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 2004
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 ![[X]](xbox.gif){kind=small}
Form 40-F
![[ ]](ebox.gif){kind=small}
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
No
This Report on Form 6-K is incorporated by reference into the registration statements on Form F-3, File Nos. 333-13550, 333-12096 and 333-84510, 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
The term "Report" refers to this Quarterly Report on Form 6-K for the three-month period ended March 31, 2004.
Deutsche Telekom AG is a private 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" and "Group" 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.
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 program, including its degree of success in achieving desired levels of liquidity improvement and proceeds from dispositions of assets; the development of our cost control and efficiency enhancement initiatives, including in the areas of procurement optimization and personnel reductions; 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 the licenses needed to offer new 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 "Item 5. Operating and Financial Review and Prospects — Factors Affecting Our Business" contained in our most recent Annual Report on Form 20-F for the year ended December 31, 2003 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.
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
1
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. Unless otherwise stated, conversions of euro into U.S. dollars have been made at the rate of EUR 1.2292 to USD 1.00, which was the noon buying rate on March 31, 2004.
Amounts appearing in this report that were translated into euros from other currencies were translated in accordance with the principles described in the consolidated financial statements contained in our Annual Report on Form 20-F under "Consolidation principles — Foreign currency translation."
DEUTSCHE TELEKOM AT A GLANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
|
|
For the
year ended December 31, |
|||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |
2003 | |||||||||||||
|
(millions of €, except as otherwise indicated) | |||||||||||||||||||||
| Total net revenues (total revenues excluding inter-segment revenues) | |
13,986 | |
13,618 | |
368 | |
2.7 | |
55,838 | ||||||||||||
| Domestic | |
8,444 | |
8,506 | |
(62 | ) | |
(0.7 | ) | |
34,691 | ||||||||||
| International | |
5,542 | |
5,112 | |
430 | |
8.4 | |
21,147 | ||||||||||||
| Results from ordinary business activities | |
346 | |
494 | |
(148 | ) | |
(30.0 | ) | |
1,398 | ||||||||||
| Financial income (expense), net | |
(1,110 | ) | |
(1,092 | ) | |
(18 | ) | |
(1.6 | ) | |
(4,031 | ) | |||||||
| Depreciation and amortization | |
(3,016 | ) | |
(3,269 | ) | |
253 | |
7.7 | |
(12,884 | ) | |||||||||
| Of Property, plant and equipment | |
(1,891 | ) | |
(2,101 | ) | |
210 | |
10.0 | |
(8,206 | ) | |||||||||
| Of Intangible assets | |
(1,125 | ) | |
(1,168 | ) | |
43 | |
3.7 | |
(4,678 | ) | |||||||||
| Other taxes | |
(44 | ) | |
(49 | ) | |
5 | |
10.2 | |
(162 | ) | |||||||||
| Net income (loss) | |
169 | |
853 | |
(684 | ) | |
(80.2 | ) | |
1,253 | ||||||||||
| Earnings (loss) per share /ADS (EUR) (1) | |
0.04 | |
0.20 | |
(0.16 | ) | |
(80.0 | ) | |
0.30 | ||||||||||
| Net cash provided by operating activities | |
4,250 | |
3,117 | |
1,133 | |
36.3 | |
14,316 | ||||||||||||
| Equity ratio (%) (2) | |
30.2 | |
28.1 | |
n.m. | |
n.m. | |
29.1 | ||||||||||||
| Debt (in accordance with consolidated balance sheet at the balance sheet date) | |
53,362 | |
62,816 | |
(9,454 | ) | |
(15.1 | ) | |
55,411 | ||||||||||
| Number of employees at balance sheet date | |
|
|
|
||||||||||||||||||
| Deutsche Telekom Group | |
248,153 | |
252,380 | |
(4,227 | ) | |
(1.7 | ) | |
248,519 | ||||||||||
| Salaried employees (excl. civil servants) | |
198,489 | |
202,150 | |
(3,661 | ) | |
(1.8 | ) | |
198,726 | ||||||||||
| Civil servants | |
49,664 | |
50,230 | |
(566 | ) | |
(1.1 | ) | |
49,793 | ||||||||||
| Telephone lines (incl. ISDN channels) (3) | |
57.9 | |
58.2 | |
(0.3 | ) | |
(0.5 | ) | |
57.9 | ||||||||||
| Broadband lines (in operation) | |
4.5 | |
3.3 | |
1.2 | |
36.4 | |
4.1 | ||||||||||||
| Mobile communications subscribers (majority shareholdings) (4) | |
69.2 | |
60.2 | |
9.0 | |
15.0 | |
66.7 | ||||||||||||
|
||||||||||||||||||||||
|
|
|
|
|
| n.m. – not meaningful |
| (1) | Earnings (loss) per share for each period are calculated by dividing net income (loss) by the weighted average number of outstanding shares. The Deutsche Telekom common share to American Depository Share (ADS) ratio is 1:1. |
| (2) | The ratio equals total shareholders' equity divided by total assets at the balance sheet date. |
| (3) | Number of telephone lines (including those provided by T-Com as well as T-Systems and those used within the Group) as of the balance sheet date, including Makedonski Telekommunikacii (Maktel), a Magyar Tavkoezlesi Rt (Matáv) subsidiary. All amounts are in millions. |
| (4) | The number of subscribers of the consolidated subsidiaries included within our T-Mobile division (including subscribers of our 50/50 joint venture with Virgin Mobile in the UK) plus Hrvatski telekomunikacije d.d. (Hrvatski Telecom) and Westel, as of the balance sheet date. All amounts are in millions. |
2
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31,
2004 AND DECEMBER 31, 2003
(Unaudited)
3
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
For the year
ended December 31, 2003 |
||||||||||||||
|
|
2004 | |
2003 | |
|||||||||||||
|
|
(millions of €, except as otherwise indicated) | ||||||||||||||||
|
Note | |
|
|
||||||||||||||
| Net revenue | |
|
13,986 | |
13,618 | |
55,838 | |||||||||||
| Cost of sales | |
|
(7,570 | ) | |
(7,569 | ) | |
(31,402 | ) | ||||||||
| Gross profit (loss) | |
|
6,416 | |
6,049 | |
24,436 | |||||||||||
| Selling costs | |
|
(3,295 | ) | |
(3,387 | ) | |
(13,505 | ) | ||||||||
| General and administrative costs | |
|
(1,105 | ) | |
(1,335 | ) | |
(4,976 | ) | ||||||||
| Other operating income | |
|
731 | |
1,511 | |
4,558 | |||||||||||
| Other operating expense | |
|
(1,291 | ) | |
(1,252 | ) | |
(5,084 | ) | ||||||||
|
||||||||||||||||||
| Operating results | |
|
1,456 | |
1,586 | |
5,429 | |||||||||||
| Financial income (expense), net | |
(3 | ) | |
(1,110 | ) | |
(1,092 | ) | |
(4,031 | ) | ||||||
| of which: net interest expense | |
|
(973 | ) | |
(1,057 | ) | |
(3,776 | ) | ||||||||
| Results from ordinary business activities (1) | |
|
346 | |
494 | |
1,398 | |||||||||||
| Income taxes | |
(4 | ) | |
(80 | ) | |
460 | |
225 | ||||||||
| Income (loss) after taxes | |
|
266 | |
954 | |
1,623 | |||||||||||
| Income applicable to minority shareholders | |
|
(97 | ) | |
(101 | ) | |
(370 | ) | ||||||||
| Net income | |
|
169 | |
853 | |
1,253 | |||||||||||
| Earnings per share (2) /ADS(3) | |
|
0.04 | |
0.20 | |
0.30 | |||||||||||
|
||||||||||||||||||
|
|
|
|
|
| (1) | Including other taxes in accordance with the classification of the statement of income by the cost-of-sales-method. |
| (2) | Earnings per share for each period are calculated by dividing net income by the weighted average number of outstanding shares (approximately 4,195 million for each period presented). |
| (3) | The share to ADS ratio is 1:1. |
The accompanying notes are an
integral part of these
unaudited condensed consolidated financial
statements.
