounts that would result had we individually licensed each
specific software solution.

|                                         |  |                 |         |      |  |      |         |  |  |  |         | 
|---------------------------------------- |  | --------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                         |  | 2003            |         | 2002 |  | 2001
|                                         |  |                 |         |      |  |     
|                                         |  |                
|                                         |  | (in  millions)
|mySAP SCM                                |  |                 | 477.1   |      |  |      | 464.0   |  |  |  | 582.9   | 
|mySAP CRM                                |  |                 | 440.1   |      |  |      | 473.0   |  |  |  | 444.9   | 
|mySAP PLM                                |  |                 | 156.1   |      |  |      | 168.0   |  |  |  | 196.0   | 
|mySAP BI/mySAP Enterprise Portals/ mySAP |  |                 |         |      |  |      |         |  |  |  |         | 
|SRM/mySAP Marketplaces                   |  |                 | 273.1   |      |  |      | 259.0   |  |  |  | 415.9   | 
|mySAP Financials/ mySAP Human Resources  |  |                 | 801.2   |      |  |      | 927.0   |  |  |  | 940.8   | 
|                                         |  |                 |         |      |  |      |         |  |  |  |         | 
|Total software revenue                   |  |                 | 2,147.6 |      |  |      | 2,291.0 |  |  |  | 2,580.5 | 
|                                         |  |                 |         |      |  |      |         |  |  |  |         | 

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Revenue by Industry Sector

We identified six industry sectors in order to
focus our product development efforts on the key industries of
our existing and potential customers and to provide best
business practices and specific integrated business solutions to
those industries. We allocate our customers at the outset of an
initial arrangement to an industry. All subsequent revenues from
a particular customer are recorded under that industry sector
for that customer. The following table sets forth the total
revenues attributable to each industry sector for the years
ended December 31, 2003, 2002 and 2001.

|                    |  |                 |         |      |  |      |         |  |  |  |         | 
|------------------- |  | --------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                    |  | 2003            |         | 2002 |  | 2001
|                    |  |                 |         |      |  |     
|                    |  |                
|                    |  | (in  millions)
|Process Industries  |  |                 | 1,381.3 |      |  |      | 1,537.0 |  |  |  | 1,524.3 | 
|Discrete Industries |  |                 | 1,659.4 |      |  |      | 1,764.1 |  |  |  | 1,807.5 | 
|Consumer Industries |  |                 | 1,243.8 |      |  |      | 1,299.7 |  |  |  | 1,186.8 | 
|Service Industries  |  |                 | 1,664.5 |      |  |      | 1,765.9 |  |  |  | 1,849.8 | 
|Financial Services  |  |                 | 474.1   |      |  |      | 514.8   |  |  |  | 448.2   | 
|Public Services     |  |                 | 601.5   |      |  |      | 531.3   |  |  |  | 524.2   | 
|                    |  |                 |         |      |  |      |         |  |  |  |         | 
|Total revenue       |  |                 | 7,024.6 |      |  |      | 7,412.8 |  |  |  | 7,340.8 | 
|                    |  |                 |         |      |  |      |         |  |  |  |         | 

Despite currency effects and the difficult
economy in 2003, total revenue from the public services sector
increased 13.2% from 2002. In an environment impacted by
significant exchange-rate fluctuations, revenue from all other
sectors declined from 2002 to 2003.

Revenue from the process industries sector
declined the most, resulting in an overall decline of that
sectors revenue compared to total revenue by approximately
1%. As in 2002, the service and discrete industries sectors
generated the most revenue in 2003.

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 U.S. in 1988 through SAP America, Inc., a wholly owned
subsidiary of SAP AG. Since then, the U.S. has become one
of our most important geographic regions. 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
suppliers, 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 suppliers, to technology support.

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 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.

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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. Within most categories, our partners may
achieve the status of a local or global partner. We expect our
alliance partners 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, Business Partners, Content Partners, Education
Partners and Support Partners. Our partner network includes more
than 1,500 companies across all partner categories.

SAP has entered into agreements with a number of
leading software, technology and services companies to cooperate
and ensure that certain of the software, technology and/or
services, products and solutions offered by such suppliers
complement SAPs software products.

In 2001, we acquired the assets of TopTier, Inc.
(TopTier) for approximately U.S.$ 379 million
in cash excluding cash acquired. See Note 4 of
Item 18. Financial Statements, for more
information on the acquisition of TopTier. TopTier, which was
renamed SAP Portals, Inc., specializes in technologies for
creating enterprise portals. During 2002, SAP Portals and SAP
Markets (another sub-group of SAP) and their subsidiaries were
reintegrated and merged with and into SAP AG and certain
subsidiaries of SAP AG.

As discussed in Note 36 to our consolidated
financial statements in Item 18. Financial
Statements, our strategic alliance with Commerce One
expired, although certain terms of the strategic alliance
agreement, which was entered into in 2000, as amended, survived
expiration. The strategic alliance was focused on jointly
delivering next-generation e-business marketplace solutions for
the Internet economy. The agreement was amended in September
2003 to provide for various support and transition efforts in
connection with the expiration.

Our shareholdings in Commerce One were not
impacted by the expiration of the strategic alliance agreement.
Under the terms of the strategic alliance agreement that are
still effective, 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 appointed to Commerce Ones
board of directors. 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, 2003
and 2002 as a result of the recognition of an other than
temporary impairment charge and the continued application of the
equity method of accounting in 2002. See additional discussion
under Note 4 and 16 of Item 18. Financial
Statements, and Item 5. Operating and Financial
Review and Prospects  Operating Results.

We are not aware of any public takeover offers by
third parties in respect of our shares that have occurred in
either the last or the current financial year. On March 23,
2004 we announced our intention to bid for all the shares not
currently owned by us of SAP Systems Integration AG
(SAP SI), our 70.3% owned subsidiary at a purchase price
per share of
20.40. If all
the shares not already owned by us are tendered in the offer, we
expect the total purchase price for those shares together with
costs associated with the transaction to be approximately
230 million.
The offer is expected to be completed in the first half of 2004.
We believe the acquisition of the additional shares will allow
us to strengthen our global capabilities for IT-strategy
consulting offerings. In 2003 and through March 23, 2004 we
did not make a public takeover offer in respect of any other
companys shares other than in respect of SAP SI. Part
of our strategy involves growth through acquisitions and other
transactions. We routinely evaluate various alternatives and
engage in discussions and negotiations with potential parties to
such transactions.

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Intellectual Property, Proprietary Rights
and Licenses

We believe that none of the individual patent or
technologies owned or licensed by us is material to our
business. We may however be significantly dependent in the
aggregate on technology that we license from third parties that
is embedding those technologies into our products or reselling
to our customers.

We have and continue to license numerous third
party software products that we incorporate into our existing
products. The termination rights and term of these agreements
vary. We try to protect us in the respective agreements by
defining certain rights in case such agreements are terminated.
The termination rights and terms of each license agreements
vary, but the various protections generally include receiving
maintenance for a certain period of time in maintenance after
termination, the right to distribute the then-current software
release for a certain period of time after termination and the
right to transfer the relevant intellectual property to SAP if
we desire. In many cases we agree on an escrow for the term of
the agreement to allow us to provide maintenance in case we are
unable to retain it from the third party licensor.




Organizational Structure

As of December 31, 2003, SAP AG was the
holding company of 96 subsidiaries whose main task is the
distribution of SAPs products and services on a local
basis. Our primary research and development facilities, the
overall group strategy and the corporate administration
functions are concentrated at our headquarters in Walldorf,
Germany.

The following table illustrates our most
significant subsidiaries based on revenues:

|                                                                                |  |           |     |               |  |                 |  |                                                          |                                | 
|------------------------------------------------------------------------------- |  | --------- | --- | ------------- |  | --------------- |  | -------------------------------------------------------- | ------------------------------ | 
|                                                                                |  | 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 (Schweiz) AG, Biel                                                          |  |           | 100 |               |  | Switzerland     |  |                                                          | Sales, consulting and training | 
|SAP FRANCE S.A., Paris                                                          |  |           | 100 |               |  | France          |  |                                                          | 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., Toronto                                                        |  |           | 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 and
St. Leon-Rot, Germany, approximately 60 miles south of
Frankfurt/ Main. We commenced major expansions at these
locations in 2000 and finished those enhancements in 2003
involving capital expenditures of
129 million
through 2003. This expansion resulted in additional 240 thousand
square feet or approximately 955 workplaces in St. Leon-Rot and
192 thousand square feet or approximately 1,215 workplaces in
Walldorf.

In addition, during 2001, we expanded our data
center in St. Leon-Rot involving capital expenditures of
62 million.
The expansion added 172 thousand square feet necessary for
running SAPs own IT system and IT equipment required to
provide customer services such as support services. This
expansion did not add material workspace for employees.
Currently, we believe we have enough capacity in this data
center for the next 5 years.

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We commenced major expansions at our owned
research and development facility in Bangalore, India during
2003. During 2003 we increased capacity at the facility by 750
workplaces. Additional expansion is expected to be finalized by
June 2004 that will result in an additional 400 workplaces.
Together the expansions are expected to add 79 thousand square
feet and involve capital expenditures of approximately
20.4 million
in the aggregate,
2.1 million
for the land and
18.3 million
for the building. Depending on demand and growth, we can add
additional workspace in later modular phases if necessary. We
own sufficient undeveloped land to expand the facilities by up
to 4,000 workplaces.

We own property in Newtown Square, Pennsylvania,
which we use as our U.S. headquarters for the Americas and
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. See Note 31
Other Financial Commitments of Item 18.
Financial Statements, for details on an agreement to sell
a portion of the United States headquarters property in Newtown
Square, Pennsylvania.

We have financed all expansions through working
capital and existing credit facilities described herein under
Item 5. Operating and Financial Review and
Prospects  Liquidity and Capital Resources.

While it is difficult to ascribe production
capacity to office space, we generally assume that we need
approximately 183 square feet per employee for research and
development activities and administrative services, and
approximately 140 square feet per employee for sales, training
and consulting activities.

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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, training, marketing and
    customer support               
|Belgium, Brussels                      |  | Sales, consulting and training                                                
|Brazil, São Paulo                      |  | Sales, consulting and training                                                
|Bulgaria, Sofia                        |  | Sales and development                                                         
|Canada, Toronto, Ontario               |  | Sales, consulting, training and marketing                                     
|Czech Republic, Prague                 |  | Sales, consulting and training                                                
|Denmark, Copenhagen                    |  | Sales, consulting, training and customer support                              
|France, Paris                          |  | Sales, consulting, training and marketing                                     
|Germany, Dresden                       |  | Consulting and customer support                                               
|Germany, Freiberg                      |  | Consulting                                                                    
|Germany, Munich                        |  | Research and development, sales and consulting                                
|Germany, Hamburg                       |  | Sales, consulting and training                                                
|Germany, Bensheim                      |  | Sales and consulting                                                          
|Germany, Ratingen                      |  | Sales and consulting                                                          
|Germany, St. Ingbert (owned)           |  | Research and development, sales and consulting                                
|Germany, St. Leon-Rot (owned)          |  | Research and development and customer support                                 
|Hungary, Budapest                      |  | Sales, consulting, training and customer support                              
|India, Bangalore (owned)               |  | Research and development                                                      
|Ireland, Dublin                        |  | Customer support                                                              
|Italy, Milan                           |  | Sales, consulting and training                                                
|Japan, Tokyo                           |  | Sales, marketing and training                                                 
|Mexico, Mexico City                    |  | Sales, consulting, training and customer support                              
|The Netherlands,s-Hertogenbosch       |  | Sales, consulting and training                                                
|Portugal, Lisbon                       |  | Sales and consulting                                                          
|Singapore, Singapore                   |  | Sales, customer support and research and
    development                      
|South Africa, Johannesburg             |  | Sales, consulting, training, customer support,
    research and development   
|Spain, Madrid                          |  | Sales, consulting, training, research and
    development and customer support
|Sweden, Stockholm                      |  | Sales, consulting, training, marketing and
    customer support               
|Switzerland, Biel (owned)              |  | Sales and marketing                                                           
|Switzerland, Regensdorf                |  | Training                                                                      
|United Kingdom, Feltham (owned)        |  | Sales, consulting, training and customer support                              
|United Kingdom, Hayes                  |  | Training                                                                      
|United States, Palo Alto, California   |  | Research and development, sales and consulting                                
|United States, Waltham, Massachusetts  |  | Sales, consulting and training                                                
|United States, Chicago, Illinois       |  | Sales, marketing, consulting, training and
    research and development       
|United States, Newtown Square          |  | Sales, consulting, training, research and
    development and customer support
|United States, Foster City, California |  | Training                                                                      
|United States, 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. We are not aware of any environmental issue
that may affect the utilization of our current facilities.




Capital Expenditures

SAPs capital expenditures for intangible
assets and property, plant and equipment, were
275 million
for the year ended December 31, 2003,
309 million
for the year ended December 31, 2002 and
378 million
for the year ended December 31, 2001. Principal areas of
investment during 2003 related to construction of buildings,

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primarily in Germany and India, and to the
purchase of computer hardware to support ongoing increases in
employees and global operations. During 2004, we expect to spend
approximately
100 million
for the purchase of computer hardware and other business
equipment and approximately
61 million
to fund the construction of additional facilities. See
Item 5. Operating and Financial Review and
Prospects  Liquidity and Capital Resources and
Note 34 to our consolidated financial statements in
Item 18. Financial Statements, for further
details regarding capital expenditures, including information
about capital expenditures by geographic region.







|        |                                                 
|------- | ------------------------------------------------
|Item 5. | Operating and Financial Review and
    Prospects



Overview

For the year ended December 31, 2003, our
revenue and income before income taxes, minority interests and
extraordinary gain were approximately
7,024.6 million
and
1,776.6 million,
respectively, as compared to
7,412.8 million
and
1,107.7 million,
respectively, for the year ended December 31, 2002. Net
income was
1,077.1 million
and
508.6 million
for the years ended December 31, 2003 and 2002,
respectively. SAP consists of SAP AG and our network of
96 operating subsidiaries and has a presence or a
representation in over 120 countries.

We operate worldwide and define the following
three geographic regions: EMEA, the Americas and Asia-Pacific.
We have 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 about 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 in Item 18. Financial
Statements.

SAPs principal sources of revenue are 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
updates, 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 SAP solutions. Our service revenue consists of consulting
and training revenue, which is derived primarily from the
services rendered with respect to implementation of our software
products and training of customer project teams and end-users,
as well as training third-party consultants with respect to SAP
software products.

The following discussion is provided to enable a
better understanding of our operating results for 2003,
including:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | key factors that impacted our performance during
    2003;           
|
| |  | discussion of our operating results for 2003 and
    2002; and       
|
| |  | our outlook for 2004, including certain risks
    that may impact us.

This executive summary should be read in
connection with the more detailed discussion and analysis of our
financial condition and results of operations in this
Item 5, Item 3. Key Information  Risk
Factors, and Item 18. Financial
Statements.




Key factors

Signs of worldwide economic
recovery

For the global economy, 2003 was not as good as
many had anticipated. Actual world economic growth was lower
than expected. At the end of 2002, the World Bank forecasted
overall economic growth of 2.5% for 2003. In September 2003, the
World Bank revised that estimate to an even 2%. Likewise, the
Organization for Economic Co-operation and Development (OECD)
initially forecasted 1.8% growth for the euro zone in 2003,

37



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but later downgraded its expectations and in
February 2004 published a final growth rate for the euro zone of
just 0.4%.


Global development was hampered in the first few
months of 2003 by the war in Iraq, the SARS outbreak, and other
factors, but general economic production in the industrialized
nations began to rise in the second quarter of 2003. However,
growth was uneven. The U.S. led the improvement with a
consumer-fueled recovery. Capital spending in the U.S. only
began to increase toward the end of 2003.

After more than a decade of recession, the
Japanese economy experienced a long-awaited recovery. According
to the OECD, the Japanese economy benefited in particular from a
better investment climate in the process industries and the
positive development of neighboring economies. In contrast, the
economy of the euro zone remained relatively stagnant. In their
expert report published in the fall of 2003, the six leading
German institutes for economic research predicted zero gross
domestic product (GDP) growth for Germany in 2003.

IT market bottoms out

The global IT market moved in parallel with the
overall economy, and industry analysts also lowered their
forecasts over the course of the year. SAP assumes that the
reluctance to invest in IT, which emerged in 2002, continued
into 2003 and many companies cut their IT budgets during the
year and lowered the average volume of their IT investments as
they had done in 2002.

Industry analysts had varying opinions on the
growth of the IT industry but there was a general tendency
toward restraint in their forecasts for 2003. This restraint was
inspired primarily by developments in Europe and Japan.
International Data Corporation (IDC) analysts revised their
figures downward; while in April 2003 they expected worldwide IT
spending to grow 2.3% in 2003, they adjusted this figure to just
1% in July 2003. Forrester Research also lowered its growth
estimate from 1.9% to 1.3% in the middle of 2003.

According to a survey by AMR Research of 200 IT
decision-makers, IT spending rose again in the second half of
the year in the U.S.. In the third quarter for example, IT
spending was up 4.3% over the previous year. IT decision-makers
in the U.S. responded skeptically in a Merrill Lynch survey
in the third quarter of 2003. Survey respondents indicated that
spending on IT had stabilized in 2003 but would not increase
noticeably in the short term.

Based on IT spending in the first six months of
2003, IDC estimated growth of 8.6% for 2003 in the Asia/Pacific
region, excluding Japan. IDC predicted that Japanese IT
investment would decline 1%. IDC also reduced its forecast for
Western Europe during the course of the year. In April, they had
estimated that IT spending in western Europe would grow 2% in
2003, but by July they predicted less than 1% growth for the
year. The European Information Technology Observatory (EITO)
forecast that revenue would fall 0.7% in 2003. And the German
Association for Information Technology, Telecommunications and
New Media (BITKOM) estimated zero growth for Germany in 2003.

Over the course of the year, there were more and
more indicators of hesitant recovery in the IT industry. After
three years of restrained purchasing, for the time being,
companies investment logjams peaked in 2003. According to
analysts at Gartner, IT investment finally bottomed out in 2003.

Shifting Customer Demand

In 2003, the highest priority among IT
decision-makers was to optimize their IT landscapes and obtain
additional value from existing systems. This was confirmed, for
example, in April 2003 by IDCs regular Project
Barometer user survey about how the IT budget is spent. In
the past, it was common for companies to fully reequip entire
business areas with new software; in 2003, the trend was to add
to existing IT in response to an isolated, immediate
requirement. Companies focused mainly on tactical projects that
brought quick-win and financial benefits with a rapid return on
investment.

As a result, customers sought to reduce the total
cost of ownership of their IT systems and focused investment
more on technologies to make IT systems more efficient with
end-to-end, interenterprise business processes and to optimize
existing system landscapes with future-proof technology and
all-round integration.

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Falling demand put great pressure on prices in
the software industry. Moreover, faltering enterprise software
investment led to further consolidation of the market. The
acquisition of J.D. Edwards & Company by PeopleSoft, Inc.,
which was announced in July, altered the balance between the
major vendors of enterprise software. Oracle Corp.s
attempted hostile takeover of PeopleSoft, Inc. led to
considerable insecurity in the market and, in SAPs
opinion, increased the pressure on prices, particularly in the
U.S. In SAPs experience, it is now more evident than
ever that stability and security of investment play a critical
role when customers decide on a software vendor. Consequently,
we believe customers increasingly opted for long-term vendor
partnerships based on trust.

The trend in the IT market was for companies to
strive to simplify their IT structures. Talking to our
customers, we also found that the trend toward homogeneous
system landscapes continues. This approach is seen above all as
a way of avoiding high integration costs.




Operating Results

2003 Compared With 2002

Total Revenue

At the beginning of 2003, we expected revenue to
grow modestly for the year. We did not expect the ratio of
product revenue to change significantly compared to 2002 and did
not plan to increase the share of total revenue earned from
services through disproportionate growth in consulting.
Additionally, we did not expect revenue from training to be a
significant growth contributor given the difficult spending
environment. Early in 2003, there was a steady rise of the euro
exchange rate compared to other major currencies, and
consequently the impact on our results was not foreseeable.
Compared to the dollar the exchange rate of the euro evolved as
follows for the period-end Noon Buying Rate expressed as dollars
per 1.00.

|               |  |            |        | 
|-------------- |  | ---------- | ------ | 
|Date           |  | Period-End
|               |  |           
|December 2002  |  |            | 1.0485 | 
|March 2003     |  |            | 1.0900 | 
|June 2003      |  |            | 1.1502 | 
|September 2003 |  |            | 1.1650 | 
|December 2003  |  |            | 1.2597 | 
|March 9, 2004  |  |            | 1.2428 | 

Ultimately the strength of the euro over the year
reduced the euro value of revenues generated in other
currencies. Total revenue decreased from
7,412.8 million
for 2002 to
7,024.6 million
for 2003, representing a decrease of
388.2 million
or 5.2%. Foreign currency translation effects from the
strengthening value of the euro during 2003 negatively impacted
our total consolidated revenue by
578.9 million
that is 8.0% over 2002. The drop in 2003 total revenue was due
to decreases in software revenue of 6.3%, consulting revenue of
11.4% and a decrease in training revenue of 27.7% compared to
2002. Following the trend of recent years, maintenance revenues
increased by 6.0%, reducing the overall decrease in total
revenues.

REVENUE CHART

39



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##### Table of Contents



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, which consists of software revenue and
maintenance revenue, increased from
4,713.6 million
in 2002 to
4,716.4 million
in 2003, representing an increase of
2.8 million
or 0.1%.

Software revenue decreased from
2,290.8 million
in 2002 to
2,147.6 million
in 2003, representing a decrease of
143.2 million
or 6.3%. This decrease is substantially impacted by the negative
foreign currency translation effects resulting from the
appreciation of the euro compared to other currencies. While
software revenue decreased by 6.3%, based on a constant currency
basis, software revenue grew by 1% from 2002 to 2003.

For a summary of software revenue by solution in
2003 see Item 4. Information about SAP 
Description of the Business  Software Revenue by
Solution. Based on orders received versus revenue
recognized, the installed customer base accounted for 74% of
SAPs 2003 signed software contracts, with the remaining
26% coming from new customers (77% from installed customer base
and 23% from new customers in 2002). We experienced an
industry-wide trend away from a lower volume of very large
contracts to a higher volume of smaller contracts.

Maintenance revenue increased from
2,422.8 million
in 2002 to
2,568.8 million
in 2003, representing an increase of
146.0 million
or 6.0%. On a constant currency basis, maintenance revenue grew
by 15% from 2002 to 2003. With our growing installed base, this
change in maintenance revenue was due primarily to the growth of
software sales throughout 2002 and by the additional software
contracts closed during 2003. Accordingly, maintenance revenues
continued to increase constantly on a rolling four quarter
basis. As a significant portion of our software sales are
finalized in the last quarter of the year, the trend showing
increases 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 2003 due to strong software sales and
lower foreign currency translation effects compared to other
sales regions.

Product revenue as a percentage of total revenue
continues to be relatively high at 67.1%. The increase from
63.6% in 2002 was due primarily to the 14.0% decline in our
service revenue.

Service Revenue.Service revenue decreased by
365.3 million,
or 14.0%, from
2,618.1 million
in 2002 to
2,252.8 million
in 2003.

Consulting revenue decreased from
2,204.2 million
in 2002 to
1,953.5 million
in 2003, representing a decrease of 11.4%, but only 4% on a
constant currency basis. The adverse economic conditions led to
an overall price pressure environment. We focused more on
improving profitability than on revenue growth. As a consequence
we cut third party consulting resources previously deployed,
which led to fewer revenues out of re-billed activities.
Furthermore, mainly through normal attrition, the consulting
work force decreased by approximately 3.5% on average, which
contributed in a decline of consulting revenues.

Consulting revenue as a percentage of total
revenue decreased from 29.7% in 2002 to 27.8% in 2003.

Training revenue decreased by 27.7% from
413.9 million
in 2002 to
299.3 million
in 2003. At constant currency, training revenues decreased by
21%. As in 2002 there was a continuing trend noted in the
customers demand behavior. Customers continued to reduce their
spending on employee training courses. Structurally, our
customers demand shifted from traditional classroom
training at our regional offices to requesting more customer
specific on-site training and e-learning. We expect that this
trend will continue in 2004.

Total Operating Expenses

Total operating expenses decreased from
5,787.2 million
in 2002 to
5,300.6 million
in 2003, representing a decrease of
486.6 million
or 8.4%. Foreign currency translation effects from the
strengthening value of the euro during 2003 positively impacted
our total operating expenses by
372.3 million
that is 6.4% over 2002.

Although total operating expenses declined, they
were increased by expenses for stock-based compensation and
settlements of stock-based compensation plans of
130.0 million
in 2003 compared to
35.9 million
in 2002.

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Approximately
113.7 million
of the overall reduction of
486.6 million
was achieved through the continued expense savings measures and
carefully spent investments. We believe the decline is mainly
attributable to the following:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our continued careful hiring policy: The overall
    headcount rose in the first half year of 2003 by 164, in the
    second half by 649 full time equivalents. Despite a growing
    workforce, we managed to keep a tight control on personnel
    expenses due to minimal fixed salary increases as well as by
    shifting headcount from high cost locations to low cost
    locations. This resulted in an overall modest growth of
    personnel expenses, that were overcompensated by positive
    currency effects.
|
| |  | Focus on improving profitability in consulting:
    third party expenses in consulting went down due to a priority
    of profitability over revenue growth in a smaller and more
    competitive consulting services segment.                                                                                                                                                                                                                                                                                               
|
| |  | Additional replacements of third parties: We
    continued to replace third parties in our support and
    development departments by deploying our own resources and
    renegotiated vendor contracts.                                                                                                                                                                                                                                                                                                                     
|
| |  | Other stringent continued expense savings
    measures: Due to tight cost management, other expense items
    including travel dropped also on a constant currency basis.
    Furthermore we faced much lower restructuring expenses with
    18.2 million
    in 2003 compared to
    46.1 million
    in 2002.                                                                                                                                                                                                           

Notwithstanding the decline in revenue and the
impact of changes in foreign currency exchange rates from 2002
to 2003, due to our strict cost reduction measures, operating
income increased by 6.0% in 2003 to
1,724.0 million.
Gross operating margin increased to 24.5% in 2003 from 21.9% in
2002.

Pro forma operating income

We have provided guidance and related information
in 2003 and 2002 using pro forma operating income on a
consolidated basis. We use this information internally and
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 U.S. GAAP
and should not be considered a substitute for the historical
financial information presented in accordance with
U.S. GAAP. The pro forma measures used by us may be
different from pro forma measures used by other companies.

At the beginning of 2003 our target was to
improve our pro forma operating margin (excluding expenses for
stock-based compensation and acquisition-related charges) from
23% by at least 1 percentage point. In October we increased
our guidance to an increase of pro forma operating margin by 1
to 1.5 percentage points.

In 2003 the pro forma operating margin increased
4 percentage points to 27% despite the poor economic
environment in many countries. Pro forma operating income
(excluding expenses for stock-based and acquisition-related
charges) increased from
1,688 million
in 2002 to
1,880 million
in 2003. Pro forma operating expenses (excluding expenses for
stock-based and acquisition-related charges) in 2003 were
reduced by 10% to
5,144.6 million.

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##### Table of Contents



A reconciliation from U.S. GAAP operating
income to pro forma operating income is as follows:

|                                                                                                      |                                                                                             |                    |       |      |  |  |       |    | 
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------ | ----- | ---- |  |  | ----- | -- | 
|                                                                                                      |                                                                                             | 2003               |       | 2002
|                                                                                                      |                                                                                             |                    |       |     
|                                                                                                      |                                                                                             |                   
|                                                                                                      |                                                                                             | (in millions of )
|U.S. GAAP Operating income                                                                            |                                                                                             |                    | 1,724 |      |  |  | 1,626 |   
|Acquisition-related charges                                                                           |                                                                                             |                    | 26    |      |  |  | 26    |   
|                                                                                                      |                                                                                             |                    |       |      |  |  |       |   
|                                                                                                      | LTI 2000 Plan/STAR Plan                                                                     |                    |       | 125  |  |  |       | 9  | 
|                                                                                                      | Settlement of stock-based compensation plans in
    the context of mergers and acquisitions |                    |       | 5    |  |  |       | 27 | 
|                                                                                                      |                                                                                             |                    |       |      |  |  |       |   
|Total stock-based compensation                                                                        |                                                                                             |                    | 130   |      |  |  | 36    |   
|                                                                                                      |                                                                                             |                    |       |      |  |  |       |   
|Pro forma operating income excluding
    stock-based compensation and acquisition-related
    charges |                                                                                             |                    | 1,880 |      |  |  | 1,688 |   
|                                                                                                      |                                                                                             |                    |       |      |  |  |       |   

Cost of Product.Cost of product consists primarily:



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customer support costs (message handling and bug
    fixing  delivered by the Global Support Organization
    and Development Support); 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 2.5% from
860.4 million
for 2002 to
839.0 million
for 2003. As a percentage of product revenue, cost of product
decreased from 18.3% in 2002 to 17.8% in 2003.

Apart from the positive foreign currency
translation effect, additional reductions have been realized in
the area of expenses for third party products and cost
optimization efforts relating to personnel expenses. As for the
third party products, the efficiency was mainly achieved through
a reduction of commissions paid, as contracts were renegotiated.
Although the number of employees increased during 2003, the
related costs increased less due to a continuous effort of the
support organization to move into cost effective locations.
Expenses for stock based compensation increased from
1 million
in 2002 to
10 million
in 2003. Included in cost of product are
3.6 million
and
0.8 million
bad debt expenses for 2003 and 2002, respectively.

Cost of Services.Cost of services consists primarily of consulting and training
personnel expenses as well as expenses for third party
consulting and training resources. Cost of services decreased by
13.4% from
1,955.8 million
in 2002 to
1,694.1 million
in 2003. As a percentage of service revenue, cost of services
remained relatively stable with 75.2% in 2003 at 74.7% in 2002.

Foreign currency translation had a significant
impact on cost of services. Cost services decreased by
approximately 7% at constant currencies. As noted above, we cut
the external consulting resources previously deployed by 21%,
approximately 14% or approximately
91 million
at constant currencies. The shortfall was partly compensated for
by increased resource sharing within our group. We reduced the
services headcount by approximately 2%, however expenses for
stock based compensation increased from
6 million
in 2002 to
33 million
in 2003. Included in cost of services are
4.9 million
and
5.1 million
bad debt expenses for 2003 and 2002, respectively.

Research and
Development.Our research and
development consists primarily:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | personnel expenses related to our research and
    development employees;                                              
|
| |  | amortization of computer hardware 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
86.6 million,
or 9.5%, from
909.4 million
in 2002 to
995.9 million
in 2003. As a percentage of total revenue, research and
development expenses increased from 12.3% in 2002 to 14.2% in
2003.

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Overall, the number of research and development
employees increased from 8,173 in 2002 to 9,100 in 2003,
representing an increase of 11.3%. The share of employees
working in the research and development department as part of
the total number of employees increased to 30.1% for 2003 from
27.8% for 2002. Due to the ongoing replacement of outsourced
development activities to our in-house resources, personnel
expenses increased while expenses for subcontractors decreased.
Furthermore, due to new and more efficient processes the
development organization could allocate resources from
development support due to new and more efficient processes to
the support organization. Therefore more capacity in total was
available for research and development projects. As in all other
areas, the foreign currency translation had a positive effect,
while expenses for stocked-based compensation increased from
10 million
in 2002 to
43 million
in 2003.

Sales and Marketing.Sales and marketing expenses decreased by 13.3% from
1,627.2 million
in 2002 to
1,411.0 million
in 2003, representing 22.0% and 20.1% of total revenue for each
year, respectively. At constant currencies, sales and marketing
expenses decreased by approximating 9%.

Overall headcount in sales and marketing
increased slightly from
5,143 million
in 2002 to
5,267 million
in 2003. However, total personnel expenses decreased mainly due
to the foreign currency translation, while personnel expenses
increased slightly at constant currencies. We continued to
increase variable parts of salaries, improved efficiencies in
the sales organization and decreased the reliance on external
services. In marketing we shifted our strategy by hosting and
sponsoring fewer large events. Stock based compensation expenses
increased from
5 million
in 2002 to
30 million
in 2003. Included in sales and marketing expenses are
3.4 million
and
7.2 million
bad debt expenses for 2003 and 2002, respectively.

General and
administrative.General and
administrative expenses decreased by 11.2 % from
398.6 million
in 2002 to
353.9 million
in 2003, representing 5.4% and 5.0% of total revenue for each
year, respectively. On a constant currency basis, general and
administrative expenses decreased by approximately 5%. The
remaining decrease was mainly driven by a reduction in travel
expenses and third party services. Stock-based compensation
expenses increased from
13.7 million
in 2002 to
14.7 million
in 2003. Included in general and administrative expenses are
0.2 million
and
0.8 million
bad debt expenses for 2003 and 2002, respectively.

Other operating expenses,
Net.Other operating expenses, net
decreased from
35.1 million
in 2002 to
6.5 million
in 2003. The primary reason was the reduction in the amount of
restructuring costs for unused lease space and severance
payments for exit activities from
46.1 million
in 2002 to
20.5 million
in 2003.

The 2003 restructuring included the following key
activities:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reduction of our workforce across all segments,
    including reductions related to the consolidation of our sales
    force organization; and   
|
| |  | consolidation of additional facilities, including
    ceasing operations in certain geographic locations, especially
    in the training segment.

The following table summarizes the expenses
incurred in connection with our 2002 and 2003 exit activities,
and the related obligations as of December 31, 2002 and
2003:

|                   |  |             |        |          |  |          |        |             |  |          |         |             |  |  |        |   |  |  |        |   |  |  |        | 
|------------------ |  | ----------- | ------ | -------- |  | -------- | ------ | ----------- |  | -------- | ------- | ----------- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | 
|                   |  |            
|                   |  | 2003       
|                   |  |            
|                   |  | Balance     |        |          |  | Balance 
|                   |  | as of 01/01 |        | Expenses |  | Payments |        | Adjustments |  | Currency |         | as of 31/12
|                   |  |  (000)     |        |  (000)  |  |  (000)  |        |  (000)     |  |  (000)  |         |  (000)    
|                   |  |             |        |          |  |          |        |             |  |          |         |            
|Unused lease space |  |             | 7,577  |          |  |          | 17,164 |             |  |          | (5,544  | )           |  |  | 0      |   |  |  | (1,506 | ) |  |  | 17,691 | 
|Severance payments |  |             | 11,159 |          |  |          | 3,384  |             |  |          | (9,347  | )           |  |  | (1,001 | ) |  |  | (666   | ) |  |  | 3,529  | 
|                   |  |             |        |          |  |          |        |             |  |          |         |             |  |  |        |   |  |  |        |   |  |  |        | 
|                   |  |             | 18,736 |          |  |          | 20,548 |             |  |          | (14,891 | )           |  |  | (1,001 | ) |  |  | (2,172 | ) |  |  | 21,220 | 
|                   |  |             |        |          |  |          |        |             |  |          |         |             |  |  |        |   |  |  |        |   |  |  |        | 

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|                   |  |             |        |          |  |          |        |             |  |          |         |             |  |  |   |  |  |  |        |   |  |  |        | 
|------------------ |  | ----------- | ------ | -------- |  | -------- | ------ | ----------- |  | -------- | ------- | ----------- |  |  | - |  |  |  | ------ | - |  |  | ------ | 
|                   |  |            
|                   |  | 2002       
|                   |  |            
|                   |  | Balance     |        |          |  | Balance 
|                   |  | as of 01/01 |        | Expenses |  | Payments |        | Adjustments |  | Currency |         | as of 31/12
|                   |  |  (000)     |        |  (000)  |  |  (000)  |        |  (000)     |  |  (000)  |         |  (000)    
|                   |  |             |        |          |  |          |        |             |  |          |         |            
|Unused lease space |  |             | 2,874  |          |  |          | 12,960 |             |  |          | (7,262  | )           |  |  | 0 |  |  |  | (995   | ) |  |  | 7,577  | 
|Severance payments |  |             | 10,121 |          |  |          | 33,148 |             |  |          | (30,739 | )           |  |  | 0 |  |  |  | (1,371 | ) |  |  | 11,159 | 
|                   |  |             |        |          |  |          |        |             |  |          |         |             |  |  |   |  |  |  |        |   |  |  |        | 
|                   |  |             | 12,995 |          |  |          | 46,108 |             |  |          | (38,001 | )           |  |  | 0 |  |  |  | (2,366 | ) |  |  | 18,736 | 
|                   |  |             |        |          |  |          |        |             |  |          |         |             |  |  |   |  |  |  |        |   |  |  |        | 

Customer credit loss risks based on aging of
receivables are classified as general bad debt expense as a
component of other operating expense, net. For the years ended
December 31, 2003 and 2002,
5.4 million
and
5.3 million
were recorded as other operating income, respectively, due to
our decreased days sales outstanding.

Financial Income/ Expense, Net

Financial income/ expense, net is comprised
primarily of (losses)/income from associated companies,
(losses)/gains on sales of equity investments securities and net
interest income. Financial income/expense, net improved from net
financial expense of
555.3 million
in 2002 to net financial income of
16.3 million
in 2003, an increase of
571.6 million.
A significant portion of the change pertains to 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
92.0 million
in 2002. The carrying value of our total investments in Commerce
One was reduced to zero in 2002 as a result of the recognition
of the impairment charge and through the continuing application
of the equity method of accounting. In accordance with
U.S. 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
15.3 million
in 2003 and
118.5 million
in 2002.

Income Taxes

Our effective income tax rate decreased from
53.8% for 2002 to 39.0% in 2003. This decrease was primarily due
to the impact on the tax rate in 2002 of the significant losses
on investments, which are not deductible for tax purposes. Such
losses were not significant in 2003. Adjusted for the effects of
these and other unusual items, the adjusted effective tax rate
for 2003 was 37.0%, which was 0.3% higher than the adjusted
effective tax rate for 2002. See Note 11 to our
consolidated financial statements.

Net Income

Net income increased from
508.6 million
in 2002 to
1,077.1 million
in 2003, representing an increase of
568.5 million
or 111.8%. Net income as a percentage of total revenue increased
from 6.9% for 2002 to 15.3% for 2003. This increase was
primarily due to the impairment charge of
298 million
in 2002 related to the write-down of the carrying value of our
investment in Commerce One, our equity in the net losses of
Commerce One of
92.0 million,
impairment charges on equity investments plus our share in the
net losses of equity method investees other than Commerce One of
128 million,
approximately
114 million
reduction of total operating expenses achieved through continued
expense savings measures and carefully spent investments, the
net decrease of
26 million
from 2002 in restructuring costs, partially offset by negative
foreign currency translation effects of approximately
151 million
resulting from the strengthening euro and increased stock based
compensation expenses of
94 million.
Basic and diluted earnings per share were
3.47 in 2003
compared to 1.62
in 2002.

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##### Table of Contents



Segment Discussion

As described in Note 34 of
Item 18. 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 only by
expenses directly attributable to the segments. Expenses such as
general and administrative costs, research and development
activities, stock based compensation and other corporate costs
that are included in determining our consolidated operating
income are not allocated to the operating segments and therefore
are not included in segment contribution. In 2003 the total
impact of stock based compensation and settlements of
stock-based compensation plans included in total operating
expenses in the consolidated financial statements was
130.0 million
compared to
35.9 million
in 2002. Therefore, segment contribution is not indicative of
the actual profitability margin for the operating segments.

In 2003,
6.0 million
(2002:
34.2 million)
of exit costs related to unused lease space and severance
payments were not allocated to the segments.

Product segment.The
product segment is primarily engaged in marketing and licensing
of our software products and performing maintenance services.
Maintenance services include technical support for our products,
assistance in resolving software product issues, provision of
user documentation, updates for software products, and new
releases, versions and support packages. The product segment
includes the lines of business sales, marketing and service and
support reflecting internal management responsibilities within
our organization:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | line of business sales is a profit center
    organization that covers software revenue and the corresponding
    sales resources;
|
| |  | line of business marketing is a cost center
    organization;                                                                     
|
| |  | line of business service and support is a profit
    and cost center organization, based on the activity.                         

Product segment revenue decreased by 0.5% from
5,270.0 million
in 2002 to
5,246.3 million
in 2003. On a constant currency basis, product segment revenue
grew by 8%. Approximately 90% of revenues within the product
segment are derived from software and maintenance revenue.
Further external revenues in the product segment are derived
from services revenue and other revenue. As noted above external
software revenue as part of the total product segment revenue
decreased by 6% from
2,266.5 in
2002 million to
2,131.3 million
in 2003, (an increase of 1%) based on constant currencies.
External maintenance revenues increased by 6% from
2,419.8 million
in 2002 to
2,565.9 million
in 2003, (an increase of 15%) based on constant currencies.
Internal product segment revenues are mainly due to charges from
the marketing and service and support organization roughly on
the same level in 2003 as in 2002.

Product segment expenses decreased from
2,584.3 million
in 2002 to
2,322.6 million
in 2003. Expenses of the line of business sales account for
roughly half of the entire product segment expenses. Expenses of
the line of business marketing are roughly less than one fourth
and expenses of the line of business service & support are
roughly more than one fourth of overall product segment
expenses. The reduction of overall product segment expenses is
mainly due to currency translation effects. In addition,
reductions in volume have been achieved by decreasing travel,
marketing and commissions paid for third parties products,
a decrease of overall marketing spending and shifts of support
activities into low cost locations. Product segment expenses
include restructuring charges of approximately
1 million
(2002:
6 million),
primarily for severance payments.

Product segment contribution increased by 9% from
2,685.7 million
in 2002 to
2,923.7 million
in 2003, or 55.7% of total segment revenue compared to 51.0% of
total segment revenue in 2002. Based on a constant currency
basis, product segment contribution increased by 15%. While we
were able to keep product segment revenues relatively constant
with other currencies devaluating against the
, the currency
impact helped us to decrease product segment expenses, primarily
relating to the U.S. operations. Our achievements in real
cost cuttings, mainly in the area of commissions paid for third
parties products, impacted the product segment
contribution directly.

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##### Table of Contents



Consulting segment.The consulting segment is primarily engaged in the
implementation of our software products. Consulting segment
revenue decreased by 10% from
2,654.2 million
in 2002 to
2,392.0 million
in 2003. On constant currency, consulting segment revenue
decreased by 4%. In addition to the currency impact, the reduced
revenues are a reflection of very competitive and
price-conscious market conditions with less engagements in price
competitive segments by us. Additionally, the consulting
organization has partially shifted its resources to more
internal development projects than in previous years.

Consulting segment expenses decreased by 9.5%
from
2,128.4 million
in 2002 to
1,927.1 million
in 2002, in line with the decrease in revenues. As noted above,
we decreased the use of third party resources were reduced. In
the contrary we made more use of our global consulting
organization by sharing resources across the local organizations
and the currency impacted segment expenses accordingly.
Consulting segment expenses include a restructuring charge of
approximately
1 million
(2002:
8 million)
for severance payments and unused lease space.

Consulting segment contribution decreased by
11.8% from
525.8 million
(19.8% of total consulting revenue) in 2002 to
464.9 million
(19.4% of total consulting revenue) in 2003. Based on a constant
currency basis, consulting segment contribution decreased by 3%.
The flexible adoption of the cost structure led to a consistent
segment profitability with decreased revenues. Accordingly, the
decrease in revenues could be absorbed by reducing external
partner resources.

Training segment.The training segment is primarily engaged in providing
educational services on the use of our software products and
related topics for customers and partners. Training services
include traditional classroom training at SAP training
facilities, customer and partner specific training, end-user
training as well as e-learning. Training segment external
revenue decreased by 27% from
435.0 million
in 2002 to
316.1 million
in 2003. On a constant currency basis, external revenue
decreased by 23%. The decrease was a result of an overall
shrinking market, with local prices remaining at a constant
level. At the beginning of 2003, companies seemed more focused
on cutting costs than growing and maintaining employee skills.
Depressed economic conditions led customers to hold back on
traditional classroom training and the travel it involved. This
decline in classroom training was partially offset by additional
customer specific, end-user training, and e-learning.

Training segment expenses decreased by 24% from
376.4 million in 2002 to
287.5 million
in 2003. With decreased demand, the education-specific high
percentage of fixed costs (primarily rent and personnel
expenses) could not be reduced in the same manner. In addition,
training segment expenses include a restructuring charge of
approximately
9 million
(2002:
1 million)
for unused lease space.

Training segment contribution decreased over
proportional, by 34% from
142.6 million
(27.5% of total training revenue) in 2002 to
94.6 million
(24.8% of total consulting revenue) in 2003. This is due
primarily to the fact that the cost reduction of our training
segment could not entirely compensate for the decline in
customer demand and the restructuring charges primarily for
unused lease space.

2002 Compared With 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.

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(REVENUE BREAKDOWN PIE GRAPH)

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 about SAP 
Description of the Business  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 remained relatively high at 63.6% in 2002. 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.

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 a Global Consulting
Organization, 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.

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##### Table of Contents



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 was 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 stock-based compensation
were
2,965 million,
a 2% increase over 2001. This moderate increase was 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

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 U.S. GAAP operating income
to pro forma operating income is as follows:

|                                                                                                |                                                                                             |                    |       |      |  |  |       |    | 
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------ | ----- | ---- |  |  | ----- | -- | 
|                                                                                                |                                                                                             | 2002               |       | 2001
|                                                                                                |                                                                                             |                    |       |     
|                                                                                                |                                                                                             |                   
|                                                                                                |                                                                                             | (in millions of )
|U.S. 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 Plan                                                                                   |                    |       | 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 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

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##### Table of Contents



support was lower than in 2001. Included in cost
of products are
0.8 million
and
8.4 million
bad debt expenses for 2002 and 2001, respectively.


Cost of Services.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. Included in cost of services are
5.1 million
and
4.8 million
bad debt expenses for 2002 and 2001, respectively.

Research and Development.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 in-house resources.

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. Included in sales and marketing expenses
are
7.2 million
and
21.0 million
bad debt expenses for 2002 and 2001, respectively.

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. Included in general and administrative
expenses are
0.8 million
and
2.7 million
bad debt expenses for 2002 and 2001, respectively.

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.

