FINANCIAL STATEMENTS - KPN

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For other financial assets and liabilities the following methods and assumptions were used to determine fair value: ýý Borrowings: based on the listed price of the bonds ýý Cash, cash equivalents, accounts receivable and payable: as the maturity of these financial instruments is short, the carrying value approximates the fair value. Credit and counterparty risk KPN’s financial assets are subject to credit risk and counterparty risk. Credit risk arises from the possibility of asset impairment occurring when counterparties are unable to meet their obligations in transactions involving financial instruments. KPN sets limits for the maximum exposure per counterparty and investment periods, which are primarily based on minimum credit ratings. These policies have been reviewed and updated in 2012, following a large number of counterparty downgrades mid-2012. It is KPN’s policy to invest cash balances with counterparties with a minimum credit rating equivalent to A2 at Moody’s. Cash balances used for working capital purposes can also reside at (local) banks with lower credit ratings. It is KPN’s policy to only engage into derivative transactions with counterparties with a minimum credit rating equivalent to A2 at Moody’s. Based on the revised counterparty policy, KPN spreads its cash and cash equivalents balances and derivatives over several counterparties. Separate limits are set for some strong counterparties without credit ratings and limited credit risk such as the Dutch State. Furthermore, KPN only invests in liquid securities and deposits with short maturities. A substantial part of the cash balances at year end 2012 were invested at institutions with a credit rating of A3 at Moody’s or stronger. In addition, KPN invested its cash balances in instruments with high liquidity. During 2012 and 2011, KPN monitored counterparty risk on a regular basis, based on the counterparty’s credit ratings and other metrics. These other metrics include Credit Default Swap (CDS) levels of the counterparties, levels of government ownership and the level of systemic importance to the banking system. Credit risk on trade receivables is controlled based on restrictive policies for customer acceptance. Credit management is focused on mobile services as the credit risk is considered to be the highest within this part of KPN’s business. Before accepting certain new customer in this segment, KPN requests credit watchers to provide credit management reports. In addition, KPN keeps track of the payment performance of customers. In case customers fail to meet set criteria, payment issues have to be solved before a new transaction with this customer will be entered into. Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large and unrelated customer base. The Board of Management believes there is no additional credit risk provision required in excess of the allowance for doubtful receivables (see Note 15). Receivables relating to integrated, outsourced and managed ICT solutions are monitored on an individual basis. Reference is made to ‘Significant Accounting Policies – trade and other receivables’. Guarantees The Group’s policy is to provide financial guarantees only to wholly-owned subsidiaries. As per December 31, 2012, KPN has parent guarantees (based on BW 2: Article 403 statements) and bank guarantees outstanding to third parties for its Dutch wholly-owned subsidiaries. Maximum exposure to credit risk As KPN does not provide financial guarantees other than to wholly-owned subsidiaries, the carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at reporting date amounts to the total of the financial assets including cash (EUR 2,985 million at December 31, 2012, and EUR 2,413 million at December 31, 2011). Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations associated with financial instruments as they fall due. The Group’s approach to managing liquidity is to ensure sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group. This means that KPN secures its bond redemptions well ahead. KPN has a EUR 2 billion syndicated Facility, maturing in 2017 with more than 14 banks, all of which have a rating of Baa2 or higher with Moody’s as at December 31, 2012. KPN | Annual Report 2012 137
