FINANCIAL STATEMENTS - KPN

As of December 31, 2012, KPN had no drawings on its credit facility (December 31, 2011: EUR 400 million).
In December 2012, KPN signed a EUR 500 million standby credit facility, which is available for drawdown until March 31, 2013 and which
has a final maturity date 364 days after drawdown. This facility was undrawn at December 31, 2012.
Overdraft facilities
During 2012, KPN had four uncommitted overdraft facilities with four banks of EUR 50 million each. The overdraft facilities may be cancelled at
any time and do not have a specified maturity date. In 2012 and 2011, KPN drew on these facilities from time to time. As of December 31, 2012,
and 2011, there were no amounts drawn under any of the overdraft facilities, except for bank overdrafts under cash pool agreements.
Global Medium Term Note Program
KPN updated its GMTN program in April 2012. The program contains no commitment from investors to provide funding to KPN. Funding will
be available subject to market conditions and other factors at the relevant time.
Capital Resources Covenants
KPN’s existing capital resources contain the following covenants as at December 31, 2012, which could trigger additional financial obligations
or early redemption of the outstanding indebtedness.
All of KPN’s bonds issued after January 1, 2006, adding up to EUR 10.9 billion at December 31, 2012, contain a change of control clause by means
of which KPN may be required to redeem such outstanding bonds early, in the event that (i) certain changes of control occur and (ii) within the
change of control period a rating downgrade to sub investment grade occurs in respect of that change of control. The change of control period
ends 90 days after the change of control event occurs.
In addition, many of KPN’s capital resources contain a covenant prohibiting KPN from entering into any amalgamation, demerger, merger,
corporate restructuring or reorganization, unless prior written consent has been given by a majority of the lenders or bondholders or the
resulting company assumes all of the rights and obligations with respect to the loans or bonds.
Market risk
KPN is exposed to various kinds of market risks in the ordinary course of business. These risks include:
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Foreign currency exchange rate risks
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Interest rate risks
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Other market price risk
KPN has established policies that deal with the use of derivative financial instruments in order to reduce foreign currency exposure and to manage
the interest rate profile. KPN’s centralized Treasury department matches and manages intercompany and external foreign currency exposures
reported by the various business operations and Group companies. Hedges are applied on a full coverage basis, if economically feasible.
In line with these policies, derivative financial instruments are used solely for the purpose of hedging underlying exposures to foreign currency
exchange rate risk and interest rate risk. KPN does not enter into derivative financial instruments for speculative purposes. Contracts related
to derivative financial instruments are entered into for periods consistent with the underlying exposures (if economically feasible) and do
not constitute positions independent of these exposures. None of these financial instruments are used for trading purposes or taken as
speculative positions.
KPN’s policy is to apply hedge accounting to the extent possible for derivative financial instruments related to interest-bearing debt and foreign
exchange risk for bonds that are not denominated in Euro. Management has set up a policy to apply hedge accounting only when certain criteria
are met regarding formal designation and documentation of the hedge relationship, the risk management objective, the strategy for undertaking
the hedge and the effectiveness of the hedge. As a consequence, KPN tests effectiveness of the hedge relationship at inception and every quarter.
Reference is made to Note 26.
Foreign currency exchange rate risks
The group’s primary activities are denominated in Euro. Accordingly, the Euro is the company’s functional currency, which is also the Group’s
presentation currency. Items included in the financial information of individual entities in the group are measured using the individual entity’s
functional currency, which is the currency of the primary economic environment in which the entity operates.
Currency exchange risk is the risk that the future cash flows will fluctuate because of changes in foreign exchange rates. The risk mainly results
from settlement of international telecommunications traffic, purchase of goods and equipment and primarily consist of pound sterling and US
dollar exposure. Foreign currency exchange rate risks related to bonds that are not denominated in Euro are hedged into Euro in line with KPN’s
hedging policies.
As a result of currency fluctuations, the value of subsidiaries operating outside the Eurozone markets could fluctuate and affect KPN’s balance
sheet and equity positions from year to year. These translation exposures are not hedged.
Group companies and business operations are obliged to hedge their firm commitments and highly predictable anticipated transactions in
non-functional currencies by forward contracts transacted with KPN’s Treasury department. Accordingly, Treasury matches and manages the
intercompany and external exposures using forward exchange contracts. KPN does not apply hedge accounting for these hedge instruments.
KPN | Annual Report 2012 139