FINANCIAL STATEMENTS - KPN

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NOTES TO THE CONSOLIDATED STATEMENT OF INCOME [1] Revenues Amounts in millions of EUR 2012 2011 Rendering of services 11,848 12,388 Sale of goods 438 488 Royalties and other revenues 123 146 Total revenues 12,409 13,022 Rendering of services included traffic and subscription fees for the usage of KPN’s networks, handset leasing fees, one-off connection and other initial fees and revenues from designing, building, deploying and managing ICT solutions which are provided on a time and material basis or as a fixed-price contract. The sale of goods included peripheral and other equipment. Reference is made to the Note 34 ‘Segment Reporting’ for more information about revenues. [2] Other income Amounts in millions of EUR 2012 2011 Gains on the sale of property, plant and equipment 208 123 Other gains 91 18 Total other income 299 141 Gains on the sale of property, plant and equipment mainly related to sale and lease back transactions of mobile towers in the Netherlands and Germany. These lease transactions were reported as operating lease and contain annual rental guarantees of EUR 20 million for 15 years. For more details on lease and rental obligations reference is made to the Note 31 ‘Commitments, contingencies and legal proceedings‘. In 2012 other gains included the result on the sale of Getronics International EUR 8 million, the sale of SNT Inkasso EUR 16 million, the sale of KPN Spain EUR 36 million and obtained other services fee amounting EUR 27 million. In prior year other gains included gains from the sale of KPN France EUR 10 million and Pharma Partners EUR 5 million. [3] Employee benefits Amounts in millions of EUR 2012 2011 Salaries and wages 1,478 1,558 Pension charges (incl. Social Plan 2001) [22] 226 125 Social security contributions 207 191 Total employee benefits 1,911 1,874 Reference is made to Note 34 ‘Segment Reporting’ for further information on the number of employees and to Note 23 ‘Provisions for other liabilities and charges’ for further information on employee redundancy costs. In the other operating expenses an amount of EUR 123 million is recorded related to restructuring of the personnel (2011: EUR 127 million). Board of Management and Supervisory Board The Remuneration and Organizational Development Report included in this Annual Report contains required information comprising ‘D: Details of actual pay-out for 2012’ and ‘E: Supervisory Board Pay 2012’, which are deemed part of these financial statements. Share option plans KPN has granted stock options on its shares to members of the Board of Management, Senior Management and employees in the Netherlands with a collective labor agreement. As all remaining share option plans vested in 2010 no cost are recorded in 2012 and 2011. All options granted are granted with an exercise price equal to market share price at grant date, are equity-settled and are forfeited when employees leave KPN for reasons other than retirement, disability or death (except for some personnel plans). The other main features of the option plans are: Exercise price (in EUR) Maximum term Exercisable (years after grant date) Vesting period Profits in escrow if exercised within 3 years 1 Performance related 2 Share capital 2004 Management 6.45 8 years 3 years 3 years – yes Management 6.45 8 years 3 years 3 years – no Management Belgium 6.45 8 years 3.7 years 3 years – no 2005 Management 6.73-7.18 8 years 3 years 3 years – yes Management 6.73 8 years 3 years 3 years – no Management Belgium 6.73 8 years 3.7 years 3 years – no 2007 CEO (former) 12.09 5 years immediate 3 years yes no 1) If options are exercisable immediately, the profits from any exercise prior to the third anniversary of the date of issue will be held in escrow until the third anniversary of the issue, at which time such profits will be released to the relevant option holder, provided that the option holder remains employed by KPN. 2) The number of options that vested after the three-year vesting period and were performance related, depended on KPN’s Total Shareholder Return (stock appreciation plus dividend pay-out; TSR) relative to a peer group of European telecommunication companies. KPN | Annual Report 2012 101
Consolidated Financial Statements Notes to the Consolidated Statement of Income continued Summary of options outstanding as of December 31, 2012 Number outstanding Exercise price December 31, 2012 per option Weighted average remaining contractual life (years) Weighted average fair value at the date of grant Granted in: 2005 405,282 6.73-7.18 0.3 2.73 Total 405,282 Summary of the changes in outstanding options Weighted average exercise price per option in EUR 2012 2011 Weighted average exercise price per option in EUR Number of options Number of options Outstanding at the beginning of the year 908,226 7.62 1,673,041 7.50 Options granted – – – – Options exercised -243,433 6.48 -764,815 7.36 Options expired -259,511 10,04 – – Options forfeited – – – – Outstanding at the end of the year 405,282 6.75 908,226 7.62 – of which: exercisable 405,282 6.75 908,226 7.62 The actual number of options is adjusted for the actual vesting percentages after the performance period. The average KPN stock price in 2012 was EUR 6.83. The fair value of each option is estimated at the date of grant using a binomial model. Share plans Since 2006, KPN has granted shares and share-based awards on its shares to members of the Board of Management, and Senior Management: The Performance Share Plan (‘PSP’). The conditionally granted PSP award will vest after three years if the employee is still employed with KPN. The number of share-based awards which vest depends on KPN’s TSR position ranking relative to its peer group of European telecommunications companies (including KPN). Since 2011 vesting is based for 75% on relative TSR and for 25% on non-financial performance measures i.e. energy reduction targets and a reputation dashboard. The list of companies included in the peer group and the vesting schedule can be found under ‘Long-term incentives’ in the ‘Remuneration and Organizational Development Report’ section. In May 2012 an additional equity settled plan was issued for Senior Management: the KPN Restricted Share Plan. Shares under this plan will vest on January 1, 2015 if the employee is still employed with KPN. For this plan no other performance measures are applicable. The main features of the awards granted under the PSP and Restricted Share Plan plan to KPN management are summarized below: Maximum term Settlement type 1 Vesting period Holding period after vesting of/until 2006 Board of Management (excl. CEO), Senior Management 5 years Equity 3 years 2 years 2007 Board of Management, Senior Management 3 years Cash 3 years – 2008 CEO Until July 2011 Equity 1 year Until July 2011 Board of Management (excl. CEO) 5 years Equity 3 years 2 years Senior Management 3 years Cash 3 years – 2009 CEO Until July 2011 Equity 1 year Until July 2011 Board of Management (excl. CEO) 5 years Equity 3 years 2 years Senior Management 3 years Cash 3 years – 2010 CEO Until July 2011 Equity 1 year Until July 2011 Board of Management (excl. CEO) 5 years Equity 3 years 2 years Senior Management 3 years Cash 3 years – 2011 Board of Management 5 years Equity 2 3 years 2 years 2012 Senior Management 3 years Cash 3 years – Board of Management and Senior Management 5 years Equity 2 3 years 2 years Senior Management 3 years Cash 3 years – Senior Management Restricted Share Plan 2.7 years Equity 2.7 years – 1) The cash-based share awards will be settled in cash and no holding restrictions apply. An exception to the holding period for equity-settled plans is made with respect to shares that were sold upon vesting to cover the tax obligation on the vested shares. After vesting, the holder is able to sell a number of unconditional granted shares only up to the amount necessary to settle the wage taxes liability relating to the profit made on the stock compensation plan. 2) Including deferred dividend. 102 KPN | Annual Report 2012
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FINANCIAL STATEMENTS - KPN

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