UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of May 2005
DEUTSCHE TELEKOM AG
(Translation of registrant’s name into English)
Friedrich-Ebert-Allee 140
53113 Bonn
Germany
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ý Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o No ý
This Report on Form 6-K is incorporated by reference into the registration statements on Form F-3, File No. 333-13550 and File No. 333-118932, and the registration statement on Form S-8, File No. 333-106591, and into each respective prospectus that forms a part of those registration statements.
Defined Terms and Contact Information
The term “Report” refers to this Quarterly Report on Form 6-K for the three-month period ended March 31, 2005. Deutsche Telekom AG is a stock corporation organized under the laws of the Federal Republic of Germany. As used in this Report, unless the context otherwise requires, the term “Deutsche Telekom” refers to Deutsche Telekom AG and the terms “we,” “us,” “our,” “Group” and “the Company” refer to Deutsche Telekom and, as applicable, Deutsche Telekom and its direct and indirect subsidiaries as a group. Our registered office is at Friedrich-Ebert-Allee 140, 53113 Bonn, Germany, telephone number +49-228-181-0. Our agent for service of process in the United States is Deutsche Telekom, Inc., 600 Lexington Avenue, New York, N.Y. 10022.
Forward-Looking Statements
This Report contains forward-looking statements that reflect the current views of our management with respect to future events. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “aims,” “plans,” “will,” “will continue,” “seeks” and similar expressions. Forward-looking statements are based on current plans, estimates and projections, and therefore you should not place too much reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws (such as our obligations to file annual reports on Form 20-F and periodic and other reports on Form 6-K) and under other applicable laws. Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and are generally beyond our control. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. These factors include, among other factors: the development of demand for our fixed and mobile telecommunications services, particularly for new, higher value service offerings; competitive forces, including pricing pressures, technological changes and alternative routing developments; regulatory actions and the outcome of disputes in which the company is involved or may become involved; the pace and cost of the rollout of new services, such as UMTS, which may be affected by the ability of suppliers to deliver equipment and other circumstances beyond our control; public concerns over health risks putatively associated with wireless frequency transmissions; risks associated with integrating our acquisitions; the development of asset values in Germany and elsewhere, the progress of our debt reduction and liquidity improvement initiatives; the development of our cost control and efficiency enhancement initiatives, including in the areas of procurement optimization, personnel reductions and our Excellence program; risks and uncertainties relating to benefits anticipated from our international expansion, particularly in the United States; the progress of our domestic and international investments, joint ventures and alliances; our ability to gain or retain market share in the face of competition; our ability to secure and retain the licenses needed to offer services; the effects of price reduction measures and our customer acquisition and retention initiatives; the availability, term and deployment of capital, particularly in view of our debt refinancing needs, actions of the rating agencies and the impact of regulatory and competitive developments on our capital outlays; and changes in currency exchange rates and interest rates. If these or other risks and uncertainties (including those described in “Forward-Looking Statements,” “Item 3. Key Information — Risk Factors” and elsewhere in our most recent Annual Report on Form 20-F for the year ended December 31, 2004 filed with the U.S. Securities and Exchange Commission) materialize, or if the assumptions underlying any of these statements prove incorrect, our actual results may be materially different from those expressed or implied by such statements.
World Wide Web addresses contained in this Report are for explanatory purposes only and they (and the content contained therein) do not form a part of and are not incorporated by reference into this Report.
Cautionary Note Regarding Historical Financial Information Prepared In Accordance With International Financial Reporting Standards
This report contains financial information that has been prepared in accordance with International Financial Reporting Standards, or “IFRS.”
The IFRS financial information contained in this Report was prepared on the assumption that, with the exception of IAS 39 “Financial Instruments: Recognition and Measurement” and IFRIC 3 “Emission Rights,” all existing standards and interpretations currently in issue from the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) will be fully endorsed by the EU. The accounting policy for financial instruments takes into account the proposed EU revisions to IAS 39 and complies with the amended IAS 39. IFRIC 3 is not relevant for Deutsche Telekom.
1
Subject to EU endorsement of outstanding standards and no further changes from the IASB, this information is expected to form the basis for reporting our financial results for 2005 and for subsequent reporting periods. We cannot assure you, however, that there will not be any material changes in IFRS between the date of this Report and the first date on which we are required to publish financial statements under IFRS for the years ended 2005, 2004 and 2003.
For further information and explanations, see Notes (1) and (10) to the financial statements contained in this Report.
Exchange Rates
Unless otherwise indicated, all amounts in this document are expressed in euros. As used in this document, “€,” “euro” or “EUR” means the single unified currency that was introduced in the Federal Republic of Germany (referred to as the “Federal Republic”) and ten other participating member states of the European Union on January 1, 1999. “U.S. dollar,” “$” or “USD” means the lawful currency of the United States of America. As used in this document, the term “noon buying rate” refers to the rate of exchange for euros, expressed in U.S. dollars per euro, as announced by the Federal Reserve Bank of New York for customs purposes as the rate in the City of New York for cable transfers in foreign currencies. The noon buying rate on March 31, 2005 was EUR 1.00 to USD 1.2969.
Amounts appearing in this report that were translated into euros from other currencies were translated in accordance with the principles described in the unaudited condensed consolidated financial statements contained in this Report under “Note (1) Transition to International Financial Reporting Standards (IFRS) and summary of accounting principles – Explanation of exemptions applied under IFRS 1 — Currency translation.”
2
DEUTSCHE TELEKOM AT A GLANCE(1)
(Unaudited)
|
|
|
For the three months |
|
|
|
|
|
For the year |
|
||
|
|
|
2005 |
|
2004 |
|
Change |
|
% Change |
|
2004 |
|
|
|
|
(millions of €, except where indicated) |
|
||||||||
|
Total net revenues (total revenues excluding inter-segment revenues) |
|
14,376 |
|
13,890 |
|
486 |
|
3.5 |
|
57, 360 |
|
|
Domestic |
|
8,599 |
|
8,511 |
|
88 |
|
1.0 |
|
34,748 |
|
|
International |
|
5,777 |
|
5,379 |
|
398 |
|
7.4 |
|
22,612 |
|
|
Profit from operations |
|
2,340 |
|
2,416 |
|
(76 |
) |
(3.1 |
) |
6,261 |
|
|
Financial expense (net) |
|
(721 |
) |
(1,224 |
) |
503 |
|
41.1 |
|
(2,743 |
) |
|
Depreciation, amortization and impairment losses |
|
(2,558 |
) |
(2,190 |
) |
(368 |
) |
(16.8 |
) |
(13,128 |
) |
|
Of which: property, plant and equipment |
|
(1,945 |
) |
(1,889 |
) |
(56 |
) |
(3.0 |
) |
(7,656 |
) |
|
Of which: intangible assets |
|
(613 |
) |
(301 |
) |
(312 |
) |
n.m. |
|
(5,472 |
) |
|
Net profit |
|
1,010 |
|
632 |
|
378 |
|
59.8 |
|
1,564 |
|
|
Earnings per share /ADS(2) (basic and diluted) (€) |
|
0.24 |
|
0.15 |
|
0.09 |
|
60.0 |
|
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities |
|
2,176 |
|
4,304 |
|
(2,128 |
) |
(49.4 |
) |
16,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity ratio (%)(3) |
|
33.5 |
|
32.1 |
|
|
|
|
|
33.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities (4) |
|
53,728 |
|
62,633 |
|
(8,905 |
) |
(14.2 |
) |
50,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees at balance sheet date (actual) |
|
|
|
|
|
|
|
|
|
|
|
|
Deutsche Telekom Group |
|
243,784 |
|
248,153 |
|
(4,369 |
) |
(1.8 |
) |
244,645 |
|
|
Non-civil servants |
|
197,123 |
|
198,489 |
|
(1,366 |
) |
(0.7 |
) |
19,482 |
|
|
Civil servants |
|
46,661 |
|
49,664 |
|
(3,003 |
) |
(6.0 |
) |
47,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone lines (including ISDN channels)(5) |
|
56.6 |
|
57.9 |
|
(1.3 |
) |
(2.2 |
) |
57.2 |
|
|
Broadband lines (in operation) (millions) |
|
6.7 |
|
4.5 |
|
2.2 |
|
48.9 |
|
6.1 |
|
|
Mobile communications customers (6) |
|
78.9 |
|
70.9 |
|
8.0 |
|
11.3 |
|
77.4 |
|
n.m. – not meaningful
(1) All financial figures have been calculated in accordance with IFRS. See Note (1) to the financial statements for more information.