The following table summarizes the expenses
incurred in connection with our 2001 and 2002 exit activities,
and the related obligations as of December 31, 2001 and
2002:

|                   |                        |             |        |          |        |          |        |          |        |             |         |   |         |   |        |   |        |   |        |  |        | 
|------------------ | ---------------------- | ----------- | ------ | -------- | ------ | -------- | ------ | -------- | ------ | ----------- | ------- | - | ------- | - | ------ | - | ------ | - | ------ |  | ------ | 
|                   |                        |            
|                   |                        | 2002       
|                   |                        |            
|                   |                        | Balance     |        |          |        | Balance 
|                   |                        | as of 01/01 |        | Expenses |        | Payments |        | Currency |        | as of 31/12
|                   |                        |  (000)     |        |  (000)  |        |  (000)  |        |  (000)  |        |  (000)    
|                   |                        |             |        |          |        |          |        |          |        |            
|Unused lease space |                        |             | 2,874  |          |        |          | 12,960 |          |        |             | (7,262  | ) |         |   | (995   | ) |        |   | 7,577  | 
|Severance payments |                        |             | 10,121 |          |        |          | 33,148 |          |        |             | (30,739 | ) |         |   | (1,371 | ) |        |   | 11,159 | 
|                   | in number of employees |             |        |          |        |          |        | 768      |        |             |         |   |         |   |        |   |        |   |        |  |       
|                   |                        |             |        |          |        |          |        |          |        |             |         |   |         |   |        |   |        |   |        | 
|                   |                        | Total       |        |          | 12,995 |          |        |          | 46,108 |             |         |   | (38,001 | ) |        |   | (2,366 | ) |        |  | 18,736 | 
|                   |                        |             |        |          |        |          |        |          |        |             |         |   |         |   |        |   |        |   |        | 

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|                   |                        |             |   |          |   |          |        |          |        |             |      |   |      |   |     |  |     |  |        |  |        | 
|------------------ | ---------------------- | ----------- | - | -------- | - | -------- | ------ | -------- | ------ | ----------- | ---- | - | ---- | - | --- |  | --- |  | ------ |  | ------ | 
|                   |                        |            
|                   |                        | 2001       
|                   |                        |            
|                   |                        | Balance     |   |          |   | Balance 
|                   |                        | as of 01/01 |   | Expenses |   | Payments |        | Currency |        | as of 31/12
|                   |                        |  (000)     |   |  (000)  |   |  (000)  |        |  (000)  |        |  (000)    
|                   |                        |             |   |          |   |          |        |          |        |            
|Unused lease space |                        |             | 0 |          |   |          | 2,840  |          |        |             | (0   | ) |      |   | 34  |  |     |  | 2,874  | 
|Severance payments |                        |             | 0 |          |   |          | 10,796 |          |        |             | (795 | ) |      |   | 120 |  |     |  | 10,121 | 
|                   | in number of employees |             |   |          |   |          |        | 322      |        |             |      |   |      |   |     |  |     |  |        |  |       
|                   |                        |             |   |          |   |          |        |          |        |             |      |   |      |   |     |  |     |  |        | 
|                   |                        | Total       |   |          | 0 |          |        |          | 13,636 |             |      |   | (795 | ) |     |  | 154 |  |        |  | 12,995 | 
|                   |                        |             |   |          |   |          |        |          |        |             |      |   |      |   |     |  |     |  |        | 

Customer credit loss risks based on aging of the
receivables are classified as general bad debt expense as a
component of other operating expense, net. For the year ended
December 31,
2002 5.3 million
was recorded as other operating income due to our decreased days
sales outstanding. In 2001,
14.7 million
was recorded as other operating expense primarily due to
adjustments in the allowance based on the length of time by
considering trends within and ratios involving the age of the
accounts receivable.

Financial Expense, Net

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 U.S. 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 on minority investments 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.

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
389.6 million
loss associated with our investment in Commerce One and
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
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 points 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

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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

In 2002,
34.2 million
(2001:
9.2 million)
of exit costs related to unused lease space and severance
payments were not allocated to SAPs segments.

Product-segment revenue decreased from
5,299.9 million
in 2001 to
5,270.0 million
in 2002, 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 affected 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.

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 were more reluctant to travel to training
facilities. This decline in classroom training was partially
offset by additional customer specific and end user training.
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.




Outlook 2004

Forecast for the IT Industry

Modest
growth Surveys by various
industry analysts about the IT investments planned for the year
show that the IT industry is cautiously optimistic at the start
of the new year. Most surveys forecast an above-average
increases in spending on software and services in 2004.

Experts predict a number of focal
areas Industry experts
believe several specific solutions and technologies such as
Business Intelligence (BI), Web Services, Analysis Software,
Customer Relationship Management (CRM) and Project Lifecycle
management (PLM) to have particular potential for growth in 2004.

IT industry expected to consolidate
further The IT industry is
expected to continue to consolidate in 2004. Smaller software
vendors will increasingly function as providers of niche
products. According to a study from December 2003, analysts at
Gartner Group have calculated that, within the next two years,
over half of the listed IT companies will be acquired by a few,
large companies.

Forecast for SAP

Strategically positioned for
2004 We also believe that
the economy bottomed out in 2003 and expect a gradual
improvement to the economic conditions and the investment
climate in 2004.

Five strategic priorities for
2004 The Executive Board
has set five strategic priorities for SAP in 2004. These
priorities are based on the assumption that the economy bottomed
out in 2003 and that a gradual improvement in the economy in
which we operate and in the economy in general will occur during
2004.

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| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We will focus on growth and, in particular on
    growth in software sales. The aim is to make the most of the
    economic upturn.                                                                                                                                                              
|
| |  | We will focus in particular on SAP NetWeaver. We
    want to establish this solution as our main integration and
    application platform. The aim is to gain as many NetWeaver
    reference customers as possible in 2004.                                                                     
|
| |  | mySAP ERP will be another focus. We want to make
    it clear to customers that mySAP ERP is a clear improvement on
    its predecessor SAP R/3.                                                                                                                                                 
|
| |  | The success of mySAP CRM in previous years should
    continue. We want to encourage strong sales of this solution and
    thus reinforce its leading position in the CRM segment.                                                                                                               
|
| |  | In the small and mid-market segment, we want to
    increase the number of customers and expand our partner network
    for indirect sales. In particular, we want to grow our segment
    share in the EMEA and Americas regions and enlarge the partner
    network in the Asia/Pacific region.

Operational goals of increasing software
revenue and profitability
Anticipating growth in the economy as a whole and in the IT
industry in particular, and based on our strategic position, we
have set the following operational goals for 2004. Our priority
will be revenue growth  in particular software
revenue  in 2004.

We will work to increase software revenue 10%
over the 2003 number. We expect above-average growth rates in
the United States and the Asia/Pacific region with an
improvement in the EMEA region over the course of the year. The
financial services and public services industries should see
above-average growth. We also expects significant growth from
business with small and mid-market customers.

Although we are giving priority to growth in
2004, we want to continue with stringent cost management
measures and further increase profitability. We provided
guidance that we will work to increase pro forma operating
margin (excluding stock-based compensation and acquisition
related changes) to increase by one percentage point,
compared to the 27% achieved in 2003.

To achieve this growth in revenue and earnings,
we plan to invest more in 2004 than in the previous year,
especially in sales, marketing, research, and development. Total
headcount is predicted to grow approximately 5%, with growth
rates being higher in countries other than Germany.

To further optimize our cost structure, we expect
a significant proportion of the new research and development
jobs to be located in India and China without reducing headcount
in other locations. The number of employees is also expected to
increase in the United States.

These operational goals are based on the expected
improvements to the economic situation as well as a number of
other assumptions. These include the expectation that the buying
behavior of customers will conform to the usual seasonal
pattern, with revenue at its strongest in the fourth quarter. We
also assume that, in 2004, customers will continue to invest in
smaller projects with short implementation cycles rather than in
large projects lasting several years. We do however expect
average software contract order entry volumes to stabilize over
the course of the year and thus not decrease as much as they did
in 2003.

The targets for revenue and earnings take into
account the likely development of the different currencies that
affect our business. We are working on the basis of an average
exchange rate of U.S.$1.25 =
1.00.

Strategy with regard to
acquisitions We view the
acquisition of companies as a key element of future growth. In
particular, we intend to acquire smaller companies with the
specific aims of strengthening our geographic reach, broadening
our offering in particular industries and complementing our
technology portfolios.

Risk Factors

The stated revenue, income, and margin targets of
SAP for fiscal year 2004 are subject to a number of risks, over
which we may have no influence or only limited influence. This
outlook should be read in connection with the more detailed
discussion and analysis of our financial condition and results
of operations in this Item 5, Item 3. Key
Information  Risk Factors, and
Item 18. Financial Statements.

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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 euro 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. Therefore, movements in the foreign currency exchange
rates between the euro, and the respective local currencies to
which our subsidiaries in countries that do not participate in
the EMU are exposed, may materially affect our consolidated
financial position, results of operations 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.

Approximately 59.3% of our consolidated revenue
in 2003 and approximately 60.4% in 2002 was 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
(577.3) million,
income before income taxes of
(174.0) million
and net income of
(151.1) million
for 2003 and consolidated revenue of
(348.2) million,
income before income taxes of
(109.9) million
and net income of
(88.8) million
for 2002. See Item 11. Quantitative and Qualitative
Disclosures About Market Risk  Foreign Currency
Risk.




Critical Accounting Policies

Our consolidated financial statements are
prepared based on the accounting policies described in
Note 3 to 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;                                                       
|
| |  | Valuation of Accounts Receivable;                                          
|
| |  | Accounting for Stock Based Compensation;                                   
|
| |  | Accounting for Income Taxes and Other Income Tax
    Related Judgments; and
|
| |  | 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, SOP 81-1, Accounting
for Performance of Construction-type and

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Certain Production-type Contracts, the
SECs Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition, Emerging Issues
Task Force (EITF) 00-21, Revenue Arrangements
with Multiple Deliverables (EITF 00-21), EITF
03-05, Applicability of AICPA Statement of Position
97-2, Software Revenue Recognition, to
Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software, and other authoritative
accounting guidance.


We recognize revenue 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 or, for elements not yet sold separately, the price
established by SAP management if it is probable that the price
will not change before the 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 and management has not yet established a price
for the undelivered element that wont change before the
element is 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, we recognize
revenue 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 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.

For arrangements with resellers, we consider the
factors outlined in SOP 97-2 in assessing whether the fee
is fixed or determinable and whether the collectibility criteria
for revenue recognition have been met. We believe that
transactions involving resellers that license software prior to
having finalized non-contingent agreements with their ultimate
customer, even if no contingencies exist in our license with the
reseller, present a higher uncertainty regarding fixed or
determinable fees and collectibility. As a result, we believe
revenue recognition upon sell-through from the
reseller to the end-user customer is appropriate for all
agreements involving resellers.

We view our resellers as an extension of our
direct sales force. Notwithstanding our resellers
involvement, we generally try to enter into binding license
agreements directly with the end-user customer (i.e., the
resellers role is similar to a salespersons role).
If we are unable to enter into a binding license agreement
directly with an end-user customer, or if we become aware that a
reseller has granted contingent rights to an end-user customer,
we defer revenue recognition until a valid license agreement has
been entered into without contingencies or, if applicable, until
the contingencies expire.

We recognize revenue when the software is
delivered (assuming all other revenue recognition criteria have
been met). Based on a few individual agreements with certain of
our resellers, we, rather than the reseller may deliver the
product directly to the end user.

Depending on the country in which the maintenance
agreement is executed, our initial maintenance term is generally
in the range of one to three years, renewable by the customer on
an annual basis thereafter. The maintenance fee, including the
fee for subsequent renewals, 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. If
a customer on maintenance is specifically identified as a bad
debtor, we cease recognizing maintenance revenue except to the
extent that maintenance fees have already been collected.

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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 direct labor 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. In arrangements that require significant production,
modification, or customization of the software and where
services are not available from third party suppliers, the
consulting and license fees 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 any time during the hosting period without
    significant penalty; or
|
| |  | the customer cannot contract with another hosting
    provider without significant effort or expenditure; or                     
|
| |  | 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 effect 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 2003
and 2002.

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 individual locations or worldwide, and
future SAP-specific objective evidence of fair value for such
undelivered elements may deviate from historical fair values.
Consequently, the percentages and the amounts of the different
types of revenue recognized in the future for multiple-element
arrangements involving software could differ significantly from
historical trends and could materially impact our reported
revenues, results of operations and financial position in the
future.

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Valuation of Accounts
Receivable

Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. Total accounts
receivable at December 31, 2003 and 2002 were
1,770.7 million
and
1,967.1 million,
respectively, which is net of an allowance for bad debts of
71.0 million
and
92.5 million,
respectively. Included in accounts receivable are unbilled
receivables related to costs and estimated earnings in excess of
billings on uncompleted fixed fee consulting arrangements of
105.5 million
and
182.7 million
at December 31, 2003 and 2002, respectively. 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. If the financial condition of our customers
deteriorates, impairing their ability to make payments, we may
need to establish additional allowances in excess of our
original estimates.

Total provisions for allowances for doubtful
accounts charged to earnings approximated net
7.0 million,
7.6 million
and
52.7 million
during 2003, 2002 and 2001, respectively. Specific customer
credit loss risks are charged to the respective functional cost
category of product or cost of service sold. Customer credit
loss risks based on aging of the receivables are classified as
general bad debt expense, which is included in Other
operating income/(expense) as disclosed in Note 7 of
Item 18. Financial Statements.

Total provisions for allowances for doubtful
accounts charged to the respective functional cost category of
product or cost of service sold approximated
12.3 million,
12.9 million
and
38.0 million
during 2003, 2002, and 2001, respectively.

The allowances for doubtful accounts based on
total accounts receivable that are considered past due are
recorded as a component of other operating expense, net. For the
years ended December 31, 2003 and 2002,
5.4 million
and
5.3 million
were recorded as other operating income, respectively, due to
our decreased days sales outstanding. In 2001,
14.7 million
was recorded as other operating expense primarily due to
adjustments in the allowance based on the length of time by
considering trends within and ratios involving the age of the
accounts receivable. Accounts receivable written-off against the
allowance for doubtful accounts approximated
22.9 million,
21.2 million,
and
19.2 million
during 2003, 2002, and 2001, respectively.

We believe that the accounting estimate related
to the establishment of the allowance for doubtful accounts is a
critical accounting policy because the assessment of whether a
receivable is collectible is inherently judgmental and requires
the use of assumptions about customer defaults that could change
significantly and because changes in our estimates about the
allowance for doubtful accounts could materially impact the
reported assets and expenses in our financial statements.
However, 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 currently apply the intrinsic-value-based
method of accounting for employee stock-based compensation
prescribed by Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued
to Employees (APB 25) and related
interpretations. Under this method we recognize compensation
expense only if awards are granted with an exercise price that
is not fixed or less than the fair value of our ordinary shares
on the date of grant. Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation (SFAS 123) and SFAS
148, Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement
No. 123, established accounting and disclosure
requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As permitted by
existing accounting standards, 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

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statements provides the required pro forma
effects on our reported net income for 2003, 2002 and 2001 as if
the fair-value-based method was used to recognize compensation
expense as follows:


Net Income

|                                                                                  |  |        |           |        |  |        |         |  |  |  |         | 
|--------------------------------------------------------------------------------- |  | ------ | --------- | ------ |  | ------ | ------- |  |  |  | ------- | 
|                                                                                  |  | 2003   |           | 2002   |  | 2001  
|                                                                                  |  |        |           |        |  |       
|                                                                                  |  | (000) |           | (000) |  | (000)
|As reported                                                                       |  |        | 1,077,063 |        |  |        | 508,614 |  |  |  | 581,136 | 
|Add: Expense for stock-based compensation, net of
    tax according to APB 25     |  |        | 85,700    |        |  |        | 5,600   |  |  |  | 40,357  | 
|Deduct: Expense for stock-based compensation, net
    of tax according to FAS 123 |  |        | 205,109   |        |  |        | 138,203 |  |  |  | 131,272 | 
|                                                                                  |  |        |           |        |  |        |         |  |  |  |         | 
|Pro forma                                                                         |  |        | 957,654   |        |  |        | 376,011 |  |  |  | 490,221 | 
|                                                                                  |  |        |           |        |  |        |         |  |  |  |         | 

Earnings per share

|                      |  |      |      |      |  |      |      |  |  |  |      | 
|--------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                      |  | 2003 |      | 2002 |  | 2001
|                      |  |      |      |      |  |     
|                      |  |     |      |     |  |    
|Basic  as reported   |  |      | 3.47 |      |  |      | 1.62 |  |  |  | 1.85 | 
|Diluted  as reported |  |      | 3.46 |      |  |      | 1.62 |  |  |  | 1.85 | 
|Basic  pro forma     |  |      | 3.08 |      |  |      | 1.20 |  |  |  | 1.56 | 
|Diluted  pro forma   |  |      | 3.08 |      |  |      | 1.20 |  |  |  | 1.56 | 

We use the Black-Scholes valuation model to
estimate the fair value of its stock options. As described in
Note 24 to the consolidated financial statements, this
valuation model requires that we use a number of assumptions,
including expected future stock price volatility and expected
option life (which represents our estimate of the average amount
of time remaining until the options are exercised or expire
unexercised). Expected future stock price volatility is
estimated based upon historical stock price movements over the
most recent period equal to the expected option life. Expected
option life is based on the vesting period, the expected
volatility of the underlying stock and on actual exercise
activity related to previous option grants. Additionally, our
share price on the date of grant influences the option value.
Notwithstanding that the exercise price of most options equals
or is connected to the quoted market price of our stock on the
grant date, the higher the share price the higher the option
value. In accordance with fixed-plan accounting under APB 25,
changes in the option value after the grant date do not impact
compensation expense.

We intend to continue using stock-based
compensation awards to attract and retain senior managers and
selected employees. Because it is expected that changes in
accounting standards will eventually require that stock-based
awards be accounted for at fair value, and because such changes
would adversely affect our results of operations, we believe the
estimates to determine and disclose the pro forma effects of our
stock based compensation arrangements in our consolidated
financial statements are critical.

For purposes of determining the estimated fair
value of our stock options, we believe expected volatility is
the most sensitive assumption. For our LTI 2000 Plan 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. Because the estimated life
of awards under the SOP 2002 is shorter than under the LTI
2000 Plan, the fair value of awards granted under our
SOP 2002 in 2003 was calculated based on a expected
volatility of 68%. Changes in the volatility assumption could
significantly impact the estimated fair values calculated by the
Black-Scholes valuation model and, consequently, the required
pro forma information reported in our consolidated financial
statements. Further, if accounting standards are changed to
require that a different valuation model to be used to calculate
the fair value of stock options, the pro forma information
reported may prove to not be indicative of the actual expenses
to be recognized in our consolidated financial statements.

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The trading prices of our ordinary shares have
experienced and may continue to experience significant
volatility. The following table shows the income statement
effect of certain assumed changes in the volatility covering all
significant equity-award grants as of December 31, 2003, on
the pro forma net income of
957.6 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 |  |                    | 27  |     |  |     | 13  |      |  |  | (13 | ) |  |  | (26 | )
|Pro forma net income using revised volatility
    assumption        |  |                    | 985 |     |  |     | 971 |      |  |  | 945 |   |  |  | 932 |  

Accounting for Income Taxes and Other
Income Tax Related Judgments

We conduct operations and earn income in numerous
foreign countries and are subject to changing tax laws in
multiple jurisdictions within the countries in which we operate.
In addition, there are numerous transactions where the ultimate
tax outcome is uncertain such as those involving revenue sharing
and cost reimbursement arrangements between SAP group companies.
Significant judgments are necessary in determining our worldwide
income tax accruals and provisions. Although we believe we have
made reasonable estimates about the ultimate resolution of our
tax uncertainties, no assurance can be given that the final tax
outcome of these matters will be consistent with what is
reflected in our historical income tax provisions and accruals.
Such differences could have a material effect on our income tax
provision and net income in the period in which such
determinations are made.

We currently have net deferred tax assets related
to activities in various countries approximating
152.5 million
and
291.2 million
at December 31, 2003 and 2002, respectively, which are net
of a valuation allowance of approximately
1.5 million
and
3.0 million,
respectively. We record a valuation allowance to reduce our
deferred tax assets to the amount of future tax benefit that we
believe will more likely than not be realized. The valuation
allowance at January 1, 2002, was
3.6 million.
The valuation allowance decreased in 2002 by
0.6 million
and in 2003 by another
1.5 million.
The reduction in valuation allowance for both 2002 and 2003 was
primarily attributed to the utilization of net operating losses.
At December 31, 2003, we have net operating loss
carryforwards in certain foreign tax jurisdictions of
approximately
90.9 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 U.S. approximate
32.6 million
and will expire if not used in varying amounts over the next
twenty years. Approximately
25.5 million
of net operating loss carryforwards are available in other
foreign tax jurisdictions that will expire if not used 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;                                                                                                     
|
| |  | managements assumptions and judgments
    regarding the use of tax planning strategies in certain tax
    jurisdictions; and                               
|
| |  | assumptions about whether our results of future
    operations will generate sufficient taxable income to utilize
    our remaining net deferred tax assets.

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. Any adverse change to the underlying facts or our
assumptions could require that we reduce the carrying value of
our net deferred tax assets;

Our use of different estimates, assumptions and
judgments in connection with tax planning strategies and tax
uncertainties could result in materially different carrying
values of our income tax asset and liability amounts and
therefore could adversely impact our recorded income tax amounts.

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As of December 31, 2003, we have cumulative
undistributed earnings from certain foreign subsidiaries of
1,716.1 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 undistributed earnings which
would result in the recognition of additional income tax
liabilities.

Changes in any of the aforementioned items could
have a material impact on our financial position and results of
operations. There were no significant changes in estimates about
our ability to realize our deferred tax assets nor have we made
any significant changes to our plans about whether to
permanently reinvest undistributed earnings of foreign
subsidiaries that had a material impact on our consolidated
financial condition or results of operations during 2003 and
2002.

Realizability of Strategic and Venture
Capital Investments

In the past and as a continuing part of our
business strategy, we have made significant investments in
technology related companies, some of which are start-up
companies that are currently reporting and that have
historically reported net losses. Due to the limited historical
information available about many of these companies, our
estimates concerning our ability to recover the carrying value
of these investments involve significant judgments.
Specifically, the determination of the fair value of an
investment and the amount we can expect to realize upon
liquidation of an investment is judgmental, as is the
determination of whether a decline in value of an investment is
other-than temporary. Changes in our estimates could have a
material impact on our financial position and results of
operations.

Although not significant in 2003, impairments and
other charges related to our investments have had in the past,
and could again have in the future, a material impact on our
financial position and results of operations. In 2003, 2002 and
2001, we recognized impairment charges relating to our strategic
and venture capital investments of
15.1 million,
416.6 million
(of which
297.6 million
were for our investment in Commerce One) and
78.8 million,
respectively. As of December 31, 2003, the carrying value
of these investments is
53.1 million.




New Accounting Standards Adopted and to be
Adopted

See Note 3 in our consolidated financial
statements at Item 18. Financial Statements.




Liquidity and Capital Resources

In 2003, as in 2002 and 2001, we have funded most
of our growth internally from cash flow provided from
operations. 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, and to pay
dividends on our shares and reacquire our shares in the open
market. Cash and cash equivalents are primarily held in euro and
U.S.$ as of December 31, 2003.

We believe that cash flows 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, 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.

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The table below presents our liquid assets for
the years ended December 31:

|                                                                                   |  |        |           |      |  |  |           | 
|---------------------------------------------------------------------------------- |  | ------ | --------- | ---- |  |  | --------- | 
|                                                                                   |  | 2003   |           | 2002
|                                                                                   |  |        |           |     
|                                                                                   |  |       
|                                                                                   |  | (000)
|Cash at banks                                                                      |  |        | 326,305   |      |  |  | 279,920   | 
|Time deposits with original maturities of
    3 months or less                     |  |        | 1,014,086 |      |  |  | 841,788   | 
|                                                                                   |  |        |           |      |  |  |           | 
|Cash and cash equivalents                                                          |  |        | 1,340,391 |      |  |  | 1,121,708 | 
|                                                                                   |  |        |           |      |  |  |           | 
|Time deposits with original maturities exceeding
    3 months and less than 1 year |  |        | 680,891   |      |  |  | 26,281    | 
|Time deposits with original maturities exceeding
    1 year                        |  |        | 369       |      |  |  | 478       | 
|Restricted cash with original maturity exceeding
    1 year                        |  |        | 74,305    |      |  |  | 89,430    | 
|                                                                                   |  |        |           |      |  |  |           | 
|                                                                                   |  |        | 2,095,956 |      |  |  | 1,237,897 | 
|                                                                                   |  |        |           |      |  |  |           | 

Total net interest income increased to
43.4 million
in 2003 compared to
24.8 million
in 2002 and
33.7 million
in 2001. The increase is primarily due to higher levels of
liquidity. In addition to the foreign currency exposure, we are
generally exposed 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.

Liquid assets in the amount of approximately
860 million
are held in U.S.$ and approximately
780 million
are held in euro.

As discussed in Item 4. Information
about SAP  Description of the Business 
Partners Alliances and Acquisitions, we announced
our intention to bid for all the shares not currently owned by
us of SAP System Integration AG (SAP SI). We intend to
finance the costs associated with the transaction of
approximately
230 million
utilizing our cash at banks.

Analysis of cash flow
statement

Operating cash flow for 2003 was
1,504.9 million
representing a 10% decrease from
1,680.5 million
in 2002, when, due primarily to impairment charges on minority
investments and write-down of financial assets, the difference
between net income and operating cash flow was wider. Accounts
receivable decreased from
1,967.1 million
at December 31, 2002 to
1,770.7 million
at December 31, 2003, representing a decrease of
196.4 million
or 11%. Days sales outstanding (meaning the average number
of days that passed before we were paid by our customers
following the delivery of our software or the rendering of
services) decreased from 87 days in 2002 to 76 days in
2003 due primarily to our more stringent receivables management
processes.

In 2003, net cash used in investing activities
was
911.3 million,
an increase of 322% over 2002. However,
639.4 million
of this was attributable to the increase in liquid assets with
maturities greater than 90 days. Capital expenditures
during 2003 for intangible assets and property, plant and
equipment were
275.3 million,
a decrease of
33.4 million
from
308.7 million
in 2002. This included
203.7 million
in property, plant and equipment additions, mainly additional IT
infrastructure and office facility construction during 2003 to
keep pace with the overall growth in business activities.

Net cash used in financing activities was
305.4 million
in 2003, a decrease of
630.5 million
from the
935.9 million
of net cash used in 2002. During 2002 we repaid
428.9 million
in long term debt and amounts borrowed under line of credit
arrangements compared to repayments in 2003 of
3.9 million.
Dividend payments were
186.3 million
and
182.3 million
in 2003 and 2002, respectively. Additionally we spent
approximately
88.2 million
in 2003 to purchase 1,049 thousand of our own shares (2002:
279.3 million
to purchase 3,016 thousand of our own shares), which are held in
treasury at December 31, 2003, under our stock buy-back
program in order to satisfy subscription rights granted under
our various stock-based compensation plans.

Credit lines

As of December 31, 2003, we had outstanding
long-term financial debt of
11.9 million
and outstanding short-term financial debt of approximately
19.6 million,
consisting primarily of amounts borrowed under lines

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of credit. As of December 31, 2003 SAP AG
had available lines of credit totaling
858 million.
In addition 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. As of December 31, 2003,
approximately
178 million
were 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. As of December 31, 2003, SAP AG had
no outstanding borrowings against these lines of credit. Our
subsidiaries have aggregate borrowings under their lines of
credit amounting to
21.5 million
as of December 31, 2003. SAP AG has provided guarantees for
its subsidiaries lines of credit, including unused
amounts, and other commitments of approximately
169.8 million
as of December 31, 2003.


Authorized Capital

We also have available sources of cash through
authorized capital. SAPs Articles of Incorporation
authorize the Executive Board of SAP AG (the Executive
Board), to increase the subscribed capital



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | up to a total amount of
    60 million
    through the issuance of new ordinary shares in return for
    contributions in cash until May 1, 2006 (Authorized
    Capital I). The issuance of Authorized Capital I is
    subject to the statutory subscription rights of existing
    shareholders;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | up to a total amount of
    60 million
    through the issuance of new ordinary shares in return for
    contributions in cash or in kind until May 1, 2006
    (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 for the issuance of Authorized
    Capital II; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | up to an aggregate amount of
    15 million
    against contribution in cash by issuing new ordinary shares
    until May 1, 2007 (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
    shareholders statutory subscription rights are excluded
    from this capital increase. 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 for the purposes of
    satisfying subscription rights does not amount to more than 10%
    of the capital stock at the time of adoption of the
    authorization.

Contractual obligations

The table below presents our on- and off-balance
sheet contractual obligations as of December 31, 2003:

|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|---------------------- |  | ---------------------- | --------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---------- | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------- | 
|                       |  |                       
|                       |  | Payments due by period
|                       |  |                       
|Contractual Obligation |  | Total                  |           | 2004 |  | 2005 |         | 2006 |  | 2007 |         | 2008 |  | thereafter
|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |           
|                       |  |                       
|                       |  | (000)                
|Off-balance sheet      |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|Operating Leases       |  |                        | 619,543   |      |  |      | 141,891 |      |  |      | 105,366 |      |  |            | 80,685 |  |  |  | 60,901 |  |  |  | 50,749 |  |  |  | 179,951 | 
|Purchase Commitments   |  |                        | 30,509    |      |  |      | 30,509  |      |  |      |        |      |  |            |       |  |  |  |       |  |  |  |       |  |  |  |        | 
|Other Commitments      |  |                        | 14,746    |      |  |      | 9,015   |      |  |      | 5,518   |      |  |            | 38     |  |  |  | 39     |  |  |  | 32     |  |  |  | 104     | 
|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|                       |  |                        | 664,798   |      |  |      | 181,415 |      |  |      | 110,884 |      |  |            | 80,723 |  |  |  | 60,940 |  |  |  | 50,781 |  |  |  | 180,055 | 
|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|On-balance sheet       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|Bonds                  |  |                        | 10,084    |      |  |      | 560     |      |  |      |        |      |  |            |       |  |  |  |       |  |  |  | 1,094  |  |  |  | 8,430   | 
|Other Liabilities      |  |                        | 676,144   |      |  |      | 648,717 |      |  |      | 2,458   |      |  |            |       |  |  |  |       |  |  |  |       |  |  |  | 24,969  | 
|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|                       |  |                        | 686,228   |      |  |      | 649,277 |      |  |      | 2,458   |      |  |            |       |  |  |  |       |  |  |  | 1,094  |  |  |  | 33,399  | 
|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 
|Total                  |  |                        | 1,351,026 |      |  |      | 830,692 |      |  |      | 113,342 |      |  |            | 80,723 |  |  |  | 60,940 |  |  |  | 51,875 |  |  |  | 213,454 | 
|                       |  |                        |           |      |  |      |         |      |  |      |         |      |  |            |        |  |  |  |        |  |  |  |        |  |  |  |         | 

Our expected contribution in 2004 to our defined
benefit pension plans is approximately
1,808 thousand
for German plans and
35,963 thousand
for non-German plans, all of which is expected to be paid as
cash contributions.

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We have operating leases for office facilities
for most of our subsidiaries, computer hardware and certain
other equipment. Rental expense for operating leases in 2003 was
159 million
(2002:
207 million;
2001:
209 million).
The decrease in rental expense in 2003 is mainly based on the
reduction of office space, especially in the U.S., currency
effects and the global decision to purchase instead of lease
computer hardware.

Purchase commitments relate primarily to the
construction of facilities, office equipment and car purchase
commitments. Other commitments basically comprise food and
security services and other facility commitments. During 2004,
we expect to spend approximately
113 million
for the purchase of computer hardware and other business
equipment,
53 million
for cars, and approximately
61 million
primarily to further fund the construction of certain
facilities, mainly in Germany.

As described in Note 24 to our consolidated
financial statements, bonds consist primarily of outstanding
convertible bonds related to our LTI 2000 Plan. 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.

We have not entered into any transactions,
arrangements or other relationships with unconsolidated,
variable interest entities, nor do we use other forms of
off-balance-sheet arrangements such as research and development
arrangements.

Obligations under indemnifications and
guarantees

We provide indemnifications of various scope to
our customers against claims of intellectual property
infringement made by third parties from the use of our products.
Estimated losses for such indemnifications are evaluated under
SFAS 5, Accounting for Contingencies, and liabilities are
recorded or disclosed, depending on whether such losses are
deemed probable and can be reasonably estimated. To date, we
have not encountered material losses as a result of such
obligations and have not accrued any liabilities in our
financial statements.

In addition we occasionally grant function and/or
performance guarantees in routine consulting contracts and/or
customer development arrangements, standard guarantee provisions
and other items, each of which are guarantees of SAPs own
product or service performance. 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 its software. The related liability is included in
other reserves and accrued liabilities (see Note 26 to our
consolidated financial statements). As of December 31, 2003
and 2002 no guarantees were provided for third party performance
or financial obligations of third parties.





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, 2003, 2002, and
2001 were
995.9 million,
909.4 million,
and
898.3 million,
respectively. Research and development expenses as a percentage
of revenue were 14.2%, 12.3%, and 12.2% for the years ended
December 31, 2003, 2002, and 2001, respectively. During
2003, 2002, and 2001, the percentage of employees devoted to
research and development was 30.1%, 27.8%, and 26.5%,
respectively. A major focus of our research and development
effort has been to anticipate and incorporate 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, technology and hardware
suppliers and telecommunications providers to co-operate and
enable certain of the products produced by such suppliers to be
compatible with our solutions. These arrangements do not involve
market or credit risk support on our behalf or by us, nor do
they involve the issuance of our securities to provide the third
party suppliers with needed liquid resources. We evaluate the
financial strength of the third party suppliers with which we
choose to cooperate, and we do not accept incremental financial
risk through guarantees, loans, or other financial commitments.
We anticipate that 2004 activity under these arrangements will
be consistent with 2003.

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SCORE Reorganization

In 2003, we reorganized our development
activities under the project name SCORE  Strategic
Cross-Organizational Realignment in an effort to strengthen the
alignment between our development activities, our field
organizations and our customers The reorganization is an
important step in realizing the benefits of a services based
development approach. SCORE is expected to strengthen our
industry focused approach and lead to enhanced engagement from
the SAP field executives with our developers.

SCORE created new Business Solution Groups
(BSGs) which are responsible for the definition,
development and market success of our products and solutions.
Former business units have been bundled into the BSGs on the
basis of their content. Three BSGs were created: BSG
Manufacturing, BSG Services and BSG Financial and Public Service.

The internal structure of the BSGs contains a
clear separation of solution management and development.
Solution management employees are responsible for the roll in
and roll out of the overall solution. They have to ensure that
the solutions are developed with the market and our
customers requirements in mind.

Alongside the three new BSGs, a new department
led by a member of our Executive Board has been created, called
Application Platform & Architecture. This separation of the
front end from the back end and the reuse of business objects,
processes, engines, and other software elements is expected to
enable SAP to make the switch from client/ server architecture
to Enterprise Services Architecture successfully.

BUSINESS SOLUTION GROUP

Areas of current and future research and
development efforts

We intend to continue investing substantial
resources in technological research and development. Our
significant areas of current technological research and
development efforts include:



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

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




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
|                                                                    |  |     |    |                      |  |                                                                                                                       |  |        
|Prof. Dr. h.c. mult. Hasso Plattner,
    Chairperson(2)(3)(5)(7)(8) |  |     | 60 |                      |  | Chairperson of the Supervisory Board                                                                                  |  |         | 2003 |  |  |  | 2007 | 
|Pekka Ala-Pietilä(1)(8)                                             |  |     | 47 |                      |  | President of Nokia Corporation                                                                                        |  |         | 2002 |  |  |  | 2007 | 
|Prof. Dr. Wilhelm Haarmann
    (1)(3)(4)(5)(9)                      |  |     | 53 |                      |  | Attorney at Law, Certified Public Auditor and
    Certified Tax Advisor; Haarmann, Hemmelrath & Partner               |  |         | 1988 |  |  |  | 2007 | 
|Dietmar Hopp(1)(6)                                                  |  |     | 63 |                      |  | Managing Director, Dietmar Hopp Stiftung GmbH                                                                         |  |         | 1998 |  |  |  | 2007 | 
|Dr. h.c. Hartmut Mehdorn(1)(7)                                      |  |     | 61 |                      |  | Chairperson of Executive Board, Deutsche Bahn AG                                                                      |  |         | 1998 |  |  |  | 2007 | 
|Prof. Dr. Dr. h.c. mult. August-Wilhelm
    Scheer(1)(6)(8)         |  |     | 62 |                      |  | Director of the Institute for Information Systems
    at the German Research Center of Artificial Intelligence (DFKI) |  |         | 2002 |  |  |  | 2007 | 
|Dr. Dieter Spöri(1)(5)                                              |  |     | 60 |                      |  | Head of Corporate Representation Federal Affairs,
    DaimlerChrysler AG                                              |  |         | 1998 |  |  |  | 2007 | 
|Dr. h.c. Klaus Tschira(1)(4)                                        |  |     | 63 |                      |  | Managing Director, Klaus Tschira Stiftung gGmbH                                                                       |  |         | 1998 |  |  |  | 2007 | 
|Helga Classen, Vice Chairperson
    (5)(7)(10)                      |  |     | 53 |                      |  | Employee, Development Architect                                                                                       |  |         | 1993 |  |  |  | 2007 | 
|Willi Burbach(7)(8)(10)                                             |  |     | 41 |                      |  | Employee, Developer                                                                                                   |  |         | 1993 |  |  |  | 2007 | 
|Bernhard Koller(4)(10)                                              |  |     | 54 |                      |  | Employee, Manager of Idea Management                                                                                  |  |         | 1989 |  |  |  | 2007 | 
|Christiane Kuntz-Mayr(5)(8)(10)                                     |  |     | 41 |                      |  | Employee, Development Manager                                                                                         |  |         | 2002 |  |  |  | 2007 | 
|Lars Lamadé(6)(10)                                                  |  |     | 32 |                      |  | Employee, Human Resources Consultant                                                                                  |  |         | 2002 |  |  |  | 2007 | 
|Dr. Gerhard Maier(3)(6)(10)                                         |  |     | 50 |                      |  | Employee, Development Project Manager                                                                                 |  |         | 1989 |  |  |  | 2007 | 
|Dr. Barbara Schennerlein(5)(10)                                     |  |     | 47 |                      |  | Employee, Principle Solution Consultant                                                                               |  |         | 1998 |  |  |  | 2007 | 
|Stefan Schulz(4)(8)(10)                                             |  |     | 34 |                      |  | Employee, Solution Architect                                                                                          |  |         | 2002 |  |  |  | 2007 | 




|     |                                                                                                                                                                                                                                                                              
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  | Elected by SAP AGs shareholders on
    May 3, 2002.                                                                                                                                                                                                                         
|    
|(2)  | Elected by SAP AGs shareholders on
    May 9, 2003.                                                                                                                                                                                                                         
|    
|(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)  | 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. Wilhelm Haarmann has been determined to be the
    Audit Committees financial expert.
|    
|(10) | Elected by SAP AGs employees on
    April 9, 2002.                                                                                                                                                                                                                          

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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, including the Audit Committee and
Compensation Committee, please refer to Item 10.
Additional Information  Corporate Governance.

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 AGs, in Germany and other countries as of
December 31, 2003 are set forth in the Note 35 to our
consolidated financial statements included in
Item 18. Financial Statements. Apart from
pension obligations towards employees, 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), in 2002 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. They must also fulfill the other qualifications for
election codified in Section 8 of the German Works Council
Constitution Act. These qualifications include to be employed by
SAP for not less than six months and not having been declared
ineligible or debarred from holding public office by a court.

SAP announced on March 13, 2003 that the
Supervisory Board moved to propose the election of Hasso
Plattner to the Supervisory Board at the Annual General
Shareholders Meeting on May 9, 2003 as a
shareholders representative. After being elected, Hasso
Plattner resigned from the Executive Board effective the close
of the Annual General Shareholders Meeting. The Co-CEO of
the Executive Board, Henning Kagermann, then became sole CEO of
the Executive Board. In the Supervisory Board meeting
immediately following the Annual General Shareholders
Meeting Hasso Plattner was elected as Chairperson of the
Supervisory Board, replacing Dietmar Hopp, who continues to be
an ordinary member of the Supervisory Board.




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  |      | Term Expires
|                                 |  |            |      |             
|Prof. Dr. Henning Kagermann, CEO |  |            | 1991 |              |  |  | 2007 | 
|Dr. Peter Zencke                 |  |            | 1993 |              |  |  | 2006 | 
|Prof. Dr. Claus Heinrich         |  |            | 1996 |              |  |  | 2005 | 
|Gerhard Oswald                   |  |            | 1996 |              |  |  | 2005 | 
|Dr. Werner Brandt                |  |            | 2001 |              |  |  | 2009 | 
|Shai Agassi                      |  |            | 2002 |              |  |  | 2005 | 
|Léo Apotheker                    |  |            | 2002 |              |  |  | 2005 | 

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

Henning Kagermann,
CEO (Vorstandssprecher), 56 years old, physics graduate.
Henning Kagermann joined SAP AG in 1982. He became a member of
the Executive Board in 1991 and Co-CEO in 1998. In May 2003 he
became sole CEO of the Executive Board. He has overall
responsibility for SAPs strategy and business development,
marketing, and global communications as well as for consulting
and customer development. Further, he leads the Field Management
Board and the Product Technology Board. He is also head of the
Business Solutions Group (BSG) Financial & Public
Services.

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Shai Agassi,
35 years old, computer science graduate. Shai Agassi
joined SAP in 2001 as CEO of SAP Portals and became a member of
the Executive Board in 2002 after the reintegration of SAP
Portals and SAP Markets into SAP. As the head of the Technology
Platform organization, he oversees the development of the
integration and application platform SAP NetWeaver.
Shai Agassi also manages two solution groups, mySAP SRM and
SAP xApps. Further he co-leads the Suite Architecture Team with
Peter Zencke. Prior to joining SAP, Shai Agassi founded a
number of software companies in Israel between 1990 and 1994,
and served in various positions in those companies. He moved one
of these companies to California and renamed it TopTier
Software, Inc., where he served as Chairperson, CTO and
eventually CEO. TopTier was acquired by SAP in 2001, after which
Shai Agassi became the CEO of SAP Portals, at that time a
fully owned subsidiary of SAP.

Léo Apotheker,
50 years old, business economist. Léo Apotheker
first 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. He is also a member of the Field
Management Board.

Werner Brandt,50 years old, business administration graduate. Werner
Brandt joined SAP in early 2001 as the Chief Financial Officer
and member of the Executive Board. He is responsible for finance
and administration. Prior to joining SAP, Werner Brandt was CFO
and member of the Executive Board of Fresenius Medical Care AG
since 1999. In this role, he was also responsible for labor
relations. Before joining Fresenius Medical Care AG, Werner
Brandt headed the finance function of the European operations of
Baxter International.

Claus Heinrich,48 years old, business management and operations research
graduate. Claus Heinrich joined SAP in 1987 and became a member
of the Executive Board in 1996. He is Head of the Business
Solutions Group (BSG) Manufacturing Industries. In addition, he
oversees SAPs human resources and is the Executive Board
member for labor relations.

Gerhard Oswald,50 years old, economics graduate. Gerhard Oswald joined SAP
in 1981 and became a member of the Executive Board in 1996.
Gerhard Oswald is responsible for global support and the
information-technology infrastructure. He is also a member of
the Field Management Board.

Peter Zencke,54 years old, mathematics and economics graduate. Peter
Zencke joined SAP in 1984 and became a member of the Executive
Board in 1993. He is responsible for the development
organization of SAPs Enterprise Services platform and
architecture as well as the coordination of SAPs global
research activities and development labs. In addition, Peter
Zencke is a member of SAPs Product and Technology Board.

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, in Germany and
other countries as of December 31, 2003 are set forth in
Note 35 to our consolidated financial statements in
Item 18. Financial Statements. Apart from
pension obligations, 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.

To our knowledge, there are no family
relationships among the Supervisory and Executive Board members.




Compensation of Directors and
Officers

Under SAP AGs articles of incorporation, in
addition to the reimbursement of their expenses, 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 remuneration of the Supervisory
Board members for the year ended December 31, 2003, which
is subject to the adoption of the dividend resolution by the
shareholders at the Annual General Shareholders Meeting on
May 6, 2004, 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, 2003, will amount to
1,016,800. This
consists of an annual fixed payment, which amounts to
50,000 for the
Chairperson,
37,500 for the
Vice Chairperson and
25,000 for all
other members of the Supervisory Board, plus a variable payment
equal to 2,000
for the Chairperson,
1,500 for the
Vice Chairperson and
1,000 for all
other members of the Supervisory Board for each
0.01 distributed

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dividends per share exceeding a dividend of
0.40 in relation
to the share capital outstanding. Notwithstanding the foregoing,
the aggregate remuneration may not exceed
100,000 for the
Chairperson,
75,000 for the
Vice Chairperson and
50,000 for the
other members of the Supervisory Board. In addition, Supervisory
Board members are reimbursed for out-of-pocket expenses, and
invoiced value-added taxes are paid by SAP to the Supervisory
Board members for payment with the German tax authorities. For
foreign Supervisory Board members SAP reduces the payment by a
special withholding tax. The employee representatives on the
Supervisory Board receive stock-based compensation, if any, for
their services as employees only. Each employee representative
owns less than one percent of the outstanding share capital.


The total annual remuneration of the Executive
Board for the year ended December 31, 2003 was
17,926 thousand.
This amount includes
3,371 thousand
fixed and 14,555
thousand variable remuneration. The accrued benefit liability as
of December 31, 2003 for Executive Board members was
approximately
3.3 million.
For a detailed breakdown of the total fixed and all other
variable remuneration, please see Note 35 to our
consolidated financial statements.

As of December 31, 2003, 2002 and 2001, 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 most loans to members
of the Supervisory Board or the Executive Board.




Employees

As of December 31, 2003, we employed 30,251
people worldwide, which represented an increase of 3% from
December 31, 2002. Of the total employees, 13,475 employees
were based in Germany and 4,637 in the U.S. The following table
sets forth the number of employees at December 31, 2003,
2002 and 2001:

|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |      |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |       | 
|-------------------------- |  | ---------------------------- | ------ | ---- |  | -------- | ------ | ---- |  | ----- | ----- | ---- |  | -------- | ----- | ---- |  | ----- | ------ | ---- |  | -------- | ------ | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- |  |  |  | ----- | 
|                           |  |                             
|                           |  | Employees as of December 31,
|                           |  |                             
|                           |  |                              |        |      |  |         
|                           |  | 2003                         |        | 2002 |  | 2001    
|                           |  |                              |        |      |  |         
|                           |  | Total                        |        | EMEA |  | Americas |        | Asia |  | Total |       | EMEA |  | Americas |       | Asia |  | Total |        | EMEA |  | Americas |        | Asia
|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |     
|Customer Service & Support |  |                              | 12,713 |      |  |          | 8,111  |      |  |       | 2,881 |      |  |          | 1,721 |      |  |       | 12,939 |      |  |          | 8,318  |      |  |  | 3,014 |  |  |  | 1,607 |  |  |  | 13,014 |  |  |  | 8,159  |  |  |  | 3,311 |  |  |  | 1,544 | 
|Research & Development     |  |                              | 9,100  |      |  |          | 7,042  |      |  |       | 1,084 |      |  |          | 974   |      |  |       | 8,173  |      |  |          | 6,277  |      |  |  | 1,194 |  |  |  | 702   |  |  |  | 7,665  |  |  |  | 5,849  |  |  |  | 1,122 |  |  |  | 694   | 
|Sales & Marketing          |  |                              | 5,267  |      |  |          | 3,112  |      |  |       | 1,434 |      |  |          | 721   |      |  |       | 5,143  |      |  |          | 3,075  |      |  |  | 1,427 |  |  |  | 641   |  |  |  | 5,071  |  |  |  | 2,865  |  |  |  | 1,539 |  |  |  | 667   | 
|General & Administrative   |  |                              | 3,171  |      |  |          | 2,163  |      |  |       | 681   |      |  |          | 327   |      |  |       | 3,119  |      |  |          | 2,090  |      |  |  | 710   |  |  |  | 319   |  |  |  | 3,128  |  |  |  | 1,987  |  |  |  | 778   |  |  |  | 363   | 
|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |      |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |       | 
|SAP Group                  |  |                              | 30,251 |      |  |          | 20,428 |      |  |       | 6,080 |      |  |          | 3,743 |      |  |       | 29,374 |      |  |          | 19,760 |      |  |  | 6,345 |  |  |  | 3,269 |  |  |  | 28,878 |  |  |  | 18,860 |  |  |  | 6,750 |  |  |  | 3,268 | 
|                           |  |                              |        |      |  |          |        |      |  |       |       |      |  |          |       |      |  |       |        |      |  |          |        |      |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |       | 

Certain employees that are currently employed by
SAP but that are currently not working or that work part time
while finishing a university degree are excluded from the above
figures. Expressed in average number of full-time equivalents
(FTEs), we had slight increase from 29,054 in 2002 to 29,098 in
2003.