4
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2004 |
|
As of December 31, 2003 |
||||||||||
|
|
(millions of €) | ||||||||||||
|
|
|
||||||||||||
|
Note | |
|
|||||||||||
| ASSETS | |
|
|
|||||||||||
| Noncurrent assets | |
(6 | ) | |
|
|||||||||
| Intangible assets | |
|
45,484 | |
45,193 | |||||||||
| Property, plant and equipment (net) | |
|
46,661 | |
47,268 | |||||||||
| Financial assets | |
|
3,335 | |
3,190 | |||||||||
|
|
95,480 | |
95,651 | ||||||||||
| Current assets | |
|
|
|||||||||||
| Inventories, materials and supplies | |
|
1,404 | |
1,432 | |||||||||
| Receivables | |
|
5,503 | |
5,762 | |||||||||
| Other assets | |
|
2,725 | |
3,162 | |||||||||
| Marketable securities | |
|
184 | |
173 | |||||||||
| Liquid assets | |
|
9,190 | |
9,127 | |||||||||
|
|
19,006 | |
19,656 | ||||||||||
| Prepaid expenses and deferred charges | |
|
1,476 | |
772 | |||||||||
| TOTAL ASSETS | |
|
115,962 | |
116,079 | |||||||||
|
|
|
||||||||||||
| SHAREHOLDERS' EQUITY AND LIABILITIES | |
|
|
|||||||||||
| Shareholders' equity | |
|
|
|||||||||||
| Capital stock | |
|
10,746 | |
10,746 | |||||||||
| Additional paid-in capital | |
|
50,100 | |
50,092 | |||||||||
| Retained earnings | |
|
248 | |
248 | |||||||||
| Unappropriated net income (loss) carried forward from previous year | |
|
(23,311 | ) | |
(24,564 | ) | |||||||
| Net income (loss) | |
|
169 | |
1,253 | |||||||||
| Cumulative translation adjustment account | |
|
(7,141 | ) | |
(8,017 | ) | |||||||
| Minority interest | |
|
4,188 | |
4,053 | |||||||||
|
|
34,999 | |
33,811 | ||||||||||
| Accruals | |
|
|
|||||||||||
| Pensions and similar obligations | |
|
4,477 | |
4,456 | |||||||||
| Other accruals | |
|
11,443 | |
11,247 | |||||||||
|
|
15,920 | |
15,703 | ||||||||||
| Liabilities | |
(7 | ) | |
|
|||||||||
| Debt | |
|
53,362 | |
55,411 | |||||||||
| Other | |
|
10,804 | |
10,451 | |||||||||
|
|
64,166 | |
65,862 | ||||||||||
| Deferred income | |
|
877 | |
703 | |||||||||
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | |
|
115,962 | |
116,079 | |||||||||
|
||||||||||||||
The
accompanying notes are an integral part of these
unaudited
condensed consolidated financial statements.
5
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock nominal value |
|
Additional paid-in capital |
|
Consolidated shareholders' equity generated |
|
Cumulative translation adjustment account |
|
Shareholders' equity before minority interest and treasury shares |
|
Treasury shares(1) |
|
Minority interest |
|
Consolidated shareholders' equity |
|||||||||||||||||||
|
(millions of €) | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2002 | |
10,746 | |
50,077 | |
(24,316 | ) | |
(5,079 | ) | |
31,428 | |
(7 | ) | |
3,988 | |
35,409 | |||||||||||||||
| Changes in the composition of the Group | |
|
|
|
|
|
|
(5 | ) | |
(5 | ) | ||||||||||||||||||||||
| Proceeds from exercise of stock options | |
|
4 | |
|
|
4 | |
|
|
4 | |||||||||||||||||||||||
| Income after taxes | |
|
|
853 | |
|
853 | |
|
101 | |
954 | ||||||||||||||||||||||
| Foreign currency translation | |
|
|
|
(992 | ) | |
(992 | ) | |
|
(47 | ) | |
(1,039 | ) | ||||||||||||||||||
| Balance at March 31, 2003 | |
10,746 | |
50,081 | |
(23,463 | ) | |
(6,071 | ) | |
31,293 | |
(7 | ) | |
4,037 | |
35,323 | |||||||||||||||
| Balance at December 31, 2003 | |
10,746 | |
50,092 | |
(23,063 | ) | |
(8,017 | ) | |
29,758 | |
(7 | ) | |
4,053 | |
33,804 | |||||||||||||||
| Changes in the composition of the Group | |
|
|
|
|
|
|
(8 | ) | |
(8 | ) | ||||||||||||||||||||||
| Dividends for 2003 | |
|
|
|
|
|
|
(23 | ) | |
(23 | ) | ||||||||||||||||||||||
| Proceeds from exercise of stock options | |
|
8 | |
|
|
8 | |
|
|
8 | |||||||||||||||||||||||
| Income after taxes | |
|
|
169 | |
|
169 | |
|
97 | |
266 | ||||||||||||||||||||||
| Foreign currency translation | |
|
|
|
876 | |
876 | |
|
69 | |
945 | ||||||||||||||||||||||
| Balance at March 31, 2004 | |
10,746 | |
50,100 | |
(22,894 | ) | |
(7,141 | ) | |
30,811 | |
(7 | ) | |
4,188 | |
34,992 | |||||||||||||||
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
| (1) | Treasury shares are included within marketable securities in the condensed consolidated balance sheets. |
The
accompanying notes are an integral part of these
unaudited
condensed consolidated financial statements.