(2) One ADS (American Depositary Share) corresponds in economic terms to one ordinary share of Deutsche Telekom AG.
(3) The ratio equals total shareholders’ equity divided by total assets. Amounts proposed as dividends are treated as short-term debt rather than as equity for purposes of the calculation of this ratio.
(4) Inludes current and noncurrent financial liabilities (see Condensed Consolidated Balance Sheets)
(5) Number of telephone lines (including those used within the Group) as of the balance sheet date. All amounts are in millions.
(6) The number of customers of the consolidated subsidiaries included within our Mobile Communications strategic business area as of the balance sheet date. Our methods for calculating this number are described in our 2004 Annual Report on Form 20-F. All amounts are in millions.
3
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
(Unaudited)
4
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
|
|
|
For the three months |
|
For the year ended |
|
||
|
|
|
|
|
2005 |
|
2004 |
|
2004 |
|
|
|
|
|
|
(millions of €, except where indicated) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
|
|
14,376 |
|
13,890 |
|
57,360 |
|
|
Cost of sales |
|
|
|
(7,526 |
) |
(7,219 |
) |
(31,559 |
) |
|
Gross profit |
|
|
|
6,850 |
|
6,671 |
|
25,801 |
|
|
Selling expenses |
|
|
|
(3,434 |
) |
(3,207 |
) |
(12,837 |
) |
|
General and administrative expenses |
|
|
|
(1,037 |
) |
(1,034 |
) |
(4,505 |
) |
|
Other operating income |
|
|
|
279 |
|
361 |
|
1,718 |
|
|
Other operating expenses |
|
|
|
(318 |
) |
(375 |
) |
(3,916 |
) |
|
Profit (loss) from operations |
|
|
|
2,340 |
|
2,416 |
|
6,261 |
|
|
Net interest income (expense) |
|
|
|
(848 |
) |
(1,104 |
) |
(3,475 |
) |
|
Share of profit (loss) of equity-accounted investments |
|
|
|
36 |
|
(54 |
) |
945 |
|
|
Other financial income (expense) |
|
|
|
91 |
|
(66 |
) |
(213 |
) |
|
Financial expense, net |
|
|
|
(721 |
) |
(1,224 |
) |
(2,743 |
) |
|
Profit before income taxes |
|
|
|
1,619 |
|
1,192 |
|
3,518 |
|
|
Income taxes |
|
|
|
(486 |
) |
(430 |
) |
(1,528 |
) |
|
Profit after income taxes |
|
|
|
1,133 |
|
762 |
|
1,990 |
|
|
Profit attributable to minority interests |
|
|
|
123 |
|
130 |
|
426 |
|
|
Net profit |
|
|
|
1,010 |
|
632 |
|
1,564 |
|
|
Outstanding shares (basic) (millions) |
|
|
|
4,326 |
|
4,322 |
|
4,323 |
|
|
Outstanding shares (diluted) (millions) |
|
|
|
4,331 |
|
4,329 |
|
4,328 |
|
|
Earnings per share (1) /ADS (2) , basic and diluted (€) |
|
|
|
0.24 |
|
0.15 |
|
0.38 |
|
(1) Earnings per share for each period are calculated by dividing net profit by the weighted average number of outstanding shares.
(2) One ADS corresponds in economic terms to one ordinary share of Deutsche Telekom AG.
The accompanying
notes are an integral part of these
unaudited condensed consolidated financial statements.
5
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
|
|
|
|
|
As of |
|
As of |
|
|
|
|
|
|
(millions of €) |
|
||
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
6,260 |
|
8,005 |
|
|
Trade and other receivables |
|
|
|
7,052 |
|
6,732 |
|
|
Current recoverable income taxes |
|
|
|
441 |
|
317 |
|
|
Other current financial assets |
|
|
|
2,216 |
|
1,237 |
|
|
Inventories |
|
|
|
1,082 |
|
1,154 |
|
|
Other current assets |
|
|
|
2,156 |
|
1,391 |
|
|
|
|
|
|
19,207 |
|
18,836 |
|
|
Noncurrent assets |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
53,004 |
|
50,736 |
|
|
Property, plant and equipment |
|
|
|
48,203 |
|
46,318 |
|
|
Equity-accounted financial assets |
|
|
|
1,751 |
|
2,667 |
|
|
Other noncurrent financial assets |
|
|
|
1,709 |
|
1,678 |
|
|
Deferred tax assets |
|
|
|
8,378 |
|
8,300 |
|
|
Other noncurrent assets |
|
|
|
336 |
|
378 |
|
|
|
|
|
|
113,381 |
|
110,077 |
|
|
TOTAL ASSETS |
|
|
|
132,588 |
|
128,913 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current financial liabilities |
|
|
|
12,332 |
|
12,515 |
|
|
Trade and other payables |
|
|
|
5,184 |
|
6,116 |
|
|
Income tax liabilities |
|
|
|
720 |
|
715 |
|
|
Current provisions |
|
|
|
3,647 |
|
3,698 |
|
|
Other current liabilities |
|
|
|
3,094 |
|
2,970 |
|
|
|
|
|
|
24,977 |
|
26,014 |
|
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
Noncurrent financial liabilities |
|
|
|
41,396 |
|
38,142 |
|
|
Provisions for pensions and other employee benefits |
|
|
|
4,256 |
|
4,209 |
|
|
Other noncurrent provisions |
|
|
|
3,117 |
|
3,077 |
|
|
Deferred tax liabilities |
|
|
|
10,151 |
|
9,705 |
|
|
Other noncurrent liabilities |
|
|
|
1,671 |
|
1,895 |
|
|
|
|
|
|
60,591 |
|
57,028 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
85,568 |
|
83,042 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
Issued capital |
|
|
|
10,747 |
|
10,747 |
|
|
Capital reserves |
|
|
|
49,531 |
|
49,523 |
|
|
Accumulated deficit, including carryforwards |
|
|
|
(16,114 |
) |
(17,680 |
) |
|
Other comprehensive income |
|
|
|
(1,688 |
) |
(2,667 |
) |
|
Net profit |
|
|
|
1,010 |
|
1,564 |
|
|
Treasury shares |
|
|
|
(8 |
) |
(8 |
) |
|
|
|
|
|
43,478 |
|
41,479 |
|
|
Minority interest |
|
|
|
3,542 |
|
4,392 |
|
|
Shareholders’ equity |
|
|
|
47,020 |
|
45,871 |
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
132,588 |
|
128,913 |
|
The accompanying notes are an integral part of
these
unaudited condensed consolidated financial statements.
