##### Table of Contents

 

 

**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**
 
**

**FORM 20-F**

 

**OR**

 

**For the fiscal year ended December 31, 2012**

**OR**

 

**OR**

 

**Date of event requiring this shell company report**

**For the transition period from          to             **

**Commission file number: 1-14251**

**SAP AG**

*(Exact name of Registrant as specified in its charter)*

**SAP CORPORATION**

*(Translation of Registrant’s name into English)*

**Federal Republic ofGermany**

*(Jurisdiction of incorporation or organization)*

**Dietmar-Hopp-Allee 16**

**69190 Walldorf**

**Federal Republic of Germany**

*(Address of principal executive offices)*

**Wendy Boufford**

**c/o SAP Labs**

**3410 Hillview Avenue, Palo Alto, CA, 94304, United States of America**

**650-849-4000 (Tel)**

**650-849-2650 (Fax)**

*(Name, Telephone, Email and/or Facsimile number andAddress of Company Contact Person)*

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

 

**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 as of the close of the periodcovered by the annual report: 

**Ordinary Shares, without nominal value: 1,228,504,232 (as of December 31, 2012)********

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes  þ    No   ̈

If this report is an annual or transition report, indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 

Yes   ̈    No  þ

Note – Checking the box above will not relieve any registrantrequired to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. 

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 (orfor 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  þ    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) 

Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financialstatements included in this filing: 

U.S. GAAP   ̈                International Financial Reporting Standards as issued by the International Accounting StandardsBoard  þ                 Other   ̈

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item theregistrant has elected to follow. 

Item 17   ̈    Item 18   ̈

If this is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes   ̈    No  þ

 

 

Table of Contents
**TABLE OF CONTENTS**

 

INTRODUCTION
  1  
FORWARD-LOOKING STATEMENTS
  1  
MEASURES CITED IN THIS REPORT
  2  
PART I
  10  
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  10  
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  10  
ITEM 3. KEY INFORMATION
  10  
Selected Financial Data
  10  
Exchange Rates
  12  
Dividends
  12  
Risk Factors
  13  
ITEM 4. INFORMATION ABOUT SAP
  25  
Vision, Mission, and Strategy
  26  
Business Activity and Organization
  27  
Portfolio of Products, Solutions, and Services
  28  
Sales, Marketing, and Distribution
  34  
Research and Development
  35  
Partner Ecosystem
  38  
Acquisitions
  39  
Energy and Emissions
  40  
Seasonality
  41  
Intellectual Property, Proprietary Rights and Licenses
  42  
Description of Property
  42  
ITEM 4A. UNRESOLVED STAFF COMMENTS
  43  
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  43  
Overview
  43  
Economic Conditions
  44  
Outlook for 2012
  45  
Foreign Currency Exchange Rate Exposure
  63  
Outlook
  63  
Liquidity and Capital Resources
  68  
Off-Balance Sheet Arrangements
  72  
Contractual Obligations
  73  
Research and Development
  73  
Critical Accounting Estimates
  73  
New Accounting Standards Not Yet Adopted
  74  
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
  75  
Supervisory Board
  75  
Executive Board
  76  
Compensation Report
  77  
Employees
  93  
Share Ownership
  94  
Share-Based Compensation Plans
  94  
ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS
  95  
Major Shareholders
  95  
Related-Party Transactions
  96  
ITEM 8. FINANCIAL INFORMATION
  96  
Consolidated Financial Statements and Financial Statement Schedule
  96  
Other Financial Information
  96  
 