6
DEUTSCHE TELEKOM AG
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
For the year
ended December 31, |
|||||||||||
|
2004 | |
2003 | |
2003 | |||||||||
|
(millions of €) | |||||||||||||
| Cash flows from operating activities | |
|||||||||||||
| Net income | |
169 | |
853 | |
1,253 | ||||||||
| Income applicable to minority shareholders | |
97 | |
101 | |
370 | ||||||||
| Income (loss) after taxes | |
266 | |
954 | |
1,623 | ||||||||
| Depreciation and amortization | |
3,016 | |
3,269 | |
12,884 | ||||||||
| Income tax expense (benefit) | |
80 | |
(460 | ) | |
(225 | ) | ||||||
| Net interest expense | |
973 | |
1,057 | |
3,776 | ||||||||
| Results from the disposal of noncurrent assets | |
1 | |
(189 | ) | |
(792 | ) | ||||||
| Results from associated companies | |
73 | |
3 | |
247 | ||||||||
| Other noncash transactions | |
74 | |
(703 | ) | |
(699 | ) | ||||||
| Change in working capital (assets)(1) | |
(352 | ) | |
(1,083 | ) | |
(542 | ) | |||||
| Decrease in accruals | |
143 | |
(100 | ) | |
1,584 | |||||||
| Change in working capital (liabilities)(2) | |
(38 | ) | |
842 | |
149 | |||||||
| Income taxes received (paid) | |
438 | |
(199 | ) | |
88 | |||||||
| Dividends received | |
9 | |
2 | |
39 | ||||||||
| Cash generated from operations | |
4,683 | |
3,393 | |
18,132 | ||||||||
| Net interest paid | |
(433 | ) | |
(276 | ) | |
(3,816 | ) | |||||
| Net cash provided by operating activities | |
4,250 | |
3,117 | |
14,316 | ||||||||
| Cash flows from investing activities | |
|||||||||||||
| Cash outflows from
investments in intangible assets |
|
(103 | ) | |
(65 | ) | |
(844 | ) | |||||
| property, plant and equipment | |
(1,247 | ) | |
(1,048 | ) | |
(5,187 | ) | |||||
| financial assets | |
(201 | ) | |
(160 | ) | |
(373 | ) | |||||
| consolidated companies | |
(151 | ) | |
0 | |
(275 | ) | ||||||
| Cash
inflows from disposition of intangible assets |
|
2 | |
68 | |
24 | ||||||||
| property, plant and equipment | |
85 | |
355 | |
1,055 | ||||||||
| financial assets | |
21 | |
312 | |
1,569 | ||||||||
| shareholdings in consolidated companies and business units | |
1 | |
1,505 | |
1,510 | ||||||||
| Net change in short-term investments and marketable securities | |
256 | |
(827 | ) | |
(18 | ) | ||||||
| Other | |
0 | |
217 | |
466 | ||||||||
| Net cash (used for) /provided by investing activities | |
(1,337 | ) | |
357 | |
(2,073 | ) | ||||||
| Cash flows from financing activities | |
|||||||||||||
| Net changes in short-term debt | |
(2,307 | ) | |
(2,522 | ) | |
(9,214 | ) | |||||
| Issuance of medium and long-term debt | |
38 | |
3,952 | |
6,951 | ||||||||
| Repayments of medium and long-term debt | |
(332 | ) | |
(837 | ) | |
(2,879 | ) | |||||
| Dividends paid | |
(13 | ) | |
0 | |
(92 | ) | ||||||
| Proceeds from exercise of stock options | |
8 | |
0 | |
15 | ||||||||
| Changes in minority interests | |
0 | |
(7 | ) | |
(7 | ) | ||||||
| Net cash used for financing activities | |
(2,606 | ) | |
586 | |
(5,226 | ) | ||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | |
16 | |
(15 | ) | |
(43 | ) | ||||||
| Net increase in cash and cash equivalents | |
323 | |
4,045 | |
6,974 | ||||||||
| Cash and cash equivalents, at beginning of the period | |
8,686 | |
1,712 | |
1,712 | ||||||||
| Cash and cash equivalents, at end of the period | |
9,009 | |
5,757 | |
8,686 | ||||||||
|
||||||||||||||
|
|
|
|
|
| (1) | Changes in receivables, other assets, inventories, materials and supplies and deferred expenses. |
| (2) | Changes in other liabilities (which do not relate to financing activities) and deferred income. |
The accompanying notes are an
integral part of these
unaudited condensed consolidated financial
statements.
7
Note (1) Summary of presentation principles
The condensed consolidated financial statements (unaudited) of Deutsche Telekom as of March 31, 2004 and December 31, 2003, have been prepared in accordance with the requirements of the German Commercial Code (Handelsgesetzbuch — HGB) and the German Stock Corporation Law (Aktiengesetz — AktG).
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 the Company's report on Form 20-F for the year ended December 31, 2003.
Note (2) Changes within the consolidated Group
We sold shareholdings in various companies last year which were included in the consolidated financial statements as of March 31, 2003. These were, at T-Com, the remaining cable business, at T-Mobile, Niedermeyer in Austria, and, at T-Systems, predominantly TELECASH GmbH, SIRIS S.A.S., and Multilink SA. The T-Online division acquired the Scout24 group in the first quarter of 2004. The following table shows the effects of these acquisitions and disposals on the individual line items of the condensed consolidated statement of income for the first three months of 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T-Com | |
T-Mobile | |
T-Systems | |
T-Online | |
Total | |||||||||||||
|
(millions of €) | |||||||||||||||||||||
| Net revenue | |
(127 | ) | |
(35 | ) | |
(89 | ) | |
16 | |
(235 | ) | ||||||||
| Cost of sales | |
80 | |
28 | |
80 | |
(7 | ) | |
181 | |||||||||||
| Gross profit | |
(47 | ) | |
(7 | ) | |
(9 | ) | |
9 | |
(54 | ) | ||||||||
| Selling costs | |
32 | |
9 | |
12 | |
(6 | ) | |
47 | |||||||||||
| General and administrative costs | |
65 | |
3 | |
6 | |
(3 | ) | |
71 | |||||||||||
| Other operating income | |
(381 | ) | |
0 | |
(85 | ) | |
1 | |
(465 | ) | |||||||||
| Other operating expenses | |
57 | |
0 | |
2 | |
(4 | ) | |
55 | |||||||||||
| Operating results | |
(274 | ) | |
5 | |
(74 | ) | |
(3 | ) | |
(346 | ) | ||||||||
| Financial income (expense), net | |
0 | |
0 | |
4 | |
0 | |
4 | ||||||||||||
| Results from ordinary business activities | |
(274 | ) | |
5 | |
(70 | ) | |
(3 | ) | |
(342 | ) | ||||||||
| Income taxes | |
1 | |
0 | |
1 | |
0 | |
2 | ||||||||||||
| Net income (loss) | |
(273 | ) | |
5 | |
(69 | ) | |
(3 | ) | |
(340 | ) | ||||||||
|
||||||||||||||||||||||
Note (3) Financial income (expense), net
The components of financial expense, net for the three months ended March 31, 2004 and 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|||||||||
|
2004 | |
2003 | |||||||
|
(millions of €) | |||||||||
| Net interest (expense) | |
(973 | ) | |
(1,057 | ) | ||||
| Net income (loss) related to associated and related companies | |
(72 | ) | |
(3 | ) | ||||
| Write-downs on financial assets and marketable securities | |
(65 | ) | |
(32 | ) | ||||
| Financial income (expense), net | |
(1,110 | ) | |
(1,092 | ) | ||||
|
||||||||||
8
Note (4) Income Taxes
Income taxes consist of German corporate tax (including a solidarity surcharge levied at 5.5% on the corporate income tax) and trade tax on income, in addition to comparable foreign income taxes. Effective January 1, 2004, the deductibility of tax loss carryforwards in Germany became limited, resulting in 40% of our domestic taxable income being subject to corporate income tax.
