Operating income grows
Cost savings enabled SAP to achieve an operating income of €1,724 million for 2003, 6% more than for 2002. On a constantcurrency basis, the increase would have been 9%. Operating income before expenses for stock-based compensation and acquisition-related charges, which is the pro-forma operating income used internally as a key performance indicator, increased 11% to €1,880 million. The 27% pro-forma operating margin derived from that figure, as stated above, was four percentage points above the previous year’s figure.

Financial income out of the red
In the two previous years, losses from minority investments, that is, minority investment impairment charges and SAP’s share in the net loss from investments accounted for under the equity method, resulted in financial losses. SAP incurred the same types of financial expenses again in 2003. However, losses from minority investments totaling €23 million were significantly reduced from the previous year’s net loss of €527 million. Net interest income increased 75% to €43 million and the expense of €15 million for employee stock appreciation right program hedges was a significant improvement on the 2002 figure of €59 million. As a result, SAP posted positive financial income of €16 million for 2003 (2002: financial loss of €555 million).

Steep rises in pretax income and net income
Income before income taxes rose 60% to €1,777 million because of the improved operating income and the turnaround of financial income. The effective tax rate also decreased from 53.8% for 2002 to 39% for 2003. A major factor in the decrease in the effective tax rate was the significantly reduced losses from minority investments, which for the most part are nondeductible.

Net income was €1,077 million in 2003, an increase of 112% on the previous year. Basic earnings per share calculated in accordance with U.S. GAAP were €3.47 (2002: €1.62). Pro-forma earnings per share, which SAP regularly reports and to which it attaches greater importance, were €3.83 for 2003. They were thus 24% higher than in 2002 and clearly beat SAP’s early-year guidance of €3.45 to €3.60. The U.S. GAAP earnings per share reconcile to the pro-forma earnings per share by adjusting the U.S. GAAP number for stock-based compensation expenses, acquisition-related charges, and impairment charges associated with minority investments.

Liquid assets grow
Operating cash flow for 2003 was €1,505 million, representing a 10% decrease from €1,680 in 2002, when, due to impairment charges on minority investments, the difference between net income and operating cash flow was wider.

In 2003, net cash used in investing activities was €911 million, a year-on-year increase of 322%. However, €639 million of this was attributable to the increase in liquid assets with maturities greater than 90 days. Cash outflows for property, plant, and equipment and intangible assets were 11% lower than for the previous year at €275 million.

In 2002, net cash outflow from financing activities was negative, primarily due to treasury stock purchases and principle payments on line-of-credit and long-term debt. These outflows were much smaller in 2003, and as a result net cash used in financing activities decreased 67% to €305 million. Of this, 61% is accounted for by dividends paid in 2003.

Cash and cash equivalents held at the end of 2003 were €1,340 million, a 19% increase on the figure for 2002. Liquid assets, which include cash and cash equivalents and time deposits with maturity greater than 90 days, increased more strongly, by 69% to €2,096 million.