-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EdXm5GDyOocdxxF8zPec0/DkBh0B9pGAnZZG0XiIQFerbl6GM+qZXW2uMqTViQXi VusZdogoTfpRvELbjH8rWw== 0001145549-03-000949.txt : 20030801 0001145549-03-000949.hdr.sgml : 20030801 20030801084349 ACCESSION NUMBER: 0001145549-03-000949 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030731 FILED AS OF DATE: 20030801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK CENTRAL INDEX KEY: 0001001807 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 999999999 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14406 FILM NUMBER: 03816305 6-K 1 u92173e6vk.txt PT TELEKOMUNIKASI INDONESIA UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13 a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE MONTH OF JULY, 2003 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA ________________________________________________________________________________ (TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH) JALAN JAPATI NO. 1 BANDUNG-40133 INDONESIA ________________________________________________________________________________ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) [INDICATE BY CHECK MARK WHETHER THE REGISTRANT FILES OR WILL FILE ANNUAL REPORTS UNDER COVER OF FORM 20-F OR FORM 40-F FORM 20-F |X| FORM 40-F [ ] [INDICATE BY CHECK MARK WHETHER THE REGISTRANT BY FURNISHING THE INFORMATION CONTAINED IN THIS FORM IS ALSO THEREBY FURNISHING THE INFORMATION TO THE COMMISSION PURSUANT TO RULE 12g3-2(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 YES [ ] NO [X] [IF "YES" IS MARKED, INDICATE BELOW THE FILE NUMBER ASSIGNED TO THE REGISTRANT IN CONNECTION WITH RULE 12g3-2(b): SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA ______________________________ (REGISTRANT) DATE JULY 31ST, 2003 BY /s/ Rochiman Sukarno --------------------------- (SIGNATURE) ROCHIMAN SUKARNO HEAD OF INVESTOR RELATION UNIT PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2001,2002 AND 2003 AND FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (UN-AUDITED) PREFACE I am pleased to escort the un-audited Financial Statements of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk ("TELKOM") for the six months period ended June 30, 2003 and its comparison for the same period in 2002 which contains Balance Sheets, Statement of Income, Statement of Changes in Equity and Cash Flows prepared in accordance with Generally Accepted Accounting Principles in Indonesia completed with reconciliation and additional disclosures required in accordance with U.S. Generally Accepted Accounting Principles. The Financial Statement for the six months ended June 30, 2002 is a consolidation of TELKOM, Telkomsel, Infomedia, Indonusa, Dayamitra and KSO 6. For the six months ended June 30, 2003, the consolidation includes additional subsidiaries that were acquired or significantly controlled by Telkom in the period after June 30, 2002 namely Pramindo, KSO I, Napsindo, PII and Metra. For the six months ended June 30, 2003, the Company recorded Net Income of Rp3,784.3 billion or increased by 12.6% compared to Net Income of Rp3,359.2 billion recorded in the comparable period of the previous year. Operating Income increase 29.2% from Rp4,968.3 billion for the six months ended June 30, 2002 to Rp6,418.5 billion for the six months ended June 30, 2003. Inline with the current development of cellular and internet, the consolidated Operating Revenue increased significantly reflecting an increase of revenues from Cellular of 34.9%, Interconnection of 110.8%, and Data and Internet of 102.8%. On behalf of the Board of Directors, I would like to thank all TELKOM Group partners, who have supported us in achieving the result as presented in the Financial Report. Bandung, July , 2003 K R I S T I O N O - ---------------------- PRESIDENT DIRECTOR/CEO PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES LIST OF CONTENTS
Page ---- PREFACE i LIST OF CONTENTS ii CONSOLIDATED FINANCIAL STATEMENTS - As of June 30, 2001, 2002 and 2003 and for the six months ended June 30, 2001, 2002, 2003 Consolidated Balance Sheets F-1 Consolidated Statements of Income F-3 Consolidated Statements of Changes in Equity F-4 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-9
PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) JUNE 30, 2002 DAN 2003 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)
2002 2003 ---------- -------------------------- Notes Rp Rp US$ (Note 3) --------- ---------- ---------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents 2e,6,46 4,526,668 3,955,169 465,314 Temporary investments 2f,7,46 612,347 26,540 3,122 Trade accounts receivable 2g,8,9,46 Related parties - net of allowance for doubtful accounts of Rp414,546 million in 2002 and Rp630,748 million in 2003 1,905,159 1,643,628 193,368 Third parties - net of allowance for doubtful accounts of Rp315,016 million in 2002 and Rp331,832 million in 2003 1,379,131 2,100,640 247,134 Other accounts receivable - net of allowance for doubtful account of Rp29,968 million in 2002 and Rp29,167 million in 2003 2g,46 183,024 299,828 35,274 Inventories - net of allowance for obsolescence of Rp51,184 million in 2002 and Rp49,270 million in 2003 2h,10 168,257 156,198 18,376 Prepaid expenses 2i 526,218 692,899 81,518 Other current assets 12 71,320 119,415 14,049 ---------- ---------- --------- Total Current Assets 9,372,124 8,994,317 1,058,155 ---------- ---------- --------- NONCURRENT ASSETS Long-term investment - net 2f,13 94,207 172,777 20,327 Property, plant and equipment - net of accumulated depreciation of Rp 17,387,423 million in 2002 and Rp21,736,140 million in 2003 2j,2k,14 23,176,607 29,021,791 3,414,328 Property, plant and equipment under revenue-sharing arrangements - net of accumulated depreciation of Rp883,529 million in 2002 and Rp856,081 million in 2003 2l,15,49 410,122 338,109 39,778 Advances and other noncurrent assets 2n,7,46 674,005 604,508 71,119 Intangible assets 1b,2c,5,16 1,273,979 1,935,445 227,699 Advance payment for investment in share of stock 5,48,55 280,675 279,083 32,833 Escrow accounts 5,17,48 138,876 286,155 33,665 Property not used in operations 6,210 12,507 1,471 ---------- ---------- --------- Total noncurrent assets 26,054,681 32,650,375 3,841,220 ---------- ---------- --------- TOTAL ASSETS 35,426,805 41,644,692 4,899,375 ========== ========== =========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-1 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued) JUNE 30, 2002 DAN 2003 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)
2002 2003 ---------- ------------------------- Notes Rp Rp US$ (Note 3) ----------- ---------- ---------- ------------ CURRENT LIABILITIES Trade account payable 18,46 Related parties 909,662 457,243 53,793 Third parties 885,619 1,731,333 203,686 Other accounts payable 46 27,294 45,951 5,406 Taxes payable 2r,19 1,432,626 1,281,853 150,806 Dividends payable 2,435,355 1,295,264 152,384 Accrued expenses 20,46 1,492,933 2,016,597 237,247 Unearned income 2o 424,514 650,803 76,565 Advances from customers and suppliers 21,48,55 605,709 1,041,418 122,520 Short-term bank loan 22 500,000 170,627 20,074 Current maturities of long-term liabilities 2k,5,23,24 25,26,27,46 2,122,358 1,255,528 147,709 Liability for cross-ownership transactions 4,46 952,571 - - ---------- ---------- --------- Total Current Liabilities 11,788,641 9,946,617 1,170,190 ---------- ---------- --------- NONCURRENT LIABILITIES Deferred tax liabilities - net 2r,41 1,776,126 1,551,547 182,535 Unearned income on revenue-sharing arrangements 2l,15,37,49 194,602 136,968 16,114 Unearned initial investors payments under joint operation scheme 2m,34,46 114,108 63,446 7,464 Long-term liabilities - net of current maturities Two-step loans - related party 24,46 7,770,200 6,950,208 817,672 Suppliers' credit loans 5,17,25 274,845 140,323 16,509 Bridging loan 5,17,26 79,052 23,684 2,786 Project cost payable 340,248 - - Bond payable and guaranteed notes 28 1,309,500 2,242,750 263,853 Bank loan 29 - 379,989 44,705 Other long-term debt 2k 9,749 9,150 1,076 Liability for acquisition of a subsidiary 5,17,27 - - - ---------- ---------- --------- Total Noncurrent Liabilities 11,868,430 11,498,065 1,352,714 ---------- ---------- --------- MINORITY INTEREST IN NET ASSETS OF SUBSIDIARIES 29 1,330,263 3,880,569 456,538 ---------- ---------- --------- EQUITY Capital stock - Rp500 par value per saries A Dwiwarna share and Series B share Authorized - one Series A Dwiwarna share and 39.999.999.999 Series B shares Issued and fully paid - one Series A Dwiwarna share and 10.079.999.639 Series B shares 30 5,040,000 5,040,000 592,941 Additional paid-in capital 31 1,073,333 1,073,333 126,274 Difference in value of restructuring transactions between entities under common control 2c,4 (7,402,343) (7,032,455) (827,348) Difference due to change of equity in associated companies 2f,13 258,115 342,425 40,285 Translation adjustment 2d,13 174,494 159,931 18,815 Unrealized loss on decline in value of securities 2f,7 - - - Retained earning Appropriated 43 745,404 1,559,068 183,420 Unappropriated 10,550,468 15,177,139 1,785,546 ---------- ---------- --------- Total Equity 10,439,471 16,319,441 1,919,933 ---------- ---------- --------- TOTAL LIABILITIES AND EQUITY 35,426,805 41,644,692 4,899,375 ========== ========== =========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-2 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 DAN 2003 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar, except share and ADS data)
2001 2002 2003 ---------- ---------- --------------------------- Notes Rp Rp Rp US$ (Note 3) ----------- ---------- ---------- ---------- ------------ OPERATING REVENUE Telephone 2o,32 Fixed lines 3,062,685 3,446,766 4,116,931 484,345 Cellular 1,942,333 2,834,703 3,824,432 449,933 Interconnection 2o,33.46 784,662 963,521 2,031,623 239,014 Joint operation scheme 2m,2o,34,46 1,078,417 1,227,409 859,871 101,161 Data and internet 35 250,851 646,227 1,310,369 154,161 Network 36 245,346 170,308 216,004 25,412 Revenue-sharing arrangements 37 135,027 135,507 124,043 14,593 Other telecommunications services 2l,2o 2,838 1,730 5,385 634 ---------- ---------- ---------- --------- Total Operating Revenue 7,502,159 9,426,171 12,488,658 1,469,253 ---------- ---------- ---------- --------- OPERATING EXPENSES Personnel 38 891,242 1,043,835 1,731,377 203,691 Depreciation 2j,2k,2l,14 1,362,620 1,573,103 2,073,825 243,979 Operation, maintenance and telecommunication services 2o,39 934,027 1,093,411 1,519,085 178,716 General and administrative 2o.40 612,377 596,621 527,939 62,110 Marketing 2o 88,645 150,869 217,913 25,637 ---------- ---------- ---------- --------- Total Operating Expenses 3,888,911 4,457,839 6,070,139 714,133 ---------- ---------- ---------- --------- OPERATING INCOME 3,613,248 4,968,332 6,418,519 755,120 ---------- ---------- ---------- --------- OTHER INCOME (CHARGES) Interest income 2e,2f,46 394,017 231,734 190,219 22,379 Interest expense 46 (576,366) (807,243) (620,581) (73,010) Gain (loss) on exchange rate differences - net 2d,53 (937,886) 770,540 380,464 44,760 Equity in net income (loss) of associated companies 2f,13 5,651 (5,459) 4,360 513 Others - net 439,966 42,528 19,103 2,247 ---------- ---------- ---------- --------- Other Income (Charges) - net (674,618) 232,100 (26,435) (3,111) ---------- ---------- ---------- --------- INCOME BEFORE TAX 2,938,630 5,200,432 6,392,084 752,009 TAX EXPENSE Current tax 2r,41 (976,026) (1,495,427) (1,751,855) (206,101) Deferred tax 2r,41 (50,110) (48,641) (29,423) (3,462) ---------- ---------- ---------- --------- (1,026,136) (1,544,068) (1,781,278) (209,563) INCOME BEFORE MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES AND PRE ACQUISITION (INCOME) LOSS 1,912,494 3,656,364 4,610,806 542,446 PRE ACQUISITION (INCOME) LOSS OF SUBSIDIARIES - - 1,136 134 MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES 29 (191,986) (297,146) (825,403) (97,106) ---------- ---------- ---------- --------- NET INCOME 1,720,508 3,359,218 3,784,267 445,206 ========== ========== ========== ========= BASIC EARNINGS PER SHARES 2s,42,43 Net income per share 170.69 333.26 375.42 0.04 ========== ========== ========== ========= Net income per ADS (20 shares B per ADS) 3,413.71 6,665.12 7,508.47 0.88 ========== ========== ========== =========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-3 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah)
Difference in value of restructuring transaction Difference due to between entities change of equity Capital Additional under in associated Stock paid-in capital common control companies --------- --------------- ------------------- ----------------- Description Notes Rp Rp Rp Rp - ----------------------------------------------------- ----- --------- --------------- ------------------- ---------------- Balance as of January 1, 2001 5,040,000 1,073,333 - 426,397 Equity decline in net assets of Telkomsel, GSD and Indonusa - net of deferred tax effect of Rp 2,616 million 2c,12 - - - 6,021 Unrealized loss on decline in value of securities 2f,7 - - - - Increase in value of long-term investment in CSM as result of foreign currency translation from US Dollar to Rupiah - net of deferred tax effect of Rp 4,058 million 2d,13 - - - - Loss of DMT exceeds the book value 2c,12 - - - (11,457) Difference in value of restructuring transaction between entities under common control - - (9,418,560) - Reserved during the Annual General Meeting of the Stockholders on June 21, 2002: Appropriation for general reserve - - - - Declaration of cash dividend - - - - - - - - Net income for the year - - - - --------- --------- ---------- ------- Balance as of June 30, 2001 5,040,000 1,073,333 (9,418,560) 420,961 ========= ========= ========== =======
Unrealized loss Retained earnings on decline in Translation ------------------------------ Total value of securities adjustment Appropriated Unappropriated equity ------------------- ----------- ------------ -------------- ---------- Description Rp Rp Rp Rp Rp - ----------------------------------------------------- ------------------- ----------- ------------ -------------- ---------- Balance as of January 1, 2001 (165) 177,114 193,442 6,777,523 13,687,644 Equity decline in net assets of Telkomsel, GSD and Indonusa - net of deferred tax effect of Rp 2,616 million - - - - 6,021 Unrealized loss on decline in value of securities (73) - - - (73) Increase in value of long-term investment in CSM as result of foreign currency translation from US Dollar to Rupiah - net of deferred tax effect of Rp 4,058 million - 9,460 - - 9,460 Loss of DMT exceeds the book value - - - - (11,457) Difference in value of restructuring transaction - - - between entities under common control - - - - (9,418,560) Reserved during the Annual General Meeting of the Stockholders on June 21, 2002: Appropriation for general reserve - - 126,951 (126,951) - Declaration of cash dividend - - - (888,655) (888,655) - - - Net income for the year - - - 1,720,508 1,720,508 ------ ---------- --------- --------- ---------- Balance as of June 30, 2001 (238) 186,574 320,393 7,482,425 5,104,888 ====== ========== ========= ========= ==========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-4 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah)
- ----------------------------------------------------------------------------------------------------------------------------------- Difference in value of restructuring transaction Difference due to between entities change of equity Capital Additional under in associated Stock paid-in capital common control companies --------- --------------- ------------------- ----------------- Description Notes Rp Rp Rp Rp - ---------------------------------------------------- -------- --------- --------------- ------------------- ----------------- Balance as of January 1, 2002 5,040,000 1,073,333 (7,402,343) 342,425 Equity decline in net assets of Patrakom and CSM - net of deferred tax effect of Rp 36,133 million 2c,4 - - - (84,310) Sales of Seruni marketable securities 2f,7 - - - - Increase in value of long-term investment in CSM as result of foreign currency translation from US Dollar to Rupiah - net of deferred tax effect of Rp 2,219 million 3d,13 - - - - Intercompany transaction that has not been settled - - - - Reserved during the Annual General Meeting of the Stockholders on June 21, 2002: Appropriation for general reserve - - - - Declaration of cash dividend - - - - Net income for the year - - - - --------- ------------ -------------- ------------ Balance as of June 30, 2002 5,040,000 1,073,333 (7,402,343) 258,115 ========= ============ ============== ============ - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized loss Retained earnings on decline in Translation ----------------------------- Total value of securities adjustment Appropriated Unappropriated equity ------------------- ----------- ------------- -------------- ----------- Description Rp Rp Rp Rp Rp - ---------------------------------------------------- ------------------- ----------- ------------- -------------- ----------- Balance as of January 1, 2002 (207) 179,672 320,393 9,770,303 9,323,576 Equity decline in net assets of Patrakom and CSM - net of deferred tax effect of Rp 36,133 million - - - - (84,310) Sales of Seruni marketable securities 207 - - - 207 Increase in value of long-term investment in CSM as result of foreign currency translation from US Dollar to Rupiah - net of deferred tax effect of Rp 2,219 million - (5,178) - - (5,178) Intercompany transaction that has not been settled - - - (28,987) (28,987) Reserved during the Annual General Meeting of the Stockholders on June 21, 2002: Appropriation for general reserve - - 425,011 (425,011) - Declaration of cash dividend - - - (2,125,055) (2,125,055) Net income for the year - - - 3,359,218 3,359,218 ----------- --------- ---------- ------------ ---------- Balance as of June 30, 2002 - 174,494 745,404 10,550,468 10,439,471 =========== ========= ========== ============ ==========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-5 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah)