Sales revenue per employee equalled
232,211 for the
year ended December 31, 2003, down from
252,361 for the
year ended December 31, 2002. It was a declared aim of the
Company to increase operating margin in 2003, therefore, as in
the previous year, SAP established a stringent and selective
hiring policy. The majority of recruits joined research and
development (R&D), which, converted to FTEs, grew 11%. In
other areas, only selected hiring was done. Sales and marketing
employees in FTEs increased 2%, the number of service and
support employees in FTEs declined 2%, and general and
administration headcount in FTEs remained almost unchanged.

Apart from selective measures, significant
layoffs did not occur despite the difficult economic environment.

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 employees. As in previous years,
SAP Universitys broad offering of classroom training and
Web-based courses as well as SAPs training line of
business played a key role in 2003. Through such measures, SAP
ensures that its employees maintain and build on their high
level of training.

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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.




Share Ownership

Beneficial Ownership of
Shares

The ordinary shares beneficially owned by Dietmar
Hopp (member of the Supervisory Board), Hasso Plattner
(Chairperson of the Supervisory Board) 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 9,
2004.

Stock-Based Compensation
Plans

SAP SOP 2002

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, members of subsidiaries boards as
well as to eligible executives and other top performers of
SAP AG and its subsidiaries, replaced 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 AG 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 AG 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 AG 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. Stock options have a term of five years
from the issue date, after which they become void.

For options granted to members of the Executive
Board in and from February 2004, the SAP SOP 2002 plan
conditions provide for a potential limitation on the
subscription rights to the extent that the Supervisory Board
determines that, by exercising the rights, the option holder
would make a profit that would be characterized as a windfall
by, combined with the profit from earlier exercises of
subscription rights issued to the option holder at the same
issuing date, exceeding twice the product of (i) the number
of subscription rights received by the option holder and
(ii) the exercise price. Such profit is determined as the
total of the differences, calculated individually for each
exercised subscription right, between the closing price of the
share on the exercise day and the exercise price. SAP AG
undertakes to pay back to the option holders any expenses they
may incur through fees, taxes, or deductions related to the
limit on achievable income. The subscription rights shall only
be limited if the Supervisory Board determines that the windfall
results from significant extraordinary, unforeseeable
developments that the Executive Board is not responsible for.

SAP SOP 2002 is generally 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 the number of stock options granted to the
members of the Executive Board under SAP SOP 2002 is not
known on grant date due to the above mentioned potential
limitation on subscription rights, SAP SOP 2002 is not
considered a fixed plan for those stock options. 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.

As of March 9, 2004, 5,842 thousand options
have been granted to participants under the SAP SOP 2002,
none of which are exercisable at this time.

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LTI Plan

On January 18, 2000 SAPs shareholders
approved the LTI 2000 Plan (the LTI Plan). The
LTI Plan is a stock-based compensation program, which provided
members of the SAP AG Executive Board, members of
subsidiaries 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 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 of
1 for each
convertible bond, which was payable upon granting of the
convertible bonds and which is mandatory according to German
Stock Corporation Law.

The exercise price of the stock options issued
under the LTI Plan for one SAP AG ordinary share is calculated
by reference to the outperformance. The outperformance is the
percentage points by which the performance of the SAP AG
ordinary share exceeds the performance of the reference index
(GSTI Software Index). The initial value for determining the
performance by the SAP AG ordinary shares is the closing price
of the SAP AG 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 AG or the credit institution managing the issue for
SAP AG 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 AG 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 of the reference index 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 euro 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 AG 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 for
one stock option is calculated by reference to the
outperformance. The outperformance is the percentage points by
which the performance of the SAP AG share exceeds the
performance of the reference index, as follows: The exercise
price is the final value as determined above, less the product
of the initial value as determined above and the outperformance.

Beneficiaries under the LTI Plan may not exercise
their conversion or subscription rights until a vesting period
has elapsed. The vesting period for 33% of such rights ends two
years after the issue date, for the next 33% three years after
the issue date and for the balance four years after the issue
date. Convertible bonds and stock options under the LTI Plan
have a term of 10 years from the issue date, after which
they become void.

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The convertible bond program is considered a
fixed plan under APB 25, and will result in no compensation
expense under the current terms of the LTI Plan. Under
APB 25, the stock option program under the LTI Plan 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 9, 2003, the
Executive Board was authorized to repurchase on or before
October 31, 2004 up to 30.0 million shares in
SAP AG subject to the proviso that the shares purchased by
virtue of this authorization, together with any other shares
already acquired and held by SAP, do not account for more than
10% of SAP AG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 our obligations upon the exercise
of stock options under the SAP SOP 2002. This resolution
replaced the resolution of the Annual General Shareholders
Meeting of May 3, 2002, which authorized the Executive
Board to acquire on or before October 31, 2003, up to
30.0 million shares in SAP 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. These repurchases of ordinary
shares are expected to reduce the dilutive effects on earnings
per share. As of March 9, 2004, we have repurchased 201
thousand 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 (STARs) to eligible employees of
SAP AG and our majority owned subsidiaries. The STAR Plan
is administered by SAP AGs Executive Board with
respect to eligible employees. Beginning with the introduction
of the LTI Plan in 2000, SAP SOP 2002 participants (and
prior to the introduction of the SAP SOP 2002, LTI Plan
participants) who are granted stock options generally may not
receive STARs 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.

The valuation of each of the STARs is calculated
quarterly, over a period of two years. Each quarterly valuation
is weighted as follows in determining the final valuation of the
respective STARs:

|                     |  |                  |    |               |  |                      |  |  |    |   |  | 
|-------------------- |  | ---------------- | -- | ------------- |  | -------------------- |  |  | -- | - |  | 
|Quarter Ended        |  | Weighting Factor |    | Quarter Ended |  | Weighting Factor    
|                     |  |                  |    |               |  |                     
|March 31, Year 1     |  |                  | 5  | %             |  | March 31, Year 2     |  |  | 10 | %
|June 30, Year 1      |  |                  | 5  | %             |  | June 30, Year 2      |  |  | 10 | %
|September 30, Year 1 |  |                  | 10 | %             |  | September 30, Year 2 |  |  | 10 | %
|December 31, Year 1  |  |                  | 20 | %             |  | December 31, Year 2  |  |  | 30 | %

2004 STARs.In March
2004 the Supervisory Board approved the granting of
approximately 3.8 million 2004 STARs to selected employees
who are not granted stock options under the SAP SOP 2002 in
the year 2004. The 2004 STARs grant value of
134.35 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
2003 preliminary results on January 22, 2004.

The valuations of the 2004 STARs for the
quarterly periods ending December 31 are based on the
amount by which the grant price of
134.35 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 2004 and
2005. The other quarterly valuations are based on the amount by
which the grant price of
134.35 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.

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The cash payout value of each 2004 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 2004
STARs on March 31, 2006 and January 31, 2007, each
payment equal to 50% of the total payout amount. Participants
will receive 2004 STAR payments provided that (subject to
certain exceptions) they continue to be actively employed by us
on the payment dates.

2003 STARs.In March
2003, we granted 3.8 million 2003 STARs to selected
employees who were not granted stock options under the SAP
SOP 2002 in the year 2003. The 2003 STARs 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 valuations of the 2003 STARs 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 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, in the case such value
appreciation occurred, receive payments with respect to the 2003
STARs on March 31, 2005 and January 31, 2006, each
payment equal to 50% of the total payout amount. Participants
will receive 2003 STAR payments provided that (subject to
certain exceptions) they continue to be actively employed by us
on the payment dates.

2002 STARs.In
February 2002, we granted 3.6 million 2002 STARs to
selected employees who were not granted stock options or
convertible bonds under the LTI Plan in the year 2002.
Additional information regarding the 2002 STARs is included in
Note 24 of Item 18. Financial Statements.
Because the grant price of the 2002 STARs was higher than the
price of the ordinary shares during the measurement period, no
payments will be made with respect to the 2002 STARs.

2001 STARs.In 2001,
we granted 3.4 million 2001 STARs to selected employees who
did not receive stock options or convertible bonds under the LTI
Plan in the year 2001. Because the grant price of the 2001 STARs
was higher than the price of the ordinary shares during the
measurement period, no payments will be made with respect to the
2001 STARs.

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. The
only remaining exercise date is June 30, 2004. As of
December 31, 2003, 150,910 of the 1994 Bonds remained
outstanding, and 452,730 ordinary shares would be issued upon
the conversion thereof.

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

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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 an individual account of the participating
employee, and 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)
Plan (401(k) Plan). Under the U.S. Discount
Plan, eligible employees are able to purchase ADRs through
semi-monthly payroll deductions of up to an annual aggregate of
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 are made out of amounts
deducted from each participating employees eligible
compensation. 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% for highly compensated employees and up
to 25% for non-highly compensated employees of their pretax and
after tax payroll under the 401(k) Plan, and we contribute 50%
of the contributed amounts up to 6% of the pretax and after tax
pay not to exceed $4,500 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. SAPs
ordinary shares are traded in the U.S. by means of American
Depositary Shares (ADS). Each ADS represents one fourth of one
ordinary share. On March 9, 2004, based upon information
provided by the ADS depositary, the Bank of New York, there were
127,464,548 ADSs, representing approximately 31,866,137 ordinary
shares, held of record by 2,300 registered holders. The ordinary
shares underlying such ADSs represented 10.1% of the
then-outstanding ordinary shares (including treasury stock).
Because SAPs 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.

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.

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The following table sets forth certain
information regarding the beneficial ownership of the ordinary
shares as of March 9, 2004 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, Member Supervisory Board                                                                                                                                                 |  |                    | 32,828,795  | (1)         |  |  | 10.406 | %
|Dietmar Hopp Stiftung GmbH                                                                                                                                                             |  |                    | 28,017,300  |             |  |  | 8.881  | %
|Prof. Dr. h.c. mult. Hasso Plattner,
    Chairperson Supervisory Board                                                                                                                 |  |                    | 37,239,740  | (2)         |  |  | 11.804 | %
|Hasso Plattner GmbH & Co. Beteiligungs-KG                                                                                                                                              |  |                    | 31,239,740  | (3)         |  |  | 9.902  | %
|Hasso Plattner Förderstiftung gGmbH                                                                                                                                                    |  |                    | 6,000,000   |             |  |  | 1.902  | %
|Dr. h.c. Klaus Tschira, Member Supervisory
    Board                                                                                                                                   |  |                    | 38,987,460  | (4)         |  |  | 12.358 | %
|Dr. h.c. Tschira Beteiligungs
    GmbH & Co. KG                                                                                                                                        |  |                    | 15,832,660  |             |  |  | 5.019  | %
|Klaus Tschira Stiftung gGmbH                                                                                                                                                           |  |                    | 21,154,800  |             |  |  | 6.705  | %
|Executive Board Members and Supervisory Board
    Members, as a group (24 persons)                                                                                                     |  |                    | 109,063,087 |             |  |  | 34.570 | %
|Options and convertible bonds that are vested and
    exercisable within 60 days of March 9, 2004, held by
    Executive Board Members and Supervisory Board Members,
    collectively |  |                    | 434,734     | (5)         |  |  | N/A    |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes: (i) 27,017,300 ordinary shares
    owned by Dietmar Hopp Stiftung GmbH, and (ii) 4,811,495
    ordinary shares owned by Golfplatz St. Leon-Rot GmbH & Co.
    Beteiligungs-KG and as to which Dietmar Hopp exercises sole
    voting and dispositive power. Dietmar Hopp disclaims beneficial
    ownership with respect to 8,721,100 ordinary shares owned in the
    aggregate by Dietmar Hopps immediate family and such
    shares are not included above.                                                                               
|   
|(2) | Includes: (i) 31,239,740 ordinary shares
    owned by Hasso Plattner GmbH & Co. Beteiligungs-KG, as to
    which Hasso Plattner exercises sole voting and dispositive
    power; and (ii) 6,000,000 ordinary shares owned by Hasso
    Plattner Förderstiftung, gGmbH, as to which Hasso Plattner
    exercises sole voting and dispositive power. Hasso Plattner
    disclaims beneficial ownership with respect to 130,000 ordinary
    shares owned in the aggregate by Hasso Plattners immediate
    family and such shares are not included above.
|   
|(3) | Hasso Plattner owns a 100% partnership interest
    in and controls Hasso Plattner GmbH & Co. Beteiligungs-KG.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(4) | Includes 21,154,800 ordinary shares owned by
    Klaus Tschira Stiftung gGmbH, as to which Klaus Tschira
    exercises shared voting and dispositive power. Klaus Tschira
    disclaims beneficial ownership with respect to 2,133,840
    ordinary shares owned in the aggregate by Klaus Tschiras
    immediate family and such shares are not included above.                                                                                                                                                                                       
|   
|(5) | Includes 155,696 stock options and 279,038
    convertible bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

We at present have 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

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
of Item 18. Financial Statements. 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.

August-Wilhelm Scheer is the major shareholder
and head of the supervisory board of IDS Scheer AG, a German
software and IT services company. Until early 2004 SAP AG
owned a minority stake in IDS Scheer (approximately 2.5% of IDS
Scheers shares outstanding as of December 31, 2003).
SAP AG sold this stake in February 2004. IDS Scheer and
SAP AG have relationships in the ordinary course of
business and at arms length, whereby mainly IDS Scheer
provides services for SAP AG. In October 2003 SAP AG
and IDS Scheer entered into a strategic relationship to jointly
develop and market a software solution for Business Process

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Management. As part of this strategic
relationship SAP AG both acquired and licensed certain
software related intellectual property rights from IDS Scheer.


In February 2002, SAP AG started
negotiations with DCW Software AG & Co. KG (DCW)
with regard to a possible investment of SAP AG in DCW.
SAP AG acquired a controlling interest in DCW in November
2003 and increased this stake to 100% in January 2004. At the
time of the initial negotiations DCW had a credit facility
agreement with Fancourt Flugcharter GmbH & Co KG, a company
wholly owned by Hasso Plattner. There were no credit amounts
drawn by DCW under this facility when SAP AG started the
investment negotiations. The credit facility agreement was
terminated without further drawings in May 2003.

After his move from SAP AGs Executive
Board to SAP AGs Supervisory Board, Hasso Plattner
entered into a contract with SAP AG under which he provides
consulting services for SAP for no fee but pursuant to which SAP
has agreed to reimburse his expenses in connection with such
services.

Haarmann, Hemmelrath & Partner is a
partnership of lawyers, accountants and tax advisers, which
holds stakes in other entities also carrying the name
Haarmann, Hemmelrath & Partner, altogether
referred to as HHP or the firm. The firm
has more than 1,200 employees in 23 offices worldwide. HHP
provided valuation services, tax and legal counsel services for
entities of the SAP group. The total amount charged to SAP for
those services in 2003 was
0.5 million
(2002:
1.3 million;
2001:
0.3 million).
Wilhelm Haarmann did not provide the services personally and
was, if at all, only involved in a monitoring function. We were
informed by HHP that revenues generated with SAP represented
less than 1% of HHPs revenue of the respective years.
Additionally HHP is a customer of SAP. Amounts paid by HHP to
SAP for products and services were
0.02 million,
0.2 million
and
0.2 million
in the years 2003, 2002 and 2001, respectively.

At no point in the years ended December 31,
2003, 2002 and 2001 the Company held note receivables from any
member of the Executive Board or the Supervisory Board. During
the years ended December 31, 2003, 2002 and 2001, there
were no significant transactions between the Company and the
major shareholders as outlined in Note 23 of
Item 18. Financial Statements.

In 2000, SAP commenced a strategic alliance
relationship with Commerce One to jointly develop, market and
sell Web-based software solutions. In connection with this
relationship, SAP AG in its fiscal year 2000 acquired
common stock of Commerce One and in 2001 increased its equity
investment in the common stock of Commerce One to the point of
exercising significant influence. As part of the acquisition
arrangement SAP AG agreed to certain limitations that
restrict SAP AGs ability to transfer its common
shares of Commerce One, to increase its ownership interest and
to engage in certain take-over transactions involving Commerce
One without approved by Commerce Ones Board of Directors.
In 2002, SAP AG named a non-voting observer to attend
Commerce Ones Board of Directors meetings. The cooperation
agreements between the two companies were amended several times
between 2001 and 2003. In 2003, SAP AG effectively ceased
all transactions under the cooperation arrangements and ceased
the jointly developed products or replaced such products with
SAP products. As discussed in Note 4 of Item 18.
Financial Statements the carrying value of SAPs
investment in Commerce One was reduced to zero as of
December 31, 2002 and remained at zero throughout 2003. For
the year ended December 31, 2003, transactions with
Commerce One accounted for less than 1% of the Companys
total revenues and cost of revenues. For the year ended
December 31, 2002 and 2001, transactions with Commerce One
accounted for approximately 1% of the Companys total
revenues and less than 1% of the Companys cost of
revenues. Transactions involving Commerce One are expected to
continue to be immaterial in periods beyond 2003.

As discussed in Note 16 of
Item 18. Financial Statements, SAP has issued
loans to employees other than to directors and officers with
aggregate outstanding balances of
37.8 million
and
32.6 million
at December 31, 2003 and 2002, respectively. Loans granted
to employees primarily consist of interest free or below market
rate building loans which SAP discounts for financial reporting
purposes based on prevailing market rates. SAPs default
experience on loans to employees has been insignificant. There
have been no loans to employees or executives to assist them in
exercising stock options. We have no loans outstanding to any
directors or officers.

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Item 8.     Financial
Information



Consolidated Financial Statements

See Item 18. Financial
Statements and pages F-1 through F-68 and S-1.




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. We have not received any further
information that would lead us to believe the investigation is
continuing.

The bankruptcy trustee for the United States
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 and licensee of the SAPs R/3
system software. FoxMeyers bankruptcy trustee
(Trustee) alleges that the software failed to
perform properly, damaging FoxMeyers business, and that
such failure was a significant factor contributing to
FoxMeyers bankruptcy in 1996 and its subsequent
liquidation. The complaint asserts claims of breach of contract,
breach of express and implied warranties, fraud, negligent
misrepresentation, and promissory estoppel. The Trustee seeks
unspecified compensatory and punitive damages, the award of
costs, expenses and reasonable attorneys fees, as well as
pre-judgment and post-judgment interest. The discovery phase of
the proceedings is nearing completion and SAP AG intends to
file with SAP America, Inc., a motion for summary at the
conclusion of discovery. While the ultimate outcome of this
matter cannot be presently determined with certainty, we believe
that the Trustee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, result 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. One SAP ADR represents
one-fourth of SAP AGs ordinary share. Accordingly, the
final dividend per ADR is calculated as one-fourth of the
dividend of one SAP AG share and is dependent on the euro/dollar
exchange rate. Record holders of the ADSs on the dividend record
date will be entitled to receive payment 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 euro 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.

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Item 9.     The
Offer and Listing

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.

Prior to June 18, 2001, SAP AG also had
preference shares, which were then converted into ordinary
shares on a share for share basis pursuant to resolutions
adopted at our Annual General Shareholders Meeting and a
special meeting of holders of the preference shares on
May 3, 2001. 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, operated by
Deutsche Börse AG, is the largest of the eight German stock
exchanges, accounting for approximately 90% of the turnover of
all German stock exchanges. The aggregate annual turnover of the
Frankfurt Stock Exchange (including XETRA) in 2003 amounted to
2.8 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. On
December 31, 2003, the equity securities of
5,730 corporations, including 4,901 non-German
corporations, were traded on the Frankfurt Stock Exchange,
including over-the-counter markets.

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 Stock 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.

In addition to the trading floor, the ordinary
shares are also traded on XETRA, a computerized trading system
of Deutsche Börse AG. XETRA matches buy and sell orders
from licensed traders in a central, fully electronic order book.
The system works independently of the location of the trader and
provides insight into the order book. The trading hours for
XETRA are from 9:00 a.m. until 5:30 p.m. Central
European Time on each business day. Securities traded on XETRA
include almost the full range of shares listed on the Frankfurt
Stock Exchange and a number of additional warrants and
certificates. XETRA is subject to the rules and regulations of
the Frankfurt Stock Exchange. It now has a market share of 98%
in the securities of the 30 companies comprising the Deutsche
Aktienindex (DAX), the leading index of trading on
the Frankfurt Stock Exchange. The SAP AG preference shares
were included in the DAX beginning September 15, 1995 and
were replaced by ordinary shares upon the conversion on
June 18, 2001.

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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 Börse 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 euro.

|                         |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |          | 
|------------------------ | ----------------------- | ----------------- | ------ | ----------- |  | ------ | ------ | ------ |  | ---- | ------ | --- |  |  | ------ | --- |  |  | -------- | -------- |  |  | -------- | -------- | 
|                         |                         |                   |        |             |  |        |        |        |  |     
|                         |                         |                   |        | 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    |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |         
|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 |         
|2003                     |                         |                   | 134.00 |             |  |        | 67.65  |        |  |      | N/A    |     |  |  | N/A    |     |  |  | 3,965.16 |          |  |  | 2,202.96 |         
|Quarterly Highs and Lows |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |         
|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 | 
|2003                     |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |         
|                         | First Quarter           |                   |        | 93.74       |  |        |        | 67.65  |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,157.25 |  |  |          | 2,202.96 | 
|                         | Second Quarter          |                   |        | 112.30      |  |        |        | 70.50  |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,304.15 |  |  |          | 2,450.19 | 
|                         | Third Quarter           |                   |        | 126.26      |  |        |        | 97.36  |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,668.67 |  |  |          | 3,146.55 | 
|                         | Fourth Quarter          |                   |        | 134.00      |  |        |        | 105.95 |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,965.16 |  |  |          | 3,276.64 | 
|Monthly Highs and Lows   |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |         
|2003                     |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |         
|                         | July                    |                   |        | 108.76      |  |        |        | 97.36  |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,487.86 |  |  |          | 3,146.55 | 
|                         | August                  |                   |        | 109.30      |  |        |        | 97.58  |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,565.47 |  |  |          | 3,331.89 | 
|                         | September               |                   |        | 126.26      |  |        |        | 104.88 |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,668.67 |  |  |          | 3,256.78 | 
|                         | October                 |                   |        | 129.37      |  |        |        | 105.95 |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,655.99 |  |  |          | 3,276.64 | 
|                         | November                |                   |        | 134.00      |  |        |        | 124.10 |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,797.40 |  |  |          | 3,638.04 | 
|                         | December                |                   |        | 133.79      |  |        |        | 129.99 |  |      |        | N/A |  |  |        | N/A |  |  |          | 3,965.16 |  |  |          | 3,806.54 | 
|2004                     |                         |                   |        |             |  |        |        |        |  |      |        |     |  |  |        |     |  |  |          |          |  |  |          |         
|                         | January                 |                   |        | 142.70      |  |        |        | 132.41 |  |      |        | N/A |  |  |        | N/A |  |  |          | 4,151.83 |  |  |          | 3,995.91 | 
|                         | February                |                   |        | 137.37      |  |        |        | 127.00 |  |      |        | N/A |  |  |        | N/A |  |  |          | 4,141.53 |  |  |          | 3,991.42 | 
|                         | March (through March 9) |                   |        | 131.56      |  |        |        | 128.97 |  |      |        | N/A |  |  |        | N/A |  |  |          | 4,145.99 |  |  |          | 4,054.43 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

On March 9, 2004, the closing sales price
per ordinary share on the Frankfurt Stock Exchange was
129.75, as
provided by the Deutsche Börse AG.

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Trading on the NYSE

SAP AGs ordinary shares are traded in the
U.S. by means of American Depositary Shares
(ADS). Each ADS represents one fourth of one
ordinary share. On March 9, 2004, based upon information
provided by the ADS depositary, the Bank of New York, there were
127,464,548 ADSs, representing approximately 31,866,137 ordinary
shares, held of record by 2,300 registered holders. The ordinary
shares underlying such ADSs represented 10.1% of the
then-outstanding ordinary shares (including treasury stock).
Because SAPs 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    |                |               |       |       |  |  |       |      
|1999                     |                |               | 53.75 |       |  |  | 23.81 |      
|2000                     |                |               | 83.94 |       |  |  | 31.75 |      
|2001                     |                |               | 47.64 |       |  |  | 23.00 |      
|2002                     |                |               | 38.84 |       |  |  | 10.05 |      
|2003                     |                |               | 41.80 |       |  |  | 18.46 |      
|Quarterly Highs and Lows |                |               |       |       |  |  |       |      
|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 | 
|2003                     |                |               |       |       |  |  |       |      
|                         | First Quarter  |               |       | 25.00 |  |  |       | 18.46 | 
|                         | Second Quarter |               |       | 33.40 |  |  |       | 19.18 | 
|                         | Third Quarter  |               |       | 34.50 |  |  |       | 27.56 | 
|                         | Fourth Quarter |               |       | 41.80 |  |  |       | 31.13 | 

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|                       |                         |               |  |       |  |  |  |       | 
|---------------------- | ----------------------- | ------------- |  | ----- |  |  |  | ----- | 
|                       |                         |              
|                       |                         | Price per ADS
|                       |                         |              
|                       |                         | High          |  | Low  
|                       |                         |               |  |      
|                       |                         |              
|                       |                         | (in U.S.$)   
|Monthly Highs and Lows |                         |               |  |       |  |  |  |      
|2003                   |                         |               |  |       |  |  |  |      
|                       | July                    |               |  | 30.70 |  |  |  | 27.59 | 
|                       | August                  |               |  | 29.94 |  |  |  | 27.56 | 
|                       | September               |               |  | 34.50 |  |  |  | 30.41 | 
|                       | October                 |               |  | 38.55 |  |  |  | 31.13 | 
|                       | November                |               |  | 38.98 |  |  |  | 36.47 | 
|                       | December                |               |  | 41.80 |  |  |  | 39.42 | 
|2004                   |                         |               |  |       |  |  |  |      
|                       | January                 |               |  | 45.27 |  |  |  | 41.14 | 
|                       | February                |               |  | 44.14 |  |  |  | 39.60 | 
|                       | March (through March 9) |               |  | 40.75 |  |  |  | 39.45 | 

On March 9, 2004, the closing sales price
per ADS on the NYSE was U.S.$40.00, 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 court in
Heidelberg, Germany, under the entry number
HRB 269-Wie. Since January 1, 2003, SAP AG
publishes its official notices in the Internet version of the
Federal Gazette (www.ebundesanzeiger.de).

Objectives and purposes

Section 2 of SAP AGs Articles of
Incorporation states that our objectives involve, directly or
indirectly, the 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.

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##### Table of Contents



Corporate Governance

Introduction

The primary source of law relating to corporate
governance of a German stock corporation is the German Stock
Corporation Act, but other relevant rules with impact on
corporate governance are also contained in the Security Trading
Act, Securities Purchase and Takeover Act, Stock Exchange
Admission Regulations, Commercial Code and other statutes. In
addition to these mandatory rules, in February 2002, a
government commission appointed by the German Minister of
Justice adopted the German Corporate Governance Code
(GCGC), which has since been amended. The GCGC
consists of recommended cooperate governance standards. The new
Section 161 of the Stock Corporation Act, however, requires
the Executive and the Supervisory Board of exchange- listed
companies, such as SAP AG, to declare annually that the
recommendations set forth in the GCGC have been and are being
complied with, or which of the recommendations are not being
applied. SAP AG disclosed deviations from the GCGC in 2002 and
2003 in a declaration of compliance, which is available on our
website (www.sap.com).

In December 2001 SAP AG was one of the first
German listed companies to publish its own corporate governance
rules  SAPs Principles of Corporate
Governance. After the adoption of the GCGC in 2002, SAP
adjusted its own principles according to those standards and an
update of SAPs Principles of Corporate Governance was
published in August 2002 and March 2004. The purpose of
SAPs Principles of Corporate Governance which
reflect the accepted standard of corporate governance for German
stock corporations is to provide a framework of responsible,
value oriented management and control policies for the SAP group
of companies according to or where necessary complementing the
applicable provisions of law. SAPs Principles of Corporate
Governance are available on our website (www.sap.com). On the
same website, we intend to make available a statement of how
SAPs corporate governance practices vary from those of
U.S. corporations.

The Sarbanes-Oxley Act, enacted into law in July
2002, strengthens protection of the shareholding public by
imposing new corporate governance and reporting requirements on
publicly traded companies. As SAP AG is a publicly traded
company listed on the New York Stock Exchange, SAP has taken
steps to comply with the applicable regulations of the
Sarbanes-Oxley Act and the regulations of the Corporate
Governance Rules of the New York Stock Exchange including
establishing a Disclosure Committee and enhancing the monitoring
of internal control processes. SAP amended in its Principles of
Corporate Governance standards and guidelines that SAP Executive
Board and Supervisory Board members must follow in carrying out
their duties, including a number of guidelines that cover
certain topics similar to those required by the New York Stock
Exchange rules. On our website (www.sap.com), we intend to make
available a statement of how SAPs corporate governance
practices vary from those required by the New York Stock
Exchange.

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 rules are defined by German law and by SAPs
Articles of Incorporation (Satzung) and may be briefly
summarized as follows:

The Supervisory Board

The Supervisory Board appoints and removes the
members of the Executive Board and oversees and advises the
management of the corporation. At regular intervals it meets to
discuss current business as well as business development and
planning. The SAP Executive Board must consult with the
Supervisory Board concerning the corporate strategy, which is
developed by the Executive Board. The Supervisory Board must
also approve the annual budget of SAP upon submission by the
Executive Board and certain subsequent deviations from the
approved budget. The Supervisory Board is also responsible for
representing SAP AG in transactions between SAP AG and Executive
Board members.

The Supervisory Board, based on a recommendation
by the Audit Committee, provides its proposal for the election
of the independent public accountant to the Annual General
Shareholders Meeting. Prior to submitting this proposal
and as requested by SAPs Principles of Corporate
Governance, the SAP Supervisory Board must obtain a statement
from the proposed independent public accountant stating its
independence. The Supervisory Board is also responsible for
monitoring the auditors continued independence.

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The German Co-Determination Act of 1976
(Mitbestimmungsgesetz) requires supervisory boards of
corporations with more than 2000 employees to be equally staffed
by representatives of the shareholders and representatives of
the employees. The minimum total number of Supervisory Board
members, and thus the minimum number of shareholder
representatives and employee representatives is legally fixed
and depends on the number of employees employed by the
corporation and its German subsidiaries. The SAP Supervisory
Board currently consists of 16 members, of which
8 members have been elected by SAP AGs shareholders
at the Annual General Shareholders Meeting and
8 members which have been elected by SAPs employees.
Previously, the Supervisory Board consisted of 12 members,
of which six were elected by the shareholders and six were
elected by SAP employees. Since the number of employees of SAP
AG and its affiliates in Germany exceeded 10,000 in 2001, the
Supervisory Board was enlarged to 16 members subsequent to
the Annual General Shareholders Meeting in May 2002.

Any Supervisory Board member elected by the
shareholders at the Annual General Shareholders Meeting
may be removed by three-quarters of the votes cast at the
General Annual Shareholders Meeting. Any Supervisory Board
member elected by the employees may be removed by three quarters
of the votes cast by employees.

The Supervisory Board elects a chairman and a
deputy chairman among its members by a majority of 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 5 years.
The term expires at the close of the Annual General
Shareholders Meeting of the fourth fiscal year following
the year in which the Supervisory Board was elected unless the
Annual General Shareholders Meeting specifies a shorter
term of office when electing individual members of the
Supervisory Board or the entire Supervisory Board. Re-election
is possible. The Supervisory board normally meets four times a
year. The remuneration of the members of the Supervisory Board
is determined by the Articles of Incorporation.

As stipulated in SAPs Principles of
Corporate Governance the shareholder representatives of the
Supervisory Board are independent. In order to be considered for
appointment to the Supervisory Board and for as long as they
serve, members must comply with certain criteria concerning
independence, conflict of interest and multiple memberships of
management, supervisory and other governing bodies. They must be
loyal to SAP in their conduct and must not accept appointment in
companies that are in competition with SAP. Members are subject
to SAPs insider trading prohibition and the interested
director dealing rules of the Securities Trading Act.

The Supervisory Board may appoint committees from
among its members and may, to the extent permitted by law,
entrust committees with the authority to make decisions.
Currently the Supervisory Board maintains the following
committees:

The focus of the Audit Committee
(Bilanzprüfungsausschuss) is the discussion and the
monitoring of the independent auditors reports about SAP
companies and SAP AG financial statements as well as the
summarized review of SAP companies and SAP AG operations. The
Audit Committee proposes 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 and monitors the
auditors independence. SAPs Internal Audit
Department reports upon request or at the occurrence of certain
audit findings, but in any case at least once a year directly to
the Audit Committee.

The Audit Committee has established special
procedures regarding the prior approval of all audit and
non-audit services provided by our independent auditor. These
procedures are codified in SAPs Principles of the
engagement of the auditor regarding auditing  and
non  audit services.

The Audit Committee is currently composed of 4
members: Bernhard Koller, Wilhelm Haarmann, Stefan Schulz and
Klaus Tschira. The Supervisory Board has determined Wilhelm
Haarmann to be a financial expert as defined in Section 407
of the Sarbanes-Oxley Act.

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The General Committee
(Präsidialausschuss) coordinates the Supervisory Board
agenda, meetings and deals with corporate governance issues.
Furthermore, it was assigned the authority to grant SAP
SOP 2002 stock options to all recipients with the exception
of Executive Board Members.

The Compensation Committee
(Personalausschuss) was assigned the conclusion of employment
contracts with and the determination of the remuneration of
Executive Board Members. It also grants SAP SOP 2002 stock
options to SAP AG Executive Board Members.

The Finance and Investment Committee
(Finanz- und Investitionsausschuss) addresses general financing
issues. Furthermore it is responsible for the approval and
reports to the Supervisory Board of venture capital investments
above
7.5 million
and other investments between
15.0 million
and
100.0 million.

Required by the German Determination Act of 1976
(Mitbestimmungsgesetz), the Mediation Committee
(Vermittlungsausschuss) convenes only if the 2/3 majority
required for appointing/ revoking the appointment of Executive
Board members is not attained. This committee has never held a
meeting in SAP AGs history.

The Technology Committee
(Technologieausschuss) monitors technology transactions and
provides the Supervisory Board with in-depth technical knowledge.

The duties, procedures and committees of the
Supervisory Board are specified in bylaws and in SAPs
Principles of Corporate Governance respectively. Major decisions
of the Executive Board require Supervisory Board approval.

According to the latest adjustments to SAPs
Principles of Corporate Governance as mentioned above, the
granting of loans to Senior Management is not permitted. The
Supervisory Board, according to SAPs Principles of
Corporate Governance, also can no longer approve such contracts.

The Executive Board

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

The Executive Board and the Supervisory Board
must cooperate closely for the benefit of the company. Without
being asked, the Executive Board must provide to the Supervisory
Board regular, prompt and comprehensive information about all of
the essential issues affecting the SAP groups business
progress and its potential business risks. Furthermore, the
Executive Board must maintain regular contact with the
chairperson of the Supervisory Board. The Executive Board must
inform the chairperson of the Supervisory Board without delay if
exceptional events occur that are of significance to SAPs
business. The chairperson must inform the Supervisory Board
accordingly.

Pursuant to the Articles of Incorporation, the
Executive Board must consist of at least 2 members. Currently,
SAP AGs Executive Board is composed of 7 members. Any
2 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. The Supervisory Board
appoints each member of the Executive Board for a maximum term
of 5 years, with the possibility of re-appointment
thereafter. Under certain circumstances, a member of the
Executive Board may be removed by the Supervisory Board prior to
the expiration of that members term. A member of the
Executive Board may not vote on matters relating to certain
contractual agreements between such member and SAP AG, and may
be liable to SAP AG 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.
Further, as the compensation of the Executive Board members is
set by the Supervisory Board, Executive Board members are unable
to vote on their own compensation.

Under German law SAP AG Supervisory Board Members
and Executive Board Members have 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 bodies must consider the
interest of SAP AG shareholders and our employees and, to some
extent, the common interest. Those who violate their

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duties may be held jointly and severally liable
for any resulting damages, unless they acted pursuant to a
lawful resolution of the Annual General Shareholders
Meeting.


SAP has implemented a Code of Business Conduct
for employees covering the following topics: Conflict of
interest, personnel gain, bribery and corruption,
confidentiality, financial concerns, conduct with customers,
ventures, competitors and partners and trading in shares
(addressing insider trading concerns). The employee code and
SAPs Principles of Corporate Governance are equally
applicable to managers and members of the Executive Board.

Under the German law the Executive Board of SAP
AG has to assess all major risks for the SAP group. In addition,
all measures taken by the management to reduce and handle the
risks have to be documented. Therefore, SAPs management
has adopted suitable measures such as implementing an
enterprise-wide monitoring system to ensure that adverse
developments endangering the corporate standing are recognized
at a reasonably early point in time.

The Annual General Shareholder
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,
the election of the members of the Supervisory Board and certain
significant corporate transactions. Pursuant to the German Stock
Corporation Act, any conditional capital increase or use of
treasury shares to offer stock options or similar equity
compensation to employees must be ratified by the shareholders.
The shareholders have to approve any significant aspects of such
a plan as well as the exercise threshold. The Annual General
Shareholders Meeting must be called by the Executive Board
within the first eight months of each fiscal year. If a meeting
is not timely called, shareholders which hold in the aggregate
5% of the issued share capital or shares with a nominal value of
at least
500,000 may
demand an Extraordinary General Shareholders Meeting.

Share Capital

As of December 31, 2003 the share capital of
SAP AG was
315,413,553,
consisting of 315,413,553 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 kind, or by
    establishing authorized capital or contingent capital or by an
    increase of the companys 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 issuance of
    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 Annual 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.
|
| |  | Authorized and Contingent Capital.Information regarding our authorized
    and contingent capital is included in Note 23 in
    Item 18. Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | 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 Annual General
    Shareholders Meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Preemptive Rights.Shareholders have preemptive rights to
    subscribe (Bezugsrecht) for any issue of additional
    shares in proportion to their shareholdings in the issued
    capital. The preemptive rights may be                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | excluded under certain circumstances by a
    shareholders resolution (approved by 75% of the issued
    shares present at the Annual Shareholders Meeting) or by
    the Executive Board authorized by such shareholders
    resolution and subject to the consent of the Supervisory 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 or
shares with a nominal value of at least
500,000 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 as well as amendments of our
Articles of Incorporation. Shareholder representatives to the
Supervisory Board are elected at the Annual General
Shareholders Meeting for terms of approximately five years.

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.

On January 1, 2002, the German Securities
Purchase and Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz) became effective. It requires, among
other things, that a bidder seeking control of a company

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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 Financial
Supervisory Authority (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 Securities Purchase and 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 that 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 SAP AG to
notify SAP AG and the Financial Supervisory Authority 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 outside of Germany
(Non-Resident) 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
CAC-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.
Effectively, a portion of 95% of the dividends received in 2004
and subsequent taxable years 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 and certain insurance 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% solidarity surtax on the German withholding tax
is currently levied on dividend distributions paid by a German
corporation, such as SAP AG. The solidarity 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 (which are calculated as
one-fourth of the dividend on one SAP

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AG share and are dependent on the euro/dollar
exchange rate) 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 corporate holder of ADSs or ordinary shares that
is domiciled in Germany, according to German income tax law,
dividends in principle are exempt from corporation tax. However,
a portion of 5% of the dividends received is treated as non
deductible expenses. Therefore, effectively a portion of 95% of
dividends received in 2004 and subsequent taxable years by a
corporate holder of ADSs or ordinary shares that is resident in
Germany is exempt and a portion of 5% of the dividends received
is subject to corporation tax. These rules as regards the
(partial) exemption for dividends from corporation tax have some
exceptions, which especially apply to financial and certain
insurance 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 or corporation 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.

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 euro, 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 U.S. 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.

A capital gain derived from the sale or other
disposition by a corporate holder domiciled in Germany of ADSs
or ordinary shares in principle is exempt from corporation tax.
However, a portion of 5% of a capital gain derived is treated as
non-deductible business expenses. Therefore, effectively a
portion of 95% of a capital gain derived from the sale or other
disposition in 2004 and subsequent taxable years by a corporate
holder domiciled in Germany of ADSs or ordinary shares is exempt
and a portion of 5% of a capital gain derived is subject to
corporation tax. These rules as regards the (partial) exemption
from corporation tax 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 or corporation tax. Special rules
may apply for shares held indirectly via trading partnerships.

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

A holder resident or domiciled in a country other
than Germany is generally 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

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left Germany. In general, in the case of a
U.S. Holder, a transfer of ADSs or ordinary shares by gift
or by reason 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 U.S. or a corporation organized
under the laws of the U.S. 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 U.S. 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 U.S. 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.

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
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.

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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 euro, the amount
of the distribution generally will equal the dollar value of the
euro 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. Dividends paid by SAP AG
after December 31, 2002 are treated as qualified dividends
subject to capital gains rates as provided by the Jobs and
Growth Tax Reconciliation Act of 2003.

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. 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.

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

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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
U.S. (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 rata share 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.

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

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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 rata share 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 U.S. 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
U.S. 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.






|         |                                                               
|-------- | --------------------------------------------------------------
|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

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into in the future, derivative instruments to
hedge all or a portion of the anticipated cash flows in
connection with the STARs 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 subject 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  Foreign Currency
Exchange Rate Exposure.

We enter into derivative instruments, primarily
foreign exchange forward contracts, to protect our anticipated
cash flows from foreign subsidiaries from the effects of 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 U.S., 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.

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

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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   |         | 2003(1)     
|                                                      |                                             |                    |         |             
|                                                      |                                             | Expected           |         |             
|                                                      |                                             | Maturity Date      |         |             
|                                                      |                                             | 2004               |         |             
|Derivatives used to manage firm
    commitments       |                                             |                    |         |              |  |  |         |  
|                                                      | Foreign Currency Forward Contracts          |                    |         |              |  |  |         |   | 
|                                                      | (Receive Local Currency, Sell euro)         |                    |         |              |  |  |         |   | 
|Japanese Yen                                          |                                             |                    | 63,910  |              |  |  | (661    | )
|Weighted Average Contractual Exchange Rate            |                                             |                    | 133.00  |              |  |  |         |  
|                                                      | Foreign Currency Forward Contracts          |                    |         |              |  |  |         |   | 
|                                                      | (Receive euro, Sell Local Currency)         |                    |         |              |  |  |         |   | 
|U.S. dollars                                          |                                             |                    | 760,935 |              |  |  | 157,351 |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 0.9946  |              |  |  |         |  
|Japanese Yen                                          |                                             |                    | 15,117  |              |  |  | 282     |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 132.30  |              |  |  |         |  
|British Pounds                                        |                                             |                    | 13,943  |              |  |  | 59      |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 0.7029  |              |  |  |         |  
|Swiss Franks                                          |                                             |                    | 10,569  |              |  |  | 26      |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.5517  |              |  |  |         |  
|Canadian dollars                                      |                                             |                    | 72,900  |              |  |  | (983    | )
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.6461  |              |  |  |         |  
|Australian dollars                                    |                                             |                    | 3,452   |              |  |  | 10      |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.6800  |              |  |  |         |  
|                                                      | Foreign Currency Forward Contracts          |                    |         |              |  |  |         |   | 
|                                                      | (Receive British Pounds, Sell U.S. dollars) |                    |         |              |  |  |         |   | 
|U.S. dollars                                          |                                             |                    | 855     |              |  |  | 64      |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.6385  |              |  |  |         |  
|Derivatives Used to Manage Anticipated Cash
    Flows |                                             |                    |         |              |  |  |         |  
|                                                      | Foreign Currency Forward Contracts          |                    |         |              |  |  |         |   | 
|                                                      | (Receive euro, Sell Local Currency)         |                    |         |              |  |  |         |   | 
|U.S. dollars                                          |                                             |                    | 342,080 |              |  |  | 17,728  |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.1904  |              |  |  |         |  
|Japanese Yen                                          |                                             |                    | 41,071  |              |  |  | 1,747   |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 127.58  |              |  |  |         |  
|British Pounds                                        |                                             |                    | 34,441  |              |  |  | 232     |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 0.7084  |              |  |  |         |  
|Swiss Franks                                          |                                             |                    | 36,500  |              |  |  | 286     |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.5315  |              |  |  |         |  
|Canadian dollars                                      |                                             |                    | 32,436  |              |  |  | 972     |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.5785  |              |  |  |         |  
|Australian dollars                                    |                                             |                    | 11,390  |              |  |  | 184     |  
|Weighted Average Contractual Exchange Rate            |                                             |                    | 1.6856  |              |  |  |         |  






|    |                                                          
|--- | ---------------------------------------------------------
|(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 and 2001, we invested in funds
(the Funds) created by three creditworthy financial

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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 Fund value with remaining amounts invested
in interest bearing securities. The quoted market prices of time
deposits or fixed rate securities held within the Funds had no
material effect on our results of operations or cash flows for
any period. 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 interest rate fluctuations on these investments.
We hold such derivative instruments for purposes other than
trading. No interest rate swaps were outstanding as of
December 31, 2003.