6
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
|
|
|
Equity contributed |
|
Consolidated shareholders’ equity generated |
|
||||||||
|
|
|
Issued |
|
Capital |
|
Accumulated |
|
Carry- |
|
Net profit |
|
Total |
|
|
|
|
(millions of €) |
|
||||||||||
|
Balance at January 1, 2004 |
|
10,746 |
|
49,500 |
|
(19,631 |
) |
0 |
|
1,937 |
|
(17,694 |
) |
|
Changes in the composition of the Group |
|
|
|
|
|
1 |
|
|
|
|
|
1 |
|
|
Profit after income taxes |
|
|
|
|
|
|
|
|
|
632 |
|
632 |
|
|
Unappropriated net profit carried forward |
|
|
|
|
|
|
|
1,937 |
|
(1,937 |
) |
0 |
|
|
Dividend payments |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Proceeds from the exercise of stock options |
|
|
|
9 |
|
|
|
|
|
|
|
0 |
|
|
Change in other comprehensive income (not recognized in income statement) |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Balance at March 31, 2004 |
|
10,746 |
|
49,509 |
|
(19,630 |
) |
1,937 |
|
632 |
|
(17,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
10,747 |
|
49,523 |
|
(19,617 |
) |
1,937 |
|
1,564 |
|
(16,116 |
) |
|
Changes in the composition of the Group |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Profit after income taxes |
|
|
|
|
|
|
|
|
|
1,010 |
|
1,010 |
|
|
Unappropriated net profit carried forward |
|
|
|
|
|
|
|
1,564 |
|
(1,564 |
) |
0 |
|
|
Proceeds from the exercise of stock options |
|
|
|
8 |
|
|
|
|
|
|
|
0 |
|
|
Change in other comprehensive income (not recognized in income statement) |
|
|
|
|
|
2 |
|
|
|
|
|
2 |
|
|
Recognition of other comprehensive income in income statement |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Balance at March 31, 2005 |
|
10,747 |
|
49,531 |
|
(19,615 |
) |
3,501 |
|
1,010 |
|
(15,104 |
) |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
7
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
|
|
|
Other comprehensive income |
|
||||||||||
|
|
|
Fair value |
|
Fair value |
|
Revaluation |
|
Deferred |
|
Difference |
|
Total |
|
|
|
|
(millions of €) |
|
||||||||||
|
Balance at January 1, 2004 |
|
262 |
|
1,124 |
|
0 |
|
(436 |
) |
(3,900 |
) |
(2,950 |
) |
|
Changes in the composition of the Group |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Profit after income taxes |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Unappropriated net profit carried forward |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Dividend payments |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Change in other comprehensive income (not recognized in income statement) |
|
(55 |
) |
(119 |
) |
0 |
|
48 |
|
1,154 |
|
1,028 |
|
|
Balance at March 31, 2004 |
|
207 |
|
1,005 |
|
0 |
|
(388 |
) |
(2,746 |
) |
(1,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
860 |
|
1,428 |
|
63 |
|
(556 |
) |
(4,462 |
) |
(2,667 |
) |
|
Changes in the composition of the Group |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Profit after income taxes |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Unappropriated net profit carried forward |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
Change in other comprehensive income (not recognized in income statement) |
|
95 |
|
(230 |
) |
(2 |
) |
84 |
|
1,073 |
|
1,020 |
|
|
Recognition of other comprehensive income in income statement |
|
(46 |
) |
5 |
|
|
|
|
|
|
|
(41 |
) |
|
Balance at March 31, 2005 |
|
909 |
|
1,203 |
|
61 |
|
(472 |
) |
(3,389 |
) |
(1,688 |
) |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
8
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
|
|
|
Treasury |
|
Total |
|
Minority |
|
|
|
|
(millions of €) |
|
||||
|
Balance at January 1, 2004 |
|
(8 |
) |
39,594 |
|
4,316 |
|
|
Changes in the composition of the Group |
|
|
|
1 |
|
3 |
|
|
Profit after income taxes |
|
|
|
632 |
|
130 |
|
|
Unappropriated net profit carried forward |
|
|
|
0 |
|
|
|
|
Dividend payments |
|
|
|
0 |
|
(16 |
) |
|
Proceeds from the exercise of stock options |
|
|
|
9 |
|
|
|
|
Change in other comprehensive income (not recognized in income statement) |
|
|
|
1,028 |
|
|
|
|
Balance at March 31, 2004 |
|
(8 |
) |
41,264 |
|
4,433 |
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
(8 |
) |
41,479 |
|
4,333 |
|
|
Changes in the composition of the Group |
|
|
|
0 |
|
(1,004 |
) |
|
Profit after income taxes |
|
|
|
1,010 |
|
123 |
|
|
Unappropriated net profit carried forward |
|
|
|
0 |
|
|
|
|
Proceeds from the exercise of stock options |
|
|
|
8 |
|
|
|
|
Change in other comprehensive income (not recognized in income statement) |
|
|
|
1,022 |
|
2 |
|
|
Recognition of other comprehensive income in income statement |
|
|
|
(41 |
) |
|
|
|
Balance at March 31, 2005 |
|
(8 |
) |
43,478 |
|
3,454 |
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
9
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
|
|
|
Minority interest |
|
Total |
|
||||||||
|
|
|
Other comprehensive income |
|
Total |
|
|
|
||||||
|
|
|
Revaluation |
|
Difference |
|
Other |
|
Total |
|
|
|
|
|
|
|
|
(millions of €) |
|
||||||||||
|
Balance at January 1, 2004 |
|
0 |
|
(95 |
) |
1 |
|
(94 |
) |
4,222 |
|
43,816 |
|
|
Changes in the composition of the Group |
|
|
|
|
|
|
|
0 |
|
3 |
|
4 |
|
|
Profit after income taxes |
|
|
|
|
|
|
|
0 |
|
130 |
|
762 |
|
|
Unappropriated net profit carried forward |
|
|
|
|
|
|
|
0 |
|
0 |
|
0 |
|
|
Dividend payments |
|
|
|
|
|
|
|
0 |
|
(16 |
) |
(16 |
) |
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
0 |
|
0 |
|
9 |
|
|
Change in other comprehensive income (not recognized in income statement) |
|
|
|
67 |
|
|
|
67 |
|
67 |
|
1,095 |
|
|
Balance at March 31, 2004 |
|
0 |
|
(28 |
) |
1 |
|
(27 |
) |
4,406 |
|
45,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
61 |
|
(3 |
) |
1 |
|
59 |
|
4,392 |
|
45,871 |
|
|
Changes in the composition of the Group |
|
|
|
(2 |
) |
|
|
(2 |
) |
(1,006 |
) |
(1,006 |
) |
|
Profit after income taxes |
|
|
|
|
|
|
|
0 |
|
123 |
|
1,133 |
|
|
Unappropriated net profit carried forward |
|
|
|
|
|
|
|
0 |
|
0 |
|
0 |
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
0 |
|
0 |
|
8 |
|
|
Change in other comprehensive income (not recognized in income statement) |
|
(2 |
) |
33 |
|
|
|
31 |
|
33 |
|
1,055 |
|
|
Recognition of other comprehensive income in income statement |
|
|
|
|
|
|
|
0 |
|
0 |
|
(41 |
) |
|
Balance at March 31, 2005 |
|
59 |
|
28 |
|
1 |
|
88 |
|
3,542 |
|
47,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
10
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
|
For the three months ended |
|
For the year ended |
|
||
|
|
|
2005 |
|
2004 |
|
2004 |
|
|
|
|
(millions of €) |
|
||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after income taxes |
|
1,133 |
|
762 |
|
1,990 |
|
|
Depreciation, amortization and impairment losses |
|
2,558 |
|
2,190 |
|
13,128 |
|
|
Income tax expense (refund) |
|
486 |
|
430 |
|
1,528 |
|
|
Interest income and interest expenses |
|
848 |
|
1,104 |
|
3,475 |
|
|
(Gain) loss from the disposal of non-current assets |
|
(22 |
) |
3 |
|
(334 |
) |
|
Share of (profit) loss of equity-accounted investments |
|
(36 |
) |
54 |
|
(945 |
) |
|
Other non-cash transactions |
|
(145 |
) |
199 |
|
700 |
|
|
Change in assets carried as working capital |
|
(750 |
) |
(333 |
) |
523 |
|
|
Change in provisions |
|
25 |
|
400 |
|
604 |
|
|
Change in other liabilities carried as working capital |
|
(1,108 |
) |
(485 |
) |
(337 |
) |
|
Income taxes received (paid) |
|
(424 |
) |
446 |
|
48 |
|
|
Dividends received |
|
11 |
|
9 |
|
82 |
|
|
Cash generated from operations |
|
2,576 |
|
4,779 |
|
20,462 |
|
|
Net interest paid |
|
(400 |
) |
(475 |
) |
(3,742 |
) |
|
Net cash from operating activities |
|
2,176 |
|
4,304 |
|
16,720 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
outflows for investments in |
|
(623 |
) |
(123 |
) |
(1,044 |
) |
|
Property, plant and equipment |
|
(2,468 |
) |
(1,229 |
) |
(5,366 |
) |
|
Non-current financial assets |
|
(39 |
) |
(220 |
) |
(870 |
) |
|
Investments in fully consolidated subsidiaries |
|
(2,003 |
) |
(151 |
) |
(483 |
) |
|
Proceeds
from disposal of |
|
2 |
|
2 |
|
7 |
|
|
Property, plant and equipment |
|
107 |
|
85 |
|
550 |
|
|
Non-current financial assets |
|
157 |
|
44 |
|
2,140 |
|
|
Investments in fully consolidated companies and business units |
|
0 |
|
1 |
|
1 |
|
|
Net change in short-term investments and marketable securities |
|
(856 |
) |
256 |
|
564 |
|
|
Net cash used in investing activities |
|
(5,723 |
) |
(1,335 |
) |
(4,501 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of short-term financial liabilities |
|
434 |
|
148 |
|
703 |
|
|
Repayment of short-term financial liabilities |
|
(1,464 |
) |
(2,629 |
) |
(13,798 |
) |
|
Proceeds from issue of medium- and long-term financial liabilities |
|
3,019 |
|
201 |
|
1,322 |
|
|
Repayment of medium- and long-term financial liabilities |
|
(169 |
) |
(332 |
) |
(481 |
) |
|
Dividend payments |
|
0 |
|
(13 |
) |
(404 |
) |
|
Proceeds from the exercise of stock options |
|
8 |
|
9 |
|
21 |
|
|
Repayment of lease liabilities |
|
(56 |
) |
(42 |
) |
(244 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities |
|
1,772 |
|
(2,658 |
) |
(12,881 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
30 |
|
18 |
|
(17 |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
(1,745 |
) |
329 |
|
(679 |
) |
|
Cash and cash equivalents at the beginning of the period |
|
8,005 |
|
8,684 |
|
8,684 |
|
|
Cash and cash equivalents at end of the period |
|
6,260 |
|
9,013 |
|
8,005 |
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
11
Note (1) Transition to International Financial Reporting Standards (IFRS) and summary of accounting principles
Explanation of transition to International Financial Reporting Standards (IFRS)
According to Article 4 of Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19, 2002 on the application of international accounting standards (Official Journal EC L 243 p. 1), We are required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for the first time for the financial year 2005 and thereafter. Our opening IFRS consolidated balance sheet was prepared as of January 1, 2003 (date of transition to IFRS in accordance with IFRS 1).