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ITEM 9. THE OFFER AND LISTING
  96  
General
  96  
Trading on the Frankfurt Stock Exchange and the NYSE
  97  
ITEM 10. ADDITIONAL INFORMATION
  98  
Articles of Incorporation
  98  
Corporate Governance
  98  
Change in Control
  102  
Change in Share Capital
  103  
Rights Accompanying Our Shares
  103  
Taxation
  104  
Material Contracts
  109  
Documents on Display
  110  
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  110  
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  110  
American Depositary Shares
  110  
PART II
  112  
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  112  
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS
  112  
ITEM 15. CONTROLS AND PROCEDURES
  112  
Evaluation of Disclosure Controls and Procedures
  112  
Management’s Annual Report on Internal Control Over Financial Reporting
  112  
Changes in Internal Control Over Financial Reporting
  112  
ITEM 16. [RESERVED]
  112  
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  112  
ITEM 16B. CODE OF ETHICS
  113  
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  113  
Audit Fees, Audit Related Fees, Tax Fees and All Other Fees
  113  
Audit Committee’s Pre-Approval Policies and Procedures
  113  
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  114  
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  115  
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
  115  
ITEM 16G. DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES
  115  
Introduction
  115  
Legal Framework
  116  
Significant Differences
  116  
German Stock Corporations are Required to have a Two-Tier Board System
  116  
Director Independence Rules
  116  
Audit Committee Independence
  117  
Rules on Non-Management Board Meetings are Different
  117  
Rules on Establishing Committees Differ
  117  
Rules on Shareholders’ Compulsory Approval are Different
  118  
Specific Principles of Corporate Governance
  118  
Specific Code of Business Conduct
  118  
PART III
  119  
ITEM 17. FINANCIAL STATEMENTS
  119  
ITEM 18. FINANCIAL STATEMENTS
  119  
ITEM 19. EXHIBITS
  119  
Signatures
  121  
Index to the Consolidated Financial Statements
  F-1  
Report of the Independent Registered Public Accounting Firm
  F-2  
Consolidated Financial Statements
  F-3  
 
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**INTRODUCTION**

SAP AG is a German stock corporation (Aktiengesellschaft) and is referred to in this report, together with its subsidiaries, as SAP, or as “Company,” “Group,” “we,”“our,” or “us.” Our Consolidated Financial Statements included in “Item 18. Financial Statements” in this report have been prepared in accordance with International Financial Reporting Standards as issued by theInternational Accounting Standards Board, referred to as IFRS throughout this report. 

In this report: (i) references to “US$,”“$,” or “dollars” are to U.S. dollars; (ii) references to “€” or “euro” are to the euro. Our financial statements are denominated in euros, which is the currency of our home country, Germany. Certainamounts that appear in this report may not add up because of differences due to rounding. 

Unless otherwise specified herein, euro financialdata have been converted into dollars 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”) onDecember 31, 2012, which was US$1.3186 per €1.00. No representation is made that such euro amounts actually represent such dollar amounts or that such euro amounts could have been or can be converted into dollars at that or any otherexchange rate on such date or on any other date. The rate used for the convenience translations also differs from the currency exchange rates used for the preparation of the Consolidated Financial Statements. This convenience translation is not arequirement under IFRS and, accordingly, our independent registered public accounting firm has not audited these US$ amounts. For information regarding recent rates of exchange between euro and dollars, see “Item 3. Key Information –Exchange Rates.” On March 7, 2013, the Noon Buying Rate for converting euro to dollars was US$1.3098 per €1.00. 

Unless thecontext otherwise requires, references in this report to ordinary shares are to SAP AG’s ordinary shares, without nominal value. References in this report to “ADRs” are to SAP AG’s American Depositary Receipts, each representingone SAP ordinary share. References in this report to “ADSs” are to SAP AG’s American Depositary Shares, which are the deposited securities evidenced by the ADRs. 

SAP, R/3, ABAP, BAPI, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP BusinessObjects

Explorer, StreamWork, SAP HANA, the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, Sybase, Adaptive Server, Adaptive Server Enterprise,iAnywhere, Sybase 365, SQL Anywhere, Crossgate, B2B 360°, B2B 360° Services, m@gic EDDY, Ariba, Quadrem, b-process, Ariba Discovery, SuccessFactors, Execution is the Difference, BizX Mobile Touchbase, It’s time to love work again, Jamand BadAss SaaS and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany or an SAP affiliate company. 

Throughout this report, whenever a reference is made to our website, such reference does not incorporate by reference into this report the informationcontained on our website. 

We intend to make this report and other periodic reports publicly available on our Web site (www.sap.com) withoutcharge immediately following our filing with the U.S. Securities and Exchange Commission (SEC). We assume no obligation to update or revise any part of this report, whether as a result of new information, future events or otherwise, unless we arerequired to do so by law. 

