Selected notes to the consolidated statement of financial position

Sprint has been included in Deutsche Telekom’s consolidated financial statements as a fully consolidated subsidiary since April 1, 2020. As a result of the change in the composition of the Group during the course of the year, the remeasured assets and liabilities were recognized as of this date, and all income and expenses generated from the date of first-time consolidation are included in Deutsche Telekom’s consolidated income statement. This affects the comparability of the figures for the current period with the prior-year figures.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”

Trade receivables

At EUR 12.7 billion, trade receivables increased by EUR 1.8 billion against the 2019 year-end level. EUR 2.7 billion of this increase is attributable to the inclusion of Sprint. Excluding this effect, receivables in the United States operating segment declined, mainly due to effects of the coronavirus pandemic, with the number of new contracts concluded for Equipment Installment Plans falling on account of the temporary store closures. Bad debt expense increased compared with the prior-year period, primarily on account of the customers acquired as a result of the acquisition of Sprint as well as in connection with the estimated impact of the coronavirus pandemic. In the Germany operating segment, receivables increased as a result of the contractual termination of a revolving factoring agreement for receivables from consumers and business customers. In the other operating segments, receivables declined slightly overall. Exchange rate effects, primarily from the translation from U.S. dollars into euros, also reduced the carrying amounts.

Contract assets

At EUR 1.9 billion as of the reporting date, the carrying amount of contract assets remained unchanged against December 31, 2019. The Sprint assets recognized in connection with the business combination resulted in an increase of EUR 0.1 billion. Exchange rate effects, mainly from the translation from U.S. dollars into euros, had an offsetting effect. Contract assets relate to receivables that have not yet legally come into existence, which arise from the earlier – as compared to billing – recognition of revenue, in particular from the sale of goods and merchandise. Furthermore, receivables from long-term construction contracts are recognized under contract assets.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”

Inventories

The carrying amount of inventories increased by EUR 0.5 billion compared to December 31, 2019 to EUR 2.1 billion, mainly on account of the assets of Sprint acquired in connection with the business combination.

Intangible assets

The carrying amount of intangible assets increased by EUR 58.2 billion to EUR 126.4 billion. Effects from changes in the composition of the Group of EUR 59.7 billion in connection with the acquisition of Sprint contributed to this increase, which also includes preliminary goodwill arising from the transaction of EUR 8.4 billion. Additions of EUR 3.2 billion also increased the carrying amount. They mainly related to investments in the United States, Europe, and Germany operating segments, primarily for the development of network software. Additions also include, in the United States operating segment, FCC spectrum licenses of EUR 0.9 billion, primarily acquired at a frequency auction that ended in March 2020 and, in the Europe operating segment, spectrum licenses of EUR 0.3 billion acquired at a 5G frequency auction in Hungary that ended in March 2020. Amortization of EUR 3.0 billion, negative exchange rate effects of EUR 1.5 billion, mainly from the translation of U.S. dollars into euros, and disposals of EUR 0.2 billion, primarily from the derecognition of billing software for postpaid customers in the United States, which was still in development, reduced the carrying amount. Due to the migration of Sprint contract customers to the T‑Mobile US billing software, it was decided that this software was not suitable for the joint customer base and would not be put into operation.

Property, plant and equipment

The carrying amount of property, plant and equipment increased by EUR 13.4 billion compared to December 31, 2019 to EUR 62.9 billion. Effects from changes in the composition of the Group in connection with the acquisition of Sprint contributed EUR 14.1 billion to this increase. Additions of EUR 6.3 billion to upgrade and build out the network in our United States operating segment and in connection with the broadband/fiber-optic build-out, the IP transformation, and mobile infrastructure in the Germany and Europe operating segments also increased the carrying amount. Depreciation of EUR 6.0 billion, disposals of EUR 0.6 billion, and negative exchange rate effects of EUR 0.4 billion, especially from the translation of U.S. dollars into euros, reduced the carrying amount.