In accordance with IFRS 1, assets and liabilities are recognized and measured in accordance with the IFRSs required to be applied as of December 31, 2005, the preparation date of the first IFRS consolidated financial statements. The resulting differences between the IFRS carrying amounts and the carrying amounts of the assets and liabilities in our consolidated balance sheet under German GAAP for the period ended December 31, 2002 are recognized directly in equity at the date of transition to IFRS.
Our interim financial statements for the quarter ended March 31, 2005 have been prepared in accordance with the IFRSs published as of March 31, 2005 and standards either required to be applied to the first IFRS consolidated financial statements as of December 31, 2005 or which may be applied voluntarily.
There can be no guarantee that the International Accounting Standards Board (IASB) will not issue further pronouncements by the preparation date of the consolidated financial statements for the period ending December 31, 2005 and that the IFRSs applied to these condensed consolidated financial statements for the first quarter of 2005 will not differ from those applied to the consolidated financial statements for the period ending December 31, 2005. Moreover, the EU Commission has yet to endorse certain individual pronouncements by the IASB.
Explanation of exemptions applied under IFRS 1
In general, the carrying amounts of the assets and liabilities in our consolidated balance sheet prepared on the basis of German GAAP for the period ended December 31, 2002 must be recognized and measured retrospectively in our opening IFRS consolidated balance sheet as of January 1, 2003 on the basis of those IFRSs in force at December 31, 2005. IFRS 1 nevertheless provides exemptions from this principle in specific cases. The main exemptions that we have applied are explained below:
Business combinations
IFRS 3 is not required to be applied retrospectively to business combinations that took place before the date of transition to IFRS. We have applied this exemption. The classification and amounts recorded in a business combination under German GAAP must be maintained. As a rule, all assets and liabilities that were acquired or taken over in business combinations must be carried in the opening IFRS consolidated balance sheet. All assets, except intangibles, and liabilities that were recognized in the consolidated balance sheet under German GAAP but that do not meet the IFRS recognition criteria are not recognized in the opening IFRS consolidated balance sheet, and reduce or increase the amount of retained earnings. All assets, except intangibles that ware not recognized in the consolidated balance sheet under German GAAP but that do meet the IFRS recognition criteria are recognized in the opening IFRS consolidated balance sheet and increase or reduce the amount of retained earnings. Changes in the carrying amount of assets and liabilities already recognized under German GAAP are also presented in retained earnings. The carrying amount of goodwill under German GAAP is recognized in the opening IFRS consolidated balance sheet, subject to any necessary adjustments. At the date of transition to IFRS, goodwill was tested for impairment and would have been written down at the date of transition to IFRS if required. No other adjustments to the carrying amount were required.
12
Revaluation as deemed cost
Entities that have revalued their assets at fair values at one particular date prior to first-time adoption of IFRS because of a specific event may establish these fair values as deemed cost and account for them from the date of the revaluation in accordance with the IFRSs effective at the date of preparation of the first IFRS financial statements. We have applied this exemption and have used the fair values of assets recognized in our opening consolidated balance sheet at the date of privatization (January 1, 1995) as the deemed cost of the assets under IFRS at January 1, 1995. These figures have been carried in accordance with regulations on subsequent measurement for the period January 1, 1995 to January 1, 2003 (date of preparation of our opening IFRS consolidated balance sheet).
Fair value measurement
An entity may elect to measure certain items of non-current assets at the date of transition at fair value instead of subsequent historical cost under IFRS; this exemption may be applied individually to each asset. We have applied this exemption in specific cases.
We applied the exemption allowed under IFRS 1.16 for the impairment of submarine cables at January 1, 2003. As a result, the fair value corresponds to the residual value recognized under German GAAP (EUR 353.5 million).
Employee benefits
If an entity may elect to recognize actuarial gains and losses arising from the measurement of defined benefit plans after the date of transition to IFRS using the corridor approach permitted by IAS 19, but recognize all cumulative actuarial gains and losses from defined benefit plans directly in equity at the date of transition to IFRS. We have applied this exemption.
Cumulative translation differences
Under IAS 21, differences from the translation of financial statements prepared in a currency other than the presentation currency of the parent must be recognized as a separate component of equity. In line with the principle of retrospective application of IFRS, these differences would be required to be determined retrospectively. According to the exemption in IFRS 1, cumulative translation differences may be deemed to be zero at the date of transition. In the case of subsequent disposal of the entity concerned, only translation differences that arose subsequent to the date of transition to IFRS would be recognized in profit or loss. We have applied this exemption.
Share-based payment
Under IFRS 1, equity instruments from share-based options granted on or before November 7, 2002 and those granted after November 7, 2002 and vested before January 1, 2005 are not required to be recognized under IFRS 2 by a first-time adopter. We have applied this exemption.
13
Summary of accounting policies
These condensed consolidated financial statements are unaudited. In management’s opinion, these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated results of operations, balance sheet and cash flows for each period presented. The consolidated results for interim periods are not necessarily indicative of results for the full year. These financial results should be read in conjunction with our report on Form 20-F for the year ended December 31, 2004. However, those financial statements have been prepared in accordance with the requirements of the German Commercial Code (HGB-German GAAP), which differ in certain significant respects from U.S. generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS).
Statement of compliance
The financial statements for the period ended March 31, 2005 are in compliance with IAS 34. They have been prepared in accordance with the IFRSs that are currently known to be required to be applied to the first IFRS consolidated financial statements for the period ending December 31, 2005.
Consolidated group
All subsidiaries, joint ventures and associates must generally be included in the condensed consolidated financial statements. Subsidiaries are companies that are directly or indirectly controlled by us; such companies are consolidated. Joint ventures are companies jointly controlled by us and other companies. Associates are companies on which we have a significant influence, and that are neither subsidiaries nor joint ventures. As with joint ventures, associates are accounted for using the equity method.
Consolidation methods
The financial statements of the companies included in our condensed consolidated financial statements are prepared in accordance with uniform accounting policies.
Under IFRS, all business combinations must be accounted for using the purchase method. The acquirer allocates the cost of a business combination by recognizing the acquiree’s identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria at their fair value at the acquisition date. Any positive difference between the cost of the business combination and the acquirer’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities, regardless of the level of the investment held, is recognized as goodwill. Any excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities which exceeds the cost of a business combination is recognized immediately in profit or loss. In the periods following the business combination, any realized differences between the carrying amounts and fair values of assets and liabilities are adjusted, amortized or reversed, reflecting the treatment of the corresponding assets and liabilities.
When acquiring additional equity ownership interests in companies that are already consolidated subsidiaries, the difference between the purchase price consideration and the proportionate acquired equity is recognized as goodwill.