**FORWARD-LOOKING STATEMENTS**

This report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using informationcurrently available to them. Any statements contained in this report 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 statementson our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks. A broad range of uncertainties and risks, many of whichare beyond our control, could cause our actual results and performance to differ materially from any projections expressed in or implied by our forward-looking statements. The uncertainties and risks include, but are not limited to: 

 
• 
Uncertainty in the global economy, financial markets, and in political conditions could have a negative impact on our business, financial position,profit, and cash flows and put pressure on our operating profit. 
 
 
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Third parties have claimed, and might claim in the future, that we infringe their intellectual property rights, which could lead to damages beingawarded against us and limit our ability to use certain technologies in the future. 

 
• 
There is a risk that undetected security vulnerabilities shipped and deployed within our software products could cause customer damage.

 
• 
Established customers might not buy additional software products, renew maintenance agreements, or purchase additional professional services, or theymight switch to other products or service offerings (including competitor products). 

We describe these and other risks anduncertainties in the Risk Factors section. 

If one or more of these uncertainties or risks materializes, or if management’s underlyingassumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information. 

The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,”“estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “project,” “predict,” “seek,”“should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those madein the Operating Results section, our quantitative and qualitative disclosures about market risk pursuant to the International Financial Reporting Standards (IFRS), namely IFRS 7 and related statements in our Notes to the Consolidated FinancialStatements, the Risk Report, our outlook guidance, and other forward-looking information appearing in other parts of this report. To fully consider the factors that could affect our future financial results, both our Management Report and thisreport should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date specified orthe date of this report. Except where legally required, we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report,future events, or otherwise unless we are required to do so by law.

This report includes statistical data about the IT industry and global economic trends that comes frominformation published by sources including International Data Corporation (IDC), a provider of market information and advisory services for the information technology, telecommunications, and consumer technology markets; the European Central Bank(ECB); and the International Monetary Fund (IMF). This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC,ECB, IMF, or other similar sources that is contained in this report. In addition, although we believe that data from these sources is generally reliable, this type of data is imprecise. We caution readers not to place undue reliance on this data.

**MEASURES CITED IN THIS REPORT**

We use various performance measures to help manage our performance with regard to our primary financial goals, which are growth and profitability, and our primary non-financial goals, which are customersatisfaction and employee engagement. 

**Measures We Use to Manage Our Financial Performance**

***Revised Software and Software-Related Service Revenue Presentation***

As a result of placing greater focus on cloud computing, we revised the presentation of our software and software-related service (SSRS) revenue as of January 1, 2012, and we adjusted our comparativefigures accordingly. As a result of these adjustments, the subscription and other software-related service revenue item has been deleted. We believe this creates more transparency regarding SSRS revenue, particularly with respect to revenue fromcloud subscriptions and support. These revenues are no longer recorded under the subscription and other software-related service revenue item, but instead shown as a separate item within the SSRS revenue. Revenue from long-term license agreementsand all other revenue previously shown under SSRS revenue has been broken down into its software and support components and recorded under the software revenue and support revenue items. Thus, we present higher revenue for software and for supportfor 2011. This change is merely a reclassification that only 
 
 
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affects items within SSRS revenue. The overall sum of SSRS revenue and thus the total revenue are not affected. 

In addition, we introduced a new subtotal at the end of 2012 to better reflect our wide range of on-premise and cloud solutions: the software revenue item and the cloud subscription and support revenueitem were merged and are now recorded under the software and cloud subscription revenue item. We believe this creates more transparency and allows better comparability with our biggest competitor. 

***Measures We Use to Manage Our Operating Financial Performance***

In 2012, we used the following key measures to manage our operating financial performance: 

*Non-IFRS SSRS revenue:*    Our SSRS revenue includes software and related support revenue plus cloud subscription and supportrevenue. The principal source of our software revenue is the fees customers pay for on-premise software licenses resulting in software being installed on the customer’s hardware. We generate cloud subscription and support revenue when weprovide software and the respective support for delivery in the cloud. Software revenue and cloud subscription and support revenue are our key revenue drivers because they tend to affect our other revenue streams. Generally, customers who buysoftware licenses also enter into maintenance contracts, and these generate recurring software-related service revenue in the form of support revenue after the software sale. Maintenance contracts cover support services and software updates andenhancements. Software revenue as well as cloud subscription and support revenue also tend to stimulate service revenue from consulting and training sales. 

