Deutsche Telekom completes revaluation of parcels of land

Total replacement costs of DM 10.8 billion confirm value assessment of February 2001 - Carrying value of DM 8 billion requires further devaluation of DM 0.9 billion - Upward differences identified but not recognized for accounting purposes of DM 2.8 billion - Previous financial statements were correct - Antenna business to be outsourced The revision of the values of Deutsche Telekom AG's plots of land has now been completed and has led to total replacement costs of almost DM 11 billion. "The value adjustment necessary for 2001 amounts to DM 0.9 billion. At the same time, DM 2.8 billion of upward differences identified but not recognized for accounting purposes were identified", stated Deutsche Telekom CFO, Dr. Karl-Gerhard Eick, in Bonn. The result of the revaluation reinforces Deutsche Telekom's conviction that previous annual financial statements were correct.

The new strategy for the parcels of land of Deutsche Telekom approved in the autumn of last year resulted in the need to carry out a revaluation of its plots of land. In the course of the project, which took about a year, 11,527 items of parcels of land with approximately 30,000 lots were documented new in detail in the course of the project and subjected to a critical value assessment as part of a very intensive valuation process. "The result of this documentation and evaluation is an informative tool for Deutsche Telekom to control the future use and monetisation of parcels of land as part of value-oriented management and to implement its strategy established in the autumn of 2000", said Eick.

Many external accounting and real estate experts, including Professors Küting and Weber, the real estate experts Brett, Brühl and Nann as well as Arthur Andersen Real Estate supported and contributed their expertise to this project along with almost 500 of Deutsche Telekom's own employees. The employees were fully trained in advance in preparation for the nationwide documentation.

"The value assessment was undertaken as part of the lower-of-cost-or-market-value test to which the company is legally obliged; the current replacement costs were calculated individually for all items of parcels of land not identified for sale, based on the value factors relevant for the market for land," stated Professors Küting and Weber.

The comparison of the newly calculated replacement costs with the carrying amounts - mostly calculated at the time of the foundation of Deutsche Telekom using the legally prescribed general process and updated to the values of 30 September 2001 - produced the following results:

The total value adjustment necessary, calculated in detail and for each individual item of parcels of land, is DM 4.9 billion, of which DM 4 billion was already included in Deutsche Telekom's balance sheet provisions made in previous years; DM 3.9 billion of that in the 2000 financial statements.

However, the new carrying amount of the parcels of land in the amount of DM 8 billion does not reflect the added value of a considerable number of plots of land as compared to the balance sheet carrying amount, namely the upward differences identified but not recognized for accounting purposes.

German accounting law does not allow of these upward differences to be recorded in the balance sheet, but it does force companies to make downward adjustments for real estate to the full extent that replacement costs as determined in the evaluation are lower than the current carrying amount. For 2001 this means that a further value adjustment of DM 0.9 billion is required on the basis of the final results of the investigation in addition to the value adjustment of DM 4 billion of previous years, although the valuation process found that additional upward differences exist to almost exactly the same amount as the additional devaluations. The total replacement value according to today's findings largely corresponds to the estimated amount under the provisional evaluation of February 2001, which was the basis for the value adjustment in the 2000 financial statements (DM 10.8 billion instead of DM 11.1 billion).

The result of the comprehensive, detailed valuation with a current carrying amount of DM 10.8 billion reinforces Deutsche Telekom's conviction that the result of the general valuation of DM 13.0 billion, which was the basis for the opening balance sheet of 1 January 1995, is also correct. A difference of considerably less than 20 percent between the current valuation and the valuation in the opening balance sheet is not unusual and is within the range of usual estimates in the opinion of all the experts involved, in view of the fact that both values are estimated values for items which are very strongly influenced by individual assessments, namely parcels of land.

In addition to the DM 2.8 billion mentioned, there are also considerable upward differences in the overall network of antenna sites, which cannot be recorded under reporting law. The strict principle of individual valuation forces us to calculate the replacement cost for each individual item of plot of land. By contrast, the full value of the antenna network is not based on the individual item of parcels of land, but on the network itself. The added value of the network compared with the individual values is put at around

DM 4 billion, based on estimates using competitor information. In the same way as the upward differences mentioned above are not reflected in Deutsche Telekom's balance sheet, neither is this added value. As far as the antenna business is concerned, Deutsche Telekom decided to outsource it to form an independent company in which third-parties may take a stake.

Altogether, Deutsche Telekom sees the result of the valuation carried out with regard to the opening balance sheet and all subsequent balance sheets from December 1995 to 2000 as a reinforcement of its view. The new valuation approach only became necessary after Deutsche Telekom decided at the end of 2000 to introduce a real estate strategy oriented at the monetisation of its real estate and to implement this strategy in the course of the current year.