Goodwill is not amortized, but is tested for impairment together with the cash-generating unit to which the goodwill is allocated (an “impairment-only” approach). The impairment test must be performed annually, as well as whenever there are indications that the carrying amount of the cash-generating unit is impaired. If the carrying amount of the cash-generating unit to which goodwill is allocated exceeds its recoverable amount, goodwill allocated to this cash-generating unit must be reduced in the amount of the difference. Impairment losses for goodwill may not be reversed. If the impairment loss recognized for the cash-generating unit is greater than the carrying amount of the allocated goodwill, the additional amount of the impairment loss is recognized through the pro rata reduction of the carrying amounts of the assets allocated to the cash-generating unit.
Intra-group income and expenses, receivables and liabilities, and profits or losses are eliminated.
A subsidiary is deconsolidated from the date it is no longer controlled.
14
Investments in joint ventures and associates accounted for using the equity method are carried at the acquirer’s interest in the identifiable assets, liabilities and contingent liabilities remeasured to fair value, plus any attributable goodwill. Goodwill from application of the equity method is not amortized, but tested for impairment at least once a year. Unrealized gains and losses from transactions with these companies are eliminated in proportion to the acquirer’s interest.
Currency translation
Financial statements prepared in foreign currencies and transactions denominated in foreign currencies are translated using the functional currency concept. The functional currency is the currency of the primary economic environment in which the subsidiary operates. The activities and financial structure reported in this currency should be reflected in the consolidated financial statements.
Foreign currency transactions are translated into the functional currency at the exchange rate at the date of transaction. At subsequent balance sheet dates, monetary items are translated at the closing rate, and non-monetary items continue to be translated at the exchange rate at the date of transaction. Any resulting exchange differences are recognized in profit or loss.
The financial statements of our Group entities whose functional currency is not the euro are translated using the modified closing rate method. In the consolidated financial statements, the assets and liabilities of foreign Group entities are translated into euros from the local currency at the middle rates at the balance sheet date. The income statements and corresponding profit or loss of foreign currency denominated Group companies are translated at average exchange rates for the period. Exchange differences are recognized as a separate component of equity.
Intangible assets
Intangible assets (excluding goodwill) with finite useful lives, including UMTS licenses, are measured at cost and amortized on a straight-line basis over their useful lives. Such assets are impaired if their recoverable amount is lower than the carrying amount. Indefinite-lived intangible assets (FCC licenses) are carried at cost. They are not amortized, but are tested regularly for impairment and, if necessary, written down to the recoverable amount. The impairment test must be performed annually, as well as whenever there are indications of impairment. Impairment losses are reversed if the reasons for recognizing the original impairment loss no longer apply.
Goodwill is not amortized, but is tested for impairment at least once a year.
The useful lives of mobile communications licences are as follows:
|
|
|
Years |
|
UMTS licenses |
|
20 to 22 |
|
GSM licenses |
|
10 to 20 |
Development expenditures are capitalized if they meet the criteria for recognition as assets and are amortized over their useful lives. Research expenditures are not capitalized and are recognized as expenses. Borrowing costs are not capitalized.
15
Property, plant and equipment
Property, plant and equipment is carried at cost less straight-line depreciation. The depreciation period is based on the expected useful life. Items of property, plant and equipment are depreciated pro rata in the year of acquisition. In addition to directly attributable costs, the cost of internally developed assets includes proportionate indirect material and labor costs, as well as administrative expenses relating to production or the providing of services. Cost also includes the estimated cost for dismantling and removing the asset, and restoring the site on which it is located. If an item of property, plant and equipment consists of several components with different estimated useful lives, the individual significant components are depreciated over their individual useful lives. Maintenance and repair costs are allocated to the relevant asset and expensed as incurred. Borrowing costs are not capitalized. Investment grants received reduce the cost of the assets for which the grants were made.
Impairment of intangible assets and items of property, plant and equipment is identified by comparing the carrying amount with the recoverable amount (the higher of fair value less costs to sell and value in use). If no future cash flows generated independently of other assets can be allocated to the individual assets, recoverability is tested on the basis of the cash-generating unit to which the assets can be allocated. Impairment losses are reversed if the reasons for recognizing the original impairment loss no longer apply.
The useful lives of material asset categories are as follows:
|
|
|
Years |
|
Buildings |
|
25 to 50 |
|
Leasehold improvements and window displays |
|
8 |
|
Telephone facilities and terminal equipment |
|
3 to 10 |
|
Data communications equipment, telephone network and ISDN switching equipment, transmission equipment, radio transmission equipment and technical equipment for broadband distribution networks |
|
4 to 10 |
|
Broadband distribution networks, outside plant networks and cable conduit lines |
|
15 to 35 |
|
Other equipment, operating and office equipment |
|
3 to 23 |
Leasehold assets
Beneficial ownership of leased assets is attributed to the contracting party in the lease to which substantially all risks and rewards incidental to ownership of the asset are transferred. If substantially all risks and rewards are attributable to the lessor (operating lease), the leased asset is recognized by the lessor. Measurement of the leased asset is then governed by the accounting policies applicable to that asset. The lease payments are recognized in profit or loss. The lessee in an operating lease recognizes the lease payments made during the term of the lease in profit or loss.
If substantially all risks and rewards incidental to ownership of the leased asset are attributable to the lessee (finance lease), the lessee must recognize the leased asset. At the commencement of the lease term, the leased asset is measured at fair value or the lower present value of the future lease payments and depreciated over the shorter of the estimated useful life or the lease term. The lessee recognizes a lease liability at the commencement of the lease term. In subsequent periods, the lease liability is reduced using the effective interest method and the carrying amount adjusted accordingly. The lessor in a finance lease recognizes a receivable in the amount of the net investment in the lease. Lease income is classified into repayments of the lease receivable and financial income.
Investment property
Investment property consists of all property held to earn rentals or for capital appreciation and not used in production or for administrative purposes. Investment property is measured at cost less any accumulated depreciation and impairment losses.
16
Assets held for sale
Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell following classification as “non-current assets held for sale.” Following the classification as “non-current assets held for sale,” such assets are no longer depreciated. As a rule, impairment of such assets is only recognized if fair value less costs to sell is lower than the carrying amount. If fair value less costs to sell subsequently increases, the previously recognized impairment must be reversed. The reversal of impairment losses is restricted to the impairment losses previously recognized for the assets concerned.
Inventories are carried at cost. Cost includes directly attributable expenses which are based on the normal capacity at the production facilities. Borrowing costs are not capitalized. Items of inventory are written down at the balance sheet date if their net realizable value is lower than their carrying amount. Similar items of inventory are measured using the weighted average cost method.
Pension and other employee related benefit obligations
Provisions for pensions and other employee benefits are based on obligations to non-civil servants. Provisions for defined benefit plans are measured using the projected unit credit method, taking into account not only the pension obligations and vested pension rights known at the balance sheet date, but also expected future salary and benefit increases. Any differences between the expected pension obligation calculated and the actual pension obligation (actuarial gains or losses) are recognized at the balance sheet date only to the extent that they fall outside a corridor of 10 % of the amount of the defined benefit obligation, in which case they are amortized over the average remaining working life of the eligible employees and recognized as income or expenses starting from the following period. The interest component of the addition to provisions contained in pension expenses is reported in financial income (expense) as interest expense. The return on plan assets is also reported in net financial income (expense). The amounts payable under defined contribution plans are expensed.
For active civil servants and those who have taken leave from civil-servant status and have an employment contract, Deutsche Telekom is obliged to make annual contributions to a special pension fund which makes pension payments. The amounts of these contributions are set out by Postreform II, which came into force in 1995, and are therefore not subject to a separate actuarial calculation. The contributions are expensed in the period in which they are incurred.
For part-time working arrangements for employees approaching retirement based on the block model, the cumulative outstanding settlement amount, which is based on the difference between the employee’s remuneration before entering partial retirement (including the employer’s social security contributions) and the remuneration for part-time service (including the employer’s social security contributions, but excluding top-up payments), and the obligation to make top-up payments plus an additional contribution to the statutory pension scheme, are measured separately. The obligations are recognized at their present value in accordance with actuarial principles.
Whereas the amount of the outstanding settlement is recorded on a pro rata basis during the term of the arrangement, the top-up payments are recognized in full as expense when the obligation arises.