*Non-IFRS bookings/billings revenue:    *For our cloud activities we look at the recognized revenues as well as the contract values generated in a given period(bookings/billings). We measure bookings/billings as the amounts that we are contractually entitled to invoice the customers over the shorter of the contract term and the first 12 months following the contract execution date, anniversary of contractexecution date or contract renewal date (12 months bookings/billings). In contrast to the cloud subscription and support revenues that are recognized over the period of providing the cloud service rather than in the period of contract closure, thebooking/billing numbers give insight into the future revenue

potential. When evaluating 12 months bookings/billings numbers, we consider both the total bookings/billings and the subset of bookings/billings that results from new customers or additionalsales to existing customers in the reporting period rather than from subsequent years or renewals of existing contracts. There is no comparable IFRS measure for this figure. 

Our Cloud Applications segment has grown significantly through the acquisition of SuccessFactors in early 2012. As SuccessFactors is included in SAP’s financials only from the day of acquisition, ayear-over-year comparison of the bookings/billings is impacted by the acquisition. We therefore analyze and report, in addition to the absolute growth rate of bookings/billings for cloud applications, a pro forma growth rate assuming that theacquisition of SuccessFactors was completed as of January 1, 2011. A similar analysis is not provided for the Ariba segment due to the Ariba acquisition having occurred late in 2012. 

*Non-IFRS operating profit/non-IFRS operating margin:*    In 2012, we used non-IFRS operating profit/non-IFRS operating margin and constant currency non-IFRS operatingprofit/non-IFRS operating margin to measure our overall operational process efficiency and overall business performance. Non-IFRS operating margin is the ratio of our non-IFRS operating profit to total non-IFRS revenue, expressed as a percentage.See below for a discussion of the IFRS and non-IFRS measures we use. 

***Measures We Use to Manage Our Non-Operating Financial Performance***

We use the following measures to manage our non-operating financial performance: 

*Finance income, net:*    This measure provides insight especially into the return on liquid assets and capital investments andthe cost of borrowed funds. To manage our financial income, net, we focus on cash flow, the composition of our liquid asset and capital investment portfolio, and the average rate of interest at which assets are invested. We also monitor averageoutstanding borrowings and the associated finance costs. 

*Days of Sales Outstanding and Days of PayablesOutstanding:*    We manage working capital by controlling the days’ sales outstanding for operating receivables, or DSO (defined as average number of days from the raised invoice to cash
 
 
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receipt from the customer), and the days’ payables outstanding for operating liabilities, or DPO (defined as average number of days from the received invoice to cash payment to the vendor).

***Measures We Use to Manage Overall Financial Performance***

We use the following measures to manage our overall financial performance: 

*Earnings per share(EPS):*    EPS measures our overall performance, because it captures all operating and non-operating elements of profit as well as income tax expense. It represents the portion of profit after tax allocable to each SAP shareoutstanding (using the weighted average number of shares outstanding over the reporting period). EPS is influenced not only by our operating and non-operating business, and income taxes, but also by the number of shares outstanding. We areauthorized by our shareholders to repurchase shares and believe that such repurchases, additional to dividend distributions, are a good means to return value to our shareholders. 

*Effective tax rate:*    We define our effective tax rate as the ratio of income tax expense to profit before tax, expressed as a percentage. 

*Operating, investing, and financing cash flows:*    Our consolidated statement of cash flows provides insight as to how wegenerated and used cash and cash equivalents. When used in conjunction with the other primary financial statements, it provides information that helps us evaluate the changes of our net assets, our financial structure (including our liquidity andsolvency), and our ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. 

**Measures We Use to Manage Our Non-Financial Performance**

In 2012, we used the following key measures to manage our non-financial performance in the areas of employee engagement and customer satisfaction: 

*Employee Engagement Index:*    With this index, we measure the level of employee commitment, pride, and loyalty, as well as the level of employee advocacy for SAP. The index isderived from surveys conducted among our employees. With

this measure, we recognize that we can achieve our growth strategy only with engaged employees. 

*Net Promoter Score:*    This score measures the willingness of our customers to recommend or promote SAP to others. It is derived from our customer survey. Conducted each year,this survey identifies whether a customer is loyal and likely to recommend SAP to friends or colleagues, is neutral, or is unhappy. We introduced this measure in 2012, as we are convinced that we can achieve our financial goals only when ourcustomers are loyal to and satisfied with SAP and our solutions. To derive the Net Promoter Score (NPS), we start with the percentage of “promoters” of SAP – those who give us a score of 9 or 10 on a scale of 0 to 10. We then subtractthe percentage of “detractors” – those who give us a score of 0 to 6. The methodology calls for ignoring “passives,” who give us a score of 7 or 8. 