The table below presents principal (or notional)
amounts (in thousands of euro unless otherwise indicated),
respective fair values at December 31, 2003 and related
weighted average interest rates by year of maturity for
SAPs investment portfolio.

|                           |  |                                     |        |      |  |              |   |      |  |      |   |            |  |       |    |      |  |  |    |  |  |  |   |  |  |  |        |  |  |  |        | 
|-------------------------- |  | ----------------------------------- | ------ | ---- |  | ------------ | - | ---- |  | ---- | - | ---------- |  | ----- | -- | ---- |  |  | -- |  |  |  | - |  |  |  | ------ |  |  |  | ------ | 
|                           |  |                                     |        |      |  |             
|                           |  | Expected Maturity Date              |        |      |  |             
|                           |  |  (000), unless otherwise indicated |        |      |  | Fair Value  
|                           |  |                                     |        |      |  | December 31,
|Marketable debt securities |  | 2004                                |        | 2005 |  | 2006         |   | 2007 |  | 2008 |   | Thereafter |  | Total |    | 2003
|                           |  |                                     |        |      |  |              |   |      |  |      |   |            |  |       |    |     
|Fixed rate                 |  |                                     | 51,129 |      |  |              |  |      |  |      |  |            |  |       |   |      |  |  |   |  |  |  |  |  |  |  | 51,129 |  |  |  | 52,781 | 
|Average interest rate      |  |                                     | 6.13   | %    |  |              |  |      |  |      |  |            |  |       |   |      |  |  |   |  |  |  |  |  |  |  |        |  |  |  |        | 
|Variable rate              |  |                                     | 826    |      |  |              | 1 |      |  |      | 9 |            |  |       | 18 |      |  |  | 56 |  |  |  |  |  |  |  | 910    |  |  |  | 898    | 
|                           |  |                                     |        |      |  |              |   |      |  |      |   |            |  |       |    |      |  |  |    |  |  |  |   |  |  |  |        |  |  |  |        | 
|Total investments          |  |                                     | 51,955 |      |  |              | 1 |      |  |      | 9 |            |  |       | 18 |      |  |  | 56 |  |  |  |  |  |  |  | 52,039 |  |  |  | 53,679 | 
|                           |  |                                     |        |      |  |              |   |      |  |      |   |            |  |       |    |      |  |  |    |  |  |  |   |  |  |  |        |  |  |  |        | 

We have lines of credit available that allow us
to borrow money 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, 2003 (in thousands of euro
unless otherwise indicated), and related weighted average
interest rates or 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        |  | 2003
|                                 |  |     
|Fixed rate bank loans
    (000) |  |      | 16,640 |  
|Average interest rate            |  |      | 6.18   | %
|Overdrafts
    (000)            |  |      | 4,827  |  
|Total bank loans and overdrafts  |  |      | 21,467 |  




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. Such investments are recorded at cost and therefore
do not expose us to equity price risk as long as they are
privately owned, although such investments are subject to
evaluation for impairment. We recognized in financial income net
gains from the sale of marketable equity securities of
approximately
2 million
in 2003 and
3 million
in 2002. In 2003, we recorded approximately
0.2 million
of losses from associated companies due to the application of
the equity method of accounting and impairment charges of
15.1 million
for other equity securities due to an other than temporary

95



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decline in fair value. In 2002 we recorded
approximately
394.6 million
of losses from associated companies, of which
297.6 was due to
an other-than-temporary impairment charge related to our
investment in Commerce One and
113.6 was due to
other-than-temporary impairment charges related to other equity
securities. 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 2003, or
result in the loss of amounts invested.


STAR Hedge

To a certain extent SAP hedges anticipated cash
flow exposures associated with unrecognized non-vested STARs
(see Note 24 in Item 18. Financial
Statements) through the purchase of derivative instruments
from an independent financial institution. We are therefore
further exposed to equity price risks on SAP shares, which are
the underlying for those derivative instruments.

As of December 31, 2003 the following
derivative instruments were designated as a hedge for the STAR
Plan 2003, and STAR Plan 2002, respectively:

|                                                             |  |                           |           |              |  |  |        | 
|------------------------------------------------------------ |  | ------------------------- | --------- | ------------ |  |  | ------ | 
|                                                             |  |                          
|                                                             |  | Hedge of 2.0 million 2003
|                                                             |  | STARs                    
|                                                             |  |                          
|                                                             |  | Number of call            |           |             
|Buy/sell                                                     |  | options                   |           | Strike price
|                                                             |  |                           |           |             
|Buy                                                          |  |                           | 2.000.000 |              |  |  | 84.91  | 
|Sell                                                         |  |                           | 1.000.000 |              |  |  | 134.91 | 
|Sell                                                         |  |                           | 500.000   |              |  |  | 184.91 | 
|Fair value as of December 31, 2003 in
    (000):
    77,790

|                                                         |  |                           |           |              |  |  |        | 
|-------------------------------------------------------- |  | ------------------------- | --------- | ------------ |  |  | ------ | 
|                                                         |  |                          
|                                                         |  | Hedge of 3.0 million 2002
|                                                         |  | STARs                    
|                                                         |  |                          
|                                                         |  | Number of call            |           |             
|Buy/sell                                                 |  | options                   |           | Strike price
|                                                         |  |                           |           |             
|Buy                                                      |  |                           | 3.000.000 |              |  |  | 158.80 | 
|Sell                                                     |  |                           | 1.500.000 |              |  |  | 208.80 | 
|Sell                                                     |  |                           | 750.000   |              |  |  | 258.80 | 
|Fair value as of December 31, 2002 in
    (000):
    27

The terms of the derivative financial instruments
are also designed to reflect the eight measurement dates and
weighting factors applicable to the STAR Plan, as described in
Note 24 in Item 18. Financial Statements.
The amount of options, which expire at each measurement date,
reflect the respective weighting factor of that date. Payments
dates reflect payment terms of the STAR Plan, which is subject
to the respective hedge. Viewed together, SAP will receive from
the financial institution 100% of the first
50 in
appreciation of SAPs stock price above the strike price of
the STAR, 50% of the next
50 in
appreciation of SAPs stock price above the strike price of
the STAR, and 25% of any additional appreciation of SAPs
stock price above the strike price of the STAR.

The terms of the derivative financial instruments
require cash settlement and there are no settlement
alternatives. These derivative financial instruments are
accounted for as other assets on SAPs Consolidated Balance
Sheets.






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities Other than Equity
    Securities

Not Applicable.

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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

As of December 31, 2003, SAPs
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 SEC is
recorded, processed, summarized and reported in a timely manner.
SAPs management conducted an evaluation of the
effectiveness of SAPs internal controls over financial
reporting, and its disclosure controls and procedures, as of
December 31, 2003. 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 Officer (CEO), 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 CEO and CFO, concluded that as of
December 31, 2003 SAPs internal controls over
financial reporting an its disclosure controls and procedures
were effective.






|         |           
|-------- | ----------
|Item 16. | [Reserved]





|          |                                     
|--------- | ------------------------------------
|Item 16A. | Audit committee financial
    expert

Our Supervisory Board has determined that Wilhelm
Haarmann, a member of the Supervisory Board and its Audit
Committee, is an audit committee financial expert.






|          |               
|--------- | --------------
|Item 16B. | Code of Ethics

In 2003 SAP adopted a Code of Business Conduct
that applies to all employees (including all personnel in the
accounting and controlling departments) and the members of
SAPs Executive Board (including our principal executive
officer and principal financial officer). We believe that our
Code of Business Conduct constitutes a code of
ethics as defined by the SEC. The Code of Business Conduct
sets standards for all dealings with customers, partners,
competitors and suppliers and includes, among others,
regulations with regard to confidentiality, loyalty and
prevention of bribery. International differences in culture,
language, and legal and social systems make the adoption of
uniform Codes of Business Conduct across an entire global
company somewhat difficult. As a result, SAP has set forth a
master code containing minimum standards. In turn, each company
within the SAP Group has been required to adopt a similar code
that meets  as far as local legal requirements
permit  at least these minimum standards, but may
also include additional or more stringent rules of conduct.

The SAPs Principles of Corporate
Governance which include the corporate governance
standards and guidelines that SAPs Executive Board and
Supervisory Board follow in carrying out their duties also
include ethical standards that apply to the members of the
Executive Board. Please refer to the description under the
heading Corporate Governance in Item 10.
Additional Information for further information on
SAPs Principles of Corporate Governance.

SAP has made the Code of Business Conduct and its
Principles of Corporate Governance publicly available by posting
the full text of both documents on its website under
www.sap.com/corpgovernance (section Statutes). The
published Code of Business Conduct is the Code of the parent
company, SAP AG. It is identical with the master code.

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|          |                                           
|--------- | ------------------------------------------
|Item 16C. | Principal Accountant Fees and
    Services

In the annual meeting held on May 9, 2003,
our shareholders appointed KPMG Deutsche Treuhand-Gesellschaft
AG Wirtschaftsprüfungsgesellschaft (KPMG), Frankfurt am
Main/Berlin, to serve as our independent auditors for the 2003
fiscal year. KPMG billed the following fees to us for audit
services for each of the last two fiscal years and for other
professional services in each of the last two financial years:

|                   |  |                    |     |      |  |  |     | 
|------------------ |  | ------------------ | --- | ---- |  |  | --- | 
|                   |  | 2003               |     | 2002
|                   |  |                    |     |     
|                   |  |                   
|                   |  | (in millions of )
|Audit Fees         |  |                    | 3.7 |      |  |  | 3.2 | 
|Audit-Related Fees |  |                    | 0.6 |      |  |  | 0.4 | 
|Tax Fees           |  |                    | 0.1 |      |  |  | 3.8 | 
|All Other Fees     |  |                    | 0.2 |      |  |  | 0.2 | 
|                   |  |                    |     |      |  |  |     | 
|                   |  |                    | 4.6 |      |  |  | 7.6 | 
|                   |  |                    |     |      |  |  |     | 

Audit Fees are the aggregate fees
billed by KPMG for the audit of our consolidated annual
financial statements as well as audits of statutory financial
statements of SAP AG and its subsidiaries. Also included are
amounts billed for attestation services in relation to
regulatory filings and other compliance requirements.
Audit-Related Fees are fees charged by KPMG for
assurance and related services that are reasonably related to
the performance of the audit or review of our financial
statements and are not reported under Audit Fees.
This category comprises fees billed for accounting advice on
actual or contemplated transactions and other agreed-upon
procedures. Tax fees are fees for professional
services rendered by KPMG for tax advice on group restructuring,
transfer pricing and other actual or contemplated transactions,
tax compliance, and employee related tax queries. The category
All Other Fees include other support services.

Audit Committees pre-approval
policies and procedures

As required under German law, our shareholders
appoint our independent auditors to audit our financial
statements, based on a proposal that is legally required to be
submitted by the Supervisory Board. The Supervisory Boards
proposal itself is based on a proposal by the Audit Committee.
See also the description under the heading Corporate
Governance in Item 10. Additional
Information.

In 2002 our Audit Committee adopted a policy with
regard to the pre-approval of audit and non-audit services to be
provided by our independent auditors. This policy, which is
designed to assure that such engagements do not impair the
independence of our auditors, was amended and expanded in 2003.
The policy requires prior approval of the Audit Committee for
all services to be provided by our independent auditors for any
entity of the SAP group. With regard to non-audit services the
policy distinguishes between three categories of services:



| |    |                                                                                                                                                                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Prohibited services: This category
    includes services that our independent auditors must not be
    engaged to perform. These are services that are not permitted by
    applicable law or that would be inconsistent with maintaining
    the auditors independence.                                             
|
| | 2. | Services requiring universal
    approval: Services of this category may be provided by our
    independent auditors up to a certain aggregate amount in fees
    per year that is determined annually by the Audit Committee.                                                                                        
|
| | 3. | Services requiring individual
    approval: Services of this category may only be provided
    by our independent auditors if they have been individually
    (specifically) pre-approved by the Audit Committee or an Audit
    Committee member who is authorized by the Audit Committee to
    make such approvals.

Our Chief Financial Officer reviews all
individual requests to engage our independent auditors as a
service provider in accordance with this policy and determines
the category to which the requested service belongs. Based on
this determination the request is (i) declined if it is a
prohibited service, (ii) approved if it is a
service requiring universal approval and the maximum
aggregate amount fixed by the Audit Committee has not been met
or (iii) forwarded to the Audit Committee for individual
approval if the service requires individual

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approval or is a service requiring
universal approval and the maximum aggregate amount fixed
by the audit committee has been met.


The Audit Committees pre-approval policies
include detailed information requirements to ensure the Audit
Committee is kept aware of all engagements involving our
independent auditors that were not individually pre-approved by
the Audit Committee itself.






|          |                                                               
|--------- | --------------------------------------------------------------
|Item 16D. | Exemptions from the Listing Standards for
    Audit Committees

Not Applicable.






|          |                                                                           
|--------- | --------------------------------------------------------------------------
|Item 16E. | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers

Not Applicable.




PART III





|         |                     
|-------- | --------------------
|Item 17. | Financial Statements

Not Applicable.






|         |                     
|-------- | --------------------
|Item 18. | Financial Statements

Reference is made to pages F-1 through F-68,
and to page S-1, 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 2003, 2002, and 2001.                                         
|
| | Consolidated Balance Sheets as of
    December 31, 2003 and 2002.                                                       
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2003, 2002 and 2001.
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001.                         
|
| | Notes to the Consolidated Financial Statements.                                                                         
|
| | Schedule for the years ended December 31,
    2003, 2002 and 2001:                                                      
|
| | Schedule II  Valuation and
    Qualifying Accounts and Reserves.                                                       



|         |         
|-------- | --------
|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)                                                                                   

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| |      |                                                                                                                                                        
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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., SAP Markets, 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., SAP Markets, 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., SAP Markets, Inc. and SAP AG,
    dated as of June 29, 2001.(8)      
|
| | 4.8  | Strategic Alliance Agreement Amendment No. 4
    by and among Commerce One, Inc., SAP Markets, Inc. and SAP AG,
    dated as of January 1, 2002.(9)    
|
| | 4.9  | Strategic Alliance Agreement Amendment No. 5
    by and among Commerce One, Inc., SAP Markets, Inc. and SAP AG,
    dated as of December 20, 2002.(10) 
|
| | 4.10 | Strategic Alliance Agreement Amendment No. 6
    by and among Commerce One, Inc., SAP Markets, Inc. and SAP AG,
    dated as of September 29, 2003.(11)
|
| | 8    | Subsidiaries, Associated Companies and Other
    Investments of SAP AG.                                                                                
|
| | 10.1 | Independent Auditors Consent.                                                                                                                         
|
| | 10.2 | Statement regarding Auditors Consent.                                                                                                                 
|
| | 12.1 | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a).                                                                                        
|
| | 12.2 | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a).                                                                                        
|
| | 13   | 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.  
|    
|(9)  | Incorporated by reference to the Annual Report on
    Form 10-K, filed April 1, 2002.                                    
|    
|(10) | Incorporated by reference to the Annual Report on
    Form 10-K, filed March 31, 2003.                                   
|    
|(11) | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    November 14, 2003.

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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/ HENNING KAGERMANN




Name: Prof. Dr. Henning Kagermann


Title: Chief Executive Officer


Dated March 23, 2004




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

| |                               
| | ------------------------------
| |                               
| | Name: Dr. Werner Brandt       
| | Title: Chief Financial Officer

Dated March 23, 2004


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##### Table of Contents



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, 2003, 2002 and 2001                              |      |     | F-3 | 
|                                                                   | Consolidated Balance Sheets as of
    December 31, 2003, 2002 and 2001                                                  |      |     | F-4 | 
|                                                                   | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2003, 2002 and 2001 |      |     | F-5 | 
|                                                                   | Consolidated Statements of Changes in Cash
    Flows for the years ended December 31, 2003, 2002 and
    2001           |      |     | F-6 | 
|                                                                   | Notes to Consolidated Financial
    Statements                                                                          |      |     | F-7 | 
|Schedule for the years ended December 31,
    2003, 2002 and 2001: |                                                                                                                         |      |     |    
|                                                                   | Schedule II  Valuation and
    Qualifying Accounts and Reserves                                                        |      |     | S-1 | 

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INDEPENDENT AUDITORS REPORT

The Supervisory Board

SAP Aktiengesellschaft Systeme, Anwendungen,
Produkte in der Datenverarbeitung:


We have audited the 2003 and 2002 consolidated
financial statements of SAP Aktiengesellschaft and subsidiaries
(SAP AG or the company) as listed in the
accompanying index. In connection with our audits of the 2003
and 2002 consolidated financial statements, we also have audited
the 2003 and 2002 information contained in the 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 audits. The 2001 consolidated financial statements and the
2001 information contained in the financial statement schedule
of SAP AG as listed in the accompanying index were audited by
other auditors who have ceased operations. That auditors
report, dated January 21, 2002, on those financial
statements and financial statement schedule was unqualified,
before the revisions described in Notes 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 4 to the consolidated financial statements.

We conducted our audits in accordance with
generally accepted auditing standards 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 audits
provide a reasonable basis for our opinion.

In our opinion, the 2003 and 2002 consolidated
financial statements referred to above present fairly, in all
material respects, the financial position of SAP AG as of
December 31, 2003 and 2002, and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles in the
United States of America. Also, in our opinion, the related 2003
and 2002 information contained in the financial statement
schedule, when considered in relation to the 2003 and 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 described above, the 2001 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 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 for
cash and cash equivalents to exclude restricted cash. We audited
the adjustments described in Note 21 that were applied to revise
the 2001 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 consolidated financial statements and
financial statement schedule 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
consolidated financial statements and financial statement
schedule taken as a whole.

Mannheim, Germany

February 27, 2004, except for Note 38
which is as of March 23, 2004


KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft


Wirtschaftsprüfungsgesellschaft


F-1



---



##### Table of Contents



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 sheets as of December 31, 2001 and 2000, the
consolidated statements of operations, stockholders equity
and cash flows for the year ended December 31, 2000 and
1999 and the information in the schedule for 2000 and 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



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##### Table of Contents



CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME

for the years ended
December 31,


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


|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |            |  
|------------------------------------------------------------------------ | ---------------------------------------- | ---- | ---- | ------- |  | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | - |  | ---------- | ---------- | - |  | ---------- | ---------- | -
|                                                                         |                                          | Note |      | 2003(1) |  | 2003 |            | 2002       |   | 2001
|                                                                         |                                          |      |      |         |  |      |            |            |   |     
|                                                                         |                                          |      |      |         |  |      |            |            |   |    
|                                                                         |                                          |      |      | US$     |  |     |            |           |   |     
|                                                                         | Software revenue                         |      |      |         |  |      |            | 2,705,321  |   |      |            | 2,147,591  |   |  |            | 2,290,834  |   |  |            | 2,580,518  |  
|                                                                         | Maintenance revenue                      |      |      |         |  |      |            | 3,235,926  |   |      |            | 2,568,807  |   |  |            | 2,422,786  |   |  |            | 2,121,250  |  
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Product revenue                                                          |                                          |      |      |         |  |      | 5,941,247  |            |   |      | 4,716,398  |            |   |  | 4,713,620  |            |   |  | 4,701,768  |           
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|                                                                         | Consulting revenue                       |      |      |         |  |      |            | 2,460,772  |   |      |            | 1,953,459  |   |  |            | 2,204,191  |   |  |            | 2,082,855  |  
|                                                                         | Training revenue                         |      |      |         |  |      |            | 377,067    |   |      |            | 299,331    |   |  |            | 413,904    |   |  |            | 466,224    |  
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Service revenue                                                          |                                          |      |      |         |  |      | 2,837,839  |            |   |      | 2,252,790  |            |   |  | 2,618,095  |            |   |  | 2,549,079  |           
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Other revenue                                                            |                                          |      |      |         |  |      | 69,810     |            |   |      | 55,418     |            |   |  | 81,123     |            |   |  | 89,957     |           
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Total revenue                                                            |                                          |      | (5)  |         |  |      | 8,848,896  |            |   |      | 7,024,606  |            |   |  | 7,412,838  |            |   |  | 7,340,804  |           
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|                                                                         | Cost of product                          |      |      |         |  |      |            | (1,056,940 | ) |      |            | (839,041   | ) |  |            | (860,373   | ) |  |            | (887,429   | )
|                                                                         | Cost of service                          |      |      |         |  |      |            | (2,134,010 | ) |      |            | (1,694,062 | ) |  |            | (1,955,785 | ) |  |            | (1,965,000 | )
|                                                                         | Research and development                 |      |      |         |  |      |            | (1,254,587 | ) |      |            | (995,941   | ) |  |            | (909,390   | ) |  |            | (898,251   | )
|                                                                         | Sales and marketing                      |      |      | (6)     |  |      |            | (1,777,441 | ) |      |            | (1,411,004 | ) |  |            | (1,627,235 | ) |  |            | (1,797,546 | )
|                                                                         | General and administration               |      |      |         |  |      |            | (445,988   | ) |      |            | (354,043   | ) |  |            | (399,269   | ) |  |            | (385,990   | )
|                                                                         | Other operating expense, net             |      |      | (7)     |  |      |            | (8,183     | ) |      |            | (6,496     | ) |  |            | (35,108    | ) |  |            | (94,214    | )
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Total operating expenses                                                 |                                          |      | (8)  |         |  |      | (6,677,149 | )          |   |      | (5,300,587 | )          |   |  | (5,787,160 | )          |   |  | (6,028,430 | )         
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Operating income                                                         |                                          |      |      |         |  |      | 2,171,747  |            |   |      | 1,724,019  |            |   |  | 1,625,678  |            |   |  | 1,312,374  |           
|                                                                         | Other non-operating income/ expense, net |      |      | (9)     |  |      |            | 45,738     |   |      |            | 36,309     |   |  |            | 37,319     |   |  |            | (10,643    | )
|                                                                         | Financial income/ expense, net           |      |      | (10)    |  |      |            | 20,517     |   |      |            | 16,287     |   |  |            | (555,299   | ) |  |            | (232,974   | )
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Income before income taxes, minority interest and
    extraordinary gain |                                          |      |      |         |  |      | 2,238,002  |            |   |      | 1,776,615  |            |   |  | 1,107,698  |            |   |  | 1,068,757  |           
|                                                                         | Income taxes                             |      |      | (11)    |  |      |            | (872,519   | ) |      |            | (692,640   | ) |  |            | (598,705   | ) |  |            | (476,293   | )
|                                                                         | Minority interest                        |      |      |         |  |      |            | (8,707     | ) |      |            | (6,912     | ) |  |            | (6,155     | ) |  |            | (11,328    | )
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Income before extraordinary gain                                         |                                          |      |      |         |  |      | 1,356,776  |            |   |      | 1,077,063  |            |   |  | 502,838    |            |   |  | 581,136    |           
|                                                                         | Extraordinary gain, net of tax           |      |      | (12)    |  |      |            | 0          |   |      |            | 0          |   |  |            | 5,776      |   |  |            | 0          |  
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Net income                                                               |                                          |      |      |         |  |      | 1,356,776  |            |   |      | 1,077,063  |            |   |  | 508,614    |            |   |  | 581,136    |           
|                                                                         |                                          |      |      |         |  |      |            |            |   |      |            |            |   |  |            |            |   |  |            |           
|Earnings per share  basic                                               |                                          |      | (13) |         |  |      | 4.37       |            |   |      | 3.47       |            |   |  | 1.62       |            |   |  | 1.85       |           
|Earnings per share  diluted                                             |                                          |      | (13) |         |  |      | 4.36       |            |   |      | 3.46       |            |   |  | 1.62       |            |   |  | 1.85       |           






|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2003 figures have been translated solely for
    the convenience of the reader at an exchange rate of
     1 to
    US$1.2597, the Noon Buying Rate certified by the Federal Reserve
    Bank of New York on December 31, 2003.

See Notes to Consolidated Financial Statements.

F-3



---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS

as of December 31,


(in thousands except for exchange rate
data)


Assets

|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |           | 
|------------------------------------------ | ------------------------------------------- | ---- | ---- | ------- |  | ---- | --------- | --------- |  |  | --------- | --------- |  |  | --------- | --------- | 
|                                           |                                             | Note |      | 2003(2) |  | 2003 |           | 2002     
|                                           |                                             |      |      |         |  |      |           |          
|                                           |                                             |      |      |         |  |      |           |         
|                                           |                                             |      |      | US$     |  |     |           |          
|Intangible assets                          |                                             |      | (14) |         |  |      | 530,757   |           |  |  | 421,336   |           |  |  | 440,765   |          
|Property, plant and equipment              |                                             |      | (15) |         |  |      | 1,284,462 |           |  |  | 1,019,657 |           |  |  | 1,034,217 |          
|Financial assets                           |                                             |      | (16) |         |  |      | 211,614   |           |  |  | 167,988   |           |  |  | 157,366   |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Fixed assets                               |                                             |      |      |         |  |      | 2,026,833 |           |  |  | 1,608,981 |           |  |  | 1,632,348 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Inventories                                |                                             |      | (17) |         |  |      | 13,069    |           |  |  | 10,375    |           |  |  | 10,729    |          
|                                           | Accounts receivable, net                    |      |      | (18)    |  |      |           | 2,230,570 |  |  |           | 1,770,715 |  |  |           | 1,967,107 | 
|                                           | Other assets                                |      |      | (19)    |  |      |           | 637,271   |  |  |           | 505,891   |  |  |           | 268,832   | 
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Accounts receivable and other assets       |                                             |      |      |         |  |      | 2,867,841 |           |  |  | 2,276,606 |           |  |  | 2,235,939 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Marketable securities                      |                                             |      | (20) |         |  |      | 1,703     |           |  |  | 1,352     |           |  |  | 1,349     |          
|Liquid assets                              |                                             |      | (21) |         |  |      | 2,640,276 |           |  |  | 2,095,956 |           |  |  | 1,237,897 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Non-fixed assets                           |                                             |      |      |         |  |      | 5,522,889 |           |  |  | 4,384,289 |           |  |  | 3,485,914 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Deferred taxes                             |                                             |      | (11) |         |  |      | 333,132   |           |  |  | 264,453   |           |  |  | 402,290   |          
|Prepaid expenses and deferred charges      |                                             |      | (22) |         |  |      | 85,838    |           |  |  | 68,142    |           |  |  | 87,911    |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Total assets                               |                                             |      |      |         |  |      | 7,968,692 |           |  |  | 6,325,865 |           |  |  | 5,608,463 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|thereof current assets                     |                                             |      |      |         |  |      | 5,379,548 |           |  |  | 4,270,499 |           |  |  | 3,511,992 |          
|Shareholders Equity and
    Liabilities   |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Subscribed capital(1)                      |                                             |      |      |         |  |      | 397,327   |           |  |  | 315,414   |           |  |  | 314,963   |          
|Treasury stock                             |                                             |      |      |         |  |      | (581,516  | )         |  |  | (461,631  | )         |  |  | (373,477  | )        
|Additional paid-in capital                 |                                             |      |      |         |  |      | 373,570   |           |  |  | 296,555   |           |  |  | 185,180   |          
|Retained earnings                          |                                             |      |      |         |  |      | 4,737,840 |           |  |  | 3,761,086 |           |  |  | 2,871,106 |          
|Accumulated other comprehensive loss       |                                             |      |      |         |  |      | (254,433  | )         |  |  | (201,979  | )         |  |  | (125,681  | )        
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Shareholders equity                       |                                             |      | (23) |         |  |      | 4,672,788 |           |  |  | 3,709,445 |           |  |  | 2,872,091 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Minority interests                         |                                             |      |      |         |  |      | 73,948    |           |  |  | 58,703    |           |  |  | 56,179    |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|                                           | Pension liabilities and similar obligations |      |      | (25)    |  |      |           | 122,865   |  |  |           | 97,535    |  |  |           | 83,573    | 
|                                           | Other reserves and accrued liabilities      |      |      | (26)    |  |      |           | 1,850,568 |  |  |           | 1,469,055 |  |  |           | 1,476,733 | 
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Reserves and accrued liabilities           |                                             |      |      |         |  |      | 1,973,433 |           |  |  | 1,566,590 |           |  |  | 1,560,306 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|                                           | Bonds                                       |      |      |         |  |      |           | 12,703    |  |  |           | 10,084    |  |  |           | 9,668     | 
|                                           | Other liabilities                           |      |      | (27)    |  |      |           | 851,739   |  |  |           | 676,144   |  |  |           | 748,762   | 
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Other liabilities                          |                                             |      |      |         |  |      | 864,442   |           |  |  | 686,228   |           |  |  | 758,430   |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Deferred income                            |                                             |      | (28) |         |  |      | 384,081   |           |  |  | 304,899   |           |  |  | 361,457   |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|Total shareholders equity and liabilities |                                             |      |      |         |  |      | 7,968,692 |           |  |  | 6,325,865 |           |  |  | 5,608,463 |          
|                                           |                                             |      |      |         |  |      |           |           |  |  |           |           |  |  |           |          
|thereof current liabilities                |                                             |      |      |         |  |      | 2,836,031 |           |  |  | 2,251,354 |           |  |  | 2,405,351 |          






|    |                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Contingent capital
     55,837
    thousand (2002:
     56,288
    thousand).                                                                                                                                                       
|   
|(2) | The 2003 figures have been translated solely for
    the convenience of the reader at an exchange rate of
     1.00 to
    US$1.2597 the Noon Buying Rate certified by the Federal Reserve
    Bank of New York on December 31, 2003.

See Notes to Consolidated Financial Statements.

F-4



---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

for the years ended


|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|----------------------------------------------- | ------------------------------------------ | --------------- | ------- | ------------- |  | ------------- | --------- | -------- | - | ---------- | -------- | -------- | - | ---------- | --------- | ------- |  |  | ------- | - |  |  | -------- | - |  |  | ------- |  |  |  | --------- | -------- | -
|                                                |                                            |                 |         |               |  | Accumulated   |           |          |   |            |          |          |   |            |           |        
|                                                |                                            | Number of       |         |               |  | other         |           |          |   | Additional |          |          |   |            |           |        
|                                                |                                            | shares issued   |         | Comprehensive |  | comprehensive |           | Retained |   | paid-in    |          | Treasury |   | Subscribed |           |        
|                                                |                                            | and outstanding |         | income        |  | income/loss   |           | earnings |   | capital    |          | stock    |   | capital    |           | Total  
|                                                |                                            | (000)           |         |  (000)       |  |  (000)       |           |  (000)  |   |  (000)    |          |  (000)  |   |  (000)    |           |  (000)
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |        
|December 31, 2000                               |                                            |                 | 314,715 |               |  |               |           |          |   |            | 190,575  |          |   |            | 1,976,588 |         |  |  | 35,203  |   |  |  | 0        |   |  |  | 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   |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|Stock-based compensation                        |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  | 29,709  |   |  |  |          |   |  |  |         |  |  |  | 29,709    |         
|Dividends                                       |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            | (182,319  | )       |  |  |         |   |  |  |          |   |  |  |         |  |  |  | (182,319  | )       
|Share repurchase                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  | (279,265 | ) |  |  |         |  |  |  | (279,265  | )       
|Convertible bonds and stock options exercised   |                                            |                 | 137     |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  | 4,342   |   |  |  |          |   |  |  | 137     |  |  |  | 4,479     |         
|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 |         
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|Net income                                      |                                            |                 |         |               |  |               | 1,077,063 |          |   |            |          |          |   |            | 1,077,063 |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  | 1,077,063 |         
|Other comprehensive income/loss,
    net of tax |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                                | Unrealized gains on marketable securities  |                 |         |               |  |               |           | 19,118   |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                                | Currency translation adjustment            |                 |         |               |  |               |           | (148,424 | ) |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                                | Additional minimum pension liability       |                 |         |               |  |               |           | 16,283   |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                                | Unrealized gains on cash flow hedges       |                 |         |               |  |               |           | 12,729   |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                                | Unrealized gains on STAR hedge             |                 |         |               |  |               |           | 23,996   |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |          |  
|                                                | Other comprehensive loss                   |                 |         |               |  |               |           | (76,298  | ) |            |          | (76,298  | ) |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           | (76,298  | )
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|Comprehensive income                            |                                            |                 |         |               |  |               | 1,000,765 |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|Stock-based compensation                        |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  | 101,173 |   |  |  |          |   |  |  |         |  |  |  | 101,173   |         
|Dividends                                       |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            | (186,346  | )       |  |  |         |   |  |  |          |   |  |  |         |  |  |  | (186,346  | )       
|Share repurchase                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  | (88,154  | ) |  |  |         |  |  |  | (88,154   | )       
|Convertible bonds and stock options exercised   |                                            |                 | 451     |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  | 12,243  |   |  |  |          |   |  |  | 451     |  |  |  | 12,694    |         
|Other                                           |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            | (737      | )       |  |  | (2,041  | ) |  |  |          |   |  |  |         |  |  |  | (2,778    | )       
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         
|December 31, 2003                               |                                            |                 | 315,414 |               |  |               |           |          |   |            | (201,979 | )        |   |            | 3,761,086 |         |  |  | 296,555 |   |  |  | (461,631 | ) |  |  | 315,414 |  |  |  | 3,709,445 |         
|                                                |                                            |                 |         |               |  |               |           |          |   |            |          |          |   |            |           |         |  |  |         |   |  |  |          |   |  |  |         |  |  |  |           |         

See Notes to Consolidated Financial Statements.

F-5



---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH
FLOWS

for the years ended
December 31,


(in thousands except exchange rate
data)


|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|------------------------------------------------------------------------------------------------- |  | ---- | ---- | ------- |  | ---- | ---------- | ---- |  | ------- | --------- | - |  |  | --------- | - |  |  | ---------- | -
|                                                                                                  |  | Note |      | 2003(1) |  | 2003 |            | 2002 |  | 2001(2)
|                                                                                                  |  |      |      |         |  |      |            |      |  |        
|                                                                                                  |  |      |      |         |  |      |            |      |  |       
|                                                                                                  |  |      |      | US$     |  |     |            |     |  |        
|Net income                                                                                        |  |      |      |         |  |      | 1,356,776  |      |  |         | 1,077,063 |   |  |  | 508,614   |   |  |  | 581,136    |  
|Minority interest                                                                                 |  |      |      |         |  |      | 8,707      |      |  |         | 6,912     |   |  |  | 6,155     |   |  |  | 11,328     |  
|Extraordinary gain                                                                                |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | (5,776    | ) |  |  | 0          |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Income from operations                                                                            |  |      |      |         |  |      | 1,365,483  |      |  |         | 1,083,975 |   |  |  | 508,993   |   |  |  | 592,464    |  
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Depreciation and amortization                                                                     |  |      |      |         |  |      | 271,487    |      |  |         | 215,517   |   |  |  | 221,214   |   |  |  | 279,792    |  
|Losses from equity investments, net                                                               |  |      |      |         |  |      | 295        |      |  |         | 234       |   |  |  | 394,589   |   |  |  | 165,499    |  
|In-process research and development from purchase
    of TopTier                                  |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | 0         |   |  |  | 5,596      |  
|Gains on disposal of property, plant and
    equipment and marketable equity securities, net      |  |      |      |         |  |      | (5,023     | )    |  |         | (3,987    | ) |  |  | (3,903    | ) |  |  | (22,678    | )
|Write-downs of financial assets, net                                                              |  |      |      |         |  |      | 19,426     |      |  |         | 15,421    |   |  |  | 126,407   |   |  |  | 71,332     |  
|Impacts of hedging                                                                                |  |      |      |         |  |      | 3,738      |      |  |         | 2,967     |   |  |  | 58,909    |   |  |  | 82,279     |  
|Change in accounts receivable and other assets                                                    |  |      |      |         |  |      | 69,819     |      |  |         | 55,425    |   |  |  | 138,181   |   |  |  | (18,892    | )
|Changes in deferred stock compensation                                                            |  |      |      |         |  |      | 127,448    |      |  |         | 101,173   |   |  |  | 23,949    |   |  |  | (11,641    | )
|Change in reserves and liabilities                                                                |  |      |      |         |  |      | (46,016    | )    |  |         | (36,529   | ) |  |  | 64,057    |   |  |  | 15,377     |  
|Change in deferred taxes                                                                          |  |      |      |         |  |      | 134,984    |      |  |         | 107,156   |   |  |  | 103,761   |   |  |  | (144,642   | )
|Change in other non-fixed assets                                                                  |  |      |      |         |  |      | 25,348     |      |  |         | 20,122    |   |  |  | 60,278    |   |  |  | (37,590    | )
|Change in deferred income                                                                         |  |      |      |         |  |      | (71,246    | )    |  |         | (56,558   | ) |  |  | (15,949   | ) |  |  | 11,950     |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Net cash provided by operating
    activities                                                     |  |      | (29) |         |  |      | 1,895,743  |      |  |         | 1,504,916 |   |  |  | 1,680,486 |   |  |  | 988,846    |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Purchase of intangible assets and property, plant
    and equipment                               |  |      |      |         |  |      | (346,842   | )    |  |         | (275,337  | ) |  |  | (308,747  | ) |  |  | (377,844   | )
|Purchase of financial assets                                                                      |  |      |      |         |  |      | (36,919    | )    |  |         | (29,308   | ) |  |  | (43,491   | ) |  |  | (76,716    | )
|Change in the scope of consolidation                                                              |  |      |      |         |  |      | (3,193     | )    |  |         | (2,535    | ) |  |  | 1,612     |   |  |  | (4,591     | )
|Proceeds from disposal of fixed assets                                                            |  |      |      |         |  |      | 44,436     |      |  |         | 35,275    |   |  |  | 45,003    |   |  |  | 65,572     |  
|Investment in Commerce One                                                                        |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | (1,920    | ) |  |  | (304,037   | )
|Purchase of TopTier, net of cash acquired                                                         |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | 0         |   |  |  | (378,993   | )
|Change in liquid assets (maturities greater than
    90 days) and marketable securities           |  |      |      |         |  |      | (805,426   | )    |  |         | (639,379  | ) |  |  | 91,703    |   |  |  | 10,678     |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Net cash used in investing
    activities                                                         |  |      |      |         |  |      | (1,147,944 | )    |  |         | (911,284  | ) |  |  | (215,840  | ) |  |  | (1,065,931 | )
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Dividends paid                                                                                    |  |      |      |         |  |      | (234,740   | )    |  |         | (186,346  | ) |  |  | (182,319  | ) |  |  | (180,414   | )
|Purchase of treasury stock                                                                        |  |      |      |         |  |      | (111,049   | )    |  |         | (88,154   | ) |  |  | (279,265  | ) |  |  | (94,212    | )
|Change in bonds, net                                                                              |  |      |      |         |  |      | 16,515     |      |  |         | 13,110    |   |  |  | 6,850     |   |  |  | 4,776      |  
|Other changes to additional paid-in capital                                                       |  |      |      |         |  |      | (2,571     | )    |  |         | (2,041    | ) |  |  | (10,494   | ) |  |  | (4,682     | )
|Proceeds from line of credit and long-term debt                                                   |  |      |      |         |  |      | 976        |      |  |         | 775       |   |  |  | 1,571     |   |  |  | 338,663    |  
|Principal payments made on line of credit and
    long-term debt                                  |  |      |      |         |  |      | (4,992     | )    |  |         | (3,963    | ) |  |  | (428,896  | ) |  |  | (2,052     | )
|Effect of 2000 STAR hedge, net                                                                    |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | 0         |   |  |  | (119,931   | )
|Effect of 2001 STAR hedge                                                                         |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | 0         |   |  |  | (68,440    | )
|Effect of 2002 STAR hedge                                                                         |  |      |      |         |  |      | 0          |      |  |         | 0         |   |  |  | (43,331   | ) |  |  | 0          |  
|Effect of 2003 STAR hedge                                                                         |  |      |      |         |  |      | (48,876    | )    |  |         | (38,800   | ) |  |  | 0         |   |  |  | 0          |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Net cash used in financing
    activities                                                         |  |      |      |         |  |      | (384,737   | )    |  |         | (305,419  | ) |  |  | (935,884  | ) |  |  | (126,292   | )
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Effect of foreign exchange rates on cash                                                          |  |      |      |         |  |      | (87,587    | )    |  |         | (69,530   | ) |  |  | (162,005  | ) |  |  | (4,117     | )
|Net increase/ decrease in cash and cash
    equivalents                                           |  |      |      |         |  |      | 275,475    |      |  |         | 218,683   |   |  |  | 366,757   |   |  |  | (207,494   | )
|Cash and cash equivalents at the beginning of
    the year                                        |  |      |      |         |  |      | 1,413,016  |      |  |         | 1,121,708 |   |  |  | 754,951   |   |  |  | 962,445    |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  
|Cash and cash equivalents at the end of the
    year                                              |  |      | (21) |         |  |      | 1,688,491  |      |  |         | 1,340,391 |   |  |  | 1,121,708 |   |  |  | 754,951    |  
|                                                                                                  |  |      |      |         |  |      |            |      |  |         |           |   |  |  |           |   |  |  |            |  






|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2003 figures have been translated solely for
    the convenience of the reader at an exchange rate of
     1.00 to
    US$1.2597, the Noon Buying Rate certified by the Federal Reserve
    Bank of New York on December 31, 2003.
|   
|(2) | See note 21.                                                                                                                                                                                                                           

See Notes to Consolidated Financial Statements.

F-6



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

A.     BASIS OF
PRESENTATION

(1)     General

The accompanying Consolidated Financial
Statements of 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 generally accepted accounting
principles in the United States of America
(U.S. GAAP). Certain amounts reported in
previous years have been reclassified to conform to the 2003
presentation.

SAP is exempt as outlined in the German
Commercial Code (Handelsgesetzbuch  HGB),
section 292a from preparing Consolidated Financial
Statements in accordance with German GAAP since its Consolidated
Financial Statements are prepared in accordance with
U.S. GAAP.

Amounts included in the Consolidated Financial
Statements are reported in euro
()
unless otherwise stated. All 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, 2003,
which was
 1.00 per
$1.2597. 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 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, 2002                                            |  |        | 18 |         |  |       | 73 |  |  |  | 91 | 
|Additions                                                    |  |        | 5  |         |  |       | 5  |  |  |  | 10 | 
|Disposals                                                    |  |        | 2  |         |  |       | 3  |  |  |  | 5  | 
|                                                             |  |        |    |         |  |       |    |  |  |  |    | 
|December 31, 2003                                            |  |        | 21 |         |  |       | 75 |  |  |  | 96 | 
|                                                             |  |        |    |         |  |       |    |  |  |  |    | 

The impact of changes in the scope of companies
included in the Consolidated Financial Statements during 2003
did not have a significant effect on the comparability of the
Consolidated Financial Statements presented. Five additions
relate to the acquisitions presented in Note 4. All other
additions relate to newly founded companies. All disposals are
due to mergers within the Group.

Five companies, in which SAP does not have a
controlling financial interest but the ability to exercise
significant influence over the operating and financial policies
of the investees (associated companies) are
accounted for using the equity method. In 2003, SAP acquired two
and sold two investments in associated

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companies. Neither the acquisitions nor the
disposals had a significant impact on SAPs Consolidated
Financial Statements.


Separate financial statements were not prepared
for the following subsidiaries as allowed under the exemptions
codified in HGB, section 264b:



| |   |                                                    
| | - | ---------------------------------------------------
| |  | SAP Hosting AG & Co. KG, St. Leon-Rot              
|
| |  | SAP Retail Solutions GmbH & Co. KG, St.
    Ingbert
|
| |  | SAP Deutschland AG & Co. KG, Walldorf              
|
| |  | DCW Software AG & Co. KG, Mannheim                 

(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 values
of the net assets acquired. The fair value of any identifiable
in-process research and development (in-process
R&D), which represents research and development
efforts 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 the Consolidated 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 periods. 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
receivables, 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:

Exchange Rates

|                  |  |     |     |                        |  |                                 |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|----------------- |  | --- | --- | ---------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                  |  |     |     |                        |  |                                
|                  |  |     |     | Closing rate at        |  | Annual average exchange rate to
|                  |  |     |     | December 31, to  1.00 |  |  1.00                         
|                  |  |     |     |                        |  |                                
|                  |  |     |     | 2003                   |  | 2002                            |        | 2003 |  | 2002 |        | 2001
|                  |  |     |     |                        |  |                                 |        |      |  |      |        |     
|U.S. dollar       |  | US$ |     |                        |  |                                 | 1.2630 |      |  |      | 1.0494 |      |  |  | 1.1394 |  |  |  | 0.9499 |  |  |  | 0.8929 | 
|Japanese yen      |  |     | JPY |                        |  |                                 | 135.05 |      |  |      | 124.49 |      |  |  | 130.98 |  |  |  | 118.83 |  |  |  | 108.85 | 
|British pound     |  |     | GBP |                        |  |                                 | 0.7048 |      |  |      | 0.6509 |      |  |  | 0.6936 |  |  |  | 0.6305 |  |  |  | 0.6207 | 
|Canadian dollar   |  |     | CAD |                        |  |                                 | 1.6234 |      |  |      | 1.6536 |      |  |  | 1.5835 |  |  |  | 1.4906 |  |  |  | 1.3871 | 
|Australian dollar |  |     | AUD |                        |  |                                 | 1.6802 |      |  |      | 1.8600 |      |  |  | 1.7307 |  |  |  | 1.7425 |  |  |  | 1.7297 | 
|Swiss franc       |  |     | CHF |                        |  |                                 | 1.5579 |      |  |      | 1.4549 |      |  |  | 1.5226 |  |  |  | 1.4672 |  |  |  | 1.5070 | 

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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.

The Company recognizes revenue pursuant to the
requirements of American Institute of Certified Public
Accountants (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 or, for
elements not yet sold separately, the price established by
management if it is probable that the price will not change
before the 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 until the earlier of customer acceptance or the
lapse of acceptance rights.

The Company recognizes revenue from resellers
upon sell-through to the end customer.

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 respective 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 project 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 and arrangements in which
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 timing and amounts of revenues and 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.

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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.

The Company has entered into several joint
development agreements with certain customers to leverage their
industry expertise and to provide standard software solutions
for selected vertical markets. These customers generally
contribute cash, resources, and industry expertise in exchange
for license rights for 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 expensed as incurred.

Sales of Newly Issued Subsidiary
Shares

Gains and losses resulting from the issuance of
stock by a Group subsidiary, which reduces SAPs percentage
ownership (dilution gains and losses) are recorded
in the Groups Consolidated Statements of Income in the
line item Other non-operating income/ expense, net.

Earnings per Share

Basic earnings per share is calculated by
dividing consolidated Net income by the weighted average number
of common shares outstanding. Diluted earnings per share reflect
the potential dilution that would occur if all in the
money securities and other contracts to issue common
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 and the
aggregate minimum pension liability offset, have estimable
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. Instead goodwill is
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                       | 

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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).
SFAS 144 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 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 significant impairment charges on long-lived assets.

Financial Assets

In accordance with SFAS 115 Accounting for
Certain Investments in Debt and Equity Securities
(SFAS 115), marketable debt and equity
securities, other than investments accounted for by the equity
method, are classified as trading, available for sale, or held
to maturity, depending on managements intent with respect
to holding such investments. The marketable securities
classified within financial assets are considered to be
available for sale and, therefore, are valued at fair value at
the balance sheet date. Unrealized gains and losses on available
for sale securities are excluded from earnings and reported, net
of tax, as a component of other comprehensive income within
shareholders equity until realized. 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 earnings in the line item Financial income/ expense,
net, when a decline in realizable value of any available for
sale or cost method security below cost 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.

The impairment of marketable debt and equity
securities, cost method investments, and equity method
investments, establishes a new cost basis for the security. To
determine whether an impairment is other-than-temporary, the
Company considers whether it has the ability and intent to hold
the investment until a market price recovery and considers
whether evidence indicating that the carrying value of the
investment is recoverable outweighs evidence to the contrary.
Evidence considered in this assessment includes the reasons for
the impairment, the severity and duration of the decline in
realizable value below cost, changes in value subsequent to
year-end, and forecasted performance of the investee.

Non-interest-bearing or below market rate loans
to employees and to third parties are discounted to their
present value. In the event of any delay or shortfall in
payments due under employee or third party loans, SAP performs
an individual loan review. The same applies if SAP becomes aware
of any change in the debtors financial condition that
indicates a delay or shortfall in payments may result. If it is
probable that SAP will not be able to collect the amounts due
according to the contractual terms of the loan agreement, an
impairment charge is recorded based on SAPs best estimate
of the amount that will be recoverable.