Provisions and other liabilities
Other provisions are recognized upon the occurrence of legal or constructive obligations to third parties on the basis of past transactions or events that will probably require an outflow of resources to settle, and this outflow can be reliably measured. These provisions are carried at their expected settlement amount, taking into account all identifiable risks, and may not be offset against reimbursements. The settlement amount is calculated on the basis of a best estimate; for provisions for a number of events, this is the expected value. Provisions are discounted where the effect of the time value of money is material. Changes in estimates of the amount and timing of payments or changes in the discount rate applied in measuring provisions for decommissioning, restoration, and similar liabilities are recognized in the same amount for the related asset. Where the decrease in the amount of a provision is greater than the carrying amount of the related asset, the excess is recognized immediately in profit or loss.
17
Contingencies
Contingencies (contingent liabilities and assets) are essentially potential liabilities or assets arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not entirely within our control. Contingent liabilities only are recognized if they were assumed in the course of a business combination. Contingent assets may not be recognized. Information on contingent liabilities are disclosed in the notes to the condensed consolidated financial statements, unless the possibility of an outflow of economic benefits is remote. The same applies to contingent assets where an inflow of economic benefits is probable.
Revenue from construction contracts are accounted for using the percentage-of-completion method. The stage of completion is determined on the basis of the costs incurred to date as a proportion of the estimated total costs. Receivables from construction contracts are reported in the balance sheet item “Trade and other receivables.” Receivables from construction contracts are calculated as the balance of the costs incurred and the profits recognized, less any discounts and recognized losses on the contract; if the balance for a contract is negative, this amount is reported in liabilities from construction contracts.
Financial assets and liabilities
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets include, in particular, cash and cash equivalents, trade receivables and other originated loans and receivables, held-to-maturity investments, and derivative and primary (non-derivative) financial assets held for trading.
Financial liabilities generally substantiate claims for repayment in cash or another financial asset. In particular, this includes bonds and other securitized liabilities, trade payables, liabilities to banks, finance lease payables, promissory notes and derivative financial liabilities.
Financial assets are measured at fair value on initial recognition. For regular way purchases and sales of all categories of financial assets, the date of initial recognition in the balance sheet or of derecognition is the trade date, i.e., the date on which the commitment to purchase or sell the financial asset was entered into. The fair values recognized in the balance sheet are the market prices of the financial assets. If these are not immediately available, they are calculated using standard valuation models on the basis of current market parameters.
Cash and cash equivalents consist of balances and short-term investments with banks. They are recognized at their nominal amount.
Trade and other current receivables are measured at cost less any valuation allowances. Valuation allowances take adequate account of the expected credit risk; concrete cases of default lead to the derecognition of the respective receivables. Other receivables are measured at amortized cost using the effective interest method.
Financial assets held for trading are measured at fair value. Any gains or losses arising from subsequent measurement are recognized in the income statement. Financial instruments are only classified as “held for trading” if this is prescribed by IAS 39. Derivative financial instruments must be classified as “held for trading” if it is not possible to designate them as a hedge. These instruments are measured at fair value; changes in fair value are recognized in profit or loss.
Certain types of investment are intended and expected to be held to maturity with reasonable economic certainty. These financial assets are measured at amortized cost, using the effective interest method.
Other primary financial assets are classified as “available for sale” and generally measured at fair value. The gains and losses arising from fair value measurement are taken directly to equity unless they relate to lasting impairment; impairment losses are recognized in profit or loss. The cumulative gains and losses arising from fair value measurement are only recognized in profit or loss on disposal of the related financial assets. If the fair value of non-exchange traded equity instruments cannot be measured with sufficient reliability, these instruments are measured at cost.
We have not yet exercised the option available since December 2003 to designate financial assets and financial liabilities as “financial assets at fair value through profit or loss” or “financial liabilities at fair value through profit or loss” upon initial recognition.
18
Annually, the carrying amounts of financial assets not measured at fair value through profit or loss are tested for impairment. Any resulting impairment loss is recognized in the income statement. If, in a subsequent period, the fair value of the financial asset increases and this increase can be related objectively to events occurring after the impairment was recognized, the impairment loss is reversed to income in the appropriate amount. Impairment losses on non-exchange traded equity instruments that are classified as available for sale and recognized at cost may not be reversed.
Financial liabilities are measured at fair value on initial recognition. For all financial liabilities not subsequently measured at fair value through profit and loss, the transaction costs directly attributable to the acquisition are also recognized.
Trade payables and other primary financial liabilities are generally measured at amortized cost using the effective interest method.
The liability and equity components of compound financial instruments are reported separately. The liability component is recognized at the amount that would have been generated from the issue of the equivalent debt instrument without the equity component based on the market conditions at the issue date. Accordingly, the amount recognized in equity -including deferred taxes - is equal to the market value of the conversion rights or options at the issue date, and hence the difference to the proceeds of issue. The equity component is included in capital reserves at a constant amount.
We apply hedge accounting to hedge balance sheet items and future cash flows, thus reducing income statement volatility. Fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation are employed depending on the nature of the hedged item. Fair value hedges are used to hedge the fair values of assets recognized in the balance sheet, liabilities recognized in the balance sheet, or firm commitments not yet recognized in the balance sheet. Any change in the fair value of the derivative designated as the hedging instrument is recognized in profit or loss; the hedged item is also designated as at fair value through profit or loss to the extent of the hedged risk. Cash flow hedges are used to hedge against fluctuations in future cash flows from assets and liabilities recognized in the balance sheet or from highly probable forecast transactions. If a cash flow hedge is employed, the effective portion of the change in the fair value of the derivative financial instrument is recognized in equity (hedging reserve) until the gain or loss on the hedged item is realized; the ineffective portion of the derivative is recognized in profit or loss. If hedges of a net investment in a foreign operation are employed, all changes in the fair value of the effective portion of the hedging instrument, together with any gains or losses on the foreign currency translation of the hedged investment, are taken directly to equity. The changes in fair value and the gains and losses on foreign currency translation are only recognized in profit or loss on disposal of the investment.
Share-based compensation
Stock options (equity-settled, share-based payment transactions) are measured at fair value on the issue date. The fair value is recognized as personnel costs over the period until the options are vested. Obligations arising from cash-settled, share-based payment transactions are measured at fair value at the balance sheet date. The expenses arising from these obligations are deferred and amortized over the term of the obligation. For both cash-settled and equity-settled share-based payment transactions, the fair value is determined using internationally accepted valuation techniques.
Revenue recognition
Net revenues contain all revenues from the ordinary business activities typical for Deutsche Telekom. For example, these include revenues from the rendering of services and the sale of goods and products that are typical for Deutsche Telekom. Net revenues are recorded net of value added tax (VAT) and sales-related reductions. They are recognized in the accounting period concerned in accordance with the realization principle. Up-front fees and related costs are deferred and amortized over the estimated average period of customer retention. For multiple element arrangements, revenue recognition for each of the elements identified must be determined separately. Net revenues for the individual elements are generally measured on the basis of the relative fair value of the elements as a proportion of the total goods and services provided.
19
Revenue from long-term construction contracts is calculated using the percentage-of-completion method. Contract revenue is recognized as revenue in the income statement in the accounting periods in which the work is performed. Any ancillary work performed under the construction contract is also added to the primary service.
Income taxes
Income tax expense includes current income taxes payable as well as deferred taxes. Deferred tax assets and liabilities are recognized for temporary differences between the carrying amounts in the consolidated balance sheet and the tax base, as well as for tax loss carryforwards that are expected to reduce tax expense in future periods. Currently enacted tax laws and tax laws that have been substantively enacted as of the balance sheet date are used as the basis for measuring deferred taxes. A blended tax rate of approximately 39% is applied to the calculation of deferred taxes in Germany.