- ---------------------------------------------------------------------------------------------------------------------------------- Difference in value of restructuring transaction Difference due to between entities change of equity Capital Additional under in associated Stock paid-in capital common control companies --------- --------------- ------------------- ----------------- Description Notes Rp Rp Rp Rp - ---------------------------------------------------- ----- --------- --------------- ------------------- ----------------- Balance as of January 1, 2003 5,040,000 1,073,333 (7,032,455) 342,425 Increase in value of long-term investment in CSM as result of foreign currency translation from US Dollar to Rupiah - net of deferred tax effect of Rp 2,158 million 3d,13 - - - - Reserved during the Annual General Meeting of the Stockholders on May 9, 2003: Appropriation for general reserve - - - - Declaration of cash dividend - - - - Appropriation for social contribution - - - - Net income for the year - - - - --------- --------- ---------- ------- Balance as of June 30, 2003 5,040,000 1,073,333 (7,032,455) 342,425 ========= ========= ========== ======= - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized loss Retained earnings on decline in Translation ----------------------------- Total value of securities adjustment Appropriated Unappropriated equity ------------------- ----------- ------------ -------------- ----------- Description Rp Rp Rp Rp Rp - ---------------------------------------------------- ------------------- ----------- ------------ -------------- ----------- Balance as of January 1, 2003 - 164,966 745,404 15,565,510 15,899,183 Increase in value of long-term investment in CSM as result of foreign currency translation from US Dollar to Rupiah - net of deferred tax effect of Rp 2,158 million - (5,035) - - (5,035) Reserved during the Annual General Meeting of the Stockholders on May 9, 2003: Appropriation for general reserve - - 813,664 (813,664) - Declaration of cash dividend - - - (3,338,110) (3,338,110) Appropriation for social contribution - - - (20,864) (20,864) Net income for the year - - - 3,784,267 3,784,267 - ------- --------- ---------- ---------- Balance as of June 30, 2003 - 159,931 1,559,068 15,177,139 16,319,441 = ======= ========= ========== ==========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-6 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 DAN 2003 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar, except share and ADS data)
2001 2002 2003 ---------- ---------- -------------------------- Rp Rp Rp US$ (Note 3) ---------- ---------- ---------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from operating revenues Telephone Fixed Lines 3,132,836 3,152,950 3,481,519 409,590 Cellular 2,100,016 3,639,719 5,273,027 620,356 Joint Operation Scheme 1,068,030 862,042 535,551 63,006 Interconnection - net 642,890 970,185 1,635,391 192,399 Other telecomunication services 405,638 579,146 439,587 51,716 ---------- ---------- ---------- --------- Total cash receipts from operating revenues 7,349,410 9,204,042 11,365,075 1,337,067 Cash payments for operating expenses (2,103,462) (2,475,809) (5,161,123) (607,191) ---------- ---------- ---------- --------- Cash generated from operations 5,245,948 6,728,233 6,203,952 729,876 ---------- ---------- ---------- --------- Interest received 395,373 224,843 195,301 22,977 Income tax (849,355) (2,381,033) (1,986,706) (233,730) Interest paid (507,982) (479,735) (507,497) (59,706) Advances from customers (488,059) 1,143 (26,026) (3,062) ---------- ---------- ---------- --------- Net Cash Provided by Operating Activities 3,795,925 4,093,451 3,879,024 456,355 ---------- ---------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from investments and maturity of time deposits 6,543,959 345,896 1,647,830 193,862 Proceeds from sale of property, plant and equipment 1,909 22,544 47,722 5,614 Payment for cross-ownership transaction (1,628,317) - Purchases of marketable securities and placements in time deposits (2,149,787) (519,884) (601,370) (70,749) Acquisition of property, plant and equipment (2,135,242) (1,943,672) (3,239,180) (381,080) Decrease (Increase) in advances and others (302,107) 117,508 285,456 33,583 Advance payment for long-term investment (4,305,515) (245,873) (31,660) (3,725) Cash dividends receipt 3,425 336,288 39,563 Acquisition of subsidiaries (913,240) (107,440) ---------- ---------- ---------- --------- Net Cash Used in Investing Activities (2,343,358) (3,851,798) (2,468,154) (290,372) ---------- ---------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term liabilities (512,765) (1,009,213) (386,712) (45,496) Cash dividends paid (445,072) (12,189) (2,469,569) (290,538) Distribution of income as social contribution (537) Security deposits (38,101) (4,482) Additional capital from retained earning (25,000) - Received of long-term liabilities 1,826,080 23,370 2,749 Decrease (Increase) in escrow account (71,247) (138,876) (285,473) (33,585) ---------- ---------- ---------- --------- Net Cash Used in Financing Activities (1,029,621) 640,802 (3,156,485) (371,352) ---------- ---------- ---------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 422,946 882,455 (1,745,615) (205,369) CASH AND CASH EQUIVALENTS AT BEGINNING 3,936,092 3,644,213 5,699,070 670,479 OF YEAR EFFECT OF FOREIGN EXCHANGE AND CONSOLIDATED OF B.O.Y. OF SUBSIDIARIES 33,357 - 1,714 202 CASH AND CASH EQUIVALENTS AT JUNE 30 4,392,395 4,526,668 3,955,169 465,312 ========== ========== ========== =========
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements. F-7 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 DAN 2003 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar, except share and ADS data)
2001 2002 2003 ---------- ---------- --------------------------- Rp Rp Rp US$ (Note 3) ---------- ---------- ---------- ------------ SUPLEMENTAL CASH FLOW INFORMATION Noncash investing and financing activities: Capitalization of borrowing costs during construction: 67,888 (39,094) 5,298 623 Equity changes in associated company which affecting following accounts: Foreign exchange translation adjustment 9,460 (5,178) (5,035) (592) Difference due to change of equity in associated companies (5,436) (84,310) - -
See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements. F-8 PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UN-AUDITED) JUNE 30, 2002 AND 2003, AND FOR THE SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL a. Establishment and General Information Perusahaan (Persero) P.T. Telekomunikasi Indonesia Tbk (the "Company") was originally a part of "Post en Telegraafdienst", which was established in 1884 under the framework of Decree No. 7 dated March 27, 1884 of the Governor General of the Dutch Indies and published in State Gazette of the Dutch Indies No. 52 dated April 3, 1884. In 1991, based on Government Regulation No. 25 year 1991, the status of the Company was changed into a state-owned limited liability corporation ("Persero"). The Company was established based on notarial deed No. 128 dated September 24, 1991 of Imas Fatimah, S.H. The deed of establishment was approved by the Minister of Justice of the Republic of Indonesia in his decision letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991, and was published in State Gazette of the Republic of Indonesia No. 210 dated January 17, 1992, Supplement No. 5. The articles of association have been amended several times, the most recent amendment was made through deed No. 4 dated January 10, 2002, of Notary A. Partomuan Pohan, S.H., LL.M., concerning the change in the Company's objective, scope of activities, directors' scope of authorities and the composition of the Company's board of commissioners. The Minister of Justice and Human Rights of the Republic of Indonesia in his decision letter No. C-00682HT.01.04.Th.2002 dated January 15, 2002 approved the notary's deed. The Company's principal business is the provision of domestic telecommunications services, including telephone, telex, telegram, satellite, leased lines, electronic mail, mobile communication and cellular services. In order to accelerate the construction of telecommunications facilities, to make the Company a world-class operator, and to increase the technology as well as the knowledge and skills of its employees, the Company has entered into agreements with investors to develop, manage and operate telecommunications facilities under Joint Operation Schemes (known as "Kerja Sama Operasi" or "KSO") (see Note 49). Under Law No. 3/1989 on Telecommunications which took effect on April 1, 1989, Indonesian legal entities are allowed to provide basic telecommunications services in cooperation with the Company as the domestic telecommunications organizing body (or "badan penyelenggara"). Other Indonesian legal entities are also allowed to individually provide non-basic telecommunications services. In providing telecommunications services, these entities are required to obtain licenses from the Minister of Communications of the Republic of Indonesia (the Ministry of Communications assumed responsibility for the telecommunications sector from the now defunct Ministry of Tourism, Post and Telecommunications in March 1998). Government Regulation No. 8/1993 concerning the provision of telecommunications services, further provides that cooperation which provides basic telecommunications services can be in the form of joint venture, joint operation or contract management and that the entities cooperating with the domestic telecommunications organizing body must use the organizing body's telecommunications networks. If the telecommunications networks are not available, the Government Regulation requires that the cooperation be in the form of a joint venture that is capable of constructing the necessary networks. - F-9 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL (continued) a. Establishment and General Information (continued) The Minister of Tourism, Post and Telecommunications of the Republic of Indonesia ("MTPT"), through his two decision letters both dated August 14, 1995, reaffirmed the status of the Company as the organizing body for the provision of domestic telecommunications services. Further, effective from January 1, 1996, the Company was granted the exclusive right to provide local wire-line and fixed wireless services for a minimum period of 15 years and the exclusive right to provide domestic long-distance telecommunications services for a minimum period of 10 years. The exclusive rights also apply to telecommunications services provided for and on behalf of the Company through a KSO. This grant of rights does not affect the Company's right to provide other domestic telecommunications services. On September 8, 1999, the Government issued Law No. 36/1999 on Telecommunications to replace Law No. 3/1989. Under the new Law, which took effect from September 2000, telecommunications activities cover: i. Telecommunications networks ii. Telecommunications services iii. Special telecommunications National state-owned companies, regional state-owned companies, privately-owned companies and cooperatives are allowed to provide telecommunications networks and services. Individuals, government agencies and legal entities other than telecommunications networks and service providers can provide special telecommunications. Under Law No. 5/1999, activities that result in monopolistic practices and unhealthy competition are prohibited. In connection with this law, Government Regulation No. 52/2000 was issued, which provides that interconnection fees shall be charged to originating telecommunications network operators where telecommunications service is provided by two or more telecommunications network operators. Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2000 from the Director General of Post and Telecommunications and the correction thereto No. 1718/UM/VII/2000 dated August 2, 2000, the period of exclusive rights granted to the Company to provide local wire-line and fixed wireless services was shortened to expire on August 2002 and August 2003 for domestic long-distance telecommunication services. In return, new operators are required to pay compensation to the Company, the amount of which is to be estimated by an independent appraiser. It is expected that as part of the compensation given to the Company, they will be granted a permit to provide international telecommunications services effective from August 2003. Based on press release from the Coordination Minister of Economics dated July 31, 2002, Government decided to terminate Telkom's exclusive rights as network provided for local and long-distance since August 1, 2002. On August 1, 2002, PT Indonesian Satellite Corporation Tbk ("Indosat") was granted a license to provide local and long-distance telecommunications services. The Company's head office is located in Jalan Japati No. 1, Bandung, West Java. In 1996, five of the Company's seven regional divisions started to operate as separate units (known as "KSO Units") under Joint Operation Schemes. - F-10 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL (continued) a. Establishment and General Information (continued) According to article 3 of its articles of association, the scope of the Company's activities is as follows: 1. The Company's objective is to provide telecommunications and information facilities and services, in accordance with prevailing regulations. 2. To achieve the above objective, the Company is involved in the following activities: i. Planning, building, providing, developing, operating, marketing or selling, leasing and maintaining telecommunications and information networks in accordance with prevailing regulations. ii. Planning, developing, providing, marketing or selling and improving telecommunications and information services in accordance with prevailing regulations. iii. Performing activities and other undertakings in connection with the utilization and development of the Company's resources and optimizing the utilization of the Company's property, plant and equipment, information systems, education and training, and repairs and maintenance facilities. As of June 30, 2002 and 2003, the Company had 34,821 employees and 32,426 employees, respectively, including those in the KSO Units. Based on the resolution of the Stockholders' Extraordinary General Meeting, the minutes of which have been notarized by deed No. 37 dated June 21, 2002 of A. Partomuan Pohan, S.H., LL.M., the composition of the Company's board of commissioners from 2002 to 2004 is as follows: President Commissioner : Bacelius Ruru Commissioner : Agus Haryanto Commissioner : Djamhari Sirat Independent Commissioner : Arif Arryman Independent Commissioner : Petrus Sartono Based on the resolution of the Stockholders' Extraordinary General Meeting, the minutes of which have been notarized by deed No. 37 dated June 21, 2002 of the same notary, the composition of the board of directors from 2002 to 2005 is as follows: Chief Executive Officer : Kristiono Chief Financial Officer : Guntur Siregar Director for Telecommunication Services : Garuda Sugardo Chief Information Officer : Agus Utoyo Director for Telecommunication Network : Suryatin Setiawan - F-11 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Consolidated Subsidiaries The Company consolidates the following subsidiaries as a result of majority ownership or its right to control operations.