Dividend and interest income are recognized when
earned.

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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 in any 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 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 collection efforts 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, due to their short-term nature, approximates fair value.

Marketable securities within non-fixed assets are
considered as trading. Accordingly, these securities are
recorded at fair value in the Consolidated Financial Statements
and unrealized holding gains and 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
three months and less than one year, 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.

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 on operating loss 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 in accordance with SFAS 87, Employers
Accounting for Pensions. 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.

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

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, (SFAS 123) and
SFAS 148 Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
of FASB Statement No. 123, (SFAS 148)
established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee
compensation plans. As permitted by existing accounting
standards, 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 amended. 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.

Net Income

|                                                                                   |  |         |           |         |  |         |         |  |  |  |         | 
|---------------------------------------------------------------------------------- |  | ------- | --------- | ------- |  | ------- | ------- |  |  |  | ------- | 
|                                                                                   |  | 2003    |           | 2002    |  | 2001   
|                                                                                   |  |  (000) |           |  (000) |  |  (000)
|                                                                                   |  |         |           |         |  |        
|As reported                                                                        |  |         | 1,077,063 |         |  |         | 508,614 |  |  |  | 581,136 | 
|Add: Expense for stock-based compensation, net of
    tax according to APB 25      |  |         | 85,700    |         |  |         | 5,600   |  |  |  | 40,357  | 
|Deduct: Expense for stock-based compensation, net
    of tax according to SFAS 123 |  |         | 205,109   |         |  |         | 138,203 |  |  |  | 131,272 | 
|                                                                                   |  |         |           |         |  |         |         |  |  |  |         | 
|Pro forma                                                                          |  |         | 957,654   |         |  |         | 376,011 |  |  |  | 490,221 | 
|                                                                                   |  |         |           |         |  |         |         |  |  |  |         | 

Earnings per Share

|                      |  |      |      |      |  |      |      |  |  |  |      | 
|--------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                      |  | 2003 |      | 2002 |  | 2001
|                      |  |     |      |     |  |    
|                      |  |      |      |      |  |     
|Basic  as reported   |  |      | 3.47 |      |  |      | 1.62 |  |  |  | 1.85 | 
|Diluted  as reported |  |      | 3.46 |      |  |      | 1.62 |  |  |  | 1.85 | 
|Basic  pro forma     |  |      | 3.08 |      |  |      | 1.20 |  |  |  | 1.56 | 
|Diluted  pro forma   |  |      | 3.08 |      |  |      | 1.20 |  |  |  | 1.56 | 

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 derivatives and hedging
activities in accordance with SFAS 133, Accounting
for Derivative Instruments and Hedging Activities,
(SFAS 133), as amended, which requires that all
derivative financial instruments be recorded on the balance
sheet at their fair value. 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

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recognized in earnings immediately. Foreign
currency exchange derivatives entered into by the Company to
offset exposure to anticipated cash flows that do not meet the
conditions for hedge accounting are recorded at fair value in
the consolidated balance sheet with changes in fair value
included in earnings.


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 liability, unrealized gains and losses from derivatives
designated as cash flow hedges, unrealized gains on STAR hedge,
and unrealized gains and losses from marketable debt and equity
securities classified as available-for-sale. Other comprehensive
income/loss and comprehensive income are displayed separately 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 period
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 Consolidated
Statements of Cash Flows is reconciled to cash and cash
equivalents, which are reconciled to liquid assets in
Note 21.

New Accounting Standards Adopted And 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. The adoption of SFAS 143 on January 1, 2003 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 requirements under
SFAS 146 are effective prospectively for exit or disposal
activities initiated after December 31, 2002. SFAS 146
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 prior accounting guidance, a liability could be
recognized when management has committed to an exit plan. The
adoption did not have a material impact on SAPs
Consolidated Financial Statements. Disclosures required by
SFAS 146 are presented in Note 26.

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). FIN 45 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
non-contingent portion of the obligation due to the issuance of
the guarantee or, if higher, a probable loss under SFAS 5,
Accounting for Contingencies. The initial
recognition and initial measurement provisions were applied on a
prospective basis to guarantees issued or modified after
December 31, 2002, without significant impact to SAPs
consolidated financial statements. The disclosures about
guarantees required by FIN 45 are included in Notes 26 and
30.

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

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##### Table of Contents



compensation. As described above, SAP applies
APB 25, which uses an intrinsic-value-based approach to
measure compensation expense. Under SFAS 123, compensation
expense of a stock option plan is measured at the grant date
based on the fair value of the award using an option-pricing
model. Compensation expense under both APB 25 and
SFAS 123 is recognized over the service period with an
offsetting credit to equity (paid-in capital). If SAP adopts a
fair value based method of measuring employee stock-based
awards, additional compensation expense will be recognized in
future statements of income dependent upon the number, price,
and other significant terms of the stock options granted. 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. Disclosures
required by this standard are included in Notes 3
and 24.


In November 2002, the EITF reached a final
consensus on EITF 00-21, Revenue Arrangements with
Multiple Deliverables (EITF 00-21). The
scope provisions of EITF 00-21 were slightly modified in
May 2003. 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. On July 31,
2003, the EITF reached a consensus on EITF 03-05,
Applicability of AICPA Statement of Position 97-2,
Software Revenue Recognition, to Non-Software
Deliverables in an Arrangement Containing More-Than-Incidental
Software, which clarifies the guidance in EITF 00-21.
SAP adopted EITF 00-21 and EITF 03-5 prospectively to
all transactions occurring after June 30, 2003. The
adoption of EITF 00-21 and EITF 03-5 did not have a
material impact on SAPs Consolidated Financial Statements.

In May 2003, the EITF reached a consensus on EITF
01-8, Determining Whether an Arrangement Contains a
Lease. EITF 01-8 clarifies certain provisions of
SFAS 13, Accounting for Leases, with respect to
the identification of lease elements in arrangements that do not
explicitly include lease provisions. Any lease element
identified under the model of EITF 01-8 should be accounted
for under current lease accounting literature. EITF 01-8
should be applied prospectively for lessees and lessors to
arrangements newly agreed to, modified, or acquired in a
business combination beginning with the first reporting period
after May 28, 2003. SAP applied the provisions of
EITF 01-8 beginning July 1, 2003, and it had no
significant impact on its Consolidated Financial Statements.

In May 2003, the FASB issued SFAS 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
(SFAS 150). SFAS 150 amends the accounting
and classification for certain financial instruments, such as
those used in most stock buy-back programs that previously were
accounted for and classified as equity. SFAS 150 requires
that certain types of freestanding financial instruments that
have characteristics of both liabilities and equity be
classified as liabilities with, in most cases, changes in fair
value flowing through the income statement. SFAS 150 could
affect companies ratios, performance measures and certain
stock buy-back programs. SAP applied the provisions of
SFAS 150 to all financial instruments entered into or
modified after May 31, 2003. The adoption of SFAS 150 had
no significant impact on SAPs Consolidated Financial
Statements.

In October 2003, the FASB issued FASB Staff
Position FIN 46-6 (FSP FIN 46-6),
Effective Date of FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. FSP
FIN 46-6 deferred the effective date for applying the
provisions of FIN 46 for interests held by public entities
in variable interest entities or potential variable interest
entities created before February 1, 2003.

In November 2003, the EITF reached a partial
consensus on EITF 03-01, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments. EITF 03-1 requires that additional
information about unrealized losses pertaining to certain debt
and equity securities and non-marketable cost method investments
be disclosed. SAP has included these additional disclosures in
Note 16.

In December 2003, the FASB issued FIN 46
(revised December 2003), Consolidation of Variable
Interest Entities (FIN 46R), which
addresses how a business enterprise should evaluate whether its
has a controlling financial interest in an entity through means
other than voting rights and accordingly should consolidate the
entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which
was

F-15



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##### Table of Contents



issued in January 2003 as well as FSP
FIN 46-6. SAP was required to apply FIN 46R on
December 31, 2003 for all entities previously considered to
be special purpose entities. SAP had no special
purpose entities and therefore the adoption of this portion of
FIN 46R had no impact on the Companys Consolidated
Financial Statements. The Company will be required to apply
FIN 46R to all entities not considered to be special
purpose entities as of March 31, 2004. The Company is
evaluating the impact of applying this portion of FIN 46R
and has not yet completed its analysis. However, SAP does not
currently believe it has any significant variable interests in
any variable interest entities.


In December 2003, SFAS 132 (revised),
Employers Disclosures about Pensions and Other
Postretirement Benefits (SFAS 132
(revised)) was issued. SFAS 132 (revised) prescribes
employers disclosures about pension plans and other
postretirement benefit plans; it does not change the measurement
or recognition of those plans. The Statement retains and revises
the disclosure requirements contained in the original
Statement 132. It also requires additional disclosures
about the assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other
postretirement benefit plans. The Statement generally is
effective for fiscal years ending after December 15, 2003.
The Companys disclosures in Note 25 incorporate the
requirements of Statement 132 (revised).

In December 2003, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition
(SAB 104), which supersedes SAB 101,
Revenue Recognition in Financial Statements.
SAB 104s primary purpose is to rescind the accounting
guidance contained in SAB 101 related to multiple-element
revenue arrangements that was superseded as a result of the
issuance of EITF 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. Additionally,
SAB 104 rescinds the SECs related Revenue
Recognition in Financial Statements Frequently Asked Questions
and Answers issued with SAB 101 that had been
codified in SEC Topic 13, Revenue Recognition.
While the wording of SAB 104 has changed to reflect the
issuance of EITF 00-21, the revenue recognition principles
of SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. The adoption of
SAB 104 did not have a material effect on SAPs
Consolidated Financial Statements.



|    |             
|--- | ------------
|(4) | Acquisitions

During the year ended December 31, 2003, SAP
completed the following four acquisitions, which are immaterial
individually:



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | COPA GMBH, Wesel, Germany (COPA),
    specialized in providing IT architecture consulting services in
    Germany. SAP Systems Integration AG, Dresden, Germany (SAP
    SI) acquired the remaining 49.9% of the outstanding stock
    in January 2003. COPA was merged into SAP SI in January
    2003.                                                     
|
| |  | DCW Software AG & Co. KG, Mannheim,
    Germany (DCW), a German software provider
    specialized in Enterprise Resource Planning software for the
    midsize market. SAP AG acquired a controlling financial
    interest in November 2003. In January 2004 SAP AG exercised
    an option to acquire the remaining outstanding shares.                      
|
| |  | SLI Consulting AG, based in Regensdorf,
    Switzerland (SLI), specialized in providing
    consulting services for medium-sized and large companies based
    in Switzerland. SAP SI acquired 100% of the outstanding
    stock in September 2003. SLI was merged into SAP Systems
    Integration (Schweiz) AG, Frauenfeld, Switzerland in
    November 2003.
|
| |  | SPM Technologies Deutschland GMBH, Berlin/
    Germany (SPM), specialized in providing IT
    architecture consulting services in Germany. SAP SI
    acquired 100% of the outstanding stock in December 2003.                                                                                                                                                 

In addition SAP AG increased its ownership
interest in SAP SI by approximately 2% in March 2003. All
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 2003 was
 63.2 million,
of which
 7.1 million
was assigned to identifiable intangible assets and
 49.9 million
was recorded as goodwill, of which
 10 million
is expected to be fully deductible for tax purposes. The
goodwill recognized in 2003 was assigned to the product and
consulting segments in the amounts of
 13.5 million
and

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##### Table of Contents



 36.4 million,
respectively. The aggregate purchase price related to the 2003
acquisitions can increase by approximately
 7 million
if certain results are achieved subsequently by the acquired
companies.


The values assigned to identifiable intangible
assets were as follows:

|                                            |  |           |     |                       |  |                                     
|------------------------------------------- |  | --------- | --- | --------------------- |  | ------------------------------------
|                                            |  |           |     | Estimated useful life
|Identifiable intangible assets              |  |  million |     | years                
|                                            |  |           |     |                      
|Maintenance contracts                       |  |           | 4.8 |                       |  | 5                                   
|Customer relationships                      |  |           | 1.5 |                       |  | 3                                   
|In-process research and development         |  |           | 0.5 |                       |  | expensed at the
    acquisition date
|Non-compete agreements                      |  |           | 0.3 |                       |  | 1                                   
|Identifiable intangible assets
    acquired |  |           | 7.1 |                       |  |                                     

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 Software, Inc.
(TopTier), for approximately US$379 million in
cash excluding cash acquired. TopTier, renamed SAP Portals Inc.,
specialized in technologies and know-how for creating enterprise
portals. The TopTier acquisition advanced SAPs strategy to
strengthen the position in the enterprise portal market.
Providing a high quality portal as part of SAPs software
solution should permit SAP to offer a better product to
customers. The TopTier acquisition also provided SAP with a
strong engineering staff that was experienced in the portal
market and goodwill that included a large installed base of
enterprise customers. The acquisition was accounted for using
the purchase method and accordingly the operating results have
been included in the Groups 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 acquired technology, workforce, and trade
names. In addition, approximately
 6 million
of the 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.

From the second quarter of 2000 through August
2001, SAP made several investments in Commerce One, Inc.
(Commerce One) resulting in a cumulative ownership
interest of approximately 22% of Commerce Ones outstanding
voting shares and the ability to exercise significant influence.
In August 2001 SAP retroactively applied the equity method. SAP
allocated the purchase price for each step in the cumulative
acquisition based on the ownership percentage of Commerce
Ones recorded net equity at such time. The cumulative
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. As of December 31, 2002, the carrying value of
SAPs investment in Commerce One was reduced to zero as of
result of the recognition of SAPs equity in the losses of
Commerce One since the initial investment date and the
recognition of an other-than-temporary impairment charge of
approximately
 298 million
in 2002.

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---



##### Table of Contents





|   |                                                   
|-- | --------------------------------------------------
|B. | NOTES TO THE CONSOLIDATED STATEMENTS OF
    INCOME



|    |        
|--- | -------
|(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
 161,543 thousand,
 151,300 thousand,
and
 188,546 thousand
in 2003, 2002, and 2001 respectively.



|    |                             
|--- | ----------------------------
|(7) | Other Operating Expense, Net

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

|                                                |                         |         |         |         |   |         |         |         |   |  |         |          |  
|----------------------------------------------- | ----------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - |  | ------- | -------- | -
|                                                |                         | 2003    |         | 2002    |   | 2001   
|                                                |                         |  (000) |         |  (000) |   |  (000)
|                                                |                         |         |         |         |   |        
|Restructuring costs  unused lease space        |                         |         | (17,164 | )       |   |         | (12,960 | )       |   |  | (2,840  | )       
|Restructuring costs  severance
    obligations |                         |         | (3,384  | )       |   |         | (33,148 | )       |   |  | (10,796 | )       
|Expenses to obtain rental income                |                         |         | (3,297  | )       |   |         | (4,989  | )       |   |  | (7,737  | )       
|Amortization of goodwill                        |                         |         | 0       |         |   |         | 0       |         |   |  | (62,884 | )       
|Bad debt expense                                |                         |         | 0       |         |   |         | 0       |         |   |  | (14,706 | )       
|Other                                           |                         |         | (835    | )       |   |         | (1,536  | )       |   |  | (6,667  | )       
|                                                |                         |         |         |         |   |         |         |         |   |  |         |         
|                                                | Other operating expense |         |         | (24,680 | ) |         |         | (52,633 | ) |  |         | (105,630 | )
|                                                |                         |         |         |         |   |         |         |         |   |  |         |         
|Rental income                                   |                         |         | 9,870   |         |   |         | 9,228   |         |   |  | 9,774   |         
|Reductions of bad debt allowance                |                         |         | 5,368   |         |   |         | 5,288   |         |   |  | 0       |         
|Receipt of insurance proceeds                   |                         |         | 2,002   |         |   |         | 2,246   |         |   |  | 1,137   |         
|Other                                           |                         |         | 944     |         |   |         | 763     |         |   |  | 505     |         
|                                                |                         |         |         |         |   |         |         |         |   |  |         |         
|                                                | Other operating income  |         |         | 18,184  |   |         |         | 17,525  |   |  |         | 11,416   |  
|                                                |                         |         |         |         |   |         |         |         |   |  |         |         
|                                                |                         |         | (6,496  | )       |   |         | (35,108 | )       |   |  | (94,214 | )       
|                                                |                         |         |         |         |   |         |         |         |   |  |         |         

Charges to the allowance for doubtful accounts
for bad debt expense is based on a systematic, ongoing review
and evaluation that is performed every month. Specific customer
credit loss risks are also included in the allowance for
doubtful accounts, but are charged to the respective cost of
product or cost of service sold.

See Note 26 for more detailed information
about costs incurred in connection with exit activities.



|    |                                    
|--- | -----------------------------------
|(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 categories 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:

|                                            |  |         |         |         |  |         |         |  |  |  |         | 
|------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- |  |  |  | ------- | 
|                                            |  | 2003    |         | 2002    |  | 2001   
|                                            |  |  (000) |         |  (000) |  |  (000)
|                                            |  |         |         |         |  |        
|Raw materials and supplies, purchased goods |  |         | 26,052  |         |  |         | 23,515  |  |  |  | 22,033  | 
|Purchased services                          |  |         | 643,815 |         |  |         | 824,752 |  |  |  | 806,550 | 
|                                            |  |         |         |         |  |         |         |  |  |  |         | 
|                                            |  |         | 669,867 |         |  |         | 848,267 |  |  |  | 828,583 | 
|                                            |  |         |         |         |  |         |         |  |  |  |         | 

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##### Table of Contents



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:

|                |  |         |           |         |  |         |           |  |  |  |           | 
|--------------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|                |  | 2003    |           | 2002    |  | 2001   
|                |  |  (000) |           |  (000) |  |  (000)
|                |  |         |           |         |  |        
|Salaries        |  |         | 2,479,416 |         |  |         | 2,519,054 |  |  |  | 2,497,261 | 
|Social costs    |  |         | 346,579   |         |  |         | 345,798   |  |  |  | 313,813   | 
|Pension expense |  |         | 110,595   |         |  |         | 100,397   |  |  |  | 97,030    | 
|                |  |         |           |         |  |         |           |  |  |  |           | 
|                |  |         | 2,936,590 |         |  |         | 2,965,249 |  |  |  | 2,908,104 | 
|                |  |         |           |         |  |         |           |  |  |  |           | 



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

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

|                                   |                              |         |          |          |   |         |          |          |   |  |          |          |  
|---------------------------------- | ---------------------------- | ------- | -------- | -------- | - | ------- | -------- | -------- | - |  | -------- | -------- | -
|                                   |                              | 2003    |          | 2002     |   | 2001   
|                                   |                              |  (000) |          |  (000)  |   |  (000)
|                                   |                              |         |          |          |   |        
|Foreign currency losses            |                              |         | (255,749 | )        |   |         | (201,097 | )        |   |  | (145,318 | )       
|Losses on disposal of fixed assets |                              |         | (3,474   | )        |   |         | (3,850   | )        |   |  | (4,419   | )       
|Other                              |                              |         | (6,585   | )        |   |         | (7,552   | )        |   |  | (10,041  | )       
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|                                   | Other non-operating expenses |         |          | (265,808 | ) |         |          | (212,499 | ) |  |          | (159,778 | )
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|Foreign currency gains             |                              |         | 284,288  |          |   |         | 236,401  |          |   |  | 139,589  |         
|Gains on disposal of fixed assets  |                              |         | 5,237    |          |   |         | 4,696    |          |   |  | 3,465    |         
|Other                              |                              |         | 12,592   |          |   |         | 8,721    |          |   |  | 6,081    |         
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|                                   | Other non-operating income   |         |          | 302,117  |   |         |          | 249,818  |   |  |          | 149,135  |  
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         
|                                   |                              |         | 36,309   |          |   |         | 37,319   |          |   |  | (10,643  | )       
|                                   |                              |         |          |          |   |         |          |          |   |  |          |         

Included in personnel expenses for the years
ended December 31, 2003, 2002, and 2001, are expenses
associated with the stock-based compensation as described in
Note 24.

The average number of employees in full time
equivalents was as follows:

|                                   |  |      |        |      |  |      |        |  |  |  |        | 
|---------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                   |  | 2003 |        | 2002 |  | 2001
|                                   |  |      |        |      |  |     
|Employees in full-time equivalents |  |      | 29,098 |      |  |      | 29,054 |  |  |  | 27,072 | 

Certain employees that are currently employed by
SAP but that are not currently operational or that work part
time while finishing a university degree are excluded from the
above figures.

F-19



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##### Table of Contents



(10)     Financial
Income/ Expense, Net

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

|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  
|------------------------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | -------- | - |  |  | -------- | -
|                                                                    |  | 2003    |         | 2002    |  | 2001   
|                                                                    |  |  (000) |         |  (000) |  |  (000)
|                                                                    |  |         |         |         |  |        
|Interest and similar income                                         |  |         | 47,436  |         |  |         | 38,311   |   |  |  | 55,910   |  
|Interest and similar expenses                                       |  |         | (3,999  | )       |  |         | (13,524  | ) |  |  | (22,244  | )
|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  
|Interest income, net                                                |  |         | 43,437  |         |  |         | 24,787   |   |  |  | 33,666   |  
|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  
|Gain/loss from investments, net                                     |  |         | 22      |         |  |         | (394,039 | ) |  |  | (165,499 | )
|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  
| thereof from associated companies                                 |  |         | (234    | )       |  |         | (394,589 | ) |  |  | (165,499 | )
|Income from marketable securities and loans of
    financial assets |  |         | 2,636   |         |  |         | 2,647    |   |  |  | 1,771    |  
|Write-down of financial assets                                      |  |         | (22,663 | )       |  |         | (133,098 | ) |  |  | (75,586  | )
|Gains on sales of marketable equity securities                      |  |         | 2,224   |         |  |         | 3,057    |   |  |  | 23,632   |  
|Unrealized losses on STAR hedge                                     |  |         | (15,213 | )       |  |         | (58,909  | ) |  |  | (50,901  | )
|Other net                                                           |  |         | 5,844   |         |  |         | 256      |   |  |  | (57      | )
|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  
|Other financial income/loss, net                                    |  |         | (27,172 | )       |  |         | (186,047 | ) |  |  | (101,141 | )
|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  
|                                                                    |  |         | 16,287  |         |  |         | (555,299 | ) |  |  | (232,974 | )
|                                                                    |  |         |         |         |  |         |          |   |  |  |          |  

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.

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

(11)     Income
Taxes

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

|                         |  |         |         |         |  |         |         |  |  |  |          |  
|------------------------ |  | ------- | ------- | ------- |  | ------- | ------- |  |  |  | -------- | -
|                         |  | 2003    |         | 2002    |  | 2001   
|                         |  |  (000) |         |  (000) |  |  (000)
|                         |  |         |         |         |  |        
|Current taxes  Germany  |  |         | 382,786 |         |  |         | 302,533 |  |  |  | 461,890  |  
|Current taxes  Foreign  |  |         | 217,232 |         |  |         | 221,452 |  |  |  | 170,878  |  
|                         |  |         |         |         |  |         |         |  |  |  |          |  
|                         |  |         | 600,018 |         |  |         | 523,985 |  |  |  | 632,768  |  
|                         |  |         |         |         |  |         |         |  |  |  |          |  
|Deferred taxes  Germany |  |         | 90,925  |         |  |         | 56,155  |  |  |  | (124,552 | )
|Deferred taxes  Foreign |  |         | 1,697   |         |  |         | 18,565  |  |  |  | (31,923  | )
|                         |  |         |         |         |  |         |         |  |  |  |          |  
|                         |  |         | 92,622  |         |  |         | 74,720  |  |  |  | (156,475 | )
|                         |  |         |         |         |  |         |         |  |  |  |          |  
|Income tax expense       |  |         | 692,640 |         |  |         | 598,705 |  |  |  | 476,293  |  
|                         |  |         |         |         |  |         |         |  |  |  |          |  

In December 2003, the German government enacted
new tax legislation (Gesetz zur Umsetzung der
Protokollerklärung der Bundesregierung zur
Vermittlungsempfehlung zum
Steuervergünstigungsabbaugesetz) effective
January 1, 2004. A significant change is the limitation of
the exemption from tax for domestic dividends and certain gains
from the sale of shares in affiliated and unaffiliated
companies. Beginning January 2004, only 95% of such dividends
received and gains realized will be tax-free while 5% will be
treated as non deductible expenses. The effect of this and other
changes in tax laws on the Consolidated Statements of Income in
2003 was not material.

The effects of the German tax law changes that
were enacted prior to 2003 are as follows: New tax legislation
enacted in September 2002 and effective January 1, 2003
increased the statutory corporate income tax rate from 25% to
26.5% for 2003 only. This change in tax law affected the amount
of deferred tax assets and

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##### Table of Contents



liabilities of German entities within the Group
as of December 31, 2002 for temporary differences that were
expected to be recovered or settled in 2003. The impact of this
tax law change increased the deferred income tax expense in 2002
by
 1,558 thousand.


Income before income tax, minority interest and
extraordinary gain (see Note 12) consists of the following:

|        |  |         |           |         |  |         |           |  |  |  |           | 
|------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|        |  | 2003    |           | 2002    |  | 2001   
|        |  |  (000) |           |  (000) |  |  (000)
|        |  |         |           |         |  |        
|Germany |  |         | 1,179,891 |         |  |         | 450,864   |  |  |  | 802,375   | 
|Foreign |  |         | 596,724   |         |  |         | 656,834   |  |  |  | 266,382   | 
|        |  |         |           |         |  |         |           |  |  |  |           | 
|        |  |         | 1,776,615 |         |  |         | 1,107,698 |  |  |  | 1,068,757 | 
|        |  |         |           |         |  |         |           |  |  |  |           | 

The effective income tax rate for the years ended
December 31, 2003, 2002 and 2001 was 39.0%, 53.8% and 44.6%
respectively. The following table reconciles the expected income
tax expense computed by applying the Companys combined
German corporate tax rate of 37.71% in 2003 (2002: 36.39%;
2001: 36.51%) to the actual income tax expense. The
Companys 2003 combined German corporate tax rate includes
a corporate income tax rate after the benefit of deductible
trade tax, of 22.91% (2002: 21.60%; 2001: 21.56%) plus a
solidarity surcharge of 5.5% thereon and trade taxes of 13.54%
(2002: 13.60%; 2001: 13.77%).

|                                                                          |  |         |           |         |  |         |           |   |  |  |           |  
|------------------------------------------------------------------------- |  | ------- | --------- | ------- |  | ------- | --------- | - |  |  | --------- | -
|                                                                          |  | 2003    |           | 2002    |  | 2001   
|                                                                          |  |  (000) |           |  (000) |  |  (000)
|                                                                          |  |         |           |         |  |        
|Income before income taxes                                                |  |         | 1,776,615 |         |  |         | 1,107,698 |   |  |  | 1,068,757 |  
|Expected income taxes 37.71% in 2003 (36.39% in
    2002, 36.51% in 2001) |  |         | 669,961   |         |  |         | 403,091   |   |  |  | 390,203   |  
|Foreign tax rate differential                                             |  |         | (14,735   | )       |  |         | (4,316    | ) |  |  | 30,993    |  
|Tax on non-deductible expenses                                            |  |         | 28,564    |         |  |         | 11,450    |   |  |  | 5,705     |  
|Tax effect on losses                                                      |  |         | (1,507    | )       |  |         | (130      | ) |  |  | 3,611     |  
|Tax effect on equity investments and securities                           |  |         | 7,110     |         |  |         | 177,639   |   |  |  | 54,766    |  
|Other                                                                     |  |         | 3,247     |         |  |         | 10,971    |   |  |  | (8,985    | )
|                                                                          |  |         |           |         |  |         |           |   |  |  |           |  
|Income taxes                                                              |  |         | 692,640   |         |  |         | 598,705   |   |  |  | 476,293   |  
|                                                                          |  |         |           |         |  |         |           |   |  |  |           |  

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##### Table of Contents



Deferred income tax assets and liabilities as of
December 31, 2003 and 2002 are summarized (referring to the
underlying item) as follows:

|                                            |  |         |         |         |  |  |         |  
|------------------------------------------- |  | ------- | ------- | ------- |  |  | ------- | -
|                                            |  | 2003    |         | 2002   
|                                            |  |  (000) |         |  (000)
|                                            |  |         |         |        
|Deferred tax assets                         |  |         |         |         |  |  |         |  
|Property, plant & equipment and intangibles |  |         | 87,127  |         |  |  | 172,051 |  
|Financial assets                            |  |         | 14,125  |         |  |  | 22,249  |  
|Accounts receivable                         |  |         | 7,761   |         |  |  | 22,177  |  
|Net operating loss carryforwards            |  |         | 17,914  |         |  |  | 25,874  |  
|Pension liabilities                         |  |         | 12,337  |         |  |  | 28,028  |  
|Stock-based compensation                    |  |         | 12,099  |         |  |  | 0       |  
|Other liabilities                           |  |         | 78,537  |         |  |  | 86,004  |  
|Deferred income                             |  |         | 35,942  |         |  |  | 48,156  |  
|Other                                       |  |         | 115     |         |  |  | 762     |  
|                                            |  |         |         |         |  |  |         |  
|                                            |  |         | 265,957 |         |  |  | 405,301 |  
|Less: Valuation allowance                   |  |         | (1,504  | )       |  |  | (3,011  | )
|                                            |  |         |         |         |  |  |         |  
|Deferred tax assets                         |  |         | 264,453 |         |  |  | 402,290 |  
|                                            |  |         |         |         |  |  |         |  
|Deferred tax liabilities                    |  |         |         |         |  |  |         |  
|Property, plant & equipment and intangibles |  |         | 3,215   |         |  |  | 35,417  |  
|Financial assets                            |  |         | 21,396  |         |  |  | 5,774   |  
|Accounts receivable                         |  |         | 86,490  |         |  |  | 35,918  |  
|Pension liabilities                         |  |         | 0       |         |  |  | 5,537   |  
|Other liabilities                           |  |         | 320     |         |  |  | 25,168  |  
|Deferred income                             |  |         | 9       |         |  |  | 3,134   |  
|Other                                       |  |         | 550     |         |  |  | 147     |  
|                                            |  |         |         |         |  |  |         |  
|Deferred tax liabilities                    |  |         | 111,980 |         |  |  | 111,095 |  
|                                            |  |         |         |         |  |  |         |  
|Net deferred tax assets/ liabilities        |  |         | 152,473 |         |  |  | 291,195 |  
|                                            |  |         |         |         |  |  |         |  

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

|                         |  |         |         |         |  |  |         | 
|------------------------ |  | ------- | ------- | ------- |  |  | ------- | 
|                         |  | 2003    |         | 2002   
|                         |  |  (000) |         |  (000)
|                         |  |         |         |        
|Deferred tax assets      |  |         |         |         |  |  |         | 
|Short-term               |  |         | 84,873  |         |  |  | 146,520 | 
|Long-term                |  |         | 179,580 |         |  |  | 255,770 | 
|                         |  |         |         |         |  |  |         | 
|                         |  |         | 264,453 |         |  |  | 402,290 | 
|                         |  |         |         |         |  |  |         | 
|Deferred tax liabilities |  |         |         |         |  |  |         | 
|Short-term               |  |         | 94,868  |         |  |  | 63,678  | 
|Long-term                |  |         | 17,112  |         |  |  | 47,417  | 
|                         |  |         |         |         |  |  |         | 
|                         |  |         | 111,980 |         |  |  | 111,095 | 
|                         |  |         |         |         |  |  |         | 

On December 31, 2003, certain foreign
subsidiaries of the Company had net operating loss carryforwards
amounting to
 90,854 thousand
(2002:
 140,452 thousand),
which may be used to offset future taxable income. Of this
amount
 32,586 thousand
relates to state net operating loss carryforwards in the United
States that will expire if not used over the next 20 years.
Further
 25,467 thousand
relates to other net operating loss carryforwards that will
expire if not used within three to seven years. The remaining
 32,801 thousand
relates to other net operating loss carryforwards that do not
expire and therefore can be utilized indefinitely.

Deferred tax assets as of December 31, 2003
and 2002 relating to net operating loss carryforwards have been
reduced by a valuation allowance of
 1,504 thousand
and
 3,011 thousand,
respectively, to a net amount that management believes is more
likely than not to be realized.

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##### Table of Contents



The decrease of this valuation allowance in 2003
from
 3,011 thousand
to
 1,504 thousand
is mainly caused by the utilization of losses.

The Company recorded tax liabilities of
 872
thousand (2002:
 3,816 thousand)
for taxes on future dividend distributions from foreign
subsidiaries, which is based on
 48,000 thousand
(2002:
 205,298 thousand)
of cumulative undistributed earnings of those foreign
subsidiaries because such earnings are intended to be
repatriated. The Company has not recognized an income tax
liability on
 1,716,116 thousand
(2002:
 1,646,258 thousand)
of undistributed earnings of its foreign subsidiaries that arose
in 2003 and prior years because the Company plans to permanently
reinvest the undistributed earnings. It is not practicable to
estimate the amount of unrecognized tax liabilities for these
undistributed foreign earnings.

Total income taxes for the years ended
December 31, 2003, 2002 and 2001 including those not
affecting the Consolidated Statements of Income (charged or
credited to Other comprehensive income) were allocated as
follows:

|                                                                    |  |         |         |         |  |         |         |   |  |  |         |  
|------------------------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | - |  |  | ------- | -
|                                                                    |  | 2003    |         | 2002    |  | 2001   
|                                                                    |  |  (000) |         |  (000) |  |  (000)
|                                                                    |  |         |         |         |  |        
|Income tax expense from continuous operations                       |  |         | 692,640 |         |  |         | 598,705 |   |  |  | 476,293 |  
|Income tax expense (benefit) on other
    comprehensive income/loss |  |         | 31,750  |         |  |         | (5,486  | ) |  |  | (32,965 | )
|                                                                    |  |         |         |         |  |         |         |   |  |  |         |  
|                                                                    |  |         | 724,390 |         |  |         | 593,219 |   |  |  | 443,328 |  
|                                                                    |  |         |         |         |  |         |         |   |  |  |         |  

See Note 23 for the income tax impact of the
components of accumulated other comprehensive income.

(12)     Extraordinary
Gain

In 2002, the Company recorded an extraordinary
gain for 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 related 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. The conversion
feature of the convertible bonds has been out of the
money for all periods presented. As such, because their
effect would have been anti-dilutive, all

F-23



---



##### Table of Contents



outstanding convertible bonds have been excluded
from the computation of earnings per share for all periods
presented. The number of outstanding stock options and
convertible bonds is presented in Note 24.


|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |      | 
|-------------------------------------------- | -------------------------------------------- | ------------------------------------ | --------- | ---- |  | ---- | ------- | ---- |  |  | ------- | ---- | 
|                                             |                                              | 2003                                 |           | 2002 |  | 2001
|                                             |                                              |                                      |           |      |  |     
|                                             |                                              |                                     
|                                             |                                              | (in thousands except per share data)
|Net income before extraordinary gain
    () |                                              |                                      | 1,077,063 |      |  |      | 502,838 |      |  |  | 581,136 |     
|Extraordinary gain, net of tax
    ()       |                                              |                                      | 0         |      |  |      | 5,776   |      |  |  | 0       |     
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|Net income
    ()                           |                                              |                                      | 1,077,063 |      |  |      | 508,614 |      |  |  | 581,136 |     
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|Weighted average shares 
    basic          |                                              |                                      | 310,781   |      |  |      | 313,016 |      |  |  | 314,309 |     
|Stock options                                |                                              |                                      | 628       |      |  |      | 964     |      |  |  | 103     |     
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|Weighted average shares 
    diluted        |                                              |                                      | 311,409   |      |  |      | 313,980 |      |  |  | 314,412 |     
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|Earnings per share  basic                   |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|                                             | Net income before extraordinary gain         |                                      |           | 3.47 |  |      |         | 1.60 |  |  |         | 1.85 | 
|                                             | Extraordinary gain, net of tax
    ()       |                                      |           | 0.00 |  |      |         | 0.02 |  |  |         | 0.00 | 
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|                                             | Net income
    ()                           |                                      |           | 3.47 |  |      |         | 1.62 |  |  |         | 1.85 | 
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|Earnings per share 
    diluted             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|                                             | Net income before extraordinary gain
    () |                                      |           | 3.46 |  |      |         | 1.60 |  |  |         | 1.85 | 
|                                             | Extraordinary gain, net of tax
    ()       |                                      |           | 0.00 |  |      |         | 0.02 |  |  |         | 0.00 | 
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     
|                                             | Net income
    ()                           |                                      |           | 3.46 |  |      |         | 1.62 |  |  |         | 1.85 | 
|                                             |                                              |                                      |           |      |  |      |         |      |  |  |         |     

C.     NOTES TO THE
CONSOLIDATED BALANCE SHEETS

(14)     Intangible
Assets

|                                      |  |                      |         |          |  |         |         |   |  |  |         |  
|------------------------------------- |  | -------------------- | ------- | -------- |  | ------- | ------- | - |  |  | ------- | -
|                                      |  | Licenses, trademarks |         |          |  |        
|                                      |  | similar rights and   |         |          |  |        
|                                      |  | other intangibles    |         | Goodwill |  | Total  
|                                      |  |  (000)              |         |  (000)  |  |  (000)
|                                      |  |                      |         |          |  |        
|Purchase cost                         |  |                      |         |          |  |         |         |   |  |  |         |  
|1/1/2003                              |  |                      | 231,611 |          |  |         | 437,261 |   |  |  | 668,872 |  
|Exchange rate differences             |  |                      | (20,052 | )        |  |         | (42,289 | ) |  |  | (62,341 | )
|Changes in the scope of consolidation |  |                      | 1,715   |          |  |         | 0       |   |  |  | 1,715   |  
|Additions                             |  |                      | 21,739  |          |  |         | 49,908  |   |  |  | 71,647  |  
|Retirements/ disposals                |  |                      | (2,430  | )        |  |         | 0       |   |  |  | (2,430  | )
|Reclassifications                     |  |                      | 62      |          |  |         | 0       |   |  |  | 62      |  
|                                      |  |                      |         |          |  |         |         |   |  |  |         |  
|12/31/2003                            |  |                      | 232,645 |          |  |         | 444,880 |   |  |  | 677,525 |  
|                                      |  |                      |         |          |  |         |         |   |  |  |         |  
|Accumulated amortization              |  |                      |         |          |  |         |         |   |  |  |         |  
|1/1/2003                              |  |                      | 121,961 |          |  |         | 106,146 |   |  |  | 228,107 |  
|Exchange rate differences             |  |                      | (9,886  | )        |  |         | (6,387  | ) |  |  | (16,273 | )
|Changes in the scope of consolidation |  |                      | 1,266   |          |  |         | 0       |   |  |  | 1,266   |  
|Additions                             |  |                      | 45,505  |          |  |         | 0       |   |  |  | 45,505  |  
|Retirements/ disposals                |  |                      | (2,416  | )        |  |         | 0       |   |  |  | (2,416  | )
|                                      |  |                      |         |          |  |         |         |   |  |  |         |  
|12/31/2003                            |  |                      | 156,430 |          |  |         | 99,759  |   |  |  | 256,189 |  
|                                      |  |                      |         |          |  |         |         |   |  |  |         |  
|Book value 12/31/2003                 |  |                      | 76,215  |          |  |         | 345,121 |   |  |  | 421,336 |  
|                                      |  |                      |         |          |  |         |         |   |  |  |         |  
|Book value 12/31/2002                 |  |                      | 109,650 |          |  |         | 331,115 |   |  |  | 440,765 |  
|                                      |  |                      |         |          |  |         |         |   |  |  |         |  

F-24



---



##### Table of Contents



All of SAPs intangible assets, other than
goodwill and the aggregate minimum pension liability offset
( 416
thousand) included in other intangibles, are subject to
amortization. Intangibles consist of two major asset classes:

|                                              |  |                                             |         |            |  |       |         |                |  |  |        |  |  |  |         | 
|--------------------------------------------- |  | ------------------------------------------- | ------- | ---------- |  | ----- | ------- | -------------- |  |  | ------ |  |  |  | ------- | 
|                                              |  |                                             |         |            |  |       |         | Licenses,     
|                                              |  |                                             |         |            |  |       |         | trademarks,   
|                                              |  | Software and                                |         |            |  |       |         | similar rights
|                                              |  | database                                    |         | Acquired   |  |       |         | and other     
|                                              |  | licenses                                    |         | technology |  | Other |         | intangibles   
|                                              |  |                                             |         |            |  |       |         |               
|                                              |  |                                            
|                                              |  | (in thousands  except amortization period)
|2003                                          |  |                                             |         |            |  |       |         |                |  |  |        |  |  |  |         | 
|Purchase cost                                 |  |                                             | 125,056 |            |  |       | 96,422  |                |  |  | 11,167 |  |  |  | 232,645 | 
|Accumulated amortization                      |  |                                             | 98,360  |            |  |       | 53,651  |                |  |  | 4,419  |  |  |  | 156,430 | 
|thereof additions in 2003                     |  |                                             |         |            |  |       |         |                |  |  |        |  |  |  |         | 
|Purchase cost                                 |  |                                             | 14,266  |            |  |       | 0       |                |  |  | 7,473  |  |  |  | 21,739  | 
|Weighted average amortization period in years |  |                                             | 3       |            |  |       |        |                |  |  | 4.1    |  |  |  |        | 
|2002                                          |  |                                             |         |            |  |       |         |                |  |  |        |  |  |  |         | 
|Purchase cost                                 |  |                                             | 113,446 |            |  |       | 113,809 |                |  |  | 4,356  |  |  |  | 231,611 | 
|Accumulated amortization                      |  |                                             | 81,139  |            |  |       | 38,781  |                |  |  | 2,041  |  |  |  | 121,961 | 

Software and database licenses consists primarily
of technology for internal use whereas acquired technology
consists primarily of technology to be incorporated into the
Groups products. Other consists primarily of trademark
licenses and customer lists acquired. For further information
refer to Note 4.

The estimated aggregate amortization expense for
intangible assets for each of the five succeeding years ending
December 31 is as follows:

|     |  |         |        | 
|---- |  | ------- | ------ | 
|     |  |  (000)
|     |  |        
|2004 |  |         | 34,701 | 
|2005 |  |         | 26,829 | 
|2006 |  |         | 12,239 | 
|2007 |  |         | 1,863  | 
|2008 |  |         | 167    | 

The carrying amount of goodwill by reportable
segment as of December 31, 2003 and 2002 is as follows (for
further information see Note 34):

|           |  |      |         |           |  |         |        |           |  |  |         |  |  |  |        | 
|---------- |  | ---- | ------- | --------- |  | ------- | ------ | --------- |  |  | ------- |  |  |  | ------ | 
|           |  |      |         |           |  |         |        | Thereof  
|           |  |      |         | Thereof   |  |         |        | additions
|           |  |      |         | additions |  | 2002    |        | in 2002  
|           |  | 2003 |         | in 2003   |  |  (000) |        |  (000)  
|           |  |      |         |           |  |         |        |          
|Product    |  |      | 215,062 |           |  |         | 13,467 |           |  |  | 228,120 |  |  |  | 4,549  | 
|Consulting |  |      | 119,921 |           |  |         | 36,441 |           |  |  | 95,779  |  |  |  | 15,761 | 
|Training   |  |      | 10,138  |           |  |         | 0      |           |  |  | 7,216   |  |  |  | 181    | 
|           |  |      |         |           |  |         |        |           |  |  |         |  |  |  |        | 
|           |  |      | 345,121 |           |  |         | 49,908 |           |  |  | 331,115 |  |  |  | 20,491 | 
|           |  |      |         |           |  |         |        |           |  |  |         |  |  |  |        | 

F-25



---



##### Table of Contents



With the adoption of SFAS 142 in 2002
goodwill is no longer amortized. Net income and earnings per
share for 2001, adjusted to exclude amortization expense, net of
tax, is as follows:

Net Income

|                                                         |  |         |         | 
|-------------------------------------------------------- |  | ------- | ------- | 
|                                                         |  | 2001   
|                                                         |  |  (000)
|                                                         |  |        
|Reported net income                                      |  |         | 581,136 | 
|Add back: Goodwill amortization                          |  |         | 62,884  | 
|Add back: Goodwill amortization 
    equity investments |  |         | 1,069   | 
|Add back: Workforce amortization                         |  |         | 2,025   | 
|                                                         |  |         |         | 
|Adjusted net income                                      |  |         | 647,114 | 
|                                                         |  |         |         | 

Earnings per Share

|                                                         |  |      |      | 
|-------------------------------------------------------- |  | ---- | ---- | 
|                                                         |  | 2001
|                                                         |  |    
|                                                         |  |     
|Basic earnings per share                                 |  |      | 1.85 | 
|Add back: Goodwill amortization                          |  |      | 0.20 | 
|Add back: Goodwill amortization 
    equity investments |  |      | 0.00 | 
|Add back: Workforce amortization                         |  |      | 0.01 | 
|                                                         |  |      |      | 
|Adjusted basic earnings per share                        |  |      | 2.06 | 
|                                                         |  |      |      | 
|Diluted earnings per share                               |  |      | 1.85 | 
|Add back: Goodwill amortization                          |  |      | 0.20 | 
|Add back: Goodwill amortization 
    equity investments |  |      | 0.00 | 
|Add back: Workforce amortization                         |  |      | 0.01 | 
|                                                         |  |      |      | 
|Adjusted diluted earnings per share                      |  |      | 2.06 | 
|                                                         |  |      |      | 

F-26



---



##### Table of Contents



(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                         |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|1/1/2003                              |  |                      | 845,890 |                 |  |              | 817,971 |         |  |  | 122,079  |   |  |  | 1,785,940 |  
|Exchange rate differences             |  |                      | (42,628 | )               |  |              | (27,709 | )       |  |  | (1,318   | ) |  |  | (71,655   | )
|Changes in the scope of consolidation |  |                      | 583     |                 |  |              | 7,541   |         |  |  | 0        |   |  |  | 8,124     |  
|Additions                             |  |                      | 44,263  |                 |  |              | 146,312 |         |  |  | 13,115   |   |  |  | 203,690   |  
|Retirements/ disposals                |  |                      | (10,653 | )               |  |              | (86,892 | )       |  |  | 0        |   |  |  | (97,545   | )
|Reclassifications                     |  |                      | 91,390  |                 |  |              | 29,764  |         |  |  | (121,216 | ) |  |  | (62       | )
|                                      |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|12/31/2003                            |  |                      | 928,845 |                 |  |              | 886,987 |         |  |  | 12,660   |   |  |  | 1,828,492 |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|Accumulated depreciation              |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|1/1/2003                              |  |                      | 200,170 |                 |  |              | 551,553 |         |  |  | 0        |   |  |  | 751,723   |  
|Exchange rate differences             |  |                      | (10,259 | )               |  |              | (20,468 | )       |  |  | 0        |   |  |  | (30,727   | )
|Changes in the scope of consolidation |  |                      | 335     |                 |  |              | 5,703   |         |  |  | 0        |   |  |  | 6,038     |  
|Additions                             |  |                      | 43,401  |                 |  |              | 126,611 |         |  |  | 0        |   |  |  | 170,012   |  
|Retirements/ disposals                |  |                      | (8,767  | )               |  |              | (79,444 | )       |  |  | 0        |   |  |  | (88,211   | )
|Reclassifications                     |  |                      | 124     |                 |  |              | (124    | )       |  |  | 0        |   |  |  | 0         |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|12/31/2003                            |  |                      | 225,004 |                 |  |              | 583,831 |         |  |  | 0        |   |  |  | 808,835   |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|Book value 12/31/2003                 |  |                      | 703,841 |                 |  |              | 303,156 |         |  |  | 12,660   |   |  |  | 1,019,657 |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  
|Book value 12/31/2002                 |  |                      | 645,720 |                 |  |              | 266,418 |         |  |  | 122,079  |   |  |  | 1,034,217 |  
|                                      |  |                      |         |                 |  |              |         |         |  |  |          |   |  |  |           |  

The additions in other property, plant and
equipment relate primarily to the purchase of computer hardware
acquired in the normal course of business. Reclassifications of
payments and construction in progress in 2003 relates to the
completion of certain facilities constructed in Germany.