Note (2) Changes within the consolidated Group
In the past year, we have acquired interests in various companies that were not, or were only partially, included in the consolidated financial statements as of March 31, 2004. These were the Scout24 group at Broadband/Fixed Network, EuroTel at Mobile Communications, and SDS at Business Customers. In the first quarter of 2005, MATÁV acquired a majority interest in the Telekom Montenegro group. The following table shows the effect of these acquisitions on the individual line items of our condensed consolidated income statement for the first three months of 2005.
|
|
|
Broadband/ |
|
Mobile |
|
Business |
|
Total |
|
|
|
|
(millions of €) |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
5 |
|
76 |
|
4 |
|
85 |
|
|
Cost of sales |
|
(1 |
) |
(46 |
) |
(4 |
) |
(51 |
) |
|
Gross profit |
|
4 |
|
30 |
|
0 |
|
34 |
|
|
Selling expenses |
|
(3 |
) |
(12 |
) |
0 |
|
(15 |
) |
|
General and administrative expenses |
|
(1 |
) |
(3 |
) |
0 |
|
(4 |
) |
|
Other operating income |
|
0 |
|
1 |
|
0 |
|
1 |
|
|
Other operating expenses |
|
0 |
|
0 |
|
1 |
|
1 |
|
|
Profit from operations |
|
0 |
|
16 |
|
1 |
|
17 |
|
|
Finance costs |
|
0 |
|
(1 |
) |
0 |
|
(1 |
) |
|
Interest income |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Interest expenses |
|
0 |
|
(1 |
) |
0 |
|
(1 |
) |
|
Share of profit (loss) of equity-accounted investments |
|
0 |
|
(6 |
) |
0 |
|
(6 |
) |
|
Other financial income |
|
0 |
|
0 |
|
1 |
|
1 |
|
|
Financial income (expense), net |
|
0 |
|
(7 |
) |
1 |
|
(6 |
) |
|
Profit before income taxes |
|
0 |
|
9 |
|
2 |
|
11 |
|
|
Income taxes |
|
(1 |
) |
(3 |
) |
0 |
|
(4 |
) |
|
Profit (loss) after income taxes |
|
(1 |
) |
6 |
|
2 |
|
7 |
|
|
Profit (loss) attributable to minority interests |
|
0 |
|
3 |
|
0 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
(1 |
) |
3 |
|
2 |
|
4 |
|
20
Note (3) Financial income (expense), net
Financial income (expense), net consists primarily of finance costs, share of profit (loss) of equity-accounted investments, and other financial income (expense).
|
|
|
For the three months |
|
|
|
|
|
For the year |
|
||
|
|
|
2005 |
|
2004 |
|
Change |
|
% Change |
|
2004 |
|
|
|
|
(millions of €, except where indicated) |
|
||||||||
|
|
|
|
|
||||||||
|
Financial expense, net |
|
(721 |
) |
(1,224 |
) |
503 |
|
41.1 |
|
(2,743 |
) |
|
Finance costs |
|
(848 |
) |
(1,104 |
) |
256 |
|
23.2 |
|
(3,475 |
) |
|
Interest income |
|
221 |
|
145 |
|
76 |
|
52.4 |
|
1,134 |
|
|
Interest expenses |
|
(1,069 |
) |
(1,249 |
) |
180 |
|
14.4 |
|
(4,609 |
) |
|
Share of profit (loss) of equity-accounted investments |
|
36 |
|
(54 |
) |
90 |
|
n.m. |
|
945 |
|
|
Other financial income (expense) |
|
91 |
|
(66 |
) |
157 |
|
n.m. |
|
(213 |
) |
n.m. – not meaningful
Net financial expense decreased significantly by EUR 503 million compared to the first quarter of 2004 due primarily to the reduction in interest expense and the non-recurrence of expenses for Toll Collect incurred in the first quarter of 2004, which impacted the share of profit (loss) of equity-accounted investments. The higher level of positive effects from foreign currency translation also impacted other financial income (expense).
Note (4) Personnel
|
|
|
For the three months ended |
|
||
|
|
|
2005 |
|
2004 |
|
|
|
|
(millions of €) |
|
||
|
Personnel costs |
|
3,342 |
|
3,334 |
|
Personnel costs in the first quarter of 2005 remained essentially unchanged year-on-year. Lower expenses as a result of the reduction in the number of employees, both at the balance sheet date and on average in the reporting period, particularly at T-Com, were offset by an increase in collectively agreed wages and salaries in Germany and staff expansion measures at T-Mobile USA.
The personnel cost ratio for the first quarter amounted to 23.2% of net revenue, representing a reduction of 0.8 percentage points as against the corresponding prior-year period.
21
Average number of employees
|
|
|
For the three months |
|
|
|
|
|
For the year |
|
||
|
|
|
2005 |
|
2004 |
|
Change |
|
% Change |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Civil servants |
|
46,801 |
|
49,886 |
|
(3,085 |
) |
(6.2 |
) |
48,536 |
|
|
Non-civil servants |
|
197,166 |
|
198,475 |
|
(1,309 |
) |
(0.7 |
) |
199,023 |
|
|
Deutsche Telekom Group |
|
243,967 |
|
248,361 |
|
(4,394 |
) |
(1.8 |
) |
247,559 |
|
|
Trainees and student interns |
|
10,621 |
|
10,077 |
|
544 |
|
5.4 |
|
10,146 |
|
Number of employees as of the balance sheet date
|
|
|
As of March 31, |
|
|
|
|
|
As of |
|
||
|
|
|
2005 |
|
2004 |
|
Change |
|
% Change |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Civil servants |
|
46,661 |
|
49,664 |
|
(3,003 |
) |
(6.0 |
) |
47,163 |
|
|
Non-civil servants |
|
197,123 |
|
198,489 |
|
(1,366 |
) |
(0.7 |
) |
197,482 |
|
|
Deutsche Telekom Group |
|
243,784 |
|
248,153 |
|
(4,369 |
) |
(1.8 |
) |
244,645 |
|
|
Trainees and student interns |
|
10,568 |
|
9,919 |
|
649 |
|
6.5 |
|
11,693 |
|
22
Note (5) Depreciation, amortization and impairment losses
The components of depreciation and amortization for the three months ended March 31, 2005 and 2004 are as follows:
|
|
|
|
|
Change |
|
% Change |
|
For the twelve |
|
||
|
For the three months |
|||||||||||
|
2005 |
|
2004 |
|||||||||
|
|
|
(millions of €, except where indicated) |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and impairment of intangible assets |
|
613 |
|
301 |
|
312 |
|
n.m. |
|
5,472 |
|
|
of which: UMTS licenses |
|
213 |
|
2 |
|
211 |
|
n.m. |
|
519 |
|
|
of which: U.S. mobile communications licenses |
|
23 |
|
— |
|
23 |
|
n.m. |
|
1,261 |
|
|
of which: goodwill |
|
— |
|
— |
|
— |
|
n.m. |
|
2,434 |
|
|
Depreciation and impairment of property, plant and equipment |
|
1,945 |
|
1,889 |
|
56 |
|
3.0 |
|
7,656 |
|
|
Total depreciation, amortization and impairment losses |
|
2,558 |
|
2,190 |
|
368 |
|
16.8 |
|
13,128 |
|
n.m. – not meaningful
The increase in depreciation, amortization and impairment charges relates in particular to the amortization of mobile communications licenses. In the first quarter of 2004, no amortization was recognized for UMTS licenses in Germany and the United Kingdom, as the UMTS networks were not yet operational at the time. The networks were put into operation at a later date, and therefore there is no corresponding figure for 2004 in comparison with the amortization recognized in the first quarter of 2005.
Note (6) Noncurrent assets
The components of noncurrent assets as of March 31, 2005 and December 31, 2004 are as follows:
|
|
|
As of |
|
||
|
|
|
March 31, |
|
December 31, |
|
|
|
|
(millions of €) |
|
||
|
|
|
|
|
|
|
|
Intangible assets |
|
53,004 |
|
50,736 |
|
|
of which: goodwill |
|
19,902 |
|
18,705 |
|
|
of which: UMTS licenses |
|
14,246 |
|
14,316 |
|
|
of which: U.S. mobile communications licenses |
|
15,368 |
|
14,492 |
|
|
Property, plant and equipment |
|
48,203 |
|
46,318 |
|
|
Financial Assets |
|
3,460 |
|
4,345 |
|
|
Deferred tax assets |
|
8,378 |
|
8,300 |
|
|
Other noncurrent assets |
|
336 |
|
378 |
|
|
Total noncurrent assets |
|
113,381 |
|
110,077 |
|
The increase in intangible assets is largely due to the goodwill from the acquisition of additional interests in T-Online International AG prior to the completion of the merger of T-Online International AG into Deutsche Telekom
23
AG, and to the wholesale agreement with Cingular Wireless in the United States. Property, plant and equipment increased primarily as a result of the acquisition of networks in California, Nevada and New York as a consequence of the dissolution of the network sharing joint venture with Cingular Wireless, while the exchange rate also contributed to this increase.