Right-of-use assets

The carrying amount of right-of-use assets increased by EUR 5.8 billion compared to December 31, 2019 to EUR 23.8 billion. The change in the composition of the Group in connection with the business combination of T‑Mobile US and Sprint contributed EUR 6.3 billion to this increase. Additions of EUR 2.3 billion, mainly in the United States operating segment, also increased the carrying amount. By contrast, depreciation of EUR 2.3 billion, disposals of EUR 0.2 billion, and negative exchange rate effects of EUR 0.2 billion decreased the carrying amount.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”

Capitalized contract costs

As of June 30, 2020, the carrying amount of capitalized contract assets remained unchanged at the level of December 31, 2019 of EUR 2.1 billion. These assets mainly relate to the Germany, United States, and Europe operating segments.

Investments accounted for using the equity method

The carrying amount of investments accounted for using the equity method remained unchanged against December 31, 2019 at EUR 0.5 billion.

Other financial assets

The carrying amount of current and non-current other financial assets increased by EUR 2.2 billion compared with December 31, 2019 to EUR 9.5 billion. The acquisition of Sprint resulted in an increase of EUR 0.4 billion as of the date of first-time consolidation. Under derivative financial assets, the carrying amount of derivatives without a hedging relationship increased by EUR 0.5 billion to EUR 1.4 billion, mainly in connection with new additions of embedded derivatives and embedded derivatives assumed in connection with the acquisition of Sprint at T‑Mobile US. The carrying amount of derivatives with a hedging relationship increased by EUR 1.7 billion to EUR 3.2 billion, mainly due to the increase in positive fair values from interest rate swaps in fair value hedges, which is primarily the result of a significant decline in the interest rate level. In addition, other financial assets increased by EUR 0.3 billion in connection with grants receivable from funding projects for the broadband build-out in Germany. In connection with cash collateral, in particular in connection with forward-payer swaps concluded for borrowings at T‑Mobile US, which were terminated prematurely in April 2020, the carrying amount of other financial assets decreased by EUR 0.6 billion overall.

Non-current assets and disposal groups held for sale

The carrying amount of non-current assets and disposal groups held for sale increased by EUR 1.7 billion to EUR 1.8 billion. This increase is attributable to the agreement concluded with the U.S. satellite TV operator DISH as part of the acquisition of Sprint by T‑Mobile US, to sell Sprint’s prepaid business to DISH as part of an asset deal. The transaction resulted from a condition of approval for the business combination with Sprint imposed by the U.S. Department of Justice (DoJ) and was duly concluded as of July 1, 2020. As part of their recognition as non-current assets and disposal groups held for sale, property, plant and equipment, trade receivables, goodwill, and other assets were reclassified.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”

For further information on the sale of the prepaid business, please refer to the section “Events after the reporting period.”

Financial liabilities and lease liabilities

The following table shows the composition and maturity structure of financial liabilities as of June 30, 2020:

The carrying amount of current and non-current financial liabilities increased by EUR 50.3 billion to EUR 116.6 billion compared with the end of 2019. This increase is mainly attributable to the consolidation of Sprint following the consummation of the business combination of T‑Mobile US and Sprint. Exchange rate effects, in particular from the translation of U.S. dollars into euros, raised the carrying amount by EUR 1.1 billion.

The first-time consolidation of Sprint as of April 1, 2020 increased the carrying amount of financial liabilities by a total of EUR 39.8 billion. The financing structure was also reorganized in the course of combining the businesses of T‑Mobile US and Sprint. Immediately after the transaction, liabilities of the former Sprint totaling USD 9.8 billion (EUR 8.9 billion) were repaid, of which USD 7.4 billion (EUR 6.8 billion) fell due pursuant to a binding change-in-control clause.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”

