Deutsche Telekom AG - The 2009 financial year

To ensure its financial flexibility, Deutsche Telekom essentially uses two key performance indicators: gearing and relative debt. One component of the indicators is net debt, which the Group uses as an important indicator for investors, analysts, and rating agencies. Net cash from operating activities. Net cash from operating activities amounted to EUR 15.8 billion in the 2009 financial year, an increase of EUR 0.4 billion over the prior year. While cash generated from operations improved by EUR 0.6 billion, net interest paid increased by EUR 0.2 billion. Financial flexibility.* as of Dec. 31 of each year 2009 2008 2007 Relative debt Net debt EBITDA (adjusted for special factors) 2.0 2.0 1.9 Equity ratio 30.2 32.3 34.7 Gearing Net debt Shareholders’ equity 1.0 0.9 0.8 * Calculated and rounded on the basis of millions for greater precision. KPI definitions may differ from those used by third parties. Condensed consolidated statement of cash flows. millions of € 2009 2008 2007 Net cash from operating activities 15,795 15,368 13,714 Cash outflows for investments in intangible assets (excluding goodwill) and property, plant and equipment (9,202) (8,707) (8,015) Free cash flow before proceeds from disposal of intangible assets (excluding goodwill) and property, plant and equipment 6,593 6,661 5,699 Proceeds from disposal of intangible assets (excluding goodwill) and property, plant and equipment 376 372 761 Adjustmenta – – 121 Free cash flow (before dividend payments)b 6,969 7,033 6,581 Net cash used in investing activities (8,649) (11,384) (8,054) Net cash used in financing activities (5,123) (3,097) (6,125) Effect of exchange rate changes on cash and cash equivalents 58 (61) (100) Changes in cash and cash equivalents associated with non-current assets and disposal groups held for sale (85) – – Net increase (decrease) in cash and cash equivalents 1,996 826 (565) Cash and cash equivalents 5,022 3,026 2,200 a Cash outflows for parts of Centrica PLC taken over by T-Systems UK as part of an asset deal. b Deutsche Telekom defines free cash flow as net cash from operating activities less net cash outflows for investments in intangible assets (excluding goodwill) and property, plant and equipment. Deutsche Telekom is of the opinion that the “free cash flow (before dividend payments)” indicator is used by investors as a measure to assess the Group’s net cash from operating activities after deduction of cash outflows for intangible assets (excluding goodwill) and property, plant and equipment, in particular with regard to subsidiaries, associates and joint ventures, and the repay- ment of liabilities. Free cash flow (before dividend payments) should not be used to determine the financial position of the Group. There is only limited comparability between Deutsche Telekom’s definition of free cash flow and methods of calculating this measure and similarly designated measures and disclosures of other companies. 76