**Value-Based Management**

Our holistic view of the performance measures described above,together with our associated analyses, comprises the information we use for value-based management. We use planning and control processes to manage the compilation of these key measures and their availability to our decision makers across variousmanagement levels. 

SAP’s long-term strategic plans are the point of reference for our other planning and controlling processes,including creating a multiyear plan until 2015. We identify future growth and profitability drivers at a highly aggregated level. This process is intended to identify the best areas in which to target sustained investment. Next, we evaluate ourmultiyear plans for our support and development functions and break down the customer-facing plans by sales region. Based on our detailed annual plans, we determine the budget for the respective year. We also have processes in place to forecastrevenue and profit on a quarterly basis, to quantify whether we expect to realize our strategic goals, and to identify any deviations from plan. We continuously monitor the concerned units in the Group to analyze these developments and define anyappropriate actions. 

Our entire network of planning, control, and reporting processes is implemented in integrated planning and informationsystems, based on SAP software, across all organizational units so that we can conduct the evaluations and analyses needed to make informed decisions.
 
 
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**Non-IFRS Financial Measures Cited in This Report**

As in previous years, we provided our 2012 financial outlook on the basis of certain non-IFRS

measures. Therefore, this report contains a non-IFRS based comparison of our actual performance in 2012 against our outlook in the chapter Assets, Finances, and Operating Results.
 
 

***Reconciliations of IFRS toNon-IFRS Financial Measures for 2012 and 2011***

The following table reconciles our IFRS financial measures to the respective and mostcomparable non-IFRS financial measures of this report for each of 2012 and 2011. Due to rounding, the sum of the numbers presented in this table might not precisely equal the totals we provide. 

**Reconciliations of IFRS to Non-IFRS Financial Measures for 2012 and 2011**

 
**€**** millions, unless otherwise stated** **for the years ended December 31**   **2012**  **2011**   **IFRS**  **Adj.**  **Non-IFRS**  **Currency****Impact**  **Non-IFRS****Constant****Currency**  **IFRS**  **Adj.**  **Non-IFRS** 
**Revenue measures**
        
Software
  4,658    0    4,658    –134    4,524    4,107    0    4,107  
Cloud subscriptions and support
  270    73    343    –21    322    18    0    18  
Software and cloud subscriptions
  4,928    73    5,001    –155    4,846    4,125    0    4,125  
Support
  8,237    9    8,246    –286    7,959    7,194    27    7,221  
**Software and software-related service revenue**
 ** ****13,165****  ** ** ****81****  ** ** ****13,246****  ** ****** ****–****441********  ** ** ****12,806****  ** ** ****11,319****  ** ** ****27****  ** ** ****11,346****  **
Consulting
  2,442    0    2,442    –95    2,347    2,341    0    2,341  
Other services
  616    0    616    –18    599    573    0    573  
**Professional services and other service revenue**
 ** ****3,058****  ** ** ****0****  ** ** ****3,058****  ** ****** ****–****113********  ** ** ****2,945****  ** ** ****2,914****  ** ** ****0****  ** ** ****2,914****  ** 
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
 
**Total revenue**
 ** ****16,223****  ** ** ****81****  ** ** ****16,304****  ** ****** ****–****553********  ** ** ****15,751****  ** ** ****14,233****  ** ** ****27****  ** ** ****14,260****  ** 
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
 
**Operating expense measures**
        
Cost of software and software-related services
  –2,551    414    –2,137      –2,107    285    –1,822  
Cost of professional services and other services
  –2,514    128    –2,385      –2,248    32    –2,216  
Research and development
  –2,253    129    –2,124      –1,939    41    –1,898  
Sales and marketing
  –3,907    223    –3,684      –3,081    127    –2,954  
General and administration
  –947    164    –783      –715    30    –685  
Restructuring
  –8    8    0      –4    4    0  
TomorrowNow litigation
  0    0    0      717    –717    0  
Other operating income/expense, net
  23    0    23      25    0    25   
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
 