Percentage of Total Ownership Start of Assets at ----------------- Commercial June 30, Subidiaries Domicile Nature of Business 2002 2003 Operations 2003 - --------------------------- ---------- ------------------------- ------- ------ ---------- ---------- % % Rp PT Infomedia Nusantara Jakarta Data and information 51.00 51.00 1995 307,298 services PT Indonusa Telemedia Jakarta Multimedia 57.50 57.50 1995 50,695 PT Telekomunikasi Selular Jakarta Telecommunications 77.72 65.00 1995 13,465,108 PT Dayamitra Telekomunikasi Balikpapan Telecommunications 90.32 90.32 1995 817,574 PT Graha Sarana Duta Jakarta Real estate, construction 99.99 99.99 1982 51,368 and sevices PT Pramindo Ikat Nusantara Medan Telecommunications - 30.00 1995 1,816,946 construction & services PT Napsindo Primatel Jakarta Network Access Point, 32.00 60.00 1998 57,918 Internasional Voice over Data PT Multimedia Nusantara Jakarta Pay television and multi 31.00 100.00 1997 14,861 media telecommunication PT Pro Infokom Indonesia Jakarta Information and telecom- - 51.00 2003 8,711 munication services
The Company owns indirect investment through its subsidiary in the following company:
Percentage of Ownership Start of Nature of -------------- Commercial Name of Company Owner Domicile Business 2002 2003 Operations - ---------------------- ----------------- --------- ------------ ---- ---- ---------- % % Telekomunikasi Selular PT Telekomunikasi Mauritius Fund Raising - 100 2002 Finance Limited Selular Media Nusa Pte Ltd PT Infomedia Singapore Sales agent 18.5
PT Infomedia Nusantara ("Infomedia") Infomedia is engaged in providing telecommunications information services and other information services in the form of print and electronic media. In 2002, Infomedia established a new line of business to provide call center services. PT Indonusa Telemedia ("Indonusa") Indonusa is engaged in providing multimedia telecommunications services. The Company has increased its investment in Indonusa from 35% in 2000 to 57.5% in 2001, by acquiring 2,800,000 new shares for Rp28,000 million. This acquisition resulted in goodwill of Rp654 million. - F-12 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Consolidated Subsidiaries (continued) PT Telekomunikasi Selular ("Telkomsel") Telkomsel is engaged in providing telecommunications facilities and mobile cellular services using Global System for Mobile Communication ("GSM") technology on a nationwide basis. Until December 31, 2000, the investment in Telkomsel was accounted for using the equity method. The Company's cross-ownership transaction with Indosat in 2001 has increased the Company's ownership interest in Telkomsel to 77.72%. The accounting treatment of the cross-ownership transaction is discussed further in Notes 4. On April 3, 2002, the Company entered into a Conditional Sale and Purchase Agreement ("CSPA") with Singapore Telkom Mobile Pte. Ltd. ("Singtel'). The CSPA covers the sale portion of the Company's shares in Telkomsel. The Company sold 23.223 ordinary registered shares of the capital of Telkomsel, numbered 107,278 up to and including numbered 130,500 with a par value of Rp1,000,000 for each share representing 12.72% from Telkomsel. This transaction diluted Company's ownership in Telkomsel from 77.72% to 65%. The sale of the share closed on July 30, 2002 and resulted in a gain of Rp3,196,380 million for book purposes and Rp30,295 million for tax purposes. The difference results from the accounting for the acquisition of Telkomsel at its carryover basis because of the common control transaction. PT Dayamitra Telekomunikasi ("Dayamitra") Dayamitra is the investor in KSO VI, the joint operation scheme that provides telecommunications services in Kalimantan. The Company's acquisition of a 90.32% ownership interest in Dayamitra was effective on May 17, 2001, the date when the Deed of Share Transfer was signed. Details of this acquisition are discussed further in Note 5. PT Graha Sarana Duta ("GSD") GSD is engaged in providing construction, sales and leasing of offices, housing and hotels, with their related facilities. The Company acquired a 100% ownership interest in GSD from Koperasi Mitra Duta (in progress) and Dana Pensiun Bank Duta (in progress), for a purchase consideration of Rp119,000 million, based on the Sale and Purchase Agreement Deed No. 7 dated April 6, 2001 of Notary Imas Fatimah, S.H. This acquisition resulted in goodwill of Rp106,348 million. Based on the Share Sale and Purchase Agreement dated November 28, 2001, the Company sold one share to a related party for Rp9.5 million thereby reducing the Company's ownership interest to 99.99%. PT Pramindo Ikat Nusantara ("Pramindo") Pramindo is the investor in KSO I, the joint operating scheme that provides telecommunication services in Sumatra. - F-13 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Consolidated Subsidiaries (continued) PT Pramindo Ikat Nusantara ("Pramindo") On August 15, 2002, the Company entered into a CSPA to acquire Pramindo through three-installment purchase as follows:
Date Percentage - ------------------ ---------- August 15, 2002 30% September 30, 2003 15% December 31, 2004 55%
Effective with the closing of the first installment, the Company was granted unilateral control over the operations of Pramindo and KSO Unit I. As a result, the Company has consolidated Pramindo as of January 1, 2002, with pre-acquisition net income deducted from consolidated income in the accompanying financial statements (see Note 2.b) Details of this acquisition are discussed further in Note 5. PT Napsindo Primatel Internasional ("Napsindo") Napsindo is engaged in providing "Network Access Point" (NAP), "Voice Over Data" (VOD) and other related services. In connection with an increase in Napsindo's paid-in capital, the Company has increased its investment in Napsindo to Rp14,876 million, based on Deed of Napsindo's Resolution No. 104 dated October 31, 2000 which was notarized by Elliza Asmawel, S.H. The increase in investment, which was made to maintain the Company's ownership interest of 32%, was effective in March 29, 2001, the date the increase in Napsindo's authorized and issued capital was approved by the Minister of Justice and Human Rights of the Republic of Indonesia. Payment for the additional investment was made through conversion into equity of the Company's receivable from Napsindo (see Note 56.a). Based on the Notary Deed No. 47 dated December 30, 2002 of Notary H. Yunardi, SH, the Company purchase Napsindo's shares from PT. Info Asia Sukses Makmur Mandiri for US$4,900 thousands or equivalent of Rp 43,620 million, thereby increasing the Company's ownership to 60% (majority). The additional ownership resulted in goodwill of Rp 39,868 million to the Company since the acquisition cost is higher than the additional portion of Napsindo's equity acquired. The goodwill amortization in the first Quarter of 2003 is Rp 9,967 million, due to the management anticipation of impairment in the Investment in Napsindo. Napsindo received credit facility from Bank Mandiri for their infrastructure development. This facility was secured by the Company's time deposit with equal amount of US$4,600 thousand, which US$1,800 will mature on August 28, 2003, whilst the US$2,800 thousand will mature on October 23, 2003. PT Multimedia Nusantara ("Metra") Multimedia is engaged in providing pay television and multimedia telecommunications services. Based on Notary Deed of A. Partomuan Pohan, SH, LLM No. 25 dated May 13, 2003 Company's ownership in Metra increased to 100% through swap shares agreement with PT Indocitra over its ownership in Menara Jakarta (see Note 13). - F-14 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Consolidated Subsidiaries (continued) PT Pro Infokom Indonesia ("PII") PII was established on January 29, 2003 based on the Notary Deed No 24 of A. Partomuan Pohan, SH, MH. PII is engaged in providing telecommunication service and national information (integrated and consistent national E-business). Telekomunikasi Selular Finance Limited ("TSFL") Telkomsel has 100% direct ownership interest in TSFL, a company which was established in Mauritius on April 22, 2002. TSFL's objective is to raise funds for the development of Telkomsel's business through the issuance of debenture stock, bonds, mortgages or any other securities. c. Public Offering of Shares of the Company The Company's total number of shares immediately prior to its initial public offering was 8,400,000,000, comprised of 8,399,999,999 series B shares and 1 series A Dwiwarna share, all of which were owned by the State of the Republic of Indonesia. On November 14, 1995, the Government sold the Company's shares through an initial public offering on the Jakarta Stock Exchange and Surabaya Stock Exchange. The shares offered consisted of 933,333,000 new series B shares and 233,334,000 series B shares owned by the State of the Republic of Indonesia. A share offering was also conducted on the New York Stock Exchange and London Stock Exchange for 700,000,000 series B shares owned by the State of the Republic of Indonesia, which were converted into 35,000,000 American Depositary Shares (ADS). Each ADS represents 20 series B shares. In December 1996, the Government of the Republic of Indonesia sold 388,000,000 series B shares, and later in 1997, the Government distributed 2,670,300 series B shares as an incentive for the stockholders not to sell their shares within one year from the date of the initial public offering. In May 1999, the Government sold 898,000,000 series B shares. Under Law No.1/1995 on Limited Liability Companies, the minimum total par value of the Company's issued shares of capital stock must be 25% of the total par value of the Company's authorized capital stock, or in the Company's case Rp5,000,000 million. To comply with the Law, it was resolved at the Annual General Meeting of Stockholders on April 16, 1999 to increase the issued shares of capital stock. The share dividend was distributed to existing shareholders in August 1999. In December 2001, the Government of the Republic of Indonesia sold 1,200,000,000 shares or 11.9% of the series B shares. In July 2002, the Government of the Republic of Indonesia sold of 312,000,000 shares or 3.1% of the series B shares. - F-15 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) c. Public Offering of Shares of the Company As of June 30, 2003, all of the Company's series B shares have been listed on the Jakarta Stock Exchange and Surabaya Stock Exchange and 39,717,017 ADS shares have been listed on the New York Stock Exchange and London Stock Exchange. - F-16 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidated Financial Statement Presentation The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Indonesia ("Indonesian GAAP"), which differ in certain respects with generally accepted accounting principles in the United States of America ("U.S. GAAP"). A description of significant differences and their approximate effects on net income and equity are set forth in Notes 57 and 58. The consolidated financial statements also include certain additional disclosures in order to conform more closely to the form and content of financial statements required by the Securities and Exchange Commission of the United States of America (the "U.S. SEC") (see Note 59). The consolidated financial statements, except for statements of cash flows, are prepared under the accrual basis of accounting. The measurement basis used is historical cost, except for certain accounts recorded on the basis described in the related accounting policies. The consolidated statements of cash flows are prepared using the direct method with classifications of cash flows into operating, investing and financing activities. The reporting currency used in the preparation of the consolidated financial statements is the Indonesian Rupiah ("Rp"). b. Principles of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries. The Company consolidates subsidiaries over which it has control. The usual criterion for control is an ownership interest of more than 50%. The Company does not consolidate a subsidiary if control is expected to be temporary. Subsidiaries acquired that are accounted for using the purchase method are consolidated from the time the Company obtains control of such subsidiaries. Intercompany balances and transactions, including unrealized gains or losses on intercompany transactions, are eliminated to reflect the financial position and the results of operations of the Company and its subsidiaries as one business entity. c. Acquisitions and Business Divestitures The cross-ownership transactions with Indosat have been accounted for as a reorganization of entities under common control, because the Government of the Republic of Indonesia controls both the Company and Indosat. These transactions have been recorded at historical cost, in a manner similar to that in pooling of interests accounting. The difference between the consideration paid or received and the related historical carrying amount, after considering income tax effects, has been charged to equity as "Difference in Value of Restructuring Transactions Between Entities Under Common Control". The acquisition of subsidiary from third party is accounted for using purchase method. The excess of acquisition cost over the Company's interest in the fair value of identifiable assets and liabilities acquired is recorded as goodwill, which is amortized using straight-line method over the period not more than five years. The acquisition of KSO investors from third party is accounted for using purchase method. The excess of acquisition cost over the Company's interest in the fair value of identifiable assets and liabilities acquired is recorded as intangible asset, which is amortized using straight-line method over the remaining KSO period. - F-17 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Foreign Currency Transactions and Translation The books of accounts of the Company and its subsidiaries are maintained in Indonesian Rupiah. Transactions during the year involving foreign currencies are recorded at the rates of exchange prevailing at the time of the transactions. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated to reflect the rates of exchange prevailing at that date. The resulting gains or losses are credited or charged to current operations, except for foreign exchange differences that can be attributed to qualifying assets, which are capitalized. The exchange rates used for translation of monetary assets and liabilities denominated in foreign currencies are the buy and sell rates published by Reuters in 2002 and 2003. The Reuters buy and sell rates, applied respectively to monetary assets and liabilities, were Rp8,685 and Rp8,725 to US$1 as of June 30, 2002 and were Rp8,270 and Rp8,280 to US$1 as of June 28, 2003. Telkomsel applied Bank Indonesia export notes as of June 28, 2003, applied respectively to monetary assets and liabilities, were Rp8,285 to US$1. The Company does not guarantee that assets and liabilities denominated in foreign currencies can be converted into Indonesian Rupiah at the rates of exchange as of June 28, 2003. The functional currency of PT Pasifik Satelit Nusantara and PT Citra Sari Makmur is the U.S. Dollar. For the purpose of reporting these investments using the equity method, the assets and liabilities of these companies as of the balance sheet date are translated into Rupiah using the rates of exchange prevailing at that date, while revenues and expenses are translated at the average rates of exchange for the year. The resulting translation adjustments are shown as part of equity as "Currency Translation Adjustment". e. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and in banks and all unrestricted time deposits with maturities of three months or less from the date of placement. f. Investments i. Time deposits Time deposits with maturities of more than three months are presented as temporary investments. ii. Investments in securities Investments available for sale, or available for tradable are stated at fair value. Unrealized gains or losses from the increase or decrease in fair value are recorded as part of equity. Realized gains and losses are included in operations when sold. Other than temporary declines in value are charged to income when conditions giving rise to the impairment occurs. Investments held to maturity are stated at cost, less amortization of premium or discount. iii. Investments in associated companies Investments in shares of stock with ownership of 20% to 50%, are accounted for using the equity method whereby the Company's proportionate share in the income or loss of the associated company after the date of acquisition is added to or deducted from, and the dividends received are deducted from, the acquisition cost of the investments. The carrying amount of the investments is written down to recognize any other than temporary decline in the value of individual investments. Any such write down is charged directly to current operations. - F-18 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Investments (continued) iv. Other investments Investments in shares of stock of less than 20% that do not have readily determinable fair values and are intended for long-term investments are stated at cost. The carrying amount of the investment is written down to recognize other than temporary decline in the value of the individual investments. Any such write down is charged directly to current operations. v. Change of equity in associated companies Changes in the value of investments due to changes in the equity of associated companies arising from capital transactions of such associated companies with other parties are recognized in equity as "Difference Due to Change of Equity in Associated Companies". g. Allowance for Doubtful Accounts An allowance for doubtful accounts is provided based upon the collectibles of the receivable at the end of reporting period. h. Inventories Inventories are stated at cost which is determined using the weighted average method, except for GSD, which uses the first-in, first-out (FIFO) method. Provisions are made to reduce the carrying value of inventories to the lower of cost or net realizable value. i. Prepaid Expenses Prepaid expenses are amortized over their beneficial periods using the straight-line method. j. Property, Plant and Equipment - Direct Acquisitions Property, plant and equipment directly acquired are stated at cost, except for certain revalued assets, less accumulated depreciation. Property, plant and equipment, except land, are depreciated using the straight-line method, based on the estimated useful lives of the assets as follows:
Years ------- Buildings 20 Switching equipment 5 - 15 Telegraph, telex and data communication equipment 5 - 15 Transmission installation and equipment 5 - 20 Satellite, earth station and equipment 3 - 15 Cable network 5 - 15 Power supply 3 - 10 Data processing equipment 3 - 10 Other telecommunications peripherals 5 Office equipment 3 - 5 Vehicles 5 - 8 Other equipment 5
Land is stated at cost and is not depreciated. Property, plant and equipment not used in operations are stated at the lower of its carrying value or net realizable value. When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount, which is determined based upon the greater of its net selling price or value in use. - F-19 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) j. Property, Plant and Equipment - Direct Acquisitions (continued) The cost of maintenance and repairs is charged to operations as incurred. Expenditures, which extend the useful life of the asset or result in increased future economic benefits such as increases in capacity or improvement in the quality of output or standard of performance, are capitalized. Property, plant and equipment that are no longer used due to technological change, obsolescence or malfunction, are reclassified into property not used in operations, by accelerating the depreciation of such property, plant and equipment. Any resulting gain or loss from the disposal or sale of property, plant and equipment is reflected in current operations. Computer software used for data processing is included with the value of the associated hardware. Property under construction is stated at cost, which includes all borrowing costs during construction on debts incurred to finance the construction. Gain or loss on foreign exchange that can be attributed to the property under construction is capitalized as a borrowing cost. Property under construction is transferred to the respective property, plant and equipment account when completed and ready for use. k. Leases Lease transactions are recorded as capital leases when all the following criteria are met: i. The lessee has the option to purchase the leased asset at the end of the lease term at a price mutually agreed upon at the inception of the lease agreement. ii. Periodic lease payments made by the lessee provide for a return of the cost of the leased asset and interest thereon to the lessor. iii. The minimum lease period is two years. Lease transactions that do not meet the above criteria are recorded as operating leases. Leased assets and obligations under capital leases are recorded at the present value of the total installments plus residual value (option price). Leased assets are depreciated using the same method and estimated useful lives used for directly acquired property and equipment. l. Revenue-Sharing Arrangements Under Indonesian Statement of Financial Accounting Standards ("PSAK") No. 35, "Accounting for Income from Telecommunications Services", assets under revenue-sharing arrangements are to be capitalized by the party to whom ownership of such assets shall be transferred at the end of the revenue-sharing period (the organizing body), if the following criteria are met: i. There is a certainty that the organizing body will acquire the assets, the ownership of which will be transferred at the end of the revenue-sharing period. ii. The organizing body will be free from any claims from third parties with respect to the acquisition of such assets. iii. The agreement covering the revenue-sharing arrangements is irrevocable. - F-20 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) l. Revenue-Sharing Arrangements (continued) The Company records such assets as "Property, Plant and Equipment under Revenue-Sharing Arrangements" (with a corresponding initial credit to "Unearned Income under Revenue-Sharing Arrangements" presented under Liabilities) based on the costs incurred by the investors as agreed upon in the contracts entered into by the Company and the investors. Property, plant and equipment are depreciated over their estimated useful lives using the straight-line method. The unearned income related to the acquisition of the property, plant and equipment under revenue-sharing arrangements is amortized over the revenue-sharing period using the straight-line method. At the end of the revenue-sharing period, the respective property, plant and equipment under revenue-sharing arrangements are reclassified into the "Property, Plant and Equipment" account. When the Company acquires property, plant and equipment under revenue-sharing arrangements before the end of the revenue-sharing period, the net book value of the assets is reclassified into the "Property, Plant and Equipment" account, and the balance of the related unearned income is included as a gain or loss in the current operations. Revenue earned under revenue-sharing arrangements is recognized on the basis of the Company's share as provided in the agreement. m. Joint Operation Schemes Revenues from the operations of telecommunication facilities and the provision of telecommunication services which have been transferred by the Company to KSO investors includes amortization of the investor's initial payments, Minimum Telkom Revenues ("MTR") and the Company's share of Distributable KSO Revenues ("DKSOR"). The unearned initial investor payments received as compensation from the KSO Investors are presented net of all direct costs incurred in connection with the KSO agreement and are amortized using the straight-line method over the KSO period of 15 years starting January 1, 1996. MTR are recognized on a monthly basis based upon the contracted MTR amount for the current year, in accordance with the KSO agreement. The Company's share of distributable KSO revenues is recognized on the basis of the Company's percentage share of the KSO revenues, net of MTR and operational expenses of the KSO Units, as provided in the KSO agreements. Under PSAK No. 39, "Accounting for Joint Operation Schemes", which supersedes paragraph 14 of PSAK No. 35, "Accounting for Telecommunication Services Revenue", the assets built by the KSO Investors under the Joint Operation Schemes are recorded in the books of the KSO Investors which operate the assets and are transferred to the Company at the end of the KSO period or upon termination of the KSO scheme. n. Deferred Charges for Land-rights Expenses related to the legal processing of land-rights are deferred and amortized using the straight-line method over the legal term of the land-rights, which is normally shorter than its economic life. - F-21 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) o. Revenue Recognition i. Fixed Line Telephone Revenues Revenues from fixed line installations are recognized at the time the installations are placed in service. Revenues from usage charges are recognized as customers incur the charges. ii. Cellular Telephone Revenues Revenues from service connections (connection fees) are recognized as income at the time the connections occur. Revenues from airtime and monthly subscription charges are recognized when earned. Revenues from prepaid card customers, which consist of the sale of starter packs, also known as Subscriber Identification Module ("SIM") cards and pulse reload vouchers, are recognized as follows: 1. Sale of starter packs is recognized as revenue upon delivery of the starter packs to distributors, dealer or directly to customers. 2. Sale of pulse reload vouchers is recognized initially as unearned income and recognized proportionately as revenue based on successful calls made by the subscribers or whenever the unused stored value of the voucher has expired. iii. Interconnection revenues Revenues from network interconnection with other domestic and international telecommunications carriers are recognized as incurred and are presented on a net basis. p. Pension Plan i. Defined Benefit Pension Plan The Company and certain subsidiaries established a defined benefit pension plan covering all their permanent employees. Current service cost is charged to operations in the current period. Past service cost, actuarial adjustments and the effect of changes in assumptions for active participants are amortized using the straight-line method over the estimated average residual employment period that has been determined by the actuary. The method used by the actuary for actuarial calculations is the projected-unit-credit method. ii. Early Retirement Early retirement benefits are accrued at the time the Company makes a strong commitment to provide early retirement benefits as a result of an offer made in order to encourage voluntary redundancy. The Company is demonstrably committed to a termination when, and only when, the Company has a detailed formal plan for the early retirement and is without realistic possibility of withdrawal. q. Postretirement Health Care Plan The Company recognizes the cost of providing postretirement health care plan benefits over the working lives of its employees based on actuarial computations. This practice is similar to that provided by Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"), in U.S. GAAP. - F-22 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r. Income Tax Current tax expense is determined based on the taxable income for the year computed using prevailing tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for deductible temporary differences to the extent that it is probable that taxable income will be available in future periods against which the deductible temporary differences can be utilized. Deferred tax is calculated at the tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the statement of income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also charged or credited directly to equity. Deferred tax assets and liabilities are offset in the balance sheet, except those for different legal entities. s. Earnings per Share and Earnings per American Depositary Share ("ADS") Basic earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the year. Net income per ADS is computed by multiplying basic earnings per share by 20, the number of shares represented by each ADS. t. Segment Information The Company and its subsidiaries' segment information are presented based upon identified business segments. A business segment is a distinguishable component that is engaged in providing an individual product or service or a group of related products or services that are different from those of other business segments, primarily to customers outside the Company or its subsidiaries. Business segment information is consistent with operating information routinely reported to the Company's chief operating decision maker. Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements. u. Reclassification of Account Certain accounts in 2002 financial statements have been reclassified to conform to the presentation of those accounts in the 2003 financial statements 3. TRANSLATION OF RUPIAH INTO UNITED STATES DOLLARS The financial statements are stated in Rupiah. The translations of Rupiah amounts into United States Dollars are included solely for the convenience of the readers and have been made using the average of the market buy and sell rates of Rp8,500 to US$1 published by Reuters on July 25, 2003. The convenience translations should not be construed as representations that the Rupiah amounts have been, could have been, or could in the future be, converted into United States Dollar at this or any other rate of exchange. - F-23 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 4. CROSS-OWNERSHIP TRANSACTIONS WITH INDOSAT On April 3, 2001, the Company signed a Conditional Sale and Purchase Agreement with Indosat, for a series of transactions to consolidate their cross-ownership in certain companies. The transactions under the agreement are as follows: i. Acquisition by the Company of Indosat's 35% equity interest in Telkomsel for US$945 million ("Telkomsel Transaction"); ii. Acquisition by Indosat of the Company's 22.5% equity interest in PT Satelit Palapa Indonesia ("Satelindo") for US$186 million ("Satelindo Transaction"); iii. Acquisition by Indosat of the Company's 37.66% equity interest in PT Aplikanusa Lintasarta ("Lintasarta") for US$38 million and convertible bonds of Rp4,051 million issued by Lintasarta ("Lintasarta Transaction"); and iv. The acquisition by Indosat of all of the Company's rights, and novation of all of the Company's obligations, under the KSO IV Agreement dated October 20, 1995, between the Company and PT Mitra Global Telekomunikasi Indonesia ("MGTI"), together with all of the Company's assets being used as KSO IV assets, for US$375 million, ("KSO IV Transaction"). The Telkomsel, Satelindo and Lintasarta Transactions have been accounted for as a restructuring of entities under common control. The difference between the consideration paid or received and the historical amount of the net assets of the acquired investee or carrying amount of the investment sold, is included within equity as "Difference in Value of Restructuring Transactions Between Entities Under Common Control", as follows:
Historical Consideration Amount of Difference in Value Paid/ Net Assets/ Change in ------------------------------------ (Received) Investment Equity - Net Total Tax Net ------------- ----------- ------------ ----------- -------- ----------- Rp Rp Rp Rp Rp Rp Telkomsel 10,782,450 1,466,658 - 9,315,792 - 9,315,792 Satelindo (2,122,260) - (203,309) (2,325,569) (636,678) (1,688,891) Lintasarta (437,631) 116,834 - (320,797) (96,239) (224,558) ----------- --------- -------- ---------- --------- ---------- Total 8,222,559 1,583,492 (203,309) 6,669,426 (732,917) 7,402,343 =========== ========= ======== ========== ========= ==========
In 2002, the Company sold its 12.72% share in Telkomsel. As of June 30, 2003, management did not have a plan to sell the Company's remaining interest in Telkomsel. In accordance with Indonesia Financial Accounting Standard No. 46 and FAS No. 109 regarding "Income Tax", therefore in 2002, the Company adjusted difference in value of restructuring transaction between entities under common controls and deferred tax liabilities for Rp369,888, respectively. 5. ACQUISITION OF KSO INVESTOR a. Dayamitra On May 17, 2001, the Company settles the acquisition transaction of 90.32%, which represented by 41,267,208 ordinary shares of Dayamitra, from PT Intidaya Sistelindomitra ("Intidaya"), Cable and Wireless plc ("C&W plc") and PT Mitracipta Sarananusa ("Mitracipta") for US$130,869,041. Included in the payment is US$8,937,041 as payment for Dayamitra's adjusted working capital, which accounted on the closing date of the transaction. The Conditional Sale and Purchase Agreement pertaining to the transaction was signed on April 3, 2001. - F-24 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 5. ACQUISITION OF KSO INVESTOR (continued) a. Dayamitra (continued) Pursuant to the terms of the agreement, the Company paid the initial payment amount of US$18,289,800 on May 17, 2001, the closing date of the transaction, and US$8,937,041 on August 10, 2001 as payment for Dayamitra's adjusted working capital. The remaining amount of US$103,642,200 will be paid through an escrow arrangement discussed below, in eight quarterly installments of US$12,955,275, from August 17, 2001 to May 17, 2003. This acquisition resulted in an intangible asset of Rp1,344,012 million which will be amortized over the remaining term of the KSO agreement. In connection with the Dayamitra transaction, the Company also entered into the following agreements: i. Option Agreement The Company entered into an Option Agreement with TM Communications (HK) Ltd ("TMC"), providing the Company with an option to acquire the remaining 9.68% equity interest in Dayamitra, referred to as the Option Share. Under the agreement, TMC, the selling shareholder, shall grant the Company an exclusive option to purchase full and legal title to the Option Share (the "Call Option"), and the Company shall grant the selling shareholder an exclusive option to sell to the Company full legal title to those shares (the "Put Option"). In consideration for the grant of the options, the Company will pay to the selling shareholder the option purchase price of US$6,300,000, plus US$957,823 as payment for Dayamitra's adjusted working capital, or a total of US$7,257,823. The amount is payable in eight quarterly installments of US$907,228, beginning on August 17, 2001 and ending on May 17, 2003. Payments will be made through the escrow account established under the Escrow Agreement discussed below. The Company may exercise the option any time after Dayamitra has satisfied all of its obligations under the J-Exim loan begun on May 17, 2003 and until five business days prior to March 26, 2006. The strike price payable by the Company to the selling shareholder for the Option Shares upon exercise of the option is US$16,200,000, less certain amounts that are stipulated in the Option Agreement. As of June 30, 2003, the option purchase price that has been paid by the Company amounted to US$7,253,823 or equivalent to Rp65,458 million, which was presented as part of "Advance Payment for Investment in Shares of Stock". ii. Escrow Agreement An Escrow Agreement dated May 17, 2001, was entered into by and among the Company, Dayamitra, Intidaya, C&W plc, Mitracipta, TMC, Tomen Corporatyion ("Tomen"), Citibank Singapore Branch (the Singapore Escrow Agent) and Citibank Jakarta Branch (the Jakarta Escrow Agent), to establish an Escrow Account and facilitate the payment of the following: 1. Purchase price for the Company's acquisition of 41,267,208 ordinary shares of Dayamitra from Intidaya, C&W plc and Mitracipta, and certain amounts in respect of Dayamitra's indebtedness to C&W plc; 2. Option purchase price, strike price for the Option Shares, and certain amounts in respect of Dayamitra's indebtedness to Tomen. - F-25 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 5. ACQUISITION OF KSO INVESTOR (continued) a. Dayamitra (continued) The Company is required to fund the escrow account in amounts and on scheduled dates stipulated in the agreement. The funds will then be used by the Escrow Agent to make payments on behalf of the Company for the share purchase, the indebtedness of Dayamitra to C&W plc and Tomen and the option purchase price, as they fall due. b. Pramindo Ikat Nusantara ("Pramindo") The acquisition of Pramindo is part of the Company's initiative to restructure its KSO joint operations schemes. The Class A and Class B shares are being acquired from French Cable et Radio, PT Astratel Nusantara, Indosat, Marubeni Corp Japan, NMP Singapore Pte Ltd Singapore and International Finance Corp USA ("IFC"). The aggregate purchase price for the Pramindo shares will be US$384,363,026 (including interest of US$2,864,154). Payment will be made in 27 monthly installments of US$12,800,000 for the first 11 months and US$15,000,000 for each of the remaining 16 months. The installments began on October 1, 2002 and the final payment is due on December 1, 2004. As a result of the acquisition of Pramindo, the Company has recognized an intangible asset of Rp895,138 millions which will be amortized over the remaining term of the KSO agreement. Consultancy fee amounting to Rp52,818 million for year 2002 was capitalized as acquisition cost. An Escrow Agreement dated August 14, 2002 was entered into by and among the Company, Pramindo, Astratel, France Cabels et Radio, Indosat, Marubeni Corp, IFC USA, NMP Singapore and JPMorgan Chase Bank Jakarta Branch (the Escrow Agent), to establish an Escrow Account and facilitate the payment of the acquisition of Pramindo by the company. The Company has consolidated Pramindo notwithstanding its current lack of majority ownership because it has been granted unilateral control over Pramindo and KSO I pursuant to a Conditional Sales and Purchase Agreement entered into between the Company and the shareholders of Pramindo (see Note 27). - F-26 - PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 6. CASH AND CASH EQUIVALENTS
2002 2003 ------- ------- Rp Rp Cash on hand 20,373 15,235 ------- ------- Cash in banks Related parties Rupiah Bank Negara Indonesia 109,508 58,269 Bank Mandiri 62,758 124,867 Bank Rakyat Indonesia 6,797 3,468 Bank Pos Nusantara 2,646 1,987 ------- ------- Total 181,709 188,591 ------- ------- Foreign currencies Bank Mandiri 43,844 45,394 Bank Negara Indonesia 7,021 9,470 Bank Rakyat Indonesia 62,818 4,874 ------- ------- Total 113,683 59,738 ------- ------- Total - related parties 295,392 248,329 ------- ------- Third parties Rupiah Citibank 579 20,271 Bank Bukopin 4,566 8,355 Bank Central Asia 3,325 7,013 Bank Niaga 957 54 ABN Amro Bank -- 48 Bank Danamon 74 Deutsche Bank 491 232 Bank Buana Indonesia 1 Bank Mega - 100 Bank Internasional Indonesia - 6 Lippo Bank - 75 Mizuho Indonesia Bank (formerly Bank Dai-Ichi Kangyo Indonesia) 81 - Standard Chartered Bank 23 - American Express Bank 6 - ------- ------- Total 10,102 36,155 ------- ------- Foreign currencies Citibank 121 2,060 Deutsche Bank 2,663 19,846 ABN Amro Bank - 41 American Express Bank 95 Bank Internasional Indonesia 27 Standard Chartered Bank 115 Bank of Tokyo - 111 Mizuho Indonesia Bank (formerly Bank Dai-Ichi Kangyo Indonesia) 12 Bank Central Asia 93 ------- ------- Total 2,891 22,293 ------- ------- Total - third parties 12,993 58,448 ------- ------- Total cash in banks 308,385 306,777 ------- -------
-F-27- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 6. CASH AND CASH EQUIVALENTS (continued)
2002 2003 --------- --------- Rp Rp Time deposits Related parties Rupiah Bank Mandiri 1,520,985 913,007 Bank Rakyat Indonesia 467,741 316,655 Bank Negara Indonesia 856,570 210,250 Bank Tabungan Negara - 52,545 --------- --------- Total 2,845,296 1,492,457 --------- --------- Foreign currencies Bank Mandiri 152,590 1,270,719 Bank Negara Indonesia 912,909 10,987 --------- --------- Total 1,065,499 1,281,706 --------- --------- Total - related parties 3,910,795 2,774,163 --------- --------- Third parties Rupiah ABN Amro Bank 1,000 Bank Mega 35,500 73,621 Bank Bukopin 47,871 132,685 Bank Yudha Bhakti - 2,000 Bank Niaga - 1,000 Deutsche Bank 71,950 103,580 Standard Chartered Bank - 124,127 Bank Umum Tugu - 40,000 Bank Danamon - 105 --------- --------- Total 156,321 477,118 --------- --------- Foreign currencies Citibank 66,192 - Deutsche Bank 64,602 381,876 --------- --------- Total 130,794 381,876 --------- --------- Total - third parties 287,115 858,994 --------- --------- Total time deposits 4,197,910 3,633,157 --------- --------- Total Cash and Cash Equivalents 4,526,668 3,955,169 ========= =========
Range of interest rates per annum for time deposits is as follows:
2002 2003 ---- ---- Rupiah 11% - 18.04% 8.00% - 12.50% Foreign currency 1.75% - 6.95% 1.38% - 2.25%
-F-28- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 7. TEMPORARY INVESTMENTS Related parties Rupiah Bank Mandiri 502,000 26,540 Bank Negara Indonesia - ------- ------ 502,000 26,540 ------- ------ U.S. Dollar Bank Mandiri 60,347 - ------- ------ Total - related parties 562,347 26,540 ------- ------ Total time deposit 562,347 26,540 ------- ------ Available for sale securities Medium Term Notes - PSSI 50,000 - ------- ------ Net 50,000 - ------- ------ Total available for sale securities 50,000 - ------- ------ Total temporary investments 612,347 26,540 ======= ======
Range of interest rates per annum for time deposits is as follows:
2002 2003 -------------- ----- Rupiah 12.00% - 18.04% 12.25% Foreign currency 5.53% - 6.13% 2.25%
The terms of time deposits rank from 3 (three) months to 1 (one) year. Medium Term Notes - PSSI represent medium term notes issued by Persatuan Sepakbola Seluruh Indonesia (PSSI) amounting to Rp50,000 million for the period from May 7, 2001 to February 22, 2003. On its maturity date, the medium term notes has been settled. Investments placed with related parties have similar interest rates, terms and conditions as those placed with third parties. -F-29- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 8. TRADE ACCOUNTS RECEIVABLE - RELATED PARTIES a. By Debtor
2002 2003 ---- ---- Rp Rp KSO Units 1,551,968 1,887,329 Governments agencies 313,545 157,663 Unbilled trade account receivable 357,963 PT Mobile Selular Indonesia 34,544 44,457 PT Radio Telepon Indonesia 6,249 13,117 PT Citra Sari Makmur 12,962 82,343 PT Komunikasi Selular Indonesia 9,907 14,612 PT Indonesia Satellite - 9,777 PT Batam Bintan Telekomunikasi 4,181 PT Metro Selular Indonesia 9,155 5,199 PT Aplikanusa Lintasarta 14,531 13,757 PT Patra Telekomunikasi Indonesia 7,889 PT Gratika 1,947 678 PT Telesera 1,574 19,676 PT Telkomindo 4,790 Singapore Telecom 689 PT Garuda 10,585 PT Multisaka Mitra 1,179 Others 1,179 636 --------- --------- Total 2,319,705 2,274,376 Allowance for doubtful accounts (414,546) (630,748) --------- --------- Net 1,905,159 1,643,628 ========= =========
Trade accounts receivable from certain related parties are presented net of the Company's liabilities to such parties. b. By Age Category
2002 2003 ---- ---- Rp Rp Up to 6 months 1,220,669 1,154,144 7 to 12 months 647,810 441,170 13 to 24 months 345,394 317,213 More than 24 months 105,832 361,849 --------- --------- Total 2,319,705 2,274,376 Allowance for doubtful accounts (414,546) (630,748) --------- --------- Net 1,905,159 1,643,628 ========= =========
-F-30- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 8. TRADE ACCOUNTS RECEIVABLE - RELATED PARTIES (continued) c. By Currency
2002 2003 ---- ---- Rp Rp Rupiah 2,315,774 2,273,687 United States Dollar 3,931 689 --------- --------- Total 2,319,705 2,274,376 Allowance for doubtful accounts (414,546) (630,748) --------- --------- Net 1,905,159 1,643,628 ========= =========
Movements in the allowance for doubtful accounts are as follows:
2002 2003 ---- ---- Rp Rp Beginning balance 325,930 576,374 Net additions during the year 88,616 54,374 ------- ------- Ending balance 414,546 630,748 ======= =======
An allowance for doubtful accounts is provided for amounts that are overdue, and a full provision is made for receivables from related parties with significant capital deficiencies. Management believes that the allowance for doubtful receivables from related parties is adequate to cover possible losses on uncollectible accounts. The allowance for doubtful accounts included a provision for the MTR and share in distributable KSO revenue receivable from KSO III. The allowance was Rp284,483 million as of June 30, 2002 and Rp 511,676 million as of December 31, 2002. Balance of MTR receivable and distributable KSO revenue receivable from KSO III as of June 2003 is Rp1,558 billion. Pursuant to the progress of AWI transaction settlement (see Note 49) and since the established allowance for doubtful accounts was reached 32.9% of the account receivable balance, therefore no additional allowance for doubtful accounts for MTR and distributable KSO revenue receivable from KSO III recognized in the first semester of 2003 (see Note 55). Management believes that there are no significant concentrations of credit risk on these receivables. -F-31- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 9. TRADE ACCOUNTS RECEIVABLE - THIRD PARTIES a. By Debtor
2002 2003 ---- ---- Rp Rp Residential and business subscribers 1,422,860 2,246,903 Overseas international carriers 192,822 194,981 Others 78,465 588 --------- --------- Total 1,694,147 2,442,472 Allowance for doubtful accounts (315,016) (331,832) --------- --------- Net 1,379,131 2,110,640 ========= =========
2. By Age Category
2002 2003 ---- ---- Rp Rp Up to 3 months 1,379,131 2,100,640 More than 3 months 315,016 331,832 --------- --------- Total 1,694,147 2,432,472 Allowance for doubtful accounts (315,016) (331,832) --------- --------- Net 1,379,131 2,100,640 ========= =========
3. By Currency
2002 2003 ---- ---- Rp Rp Rupiah 1,623,485 2,419,483 United States Dollar 70,662 12,989 --------- --------- Total 1,694,147 2,432,472 Allowance for doubtful accounts (315,016) (331,832) --------- --------- Net 1,379,131 2,100,640 ========= =========
Movements in the allowance for doubtful accounts are as follows:
2002 2003 ---- ---- Rp Rp Beginning balance 252.855 397.810 Net movements during the year 62.161 (65.978) ------- ------- Ending balance 315.016 331.832 ======= =======
Management believes that the allowance for doubtful receivables from third parties is adequate to cover possible losses on uncollectible accounts. Management also believes that there are no significant concentrations of credit risk from third party receivables. -F-32- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 10. INVENTORIES
2002 2003 ---- ---- Rp Rp Component: Telephone terminals, cards and spare parts 49,658 57,154 Cable and transmission installation spare parts 85,371 39,525 Other spare parts 521 13,311 ------- ------- Total 135,550 109,990 Allowance for obsolescence (32,292) (26,420) ------- ------- Net 103,258 83,570 ------- ------- Modules: Cable and transmission installation spare parts 51,027 1,963 Telephone terminals, cards and spare parts 32,677 93,243 Other spare parts 187 272 ------- ------- Total 83,891 95,478 Allowance for obsolescence (18,892) (22,850) ------- ------- Net 64,999 72,628 ------- ------- Total 168,257 156,198 ======= =======
Changes in the allowance for obsolescence of inventories are as follows:
2002 2003 ---- ---- Rp Rp Beginning balance 48,997 53,795 Net additions during the year 2,187 (4,525) ------ ------ Ending balance 51,184 49,270 ====== ======
Management believes that the established allowance is sufficient to cover possible losses from decline in inventory value due to obsolescence. At June 30, 2003, modules in inventory were insured against fire, theft and other possible risks for US$1,268 thousands. 11 PREPAID TAXES
2002 2003 ---- ---- Rp Rp Income Tax (Article 23) - - Value Added Tax - - -- -- Total - - == ==
-F-33- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 12. OTHER CURRENT ASSETS As of June 30, 2003, this account presented time deposits and restricted funds with details as follows: a. Telkomsel's time deposits amounted to Rp81,314 million is used as security the facility related to financing and Letter of Credit for procurements. b. Telkom's time deposits amounted to US$4.6 million or equivalent Rp38,042 million is used to guarantee Napsindo's loan in relation with developing of infrastructure. The time deposit will be expired on August 28, 2003 and October 23, 2003 for US$1,8 million and US$2,8 million, respectively. c. Company's time deposit in Bank Mandiri amounted US$4,600 thousand is used as security for Napsindo's loan to finance its infrastructure development (see Note 1.b). The guarantee valid until August 28, 2003. 13. LONG-TERM INVESTMENTS - NET
2002 2003 -------------------------------------- ----------------------------------- Percent age Share in Percentage Share in of Net Income Carrying of Net Income Carrying Domicile Ownership (Loss) Amount Ownership (Loss) Amount -------- --------- ---------- -------- --------- ---------- -------- % Rp Rp % Rp Rp Equitymethod: PT Citra Sari Makmur Jakarta 25.00 (4,842) 49,613 25.00 979 56,055 PT Metr o Selular Nusantara Surabaya 20.17 (1,657) - 20.17 - 16,309 PT Patra Telekomunikasi Indonesia Jakarta 30.00 4,004 5,636 1 30.00 3,381 16,224 PT Napsindo Primatel Internasional Jakarta 32.00 (3,024) 9,003 *) PT Multimedia Nusantara Jakarta 31.00 - 1,928 *) PT Pasifik Satelit Nusantara Bekasi 22.57 - - 22.57 - - PT Mobile Selular Indonesia Jakarta 25.00 - - 4.92 - - ------ ------- ----- ------- Total (5,519) 76,180 4,360 88,588 ====== ======= ===== ======= Cost method: PT Batam Bintan Telekomunikasi Batam 5.00 588 5.00 588 PT Telekom indo Selular Raya Denpasar 69.77 60 17,132 99.99 - 25,724 PT Bangtelindo Bandung 3.18 199 3.18 199 M edianusa Pte. Ltd. Singapura 9.44 108 9.44 108 PT Komunikasi Selular Indonesia Jakarta 35.00 - - 14.20 - 57,570 ------ ------- ----- ------- Net 60 18,027 - 84,189 ------ ------- ----- ------- Total (5,459) 94,207 4,360 172,777 ====== ======= ===== =======
*) Investment in Napsindo was changed into consolidation as of March 2003, and Multimedia Nusantara was changed into consolidation as of May 2003 -F-34- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 13. LONG-TERM INVESTMENTS - NET (continued) a PT Citra Sari Makmur ("CSM") CSM is engaged in providing Very Small Aperture Terminal ("VSAT"), net application services and consulting services on telecommunications technology and related facilities.
2002 2003 ---- ---- Rp Rp Beginning balance 74,833 62,270 Equity in net income of associated company (4,842) 979 Difference due to change of equity in associated company (20,378) - Translation adjustment - (7,194) ------ ------ Ending balance 49,613 56,055 ====== ======
b. PT Telekomindo Selular Raya ("Telesera") In 2001, the Minister of Justice and Human Rights approved the corporate restructuring of PT Telekomindo Primabhakti ("Telekomindo"), an associated company engaged in the construction and development of telecommunications facilities. Pursuant to the restructuring, Telekomindo's authorized and paid-up capital was reduced and the capital reduction became the paid-up capital of two new companies: PT Telekomindo Media Informatika ("TMI") and PT Griya Insani Primabhakti ("GIP"). Based on a swap share agreement dated December 5, 2001 among the Company, PT Rajawali Corporation ("RC"), Telekomindo, and TMI, the parties agreed on the following: - The Company sold its investments (inclusive of shares owned by Dana Pensiun Telkom) in Telekomindo, TMI, and GIP to RC for Rp145,968 million. - TMI sold its investments (inclusive of shares owned by RC and Koptelindo) in PT Telekomindo Selular Raya ("Telesera") and PT Multisaka Mitra ("MSM") to the Company for Rp126,000 million and Rp25,000 million, respectively. The sale transactions of the Company's shares in Telekomindo, TMI and GIP and the purchase of MSM and Telesera were consummated on December 28, 2001 based on the Deed of Sale and Purchase of Shares No. 8, 9,10, 11, and 12, respectively of Notary Emmy Salim, S.H.. In 2002, the Company recognized a loss of Rp101,527 million from the difference of the acquisition cost with the net carrying value of Telesera, due to the management intention investing in Telesera only temporary. The acquisition cost of MSM's assets amounted Rp 25,000 million which recorded as "Advance Payments and Other Non-Current Assets" on December 31, 2002, has been capitalized in February 2003. As of June 30, 2003, the Company's investment in Telesera is accounted for using the cost method because management intends to sell its interest in Telesera. Management has completed the valuation process and currently is in the process of negotiating the sale of Telesera. As of June 30, 2003, the carrying amount of this investment was Rp25,578 million, equivalent with the Company's interest of Telesera's equity. -F-35- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 13. LONG-TERM INVESTMENTS - NET (continued) b. PT Telekomindo Selular Raya ("Telesera") (continued)
2002 2003 ---- ---- Rp Rp Beginning balance - 26,642 Capital contribution 87,907 - Equity in net income of associated company 60 0 Acquisition loss (70,835) (918) ------- ------ Ending balance 17,132 25,724 ======= ======
c. PT Metro Selular Nusantara ("Metrosel") Metrosel is engaged in providing national mobile cellular services and related facilities in Central Java, Yogyakarta, East Java, Maluku and Irian Jaya. The Company previously provided these services under a revenue-sharing arrangement with PT Centralindo Panca Sakti Cellular (a company which has taken over the rights and obligations of PT Centralindo Panca Sakti or "CPS"). The Company's initial capital contribution of Rp10,087 million represents a 20.17% ownership interest in Metrosel and was made in the form of property, plant and equipment under the revenue-sharing arrangement between the Company and CPS. The property, plant and equipment will be transferred to the company at the end of revenue sharing arrangement. In February 1997, Metrosel issued 1,250,000 new shares with a par value of Rp10,000 per share to Asia Link B.V. for US$84,375 thousand. The issuance of the new shares has no impact on the Company's ownership interest because the Company was granted 251,940 shares by the Company's Pension Fund (formerly Yayasan Dana Pensiun Pegawai PT Telekomunikasi Indonesia or "YDPP Telkom"), a shareholder of Metrosel. On May 30, 2002 Metrosel Implemented equity call. The Company made additional capital contribution amounted to Rp13,514 million to maintain its ownership in Metrosel.
2002 2003 ---- ---- Rp Rp Beginning balance 1,657 16,309 Equity in net profit (loss) of associated company (1,657) ------ ------ Ending balance - 16,309 ====== ======
-F-36- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 13. LONG-TERM INVESTMENTS - NET (continued) d. PT Patra Telekomunikasi Indonesia ("Patrakomindo") Patrakomindo is engaged in providing satellite communication system services and related facilities to companies in the petroleum industry.
2002 2003 ---- ---- Rp Rp Beginning balance 12,133 12,842 Equity in net income of associated company 4,004 3,382 Difference due to change of equity in associated company (501) - ------ ------ Ending balance 15,636 16,224 ====== ======
e. PT Pasifik Satelit Nusantara ("PSN") PSN is engaged in providing satellite transponder leasing and satellite-based communication services in the Asia Pacific Region.
