FINANCIAL STATEMENTS - KPN Statements Consolidated Financial Statements 78 Consolidated Statement of Income 78 Consolidated Statement of Comprehensive Income 79

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<ul><li><p>75 </p><p>FINANCIAL STATEMENTS</p></li><li><p>76 </p><p>KPN | Annual Report 2011</p></li><li><p>Financial Statements </p><p>Consolidated Financial Statements 78</p><p>Consolidated Statement of Income 78</p><p>Consolidated Statement of Comprehensive Income 79</p><p>Consolidated Statement of Financial Position 80</p><p>Consolidated Statement of Cash Flows 82</p><p>Consolidated Statement of Changes in Group Equity 83</p><p>General notes to the Consolidated Financial Statements 84</p><p>Notes to the Consolidated Statement of Income 92</p><p>Notes to the Consolidated Statement of Financial Position 103</p><p>Notes to the Consolidated Statement of Cash Flows 123</p><p>Other Notes to the Consolidated Financial Statements 123</p><p>Corporate Financial Statements 137</p><p>Corporate Income Statement 137</p><p>Corporate Balance Sheet 138</p><p>General notes to the Corporate Financial Statements 139</p><p>Notes to the Corporate Balance Sheet 140</p><p>Other Information </p><p>Independent Auditors Report 143</p><p>Proposed appropriation of result 144</p><p>Subsequent events 144</p><p>Legal structure 145</p><p>Glossary of terms 146</p><p>77Contents</p><p>KPN | Annual Report 2011</p><p>CONTENTS</p><p>Financial Statements</p></li><li><p>CONSOLIDATED STATEMENT OF INCOME</p><p>Amounts in millions of EUR, unless otherwise stated 2011 2010Revenues [1] 13,022 13,324 Other income [2] 141 74 Total 13,163 13,398 </p><p>Own work capitalized 116 101 Cost of materials 1,005 911 Work contracted out and other expenses 4,503 4,560 Employee benefits [3] 1,874 1,932 Depreciation, amortization and impairments [4] 2,589 2,226 Other operating expenses [5] 759 620Total operating expenses 10,614 10,148 </p><p>Operating profit 2,549 3,250 </p><p>Finance income 32 19Finance costs 690 860Other financial results 96 75Financial income and expenses [6] 754 916 </p><p>Share of the loss of associates and joint ventures [12] 24 31 </p><p>Profit before income tax 1,771 2,303</p><p>Income taxes [7] 222 508 Profit for the year 1,549 1,795 </p><p>Profit attributable to non-controlling Interests [20] 2Profit attributable to equity holders [19] 1,549 1,793</p><p>Earnings per share after taxes attributable to equity holders for the year in EUR [8] Basic 1.06 1.15 Fully-diluted 1.06 1.15 </p><p>[..] Bracketed numbers refer to the related notes to the Consolidated Financial Statements, which form an integral part of these Consolidated Financial Statements.</p><p>78Consolidated Financial Statements</p><p>KPN | Annual Report 2011</p><p>Consolidated Statement of Income</p></li><li><p>CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME</p><p>Amounts in millions of EUR, unless otherwise stated 2011 2010Profit for the year 1,549 1,795</p><p>Other comprehensive income: </p><p>Cash flow hedges:Gains or (losses) arising during the period [19] 109 30Income tax [19] 28 8</p><p>81 22</p><p>Currency translation adjustments:Gains or (losses) arising during the period [19] 14 4Income tax [19] </p><p>14 4</p><p>Fair value adjustment available for sale financial assets: Unrealized gains or (losses) arising during the period [19] 5 8Impairment charge through profit and loss 13 </p><p>8 8</p><p>Other comprehensive income for the year, net of income tax 75 18</p><p>Total comprehensive income for the year, net of income tax 1,624 1,813</p><p>Total comprehensive income attributable to:Equity holders 1,624 1,811Non-controlling interests 2</p><p>79Consolidated Financial Statements</p><p>KPN | Annual Report 2011</p><p>Consolidated Statement of Comprehensive Income</p></li><li><p>CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAssets</p><p>Amounts in millions of EUR December 31, 2011 December 31, 2010</p><p>NON-CURRENT ASSETSGoodwill 5,575 5,733 Licenses 2,495 2,818 Software 852 819 Other intangibles 290 385 Total intangible assets [10] 9,212 9,755 </p><p>Land and buildings 705 875 Plant and equipment 5,704 5,619 Other tangible non-current assets 116 130 Assets under construction 1,008 890 Total property, plant and equipment [11] 7,533 7,514 </p><p>Investments in associates and joint ventures [12] 261 284 Loans to associates and joint ventures [12] 127 33Available-for-sale financial assets [16] 48 53 Derivative financial instruments [26] 169 17 Deferred income tax assets [7] 1,831 1,918 Trade and other receivables [13] 261 236 Total non-current assets 19,442 19,810 </p><p>CURRENT ASSETSInventories [14] 123 153 Trade and other receivables [15] 1,607 1,867 Income tax receivables [7] 1 27 Cash and cash equivalents [17] 990 823 Total current assets 2,721 2,870 </p><p>Non-current assets and disposal groups held for sale [18] 224 57 </p><p>TOTAL ASSETS 22,387 22,737 </p><p>[..] Bracketed numbers refer to the related notes to the Consolidated Financial Statements which form an integral part of these Consolidated Financial Statements.