Consolidated Financial Statements Other Notes to the Consolidated Financial Statements continued The table below provides a maturity analysis of the financial liabilities based on the remaining contractual maturities as of December 31, 2012. Other Debt 1 Amounts in millions of EUR and Loan 1 and Loans interest) interest) expenses Total Derivatives Derivatives Borrowings Derivatives 1 Interest inflow Trade and outflow other payables Bonds on Bonds Financial lease obligations (including (including and accrued 2013 1,085 671 99 345 -240 207 2,593 4,760 2014 1,400 625 65 161 -240 200 – 2,211 2015 1,000 547 12 – -237 184 – 1,506 2016 1,262 507 11 – -573 510 – 1,717 2017 1,000 428 9 – -217 165 – 1,385 2018 and subsequent years 7,096 2,677 60 647 -4,628 4,281 – 10,133 Contractual cashflows 12,843 5,455 256 1,153 -6,135 5,547 2,593 21,712 1) Including the redemptions on the bank overdraft facilities and the Reggefiber call/put arrangements for the maximum cash out. The timing of the cash out regarding the Reggefiber call/put options as shown above is an indicative as the timing of the exercise of these options is uncertain. See Note 12 for an explanation of the Reggefiber option triggers and the related cash flows. At December 31, 2012 the Reggefiber call/put arrangements were valued at a negative amount of EUR 278 million and included in the balance sheet under derivative financial instruments (see Note 26). The present value of the financial lease obligations amount to EUR 256 million at December 31, 2012 (2011: EUR 149 million). The financial lease obligations primarily include lease obligations for buildings leased back by KPN (see also Note 11) and handsets in Germany. In some of these lease arrangements for buildings, an option is included to extend the lease term. The table below provides a maturity analysis of the financial liabilities based on the remaining contractual maturities as of December 31, 2011. Other Debt 1 Borrowings Derivatives Amounts in millions of EUR and Loans and Loans interest) interest) expenses Total Derivatives Derivatives Trade and Interest inflow outflow other payables Bonds on Bonds Financial lease obligations (including (including and accrued 2012 957 671 28 175 -267 234 2,556 4,354 2013 1,085 623 16 – -261 234 – 1,697 2014 1,400 565 12 161 -235 209 – 2,112 2015 1,000 487 12 – -235 209 – 1,473 2016 1,254 447 12 400 -564 538 – 2,087 2017 and subsequent years 6,519 2,754 69 647 -4,810 4,593 – 9,772 Contractual cashflows 12,215 5,547 149 1,383 -6,372 6,017 2,556 21,495 1) Including redemptions on the Credit Facility in 2016 and the Reggefiber call/put arrangements for the maximum cash out and bank overdraft. The timing of the cash out regarding the Reggefiber call/put options as shown above is an indicative as the timing of the exercise of these options is uncertain. See Note 12 for an explanation of the Reggefiber option triggers and the related cash flows. At December 31, 2011 the Reggefiber call/put arrangements were valued at a negative amount of EUR 203 million and included in the balance sheet under derivative financial instruments (see Note 26). Part of KPN’s swap portfolio contains reset clauses at pre-agreed dates, in order to mitigate counterparty exposure during the life of the swap. These reset clauses may result in early Euro settlement obligations with the swap counterparty for part of the outstanding notional. This could lead to additional cash inflows or outflows before maturity. With regard to other purchase commitments, capital commitments reference is made to Note 31 ‘Commitments, contingencies and legal commitments’. Available financing sources 2012 As of December 31, 2012, KPN’s net cash and cash equivalents position amounted to EUR 947 million (including EUR 4 million of cash classified as held for sale and EUR 343 million in non-netted notional cash pools). Due to German capital maintenance rules, KPN is committed to keep certain funds available at E-Plus. In principle, net cash and cash equivalents are at disposal to KPN on a group level, except for limited amounts of cash held at local subsidiaries. In addition to the available cash and cash equivalents, cash flows from operations and cash flows from any further sales of non-core assets, KPN has the following financing resources available: EUR 2.0 billion multi-currency revolving credit facility In July 2011, KPN signed a new EUR 2.0 billion Revolving Credit Facility with a tenor of five years with two one-year extension options. The facility replaced the previous EUR 1.5 billion revolving credit facility, thereby extending the maturity profile from August 2013 to July 2016 while obtaining competitive conditions. The credit facility does not contain any financial covenants. The size of the credit facility has been increased to EUR 2.0 billion in line with the Treasury optimization initiatives announced during KPN’s Investor Day in May 2011. In June 2012, KPN used an extension option for its EUR 2 billion revolving credit facility. All 14 relationship banks agreed to a one year extension, which brings the maturity of the revolving credit facility to July 2017. The facility contains another one-year extension option in May 2013, which could extend the maturity to July 2018. 138 KPN | Annual Report 2012
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FINANCIAL STATEMENTS - KPN

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