In connection with the business combination with Sprint, on April 1, 2020, the “new” T‑Mobile US drew down on a bridge loan facility agreed with a total of 16 banks with a total volume of USD 19 billion (EUR 17.3 billion). In connection with the financing provided with this bridge loan facility, fees of USD 0.4 billion (EUR 0.3 billion) were paid to the banks. Additionally, T‑Mobile US raised a new term loan of USD 4 billion (EUR 3.7 billion) on April 1, 2020. The loan facilities were used, among other things, for the early repayment of intragroup loan liabilities to Deutsche Telekom AG and to refinance debt of the former Sprint. Senior secured notes, issued on April 9, 2020 for a total of USD 19 billion (EUR 17.3 billion), with terms of between 5 and 30 years and bearing interest of between 3.500 and 4.500 percent, were used to repay the bridge loan facility. On June 24, 2020, T‑Mobile US issued senior secured notes with a total volume of USD 4 billion (EUR 3.6 billion) with terms of between 6 and 11 years and bearing interest of between 1.500 and 2.550 percent. These notes are to be used to repay intragroup loans and refinance high-yield bonds issued by the former Sprint.

Furthermore, Deutsche Telekom AG had issued U.S. dollar bonds of USD 1.3 billion (EUR 1.1 billion), euro bonds of EUR 0.2 billion, and bonds in Swiss francs of CHF 0.3 billion (EUR 0.3 billion) in the first quarter of 2020, which increased the carrying amount.

Scheduled repayments in the Group of U.S. dollar bonds totaling USD 1.3 billion (EUR 1.1 billion), euro bonds totaling EUR 2.0 billion, and a zero-coupon bond of EUR 0.4 billion, had an offsetting effect in the reporting period. In addition, as part of the liabilities management in the Group, early repayments were made on euro bonds and U.S. dollar bonds of Deutsche Telekom International Finance B.V. which fall due in 2021 and 2022. These repayments took the form of partial buybacks totaling EUR 0.8 billion and USD 1.4 billion (EUR 1.3 billion) respectively.

The carrying amount of liabilities to banks decreased by EUR 1.5 billion compared with December 31, 2019 to EUR 5.0 billion. This decline is mainly due to the net reduction of EUR 1.4 billion in the balance of short-term borrowings. This includes a Deutsche Bundespost treasury note (zero-coupon bond) issued in the past with a carrying amount of EUR 1.4 billion, which fell due on December 31, 2019 and was repaid on that date by a bank using its own funds. The payment by Deutsche Telekom AG to this bank was made on the following bank working day of January 2, 2020.

For further information, please refer to the section “Notes to the consolidated statement of cash flows.”

The liabilities with right of creditors to priority repayment in the event of default of EUR 4.7 billion (December 31, 2019: EUR 0.0) relate primarily to bonds issued by Sprint for which spectrum licenses and cash and cash equivalents were provided as collateral. 

The carrying amount of other interest-bearing liabilities increased by EUR 5.1 billion compared with December 31, 2019 to EUR 9.5 billion. The acquisition of Sprint resulted in an increase of EUR 3.6 billion in the carrying amount of non-current other interest-bearing liabilities as of the date of first-time consolidation. The carrying amount of other interest-bearing liabilities increased by a total of EUR 1.5 billion in connection with collateral received for derivative financial instruments.

For further information on collateral, please refer to the section “Disclosures on financial instruments.”

The carrying amount of derivative financial liabilities decreased by EUR 0.9 billion in total to EUR 0.7 billion, mainly due to the decline of EUR 1.0 billion from the premature termination of forward-payer swaps by T‑Mobile US at the start of April 2020. These forward-payer swaps with a nominal value of EUR 8.8 billion when translated into euros were concluded for borrowings at T‑Mobile US and designated as cash flow hedges in effective hedging relationships. By the date of termination, they gave rise to a remeasurement loss recognized directly in equity in the reporting period of EUR 0.9 billion. The secured term loan was raised on April 1, 2020. 

For further information on derivative financial liabilities, please refer to the section “Disclosures on financial instruments.”

The carrying amount of current and non-current lease liabilities increased by EUR 6.0 billion to EUR 25.8 billion compared with December 31, 2019, mainly on account of the inclusion of Sprint in the United States operating segment. The majority of the lease liabilities relate to the United States operating segment. Overall, lease liabilities in the amount of EUR 5.8 billion are due within one year.