</p><p>80Consolidated Financial Statements</p><p>KPN | Annual Report 2011</p><p>Consolidated Statement of Financial Position</p></li><li><p>Group Equity and Liabilities</p><p>Amounts in millions of EUR December 31, 2011 December 31, 2010</p><p>GROUP EQUITYShare capital 344 377 Share premium 6,717 8,184 Other reserves 127 709 Retained earnings 4,004 4,352 Equity attributable to equity holders [19] 2,930 3,500Non-controlling interests [20] Total Group equity 2,930 3,500 </p><p>NON-CURRENT LIABILITIESBorrowings [21] 11,641 11,359 Derivative financial instruments [26] 229 250 Deferred income tax liabilities [7] 793 956 Provisions for retirement benefit obligations [22] 441 608 Provisions for other liabilities and charges [23] 397 404 Other payables and deferred income [24] 155 225 Total non-current liabilities 13,656 13,802 </p><p>CURRENT LIABILITIESTrade and other payables [25] 3,804 3,982 Borrowings [21] 1,458 1,178 Derivative financial instruments [26] 1 Income tax payables [7] 218 152 Provisions for other liabilities and charges [23] 129 106 Total current liabilities 5,609 5,419 </p><p>Liabilities directly associated with non-current assets and disposal groups classified as held for sale [18] 192 16</p><p>TOTAL EQUITY AND LIABILITIES 22,387 22,737</p><p>[..] Bracketed numbers refer to the related notes to the Consolidated Financial Statements which form an integral part of these Consolidated Financial Statements.</p><p>81Consolidated Financial Statements</p><p>KPN | Annual Report 2011</p><p>Consolidated Statement of Financial Position </p></li><li><p>CONSOLIDATED STATEMENT OF CASH FLOWS</p><p>Amounts in millions of EUR 2011 2010Profit before income tax 1,771 2,303 </p><p>Adjustments for: Net finance cost [6] 754 916 Share-based compensation [3] 15 17 Share of the profit of associates and joint ventures [12] 24 31 Depreciation, amortization and impairments [4] 2,589 2,226 Other income 137 66 Changes in provisions (excluding deferred taxes) 209 336 </p><p>Changes in working capital relating to: Inventories 14 52 Trade receivables 24 27 Prepayments and accrued income 64 19 Other current assets 12 41 Trade payables 150 246 Accruals and deferred income 151 88 Current liabilities (excluding short-term financing) 20 36 </p><p>Dividends received [12] 1 1 Income taxes paid 231 589 Interest paid 637 736 Net Cash flow provided by operating activities 4,003 3,808 </p><p>Acquisition of subsidiaries, associates and joint ventures (net of acquired cash) 23 106 Disposal of subsidiaries, associates and joint ventures 2 63 Investments in intangible assets (excluding software) 27 337 Investments in software 463 411Investments in property, plant and equipment 1,584 1,398 Disposals of intangible assets (excluding software) 9 Disposals of software 1 1Disposals of property, plant and equipment 176 103 Loans to associates and joint ventures 75 65Other changes and disposals 2 1 Net Cash flow used in investing activities [27] 1,986 2,149 </p><p>Share repurchases 1,000 1,000 Dividends paid 1,200 1,152 Proceeds from exercised options 5 13 Proceeds from borrowings [21] 2,159 991 Repayments of borrowings and settlement of derivatives [21] 1,702 2,484 Other changes 10 2 Net Cash flow used in financing activities [28] 1,748 3,634 </p><p>Changes in cash and cash equivalents 269 1,975 </p><p>Net Cash and cash equivalents at the beginning of the year [17] 682 2,652 Exchange rate differences 1 5Changes in cash and cash equivalents 269 1,975 Net Cash and cash equivalents at the end of the year [17] 950 682 Cash classified as held for sale [18] 36 17Bank overdrafts 76 158 Cash and cash equivalents [17] 990 823</p><p>[..] Bracketed numbers refer to the related notes to the Consolidated Financial Statements which form an integral part of these Consolidated Financial Statements.</p><p>82Consolidated Financial Statements</p><p>KPN | Annual Report 2011</p><p>Consolidated Statement of Cash Flows</p></li><li><p>CONSOLIDATED STATEMENT OF CHANGES IN GROUP EQUITY</p><p>Amounts in millions of EUR, except number of shares</p><p>Number of subscribed shares</p><p>Share capital</p><p>Share premium</p><p>Other reserves</p><p>Retained earnings</p><p>Equity attributable </p><p>to owners of the parents</p><p>Non-controlling </p><p>interestsTotal Group </p><p>equityBalance as of January 1, 2010 1,628,855,322 391 8,799 370 4,982 3,838 3 3,841</p><p>Share based compensation [3] 3 3 3Exercise of options [3, 19] 14 14 14Shares repurchased 1,000 1,000 1,000Dividends paid 1,152 1,152 1,152Shares cancelled [19] 56,245,438 14 615 629 Purchased from non-controlling interests [20] 14 14 5 19Comprehensive income for the period 18 1,793 1,811 2 1,813</p><p>Balance as of December 31, 2010 1,572,609,884 377 8,184 709 4,352 3,500 3,500</p><p>Share based compensation [3] 1 1 1Exercise of options [3, 19] 7 7 7Shares repurchased 1,000 1,000 1,000Dividends paid 1,202 1,202 1,202Shares cancelled [19] 141,087,402 33 1,467 1,500 Comprehensive income for the period 75 1,549 1,624 1,624</p><p>Balance as of December 31, 2011 1,431,522,482 344 6,717 127 4,004 2,930 2,930</p><p>[..] Bracketed numbers refer to the related notes to the Consolidated Financial Statements which form an integral part of these Consolidated Financial Statements.