F-27



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(16)     Financial
Assets

|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|-------------------------------------------------- |  | ------------- | ------- | ---------- |  | ---------- | ------- | ----------- |  | ------- | ------ | - |  |  | ------- | - |  |  | ------- | -
|                                                   |  | Investments   |         |            |  |            |         |             |  |        
|                                                   |  | in associated |         | Equity     |  | Debt       |         |             |  |        
|                                                   |  | companies     |         | securities |  | securities |         | Other loans |  | Total  
|                                                   |  |  (000)       |         |  (000)    |  |  (000)    |         |  (000)     |  |  (000)
|                                                   |  |               |         |            |  |            |         |             |  |        
|Historical cost                                    |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|1/1/2003                                           |  |               | 339,746 |            |  |            | 233,465 |             |  |         | 52,197 |   |  |  | 76,981  |   |  |  | 702,389 |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|Adjusted cost basis as of 1/1/2003                 |  |               | 251     |            |  |            | 49,714  |             |  |         | 52,197 |   |  |  | 76,981  |   |  |  | 179,143 |  
|Exchange rate differences                          |  |               | 0       |            |  |            | (634    | )           |  |         | (74    | ) |  |  | (226    | ) |  |  | (934    | )
|Additions                                          |  |               | 2,153   |            |  |            | 9,190   |             |  |         | 38     |   |  |  | 18,023  |   |  |  | 29,404  |  
|Retirements                                        |  |               | (605    | )          |  |            | (7,139  | )           |  |         | (146   | ) |  |  | (18,092 | ) |  |  | (25,982 | )
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|12/31/2003                                         |  |               | 1,799   |            |  |            | 51,131  |             |  |         | 52,015 |   |  |  | 76,686  |   |  |  | 181,631 |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|Changes in fair value of marketable
    securities |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|1/1/2003                                           |  |               | 0       |            |  |            | (5,122  | )           |  |         | 2,162  |   |  |  | 0       |   |  |  | (2,960  | )
|Exchange rate differences                          |  |               | 0       |            |  |            | 255     |             |  |         | 0      |   |  |  | 0       |   |  |  | 255     |  
|Changes in unrealized gains/ losses                |  |               | 0       |            |  |            | 20,169  |             |  |         | (485   | ) |  |  | 0       |   |  |  | 19,684  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|12/31/2003                                         |  |               | 0       |            |  |            | 15,302  |             |  |         | 1,677  |   |  |  | 0       |   |  |  | 16,979  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|Write-offs                                         |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|1/1/2003                                           |  |               | 0       |            |  |            | 0       |             |  |         | 6      |   |  |  | 18,811  |   |  |  | 18,817  |  
|Exchange rate differences                          |  |               | 0       |            |  |            | 0       |             |  |         | (3     | ) |  |  | (35     | ) |  |  | (38     | )
|Additions                                          |  |               | 0       |            |  |            | 15,137  |             |  |         | 10     |   |  |  | 7,516   |   |  |  | 22,663  |  
|Retirements                                        |  |               | 0       |            |  |            | 0       |             |  |         | 0      |   |  |  | (3,578  | ) |  |  | (3,578  | )
|Write-ups                                          |  |               | 0       |            |  |            | 0       |             |  |         | 0      |   |  |  | (7,242  | ) |  |  | (7,242  | )
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|12/31/2003                                         |  |               | 0       |            |  |            | 15,137  |             |  |         | 13     |   |  |  | 15,472  |   |  |  | 30,622  |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|Carrying value 12/31/2003                          |  |               | 1,799   |            |  |            | 51,296  |             |  |         | 53,679 |   |  |  | 61,214  |   |  |  | 167,988 |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  
|Carrying value 12/31/2002                          |  |               | 251     |            |  |            | 44,592  |             |  |         | 54,353 |   |  |  | 58,170  |   |  |  | 157,366 |  
|                                                   |  |               |         |            |  |            |         |             |  |         |        |   |  |  |         |   |  |  |         |  

Historical cost represent the amount originally
paid for the assets acquired. Under U.S. GAAP, the
write-off of financial assets establishes a new cost basis. As
of December 31, 2003, the adjusted cost basis of the
Companys investment in associated companies and equity
securities are
1,799 thousand
and
35,994 thousand,
respectively.

Investments in Associated Companies

As described in Note 10, SAP recorded a loss
of
 389,630 thousand
in 2002 due to an other-than-temporary impairment charge and
equity method losses attributable to the investment in Commerce
One. The market value and the carrying value of the
Companys investment in Commerce One as of
December 31, 2003 were
 5.9 million
(based on the quoted share price of US$1.27) and
 0,
respectively, and as of December 31, 2002 were
 15.4 million
(based on the quoted share price of US$2.77) and
 0,
respectively. Because Commerce One had no effect on the
Companys Consolidated Statements of Income in 2003,
summarized consolidated financial information has not been
provided for Commerce One for the year ended December 31,
2003. The following table presents summarized consolidated
financial information for Commerce One for the years ended
December 31, 2002 and 2001, respectively.

F-28



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|                             |  |          |          |          |  |  |            |  
|---------------------------- |  | -------- | -------- | -------- |  |  | ---------- | -
|                             |  | 2002     |          | 2001    
|                             |  | US$(000) |          | US$(000)
|                             |  |          |          |         
|Net revenues                 |  |          | 105,529  |          |  |  | 408,569    |  
|Loss from operations         |  |          | (594,216 | )        |  |  | (2,582,669 | )
|Net loss                     |  |          | (589,836 | )        |  |  | (2,584,099 | )
|Current assets               |  |          | 125,189  |          |  |  | 343,792    |  
|Non-current assets           |  |          | 34,233   |          |  |  | 485,149    |  
|                             |  |          |          |          |  |  |            |  
|Total assets                 |  |          | 159,422  |          |  |  | 828,941    |  
|                             |  |          |          |          |  |  |            |  
|Current liabilities          |  |          | 64,781   |          |  |  | 149,121    |  
|Non-current liabilities      |  |          | 47,151   |          |  |  | 56,005     |  
|Shareholders equity         |  |          | 47,490   |          |  |  | 623,815    |  
|                             |  |          |          |          |  |  |            |  
|Total liabilities and equity |  |          | 159,422  |          |  |  | 828,941    |  
|                             |  |          |          |          |  |  |            |  

Equity and Debt Securities

Amounts pertaining to equity and debt securities
as of December 31 are as follows:

|                                                      |  |         |         |            |  |            |        |          |  |  |        |  |  |  |         | 
|----------------------------------------------------- |  | ------- | ------- | ---------- |  | ---------- | ------ | -------- |  |  | ------ |  |  |  | ------- | 
|                                                      |  |        
|                                                      |  | 2003   
|                                                      |  |        
|                                                      |  |         |         | Gross      |  | Gross      |        |         
|                                                      |  |         |         | unrealized |  | unrealized |        | Carrying
|                                                      |  | Cost    |         | gains      |  | losses     |        | value   
|                                                      |  |  (000) |         |  (000)    |  |  (000)    |        |  (000) 
|                                                      |  |         |         |            |  |            |        |         
|Marketable equity securities 
    available-for-sale |  |         | 17,775  |            |  |            | 15,374 |          |  |  | 8,692  |  |  |  | 24,457  | 
|Other equity securities                               |  |         | 33,356  |            |  |            | 0      |          |  |  | 6,517  |  |  |  | 26,839  | 
|                                                      |  |         |         |            |  |            |        |          |  |  |        |  |  |  |         | 
|Equity securities                                     |  |         | 51,131  |            |  |            | 15,374 |          |  |  | 15,209 |  |  |  | 51,296  | 
|Marketable debt securities 
    available-for-sale   |  |         | 52,015  |            |  |            | 1,677  |          |  |  | 13     |  |  |  | 53,679  | 
|                                                      |  |         |         |            |  |            |        |          |  |  |        |  |  |  |         | 
|                                                      |  |         | 103,146 |            |  |            | 17,051 |          |  |  | 15,222 |  |  |  | 104,975 | 
|                                                      |  |         |         |            |  |            |        |          |  |  |        |  |  |  |         | 

|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |        | 
|----------------------------------------------------- |  | ------- | ------- | ---------- |  | ---------- | ----- | -------- |  |  | ------- |  |  |  | ------ | 
|                                                      |  |        
|                                                      |  | 2002   
|                                                      |  |        
|                                                      |  |         |         | Gross      |  | Gross      |       |         
|                                                      |  |         |         | unrealized |  | unrealized |       | Carrying
|                                                      |  | Cost    |         | gains      |  | losses     |       | value   
|                                                      |  |  (000) |         |  (000)    |  |  (000)    |       |  (000) 
|                                                      |  |         |         |            |  |            |       |         
|Marketable equity securities 
    available-for-sale |  |         | 21,947  |            |  |            | 1,788 |          |  |  | 12,485  |  |  |  | 11,250 | 
|Other equity securities                               |  |         | 141,416 |            |  |            | 0     |          |  |  | 108,074 |  |  |  | 33,342 | 
|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |        | 
|Equity securities                                     |  |         | 163,363 |            |  |            | 1,788 |          |  |  | 120,559 |  |  |  | 44,592 | 
|Marketable debt securities 
    available-for-sale   |  |         | 52,197  |            |  |            | 2,162 |          |  |  | 6       |  |  |  | 54,353 | 
|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |        | 
|                                                      |  |         | 215,560 |            |  |            | 3,950 |          |  |  | 120,565 |  |  |  | 98,945 | 
|                                                      |  |         |         |            |  |            |       |          |  |  |         |  |  |  |        | 

The gross unrealized losses of Other equity
securities and
 8,620 thousand
(2002:
 5,575 thousand)
included in the gross unrealized losses of marketable equity
securities are recorded in income related to other than
temporary impairments.

As of December 31, 2003, there are no
marketable securities with realizable values below carrying
value for a period in excess of 12 months. As of
December 31, 2003, the realizable value of one marketable
security is
 72
thousand below carrying value for less than 12 months. The
Company has determined that the decline in realizable value of
this security below the respective carrying amount is not
other-than-temporary and, as a consequence, no impairment charge
was recognized in 2003.

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

F-29



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applied. Impairments in value of cost method
investments that are considered to be other-than-temporary are
recognized immediately as expense.


Marketable debt securities consist primarily of
corporate debt securities with a market value of
 52,781
thousand (2002:
 53,266
thousand), which mature in 2004.

Other Loans

Other loans include interest-bearing and
non-interest or below-market-interest loans to employees and
third parties as follows:

|                              |  |         |        |         |  |  |        | 
|----------------------------- |  | ------- | ------ | ------- |  |  | ------ | 
|                              |  | 2003    |        | 2002   
|                              |  |  (000) |        |  (000)
|                              |  |         |        |        
|Loans to employees            |  |         | 37,777 |         |  |  | 32,566 | 
|Loans to third parties        |  |         | 23,437 |         |  |  | 25,582 | 
|Loans to associated companies |  |         | 0      |         |  |  | 22     | 
|                              |  |         |        |         |  |  |        | 
|                              |  |         | 61,214 |         |  |  | 58,170 | 
|                              |  |         |        |         |  |  |        | 

Loans granted to employees primarily consist of
interest free or below-market rate building loans. SAP discounts
interest free or below market rate employee loans based on
prevailing market rates. There have been no loans to employees
or executives to assist them in exercising stock options.

(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
 105,525
thousand and
 182,686
thousand as of December 31, 2003 and 2002, respectively.

Amounts presented in Consolidated Balance Sheets
are net of allowance for bad debts of
 71,011
thousand and
 92,511
thousand as of December 31, 2003 and 2002 respectively. Net
Accounts receivable based on due dates as of December 31
are as follows:

|                          |  |         |           |         |  |  |           | 
|------------------------- |  | ------- | --------- | ------- |  |  | --------- | 
|                          |  | 2003    |           | 2002   
|                          |  |  (000) |           |  (000)
|                          |  |         |           |        
|Due within 1 year         |  |         | 1,761,195 |         |  |  | 1,952,758 | 
|Due between 1 and 5 years |  |         | 9,520     |         |  |  | 14,349    | 
|                          |  |         |           |         |  |  |           | 
|                          |  |         | 1,770,715 |         |  |  | 1,967,107 | 
|                          |  |         |           |         |  |  |           | 

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 or net
Accounts receivable in 2003, 2002, or 2001.

F-30



---



##### Table of Contents



(19)     Other
Assets

|                                                                                                                 |  |         |         |         |  |  |         | 
|---------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | ------- |  |  | ------- | 
|                                                                                                                 |  | 2003    |         | 2002   
|                                                                                                                 |  |  (000) |         |  (000)
|                                                                                                                 |  |         |         |        
|Fair value of derivatives                                                                                        |  |         | 256,758 |         |  |  | 40,561  | 
|Investments in insurance policies held for
    employee-financed pension plans, semiretirement and time accounts |  |         | 94,407  |         |  |  | 60,664  | 
|Income tax receivables                                                                                           |  |         | 32,060  |         |  |  | 64,197  | 
|Prepaid pensions                                                                                                 |  |         | 27,221  |         |  |  | 3,526   | 
|Rent deposits                                                                                                    |  |         | 23,130  |         |  |  | 25,687  | 
|Others                                                                                                           |  |         | 72,315  |         |  |  | 74,197  | 
|                                                                                                                 |  |         |         |         |  |  |         | 
|Total other assets                                                                                               |  |         | 505,891 |         |  |  | 268,832 | 
|                                                                                                                 |  |         |         |         |  |  |         | 
| thereof with a remaining term greater
    than 1 year                                                          |  |         | 166,634 |         |  |  | 108,327 | 
|                                                                                                                 |  |         |         |         |  |  |         | 

Included in Others are interest receivable and
short-term loans. Detailed information about SAPs
derivative financial instruments are presented in Note 33.
The increase in prepaid pension assets is mainly related to
additional cash contributions to benefit pension plans in the
United States. The increase in investments in insurance policies
mainly reflects the increase in pension liabilities for
employee-financed pension plans as presented in Note 25.
The corresponding liability for investments in insurance
policies for semiretirement and time accounts is included in
Other reserves and accrued liabilities (see Note 26).

(20)     Marketable
Securities

Amounts pertaining to marketable securities
within non-fixed assets as of December 31 are as follows:

|                  |  |         |       |         |  |  |       | 
|----------------- |  | ------- | ----- | ------- |  |  | ----- | 
|                  |  | 2003    |       | 2002   
|                  |  |  (000) |       |  (000)
|                  |  |         |       |        
|Amortized cost    |  |         | 1,481 |         |  |  | 1,478 | 
|Unrealized gains  |  |         | 0     |         |  |  | 0     | 
|Unrealized losses |  |         | 129   |         |  |  | 129   | 
|                  |  |         |       |         |  |  |       | 
|Carrying value    |  |         | 1,352 |         |  |  | 1,349 | 
|                  |  |         |       |         |  |  |       | 

(21)  Liquid
Assets

Liquid assets as of December 31 consist of
the following:

|                                                                                   |  |         |           |         |  |  |           | 
|---------------------------------------------------------------------------------- |  | ------- | --------- | ------- |  |  | --------- | 
|                                                                                   |  | 2003    |           | 2002   
|                                                                                   |  |  (000) |           |  (000)
|                                                                                   |  |         |           |        
|Cash at banks                                                                      |  |         | 326,305   |         |  |  | 279,920   | 
|Time deposits with original maturities of
    3 months or less                     |  |         | 1,014,086 |         |  |  | 841,788   | 
|                                                                                   |  |         |           |         |  |  |           | 
|Cash and cash equivalents                                                          |  |         | 1,340,391 |         |  |  | 1,121,708 | 
|                                                                                   |  |         |           |         |  |  |           | 
|Time deposits with original maturities exceeding
    3 months and less than 1 year |  |         | 680,891   |         |  |  | 26,281    | 
|Time deposits with original maturities exceeding
    1 year                        |  |         | 369       |         |  |  | 478       | 
|Restricted cash with original maturity exceeding
    1 year                        |  |         | 74,305    |         |  |  | 89,430    | 
|                                                                                   |  |         |           |         |  |  |           | 
|                                                                                   |  |         | 2,095,956 |         |  |  | 1,237,897 | 
|                                                                                   |  |         |           |         |  |  |           | 

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.

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The Company eliminated restricted cash from cash
and cash equivalents in the Consolidated Statements of Cash
Flows for the year ended December 31, 2001. The Company
previously recorded this amount as cash and cash equivalents and
the effect of this adjustment is as follows for the year ended
December 31, 2001.

|                                                                                    |  |         |            |  
|----------------------------------------------------------------------------------- |  | ------- | ---------- | -
|                                                                                    |  | 2001   
|                                                                                    |  |  (000)
|                                                                                    |  |        
|Changes in liquid assets  as
    previously reported                               |  |         | 36,581     |  
|Adjustment                                                                          |  |         | (25,903    | )
|                                                                                    |  |         |            |  
|Changes in liquid assets  as
    adjusted                                          |  |         | 10,678     |  
|                                                                                    |  |         |            |  
|Net cash used in investing activities 
    as previously reported                  |  |         | (1,040,028 | )
|Adjustment                                                                          |  |         | (25,903    | )
|                                                                                    |  |         |            |  
|Net cash used in investing
    activities  as adjusted                             |  |         | (1,065,931 | )
|                                                                                    |  |         |            |  
|Net in cash and cash equivalents  as
    previously reported                       |  |         | (181,591   | )
|Adjustment                                                                          |  |         | (25,903    | )
|                                                                                    |  |         |            |  
|Net decrease in cash and cash
    equivalents  as adjusted                         |  |         | (207,494   | )
|                                                                                    |  |         |            |  
|Cash and cash equivalents at the beginning of the
    year  as previously reported |  |         | 1,042,909  |  
|Adjustment                                                                          |  |         | (80,464    | )
|                                                                                    |  |         |            |  
|Cash and cash equivalents at the beginning of
    the year  as adjusted            |  |         | 962,445    |  
|                                                                                    |  |         |            |  
|Cash and cash equivalents at the end of the
    year  as previously reported       |  |         | 861,318    |  
|Adjustment                                                                          |  |         | (106,367   | )
|                                                                                    |  |         |            |  
|Cash and cash equivalents at the end of the
    year  as adjusted                  |  |         | 754,951    |  
|                                                                                    |  |         |            |  

(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

Subscribed Capital

As of December 31, 2003, SAP AG had
315,413,553 no-par common shares issued (including treasury
stock) with a calculated nominal value of
 1 per
share.

The number of common shares increased by 450,947
(corresponding to
 450,947)
as a result of the exercise of awards granted under certain
stock-based compensation plans.

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##### Table of Contents



Shareholdings in SAP AG as of December 31,
2003 are as follows:

|                                                      |  |           |         |            |  |            |       |  |  |  |       | 
|----------------------------------------------------- |  | --------- | ------- | ---------- |  | ---------- | ----- |  |  |  | ----- | 
|                                                      |  |           |         |           
|                                                      |  | 2003      |         | 2002      
|                                                      |  |           |         |           
|                                                      |  | Number of |         | Subscribed |  | Subscribed
|                                                      |  | shares    |         | capital    |  | capital   
|                                                      |  | (000)     |         | %          |  | %         
|                                                      |  |           |         |            |  |           
|Hasso Plattner GmbH & Co. Beteiligungs-KG             |  |           | 31,240  |            |  |            | 9.9   |  |  |  | 9.9   | 
|Dietmar Hopp Stiftung GmbH                            |  |           | 28,017  |            |  |            | 8.9   |  |  |  | 8.9   | 
|Klaus Tschira Stiftung gGmbH                          |  |           | 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                      |  |           | 8,721   |            |  |            | 2.8   |  |  |  | 3.1   | 
|Hasso Plattner Förderstiftung
    gemeinnützige GmbH  |  |           | 6,000   |            |  |            | 1.9   |  |  |  | 1.9   | 
|Golfplatz St. Leon-Rot GmbH & Co.
    Beteiligungs-KG |  |           | 4,811   |            |  |            | 1.5   |  |  |  | 1.6   | 
|Immediate family of Dr. h.c. Klaus Tschira            |  |           | 4,134   |            |  |            | 1.3   |  |  |  | 1.3   | 
|Treasury Stock                                        |  |           | 4,565   |            |  |            | 1.5   |  |  |  | 1.1   | 
|Free float                                            |  |           | 190,938 |            |  |            | 60.5  |  |  |  | 60.5  | 
|                                                      |  |           |         |            |  |            |       |  |  |  |       | 
|                                                      |  |           | 315,414 |            |  |            | 100.0 |  |  |  | 100.0 | 
|                                                      |  |           |         |            |  |            |       |  |  |  |       | 

Golfplatz St. Leon-Rot GmbH & Co.
Beteiligungs-KG is wholly owned by Dietmar Hopp.

Authorized Capital

The Articles of Association authorize the
Executive Board of SAP AG (the Executive Board) to
increase the Subscribed capital



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | up to a total amount of
     60 million
    through the issuance of new common shares in return for
    contributions in cash until May 1, 2006 (Authorized
    Capital I). The issuance is subject to the statutory
    subscription rights of existing shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | up to a total amount of
     60 million
    through the issuance of new common shares in return for
    contributions in cash or in kind until May 1, 2006
    (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | up to an aggregate amount of
     15 million
    against contribution in cash by issuing new common shares until
    May 1, 2007 (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
    shareholders statutory subscription rights are excluded
    from this capital increase. 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 for the
    purposes of satisfying subscription rights does not amount to
    more than 10% of the capital stock at the time of adoption of
    the authorization.

No authorization to increase capital stock was
exercised in fiscal year 2003.

Contingent Capital

SAP AGs capital stock is subject to a
contingent increase of common shares. The contingent increase
shall be effected only to the extent that the holders of the
convertible bonds and stock options that were issued by SAP

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##### Table of Contents



AG under certain stock-based compensation plans
(see Note 24) exercise their conversion or subscription
rights. The following table provides a summary of the changes in
Contingent capital for 2002 and 2003:


|               |  |                    |        |  
|-------------- |  | ------------------ | ------ | -
|               |  | Contingent capital
|               |  |  (000)           
|               |  |                   
|12/31/2001     |  |                    | 43,276 |  
|Exercise       |  |                    | (137   | )
|New authorized |  |                    | 19,015 |  
|Reduction      |  |                    | (5,866 | )
|               |  |                    |        |  
|12/31/2002     |  |                    | 56,288 |  
|               |  |                    |        |  
|Exercise       |  |                    | (451   | )
|New authorized |  |                    |       |  
|Reduction      |  |                    |       |  
|               |  |                    |        |  
|12/31/2003     |  |                    | 55,837 |  
|               |  |                    |        |  

The increase in Contingent capital in 2002 was
authorized by the Annual General Meeting of Shareholders held on
May 3, 2002 to satisfy the rights for stock options from
the SAP SOP 2002. At the same time the reduction of
Contingent capital, which was authorized to satisfy the exercise
of conversions or subscription rights under the SAP AG 2000 Long
Term Incentive Plan (LTI 2000 Plan), was resolved.

Treasury Stock

By resolution of the Annual General
Shareholders Meeting held on May 9, 2003, the
Executive Board was authorized to acquire, on or before
October 31, 2004, 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. 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, 2003, SAP had acquired
4,565 thousand of its own shares, representing
 4,565
thousand or 1.4% of capital stock. In 2003, 1,049 thousand
shares in aggregate were acquired under the buyback program at
an average price of approximately
 84.06 per
share, representing
 1,049
thousand or 0.3% of capital stock. In connection with
stock-based compensation plans, SAP acquired in 2003 an
additional 331 thousand of its own shares, representing 0.1% of
the total shares outstanding as of December 31, 2003 at an
average market price of
 101.50 per
share. Such shares were transferred to employees during the year
at an average price of
 70.71 per
share. See Note 24 for further information. In 2003 certain
of SAP AGs foreign subsidiaries purchased an additional
373 thousand American Depository Receipts (ADRs)
(each ADR represents one-fourth of a common share), at an
average price of $26.15 per ADR. Such ADRs were distributed to
employees during the year at an average price of $22.08 per ADR
by an administrator. The Company held no ADRs as of
December 31, 2003.

As of December 31, 2002, SAP had acquired
3,516 thousand of its own shares, representing
 3,516
thousand or 1.1% 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 1.0% of capital stock. In connection with
stock-based compensation plans, SAP acquired in 2002 an
additional 288 thousand of its own shares, representing 0.1% of
the total shares outstanding as of December 31, 2002 at an
average market price of
 105.43 per
share. Such shares were transferred to employees during the year
at an average price of
 79.20 per
share. See Note 24 for further information. In 2002 certain
of SAP AGs foreign subsidiaries purchased an additional
568 thousand ADRs (each ADR represents one-fourth of a common
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 as
of December 31, 2002.

F-34



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##### Table of Contents



Accumulated Other Comprehensive
Income/Loss

Accumulated other comprehensive income/loss
consists of the following as of December 31:

|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |          |  
|---------- | ---------- | ------------- | ------ | ----------- | - | ---------- | -------- | --------- | - | ---------- | ------- | ------- | - |  | ------ | ------ | - |  | ------ | ------- | - |  | -------- | -------- | -
|           |            |               |        |             |   | Additional |          |           |   |            |         |        
|           |            | Unrealized    |        | Currency    |   | minimum    |          |           |   |            |         |        
|           |            | gains/losses  |        | translation |   | pension    |          | Cash flow |   |            |         |        
|           |            | on securities |        | adjustment  |   | liability  |          | hedges    |   | STAR hedge |         | Total  
|           |            |  (000)       |        |  (000)     |   |  (000)    |          |  (000)   |   |  (000)    |         |  (000)
|           |            |               |        |             |   |            |          |           |   |            |         |        
|12/31/2003 |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|           | Before tax |               |        | 16,979      |   |            |          | (251,673  | ) |            |         | (5,847  | ) |  |        | 21,015 |   |  |        | 36,790  |   |  |          | (182,736 | )
|           | Tax impact |               |        | (1,000      | ) |            |          | 0         |   |            |         | 2,125   |   |  |        | (7,574 | ) |  |        | (12,794 | ) |  |          | (19,243  | )
|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|Net amount |            |               | 15,979 |             |   |            | (251,673 | )         |   |            | (3,722  | )       |   |  | 13,441 |        |   |  | 23,996 |         |   |  | (201,979 | )       
|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|12/31/2002 |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|           | Before tax |               |        | (2,960      | ) |            |          | (103,249  | ) |            |         | (33,096 | ) |  |        | 1,117  |   |  |        | 0       |   |  |          | (138,188 | )
|           | Tax impact |               |        | (179        | ) |            |          | 0         |   |            |         | 13,091  |   |  |        | (405   | ) |  |        | 0       |   |  |          | 12,507   |  
|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|Net amount |            |               | (3,139 | )           |   |            | (103,249 | )         |   |            | (20,005 | )       |   |  | 712    |        |   |  | 0      |         |   |  | (125,681 | )       
|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|12/31/2001 |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|           | Before tax |               |        | (759        | ) |            |          | 186,501   |   |            |         | (14,002 | ) |  |        | 0      |   |  |        | 0       |   |  |          | 171,740  |  
|           | Tax impact |               |        | 1,566       |   |            |          | 0         |   |            |         | 5,455   |   |  |        | 0      |   |  |        | 0       |   |  |          | 7,021    |  
|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         
|Net amount |            |               | 807    |             |   |            | 186,501  |           |   |            | (8,547  | )       |   |  | 0      |        |   |  | 0      |         |   |  | 178,761  |         
|           |            |               |        |             |   |            |          |           |   |            |         |         |   |  |        |        |   |  |        |         |   |  |          |         

The unrealized net gains on securities in 2003
include gains and losses from marketable equity securities in
the amount of
 15,374
thousand and
 72
thousand respectively as well as gains from marketable debt
securities in the amount of
 1,677
thousand.

In connection with sales of marketable equity
securities, the Company reclassified
 28
thousand of previously unrealized gains in 2003,
 130
thousand of previously unrealized losses in 2002 and
 9,901
thousand of unrealized gains in 2001, from Accumulated other
comprehensive income to Financial income/ expense, net. The
Company reclassified
 474
thousand of net foreign exchange losses relating to the
Companys anticipated cash flow hedges in 2003 and
 12,483
thousand of net foreign exchange gains 2001, 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, 2003,
SAP management has proposed a distribution in 2004 of
 0.80 per
share as a dividend to the shareholders relating to the earnings
of SAP AG for the year ended December 31, 2003. Dividends
per share paid for 2002 and 2001 were as follows:

|                          |  |      |      |      |  |  |      | 
|------------------------- |  | ---- | ---- | ---- |  |  | ---- | 
|                          |  | 2002 |      | 2001
|                          |  |     |      |    
|                          |  |      |      |     
|Dividend per common share |  |      | 0.60 |      |  |  | 0.58 | 

(24)     Stock-Based
Compensation Plans

Employee Discounted Stock Purchase
Programs

The Company acquires SAP AG common 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.

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##### Table of Contents



Stock Appreciation Right (STAR)
Plans

In February 2003 and February 2002, the Company
granted approximately 3.8 million and 3.6 million
stock appreciation rights (2003 STARs and
2002 STARs respectively) to selected employees who
are not participants in the LTI 2000 Plan or SAP SOP 2002.
The 2003 and 2002 STAR grant values of
 84.91 and
 158.80,
respectively, are based upon the average fair market value of
one common 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:

|                 |    |         |  |         |    |         |  |          |     |         |  |         |     |         |  |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|---------------- | -- | ------- |  | ------- | -- | ------- |  | -------- | --- | ------- |  | ------- | --- | ------- |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                
|Weighting factor
|                
|                
|Quarter ended   
|                
|March 31         |    | June 30 |  | Sep. 30 |    | Dec. 31 |  | March 31 |     | June 30 |  | Sep. 30 |     | Dec. 31
|                 |    |         |  |         |    |         |  |          |     |         |  |         |     |        
|                 | 5% |         |  |         | 5% |         |  |          | 10% |         |  |         | 20% |         |  |  | 10% |  |  |  | 10% |  |  |  | 10% |  |  |  | 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 common
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 common 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
is 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 2003 STARs as follows: 50% each on both, March 31, 2005
and January 31, 2006. Under the terms of the 2002 STAR
Plan, participants were scheduled to receive an initial payment
of 50% on March 31, 2004 and a second installment on
January 31, 2005. 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 SAPs STAR Plans are settled in cash
rather than by issuing equity instruments a liability is
recorded for such plans, based on the current value of the STARs
at the reporting date. Compensation expense  including
effects of the changes in the value of the STAR  is
accrued over the period the employee performs the related
service (vesting period).

As of December 31, 2003 a STAR provision in
the amount of
 51 million
is recorded. The related STAR expense was reduced by the effects
of the STAR hedge  as described in Note 33  and
therefore totaled only
 36 million.
No compensation expenses were recorded in 2002 as the grant
price of STARs outstanding in that period exceeded the average
fair market value of SAP shares on all relevant measurement
dates. Accordingly no accrual was recorded as of
December 31, 2002 for the 2002 STAR.

Stock Option Plan 2002

At the 2002 Annual General Shareholders
Meeting, 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 SAP AG Executive
Board, members of subsidiaries Executive Boards 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, on or before April 30, 2007,
up to 19,015,415 stock options.

Each stock option granted under the SAP
SOP 2002 entitles its holder to subscribe to one share of
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

F-36



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##### Table of Contents



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.


The SAP SOP 2002 is considered a fixed plan
under APB 25. Since the exercise price, which is fixed one day
before grant, exceeds the share price on that date, no expenses
are recorded for awards granted under the SAP SOP 2002.

A summary of the SAP SOP 2002 Plan activity
is as follows:

|                             |  |           |        |             |  |                |       |  |  |  |       | 
|---------------------------- |  | --------- | ------ | ----------- |  | -------------- | ----- |  |  |  | ----- | 
|                             |  |           |        |             |  | Weighted      
|                             |  | Shares    |        | Number      |  | average       
|                             |  | available |        | of options  |  | exercise price
|                             |  | for grant |        | outstanding |  | per option    
|                             |  | (000)     |        | (000)       |  |              
|                             |  |           |        |             |  |               
|1/1/2002                     |  |           |       |             |  |                |      |  |  |  |      | 
|Additional shares authorized |  |           | 19,015 |             |  |                |      |  |  |  |      | 
|Granted                      |  |           |       |             |  |                |      |  |  |  |      | 
|Exercised                    |  |           |       |             |  |                |      |  |  |  |      | 
|Forfeited                    |  |           |       |             |  |                |      |  |  |  |      | 
|                             |  |           |        |             |  |                |       |  |  |  |       | 
|12/31/2002                   |  |           | 19,015 |             |  |                |      |  |  |  |      | 
|                             |  |           |        |             |  |                |       |  |  |  |       | 
|Additional shares authorized |  |           |       |             |  |                |      |  |  |  |      | 
|Granted                      |  |           | 3,737  |             |  |                | 3,737 |  |  |  | 90.48 | 
|Exercised                    |  |           |       |             |  |                |      |  |  |  |      | 
|Forfeited                    |  |           |       |             |  |                | 109   |  |  |  | 90.37 | 
|                             |  |           |        |             |  |                |       |  |  |  |       | 
|12/31/2003                   |  |           | 15,278 |             |  |                | 3,628 |  |  |  | 90.48 | 
|                             |  |           |        |             |  |                |       |  |  |  |       | 

The following table summarizes information about
stock options outstanding as of December 31, 2003:

|                |               |                     |  |                     |       |                  |  |               |      |                  |  |  |       |  |  |  |   |  |  |  |   | 
|--------------- | ------------- | ------------------- |  | ------------------- | ----- | ---------------- |  | ------------- | ---- | ---------------- |  |  | ----- |  |  |  | - |  |  |  | - | 
|                |               |                     |  |                    
|                |               | Outstanding options |  | Exercisable options
|                |               |                     |  |                    
|                |               |                     |  | Weighted average    |       |                  |  |              
|Range of        |               | Number of           |  | remaining           |       | Weighted average |  | Number of     |      | Weighted average
|exercise prices |               | stock options       |  | contractual life    |       | exercise price   |  | stock options |      | exercise price  
|               |               | (000)               |  | years               |       |                 |  | (000)         |      |                
|                |               |                     |  |                     |       |                  |  |               |      |                 
|                | 90.37  99.13 |                     |  |                     | 3,628 |                  |  |               | 4.17 |                  |  |  | 90.48 |  |  |  |  |  |  |  |  | 

See Note 35 for stock options awarded to
members of the Executive Board.

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 common share over a
maximum of 10 years subject to vesting requirements. The
conversion price is equal to the market price of an common share
as quoted on the Xetra trading system the day immediately
preceding the grant. Each stock option may be exercised in
exchange for one common share over a maximum of 10 years
subject to the same vesting requirements. The exercise price
varies based upon the outperformance of the common share price
appreciation versus the appreciation of the Goldman Sachs
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.

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##### Table of Contents



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 common 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
Shareholders Meeting, the Companys shareholders
revoked the authorization to issue further convertible bonds and
stock options under the LTI 2000 Plan.

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)       |  |                
|                                                             |  |           |        |               |  |                   |       |             |  |                 
|1/1/2001                                                     |  |           | 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 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|12/31/2001                                                   |  |           | 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 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|12/31/2002                                                   |  |           | 0      |               |  |                   | 3,067 |             |  |                  | 72.51  |  |  |  | 7,803 |  |  |  | 200.74 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|Additional shares authorized                                 |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Granted                                                      |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Reduction due to option/bond ratio (25% of bonds
    issued) |  |           |       |               |  |                   |      |             |  |                  |       |  |  |  |      |  |  |  |       | 
|Exercised                                                    |  |           |       |               |  |                   | 217   |             |  |                  | 73.93  |  |  |  |      |  |  |  |       | 
|Forfeited                                                    |  |           |       |               |  |                   | 161   |             |  |                  | 94.45  |  |  |  | 226   |  |  |  | 185.05 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 
|12/31/2003                                                   |  |           | 0      |               |  |                   | 2,689 |             |  |                  | 91.10  |  |  |  | 7,577 |  |  |  | 201.21 | 
|                                                             |  |           |        |               |  |                   |       |             |  |                  |        |  |  |  |       |  |  |  |        | 

In 2003, the Company recorded compensation
expenses for the LTI 2000 Plan in the amount of
 89,378
thousand (2002:
 8,418
thousand; 2001:
 13,776
thousand).

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The following tables summarize information about
stock options and convertible bonds outstanding as of
December 31, 2003:

Stock Options

|                |  |                           |           |                           |  |                  |      |               |  |                  |        |  |  |  |     |  |  |  |       | 
|--------------- |  | ------------------------- | --------- | ------------------------- |  | ---------------- | ---- | ------------- |  | ---------------- | ------ |  |  |  | --- |  |  |  | ----- | 
|                |  |                           |           |                          
|                |  | Outstanding stock options |           | Exercisable stock options
|                |  |                           |           |                          
|                |  |                           |           | Weighted average          |  |                  |      |              
|Range of        |  | Number of                 |           | remaining                 |  |                  |      | Number of     |  | Weighted average
|exercise prices |  | stock options             |           | contractual life          |  | Weighted average |      | stock options |  | exercise price  
|               |  | (000)                     |           | years                     |  | exercise price   |      | (000)         |  |                
|                |  |                           |           |                           |  |                  |      |               |  |                 
|50.07  63.2    |  |                           | 2 9       |                           |  |                  | 6.31 |               |  |                  | 58.81  |  |  |  | 6   |  |  |  | 58.81 | 
|67.34  81.8    |  |                           | 2 1,093   |                           |  |                  | 6.77 |               |  |                  | 77.03  |  |  |  | 484 |  |  |  | 74.64 | 
|91.33  101.    |  |                           | 09 1,587  |                           |  |                  | 8.08 |               |  |                  | 100.98 |  |  |  | 6   |  |  |  | 91.33 | 
|                |  |                           |           |                           |  |                  |      |               |  |                  |        |  |  |  |     |  |  |  |       | 
|50.07  101     |  |                           | .09 2,689 |                           |  |                  | 7.54 |               |  |                  | 91.10  |  |  |  | 496 |  |  |  | 74.63 | 
|                |  |                           |           |                           |  |                  |      |               |  |                  |        |  |  |  |     |  |  |  |       | 

Convertible Bonds

|                |  |                               |          |                               |  |                  |      |               |  |                  |        |  |  |  |       |  |  |  |        | 
|--------------- |  | ----------------------------- | -------- | ----------------------------- |  | ---------------- | ---- | ------------- |  | ---------------- | ------ |  |  |  | ----- |  |  |  | ------ | 
|                |  |                               |          |                              
|                |  | Outstanding convertible bonds |          | Exercisable convertible bonds
|                |  |                               |          |                              
|                |  |                               |          | Weighted average              |  |                  |      |              
|Range of        |  | Number of                     |          | remaining                     |  |                  |      | Number of     |  | Weighted average
|exercise prices |  | stock options                 |          | contractual life              |  | Weighted average |      | stock options |  | exercise price  
|               |  | (000)                         |          | years                         |  | exercise price   |      | (000)         |  |                
|                |  |                               |          |                               |  |                  |      |               |  |                 
|131.81  183.6  |  |                               | 7 2,863  |                               |  |                  | 8.07 |               |  |                  | 151.65 |  |  |  | 21    |  |  |  | 158.45 | 
|191.25  247.0  |  |                               | 0 2,849  |                               |  |                  | 7.08 |               |  |                  | 191.84 |  |  |  | 962   |  |  |  | 192.41 | 
|290.32  334.6  |  |                               | 7 1,865  |                               |  |                  | 6.09 |               |  |                  | 291.61 |  |  |  | 1,243 |  |  |  | 291.61 | 
|                |  |                               |          |                               |  |                  |      |               |  |                  |        |  |  |  |       |  |  |  |        | 
|131.81  334.   |  |                               | 67 7,577 |                               |  |                  | 7.21 |               |  |                  | 201.21 |  |  |  | 2,226 |  |  |  | 247.50 | 
|                |  |                               |          |                               |  |                  |      |               |  |                  |        |  |  |  |       |  |  |  |        | 

See Note 35 for stock options and
convertible bonds awarded to members of the Executive Board.

Stock-Based Compensation Plan of SAP System
Integrations AG (SAP SI)

SAP SI, in which SAP AG holds a 70% stake, is
publicly listed at the German Stock Exchange. On August 16,
2000, by resolution of SAP SIs shareholders, 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. On
May 14, 2002 SAP SIs shareholders approved the
issuance of an additional 1.6 million convertible bonds. As
of December 31, 2003, a total of 2,055,632 (2002:
1,209,647) 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 market 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.

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The fair value of the Companys stock-based
awards granted under the LTI 2000 Plan was calculated using the
following weighted average assumptions:

|                        |  |      |            |      |  |      |            |  |  |  |            | 
|----------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                        |  | 2003 |            | 2002 |  | 2001
|                        |  |      |            |      |  |     
|Expected life           |  |      | 2.5  years |      |  |      | 4.5  years |  |  |  | 4.5  years | 
|Risk free interest rate |  |      | 2.61%      |      |  |      | 4.68%      |  |  |  | 4.96%      | 
|Expected volatility     |  |      | 68%        |      |  |      | 50%        |  |  |  | 50%        | 
|Expected dividends      |  |      | 0.73%      |      |  |      | 0.38%      |  |  |  | 0.30%      | 

The weighted average fair value of stock options
granted under the SAP SOP 2002 Plan in 2003 was
 28.83.

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). As
of December 31, 2002 no awards were granted under SAP
SOP 2002.

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. The measurement dates
for the domestic and foreign benefit plans are principally
December 31. Individual benefit plans have also 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:

|                                      |  |         |        |         |  |  |        | 
|------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | 
|                                      |  | 2003    |        | 2002   
|                                      |  |  (000) |        |  (000)
|                                      |  |         |        |        
|Domestic benefit plans                |  |         | 5,044  |         |  |  | 5,909  | 
|Foreign benefit plans                 |  |         | 13,129 |         |  |  | 23,904 | 
|Employee financed plans               |  |         | 77,768 |         |  |  | 51,304 | 
|Other pension and similar obligations |  |         | 1,594  |         |  |  | 2,456  | 
|                                      |  |         |        |         |  |  |        | 
|                                      |  |         | 97,535 |         |  |  | 83,573 | 
|                                      |  |         |        |         |  |  |        | 

Domestic Benefit Plans

The Companys domestic defined benefit plans
provide participants with pension benefits that are based on the
length of service and compensation of employees.

The change of the benefit obligation and the
change in plan assets for the domestic plans are as follows:

|                                        |  |         |        |         |  |  |        |  
|--------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | -
|                                        |  | 2003    |        | 2002   
|                                        |  |  (000) |        |  (000)
|                                        |  |         |        |        
|Change in benefit obligation            |  |         |        |         |  |  |        |  
|Benefit obligation at beginning of year |  |         | 28,351 |         |  |  | 27,289 |  
|Service costs                           |  |         | 409    |         |  |  | 561    |  
|Interest costs                          |  |         | 1,624  |         |  |  | 1,631  |  
|Settlement                              |  |         | (300   | )       |  |  | 0      |  
|Actuarial gain/loss                     |  |         | 502    |         |  |  | (908   | )
|Benefits paid                           |  |         | (237   | )       |  |  | (222   | )
|                                        |  |         |        |         |  |  |        |  
|Benefit obligation at end of year       |  |         | 30,349 |         |  |  | 28,351 |  
|                                        |  |         |        |         |  |  |        |  

F-40



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##### Table of Contents



|                                                           |  |         |        |         |  |  |        |  
|---------------------------------------------------------- |  | ------- | ------ | ------- |  |  | ------ | -
|                                                           |  | 2003    |        | 2002   
|                                                           |  |  (000) |        |  (000)
|                                                           |  |         |        |        
|Change in plan assets                                      |  |         |        |         |  |  |        |  
|Fair value of plan assets at beginning of year             |  |         | 23,658 |         |  |  | 20,449 |  
|Actual return on plan assets                               |  |         | 1,175  |         |  |  | 1,078  |  
|Employer contributions                                     |  |         | 2,162  |         |  |  | 2,279  |  
|Life/disability insurance premiums and expenses            |  |         | 0      |         |  |  | 407    |  
|Benefits paid                                              |  |         | (1,049 | )       |  |  | (222   | )
|Assets transferred to defined contribution plan            |  |         | (185   | )       |  |  | (333   | )
|                                                           |  |         |        |         |  |  |        |  
|Fair value of plan assets at end of
    year               |  |         | 25,761 |         |  |  | 23,658 |  
|                                                           |  |         |        |         |  |  |        |  
|Funded status                                              |  |         | 4,588  |         |  |  | 4,693  |  
|Unrecognized transition assets                             |  |         | (532   | )       |  |  | (574   | )
|Unrecognized net actuarial loss                            |  |         | (4,694 | )       |  |  | (3,583 | )
|                                                           |  |         |        |         |  |  |        |  
|Net amount recognized                                      |  |         | (638   | )       |  |  | 536    |  
|                                                           |  |         |        |         |  |  |        |  
|Amounts recognized in the consolidated balance
    sheets: |  |         |        |         |  |  |        |  
|Accrued benefit liability                                  |  |         | 5,044  |         |  |  | 5,909  |  
|Intangible assets                                          |  |         | (29    | )       |  |  | (33    | )
|Accumulated other comprehensive income                     |  |         | (5,653 | )       |  |  | (5,340 | )
|                                                           |  |         |        |         |  |  |        |  
|Net amount recognized                                      |  |         | (638   | )       |  |  | 536    |  
|                                                           |  |         |        |         |  |  |        |  

The following weighted average assumptions were
used for the actuarial valuation of the Groups domestic
pension benefit obligation as of the respective measurement date:

|                              |  |      |     |      |  |      |     |  |  |  |     | 
|----------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                              |  | 2003 |     | 2002 |  | 2001
|                              |  | %    |     | %    |  | %   
|                              |  |      |     |      |  |     
|Discount rate                 |  |      | 5.3 |      |  |      | 5.8 |  |  |  | 6.6 | 
|Rate of compensation increase |  |      | 3.9 |      |  |      | 3.9 |  |  |  | 4.0 | 

The components of net periodic benefit cost of
the Groups domestic benefit plans for the years ended
December 31 are as follows:

|                               |  |         |        |         |  |         |        |   |  |  |        |  
|------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | - |  |  | ------ | -
|                               |  | 2003    |        | 2002    |  | 2001   
|                               |  |  (000) |        |  (000) |  |  (000)
|                               |  |         |        |         |  |        
|Service cost                   |  |         | 409    |         |  |         | 561    |   |  |  | 590    |  
|Interest cost                  |  |         | 1,624  |         |  |         | 1,631  |   |  |  | 1,657  |  
|Expected return on plan assets |  |         | (1,529 | )       |  |         | (1,399 | ) |  |  | (1,303 | )
|Net amortization               |  |         | 484    |         |  |         | 456    |   |  |  | 456    |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  
|                               |  |         | 988    |         |  |         | 1,249  |   |  |  | 1,400  |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  

The weighted average assumptions used for
determining the net periodic pension cost for the Groups
domestic pension plans for 2003, 2002 and 2001, were as follows:

|                               |  |      |     |      |  |      |     |  |  |  |     | 
|------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                               |  | 2003 |     | 2002 |  | 2001
|                               |  | %    |     | %    |  | %   
|                               |  |      |     |      |  |     
|Discount rate                  |  |      | 5.8 |      |  |      | 6.6 |  |  |  | 6.5 | 
|Expected return on plan assets |  |      | 5.9 |      |  |      | 6.5 |  |  |  | 6.5 | 
|Rate of compensation increase  |  |      | 3.9 |      |  |      | 4.0 |  |  |  | 4.0 | 

SAPs investment strategy in Germany is to
invest all contributions into insurance policies. The expected
rate of return on plan assets for the Groups domestic
benefit plans is calculated by reference to the expected returns
achievable on the insured policies given the expected asset mix
of the policies.