**Total operating expenses**
 ****** ****–****12,158********  ** ** ****1,067****  ** ****** ****–****11,090********  ** ** ****362****  ** ****** ****–****10,728********  ** ****** ****–****9,352********  ** ****** ****–****198********  ** ****** ****–****9,550********  ** 
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
  
 

 
 
**Operating profit measures**
        
**Operating profit**
 ** ****4,065****  ** ** ****1,148****  ** ** ****5,214****  ** ****** ****–****191********  ** ** ****5,023****  ** ** ****4,881****  ** ****** ****–****171********  ** ** ****4,710****  **
**Operating margin in %**
 ** ****25.1****  **  ** ****32.0****  **  ** ****31.9****  ** ** ****34.3****  **  ** ****33.0****  **
 

***Explanation of Non-IFRS Measures***

We disclose certain financial measures, such as non-IFRS revenue, non-IFRS operating expenses, non-IFRS operating profit, non-IFRS operating

margin, non-IFRS earnings per share, constant currency revenue and operating profit measures that are not prepared in accordance with IFRS and are therefore considered non-IFRS financialmeasures. Our non-IFRS financial measures may not correspond to non-IFRS financial measures
 
 
5 

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that other companies report. The non-IFRS financial measures that we report should only be considered in addition to, and not as substitutes for or superior to, revenue, operating expenses,operating profit, operating margin, earnings per share or other measures of financial performance prepared in accordance with IFRS. 

Webelieve that the disclosed supplemental historical and prospective non-IFRS financial information provides useful information to investors because management uses this information, in addition to financial data prepared in accordance with IFRS, toattain a more transparent understanding of our past performance and our anticipated future results. In 2012, we used these non-IFRS measures consistently in our internal planning and forecasting, reporting and compensation, as well as in ourexternal communications as follows: 

 
• 
Our management primarily uses these non-IFRS measures rather than IFRS measures as the basis for making financial, strategic and operating decisions.

 
• 
The variable remuneration components of our Executive Board members and employees are based on non-IFRS revenue and non-IFRS operating profit measuresrather than the respective IFRS measures. 

 
• 
The annual budgeting process for all management units is based on non-IFRS revenue and non-IFRS operating profit numbers rather than the respectiveIFRS financial measures. 

 
• 
All forecast and performance reviews with all senior managers globally are based on these non-IFRS measures, rather than the respective IFRS financialmeasures. 

 
• 
Both our internal performance targets and the guidance we provided to the capital markets are based on non-IFRS revenues and non-IFRS profit measuresrather than the respective IFRS financial measures. 

Our non-IFRS financial measures reflect adjustments based on the itemsbelow, as well as adjustments for the related income tax effects. 

**Non-IFRS Revenue**

Revenue items identified as non-IFRS revenue have been adjusted from the respective IFRS financial measures by including the full amount of supportrevenue, cloud subscriptions revenue,

and other similarly recurring revenues which we are not permitted to record as revenue under IFRS due to fair value accounting for the contracts in effect at the time of the respectiveacquisitions. 

Under IFRS, we record at fair value the contracts in effect at the time entities were acquired. Consequently, our IFRS supportrevenue, our IFRS cloud subscriptions and support revenue, our IFRS software and cloud subscription revenue, our IFRS software and software-related service revenue, and our IFRS total revenue for periods subsequent to acquisitions do not reflect thefull amount of revenue that would have been recorded by entities acquired by SAP had they remained stand-alone entities. Adjusting revenue numbers for this revenue impact provides additional insight into the comparability across periods of ourongoing performance. 

Through 2011, our adjustments for deferred revenue write-downs were limited to support revenue. During 2012, we alsomade such deferred revenue write-down adjustments for cloud subscriptions revenue and other similarly recurring revenues. As the deferred revenue write-down adjustments for recurring revenues other than support revenue from acquisitions that wereexecuted through 2011 were immaterial, we have not restated prior-period non-IFRS measures to align with our new non-IFRS revenue definition. 