</p><p>The aggregate amount of current and deferred tax recorded directly in equity in 2011 was EUR 28 million negative (2010: EUR 8 million negative).</p><p>83Consolidated Financial Statements</p><p>KPN | Annual Report 2011</p><p>Consolidated Statement of Changes in Group Equity</p></li><li><p>General notes to the Consolidated Financial Statements</p><p>General informationKPN is the leading telecommunications and ICT service provider in the Netherlands, offering wireline and wireless telephony, internet and TV to consumers and end-to-end telecom and ICT services to business customers. KPN Corporate Market (previously Getronics) operates a global ICT services company with a market-leading position in the Benelux, offering end-to-end solutions in infrastructure and network-related IT. In Germany and Belgium, KPN pursues a challenger strategy in its wireless operations and holds number three market positions through E-Plus Gruppe and KPN Group Belgium. In Spain, France and Switzerland KPN offers wireless services as an MVNO through its own brand Ortel. KPN provides wholesale network services to third parties and operates an efficient IP-based infrastructure with global scale in international wholesale through iBasis. </p><p>Koninklijke KPN N.V. (KPN or the Company) was incorporated in 1989 and is domiciled in the Netherlands. The address of its registered office is Maanplein 55, 2516 CK, The Hague. KPNs shares are listed on Euronext Amsterdam. Following the delisting of KPNs shares on the New York Stock Exchange (NYSE) in 2008, KPNs shares can be traded in the United States, only as American Depository Receipts on the over-the-counter market. </p><p>The Financial Statements as of and for the year ended December 31, 2011 of Koninklijke KPN N.V. were approved for issue by both the Supervisory Board and the Board of Management on February 17, 2012.</p><p>The Financial Statements are subject to adoption by the Annual General Meeting of Shareholders on April 12, 2012.</p><p>Significant accounting policies </p><p>The significant accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.</p><p>Basis of preparationKPN applies International Financial Reporting Standards (IFRS) as adopted by the European Union.</p><p>As the corporate financial information of KPN is included in the Consolidated Financial Statements, the Corporate Income Statement is presented in abbreviated format in accordance with Section 402, Book 2 of The Netherlands Civil Code.</p><p>The Consolidated Financial Statements have been prepared under the historical cost convention, as modified for the revaluation of available-for-sale financial assets, and the accounting of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.</p><p>Consolidated financial information, including subsidiaries, associates and joint ventures, has been prepared using </p><p>uniform accounting policies for similar transactions and other events in similar circumstances.</p><p>Changes in accounting policies and disclosuresThere are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after January 1, 2011 that had a material impact on KPN.</p><p>The following standards, interpretations and amendments became effective as from January 1, 2011, which did not have a material impact on KPNs 2011 financial statements, but could be of impact on KPNs financial position, results and/or disclosures in the coming years: IFRS 1 (amendment), First-time adoption of IFRS </p><p>Limited exemption from comparative IFRS 7 disclosures for first-time adopters. Provides the same relief to first-time adopters as was given to current users of IFRSs upon adoption of the amendments to IFRS 7. Also clarifies the transition provisions of the amendments to IFRS 7. This standard did not have an impact on KPNs financial statements since KPN already applies IFRS.</p><p> IAS 32 (amendment), Financial instruments: Presentation Classification of rights issues. Amended to allow rights, options or warrants to acquire a fixed number of the entitys own equity instruments for a fixed amount of any currency to be classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments.</p><p> IAS 24 (revised 2009), Related party disclosures. Amends the definition of a related party and modifies certain related-party disclosure requirements for government-related entities.</p><p> IFRIC 14 (amendment), IAS 19 The limit on defined benefit assets, minimum funding requirements and their interaction. Removes unintended consequences arising from the treatment of pre-payments where there is a minimum funding requirement. Results in pre-payments of contributions in certain circumstances being recognized as an asset rather than an expense.</p><p> IFRIC 19, Extinguishing financial liabilities with equity instruments. Clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entitys shares or other equity instruments to settle the financial liability fully or partially.</p><p>Consolidation SubsidiariesSubsidiaries are all entities (including special purpose entities) over which KPN has the power to govern the financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are consider...</p></li></ul>

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