In 2003, we recognized a tax benefit as a result of the change of the legal form of T-Mobile from a stock corporation to a partnership.
Note (5) Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, |
|||||||||
|
2004 | |
2003 | |||||||
|
(millions of €) | |||||||||
| Amortization of intangible assets | |
(1,125 | ) | |
(1,168 | ) | ||||
| of which: UMTS licenses | |
(150 | ) | |
(151 | ) | ||||
| of which: U.S. mobile communications licenses | |
(117 | ) | |
(137 | ) | ||||
| of which: goodwill | |
(613 | ) | |
(641 | ) | ||||
| Depreciation of property, plant and equipment | |
(1,891 | ) | |
(2,101 | ) | ||||
| Depreciation and amortization | |
(3,016 | ) | |
(3,269 | ) | ||||
|
||||||||||
Note (6) Noncurrent assets
The components of noncurrent assets as of March 31, 2004 and December 31, 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of | |||||||||
|
March
31, 2004 |
|
December
31, 2003 |
|||||||
|
(millions of €) | |||||||||
| Intangible assets (net of accumulated amortization) | |
45,484 | |
45,193 | ||||||
| of which: goodwill | |
24,729 | |
24,513 | ||||||
| of which: UMTS licenses | |
10,280 | |
10,260 | ||||||
| of which: U.S. mobile communications licenses | |
8,309 | |
8,179 | ||||||
| Property, plant and equipment (net of accumulated depreciation) | |
46,661 | |
47,268 | ||||||
| Financial assets | |
3,335 | |
3,190 | ||||||
| Total noncurrent assets | |
95,480 | |
95,651 | ||||||
|
||||||||||
Note (7) Liabilities
The components of liabilities as of March 31, 2004 and December 31, 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of | |||||||||
|
March
31, 2004 |
|
December
31, 2003 |
|||||||
|
(millions of €) | |||||||||
|
|
|||||||||
| Debt | |
|||||||||
| Bonds and debentures | |
50,090 | |
51,613 | ||||||
| Liabilities to banks | |
3,272 | |
3,798 | ||||||
| Other liabilities | |
10,804 | |
10,451 | ||||||
| Total liabilities | |
64,166 | |
65,862 | ||||||
|
||||||||||
Note (8) Segment information in accordance with SFAS 131
All segment information in this report has been prepared in accordance with U.S. Statement of Financial Accounting Standards No. 131 ("SFAS 131") and German Accounting Standard 3, "Segment Reporting" ("GAS 3").
9
The following tables give an overall summary of our segments for the first quarter of both 2003 and 2004. In addition to the amounts disclosed for the segments, there also is a reconciliation line, which mainly contains consolidation entries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For
the three months ended March 31, 2004 |
|
Net revenue |
|
Inter- segment revenue |
|
Total revenue |
|
Depreciation and amortization |
|
Net interest income (expense) |
|
Income (loss) related to associated and related companies |
|
Income (loss) before income taxes |
||||||||||||||||
|
(millions of €) | |||||||||||||||||||||||||||||
| T-Com | |
6,053 | |
922 | |
6,975 | |
(1,184 | ) | |
(25 | ) | |
(138 | ) | |
1,251 | |||||||||||||
| T-Systems | |
1,722 | |
753 | |
2,475 | |
(340 | ) | |
(1 | ) | |
(1 | ) | |
(42 | ) | ||||||||||||
| T-Mobile | |
5,678 | |
266 | |
5,944 | |
(1,234 | ) | |
(266 | ) | |
1 | |
156 | ||||||||||||||
| T-Online | |
453 | |
40 | |
493 | |
(109 | ) | |
27 | |
0 | |
37 | |||||||||||||||
| Group Headquarters and Shared Services | |
80 | |
1,010 | |
1,090 | |
(212 | ) | |
(770 | ) | |
2 | |
(1,156 | ) | |||||||||||||
| Reconciliation | |
0 | |
(2,991 | ) | |
(2,991 | ) | |
63 | |
62 | |
(1 | ) | |
100 | |||||||||||||
| Group | |
13,986 | |
— | |
13,986 | |
(3,016 | ) | |
(973 | ) | |
(137 | ) | |
346 | |||||||||||||
|
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For
the three months ended March 31, 2003 |
|
Net revenue |
|
Inter- segment revenue |
|
Total revenue |
|
Depreciation and amortization |
|
Net interest income (expense) |
|
Income (loss) related to associated and related companies |
|
Income (loss) before income taxes |
||||||||||||||||
|
(millions of €) | |||||||||||||||||||||||||||||
| T-Com | |
6,441 | |
1,049 | |
7,490 | |
(1,318 | ) | |
(130 | ) | |
(2 | ) | |
1,418 | |||||||||||||
| T-Systems | |
1,715 | |
845 | |
2,560 | |
(367 | ) | |
(18 | ) | |
0 | |
(18 | ) | |||||||||||||
| T-Mobile | |
5,006 | |
304 | |
5,310 | |
(1,264 | ) | |
(304 | ) | |
2 | |
(77 | ) | |||||||||||||
| T-Online | |
394 | |
51 | |
445 | |
(102 | ) | |
31 | |
(2 | ) | |
2 | ||||||||||||||
| Group Headquarters and Shared Services | |
62 | |
1,031 | |
1,093 | |
(286 | ) | |
(647 | ) | |
(32 | ) | |
(826 | ) | ||||||||||||
| Reconciliation | |
0 | |
(3,280 | ) | |
(3,280 | ) | |
68 | |
11 | |
(1 | ) | |
(5 | ) | ||||||||||||
| Group | |
13,618 | |
— | |
13,618 | |
(3,269 | ) | |
(1,057 | ) | |
(35 | ) | |
494 | |||||||||||||
|
||||||||||||||||||||||||||||||
Note (9) Subsequent events
Toll collection system
As previously reported, in September 2002, Deutsche Telekom AG, DaimlerChrysler Services AG, and Compagnie Financiere et Industrielle des Autoroutes S.A. (Cofiroute) (individually, the "partners" and collectively, the "consortium") entered into an agreement dated September 2002 and last amended in November 2002 (the "operating agreement") with the Federal Republic of Germany (represented by the German Federal Ministry of Transport, Building and Housing) relating to a project to create and operate an innovative system for the collection of toll charges for the use by heavy vehicles of the German high-speed highway system. We refer to this project as the "Toll Collect project." The toll collection system is to be created and operated by the joint venture Toll Collect GmbH ("Toll Collect"). DaimlerChrysler Services and we each hold a 45% stake in Toll Collect, with the remaining 10% being held by Cofiroute. Our involvement with Toll Collect includes our equity interest in Toll Collect that is recognized in our consolidated financial statements using the equity method of accounting, and certain financial guarantees. Additionally, certain of our divisions may act as sub-contractors of services to Toll Collect. We believe our maximum exposure to loss as a result of our interest in Toll Collect could extend beyond the amounts we have invested because of other risks associated with the financial guarantees issued for Toll Collect.