**Non-IFRS Operating Expense**

Operatingexpense figures that are identified as non-IFRS operating expenses have been adjusted by excluding the following expenses: 

 
• 
Acquisition-related charges 

 
 • 
Amortization expense/impairment charges of intangibles acquired in business combinations and certain stand-alone acquisitions of intellectual property(including purchased in-process research and development) 

 
 • 
Settlements of pre-existing business relationships in connection with a business combination 

 
 • 
Acquisition-related third-party expenses 

 
• 
Discontinued activities: Results of discontinued operations that qualify as such under IFRS in all respects except that they do not represent a majorline of business 

 
• 
Expenses from our share-based payments 

 
• 
Restructuring expenses
 
 
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**Non-IFRS Operating Profit, Non-IFRS Operating Margin, and Non-IFRS Earnings per Share**

Operating profit, operating margin, and earnings per share identified as non-IFRS operating profit, non-IFRS operating margin, and non-IFRS earnings pershare have been adjusted from the respective IFRS measures by adjusting for the above-mentioned non-IFRS revenue and non-IFRS operating expenses. 

We exclude certain acquisition-related expenses for the purpose of calculating non-IFRS operating profit, non-IFRS operating margin, and non-IFRS earnings per share when evaluating SAP’s continuingoperational performance because these expenses generally cannot be changed or influenced by management after the relevant acquisition other than by disposing of the acquired assets. Since management at levels below the Executive Board does notinfluence these expenses, we generally do not consider these expenses for the purpose of evaluating the performance of management units. Additionally, these non-IFRS measures have been adjusted from the respective IFRS measures for the results ofthe discontinued activities, share-based payment expenses, and restructuring expenses. 

**Usefulness of Non-IFRS Measures**

We believe that our non-IFRS measures are useful to investors for the following reasons: 

 
• 
The non-IFRS measures provide investors with insight into management’s decision making because management uses these non-IFRS measures to run ourbusiness and make financial, strategic, and operating decisions. 

 
• 
The non-IFRS measures provide investors with additional information that enables a comparison of year-over-year operating performance by eliminatingcertain direct effects of acquisitions and discontinued activities. 

 
• 
Non-IFRS and non-GAAP measures are widely used in the software industry. In many cases, inclusion of our non-IFRS measures may facilitate comparisonwith our competitors’ corresponding non-IFRS and non-GAAP measures.

Additionally, we believe that our adjustments to our IFRS financial measures for the results of ourdiscontinued TomorrowNow activities are useful to investors for the following reason: 

 
• 
TomorrowNow activities were discontinued and we will thus continue to exclude potential future TomorrowNow results, which are expected to mainlycomprise expenses in connection with the Oracle lawsuit, from our internal management reporting, planning, forecasting, and compensation plans. Therefore, adjusting our non-IFRS measures for the results of the discontinued TomorrowNow activitiesprovides insight into the financial measures that SAP uses internally. 

We include the revenue adjustments outlined aboveand exclude the expense adjustments outlined above when making decisions to allocate resources, both on a company level and at lower levels of the organization. In addition, we use these non-IFRS measures to gain a better understanding of SAP’soperating performance from period to period. 

We believe that our non-IFRS financial measures described above have limitations, including butnot limited to, the following: 

 
• 
The eliminated amounts could be material to us. 

 
• 
Without being analyzed in conjunction with the corresponding IFRS measures, the non-IFRS measures are not indicative of our present and futureperformance, foremost for the following reasons: 

 
 • 
While our non-IFRS profit numbers reflect the elimination of certain acquisition-related expenses, no eliminations are made for the additional revenueand other revenue that result from the acquisitions. 

 
 • 
While we adjust for the fair value accounting of the acquired entities’ recurring revenue contracts, we do not adjust for the fair valueaccounting of deferred compensation items that result from commissions paid to the acquired company’s sales force and third parties for closing the respective customer contracts. 

 
 • 
The acquisition-related charges that we eliminate in deriving our non-IFRS profit numbers are likely to recur should SAP enter into material businesscombinations in the future. 
 
 
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The acquisition-related amortization expense that we eliminate in deriving our non-IFRS profit numbers is a recurring expense that will impact ourfinancial performance in future years. 

 
 • 
The revenue adjustment for the fair value accounting of the acquired entities’ contracts and the expense adjustment for acquisition-relatedcharges do not arise from a common conceptual basis. This is because the revenue adjustment aims to improve the comparability of the initial post-acquisition period with future post-acquisition periods, while the expense adjustment aims to improvethe comparability between post-acquisition periods and pre-acquisition periods. This should particularly be considered when evaluating our non-IFRS operating profit and non-IFRS operating margin numbers as these combine our non-IFRS revenue andnon-IFRS expenses despite the absence of a common conceptual basis. 