Trade and other payables

The carrying amount of trade and other payables increased by EUR 0.2 billion to EUR 9.6 billion. The inclusion of Sprint increased the carrying amount by EUR 2.9 billion. In operational terms, the United States operating segment recorded a decrease in trade payables compared with December 31, 2019, due in particular to lower liabilities to terminal equipment vendors and declines in liabilities as a result of reduced marketing activities, in part in consequence of the coronavirus pandemic. Liabilities also decreased in the other operating segments.

Provisions for pensions and other employee benefits

The carrying amount of provisions for pensions and other employee benefits increased from EUR 5.8 billion as of December 31, 2019 to EUR 8.0 billion, mainly due to upheavals on the financial markets in the first half of 2020 and the associated decline in the prices of plan assets. Overall, this resulted in an actuarial loss of EUR 1.4 billion from the remeasurement of defined benefit plans. In addition, the carrying amount increased by EUR 0.8 billion due to the change in the composition of the Group in connection with the business combination of T‑Mobile US and Sprint.

For further information on the Global Pension Policy and a description of the plan, please refer to the 2019 Annual Report, Note 15 “Provisions for pensions and other employee benefits.”

Current and non-current other provisions

The carrying amount of current and non-current other provisions increased by EUR 1.6 billion compared with the end of 2019 to EUR 8.2 billion. EUR 1.7 billion of this related to the business combination of T‑Mobile US and Sprint.

Other liabilities

The carrying amount of current and non-current other liabilities increased by EUR 1.4 billion to EUR 6.2 billion. The inclusion of Sprint resulted in an increase of EUR 0.9 billion. In addition, other liabilities increased by EUR 0.2 billion due to existing build-out obligations in connection with grants receivable from funding projects for the broadband build-out in the Germany operating segment.

Contract liabilities

The carrying amount of current and non-current contract liabilities increased by EUR 0.2 billion compared with December 31, 2019 to EUR 2.2 billion. These mainly comprise deferred revenues. EUR 0.2 billion of the increase is attributable to the inclusion of Sprint.

Liabilities directly associated with non-current assets and disposal groups held for sale

The carrying amount of liabilities directly associated with non-current assets and disposal groups held for sale increased by EUR 0.5 billion. This increase arose in particular in connection with the agreement consummated on July 1, 2020 concerning the sale of Sprint’s prepaid business to DISH. Primarily trade payables were reclassified.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”

For further information on the sale of the prepaid business, please refer to the section “Events after the reporting period.”

Shareholders’ equity

The carrying amount of shareholders’ equity increased from EUR 46.2 billion as of December 31, 2019 to EUR 73.5 billion. The business combination of T‑Mobile US and Sprint, consummated on April 1, 2020, resulted in changes in the composition of the Group that increased shareholders’ equity by EUR 17.3 billion, and transactions with owners that increased shareholders’ equity by EUR 13.4 billion as of the date of first-time consolidation (including a payment received in relation to a cost allocation from SoftBank in connection with CPUC). Profit of EUR 2.4 billion and capital increases from share-based payments of EUR 0.2 billion also increased the carrying amount. Shareholders’ equity was reduced in connection with dividend payments for the 2019 financial year to Deutsche Telekom AG shareholders in the amount of EUR 2.8 billion and to other shareholders of subsidiaries in the amount of EUR 0.2 billion. Other comprehensive income also reduced shareholders’ equity by EUR 3.0 billion. The main factors in this negative other comprehensive income were the remeasurement of defined benefit plans (EUR 1.4 billion), currency translation effects recognized directly in equity (EUR 1.0 billion), and losses from hedging instruments, mainly from forward-payer swaps concluded for borrowings at T‑Mobile US, which were terminated prematurely in April 2020 and for which the cumulative changes in value must be reversed over the terms of the loans (EUR 1.0 billion). By contrast, income taxes relating to components of other comprehensive income of EUR 0.3 billion had a positive impact on other comprehensive income.

Primarily as a result of the business combination of T‑Mobile US and Sprint, the share of consolidated shareholders’ equity attributable to non-controlling interests increased from EUR 14.5 billion to EUR 37.7 billion. The following table shows the development of transactions with owners and the change in the composition of the Group in the statement of changes in equity:

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group.”