Pursuant to the provisions of the operating agreement, we, together with our partners, have, on a joint and several basis, guaranteed that Toll Collect will duly perform its duties in line with the operating
10
agreement for the period of one year after the agreed start of operations (which, pursuant to the Implementation Agreement described below, has been modified to extend to one year beyond phase 2 commencement).
In addition, the partners of Toll Collect, on a joint and several basis, undertook to fund Toll Collect in order to maintain a minimum equity ratio for Toll Collect (based on German GAAP) ("Equity Maintenance Undertaking") until the operating agreement expires. Toll Collect's total assets, financial liabilities and total liabilities at March 31, 2004, calculated on the basis of U.S. GAAP, were EUR 1.0 billion (EUR 1.3 billion under German GAAP), EUR 0.6 billion (EUR 0.6 billion under German GAAP) and EUR 1.1 billion (EUR 1.3 billion under German GAAP), respectively. We have provided a guarantee for bank loans to Toll Collect amounting to EUR 312 million as of March 31, 2004.
The start of operations initially was scheduled for August 31, 2003, but has been delayed. Commencing on December 2, 2003, the consortium, or Toll Collect GmbH (provided it joins as a party to the operating agreement) has become liable for contractual penalties of EUR 250,000 per day until the end of February 2004 and EUR 500,000 per day thereafter until the toll collection system is operational. Beside these penalties, we believe that further penalties or liability for fault are excluded in the operating agreement.
In case of a culpable violation of contractual duties during the operational phase, the Federal Republic of Germany would not be prevented from claiming damages from Toll Collect. If such penalties, revenue reductions, and other events eventually result in an equity ratio of Toll Collect below the ratio agreed upon in the Equity Maintenance Undertaking, the partners are obligated to fund operations to the extent needed to reach these equity levels.
Specific circumstances may entitle the parties to terminate the operating agreement. For termination to be effective, notice of termination must generally be given at least two months before the termination takes effect. This period may be used to rectify the reasons for termination. Termination of the operating agreement may have significant consequences for us as financial guarantor of certain obligations of Toll Collect. On February 17, 2004, the Federal Ministry of Transport sent us a letter advising that a notice of termination of the operating agreement was imminent. On February 25, 2004, we received such notice of termination of the operating agreement, dated February 19, 2004. On February 29, 2004, the consortium members reached an agreement with the Federal Republic to continue the Toll Collection project on the basic terms set forth below. On April 23, 2004, the members of the Consortium and the Federal Republic entered into an Implementation Agreement in which the parties agreed upon the implementation of the terms in the agreement of February 29, 2004 and in which the Federal Republic agreed not to exercise any rights of termination which it alleged to have resulting from the notice of termination. The Implementation Agreement also provides additional detail with respect to certain of the terms of the agreement of February 29,2004.
|
|
| • | Toll collection will be introduced in two phases — the first to commence no later than January 1, 2005 (phase 1), and the second to commence no later than January 1, 2006 (phase 2). Phase 2 operation of the toll collection system will be as specified in the operating agreement. Phase 1 operation of the toll collection system will employ certain modified components, which allow for slightly less than full technical performance in accordance with original specifications. Due to this slight deficiency, the remuneration owed by the Federal Republic to Toll Collect in phase 1 will be 95% of the remuneration which will be payable in phase 2. The agreement provides that if the toll collection system is in stable operation, the one-year term of phase 1 may be extended by mutual agreement up to two years. |
11
|
|
| • | During phase 1, the consortium is required to make available a sufficient number of on-board units (OBUs) to meet demand, with no fewer than 500,000 OBUs available at the commencement of phase 1. OBUs are devices installed in vehicles in order to allow for the collection by satellite of highway travel data. The consortium is also required to ensure the availability of necessary OBU installation facilities in Germany and abroad. |
|
|
| • | During phase 1, the Federal Republic is guaranteed to receive net toll revenues (revenues less Toll Collect remuneration) in an amount equal to at least EUR 83.4 million per month, whether from toll revenues or from the agreed contractual liability for shortfall payments. The Federal Republic is to pay during phase 1 the full 95% of the remuneration provided for in the original operating agreement for what is now phase 2 if the net toll revenues received by the Federal Republic from the toll collection system in a given month do not fall short of the gross revenues by more than 20%. No remuneration will, however, become payable when and if any given month total revenues exceed the guaranteed EUR 83.4 million by no more than 20% of the toll collection system gross revenues. |
|
|
| • | Delays in the commencement of phase 1 operation of the toll collection system will result in monthly penalties of EUR 40 million increasing by EUR 5 million each month up to a maximum of EUR 80 million per month through the initial agreed phase 1 period of one year. |
|
|
| • | During phase 1, the project company or the consortium will be liable in case of a toll shortfall to guarantee net toll revenues in an amount up to EUR 1 billion per year, but no more than EUR 83.4 million per month. Contractual penalties due to reduced performance of certain minimum parameters set out for the toll collection system in the operating agreement, certain maluses relating to less than full performance of the toll collection system or recourse claims against the consortium or the project company in the case of third party liability of the Federal Republic will not be counted against the liability cap. |
|
|
| • | In the event of major deviations from the project plan that endanger the realization of the project, the consortium and the Federal Republic are obligated to reach a good faith agreement on mutually beneficial, appropriate and reasonable measures to minimize the disadvantages for either party. In the event that neither phase 1 testing operation nor the development of phase 2 technology has been successfully completed by June 1, 2005, the Federal Republic may take measures to initiate procurement of an alternative toll collection system without prior termination of the agreement, which action would then, however, not suspend Toll Collect's obligations to continue development of the phase 2 system, nor the Federal Republic's obligation to use the system after successful completion. |
|
|
| • | Following the end of the agreed phase 1 operational period, the provisions governing penalties for delay of operation and liabilities contained in the original agreement shall continue to apply (i.e., a maximum of EUR 500,000 per day for delay, and potential unlimited liability under general principles of German law in the operating stage of phase 2). |
|
|
| • | Phase 2, thus, contemplates full operation of the Toll Collect project in accordance with the specifications set forth in the original agreement, provided, however, that certain dates and deadlines, including with respect to grounds for termination, are to be modified to conform to the amended arrangement. |
Additionally, the consortium and the Federal Republic have agreed to waive rights to mediation proceedings before arbitration with respect to any claims of the Federal Republic for damages and penalties. The Federal Republic is expected to assert claims for damages from the consortium of EUR 156 million per month for the period September 1, 2003 to December 31, 2003 and EUR 180 million per month from January 1, 2004 for lost toll revenues. In addition, among other claims, the Federal Republic is expected to allege contractual penalties of EUR 680 million because the members of the consortium did not seek the necessary agreement of the Federal Ministry of Transport before concluding certain subcontractor agreements. Deutsche Telekom AG believes the claims of the Federal Republic are unfounded. Under the terms of the agreement, the Federal Republic may resort to arbitrational proceedings for clarification of its legal position. The maximum future obligations arising from the Toll Collect project cannot be quantified with adequate certainty.