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##### Table of Contents



Foreign Benefit Plans

The Companys foreign defined benefit plans
provide participants with pension benefits that are based upon
compensation levels, age, and years of service.

The change of the benefit obligation and the
change in plan assets for the foreign plans are as follows:

|                                                          |  |         |         |         |  |  |         |  
|--------------------------------------------------------- |  | ------- | ------- | ------- |  |  | ------- | -
|                                                          |  | 2003    |         | 2002   
|                                                          |  |  (000) |         |  (000)
|                                                          |  |         |         |        
|Change in benefit obligation                              |  |         |         |         |  |  |         |  
|Benefit obligation at beginning of year                   |  |         | 159,402 |         |  |  | 96,370  |  
|Service costs                                             |  |         | 29,503  |         |  |  | 31,100  |  
|Interest costs                                            |  |         | 7,691   |         |  |  | 8,146   |  
|Plan transfer                                             |  |         | 0       |         |  |  | 42,614  |  
|Plan amendments                                           |  |         | 0       |         |  |  | 1,053   |  
|Curtailment                                               |  |         | 0       |         |  |  | (5,772  | )
|Settlement                                                |  |         | 0       |         |  |  | (4,594  | )
|Employee contributions                                    |  |         | 1,907   |         |  |  | 1,976   |  
|Actuarial loss                                            |  |         | 4,118   |         |  |  | 10,176  |  
|Benefits paid                                             |  |         | (5,036  | )       |  |  | (6,187  | )
|Foreign currency exchange rate changes                    |  |         | (22,793 | )       |  |  | (15,480 | )
|                                                          |  |         |         |         |  |  |         |  
|Benefit obligation at end of year                         |  |         | 174,792 |         |  |  | 159,402 |  
|                                                          |  |         |         |         |  |  |         |  
|Change in plan assets                                     |  |         |         |         |  |  |         |  
|Fair value of plan assets at beginning of year            |  |         | 130,191 |         |  |  | 77,803  |  
|Actual return on plan assets                              |  |         | 11,858  |         |  |  | (6,417  | )
|Plan transfer                                             |  |         | 0       |         |  |  | 40,343  |  
|Settlement                                                |  |         | 0       |         |  |  | (7,184  | )
|Employer contributions                                    |  |         | 39,490  |         |  |  | 41,704  |  
|Employee contributions                                    |  |         | 1,907   |         |  |  | 1,976   |  
|Benefits paid                                             |  |         | (4,359  | )       |  |  | (5,758  | )
|Foreign currency exchange rate changes                    |  |         | (21,638 | )       |  |  | (12,276 | )
|                                                          |  |         |         |         |  |  |         |  
|Fair value of plan assets at end of
    year              |  |         | 157,449 |         |  |  | 130,191 |  
|                                                          |  |         |         |         |  |  |         |  
|Funded status                                             |  |         | 17,342  |         |  |  | 29,211  |  
|Unrecognized transition assets                            |  |         | (2,244  | )       |  |  | (2,619  | )
|Unrecognized prior service cost                           |  |         | 1,519   |         |  |  | 1,993   |  
|Unrecognized net actuarial loss                           |  |         | (30,919 | )       |  |  | (35,424 | )
|                                                          |  |         |         |         |  |  |         |  
|Net amount recognized                                     |  |         | (14,299 | )       |  |  | (6,839  | )
|                                                          |  |         |         |         |  |  |         |  
|Amounts recognized in the consolidated balance
    sheets |  |         |         |         |  |  |         |  
|Prepaid benefit cost                                      |  |         | (26,847 | )       |  |  | (2,987  | )
|Accrued benefit liability                                 |  |         | 13,129  |         |  |  | 23,904  |  
|Intangible assets                                         |  |         | (387    | )       |  |  | 0       |  
|Accumulated other comprehensive income                    |  |         | (194    | )       |  |  | (27,756 | )
|                                                          |  |         |         |         |  |  |         |  
|Net amount recognized                                     |  |         | (14,299 | )       |  |  | (6,839  | )
|                                                          |  |         |         |         |  |  |         |  

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,

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SAP Nederland B.V. implemented a defined
contribution plan in 2002 that replaced the benefits of the
existing defined benefit plan for certain eligible employees.


Assumptions regarding discount rates, rates of
increase in compensation, and long-term rates of return on plan
assets used in calculating the projected benefit obligations
vary according to the economic conditions of the country in
which the benefit plans are situated. The following weighted
average assumptions were used for the actuarial valuation of the
Groups foreign pension benefit obligation as of the
respective measurement date.

|                              |  |      |     |      |  |      |     |  |  |  |     | 
|----------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                              |  | 2003 |     | 2002 |  | 2001
|                              |  | %    |     | %    |  | %   
|                              |  |      |     |      |  |     
|Discount rate                 |  |      | 4.7 |      |  |      | 5.2 |  |  |  | 6.6 | 
|Rate of compensation increase |  |      | 4.7 |      |  |      | 4.8 |  |  |  | 6.0 | 

The components of net periodic benefit cost of
the Groups foreign benefit plans for the years ended
December 31 are as follows:

|                               |  |         |        |         |  |         |        |   |  |  |        |  
|------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | - |  |  | ------ | -
|                               |  | 2003    |        | 2002    |  | 2001   
|                               |  |  (000) |        |  (000) |  |  (000)
|                               |  |         |        |         |  |        
|Service cost                   |  |         | 29,503 |         |  |         | 31,100 |   |  |  | 24,466 |  
|Interest cost                  |  |         | 7,691  |         |  |         | 8,146  |   |  |  | 5,446  |  
|Expected return on plan assets |  |         | (9,189 | )       |  |         | (8,020 | ) |  |  | (4,975 | )
|Net amortization               |  |         | 1,646  |         |  |         | 674    |   |  |  | 596    |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  
|                               |  |         | 29,651 |         |  |         | 31,900 |   |  |  | 25,533 |  
|                               |  |         |        |         |  |         |        |   |  |  |        |  

The following weighted average assumptions were
used to determine net periodic pension cost for the Groups
foreign pension plans for 2003, 2002 and 2001:

|                               |  |      |     |      |  |      |     |  |  |  |     | 
|------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                               |  | 2003 |     | 2002 |  | 2001
|                               |  | %    |     | %    |  | %   
|                               |  |      |     |      |  |     
|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 expected long-term rate of return on plan
assets assumption is based on weighted average expected returns
for each asset class. The Groups foreign benefit plan
asset allocation at December 31, 2003 as well as the target
asset allocation, are as follows (in %):

|               |  |              |       |             |  |  |       | 
|-------------- |  | ------------ | ----- | ----------- |  |  | ----- | 
|               |  | Target asset |       | Plan assets
|               |  | allocation   |       | 2003       
|Asset category |  | %            |       | %          
|               |  |              |       |            
|Equity         |  |              | 54.1  |             |  |  | 58.1  | 
|Fixed income   |  |              | 42.3  |             |  |  | 35.8  | 
|Real estate    |  |              | 0     |             |  |  | 4.5   | 
|Other          |  |              | 3.6   |             |  |  | 1.6   | 
|               |  |              |       |             |  |  |       | 
|               |  |              | 100.0 |             |  |  | 100.0 | 
|               |  |              |       |             |  |  |       | 

The investment strategies for SAPs foreign
benefit plans vary according to the individual conditions of the
country in which the benefit plans are situated.

Additional information on funded status for
domestic and foreign plans

The total accumulated benefit obligation for the
Groups principal domestic and foreign benefit plans for
the year ended 2003 was
 29,824
thousand (2002:
 27,396
thousand) and
 157,535
thousand (2002:
 151,004
thousand), respectively. The projected benefit obligation,
accumulated benefit obligation, and fair value of plan

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assets for the Groups domestic and foreign
defined benefit pension plans with accumulated benefit
obligations in excess of plan assets are as follows:


|               |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 
|-------------- |  | ------------------ | ------- | ------------------ |  | ------------- | ------- | ------------------ |  |  | ------ |  |  |  | ------ | 
|               |  |                    |         |                    |  |               |         | Underfunding of   
|               |  | Projected          |         | Accumulated        |  | Fair value of |         | accumulated       
|               |  | benefit obligation |         | benefit obligation |  | plan assets   |         | benefit obligation
|               |  |  (000)            |         |  (000)            |  |  (000)       |         |  (000)           
|               |  |                    |         |                    |  |               |         |                   
|12/31/2003     |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 
|Domestic plans |  |                    | 30,271  |                    |  |               | 29,752  |                    |  |  | 25,686 |  |  |  | 4,066  | 
|Foreign plans  |  |                    | 18,507  |                    |  |               | 13,129  |                    |  |  |       |  |  |  | 13,129 | 
|               |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 
|Total          |  |                    | 48,778  |                    |  |               | 42,881  |                    |  |  | 25,686 |  |  |  | 17,195 | 
|               |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 
|12/31/2002     |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 
|Domestic plans |  |                    | 27,581  |                    |  |               | 26,690  |                    |  |  | 22,620 |  |  |  | 4,070  | 
|Foreign plans  |  |                    | 107,186 |                    |  |               | 100,879 |                    |  |  | 77,153 |  |  |  | 23,726 | 
|               |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 
|Total          |  |                    | 134,767 |                    |  |               | 127,569 |                    |  |  | 99,773 |  |  |  | 27,796 | 
|               |  |                    |         |                    |  |               |         |                    |  |  |        |  |  |  |        | 

Expected future contributions and
benefits

The Groups expected contribution in 2004 is
 1,808
thousand for domestic plans and
 35,963 thousand
for foreign plans, all of which is expected to be paid as cash
contributions.

The estimated future pension benefits to be paid
by the Groups domestic and foreign benefit plans for the
years ended December 31 are as follows:

|            |  |          |       |         |  |         |        |  |  |  |        | 
|----------- |  | -------- | ----- | ------- |  | ------- | ------ |  |  |  | ------ | 
|            |  | Domestic |       | Foreign |  |        
|            |  | plans    |       | plans   |  | Total  
|            |  |  (000)  |       |  (000) |  |  (000)
|            |  |          |       |         |  |        
|2004        |  |          | 481   |         |  |         | 5,533  |  |  |  | 6,014  | 
|2005        |  |          | 743   |         |  |         | 7,405  |  |  |  | 8,148  | 
|2006        |  |          | 965   |         |  |         | 8,923  |  |  |  | 9,888  | 
|2007        |  |          | 1,133 |         |  |         | 10,913 |  |  |  | 12,046 | 
|2008        |  |          | 1,341 |         |  |         | 12,885 |  |  |  | 14,226 | 
|2009  2013 |  |          | 8,005 |         |  |         | 85,531 |  |  |  | 93,536 | 

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
 79,955
thousand,
 67,248
thousand, and
 70,097
thousand in 2003, 2002, and 2001 respectively.

Employee financed pension plan

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

|                                       |  |         |           |         |  |  |           | 
|-------------------------------------- |  | ------- | --------- | ------- |  |  | --------- | 
|                                       |  | 2003    |           | 2002   
|                                       |  |  (000) |           |  (000)
|                                       |  |         |           |        
|Current and deferred taxes             |  |         | 455,499   |         |  |  | 594,042   | 
|Other reserves and accrued liabilities |  |         | 1,013,556 |         |  |  | 882,691   | 
|                                       |  |         |           |         |  |  |           | 
|                                       |  |         | 1,469,055 |         |  |  | 1,476,733 | 
|                                       |  |         |           |         |  |  |           | 

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As of December 31, 2003, accrued taxes
include current and prior year tax obligations in the amount of
 343,519
thousand (2002:
 482,947
thousand) and deferred tax liabilities in the amount of
 111,980
thousand (2002:
 111,095
thousand).

Other reserves and accrued liabilities as of
December 31 are as follows:

|                                                          |  |         |           |         |  |  |         | 
|--------------------------------------------------------- |  | ------- | --------- | ------- |  |  | ------- | 
|                                                          |  | 2003    |           | 2002   
|                                                          |  |  (000) |           |  (000)
|                                                          |  |         |           |        
|Other obligations to employees                            |  |         | 557,118   |         |  |  | 499,690 | 
|Obligations to suppliers                                  |  |         | 179,698   |         |  |  | 173,782 | 
|Vacation and other absences                               |  |         | 137,191   |         |  |  | 126,765 | 
|STAR obligations                                          |  |         | 50,948    |         |  |  | 58      | 
|Customer claims                                           |  |         | 36,103    |         |  |  | 41,159  | 
|Unused lease space                                        |  |         | 17,691    |         |  |  | 7,577   | 
|Contribution to employees accident
    insurance account |  |         | 8,561     |         |  |  | 4,019   | 
|Warranty and service costs                                |  |         | 7,600     |         |  |  | 4,729   | 
|Auditing and reporting costs                              |  |         | 5,312     |         |  |  | 4,905   | 
|Fair value of foreign exchange contracts                  |  |         | 1,644     |         |  |  | 9,790   | 
|Other                                                     |  |         | 11,690    |         |  |  | 10,217  | 
|                                                          |  |         |           |         |  |  |         | 
|                                                          |  |         | 1,013,556 |         |  |  | 882,691 | 
|                                                          |  |         |           |         |  |  |         | 

Other reserves and accrued liabilities payable
after one year as of December 31, 2003 are
 92,961
thousand
( 29,450
thousand in 2002).

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 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
 11,307
thousand as of December 31, 2003 (2002:
 11,432
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. As of December 31,
2003 and 2002, SAP accrued
 7,600
thousand and
 4,729
thousand, respectively. The aggregate utilization of the
warranty accrual in 2003 was
 2,317
thousand (2002:
 4,633
thousand) and the aggregate warranty expense was net
 5,188
thousand in 2003 (2002:
 4,762
thousand).

Exit activities include contract termination and
similar restructuring costs for unused lease space as well as
severance payments. Restructuring costs are included in the
Consolidated Statements of Income in the line item

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Other operating expense, net. The following table
presents the beginning and ending balances along with additions
and deductions incurred:


|                         |  |             |        |               |  |         |        |  |  |  |        | 
|------------------------ |  | ----------- | ------ | ------------- |  | ------- | ------ |  |  |  | ------ | 
|                         |  |             |        | Severance     |  |        
|                         |  | Unused      |        | payments for  |  |        
|                         |  | lease space |        | restructuring |  | Total  
|                         |  |  (000)     |        |  (000)       |  |  (000)
|                         |  |             |        |               |  |        
|Balance as of 12/31/2002 |  |             | 7,577  |               |  |         | 11,159 |  |  |  | 18,736 | 
|Expenses 2003            |  |             | 17,164 |               |  |         | 3,384  |  |  |  | 20,548 | 
|Payments in 2003         |  |             | 5,544  |               |  |         | 9,347  |  |  |  | 14,891 | 
|Adjustments 2003         |  |             | 0      |               |  |         | 1,001  |  |  |  | 1,001  | 
|Currency                 |  |             | 1,506  |               |  |         | 666    |  |  |  | 2,172  | 
|                         |  |             |        |               |  |         |        |  |  |  |        | 
|Balance as of 12/31/2003 |  |             | 17,691 |               |  |         | 3,529  |  |  |  | 21,220 | 
|                         |  |             |        |               |  |         |        |  |  |  |        | 
|Balance as of 12/31/2001 |  |             | 2,874  |               |  |         | 10,121 |  |  |  | 12,995 | 
|Expenses 2002            |  |             | 12,960 |               |  |         | 33,148 |  |  |  | 46,108 | 
|Payments in 2002         |  |             | 7,262  |               |  |         | 30,739 |  |  |  | 38,001 | 
|Adjustments 2002         |  |             | 0      |               |  |         | 0      |  |  |  | 0      | 
|Currency                 |  |             | 995    |               |  |         | 1,371  |  |  |  | 2,366  | 
|                         |  |             |        |               |  |         |        |  |  |  |        | 
|Balance as of 12/31/2002 |  |             | 7,577  |               |  |         | 11,159 |  |  |  | 18,736 | 
|                         |  |             |        |               |  |         |        |  |  |  |        | 

At most subsidiaries SAP does not have an ongoing
severance benefit plan arrangement. SAP accounted for the
majority of its 2003 one-time severance obligations in
accordance with SFAS 146. Other severance obligations
(affecting 768 employees and 322 employees in 2002 and
2001, respectively) were accounted for in accordance with
SFAS 112, Employers Accounting for Postemployment
Benefits, or EITF 94-3, as applicable. Because these
severance benefits do not vest or accumulate, the liability for
such benefits was recognized when it became probable that an
obligation had been incurred and the amount could be estimated.

Provision for unused lease space relate to costs
that will continue to be incurred for vacated space under
various operating lease contracts that will have no future
economic benefit to the Company in accordance with SFAS 146
in 2003 and EITF 94-3 in 2002. Those charges primarily
relate to the training segment, when SAP has been streamlining
its training facility requirements.

(27)  Other
Liabilities

Other liabilities based on due dates as of
December 31 are as follows:

|                           |  |           |         |               |  |              |       |            |  |            |        |  |  |  |         |  |  |  |         | 
|-------------------------- |  | --------- | ------- | ------------- |  | ------------ | ----- | ---------- |  | ---------- | ------ |  |  |  | ------- |  |  |  | ------- | 
|                           |  | Term less |         | Term between  |  | Term more    |       | Balance on |  | Balance on
|                           |  | 1 year    |         | 1 and 5 years |  | than 5 years |       | 12/31/2003 |  | 12/31/2002
|                           |  |  (000)   |         |  (000)       |  |  (000)      |       |  (000)    |  |  (000)   
|                           |  |           |         |               |  |              |       |            |  |           
|Bank loans and overdrafts  |  |           | 19,043  |               |  |              | 639   |            |  |            | 1,785  |  |  |  | 21,467  |  |  |  | 24,307  | 
|Advanced payments received |  |           | 42,441  |               |  |              | 0     |            |  |            | 0      |  |  |  | 42,441  |  |  |  | 44,011  | 
|Accounts payable           |  |           | 286,862 |               |  |              | 0     |            |  |            | 0      |  |  |  | 286,862 |  |  |  | 328,841 | 
|Taxes                      |  |           | 165,037 |               |  |              | 0     |            |  |            | 0      |  |  |  | 165,037 |  |  |  | 166,056 | 
|Social security            |  |           | 33,766  |               |  |              | 0     |            |  |            | 0      |  |  |  | 33,766  |  |  |  | 35,824  | 
|Other liabilities          |  |           | 101,568 |               |  |              | 1,819 |            |  |            | 23,184 |  |  |  | 126,571 |  |  |  | 149,723 | 
|                           |  |           |         |               |  |              |       |            |  |            |        |  |  |  |         |  |  |  |         | 
|                           |  |           | 648,717 |               |  |              | 2,458 |            |  |            | 24,969 |  |  |  | 676,144 |  |  |  | 748,762 | 
|                           |  |           |         |               |  |              |       |            |  |            |        |  |  |  |         |  |  |  |         | 

Liabilities are unsecured, excluding retention of
title and similar rights customary in the industry. Effective
interest rates of bank loans are 6.18% and 5.01% in 2003 and
2002, respectively.

In 2002, liabilities with a remaining term not
exceeding one year amounted to
 725,085
thousand and those with a remaining term exceeding five years
amounted to
 22,864
thousand.

As of December 31, 2003 and 2002, SAP AG had
available lines of credit totaling
 858,000
thousand and
 980,000
thousand, respectively. No borrowings were made under these
lines of credit in 2003 and 2002.

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As of December 31, 2003 and 2002, certain of
SAPs subsidiaries had lines of credit available that
allowed them to borrow in local currencies at prevailing
interest rates up to
 178,010
thousand and
 204,756
thousand, respectively. Total aggregate borrowings under these
lines of credit, which are predominantly guaranteed by SAP AG,
amounted to
 21,467 thousand
as of December 31, 2003 and
 24,307 thousand
as of December 31, 2002.

(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 2003, 2002, and 2001 was
 3,900 thousand,
 12,858 thousand,
and
 20,834 thousand,
respectively. Income taxes paid in fiscal years 2003, 2002, and
2001, net of refunds was
 591,012 thousand,
 366,642 thousand,
and
 500,098 thousand,
respectively.

See the reconciliation from cash and cash
equivalents to liquid assets in Note 21.

(30)  Contingent
Liabilities

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. Due to the nature
of the guarantees, SAP can not estimate the maximum exposure of
these guarantees. The related liability is included in other
reserves and accrued liabilities (see Note 26).

As of December 31, 2003 and 2002 no
guarantees were provided for third party performance or
financial obligations of third parties.

(31)  Other Financial
Commitments

Other financial commitments amounted to
 664,798
thousand and
 780,258 thousand
as of December 31, 2003 and 2002, respectively, and are
comprised primarily of commitments under rental and operating
leases of
 619,543 thousand
and
 674,918 thousand
as of December 31, 2003 and 2002, 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
 30,509 thousand
and
 83,277 thousand
as of December 31, 2003 and 2002 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. For financial commitments related to SAPs
pension plans please refer to Note 25.

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.

In January 2004 SAP America, Inc. and SAP
Properties signed an agreement with a third-party real estate
development company (the Purchaser) to sell a
portion of the United States headquarters property in Newtown
Square, Pennsylvania. A portion of the property to be sold is
owned and another portion of the property is

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currently occupied by SAP America, Inc. and
certain subsidiaries pursuant to an operating lease (the
Leased Property) with the sophisticated financial
institution (the Owner) noted above. The sale
is being undertaken to reduce future operating expense
commitments associated with maintaining the Leased Property and
to release restricted cash currently securing the lease
obligation. The sale is subject to due diligence procedures
being successfully completed by the Purchaser. In connection
with this transaction, SAP Properties would exercise an existing
option to purchase the Leased Property from the Owner prior to
the sale. If completed, the sale would result in a pretax loss
of approximately US$16 million. The sale is not expected to
take place until June 2004.


Commitments under rental and operating leasing
contracts as of December 31, 2003:

|               |  |         |         | 
|-------------- |  | ------- | ------- | 
|               |  |  (000)
|               |  |        
|Due 2004       |  |         | 141,891 | 
|Due 2005       |  |         | 105,366 | 
|Due 2006       |  |         | 80,685  | 
|Due 2007       |  |         | 60,901  | 
|Due 2008       |  |         | 50,749  | 
|Due thereafter |  |         | 179,951 | 

Rent expense was
 159,284
thousand,
 207,087
thousand, and
 208,908
thousand for the years ended December 31, 2003, 2002, and
2001, respectively.

(32)     Litigation
and Claims

The bankruptcy trustee for 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 and
licensee of the Companys SAP R/3 software.
FoxMeyers bankruptcy trustee (Trustee) alleges
that the software failed to perform properly, damaging
FoxMeyers business, and that such failure was a
significant factor contributing to FoxMeyers bankruptcy in
1996 and its subsequent liquidation. The complaint asserts
claims of breach of contract, breach of express and implied
warranties, fraud, negligent misrepresentation, and promissory
estoppel. The Trustee seeks unspecified compensatory and
punitive damages, the award of costs, expenses and reasonable
attorneys fees, as well as pre-judgment and post-judgment
interest. Fact discovery has concluded, however, the Trustee has
filed a motion to reopen discovery. The parties are now
proceeding with motion practice before the Court. While the
ultimate outcome of this matter cannot be presently determined
with certainty, we believe that the Trustee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, result 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, the Company 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.

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(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:

|                                                      |  |                |         |            |  |                |         |            |  |  |         |   |  |  |         |  
|----------------------------------------------------- |  | -------------- | ------- | ---------- |  | -------------- | ------- | ---------- |  |  | ------- | - |  |  | ------- | -
|                                                      |  |                |         |           
|                                                      |  | 2003           |         | 2002      
|                                                      |  |                |         |           
|                                                      |  | Carrying value |         | Fair value |  | Carrying value |         | Fair value
|                                                      |  |  (000)        |         |  (000)    |  |  (000)        |         |  (000)   
|                                                      |  |                |         |            |  |                |         |           
|Marketable equity securities 
    available-for-sale |  |                | 24,457  |            |  |                | 24,457  |            |  |  | 11,250  |   |  |  | 11,250  |  
|Marketable debt securities 
    available-for-sale   |  |                | 53,679  |            |  |                | 53,679  |            |  |  | 54,353  |   |  |  | 54,353  |  
|Marketable securities                                 |  |                | 1,352   |            |  |                | 1,352   |            |  |  | 1,349   |   |  |  | 1,349   |  
|Other loans                                           |  |                | 61,214  |            |  |                | 61,214  |            |  |  | 58,170  |   |  |  | 58,170  |  
|Bank loans and overdrafts                             |  |                | (21,467 | )          |  |                | (21,467 | )          |  |  | (24,307 | ) |  |  | (24,307 | )
|Derivative financial instruments                      |  |                |         |            |  |                |         |            |  |  |         |   |  |  |         |  
|Forward exchange contracts                            |  |                | 177,297 |            |  |                | 177,297 |            |  |  | 28,315  |   |  |  | 28,315  |  
|Currency options                                      |  |                | 0       |            |  |                | 0       |            |  |  | 1,106   |   |  |  | 1,106   |  
|Call options (STAR hedge)                             |  |                | 77,817  |            |  |                | 77,817  |            |  |  | 1,350   |   |  |  | 1,350   |  
|                                                      |  |                |         |            |  |                |         |            |  |  |         |   |  |  |         |  
|                                                      |  |                | 374,349 |            |  |                | 374,349 |            |  |  | 131,586 |   |  |  | 131,586 |  
|                                                      |  |                |         |            |  |                |         |            |  |  |         |   |  |  |         |  

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 on the
    reporting date.

Detailed information about the fair value of the
Companys financial instruments is included in
Notes 16, 20 and 27.

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 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.

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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 cash flow hedges are
included in Accumulated other comprehensive income, net of tax.

When intercompany accounts receivable 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
 26
thousand are also included in earnings for the year ended
December 31, 2003 (2002: net gains of
 2,352
thousand; 2001: net gains of
 468
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
 13,441
thousand of net losses included in accumulated other
comprehensive income at December 31, 2003, will be
reclassified into earnings during the next year. As of
December 31, 2003, 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.

STAR
Hedge

To a certain extent SAP hedges anticipated cash
flow exposures associated with unrecognized non-vested STARs
(see Note 24) through the purchase of derivative
instruments from an independent financial institution.

As of December 31, 2003 and 2002 the
following derivative instruments were designated as a hedge for
the STAR 2003, 2002 and 2001, respectively:

|         |  |                      |           |              |  |  |        | 
|-------- |  | -------------------- | --------- | ------------ |  |  | ------ | 
|         |  |                     
|         |  | 2003                
|         |  |                     
|         |  |                     
|         |  | Hedge of 2.0 million
|         |  | 2003 STARs          
|         |  |                     
|         |  | Number of            |           |             
|Buy/sell |  | call options         |           | Strike price
|         |  |                      |           |             
|Buy      |  |                      | 2,000,000 |              |  |  | 84.91  | 
|Sell     |  |                      | 1,000,000 |              |  |  | 134.91 | 
|Sell     |  |                      | 500,000   |              |  |  | 184.91 | 

Fair value as of December 31, 2003 in
 (000):
77,790

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|         |  |                      |           |              |  |  |        | 
|-------- |  | -------------------- | --------- | ------------ |  |  | ------ | 
|         |  |                     
|         |  | 2003                
|         |  |                     
|         |  |                     
|         |  | Hedge of 3.0 million
|         |  | 2002 STARs          
|         |  |                     
|         |  | Number of            |           |             
|Buy/sell |  | call options         |           | Strike price
|         |  |                      |           |             
|Buy      |  |                      | 3,000,000 |              |  |  | 158.80 | 
|Sell     |  |                      | 1,500,000 |              |  |  | 208.80 | 
|Sell     |  |                      | 750,000   |              |  |  | 258.80 | 

Fair value as of December 31, 2002 in
 (000):
27

|         |  |                      |           |              |  |  |        | 
|-------- |  | -------------------- | --------- | ------------ |  |  | ------ | 
|         |  |                     
|         |  | 2002                
|         |  |                     
|         |  |                     
|         |  | Hedge of 3.0 million
|         |  | 2002 STARs          
|         |  |                     
|         |  | Number of            |           |             
|Buy/sell |  | call options         |           | Strike price
|         |  |                      |           |             
|Buy      |  |                      | 3,000,000 |              |  |  | 158.80 | 
|Sell     |  |                      | 1,500,000 |              |  |  | 208.80 | 
|Sell     |  |                      | 750,000   |              |  |  | 258.80 | 

Fair value as of December 31, 2002 in
 (000):
1,350

|         |  |                      |           |              |  |  |        | 
|-------- |  | -------------------- | --------- | ------------ |  |  | ------ | 
|         |  |                     
|         |  | 2002                
|         |  |                     
|         |  |                     
|         |  | Hedge of 3.2 million
|         |  | 2001 STARs          
|         |  |                     
|         |  | Number of            |           |             
|Buy/sell |  | call options         |           | Strike price
|         |  |                      |           |             
|Buy      |  |                      | 3,200,000 |              |  |  | 193.51 | 
|Sell     |  |                      | 1,600,000 |              |  |  | 243.51 | 
|Sell     |  |                      | 400,000   |              |  |  | 293.51 | 

Fair value as of December 31, 2002 in
 (000):
0

The terms of the derivative financial instruments
are also designed to reflect the eight measurement dates and
weighting factors applicable to the STAR program, as described
in Note 24. The amount of options, which expire at each
measurement date, reflect the respective weighting factor of
that date. Payments dates reflect payment terms of the STAR
program, which is subject to the respective hedge. Viewed
together, SAP will receive from the financial institution 100%
of the first
 50 in
appreciation of SAPs stock price above the strike price of
the STAR, 50% of the next
 50 in
appreciation of SAPs stock price above the strike price of
the STAR, and 25% of any additional appreciation of SAPs
stock price above the strike price of the STAR.

The terms of the derivative financial instruments
require cash settlement and there are no settlement
alternatives. These derivative financial instruments are
accounted for as Other assets on SAPs Consolidated Balance
Sheets.

Hedge effectiveness is assessed based on changes
in the intrinsic value of the STAR hedge instrument. Accordingly
the change in the fair value attributable to the time value of
the derivative instrument will be recorded currently in the
Consolidated Statements of Income under Financial
income/expense. The change in intrinsic value is recorded in
Other comprehensive income with the resulting deferred tax
liability recorded separately. The amount in Other comprehensive
income is used to offset compensation expense on the STAR
recognized over the vesting period. To the extent SAP entered
into a hedge for recognized, vested STARs, the change in
intrinsic value of the derivative is recognized currently in
Financial income/ expense.

As of December 31,
2003  15 million
have been recorded as an expense in Financial income/ expense,
net, thereof a gain of
 3 million
representing the amount of the hedges ineffectiveness.
Compensation expense on STAR has been reduced by
 16 million;
Other comprehensive income has been increased by
 24 million,
net of tax. In 2002, approximately
 59 million
has been recorded as an expense in Financial income/ expense,
net.

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See Note 24 for additional information.

The notional values and fair values of the
derivative financial instruments as of December 31 are as
follows:

|                           |  |          |           |            |  |          |         |            |  |  |           |  |  |  |        |  
|-------------------------- |  | -------- | --------- | ---------- |  | -------- | ------- | ---------- |  |  | --------- |  |  |  | ------ | -
|                           |  |          |           |           
|                           |  | 2003     |           | 2002      
|                           |  |          |           |           
|                           |  | Notional |           |            |  | Notional |         |           
|                           |  | value    |           | Fair value |  | value    |         | Fair value
|                           |  |  (000)  |           |  (000)    |  |  (000)  |         |  (000)   
|                           |  |          |           |            |  |          |         |           
|Forward exchange contracts |  |          |           |            |  |          |         |            |  |  |           |  |  |  |        |  
|Gains                      |  |          | 1,302,790 |            |  |          | 178,941 |            |  |  | 836,772   |  |  |  | 38,105 |  
|Losses                     |  |          | 8,990     |            |  |          | (1,644  | )          |  |  | 446,930   |  |  |  | (9,790 | )
|                           |  |          |           |            |  |          |         |            |  |  |           |  |  |  |        |  
|                           |  |          | 1,311,780 |            |  |          | 177,297 |            |  |  | 1,283,702 |  |  |  | 28,315 |  
|Currency options           |  |          | 0         |            |  |          | 0       |            |  |  | 83,372    |  |  |  | 1,106  |  
|Call options (STAR hedge)  |  |          | n/a       |            |  |          | 77,817  |            |  |  | n/a       |  |  |  | 1,350  |  

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 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 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.

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. Starting 2004 all internal
sales and transfers will be recorded utilizing fully burden cost
rates.

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SAP has three operating segments:
Product, Consulting and
Training.

|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|--------------------- |  | ------- | ---------- | ---------- |  | -------- | ---------- | ------- |  |  | -------- | - |  |  | ---------- | -
|                      |  | Product |            | Consulting |  | Training |            | Total  
|                      |  |  (000) |            |  (000)    |  |  (000)  |            |  (000)
|                      |  |         |            |            |  |          |            |        
|2003                  |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|External revenue      |  |         | 4,797,827  |            |  |          | 1,884,801  |         |  |  | 316,088  |   |  |  | 6,998,716  |  
|Internal revenue      |  |         | 448,486    |            |  |          | 507,244    |         |  |  | 65,981   |   |  |  | 1,021,711  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Total revenue         |  |         | 5,246,313  |            |  |          | 2,392,045  |         |  |  | 382,069  |   |  |  | 8,020,427  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment expenses      |  |         | (2,322,564 | )          |  |          | (1,927,112 | )       |  |  | (287,470 | ) |  |  | (4,537,146 | )
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment contribution  |  |         | 2,923,749  |            |  |          | 464,933    |         |  |  | 94,599   |   |  |  | 3,483,281  |  
|                      |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|Segment profitability |  |         | 55.7%      |            |  |          | 19.4%      |         |  |  | 24.8%    |   |  |  |            |  
|2002                  |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|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                  |  |         |            |            |  |          |            |         |  |  |          |   |  |  |            |  
|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%    |   |  |  |            |  

Product

The Product segment is primarily engaged in
marketing and licensing the Companys software products and
performing maintenance services. Maintenance services include
technical support for the Companys products, assistance in
resolving problems, provision of user documentation, updates for
software products, and new releases, versions and support
packages.

Consulting

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.

Training

The Training segment provides educational
services on the use of SAP software products and related topics
for customer and partners. Training services include traditional
classroom training at SAP training facilities, customer and
partner specific training, end-user training as well as
e-learning.

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

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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.


The following table presents a reconciliation of
total segment revenues to total consolidated revenues as
reported in the Consolidated Statements of Income:

|                                      |  |         |            |         |  |         |            |   |  |  |            |  
|------------------------------------- |  | ------- | ---------- | ------- |  | ------- | ---------- | - |  |  | ---------- | -
|                                      |  | 2003    |            | 2002    |  | 2001   
|                                      |  |  (000) |            |  (000) |  |  (000)
|                                      |  |         |            |         |  |        
|Total revenue for reportable segments |  |         | 8,020,427  |         |  |         | 8,443,184  |   |  |  | 8,356,499  |  
|Elimination of internal revenues      |  |         | (1,021,711 | )       |  |         | (1,061,593 | ) |  |  | (1,044,497 | )
|Other external revenues               |  |         | 26,074     |         |  |         | 31,225     |   |  |  | 28,503     |  
|Other differences                     |  |         | (184       | )       |  |         | 22         |   |  |  | 299        |  
|                                      |  |         |            |         |  |         |            |   |  |  |            |  
|                                      |  |         | 7,024,606  |         |  |         | 7,412,838  |   |  |  | 7,340,804  |  
|                                      |  |         |            |         |  |         |            |   |  |  |            |  

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, 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.

The following table presents a reconciliation of
total segment contribution to Income before income taxes,
minority interest and extraordinary gain as reported in the
Consolidated Statements of Income:

|                                                                         |  |         |            |         |  |         |            |   |  |  |            |  
|------------------------------------------------------------------------ |  | ------- | ---------- | ------- |  | ------- | ---------- | - |  |  | ---------- | -
|                                                                         |  | 2003    |            | 2002    |  | 2001   
|                                                                         |  |  (000) |            |  (000) |  |  (000)
|                                                                         |  |         |            |         |  |        
|Total contribution for reportable segments                               |  |         | 3,483,281  |         |  |         | 3,354,118  |   |  |  | 3,027,537  |  
|Contribution from activities outside the
    reportable segments         |  |         | (1,628,877 | )       |  |         | (1,692,548 | ) |  |  | (1,616,697 | )
|Stock-based compensation expenses                                        |  |         | (130,044   | )       |  |         | (35,868    | ) |  |  | (98,377    | )
|Other differences                                                        |  |         | (341       | )       |  |         | (24        | ) |  |  | (89        | )
|                                                                         |  |         |            |         |  |         |            |   |  |  |            |  
|Operating income                                                         |  |         | 1,724,019  |         |  |         | 1,625,678  |   |  |  | 1,312,374  |  
|                                                                         |  |         |            |         |  |         |            |   |  |  |            |  
|Other non-operating income/expenses, net                                 |  |         | 36,309     |         |  |         | 37,319     |   |  |  | (10,643    | )
|Finance income, net                                                      |  |         | 16,287     |         |  |         | (555,299   | ) |  |  | (232,974   | )
|                                                                         |  |         |            |         |  |         |            |   |  |  |            |  
|Income before income taxes, minority interest
    and extraordinary gain |  |         | 1,776,615  |         |  |         | 1,107,698  |   |  |  | 1,068,757  |  
|                                                                         |  |         |            |         |  |         |            |   |  |  |            |  

Other differences primarily relate to currency
translation differences.

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 when making decisions about resource allocations.

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Geographic Information

The following tables present a summary of
operations by geographic region except for income before income
tax. The amounts included are based on consolidated data, which
reconciles to the Consolidated Statements of Income. Income
before income tax is based on unconsolidated data.

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
|                     |                    |                      |           |                   
|                     |                    | 2003                 |           | 2002               |  | 2001    |           | 2003      |  | 2002    |           | 2001     
|                     |                    |  (000)              |           |  (000)            |  |  (000) |           |  (000)   |  |  (000) |           |  (000)  
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |          
|Germany              |                    |                      | 1,670,286 |                    |  |         | 1,654,144 |           |  |         | 1,468,726 |           |  |  | 1,771,289 |           |  |  | 1,793,961 |           |  |  | 1,615,777 |          
|Rest of EMEA(1)      |                    |                      | 2,299,601 |                    |  |         | 2,394,011 |           |  |         | 2,317,456 |           |  |  | 2,238,387 |           |  |  | 2,301,660 |           |  |  | 2,211,982 |          
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total EMEA         |                      |           | 3,969,887          |  |         |           | 4,048,155 |  |         |           | 3,786,182 |  |  |           | 4,009,676 |  |  |           | 4,095,621 |  |  |           | 3,827,759 | 
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|United States        |                    |                      | 1,736,341 |                    |  |         | 1,969,748 |           |  |         | 2,084,140 |           |  |  | 1,728,008 |           |  |  | 1,954,427 |           |  |  | 2,102,136 |          
|Rest of Americas     |                    |                      | 479,836   |                    |  |         | 531,880   |           |  |         | 639,980   |           |  |  | 472,142   |           |  |  | 525,657   |           |  |  | 613,503   |          
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total Americas     |                      |           | 2,216,177          |  |         |           | 2,501,628 |  |         |           | 2,724,120 |  |  |           | 2,200,150 |  |  |           | 2,480,084 |  |  |           | 2,715,639 | 
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|Japan                |                    |                      | 441,558   |                    |  |         | 485,939   |           |  |         | 444,090   |           |  |  | 440,226   |           |  |  | 485,605   |           |  |  | 434,163   |          
|Rest of Asia-Pacific |                    |                      | 396,984   |                    |  |         | 377,116   |           |  |         | 386,412   |           |  |  | 374,554   |           |  |  | 351,528   |           |  |  | 363,243   |          
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     | Total Asia-Pacific |                      |           | 838,542            |  |         |           | 863,055   |  |         |           | 830,502   |  |  |           | 814,780   |  |  |           | 837,133   |  |  |           | 797,406   | 
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          
|                     |                    |                      | 7,024,606 |                    |  |         | 7,412,838 |           |  |         | 7,340,804 |           |  |  | 7,024,606 |           |  |  | 7,412,838 |           |  |  | 7,340,804 |          
|                     |                    |                      |           |                    |  |         |           |           |  |         |           |           |  |  |           |           |  |  |           |           |  |  |           |          






|    |                                               
|--- | ----------------------------------------------
|(1) | Europe, Middle East, Africa                   
|   
|(2) | Figures of the Individual Financial Statements

|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |           | 
|-------------------- | ------------------ | --------------------------- | --------- | ------------ |  | ------- | --------- | --------- |  | ------- | --------- | --------- | - |  | --------- | --------- |  |  | --------- | --------- |  |  | --------- | --------- | 
|                     |                    |                             |           |             
|                     |                    | Income before income tax(2) |           | Total assets
|                     |                    |                             |           |             
|                     |                    | 2003                        |           | 2002         |  | 2001    |           | 2003      |  | 2002    |           | 2001     
|                     |                    |  (000)                     |           |  (000)      |  |  (000) |           |  (000)   |  |  (000) |           |  (000)  
|                     |                    |                             |           |              |  |         |           |           |  |         |           |          
|Germany              |                    |                             | 1,368,735 |              |  |         | 1,281,148 |           |  |         | 1,416,177 |           |   |  | 2,597,173 |           |  |  | 1,967,167 |           |  |  | 2,276,865 |          
|Rest of EMEA(1)      |                    |                             | 285,565   |              |  |         | 312,278   |           |  |         | 263,340   |           |   |  | 1,295,265 |           |  |  | 1,301,115 |           |  |  | 1,247,286 |          
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          
|                     | Total EMEA         |                             |           | 1,654,300    |  |         |           | 1,593,426 |  |         |           | 1,679,517 |   |  |           | 3,892,438 |  |  |           | 3,268,282 |  |  |           | 3,524,151 | 
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          
|United States        |                    |                             | 178,372   |              |  |         | 268,043   |           |  |         | (122,717  | )         |   |  | 1,710,432 |           |  |  | 1,616,408 |           |  |  | 1,905,382 |          
|Rest of Americas     |                    |                             | 40,170    |              |  |         | 80,340    |           |  |         | 54,640    |           |   |  | 318,451   |           |  |  | 326,496   |           |  |  | 355,646   |          
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          
|                     | Total Americas     |                             |           | 218,542      |  |         |           | 348,383   |  |         |           | (68,077   | ) |  |           | 2,028,883 |  |  |           | 1,942,904 |  |  |           | 2,261,028 | 
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          
|Japan                |                    |                             | 61,891    |              |  |         | 82,071    |           |  |         | 73,840    |           |   |  | 163,616   |           |  |  | 177,624   |           |  |  | 178,411   |          
|Rest of Asia-Pacific |                    |                             | 23,618    |              |  |         | 36,441    |           |  |         | 17,032    |           |   |  | 240,928   |           |  |  | 219,653   |           |  |  | 232,014   |          
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          
|                     | Total Asia-Pacific |                             |           | 85,509       |  |         |           | 118,512   |  |         |           | 90,872    |   |  |           | 404,544   |  |  |           | 397,277   |  |  |           | 410,425   | 
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          
|                     |                    |                             | 1,958,351 |              |  |         | 2,060,321 |           |  |         | 1,702,312 |           |   |  | 6,325,865 |           |  |  | 5,608,463 |           |  |  | 6,195,604 |          
|                     |                    |                             |           |              |  |         |           |           |  |         |           |           |   |  |           |           |  |  |           |           |  |  |           |          






|    |                                               
|--- | ----------------------------------------------
|(1) | Europe, Middle East, Africa                   
|   
|(2) | Figures of the Individual Financial Statements

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##### Table of Contents



|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |         | 
|-------------------- | ------------------ | ----------------------------- | --------- | -------------------- |  | ------- | --------- | ------- |  | ------- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                     |                    |                               |           |                     
|                     |                    | Property, plant and equipment |           | Capital expenditures
|                     |                    |                               |           |                     
|                     |                    | 2003                          |           | 2002                 |  | 2001    |           | 2003    |  | 2002    |         | 2001   
|                     |                    |  (000)                       |           |  (000)              |  |  (000) |           |  (000) |  |  (000) |         |  (000)
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |        
|Germany              |                    |                               | 699,863   |                      |  |         | 648,828   |         |  |         | 543,954 |         |  |  | 159,019 |         |  |  | 201,799 |         |  |  | 168,964 |        
|Rest of EMEA(1)      |                    |                               | 128,872   |                      |  |         | 148,564   |         |  |         | 158,284 |         |  |  | 17,460  |         |  |  | 23,924  |         |  |  | 54,593  |        
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     | Total EMEA         |                               |           | 828,735              |  |         |           | 797,392 |  |         |         | 702,238 |  |  |         | 176,479 |  |  |         | 225,723 |  |  |         | 223,557 | 
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|United States        |                    |                               | 158,805   |                      |  |         | 208,466   |         |  |         | 257,757 |         |  |  | 9,009   |         |  |  | 21,423  |         |  |  | 58,396  |        
|Rest of Americas     |                    |                               | 4,244     |                      |  |         | 4,876     |         |  |         | 9,791   |         |  |  | 2,145   |         |  |  | 2,235   |         |  |  | 2,592   |        
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     | Total Americas     |                               |           | 163,049              |  |         |           | 213,342 |  |         |         | 267,548 |  |  |         | 11,154  |  |  |         | 23,658  |  |  |         | 60,988  | 
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|Japan                |                    |                               | 7,518     |                      |  |         | 11,019    |         |  |         | 14,476  |         |  |  | 1,840   |         |  |  | 2,424   |         |  |  | 4,230   |        
|Rest of Asia-Pacific |                    |                               | 20,355    |                      |  |         | 12,464    |         |  |         | 12,790  |         |  |  | 14,217  |         |  |  | 7,693   |         |  |  | 6,521   |        
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     | Total Asia-Pacific |                               |           | 27,873               |  |         |           | 23,483  |  |         |         | 27,266  |  |  |         | 16,057  |  |  |         | 10,117  |  |  |         | 10,751  | 
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                     |                    |                               | 1,019,657 |                      |  |         | 1,034,217 |         |  |         | 997,052 |         |  |  | 203,690 |         |  |  | 259,498 |         |  |  | 295,296 |        
|                     |                    |                               |           |                      |  |         |           |         |  |         |         |         |  |  |         |         |  |  |         |         |  |  |         |        






|    |                                               
|--- | ----------------------------------------------
|(1) | Europe, Middle East, Africa                   
|   
|(2) | Figures of the Individual Financial Statements

|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |        | 
|-------------------- | ------------------ | ------------ | ------- | --------------------------- |  | ------- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ | 
|                     |                    |              |         |                             |  |         |         |        
|                     |                    |              |         | Employees as of December 31
|                     |                    | Depreciation |         | in full-time equivalents   
|                     |                    |              |         |                            
|                     |                    | 2003         |         | 2002                        |  | 2001    |         |        
|                     |                    |  (000)      |         |  (000)                     |  |  (000) |         | 2003    |  | 2002 |         | 2001   
|                     |                    |              |         |                             |  |         |         |         |  |      |         |        
|Germany              |                    |              | 105,797 |                             |  |         | 92,509  |         |  |      | 86,419  |         |  |  | 13,026 |        |  |  | 12,580 |        |  |  | 12,026 |       
|Rest of EMEA(1)      |                    |              | 27,895  |                             |  |         | 31,513  |         |  |      | 32,638  |         |  |  | 6,808  |        |  |  | 6,655  |        |  |  | 6,412  |       
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     | Total EMEA         |              |         | 133,692                     |  |         |         | 124,022 |  |      |         | 119,057 |  |  |        | 19,834 |  |  |        | 19,235 |  |  |        | 18,438 | 
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|United States        |                    |              | 24,022  |                             |  |         | 31,773  |         |  |      | 29,674  |         |  |  | 4,621  |        |  |  | 4,885  |        |  |  | 5,191  |       
|Rest of Americas     |                    |              | 2,673   |                             |  |         | 4,009   |         |  |      | 5,934   |         |  |  | 1,435  |        |  |  | 1,426  |        |  |  | 1,535  |       
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     | Total Americas     |              |         | 26,695                      |  |         |         | 35,782  |  |      |         | 35,608  |  |  |        | 6,055  |  |  |        | 6,311  |  |  |        | 6,726  | 
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|Japan                |                    |              | 4,587   |                             |  |         | 5,093   |         |  |      | 4,760   |         |  |  | 1,350  |        |  |  | 1,248  |        |  |  | 1,137  |       
|Rest of Asia-Pacific |                    |              | 5,038   |                             |  |         | 6,909   |         |  |      | 9,636   |         |  |  | 2,370  |        |  |  | 2,003  |        |  |  | 2,109  |       
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     | Total Asia-Pacific |              |         | 9,625                       |  |         |         | 12,002  |  |      |         | 14,396  |  |  |        | 3,720  |  |  |        | 3,251  |  |  |        | 3,246  | 
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       
|                     |                    |              | 170,012 |                             |  |         | 171,806 |         |  |      | 169,061 |         |  |  | 29,610 |        |  |  | 28,797 |        |  |  | 28,410 |       
|                     |                    |              |         |                             |  |         |         |         |  |      |         |         |  |  |        |        |  |  |        |        |  |  |        |       






|    |                            
|--- | ---------------------------
|(1) | Europe, Middle East, Africa

The majority of research and development costs
are incurred in Germany as SAP AG has title to the majority of
internally developed software. As of December 31, 2003,
approximately 68.4% of the research and development personnel
are located in Germany, 8.5% in the rest of EMEA, 10.9% in the
United States, 1.2% in the rest of the Americas and 11% in the
Asia-Pacific region.