 
 • 
Our discontinued activities and restructuring charges could result in significant cash outflows. The same applies to our share-based payment expensebecause most of our share-based payments are to be settled in cash rather than shares. 

 
 • 
The valuation of our cash-settled, share-based payments could vary significantly from period to period due to the fluctuation of our share price andother parameters used in the valuation of these plans. 

 
 • 
We have in the past issued share-based payment awards to our employees every year and we intend to continue doing so in the future. Thus, ourshare-based payment expenses are recurring although the amounts usually change from period to period. 

Despite theselimitations, we believe that the presentation of the non-IFRS measures and the corresponding IFRS measures, together with the relevant reconciliations, provides useful information to management and investors regarding present and future businesstrends relating to our financial condition and results of operations. We do not evaluate our growth and performance without considering both non-IFRS measures and the comparable IFRS measures. We

caution the readers of our financial reports to follow a similar approach by considering our non-IFRS measures only in addition to, and not as a substitute for or superior to, revenue or othermeasures of our financial performance prepared in accordance with IFRS. 

**Constant Currency Information**

We believe it is important for investors to have information that provides insight into our sales. Revenue measures determined under IFRS provideinformation that is useful in this regard. However, both sales volume and currency effects impact period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide relevant information onsales volume by providing data on the changes in product and service units sold. To provide additional information that may be useful to investors in breaking down and evaluating changes in sales volume, we present information about our revenue andvarious values and components relating to operating profit that are adjusted for foreign currency effects. We calculate constant currency revenue and operating profit measures by translating foreign currencies using the average exchange rates fromthe previous year instead of the current year. 

We believe that constant currency measures have limitations, particularly as the currencyeffects that are eliminated constitute a significant element of our revenue and expenses and could materially impact our performance. We therefore limit our use of constant currency measures to the analysis of changes in volume as one element of thefull change in a financial measure. We do not evaluate our results and performance without considering both constant currency measures in non-IFRS revenue and non-IFRS operating profit measures on the one hand, and changes in revenue, operatingexpenses, operating profit, or other measures of financial performance prepared in accordance with IFRS on the other. We caution the readers of our financial reports to follow a similar approach by considering constant currency measures only inaddition to, and not as a substitute for or superior to, changes in revenue, operating expenses, operating profit, or other measures of financial performance prepared in accordance with IFRS.
 
 
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***Free Cash Flow***

We use our free cash flow measure to estimate the cash flow remaining after all expenditures required to maintain or expand our organic business have been paid off. This measure provides management withsupplemental information to assess our liquidity needs. We calculate free cash flow as net cash from operating activities minus purchases, other than purchases made in connection with business combinations, of intangible assets and property, plant,and equipment. 

**Free Cash Flow**

 
**€**** millions** **2012**  **2011**  **Change** 
Net cash flows from operating activities
  3,822    3,775    1% 
Purchase of intangible assets and property, plant, and equipment (without acquisitions)
  –541    –445    22%  
 

 
  
 

 
  
 

 
 
**Free Cash Flow**
 ** ****3,281****  ** ** ****3,330****  ** ****** ****–****1********% ** 
 
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Part I 

 

Item 1, 2, 3

 
**PART I**

**ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

Not applicable. 

**ITEM 2. OFFER STATISTICS AND EXPECTEDTIMETABLE**

Not applicable.

**ITEM 3. KEY INFORMATION**

**SELECTED FINANCIAL DATA**

The following table sets forth our selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2012. The consolidated financial data has beenderived from, and should be read in conjunction with, our Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), presented in“Item 18. Financial Statements” of this report. 

Our selected financial data and our Consolidated Financial Statements are presentedin euros. Financial data as of and for the year ended December 31, 2012 has been translated into U.S. dollars for the convenience of the reader.
 
 
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Part I 

 

Item 3

 
**SELECTED FINANCIAL DATA: IFRS**

 
**millions, unless otherwise stated**  **2012(1)**   **2012**   **2011**   **2010**   **2009**   **2008**    **US$**   **€******   **€******   **€******   **€******   **€****** 
**Income Statement Data:**