12
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion in conjunction with the annual consolidated financial statements, including the notes to those financial statements, contained in our Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 30, 2004. 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). For a discussion of the principal differences between German GAAP and U.S. GAAP as they relate to us and a reconciliation of net income (loss) and total shareholders' equity to U.S. GAAP, see "Reconciling Differences between German GAAP and U.S. GAAP" and notes (41) through (44) to the consolidated financial statements contained in our Annual Report on Form 20-F.
INTRODUCTION
We have organized our businesses into four main divisions:
|
|
| • | T-Com (for network access and services); |
|
|
| • | T-Mobile (for mobile communications); |
|
|
| • | T-Systems (for data communications and systems solutions for large business customers); and |
|
|
| • | T-Online (for consumer Internet services). |
In addition to the organization of our businesses into four main operating divisions, the operations formerly under "Other Activities" are now included in the division known as "Group Headquarters and Shared Services."
In 2004, we continue to focus on reducing our indebtedness and strengthening our cash flows, while investing in areas of our business that we believe offer the best potential for sustainable and rewarding growth. We have strived to increase consolidated net revenues and have adopted measures to improve our operating efficiencies and control our costs and capital expenditures. Our cash flows have improved in part as a result of these measures. Additionally, proceeds from the sale of non-core assets together with cash flows from operations have increased our ability to reduce our debt balance.
Agenda 2004
Deutsche Telekom has established a six-point program under the name "Agenda 2004" to further promote its profitable growth. Agenda 2004 is intended to lay the essential foundation for the current financial year and the successful future of the Group. Agenda 2004 consists of the following initiatives:
Broadband
Broadband is a crucial factor in the future development of Deutsche Telekom in the fixed and mobile communications network and is thus a key source of growth for all the divisions. Responsibility for the continued market development of broadband in the fixed network is in the joint hands of T-Com and T-Online, with the aim being to raise the number of T-DSL lines from four million at present to ten million by 2007. Measures planned to achieve this include the provision of higher bandwidths in line with demand, targeted market development, a comprehensive portfolio of attractive broadband content, and the continued roll-out in rural areas and eastern Germany.
Business customers
In the drive to win more business customers, T-Systems and T-Com are pooling their strengths in this important, high-growth segment. As part of the business customer drive, they are expanding the service portfolio for small and medium-sized business customers of the Deutsche Telekom Group. The goals include increasing their revenues from existing customers and improving cooperation between the divisions in sales.
13
Human resources
The human resources initiative encompasses the three core issues of Vivento, the employment alliance, and a motivation and qualification campaign. The reduction in personnel costs, more flexible working hours, improved efficiency and a greater commitment of the staff of Deutsche Telekom constitute key factors with respect to the future competitiveness of Deutsche Telekom in this connection.
Efficiency
An increase in productivity and efficiency and cost reductions as well as the further fine-tuning of investments are another focal point of "Agenda 2004". This includes the planned sale of noncurrent assets no longer needed for operations, and a further optimization of working capital. Moreover, synergies will be generated from the Group-wide network and IT platforms. Corporate Procurement is also realizing additional savings potential by coordinating all procurement processes in the Group.
Innovation
The projects which are combined in the innovation drive are aimed at safeguarding growth through new products and services. Deutsche Telekom will continue in its role of innovation driver in the telecommunications sector in the future. The innovation drive is designed to lay the foundations for this across the divisions.
Quality
The objective of the Group-wide quality drive is to increase customer satisfaction and strengthen customer loyalty to the "T" brand. Deutsche Telekom's efforts are focused on increasing the quality of service from the customer's point of view. In all four divisions, numerous measures have been initiated that complement each other and, in their entirety, will lift the level of quality.
RESULTS OF OPERATIONS
The following table shows information concerning our condensed consolidated statements of income for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
For the year
ended December 31, |
|||||||||||
|
2004 | |
2003 | |
2003 | |||||||||
|
(millions of €, except as indicated) | |||||||||||||
| Net revenue | |
13,986 | |
13,618 | |
55,838 | ||||||||
| Cost of sales | |
(7,570 | ) | |
(7,569 | ) | |
(31,402 | ) | |||||
| Gross profit | |
6,416 | |
6,049 | |
24,436 | ||||||||
| Selling costs | |
(3,295 | ) | |
(3,387 | ) | |
(13,505 | ) | |||||
| General and administrative costs | |
(1,105 | ) | |
(1,335 | ) | |
(4,976 | ) | |||||
| Other operating income | |
731 | |
1,511 | |
4,558 | ||||||||
| Other operating expenses | |
(1,291 | ) | |
(1,252 | ) | |
(5,084 | ) | |||||
| Operating results | |
1,456 | |
1,586 | |
5,429 | ||||||||
| Financial income (expense), net | |
(1,110 | ) | |
(1,092 | ) | |
(4,031 | ) | |||||
| of which: net interest (expense) | |
(973 | ) | |
(1,057 | ) | |
(3,776 | ) | |||||
| Results from ordinary business activities | |
346 | |
494 | |
1,398 | ||||||||
| Income taxes | |
(80 | ) | |
460 | |
225 | |||||||
| Income (loss) after taxes | |
266 | |
954 | |
1,623 | ||||||||
| Income applicable to minority shareholders | |
(97 | ) | |
(101 | ) | |
(370 | ) | |||||
| Net income | |
169 | |
853 | |
1,253 | ||||||||
| Earnings (loss) per share (1) /ADS (2) | |
0.04 | |
0.20 | |
0.30 | ||||||||
|
||||||||||||||
|
|
|
|
|
| (1) | Earnings (loss) per share for each period are calculated by dividing net income (loss) by the weighted average number of outstanding shares outstanding for the period. |
| (2) | The share to ADS ratio is 1:1. |
14
Revenue
We generated net revenue of EUR 13,986 million in the first three months of 2004. This equates to a year-on-year increase of EUR 368 million, or 2.7 %. Changes in the composition of the consolidated Group resulted in a net decrease in net revenue of EUR 235 million. The first-time consolidation of the Scout24 group accounted for a EUR 16 million increase in Group net revenue. These positive influences were offset in part by revenue decreases resulting primarily from the disposals and deconsolidation of the remaining cable business (T-Com), Niedermeyer (T-Mobile) and TELECASH GmbH, SIRIS S.A.S. and MultiLink SA (T-Systems), U.S. dollar currency translation adjustments (which reduced revenue figures by approximately EUR 0.4 billion).
Revenue growth was mainly driven by the T-Mobile and T-Online divisions. The increase in revenue of 11.9 % at T-Mobile is mainly attributable to continued growth in subscriber numbers, even though the positive development of revenue was offset in part by negative currency translation adjustments relating to U.S. dollars and British pounds sterling as well as the effect of the deconsolidation of Niedermeyer. At T-Online, continued customer growth also boosted division revenue by 10.8 %.