The capital expenditures for the three months ended March 31, 2005 and 2004 are as follows:
|
|
|
For the three months ended |
|
||
|
|
|
2005 |
|
2004 |
|
|
|
|
(millions of €) |
|
||
|
|
|
|
|
|
|
|
Intangible assets |
|
1,523 |
|
225 |
|
|
Property, plant and equipment |
|
2,615 |
|
801 |
|
|
Total additions to assets |
|
4,138 |
|
1,026 |
|
The increased spending on intangible assets in the first quarter of 2005 is primarily due to the goodwill from the acquisition of additional interests in T-Online International AG, while increased additions to property, plant and equipment are largely attributable to the acquisition of networks in California and Nevada.
Note (7) Total financial liabilities
The components of total financial liabilities (which includes current financial liabilities and noncurrent financial liabilities) as of March 31, 2005 and December 31, 2004 are as follows:
|
|
|
As of |
|
||
|
|
|
March 31, |
|
December 31, 2004 |
|
|
|
|
(millions of €) |
|
||
|
|
|
|
|
|
|
|
Bonds |
|
41,921 |
|
39,458 |
|
|
Liabilities to banks |
|
3,113 |
|
3,074 |
|
|
Liabilities to non-banks from promissory notes |
|
656 |
|
651 |
|
|
Liabilities from derivatives |
|
1,143 |
|
1,159 |
|
|
Lease liabilities |
|
2,459 |
|
2,487 |
|
|
Liabilities arising from ABS transactions |
|
1,487 |
|
1,563 |
|
|
Other financial liabilities |
|
2,949 |
|
2,186 |
|
|
Total |
|
53,728 |
|
50,657 |
|
Note (8) Contingencies and other financial obligations
Contingencies and other financial obligations increased by EUR 2.7 billion to EUR 31.9 billion compared with December 31, 2004. This was primarily due to the winding-up of the U.S. mobile communications joint venture, which resulted in an increase in the rental and lease obligations of T-Mobile USA in conjunction with the network sharing joint venture in California, Nevada and New York.
Note (9) Segment information
The segment information presented for the period ending March 31, 2005 has been prepared to comply with IAS 14 and has been prepared on the basis of IFRSs that, according to current information, must be applied to our first consolidated IFRS financial statements for the period ending December 31, 2005. The primary segment reporting
24
format pursuant to IFRS has been restructured to reflect our realignment of our Group companies according to strategic business areas. The prior-year comparative presentation has been recast to reflect the new structure and accounting standards.
We evaluate the segments’ performance based on their profit (loss) from operations. Share of profit (loss) of equity-accounted investments is reported separately. Depreciation and amortization are shown separately, as well as impairment losses.
The following tables give an overall summary of our segments for the full 2004 financial year as well as for the first quarter of both 2005 and recast comparative for 2004. In addition to the details of the segments, there is also a reconciliation line.
|
For the year |
|
Net |
|
Intersegment |
|
Total |
|
Profit (loss) from |
|
Share of |
|
Depreciation |
|
Impairment |
|
|
|
|
(millions of €) |
|
||||||||||||
|
Broadband / Fixed Network |
|
22,409 |
|
4,601 |
|
27,010 |
|
5,545 |
|
25 |
|
(4,207 |
) |
(201 |
) |
|
Mobile Communications |
|
25,450 |
|
1,077 |
|
26,527 |
|
1,510 |
|
1,177 |
|
(3,379 |
) |
(3,574 |
) |
|
Business Customers |
|
9,241 |
|
3,716 |
|
12,957 |
|
570 |
|
(298 |
) |
(945 |
) |
(2 |
) |
|
Group Headquarters & Shared Services |
|
260 |
|
3,266 |
|
3,526 |
|
(1,432 |
) |
27 |
|
(784 |
) |
(92 |
) |
|
Reconciliation |
|
— |
|
(12,660 |
) |
(12,660 |
) |
68 |
|
14 |
|
56 |
|
— |
|
|
Group |
|
57,360 |
|
— |
|
57,360 |
|
6,261 |
|
945 |
|
9,259 |
|
(3,869 |
) |
|
For the three |
|
Net |
|
Intersegment |
|
Total |
|
Profit (loss) from |
|
Share of |
|
Depreciation |
|
Impairment |
|
|
|
|
(millions of €) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband / Fixed Network |
|
5,527 |
|
1,111 |
|
6,638 |
|
1,506 |
|
3 |
|
(1,011 |
) |
— |
|
|
Mobile Communications |
|
6,531 |
|
215 |
|
6,746 |
|
966 |
|
30 |
|
(1,112 |
) |
(24 |
) |
|
Business Customers |
|
2,253 |
|
871 |
|
3,124 |
|
180 |
|
1 |
|
(215 |
) |
— |
|
|
Group Headquarters & Shared Services |
|
65 |
|
788 |
|
853 |
|
(292 |
) |
— |
|
(161 |
) |
(48 |
) |
|
Reconciliation |
|
— |
|
(2,985 |
) |
(2,985 |
) |
(20 |
) |
2 |
|
13 |
|
— |
|
|
Group |
|
14,376 |
|
— |
|
14,376 |
|
2,340 |
|
36 |
|
(2,486 |
) |
(72 |
) |
25
|
For the three |
|
Net |
|
Intersegment |
|
Total |
|
Profit (loss) from |
|
Share of |
|
Depreciation |
|
Impairment |
|
|
|
|
(millions of €) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband / Fixed Network |
|
5,653 |
|
1,288 |
|
6,941 |
|
1,477 |
|
8 |
|
(1,080 |
) |
(2 |
) |
|
Mobile Communications |
|
5,966 |
|
306 |
|
6,272 |
|
1,141 |
|
86 |
|
(685 |
) |
— |
|
|
Business Customers |
|
2,209 |
|
866 |
|
3,075 |
|
159 |
|
(148 |
) |
(232 |
) |
— |
|
|
Group Headquarters & Shared Services |
|
62 |
|
804 |
|
866 |
|
(324 |
) |
— |
|
(181 |
) |
(23 |
) |
|
Reconciliation |
|
— |
|
(3,264 |
) |
(3,264 |
) |
(37 |
) |
— |
|
12 |
|
1 |
|
|
Group |
|
13,890 |
|
— |
|
13,890 |
|
2,416 |
|
(54 |
) |
(2,166 |
) |
(24 |
) |
Note (10) Material effects of the transition from German GAAP to IFRS
Material effects on the net assets, financial position and results of operations as a consequence of the transition from German GAAP (the German Commercial Code (Handelsgesetzbuch-HGB)) to IFRS are presented in the following reconciliation. The prior-year comparative information has been restated accordingly.
Reconciliation of consolidated shareholders’ equity
|
|
|
Explanatory |
|
December 31, |
|
March 31, |
|
December 31, |
|
January 1, 2003 |
|
|
|
|
|
|
(millions of €) |
|
||||||
|
|
|
|
|
||||||||
|
Shareholders’ equity under German GAAP |
|
|
|
37,941 |
|
34,999 |
|
33,811 |
|
35,416 |
|
|
Goodwill |
|
(a |
) |
(3,070 |
) |
(3,027 |
) |
(3,508 |
) |
(5,953 |
) |
|
Mobile communications licenses |
|
(a |
) |
9,773 |
|
13,835 |
|
13,134 |
|
13,973 |
|
|
Software |
|
(b |
) |
583 |
|
576 |
|
608 |
|
623 |
|
|
Borrowing costs |
|
(c |
) |
(477 |
) |
(549 |
) |
(574 |
) |
(774 |
) |
|
Measurement of investments in companies not fully consolidated and not accounted for in the consolidated financial statements under the equity method |
|
(d |
) |
856 |
|
197 |
|
270 |
|
283 |
|
|
Leases |
|
(e |
) |
(631 |
) |
(525 |
) |
(482 |
) |
(213 |
) |
|
Provisions |
|
(f |
) |
1,550 |
|
1,399 |
|
1,530 |
|
1,093 |
|
|
Pension provisions |
|
|
|
381 |
|
260 |
|
279 |
|
(167 |
) |
|
Other provisions |
|
|
|
1,169 |
|
1,139 |
|
1,251 |
|
1,260 |
|
|
Deferred revenue |
|
(g |
) |
(1,226 |
) |
(1,162 |
) |
(1,115 |
) |
(1,135 |
) |
|
Other IFRS adjustments |
|
(h |
) |
738 |
|
675 |
|||||