Six groups of industry sectors generated the
following total sales revenues for the year ended
December 31:

|                    |  |         |           |         |  |         |           |  |  |  |           | 
|------------------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|                    |  | 2003    |           | 2002    |  | 2001   
|                    |  |  (000) |           |  (000) |  |  (000)
|                    |  |         |           |         |  |        
|Process industries  |  |         | 1,381,279 |         |  |         | 1,537,033 |  |  |  | 1,524,330 | 
|Discrete industries |  |         | 1,659,334 |         |  |         | 1,764,154 |  |  |  | 1,807,468 | 
|Consumer industries |  |         | 1,243,809 |         |  |         | 1,299,694 |  |  |  | 1,186,839 | 
|Service industries  |  |         | 1,664,525 |         |  |         | 1,765,903 |  |  |  | 1,849,741 | 
|Financial services  |  |         | 474,135   |         |  |         | 514,760   |  |  |  | 448,229   | 
|Public services     |  |         | 601,524   |         |  |         | 531,294   |  |  |  | 524,197   | 
|                    |  |         |           |         |  |         |           |  |  |  |           | 
|                    |  |         | 7,024,606 |         |  |         | 7,412,838 |  |  |  | 7,340,804 | 
|                    |  |         |           |         |  |         |           |  |  |  |           | 

F-56



---



##### Table of Contents



The following table presents software revenues
allocated to specific software solutions including revenues from
integrated solution contracts, which are allocated based on
customer usage surveys:

|                                                                                 |  |         |           |         |  |         |           |  |  |  |           | 
|-------------------------------------------------------------------------------- |  | ------- | --------- | ------- |  | ------- | --------- |  |  |  | --------- | 
|                                                                                 |  | 2003    |           | 2002    |  | 2001   
|                                                                                 |  |  (000) |           |  (000) |  |  (000)
|                                                                                 |  |         |           |         |  |        
|mySAP SCM                                                                        |  |         | 477,131   |         |  |         | 463,966   |  |  |  | 582,892   | 
|mySAP CRM                                                                        |  |         | 440,121   |         |  |         | 472,966   |  |  |  | 444,918   | 
|mySAP PLM                                                                        |  |         | 156,043   |         |  |         | 167,988   |  |  |  | 195,963   | 
|mySAP Business Intelligence/ mySAP Enterprise
    Portal/ mySAP SRM/Marketplaces |  |         | 273,075   |         |  |         | 258,981   |  |  |  | 415,922   | 
|mySAP Financials/ mySAP Human Resources                                          |  |         | 801,221   |         |  |         | 926,933   |  |  |  | 940,823   | 
|                                                                                 |  |         |           |         |  |         |           |  |  |  |           | 
|                                                                                 |  |         | 2,147,591 |         |  |         | 2,290,834 |  |  |  | 2,580,518 | 
|                                                                                 |  |         |           |         |  |         |           |  |  |  |           | 



|     |                   
|---- | ------------------
|(35) | Board of Directors

|                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXECUTIVE BOARD                                                                                                                                                                                                                             |  | Membership on supervisory boards and other
    comparable governing bodies of enterprises, other than
    subsidiaries of the Company, in Germany and other countries, on
    December 31, 2003(1)                                         
|                                                                                                                                                                                                                                           
|Prof. Dr. Henning KagermannCEO
    Overall responsibility for SAPs strategy and business
    development, marketing, global communications, consulting,
    customer development, Business Solutions Group
    Financial & Public Services |  | 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 AgassiDevelopment of the integration and
    application platform
    SAP NetWeaver, mySAP SRM and SAP xApps                                                                                                                           |  |                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                           
|Léo ApothekerGlobal Field Operations                                                                                                                                                                                                        |  | Board of Directors, Enigma, Inc., Burlington,
    Massachusetts, United States                                                                                                                                                             
|                                                                                                                                                                                                                                           
|Dr. Werner BrandtChief Financial Officer                                                                                                                                                                                                    |  | Supervisory Board, LSG Lufthansa Service Holding
    AG, Neu-Isenburg, Germany                                                                                                                                                             
|                                                                                                                                                                                                                                           
|Prof. Dr. Claus E. HeinrichBusiness Solutions Group Manufacturing
    Industries
    human resources, labor relations                                                                                                                       |  |                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                           
|Gerhard OswaldGlobal support, IT infrastructure                                                                                                                                                                                             |  |                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                           
|Dr. Peter ZenckeDevelopment organization of SAPs
    Enterprise Services platform, coordination of global research
    activities and development labs                                                                                     |  | Supervisory Board, SupplyOn AG, Hallbergmoos,
    Germany Supervisory Board, SuSE Linux AG, Nuremberg, Germany                                                                                                                             






|    |                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Memberships on 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-57



---



##### Table of Contents



|                                                 |  |                                                                                           
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------
|EXTENDED MANAGEMENT BOARD                        |  |                                                                                           
|                                                
|Leslie HaymanGlobal SAP Human Resources          |  | Wolfgang Kemna(up
    to January 30, 2004)
    Global Sales Operations/ Global Initiatives
|                                                
|Karl-Heinz HessTechnology Platform SAP NetWeaver |  | Peter J. KirschbauerBusiness Solutions Group Services
    Industries                      
|                                                
|Martin J. HomlishGlobal Marketing                |  | Klaus Kreplin(from
    February 12, 2003)
    Technology Platform SAP NetWeaver           

F-58



---



##### Table of Contents



|                                                                                                                                                                                                  |  |                                                                                                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SUPERVISORY BOARD                                                                                                                                                                                 |  | Membership on other supervisory boards and
    comparable governing bodies of enterprises other than the
    Company, in Germany and other countries on December 31, 2003                                         
|                                                                                                                                                                                                 
|Prof. Dr. h.c. mult. Hasso
    Plattner(2)(4)(5)(7)Chairperson
    Chairman of the Supervisory Board                                                                                              |  |                                                                                                                                                                                                                   
|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
    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 Deutschland GmbH, Düsseldorf,
    Germany
|Dietmar Hopp(6)Managing Director, Dietmar Hopp
    Stiftung GmbH,
    Walldorf, Germany                                                                                                           |  |                                                                                                                                                                                                                   
|Bernhard Koller(1)(3)Manager of idea management                                                                                                                                                   |  |                                                                                                                                                                                                                   
|Christiane Kuntz-Mayr(1)(5)(7)Development manager                                                                                                                                                 |  |                                                                                                                                                                                                                   
|Lars Lamadé(1)(6)Human resources consultant                                                                                                                                                       |  |                                                                                                                                                                                                                   
|Dr. Gerhard Maier(1)(2)(6)Development project manager                                                                                                                                             |  |                                                                                                                                                                                                                   

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##### Table of Contents



|                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Dr. h.c. Hartmut Mehdorn(4)Chairman of the Executive Board,
    Deutsche Bahn AG, Berlin, 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, Stinnes AG, Berlin, Germany,
    Supervisory Board, DB Netz AG,
    Frankfurt am Main, 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, Dresdner Bank AG,
    Frankfurt am Main, Germany (from April, 8, 2003)
    Supervisory Board, Bayerische
    Magnetbahnvorbereitungsgesellschaft mbH,
    Munich, Germany
    Advisory Council, Railog GmbH,
    Kriftel, Germany
    Supervisory Board, Projektgesellschaft METRORAPID mbH, Duisburg,
    Germany
    Advisory Council, DB Akademie GmbH,
    Berlin, Germany (from July 2003)
|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
    Software-systemtechnik, Potsdam, Germany                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Dr. Barbara Schennerlein(1)(7)Principle solution consultant                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Stefan Schulz(1)(3)(5)Solution architect                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Dr. Dieter Spöri(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, 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 the Companys General Committee                   

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##### Table of Contents



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 6, 2004, the total annual
remunerations of the Supervisory Board members for the year
ended December 31, 2003, are as follows:

|                                                                                |  |              |       |              |  |         |       |         |  |  |         |  |  |  |       | 
|------------------------------------------------------------------------------- |  | ------------ | ----- | ------------ |  | ------- | ----- | ------- |  |  | ------- |  |  |  | ----- | 
|                                                                                |  |              |       |             
|                                                                                |  | 2003         |       |             
|                                                                                |  |              |       |             
|                                                                                |  | Fixed        |       | Variable     |  |         |       | 2002   
|                                                                                |  | remuneration |       | remuneration |  | Total   |       |        
|                                                                                |  |  (000)      |       |  (000)      |  |  (000) |       |  (000)
|                                                                                |  |              |       |              |  |         |       |        
|Prof. Dr. h.c. mult. Hasso Plattner
    (Chairperson) (Member from May 9, 2003) |  |              | 38.7  |              |  |         | 38.7  |         |  |  | 77.4    |  |  |  | 0.0   | 
|Helga Classen (Deputy chairperson)                                              |  |              | 43.5  |              |  |         | 43.5  |         |  |  | 87.0    |  |  |  | 78.3  | 
|Willi Burbach                                                                   |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Prof. Dr. Wilhelm Haarmann                                                      |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Dietmar Hopp (Chairperson until May 9, 2003)                                    |  |              | 41.1  |              |  |         | 41.1  |         |  |  | 82.2    |  |  |  | 104.4 | 
|Bernhard Koller                                                                 |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Christiane Kuntz-Mayr                                                           |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 34.8  | 
|Klaus-Dieter Laidig (Member up to May 9,
    2003)                              |  |              | 12.1  |              |  |         | 12.1  |         |  |  | 24.2    |  |  |  | 52.2  | 
|Lars Lamadé                                                                     |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 34.8  | 
|Dr. Gerhard Maier                                                               |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Dr. h.c. Hartmut Mehdorn                                                        |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Pekka Ala-Pietilä                                                               |  |              | 25.0  |              |  |         | 25.0  |         |  |  | 50.0    |  |  |  | 30.0  | 
|Prof. Dr. Dr. h.c. mult. August-Wilhelm
    Scheer                              |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 34.8  | 
|Dr. Barbara Schennerlein                                                        |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Stefan Schulz                                                                   |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 34.8  | 
|Alfred Simon (Member up to May 3, 2002)                                         |  |              | 0.0   |              |  |         | 0.0   |         |  |  | 0.0     |  |  |  | 21.8  | 
|Dr. Dieter Spöri                                                                |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|Dr. h.c. Klaus Tschira                                                          |  |              | 29.0  |              |  |         | 29.0  |         |  |  | 58.0    |  |  |  | 52.2  | 
|                                                                                |  |              |       |              |  |         |       |         |  |  |         |  |  |  |       | 
|Total                                                                           |  |              | 508.4 |              |  |         | 508.4 |         |  |  | 1,016.8 |  |  |  | 843.5 | 
|                                                                                |  |              |       |              |  |         |       |         |  |  |         |  |  |  |       | 

The total annual remuneration of the Supervisory
Board for the year ended December 31, 2002 amounted to
 843.5 thousand.
This amount includes
 468.6 thousand
fixed and
 374.9 thousand
variable remuneration.

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
salaries, stock-based awards under SAPs stock-based
compensation plans and certain non-cash benefits for their
services. Details and amounts of the remuneration are determined
by the Supervisory Boards Compensation Committee.

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.

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##### Table of Contents



For the fiscal years 2003 and 2002, the members
of the Executive Board received the following remuneration
(including salaries, cash value of non-cash benefits and
insurance premiums):

|                                                                                             |                               |         |        |         |  |  |       |       | 
|-------------------------------------------------------------------------------------------- | ----------------------------- | ------- | ------ | ------- |  |  | ----- | ----- | 
|                                                                                             |                               | 2003    |        | 2002   
|                                                                                             |                               |  (000) |        |  (000)
|                                                                                             |                               |         |        |        
|Prof. Dr. h.c. mult. Hasso Plattner
    (Co-Chairman and CEO)
    (Member until May 9, 2003) |                               |         | 1,450  |         |  |  | 1,748 |      
|Prof. Dr. Henning Kagermann (CEO)                                                            |                               |         | 3,383  |         |  |  | 1,301 |      
|Shai Agassi (Member from April 17, 2002)                                                     |                               |         | 2,200  |         |  |  | 666   |      
|Léo Apotheker (Member from August 1,
    2002)                                               |                               |         | 2,246  |         |  |  | 379   |      
|Dr. Werner Brandt                                                                            |                               |         | 1,864  |         |  |  | 722   |      
|Prof. Dr. Claus E. Heinrich                                                                  |                               |         | 2,260  |         |  |  | 919   |      
|Gerhard Oswald                                                                               |                               |         | 2,252  |         |  |  | 920   |      
|Dr. Peter Zencke                                                                             |                               |         | 2,271  |         |  |  | 929   |      
|                                                                                             |                               |         |        |         |  |  |       |      
|                                                                                             |                               |         | 17,926 |         |  |  | 7,584 |      
|                                                                                             |                               |         |        |         |  |  |       |      
|                                                                                             | thereof fixed remuneration    |         |        | 3,371   |  |  |       | 3,557 | 
|                                                                                             |                               |         |        |         |  |  |       |      
|                                                                                             | thereof variable remuneration |         |        | 14,555  |  |  |       | 4,027 | 
|                                                                                             |                               |         |        |         |  |  |       |      

The amounts stated for members who joined or left
the Executive Board in the course of 2003 only represent their
remuneration for the period of their nomination.

The difference between the total remuneration for
2002 and 2003 results, among other factors, from a higher
variable remuneration in 2003. The figures are also impacted by
the increase in the number of members from six to eight in 2002
and a decrease in the number of members from eight to seven in
2003.

In addition to the compensation above, Shai
Agassi received in 2003
 860 thousand
(2002:
 7,030 thousand)
in cash which resulted from stock-based compensation entitlement
that he had received as a member of the management of TopTier
Software, Inc. prior to the acquisition of TopTier by SAP. Upon
the acquisition of TopTier in 2001, SAP had agreed to pay out
these entitlements to all former employees and members of
management of TopTier who continue to be actively employed by
SAP after a certain vesting period.

During the fiscal year 2003 the members of the
Executive Board received the following stock options under the
SAP SOP 2002:

|                                  |  |         |         | 
|--------------------------------- |  | ------- | ------- | 
|                                  |  | Stock  
|                                  |  | options
|                                  |  |        
|Prof. Dr. Henning Kagermann (CEO) |  |         | 80,000  | 
|Shai Agassi                       |  |         | 60,000  | 
|Léo Apotheker                     |  |         | 30,000  | 
|Dr. Werner Brandt                 |  |         | 30,000  | 
|Prof. Dr. Claus E. Heinrich       |  |         | 45,000  | 
|Gerhard Oswald                    |  |         | 45,000  | 
|Dr. Peter Zencke                  |  |         | 45,000  | 
|                                  |  |         |         | 
|                                  |  |         | 335,000 | 
|                                  |  |         |         | 

The fair value at the granting date of the stock
options granted to the Executive Board members was
 28.74 per
option. The contractual life of the stock options is five years.

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##### Table of Contents



During the fiscal year 2003, the members of the
Executive Board exercised awards granted under the LTI 2000 Plan
as follows:

|                 |  |               |        |                   |  |               |       |                  |  |  |   |  |  |  |   | 
|---------------- |  | ------------- | ------ | ----------------- |  | ------------- | ----- | ---------------- |  |  | - |  |  |  | - | 
|                 |  |               |        |                  
|                 |  | Stock options |        | Convertible bonds
|                 |  |               |        |                  
|                 |  |               |        | Weighted average  |  |               |       | Weighted average
|                 |  |               |        | exercise price    |  |               |       | exercise price  
|                 |  | Number of     |        | per option        |  | Number of     |       | per bond        
|                 |  | stock options |        | ()               |  | stock options |       | ()             
|                 |  |               |        |                   |  |               |       |                 
|Gerhard Oswald   |  |               | 22,626 |                   |  |               | 77.84 |                  |  |  |  |  |  |  |  | 
|Dr. Peter Zencke |  |               | 15,851 |                   |  |               | 78.59 |                  |  |  |  |  |  |  |  | 
|                 |  |               |        |                   |  |               |       |                  |  |  |   |  |  |  |   | 
|                 |  |               | 38,477 |                   |  |               | 78.15 |                  |  |  |  |  |  |  |  | 
|                 |  |               |        |                   |  |               |       |                  |  |  |   |  |  |  |   | 

As of December 31, 2003, 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, 2003 |  | December 31, 2003     |        | Total    
|                                                                                         |  |           |        |                   |  |                       |        |          
|                                                                                         |  |           |        |                   |  | Remaining             |        |           |  | Remaining   |      |           |  | Remaining  
|                                                                                         |  |           |        |                   |  | contractual           |        |           |  | contractual |      |           |  | contractual
|                                                                                         |  | Exercise  |        | Number of         |  | life                  |        | Number of |  | life        |      | Number of |  | life       
|                                                                                         |  | price () |        | options           |  | (in years)            |        | options   |  | (in years)  |      | options   |  | (in years) 
|                                                                                         |  |           |        |                   |  |                       |        |           |  |             |      |           |  |            
|Prof. Dr. h.c. mult. Hasso Plattner
    (Co-Chairman and CEO) (Member until May 9, 2003) |  |           |       |                   |  |                       |       |           |  |             |     |           |  |             |        |  |  |  |     |  |  |  |        |  |  |  |      | 
|Prof. Dr. Henning Kagermann
    (CEO)                                                    |  |           | 67.33  |                   |  |                       | 18,501 |           |  |             | 6.14 |           |  |             | 9,531   |  |  |  | 6.14 |  |  |  | 28,032  |  |  |  | 6.14 | 
|                                                                                         |  |           | 81.82  |                   |  |                       | 12,993 |           |  |             | 7.14 |           |  |             | 26,382  |  |  |  | 7.14 |  |  |  | 39,375  |  |  |  | 7.14 | 
|Shai Agassi                                                                              |  |           |       |                   |  |                       |       |           |  |             |     |           |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Léo Apotheker                                                                            |  |           | 101.08 |                   |  |                       |       |           |  |             |     |           |  |             | 21,875  |  |  |  | 8.14 |  |  |  | 21,875  |  |  |  | 8.14 | 
|Dr. Werner Brandt                                                                        |  |           | 81.82  |                   |  |                       | 2,062  |           |  |             | 7.14 |           |  |             | 4,188   |  |  |  | 7.14 |  |  |  | 6,250   |  |  |  | 7.14 | 
|Prof. Dr. Claus E. Heinrich                                                              |  |           | 67.33  |                   |  |                       | 13,551 |           |  |             | 6.14 |           |  |             | 6,981   |  |  |  | 6.14 |  |  |  | 20,532  |  |  |  | 6.14 | 
|                                                                                         |  |           | 81.82  |                   |  |                       | 9,075  |           |  |             | 7.14 |           |  |             | 18,425  |  |  |  | 7.14 |  |  |  | 27,500  |  |  |  | 7.14 | 
|Gerhard Oswald                                                                           |  |           | 67.33  |                   |  |                       |       |           |  |             |     |           |  |             | 6,981   |  |  |  | 6.14 |  |  |  | 6,981   |  |  |  | 6.14 | 
|                                                                                         |  |           | 81.82  |                   |  |                       |       |           |  |             |     |           |  |             | 18,425  |  |  |  | 7.14 |  |  |  | 18,425  |  |  |  | 7.14 | 
|                                                                                         |  |           | 101.08 |                   |  |                       |       |           |  |             |     |           |  |             | 31,250  |  |  |  | 8.14 |  |  |  | 31,250  |  |  |  | 8.14 | 
|Dr. Peter Zencke                                                                         |  |           | 67.33  |                   |  |                       |       |           |  |             |     |           |  |             | 6,981   |  |  |  | 6.14 |  |  |  | 6,981   |  |  |  | 6.14 | 
|                                                                                         |  |           | 81.82  |                   |  |                       |       |           |  |             |     |           |  |             | 18,425  |  |  |  | 7.14 |  |  |  | 18,425  |  |  |  | 7.14 | 
|                                                                                         |  |           |        |                   |  |                       |        |           |  |             |      |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|                                                                                         |  |           |        |                   |  |                       | 56,182 |           |  |             |      |           |  |             | 169,444 |  |  |  |      |  |  |  | 225,626 |  |  |  |      | 
|                                                                                         |  |           |        |                   |  |                       |        |           |  |             |      |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 

The strike prices for stock options listed above
reflect the prices that an Executive Board member would have to
pay for one SAP common share upon exercising the stock option on
December 31, 2003. The strike prices vary based upon the
outperformance of the SAP common share price appreciation versus
the appreciation of the Goldman Sachs Software Index.

F-63



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##### Table of Contents



As of December 31, 2003, 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, 2003 |  | December 31, 2003     |         | Total      
|                                                                                             |  |           |        |                   |  |                       |         |            
|                                                                                             |  |           |        | Number            |  | Remaining             |         | Number      |  | Remaining   |      | Number      |  | Remaining  
|                                                                                             |  |           |        | of                |  | contractual           |         | of          |  | contractual |      | of          |  | contractual
|                                                                                             |  | Exercise  |        | convertible       |  | life                  |         | convertible |  | life        |      | convertible |  | life       
|                                                                                             |  | price () |        | bonds             |  | (in years)            |         | bonds       |  | (in years)  |      | bonds       |  | (in years) 
|                                                                                             |  |           |        |                   |  |                       |         |             |  |             |      |             |  |            
|Prof. Dr. h.c. mult. Hasso Plattner
    (Co-Chairman and CEO)
    (Member until May 9, 2003) |  |           |       |                   |  |                       |        |             |  |             |     |             |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Prof. Dr. Henning Kagermann
    (CEO)                                                        |  |           | 290.32 |                   |  |                       | 14,800  |             |  |             | 6.14 |             |  |             | 7,625   |  |  |  | 6.14 |  |  |  | 22,425  |  |  |  | 6.14 | 
|                                                                                             |  |           | 191.25 |                   |  |                       | 10,395  |             |  |             | 7.14 |             |  |             | 21,105  |  |  |  | 7.14 |  |  |  | 31,500  |  |  |  | 7.14 | 
|                                                                                             |  |           | 151.50 |                   |  |                       |        |             |  |             |     |             |  |             | 90,000  |  |  |  | 8.14 |  |  |  | 90,000  |  |  |  | 8.14 | 
|Shai Agassi                                                                                  |  |           |       |                   |  |                       |        |             |  |             |     |             |  |             |        |  |  |  |     |  |  |  |        |  |  |  |     | 
|Léo Apotheker                                                                                |  |           | 334.67 |                   |  |                       | 15,741  |             |  |             | 6.14 |             |  |             | 8,109   |  |  |  | 6.14 |  |  |  | 23,850  |  |  |  | 6.14 | 
|                                                                                             |  |           | 191.25 |                   |  |                       | 9,900   |             |  |             | 7.14 |             |  |             | 20,100  |  |  |  | 7.14 |  |  |  | 30,000  |  |  |  | 7.14 | 
|                                                                                             |  |           | 151.50 |                   |  |                       |        |             |  |             |     |             |  |             | 17,500  |  |  |  | 8.14 |  |  |  | 17,500  |  |  |  | 8.14 | 
|Dr. Werner Brandt                                                                            |  |           | 191.25 |                   |  |                       | 1,650   |             |  |             | 7.14 |             |  |             | 3,350   |  |  |  | 7.14 |  |  |  | 5,000   |  |  |  | 7.14 | 
|                                                                                             |  |           | 151.50 |                   |  |                       |        |             |  |             |     |             |  |             | 30,000  |  |  |  | 8.14 |  |  |  | 30,000  |  |  |  | 8.14 | 
|Prof. Dr. Claus E. Heinrich                                                                  |  |           | 290.32 |                   |  |                       | 10,840  |             |  |             | 6.14 |             |  |             | 5,585   |  |  |  | 6.14 |  |  |  | 16,425  |  |  |  | 6.14 | 
|                                                                                             |  |           | 191.25 |                   |  |                       | 7,260   |             |  |             | 7.14 |             |  |             | 14,740  |  |  |  | 7.14 |  |  |  | 22,000  |  |  |  | 7.14 | 
|                                                                                             |  |           | 151.50 |                   |  |                       |        |             |  |             |     |             |  |             | 50,000  |  |  |  | 8.14 |  |  |  | 50,000  |  |  |  | 8.14 | 
|Gerhard Oswald                                                                               |  |           | 290.32 |                   |  |                       | 10,840  |             |  |             | 6.14 |             |  |             | 5,585   |  |  |  | 6.14 |  |  |  | 16,425  |  |  |  | 6.14 | 
|                                                                                             |  |           | 191.25 |                   |  |                       | 7,260   |             |  |             | 7.14 |             |  |             | 14,740  |  |  |  | 7.14 |  |  |  | 22,000  |  |  |  | 7.14 | 
|                                                                                             |  |           | 151.50 |                   |  |                       |        |             |  |             |     |             |  |             | 25,000  |  |  |  | 8.14 |  |  |  | 25,000  |  |  |  | 8.14 | 
|Dr. Peter Zencke                                                                             |  |           | 290.32 |                   |  |                       | 10,840  |             |  |             | 6.14 |             |  |             | 5,585   |  |  |  | 6.14 |  |  |  | 16,425  |  |  |  | 6.14 | 
|                                                                                             |  |           | 191.25 |                   |  |                       | 7,260   |             |  |             | 7.14 |             |  |             | 14,740  |  |  |  | 7.14 |  |  |  | 22,000  |  |  |  | 7.14 | 
|                                                                                             |  |           | 151.50 |                   |  |                       |        |             |  |             |     |             |  |             | 50,000  |  |  |  | 8.14 |  |  |  | 50,000  |  |  |  | 8.14 | 
|                                                                                             |  |           |        |                   |  |                       |         |             |  |             |      |             |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|                                                                                             |  |           |        |                   |  |                       | 106,786 |             |  |             |      |             |  |             | 383,764 |  |  |  |      |  |  |  | 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 common share upon conversion of the
bond. The strike prices are fixed and equal the market price of
a common share as quoted on the day immediately preceding the
granting of the convertible bond.

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As of December 31, 2003, the members of the
Executive Board held the following stock options granted under
the SAP SOP 2002:

|                                                                                             |  |           |       |                   |  |                       |   |           |  |             |   |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|-------------------------------------------------------------------------------------------- |  | --------- | ----- | ----------------- |  | --------------------- | - | --------- |  | ----------- | - | --------- |  | ----------- | ------- |  |  |  | ---- |  |  |  | ------- |  |  |  | ---- | 
|                                                                                             |  |           |       |                   |  |                       |   |           |  |            
|                                                                                             |  |           |       | Exercisable as of |  | Not exercisable as of |   |          
|                                                                                             |  |           |       | December 31, 2003 |  | December 31, 2003     |   | Total    
|                                                                                             |  |           |       |                   |  |                       |   |          
|                                                                                             |  |           |       |                   |  | Remaining             |   |           |  | Remaining   |   |           |  | Remaining  
|                                                                                             |  |           |       |                   |  | contractual           |   |           |  | contractual |   |           |  | contractual
|                                                                                             |  | Exercise  |       | Number of         |  | life                  |   | Number of |  | life        |   | Number of |  | life       
|                                                                                             |  | price () |       | options           |  | (in years)            |   | options   |  | (in years)  |   | options   |  | (in years) 
|                                                                                             |  |           |       |                   |  |                       |   |           |  |             |   |           |  |            
|Prof. Dr. h.c. mult. Hasso Plattner
    (Co-Chairman and CEO)
    (Member until May 9, 2003) |  |           |      |                   |  |                       |  |           |  |             |  |           |  |             |        |  |  |  |     |  |  |  |        |  |  |  |      | 
|Prof. Dr. Henning Kagermann
    (CEO)                                                        |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 80,000  |  |  |  | 4.16 |  |  |  | 80,000  |  |  |  | 4.16 | 
|Shai Agassi                                                                                  |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 30,000  |  |  |  | 4.16 |  |  |  | 30,000  |  |  |  | 4.16 | 
|                                                                                             |  |           | 99.13 |                   |  |                       |  |           |  |             |  |           |  |             | 30,000  |  |  |  | 4.67 |  |  |  | 30,000  |  |  |  | 4.67 | 
|Léo Apotheker                                                                                |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 30,000  |  |  |  | 4.16 |  |  |  | 30,000  |  |  |  | 4.16 | 
|Dr. Werner Brandt                                                                            |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 30,000  |  |  |  | 4.16 |  |  |  | 30,000  |  |  |  | 4.16 | 
|Prof. Dr. Claus E. Heinrich                                                                  |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 45,000  |  |  |  | 4.16 |  |  |  | 45,000  |  |  |  | 4.16 | 
|Gerhard Oswald                                                                               |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 45,000  |  |  |  | 4.16 |  |  |  | 45,000  |  |  |  | 4.16 | 
|Dr. Peter Zencke                                                                             |  |           | 90.37 |                   |  |                       |  |           |  |             |  |           |  |             | 45,000  |  |  |  | 4.16 |  |  |  | 45,000  |  |  |  | 4.16 | 
|                                                                                             |  |           |       |                   |  |                       |   |           |  |             |   |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 
|                                                                                             |  |           |       |                   |  |                       |  |           |  |             |   |           |  |             | 335,000 |  |  |  |      |  |  |  | 335,000 |  |  |  |      | 
|                                                                                             |  |           |       |                   |  |                       |   |           |  |             |   |           |  |             |         |  |  |  |      |  |  |  |         |  |  |  |      | 

The exercise price for one common SAP AG share
shall be 110% of the base price. The base price for any stock
option shall be the arithmetic mean of the SAP share closing
auction price in the Frankfurt stock exchange Xetra trading
system (or its successor system) over the five business days
immediately before the Issue Date of that stock option. These
provisions notwithstanding, the exercise price shall be not less
than the closing auction price on the day before the Issue Date.

During 2003 and as of December 31, 2003 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, 2003 for former Executive Board members was
 1,662
thousand (2002:
 1,507
thousand).

Shareholdings of members of the Supervisory
Board and Executive Board

The number of SAP AG shares owned by Hasso
Plattner (Chairman of the Supervisory Board), Dietmar Hopp
(Member of the Supervisory 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.

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In 2003, 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):

|                  |  |                                                              |                    |             |  |           |                                |           |  |  |         |  |  |  |        | 
|----------------- |  | ------------------------------------------------------------ | ------------------ | ----------- |  | --------- | ------------------------------ | --------- |  |  | ------- |  |  |  | ------ | 
|                  |  |                                                             
|                  |  | Transactions in SAP shares (WKN 716460/ISIN DE 0007 164 600)
|                  |  |                                                             
|                  |  |                                                              |                    | Number      |  | Price    
|Notifying party   |  | Transaction date                                             |                    | Transaction |  | of shares |                                | per share
|                  |  |                                                              |                    |             |  |           |                                |          
|                  |  |                                                              |                    |             |  |           |                                | ()      
|Helga Classen     |  |                                                              | December 2, 2003   |             |  |           | Sale                           |           |  |  | 440     |  |  |  | 130.50 | 
|                  |  |                                                              | December 2, 2003   |             |  |           | Exercise of subscription right |           |  |  | 250     |  |  |  | 51.62  | 
|Daniel Hopp       |  |                                                              | September 11, 2003 |             |  |           | Sale                           |           |  |  | 17,950  |  |  |  | 117.75 | 
|                  |  |                                                              | September 12, 2003 |             |  |           | Sale                           |           |  |  | 34,897  |  |  |  | 117.80 | 
|                  |  |                                                              | October 16, 2003   |             |  |           | Sale                           |           |  |  | 150,000 |  |  |  | 126.11 | 
|                  |  |                                                              | October 17, 2003   |             |  |           | Sale                           |           |  |  | 67,500  |  |  |  | 126.24 | 
|                  |  |                                                              | October 21, 2003   |             |  |           | Sale                           |           |  |  | 57,250  |  |  |  | 123.49 | 
|                  |  |                                                              | October 30, 2003   |             |  |           | Sale                           |           |  |  | 62,500  |  |  |  | 124.86 | 
|                  |  |                                                              | October 31, 2003   |             |  |           | Sale                           |           |  |  | 109,903 |  |  |  | 123.57 | 
|Oliver Hopp       |  |                                                              | September 11, 2003 |             |  |           | Sale                           |           |  |  | 17,950  |  |  |  | 117.75 | 
|                  |  |                                                              | September 12, 2003 |             |  |           | Sale                           |           |  |  | 34,897  |  |  |  | 117.80 | 
|                  |  |                                                              | October 16, 2003   |             |  |           | Sale                           |           |  |  | 150,000 |  |  |  | 126.11 | 
|                  |  |                                                              | October 17, 2003   |             |  |           | Sale                           |           |  |  | 67,500  |  |  |  | 126.24 | 
|                  |  |                                                              | October 21, 2003   |             |  |           | Sale                           |           |  |  | 57,250  |  |  |  | 123.49 | 
|                  |  |                                                              | October 30, 2003   |             |  |           | Sale                           |           |  |  | 62,500  |  |  |  | 124.86 | 
|                  |  |                                                              | October 31, 2003   |             |  |           | Sale                           |           |  |  | 109,903 |  |  |  | 123.57 | 
|Gerhard Oswald    |  |                                                              | September 10, 2003 |             |  |           | Exercise of subscription right |           |  |  | 9,075   |  |  |  | 87.07  | 
|                  |  |                                                              | September 10, 2003 |             |  |           | Sale                           |           |  |  | 22,626  |  |  |  | 117.70 | 
|                  |  |                                                              | September 10, 2003 |             |  |           | Exercise of subscription right |           |  |  | 13,551  |  |  |  | 71.65  | 
|Kristina Plattner |  |                                                              | February 7, 2003   |             |  |           | Purchase                       |           |  |  | 20,000  |  |  |  | 86.10  | 
|                  |  |                                                              | February 10, 2003  |             |  |           | Purchase                       |           |  |  | 20,000  |  |  |  | 84.71  | 
|                  |  |                                                              | February 11, 2003  |             |  |           | Purchase                       |           |  |  | 8,000   |  |  |  | 86.43  | 
|                  |  |                                                              | February 12, 2003  |             |  |           | Purchase                       |           |  |  | 1,250   |  |  |  | 86.62  | 
|                  |  |                                                              | February 13, 2003  |             |  |           | Purchase                       |           |  |  | 15,750  |  |  |  | 86.12  | 
|Stefanie Plattner |  |                                                              | February 7, 2003   |             |  |           | Purchase                       |           |  |  | 20,000  |  |  |  | 86.10  | 
|                  |  |                                                              | February 10, 2003  |             |  |           | Purchase                       |           |  |  | 20,000  |  |  |  | 84.71  | 
|                  |  |                                                              | February 11, 2003  |             |  |           | Purchase                       |           |  |  | 8,000   |  |  |  | 86.43  | 
|                  |  |                                                              | February 12, 2003  |             |  |           | Purchase                       |           |  |  | 1,250   |  |  |  | 86.62  | 
|                  |  |                                                              | February 13, 2003  |             |  |           | Purchase                       |           |  |  | 15,750  |  |  |  | 86.12  | 
|Dr. Peter Zencke  |  |                                                              | October 30, 2003   |             |  |           | Sale                           |           |  |  | 15,851  |  |  |  | 125.34 | 
|                  |  |                                                              | October 30, 2003   |             |  |           | Exercise of subscription right |           |  |  | 6,776   |  |  |  | 69.97  | 
|                  |  |                                                              | October 30, 2003   |             |  |           | Exercise of subscription right |           |  |  | 9,075   |  |  |  | 85.02  | 

(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.

August-Wilhelm Scheer is the major shareholder
and head of the supervisory board of IDS Scheer AG, a German
software and IT services company. Until early 2004 SAP owned a
minority stake in IDS Scheer (approximately 2.5% of IDS
Scheers shares outstanding as of December 31, 2003).
SAP sold this stake in February 2004. IDS Scheer and SAP have
relationships in the ordinary course of business and at
arms length, whereby mainly IDS Scheer provides services
for SAP. In October 2003 SAP and IDS Scheer entered into a
strategic relationship to jointly develop and market a software
solution for Business Process Management (BPM).

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As part of this strategic relationship SAP both
acquired and licensed certain software related intellectual
property rights from IDS Scheer.


In February 2002, SAP started negotiations with
DCW Software AG & Co. KG (DCW) with regard to a
possible investment of SAP in DCW. SAP acquired a controlling
interest in DCW in November 2003 and increased this stake to
100% in January 2004. At the time of the initial negotiations
DCW had a credit facility agreement with Fancourt Flugcharter
GmbH & Co KG, a company wholly owned by Hasso Plattner.
There were no credit amounts drawn by DCW under this facility
when SAP started the investment negotiations. The credit
facility agreement was terminated without further drawings in
May 2003.

After his move from SAPs Executive Board to
SAPs Supervisory Board, Hasso Plattner entered into a
contract with SAP AG under which he provides consulting services
for SAP. The contract is expenses-only. Therefore SAP only
incurred expenses for reimbursements of out-of-pocket expenses
incurred by Hasso Plattner unter this contract.

Wilhelm Haarmann is a partner in Haarmann,
Hemmelrath & Partner (HHP), which infrequently
serves as special German tax counsel, counsels SAP with regard
to other legal matters, and provides expert valuation services
for SAP. The fees paid for these services have historically been
immaterial, both in relation to HHPs total revenue and in
relation to SAPs total expenses for such services.

At no point in the years ended December 31,
2003, 2002 the Company held Note receivables from any member of
the Executive Board and Supervisory Board. During the years
ended December 31, 2003, 2002 and 2001, there were no
significant transactions between the Company and the major
shareholders as outlined in Note 23.

In 2000, SAP commenced a strategic alliance
relationship with Commerce One to jointly develop, market and
sell Internet-based software solutions. In connection with this
relationship, SAP in its fiscal year 2000 acquired common stock
of Commerce One and in 2001 increased its equity investment in
the common stock of Commerce One to the point of exercising
significant influence. As part of the acquisition arrangement
SAP agreed to certain limitations that restrict SAPs
ability to transfer its common shares of Commerce One, to
increase its ownership interest and to engage in certain
take-over transactions involving Commerce One without approved
by Commerce Ones Board of Directors. In 2002, SAP named a
non-voting observer to attend Commerce Ones Board of
Directors meetings. The cooperation agreements between the two
companies were amended several times between 2001 and 2003. In
2003, SAP effectively ceased all transactions under the
cooperation arrangements and ceased the jointly developed
products or replaced such products with SAP products. As
discussed in Note 4, the carrying value of SAPs
investment in Commerce One was reduced to zero as of
December 31, 2002 and remained at zero throughout 2003. For
the year ended December 31, 2003, transactions with
Commerce One accounted for less than 1% of the Companys
total revenues and cost of revenues. For the year ended
December 31, 2002 and 2001, transactions with Commerce One
accounted for approximately 1% of the Companys total
revenues and less than 1% of the Companys cost of
revenues. Transactions involving Commerce One are expected to
continue to be immaterial in periods beyond 2003.

(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 Corporation 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 2003 and 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.

(38)     Subsequent
Event

SAP Systems Integration AG, Dresden (SAP
SI) is currently a majority-owned (70.3%) consolidated
subsidiary of the Company. On March 23, 2004, the Company
announced its intention to bid for all remaining

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##### Table of Contents



outstanding shares (approximately 10,727,521) of
SAP SI, which are publicly traded, for
20.40 per share.
The anticipated purchase price for those shares together with
anticipated costs associated with the transaction (approximately
230 million)
is expected to be paid in cash. The offer is expected to be
completed in the first half of 2004, and will be accounted for
as the acquisition of minority interest. Accordingly, the
purchase price will be allocated to the fair value of the
additional interest in the net assets of SAP SI acquired,
with the excess, if any, allocated to goodwill. The Company
believes the acquisition of the additional shares of SAP SI
will allow the Company to strengthen its global capabilities for
IT-strategy consulting offerings.


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Walldorf, February 27, 2004


SAP Aktiengesellschaft


Systeme, Anwendungen, Produkte in der
Datenverarbeitung

Walldorf, Baden


Executive Board

Kagermann     Agassi     Apotheker     Brandt     Heinrich     Oswald     Zencke


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##### Table of Contents



SCHEDULE II

Valuation and Qualifying Accounts and
Reserves

Years ended December 31, 2003, 2002 and
2001


 (000)


|                                  |  |              |        |             |  |            |       |               |  |              |         |   |  |  |        |   |  |  |        | 
|--------------------------------- |  | ------------ | ------ | ----------- |  | ---------- | ----- | ------------- |  | ------------ | ------- | - |  |  | ------ | - |  |  | ------ | 
|                                  |  |              |        |             |  |            |       | Exchange Rate |  |             
|                                  |  | Beginning    |        | Charged     |  |            |       | Effects and   |  | Ending      
|Description                       |  | Balance 2003 |        | to Earnings |  | Write-offs |       | Other Changes |  | Balance 2003
|                                  |  |              |        |             |  |            |       |               |  |             
|Allowances for doubtful accounts: |  |              | 92,511 |             |  |            | 6,969 | (*)           |  |              | (22,939 | ) |  |  | (5,530 | ) |  |  | 71,011 | 
|                                  |  |              |        |             |  |            |       |               |  |              |         |   |  |  |        |   |  |  |        | 

|                                  |  |              |         |             |  |            |       |               |  |              |         |   |  |  |        |   |  |  |        | 
|--------------------------------- |  | ------------ | ------- | ----------- |  | ---------- | ----- | ------------- |  | ------------ | ------- | - |  |  | ------ | - |  |  | ------ | 
|                                  |  |              |         |             |  |            |       | Exchange Rate |  |             
|                                  |  | Beginning    |         | Charged     |  |            |       | Effects and   |  | Ending      
|Description                       |  | Balance 2002 |         | to Earnings |  | Write-offs |       | Other Changes |  | Balance 2002
|                                  |  |              |         |             |  |            |       |               |  |             
|Allowances for doubtful accounts: |  |              | 110,269 |             |  |            | 7,621 | (*)           |  |              | (21,222 | ) |  |  | (4,157 | ) |  |  | 92,511 | 
|                                  |  |              |         |             |  |            |       |               |  |              |         |   |  |  |        |   |  |  |        | 

|                                  |  |              |        |             |  |            |        |               |  |         |         |   |  |  |     |  |  |  |         | 
|--------------------------------- |  | ------------ | ------ | ----------- |  | ---------- | ------ | ------------- |  | ------- | ------- | - |  |  | --- |  |  |  | ------- | 
|                                  |  |              |        |             |  |            |        | Exchange Rate |  |        
|                                  |  | Beginning    |        | Charged     |  |            |        | Effects and   |  | Ending 
|Description                       |  | Balance 2001 |        | to Earnings |  | Write-offs |        | Other Changes |  | Balance
|                                  |  |              |        |             |  |            |        |               |  |        
|Allowances for doubtful accounts: |  |              | 76,223 |             |  |            | 52,728 | (*)           |  |         | (19,184 | ) |  |  | 502 |  |  |  | 110,269 | 
|                                  |  |              |        |             |  |            |        |               |  |         |         |   |  |  |     |  |  |  |         | 






|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | includes the provision of bad debt expense based
    on aging charged (credited) to other operating income/(expense)
    of
     5,368 thousand,
     5,288 thousand,
    and
     (14,706) thousand
    in 2003, 2002 and 2001 respectively.

S-1