Revenue development at T-Com was once again influenced by regulatory and competitive factors. While access revenues rose primarily as a result of higher charges for analog lines and an increase in the number of T-DSL and T-ISDN lines, call revenues declined. Loss of market share as a result of the opening up of the market for call-by-call and pre-selection in the local network in July 2003 had a negative impact on revenue. Currency translation effects in Central and Eastern Europe and the loss of revenue resulting from the deconsolidation of the remaining cable activities also had an adverse impact.
Revenue at our T-Systems division fell slightly year-on-year. The revenue growth in IT services was unable to completely offset the decrease in revenue from the Telecommunications unit. In addition to deconsolidation effects (predominantly from the sale of TELECASH GmbH, SIRIS S.A.S., and MultiLink SA), the decrease in revenue was further impacted by the continued competitive market environment.
The following table shows the contributions of our divisions to our total revenue before elimination of inter-segment revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
|
|
For the twelve months ended December 31, |
|||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |
2003 | |||||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||||||
| T-Com | |
6,975 | |
7,490 | |
(515 | ) | |
(6.9 | ) | |
29,206 | ||||||||||
| T-Systems | |
2,475 | |
2,560 | |
(85 | ) | |
(3.3 | ) | |
10,614 | ||||||||||
| T-Mobile | |
5,944 | |
5,310 | |
634 | |
11.9 | |
22,778 | ||||||||||||
| T-Online (1) | |
493 | |
445 | |
48 | |
10.8 | |
1,851 | ||||||||||||
| Group Headquarters and Shared Services | |
1,090 | |
1,093 | |
(3 | ) | |
(0.3 | ) | |
4,268 | ||||||||||
| Total revenue | |
16,977 | |
16,898 | |
79 | |
n.m. | |
68,717 | ||||||||||||
| Inter-segment revenue | |
(2,991 | ) | |
(3,280 | ) | |
289 | |
8.8 | |
(12,879 | ) | |||||||||
| Net revenue | |
13,986 | |
13,618 | |
368 | |
2.7 | |
55,838 | ||||||||||||
|
||||||||||||||||||||||
|
|
|
|
|
| n.m. – not meaningful |
| (1) | Amounts are presented in accordance with German GAAP, as applied throughout the Group, and differ from those published by T-Online International AG in accordance with IFRS. |
15
The contribution of the divisions to Group revenue (after elimination of inter-segment revenue) is presented below:
Net revenue (excluding inter-segment revenue)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2004 |
|
Proportion
of net revenues of the Group (%) |
|
For the
three months ended March 31, 2003 |
|
Proportion of net revenues of the Group (%) |
|
Change | |
Change % |
|
For the
twelve months ended December 31, 2003 |
|||||||||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||||||||||||||
| T-Com | |
6,053 | |
43.3 | |
6,441 | |
47.3 | |
(388 | ) | |
(6.0 | ) | |
25,116 | ||||||||||||||
| T-Systems | |
1,722 | |
12.3 | |
1,715 | |
12.6 | |
7 | |
0.4 | |
7,184 | ||||||||||||||||
| T-Mobile | |
5,678 | |
40.6 | |
5,006 | |
36.8 | |
672 | |
13.4 | |
21,572 | ||||||||||||||||
| T-Online (1) | |
453 | |
3.2 | |
394 | |
2.9 | |
59 | |
15.0 | |
1,662 | ||||||||||||||||
| Group Head-quarters & Shared Services | |
80 | |
0.6 | |
62 | |
0.4 | |
18 | |
29.0 | |
304 | ||||||||||||||||
| Net revenue | |
13,986 | |
100.0 | |
13,618 | |
100.0 | |
368 | |
2.7 | |
55,838 | ||||||||||||||||
|
||||||||||||||||||||||||||||||
|
|
|
|
|
| (1) | Amounts are presented in accordance with German GAAP, as applied throughout the Group, and differ from those amounts published by T-Online International AG in accordance with IFRS. |
Our largest contributor to net revenue continued to be T-Com, which generated around 43.3 % of the Group's net revenue in the first three months of 2004. The relative significance of the T-Com division for the Group's revenue continues to decline due to the strong growth of T-Mobile. Accounting for 40.6 % of revenue, the T-Mobile division continues to increase its revenue position in comparison with the other divisions in the first three months of the current financial year.
Net revenue by geographic area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
|
|
For the
twelve months ended December 31, 2003 |
|||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |
||||||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||||||
| Domestic (Germany) | |
8,444 | |
8,506 | |
(62 | ) | |
(0.7 | ) | |
34,691 | ||||||||||
| International | |
|||||||||||||||||||||
| EU countries (excluding Germany) | |
2,090 | |
2,044 | |
46 | |
2.3 | |
7,962 | ||||||||||||
| Rest of Europe | |
1,230 | |
1,261 | |
(31 | ) | |
(2.5 | ) | |
5,118 | ||||||||||
| North America | |
2,117 | |
1,715 | |
402 | |
23.4 | |
7,610 | ||||||||||||
| Other | |
105 | |
92 | |
13 | |
14.1 | |
457 | ||||||||||||
| Total International | |
5,542 | |
5,112 | |
430 | |
8.4 | |
21,147 | ||||||||||||
| Net revenue | |
13,986 | |
13,618 | |
368 | |
2.7 | |
55,838 | ||||||||||||
|
||||||||||||||||||||||
Compared with the same periods in the previous year, the proportion of total revenue generated outside Germany increased in first three months of 2004. Despite the negative foreign currency translation effects from the conversion of other currencies into euros (especially from U.S. dollars and British pounds sterling), the percentage of international revenue in the first three months of 2004 increased to 39.6 % from 37.5 % in the three months of 2003. T-Mobile USA made a significant contribution to this positive development.
16
Operating results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
|
|
For the
twelve months ended December 31, 2003 |
|||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |
||||||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||||||
| Total Group | |
1,456 | |
1,586 | |
(130 | ) | |
(8.2 | ) | |
5,429 | ||||||||||
|
||||||||||||||||||||||
Operating results decreased by approximately EUR130 million, or 8.2 %, when compared to the same period in the previous year primarily due to the revenue increase of EUR 682 million contributed by the T-Mobile and T-Online divisions. Also the operating costs (cost of sales, selling costs and general and administrative costs) as well as other operating expenses have been reduced compared with the first three months of 2003 by a total of approximately EUR 282 million.
The cost of sales remained flat as compared with the same period in the previous year. As a percentage of net revenues, cost of sales decreased from 55.6 % to 54.1 %.
Current period general and administrative costs decreased by EUR 230 million as compared with the previous year. In addition, selling costs decreased by EUR 92 million. These cost reductions resulted primarily from greater efficiencies in capacity utilization.
Other operating expense increased by EUR 39 million.
Other operating income decreased by EUR 780 million, primarily due to the sales of non-core businesses during 2003, including the sale of cable businesses, TELECASH Kommunikations-Service GmbH, Eutelsat S.A. and the UMC (Ukrainian Mobile Communications) Joint Venture in the first quarter of 2003.
Financial income (expense), net
Financial income (expense), net consists primarily of net interest expense, and results related to associated companies accounted for using the equity method of accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||
| Net interest expense | |
(973 | ) | |
(1,057 | ) | |
84 | |
7.9 | ||||||||
| Other financial income (expense) | |
(137 | ) | |
(35 | ) | |
(102 | ) | |
n.m. | |||||||
| Total financial income (expense) net | |
(1,110 | ) | |
(1,092 | ) | |
(18 | ) | |
(1.6 | ) | ||||||
|
||||||||||||||||||
|
|
|
|
|
| n.m. – not meaningful |
In the first three months of 2004, net financial expense increased slightly compared with the previous year by EUR 18 million to EUR 1,110 million. In the first three months of 2004, the net interest expense decreased, primarily due to the reduced debt balance, offset in part by the results of entities accounted for under the equity method (including our investment in the Toll Collect venture).
Income Taxes
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||
| Total Group | |
(80 | ) | |
460 | |
(540 | ) | |
n.m. | ||||||||
|
||||||||||||||||||
|
|
|
|
|
| n.m. – not meaningful |
17
Income taxes consist of German Corporate tax (including a solidarity surcharge levied at 5.5% on the corporate income tax) and trade tax on income, in addition to comparable foreign income taxes. Effective January 1, 2004, the deductibility of tax loss carryforwards in Germany became limited, resulting in 40% of our domestic taxable income being subject to corporate income tax. In 2003, we recognized a tax benefit as a result of the change of the legal form of T-Mobile from a stock corporation to a partnership.
Net income
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, |
|
||||||||||||||||
|
2004 | |
2003 | |
Change | |
% Change | |||||||||||
|
(millions of €, except as indicated) | |||||||||||||||||
| Total Group | |
169 | |
853 | |
(684 | ) | |
(80.2 | ) | ||||||||
|
||||||||||||||||||
In the first three months of 2004, our net income decreased by EUR 684 million to EUR 169 million as compared with the first three months of 2003. This is primarily a result of favorable tax benefits recorded in the first quarter of 2003, in addition to the effects from ordinary business activities as set forth above.
SEGMENT ANALYSIS
Changes in segment composition
T-Com
During the first quarter of 2003, T-Com disposed of its remaining cable businesses. Total cable operations contributed EUR 167 million to net revenues in 2003. Accordingly, there was no contribution from these operations during the first quarter of 2004.
Effective as of April 1, 2003, DeTeMedien acquired all of the shares of t-info GmbH from T-Online for approximately EUR 86 million. t-info offers directory services and special directories on the Internet and mobile terminals, such as PDAs and mobile phones.
T-Mobile
T-Mobile UK sold its 50 % equity investment in the British mobile communications provider, Virgin Mobile, to the Virgin Group at the end of January 2004. The companies also concluded an agreement granting Virgin Mobile use of T-Mobile UK's mobile communications network for a ten-year period. Under the new agreement, Virgin Mobile will receive inbound and outbound call revenues. In addition, in the event Virgin Mobile consummates a public offering of its equity securities, we will receive a specified amount of the proceeds up to certain limits.
Effective in January 2004, T-Mobile Austria sold 100 % of the shares in Niedermeyer GmbH, the Austrian consumer electronics and photographic equipment chain, to Value Management Services GmbH. Niedermeyer will remain an important contractual partner of T-Mobile Austria. The share of T-Mobile Austria's revenue for the whole of 2003 accounted for by Niedermeyer was EUR 153 million; in the first quarter of 2003, it amounted to EUR 35 million.
T-Systems
Business development in the first quarter of 2004 was impacted by the sale of TELECASH GmbH, T-Systems SIRIS S.A.S., T-Systems MultiLink SA, and T-Systems Card Services AG in 2003. Accordingly, there was no contribution from these operations during the first quarter of 2004.
18
T-Online
Effective as of April 1, 2003, t-info was transferred to DeTeMedien (T-Com) for approximately EUR 86 million. During the first quarter of 2004, T-Online completed the acquisition of 100% of the shares of the Internet portal operator Scout 24 AG from Beisheim Holding Schweiz for approximately EUR 180 million.
Additionally, since T-Online publishes its stand-alone results in accordance with IFRS, there may be differences between the presentation of T-Online International AG and the presentation of the T-Online division in those items where IFRS differs from HGB accounting principles.
Transition to the cost-of-sales method
We present our consolidated statements of income using the cost-of-sales method, which is more commonly used internationally. Besides allocating operational expenses to functional areas, this also involves including other taxes in operating results, or results from ordinary business activities.
Segment information by division for the first three months of 2004 and 2003
The following tables give an overall summary of our segments for the first three months of 2004 and 2003, including the reconciliation line, which mainly contains consolidation entries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For
the three months ended March 31, 2004 |
|
Net revenue | |
Inter-segment revenue |
|
Total revenue |
|
Depreciation and amortization |
|
Net interest income (expense) |
|
Income (loss) related to associated and related companies |
|
Income
(loss) before income taxes |
||||||||||||||||
|
(millions of €) | |||||||||||||||||||||||||||||
| T-Com | |
6,053 | |
922 | |
6,975 | |
(1,184 | ) | |
(25 | ) | |
(138 | ) | |
1,251 | |||||||||||||
| T-Systems | |
1,722 | |
753 | |
2,475 | |
(340 | ) | |
(1 | ) | |
(1 | ) | |
(42 | ) | ||||||||||||
| T-Mobile | |
5,678 | |
266 | |
5,944 | |
(1,234 | ) | |
(266 | ) | |
1 | |
156 | ||||||||||||||
| T-Online | |
453 | |
40 | |
493 | |
(109 | ) | |
27 | |
0 | |
37 | |||||||||||||||
| Group Headquarters & Shared Services | |
80 | |
1,010 | |
1,090 | |
(212 | ) | |
(770 | ) | |
2 | |
(1,156 | ) | |||||||||||||
| Reconciliation | |
0 | |
(2,991 | ) | |
(2,991 | ) | |
63 | |
62 | |
(1 | ) | |
100 | |||||||||||||
| Group | |
13,986 | |
— | |
13,986 | |
(3,016 | ) | |
(973 | ) | |
(137 | ) | |
346 | |||||||||||||
|
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For
the three months ended March 31, 2003 |
|
Net revenue | |
Inter-segment revenue |
|
Total revenue |
|
Depreciation and amortization |
|
Net interest income (expense) |
|
Income (loss) related to associated and related companies |
|
Income
(loss) before income taxes |
||||||||||||||||
|
(millions of €) | |||||||||||||||||||||||||||||
| T-Com | |
6,441 | |
1,049 | |
7,490 | |
(1,318 | ) | |
(130 | ) | |
(2 | ) | |
1,418 | |||||||||||||
| T-Systems | |
1,715 | |
845 | |
|||||||||||||||||||||||||