2002 2003 ---- ---- Rp Rp Beginning balance - - Decline in value of investment - - -- -- Ending balance - - == ==
In 2001, management decided to recognize other than temporary decline in value of this investment due to the financial condition of PSN. f. PT Menara Jakarta ("MJ") MJ is engaged in the construction and the operation of towers and related facilities. The economic difficulties faced by Indonesia have resulted in the termination of MJ's construction projects at the end of 1997. Based on Notary Deed of A. Partomuan Pohan, SH, LLM No. 19 dated April 8, 2003 regarding swap shares agreement; the Company exchanges all its shares in MJ for 69% shares of PT Multimedia Nusantara. -F-37- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 13. LONG-TERM INVESTMENTS - NET (continued) g. PT Mobile Selular Indonesia ("Mobisel") Mobisel is engaged in providing mobile cellular services and related facilities. The Company previously provided these services under a revenue-sharing arrangement with PT Rajasa Hazanah Perkasa ("RHP"). The capital contribution of the Company amounting to Rp10,398 million, which represents a 25% equity ownership in Mobisel, was made in the form of property, plant and equipment under a revenue-sharing arrangement. On November 12, 2002, Mobisel's shareholders agreed for equity call and debt to equity swap through the Unanimous Written Resolution. Based on the resolution, all Mobisel debts to the Company converted to 20,523,079 Series A shares and promissory notes amounted to Rp4,206 million. The Company released and waived its pre-emptive right to subscribe the newly issued shares, which resulted in the dilution of the Company ownership interest in Mobisel to 4.92%. Approval from the Minister of Justice and Human Rights on the Amendment of Mobisel's Article of Association is still in process. h. PT Komunikasi Selular Indonesia ("Komselindo") Komselindo is a joint venture between the Company and PT Elektrindo Nusantara ("Elektrindo"), and is engaged in providing analog mobile cellular services. The Company previously provided these services under a revenue-sharing arrangement with Elektrindo. Elektrindo transferred its property, plant and equipment acquired under the revenue-sharing arrangements to Komselindo for Rp188,195 million based on the appraised value of the assets and the agreement among the Company, Elektrindo and Komselindo. This transaction is considered as a transaction between entities under common control since Elektrindo owns 65% of Komselindo. Based on the Deed of Komselindo's Shareholders Extraordinary General Meeting No. 110 dated October 10, 2000, which was notarized by Ny. R. Arie Soetardjo, S.H., the Company agreed to the conversion of Rp92,750 million of receivables from Komselindo into equity in order to maintain a 35% ownership interest. In 2001, the Company recorded the conversion of the receivables into equity and recognized loss for the new carrying amount of the investment amounting to Rp92,750 million. In March 2002, Komselindo submitted a request to postpone debt settlement to Commercial Court. Commercial Court in Central Jakarta State Court through its decision No 02/PKPU/2002/PN.NIAGA/JKT.PST dated May 2, 2002 granted Komselindo to postpone its debt settlement for the period of six months after the date of decision. On June 4, 2002, Komselindo proposed a settlement plan to its creditors for debt restructuring through debt to equity with conversion debt amounted to Rp117.304 million and US$171.323.044. The debt conversion also included Komselindo liabilities to the Company amounted to Rp19.397 million. The plan is approved by the creditors through the Restructuring and Settlement Agreement dated August 30, 2002. On August 30, 2002 Komselindo's shareholders through Extraordinary Shareholders Meeting approved equity call for debt restructuring which is included in the Settlement Agreement and the Settlement,Termination and Release Agreement dated August 30, 2002. The Company released and waived the pre-emptive right to subscribe newly issued shares. It resulted the dilution of Company's ownership in Komselindo to 14.20%. -F-38- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 13. LONG-TERM INVESTMENTS - NET (continued) i. PT Batam Bintan Telekomunikasi ("BBT") BBT is engaged in providing fixed line telecommunication services at Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan Beach International Resort and Bintan Industrial Estate in Bintan Island. In June 1996, based on a cooperation agreement between the Company and PT Batamindo Investment Corporation ("BIC"), the Company's investment in BBT was fully paid by BIC as a donation to the Company. j. PT Bangtelindo PT Bangtelindo is primarily engaged in providing consultancy services on the installation and maintenance of telecommunications facilities. k. Medianusa Pte. Ltd. Medianusa Pte. Ltd. is an associated company of Infomedia, which is engaged as a sales agent, in search of advertisers for telephone directories. -F-39- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 14. PROPERTY, PLANT AND EQUIPMENT
January 1, 2002 Additions Deductions Reclassifications ---------- --------- ---------- ----------------- Rp Rp Rp Rp At cost or revalued amounts: Land 195,153 29,936 - (2,612) Buildings 1,597,260 5,122 - 21,332 Switching equipment 8,842,943 310,531 13,300 415,497 Telegraph, telex and data communication equipment 206,592 52 - 457,618 Transmission installation and equipment 4,899,964 1,001,120 7,213 3,475,077 Satellite, earth station and equipment 5,772,334 4,461 - (3,147,269) Cable network 11,284,470 19,252 86 (197,062) Power supply 998,461 35,023 497 15,779 Data processing equipment 1,894,456 223,305 12 (399,779) Other telecommunications peripherals 507,652 87 825 24,899 Office equipment 616,029 60,522 59 (18,744) Vehicles 188,067 2,397 1,066 3,774 Other equipment 68,048 1,648 - 1 Property under construction: Buildings 17,556 22,350 - (9,031) Switching equipment 187,125 96,536 - (219,488) Transmission installation and equipment 291,861 164,463 - (84,889) Satellite, earth station and equipment 306,365 9,788 - (310,873) Cable network 196,947 191,270 - 162,073 Power supply 6,258 90,172 - (7,955) Data processing equipment 133,543 101,450 - (172,619) Other telecommunications peripherals 3,492 9,088 - (11,788) Leased assets Vehicle 3,804 - - (3,804) ---------- --------- -------- ------------- Total 38,218,380 2,378,573 23,058 (9,863) ---------- ========= ======== ============= Accumulated depreciation: Buildings 654,596 36,698 - 2,752 Switching equipment 3,985,490 253,608 - (328,099) Telegraph, telex and data communication equipment 201,748 44,234 - 168,024 Transmission installation and equipment 2,075,653 411,009 - 1,761,057 Satellite, earth station and equipment 1,875,016 77,070 - (1,816,144) Cable network 4,671,775 430,621 86 (91,537) Power supply 667,615 32,053 497 25,891 Data processing equipment 725,422 118,581 - (231,681) Other telecommunications peripherals 437,610 16,344 293 (4,561) Office equipment 426,067 36,350 59 (3,708) Vehicles 159,138 7,737 980 973 Other equipment 48,815 5,281 - 507,840 Leased assets Vehicle 669 - - (669) ---------- --------- -------- ------------- Total 15,929,614 1,469,586 1,915 (9,864) ---------- ========= ======== ============= Net Book Value 22,288,766 ==========
-F-40- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 14. PROPERTY, PLANT AND EQUIPMENT (continued)
January 1, June 30, 2003 Additions*) Deductions Reclassifications 2003 ---------- ----------- ---------- ----------------- ---------- Rp Rp Rp Rp Rp At cost or revalued amounts: Land 261,290 28,831 25 2,375 292,471 Buildings 1,735,107 3,289 28,226 38,512 1,748,682 Switching equipment 8,471,386 24,990 - 4,136,376 12,632,752 Telegraph, telex and data communication equipment 217,380 - - (10,614) 206,766 Transmission installation and equipment 14,624,530 604 2,614 (1,109,495) 13,513,025 Satellite, earth station and equipment 2,549,548 6,865 - 235,139 2,791,552 Cable network 12,542,254 125,708 28,127 687,804 13,327,639 Power supply 1,044,193 3,506 1,358 30,827 1,077,168 Data processing equipment 2,807,374 11,147 60 140,032 2,958,493 Other telecommunications peripherals 710,234 25,600 21 (165,699) 570,114 Office equipment 611,290 6,083 811 29,708 646,270 Vehicles 188,786 770 400 4,169 193,325 Other equipment 83,238 11,076 23 20,442 114,733 Property under construction: Buildings 63,302 49,714 - (43,467) 69,549 Switching equipment 396,161 874,995 - (1,158,902) 112,254 Transmission installation and equipment 323,152 1,915,233 - (2,041,398) 196,987 Satellite, earth station and equipment 48,094 222,528 - (258,874) 11,748 Cable network 631,052 211,098 - (593,193) 248,957 Power supply 5,895 6,929 - (10,922) 1,902 Data processing equipment 44,118 135,992 - (139,719) 40,391 Other telecommunications peripherals 2,386 6,431 (5,664) 3,153 Leased assets Vehicles 3,923 - (3,923) - ---------- ----------- ------- ------------ ---------- Total 47,364,693 3,671,389 61,665 (216,486) 50,757,931 ---------- =========== ======= ============ ---------- Accumulated depreciation: Buildings 773,941 52,604 28,226 1,624 799,943 Switching equipment 4,267,821 476,124 573,935 5,317,880 Telegraph, telex and data communication equipment 206,432 732 (3,020) 204,144 Transmission installation and equipment 4,285,905 577,589 (589,193) 4,274,301 Satellite, earth station and equipment 1,350,885 95,642 2,614 99,431 1,543,344 Cable network 5,710,517 553,113 10,564 (6,160) 6,246,906 Power supply 748,605 34,017 1,358 3,066 784,330 Data processing equipment 1,076,936 217,189 83 226 1,294,268 Other telecommunications peripherals 584,066 16,897 21 (109,752) 491,190 Office equipment 475,696 25,199 661 9,774 510,008 Vehicles 170,025 6,311 420 1,600 177,516 Other equipment 66,352 8,442 17,516 92,310 Leased assets Vehicles 1,732 (1,732.00) ---------- ----------- ------- ------------ ---------- Total 19,718,913 2,063,859 43,947 (2,685) 21,736,140 ---------- =========== ======= ============ ---------- Net Book Value 27,645,780 29,021,791 ========== ===========
*) Including property, plant and equipment of Napsindo, PII and Metra which were consolidated in 2003. -F-41- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 14. PROPERTY, PLANT AND EQUIPMENT (continued) Most of the Company's property, plant and equipment acquired up to January 1, 1979 and January 1, 1987 have been revalued in accordance with Decree No. 109/KMK.04/1979 dated March 27, 1979 of the Minister of Finance of the Republic of Indonesia and Government Regulation No. 45 of 1986, respectively. The revaluation increments of Rp86,787 million resulting from the 1979 revaluation and Rp381,908 million resulting from the 1987 revaluation were included within equity in 1984 and 1988, respectively. Depreciation charged to operations amounted to, Rp1,319,834 million, Rp1,530,491 million and Rp2,032,298 million for period 2001, 2002 and 2003, respectively. Interest capitalized into property under construction amounted to Rp7,865 million and Rp6,741 million in 2002 and 2001, respectively. Whilst in 2003 there is no interest capitalized into property under construction. Capitalization rates are the borrowing rates on debts incurred related to property under construction. Foreign exchange gains (losses) capitalized as part of property under construction amounted to (Rp46,959) million and Rp67,022 million 2002 and 2001, respectively. Management believes that no impairment in the carrying amount of its assets has occurred. The Company and its subsidiaries own several pieces of land located throughout Indonesia with Building Use Rights (Hak Guna Bangunan or HGB) for a period of 20-30 years, which will expire between 2003-2032. Management believes that there will be no difficulty in the extension of the landrights since all the parcels of land are supported by sufficient evidence of ownership. Some of the Company's land measuring 1,801,424 m(2) is still under the name of other parties including, among others, the Ministry of Tourism, Post and Telecommunications and the Ministry of Communication of the Republic of Indonesia. As of July 25, 2003, the transfer to the Company of the legal title of ownership on those parcels of land is still in progress. All of the Company's property, plant and equipment, except land, were insured with various insurance companies against fire, theft and other possible risks for Rp20,270 million and US$ 1,368 thousand at June 30, 2002 and Rp19,748 million and US$1,247 thousand at June 30, 2003. In addition, the Palapa B4 and Telkom-1 Satellite are insured for US$71,837 thousand and US$68,243 thousand at June 30, 2002 and at June 30, 2003, respectively. Management believes that the insurance coverage is adequate to cover possible losses on the assets insured. All of the subsidiaries' property, plant and equipment, except land, were insured against fire, theft and other possible risks. Management of the subsidiaries believes that the insurance coverage is adequate to cover possible losses on those assets. -F-42- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 15. PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS
January 1, June 30, 2002 Additions Deductions Reclassification 2002 ---------- --------- ---------- ---------------- --------- Rp Rp Rp Rp Rp Year 2002 At cost: Land 3,160 - - - 3,160 Buildings 23,952 - - - 23,952 Switching equipment 624,794 - - 447 625,241 Transmission installation and equipment 107,558 - - - 107,558 Cable network 334,345 - - (447) 333,898 Other telecommunications peripherals 199,842 - - - 199,842 ---------- ------- -------- ----------- --------- Total 1,293,651 - - - 1,293,651 ---------- ------- -------- ----------- --------- Accumulated depreciation: Land 1,146 80 - - 1,226 Buildings 9,333 602 - - 9,935 Switching equipment 322,455 22,210 - - 344,665 Transmission installation and equipment 87,143 5,378 - - 92,521 Cable network 221,034 14,326 - - 235,360 Other telecommunications peripherals 199,806 16 - - 199,822 ---------- ------- -------- ----------- --------- Total 840,917 42,612 - - 883,529 ---------- ------- -------- ----------- --------- Net Book Value 452,734 410,122 ========== =========
January 1, June 30, 2003 Additions Deductions Reclassifications 2003 ----------- --------- ---------- ----------------- -------- Rp Rp Rp Rp Rp Year 2003 At cost: Land 3,160 - - - 3,160 Buildings 23,727 - - - 23,727 Switching equipment 623,757 - 5,897 (3,256) 614,604 Transmission installation and equipment 107,558 - 9,416 (5,115) 93,027 Cable network 333,187 - - - 333,187 Other telecommunications peripherals 129,196 - 2,211 (500) 126,485 ---------- -------- -------- ----------- --------- Total 1,220,585 - 17,524 (8,871) 1,194,190 ---------- -------- -------- ----------- --------- Accumulated depreciation: Land 1,265 80 - - 1,345 Buildings 10,412 593 - - 11,005 Switching equipment 362,209 21,871 5,897 (3,256) 374,927 Transmission installation and equipment 95,396 4,651 9,416 (5,115) 85,516 Cable network 242,471 14,332 - - 256,803 Other telecommunication peripherals 129,196 - 2,211 (500) 126,485 ---------- -------- -------- ----------- --------- Total 840,949 41,527 17,524 (8,871) 856,081 ---------- -------- -------- ----------- --------- Net Book Value 379,636 338,109 ========== =========
-F-43- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 15. PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS (continued) Depreciation charged to operations amounted to Rp42,787 million, Rp42,612 million and Rp41,527 million as of June 30, 2001, 2002 and 2003, respectively. The investors legally retain rights to the property, plant and equipment under revenue-sharing arrangements until the end of the revenue-sharing period. The unearned income under revenue-sharing arrangements is as follows:
2002 2003 ----------- ----------- Rp Rp Gross amount 1,297,274 1,293,651 Accumulated amortization (1,102,672) (1,156,683) ----------- ----------- Net 194,602 136,968 =========== ===========
16. INTANGIBLE ASSETS
2002 2003 ----------- --------- Rp Rp Intangible assets 1,356,144 2,388,691 License - net - 6,221 Amortized (82,166) (459,467) ----------- --------- Net 1,273,978 1,935,445 =========== =========
Movement of intangible assets during 2003 and 2002 is as follows:
2002 --------------------------------------------------- Intangible Assets Goodwill -------------------- ----------------- Dayamitra Pramindo GSD Indonusa Total --------- -------- ------- -------- --------- Rp Rp Rp Rp Rp Beginning balance 1,262,203 - 93,941 - 1,356,144 Additions - - Impairment - - - - - Amortization (71,531) - (10,635) (82,166) --------- -------- ------- -------- --------- Ending balance 1,190,672 - 83,306 - 1,273,978 ========= ======== ======= ======== =========
2003 ---------------------------------------------------------- Intangible Assets Goodwill -------------------- ------------------------ Dayamitra Pramindo GSD Metra Napsindo Total --------- -------- ------- ----- -------- ----- Rp Rp Rp Rp Beginning balance 1,121,958 850,824 72,671 2,045,453 Additions - - - 5,751 39,868 45,619 Amortization (70,122) (53,176) (10,635) (5751) (19,934) (159,618) Impairment - - - - (3,080) (3,080) --------- -------- ------- ----- --------- --------- Ending balance 1,051,836 797,648 62,036 - 16,854 1,928,374 ========= ======== ======= ===== ========= =========
-F-44- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 16. INTANGIBLE ASSETS (continued) The intangible asset resulted from the acquisition of Dayamitra and Pramindo primarily represents the present value of Dayamitra's and Pramindo's share of projected Distributable KSO Revenue over the remaining KSO period. Goodwill resulted from the acquisition of GSD and Indonusa (see Note 2.b). Total amortization of Rp159,618 million for the period ended June 30, 2003 was reported as other expense under "Other Income (Charges)" in the consolidated statements of income. The license represents the Nationwide DCS 1800 Operations and License for Nationwide DCS 1800 Radio Frequency Spectrum Utilization held by Telkomsel. Amortization expense for this license during first semester of 2003 amounted to Rp451 million. 17. ESCROW ACCOUNT Escrow accounts consist of the following: a. Dayamitra Escrow This account with Citibank N.A., Singapore ("Dayamitra Escrow Agent"), was established to facilitate the payment of the Company's obligations under the Conditional Purchase Agreement and Option Agreement entered into with the selling shareholders of Dayamitra. In accordance with the Escrow Agreement, the Company made the first installment payment of US$14,343,750 on May 17, 2001. Future monthly installments of US$6,250,000 for twenty four months are required by the agreement. The Company is also obliged to make additional installment payments necessary to settle the obligation on the due dates and to maintain a minimum balance of US$14,343,750. The escrow account earns interest at LIBOR minus 0.75% per annum, which is computed daily. The interest income earned is included as part of the escrow fund. The remaining funds available will be transferred to the Company after all of the obligations to the Dayamitra transaction are satisfied b. PIN Escrow This escrow account with JPMorgan Chase Bank ("PIN Escrow Agent") was established to facilitate the settlement of the Company's obligations under its Conditional Sale and Purchase Agreement for the acquisition of PIN. In accordance with the Escrow Agreement, the Company will make installment payments of US$12,800,000 for eleven months and US$15,000,000 for sixteen months. The first installment was due on October 1, 2002. Escrowed funds earn interest at LIBOR minus 0.4% per annum, which is computed daily. The interest income earned will be included as part of the escrow fund. -F-45- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 18. TRADE ACCOUNTS PAYABLE
2002 2003 ---------- ----------- Rp Rp Related parties Purchases of equipment, materials and services 125,189 34,079 Payable to other telecommunications operator 496,831 220,653 Concession fees 272,872 193,532 Other 14,770 8,979.00 --------- --------- Total 909,662 457,243 --------- --------- Third parties Purchases of equipment, materials and services 723,061 1,530,804 Payable to other telecommunication operator 154,485 34,479 Payable related to revenue-sharing arrangements 8,073 166,050 --------- --------- Total 885,619 1,731,333 --------- --------- Total 1,795,281 2,188,576 ========= =========
Trade accounts payable by currency are as follows:
2002 2003 ---------- ---------- Rp Rp Rupiah 1,747,032 1,837,451 United States Dollar 47,429 319,943 Euro - 9,530 Great Britain Pound sterling 820 3,059 Yen Jepang - 18,363 Singapore Dollar - 120 Australian Dollar 0 110.00 --------- --------- Total 1,795,281 2,188,576 ========= =========
19. TAXES PAYABLE
2002 2003 ----------- ---------- Rp Rp Current tax (see Note 41) 970,725 503,220 Income tax Article 21 19,301 25,701 Article 22 3,792 4,575 Article 23 19,682 11,743 Article 25 257,427 376,497 Article 26 4,351 257,004 Value Added Tax ("VAT") 157,348 103,113 --------- --------- Total 1,432,626 1,281,853 ========= =========
-F-46- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 19. TAXES PAYABLE (continued) The amount of VAT Output that has not been remitted to the State Treasury is reported in the taxes payable account. Based on a circular letter No. SE-48/PJ.3/1988 dated December 31, 1988, by the Director General of Taxation; the Company is not allowed to credit the VAT Input against the VAT Output. However, based on the letter from Director General of Taxation No. KEP-539/PJ/2000 dated December 29, 2000, the Company is able to credit the VAT Input against the VAT Output on taxable materials and or services acquired that are directly related to the Company's operations, starting from January 1, 2001. Pursuant to Decision Letter No. KEP-01/WPJ.07/KP.0105/2002 dated March 22, 2002, the Director General of Taxation has permitted the Company to pay taxes due on the cross-ownership transaction in nine monthly installments ending on December 25, 2002. 20. ACCRUED EXPENSES
2002 2003 ---------- --------- Rp Rp Early retirement benefits 366,525 Postretirement benefits 610,791 709,090 Salaries and employee bonuses 105,491 360,266 Interest and bank charges 281,364 161,571 General, administrative and marketing 3,651 167,774 Operation, maintenance and telecommunications services 491,454 234,752 Other 182 16,619 --------- --------- Total 1,492,933 2,016,597 ========= =========
Based on Board of Directors' Resolution No. KD.20/PS900/SDM-10/2001 dated June 11, 2001 concerning Early Retirement, the Company offered an Early Retirement Program for interested and eligible employees. Employees' rights under the early retirement program, method of calculation and payments for compensation and other benefits are provided in Board of Directors' Resolution No. KD.35/PS900/SDM-10/01 dated November 30, 2001 entitled Employees' Rights under Early Retirement Program Year 2002. Accrued early retirement benefits as of December 31, 2001 have been fully paid in the first semester of 2002. Accrued early retirement expenses as of June 30, 2003 represent the continued early retirement program, which will be implemented in 2003. Included in accrued early retirement benefits is a charge of Rp357,100 million in 2002 related to the Company's plan for outsourcing in operating "call center" service to other party. Based on the First Amendment of Cooperation Agreement on Business Synergy in Inter (I) Net and service (S) Net dated February 25, 2003, the Company intend to transfer the call center service operation to Infomedia, however the implementation of human resources transfers needs approval from other Infomedia shareholder. 21. ADVANCES FROM CUSTOMERS AND SUPPLIERS In the end of first semester year 2003, the Company received deposits payments from KSO Unit III amounting US$91,750,000 related to the Company's plan to buy out AriaWest. The deposit amounted to US$41,750,000 was received on May 17, 2002, upon signing the Conditional Sale and Purchase Agreement and US$50,000,000 upon receipt of AriaWest's 2001 Tax Assessment Letter (see Note 49 and 55). -F-47- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 22. SHORT-TERM BANK LOAN a. On October 5, 2001, Telkomsel entered into a Transferable Term Loan Agreement with Deutsche Bank AG, Jakarta Branch (as "Arranger" and "Facility Agent") covering a loan facility amounting to Rp500,000 million obtained from banks (collectively "Lenders"), as follows:
Name of bank % of Loan Assigned Amount - -------------------------- ------------------ ------ Rp PT Bank Central Asia, Tbk 38 190,000 PT Bank Lippo, Tbk 19 95,000 PT Bank Niaga, Tbk 19 95,000 PT Bank Bali, Tbk 10 50,000 Deutsche Bank AG, Jakarta 10 50,000 PT Bank Ekonomi Raharja 4 20,000 ------- 500,000 =======
The loan was obtained to finance Telkomsel's working capital requirements. The loan bore interest at 3-months Certificates of Bank Indonesia plus 2%. The loan was settled on October 22, 2002. b. The detail of bank loan as of June 30, 2003 is as follows:
Total Outsatnding Outstanding Lender Currency facility in original currency (Rp million) - --------------------------------- -------- ---------- -------------------- ------------ Hermes Kreditversicherungs AG USD 23,400,000 740,914 15,863 SACE USD 21,000,000 962,011 7,965 Bank Consortium USD 4,000,000 2,932,000 21,329 Bank Consortium IDR 90,000 - 47,350 Bank Central Asia IDR 173,000 - 25,903 Hermes export facility EUR 76,195,313 39,798,163 377,127 Citibank N.A USD 40,000,000 6,651,885 55,077 ------- Total 550,614 Current maturities of long term bank loan 170,627 ------- Long term portion 379,987 =======
c. High Performance Backbone Loan c.1. On April 10, 2002, the Company entered into the "Term Loan Agreement HP Backbone Sumatra Project and Pledge of Right To Deposit" with Citibank, N.A. providing a total facility of US$6,950,000. The facility was obtained to finance the construction of the Sumatra High Performance Backbone, in connection with the "Partnership Agreements" dated November 30, 2001, with PT Pirelli Cables Indonesia and PT Siemens Indonesia for the construction and provision of a high performance backbone in Sumatra. -F-48- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 22. SHORT-TERM BANK LOAN (continued) d. High Performance Backbone Loan (continued) Amounts drawn from the facility bear interest 1% above the interest rate provided by the Bank on the relevant deposit being pledged to the bank. The loans are payable in eight monthly installments beginning April 2003. The loans will mature in January 2004. The loan facility from Citibank NA is guaranteed by a time deposit of US$6,950,000. The Company has drawn down the facility of US$6,948,000, and as of June 30, 2003 it has been fully paid. c.2. On April 10, 2002, the Company entered into a "Loan Agreement" with Citibank, N.A ("arranger") and Citibank International plc ("agent"), which was guaranteed by an export credit of Hermes Kreditversicherungs AG, providing a total facility of US$23,400,000. The facility was obtained as 85% source of fund for procurement and maintenance services in Germany relating to the design, manufacture, construction, installation and testing of high performance backbone networks in Sumatra pursuant to the "Partnership Agreement". Hermes, as guarantor, received commission fee of 8.4% of the total facility divided by 0.9125. This commission fee should be paid twice during the agreement period. Amounts drawn from the facility bear interest at LIBOR plus 0.75%. As of June 30, 2003, the Company disbursed for US$1,916 thousand or equivalent Rp 15,863 million of the total facility. c.3. On April 10, 2002, the Company entered into a "Term Loan Agreement HP Backbone Sumatra Project" with Bank Central Asia, providing a total facility of Rp173,000 million. The facility was obtained to fund the Rupiah portion of the high performance backbone network in Sumatra pursuant to the "Partnership Agreement". Amounts drawn from the facility bear interest at 4.35% plus the 3-month time deposit rate. The loans are payable in twelve quarterly installments beginning January 2004. The loans will mature in October 2006. As of June 30, 2003, the Company has drawn Rp 25,903 million from the facility. Total principal outstanding as of June 30, 2003 is Rp25,903 million. The loan facility from Bank Central Asia was unsecured. c.4. Loan agreement with Citibank N.A and Citibank International Plc On April 10, 2002, the Company entered into Loan Agreement with Citibank N.A (as arranger) and Citibank International Plc (as agent) which is supported by export credit guarantee from Institutio per I Servizi Assicurativi del Commercio Estero (SACE Italy), with total facility amounted US$21,000 thousand. The facility obtained is used to finance 85% of source of procurement and maintenance service in Italy in relation to design, production, development, installation and trial test sub-system VI, as part of the high performance backbone. This facility was secured with Company's asset in construction, which related with this loan in accordance with "Partnership Agreement". As of June 30, 2003, the Company has utilized this facility amounted US$962,011 or equivalent Rp 7,965 million. The interest for this facility was 4.14 per annum. -F-49- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 22. SHORT-TERM BANK LOAN (continued) d. Internet Protocol Backbone ("IP Backbone") Loan On February 25, 2002, the Company entered into a "Perjanjian Fasilitas Pembiayaan" with Bank DBS Indonesia (syndicated agent), Bank Bukopin (lender) and Bank Central Asia (lender), providing a total facility of US$4,000,000 and Rp90,000 million to fund the IP Backbone project in 7 (seven) Regional Divisions and 6 (six) KSOs. Amounts drawn in US Dollars bear interest at 2% plus the highest of 1, 2 or 3 month SIBOR divided by 0.87% for the first year and 2% plus the 3 month SIBOR divided by 0.87% thereafter. Amounts drawn in Rupiah bear interest at 19% fixed for the first year and 5% plus the average of BCA and Bukopin's interest rates (the highest of 1,3,6 or 12 month time deposit rate) thereafter. The loans are payable in eleven quarterly installments beginning September 2002. The loans will mature on March 15, 2005. Total outstanding IP Backbone loans for Rupiah and US Dollars as of June 30, 2003 are Rp47,350 million and US$2,576 thousand (equivalent Rp 21,329 million), respectively. The total unused credit facility for the Rupiah and US Dollars facility as of June 30, 2003 is Rp16,475 million. The Company pledged the assets under construction as collateral for the IP Backbone loan pursuant to Notarial Deed No.17 dated February 25, 2002 of Notary Siti Amiretno Diah Wasisti Bagiono, SH on "Fiduciary Collateral". The pledge has a maximum amount of US$14,587,525.20 and Rp401million. The schedule of the required principal payments on this IP Backbone loan as of June 30, 2003 is as follows:
Year Total - ---- ------ Rp 2003 18,983 2004 37,966 2005 11,731 ------ Total 68,680 ======
Average interest rates for the HP Backbone and IP Backbone loans during 2003 were as follows:
2003 ------------ Rupiah 17.14% - 19% USD 3.5% - 4.38%
Under the Loan Agreements for HP Backbone and IP Backbone, the Company should maintain quarterly financial ratios as follows: 1. Debt to equity ratio should not exceed 3:1 2. EBITDA to interest expense should exceed 5:1 3. EBITDA to loan installment and interest payment should exceed 1.5:1 As of June 30, 2003, the Company complied with the above-mentioned ratios. -F-50- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 22. SHORT-TERM BANK LOAN (continued) e. J-Exim Loan
2002 2003 -------- ----- Total outstanding amount 122,150 - Current maturities (122,150) - -------- ----- Long-term portion - - ======== =====
This represents Dayamitra's obligation under a loan facility agreement it entered into with Tomen on April 27, 1998. The facility has been fully drawn for US$35million, which is repayable in five semi-annual installments of US$7 million commencing on March 25, 2001. Interest accrues on the outstanding principal at the rate of LIBOR plus 1% and is repayable semi-annually, commencing on September 25, 1998. Annual interest rates in 2002 ranged from 2.75 % to 3.58 %. On June 21, 1999, an agreement was entered into between Tomen and The Export-Import Bank of Japan ("J-Exim") under which the loan and related security rights were assigned from Tomen to J-Exim. f. On July 12, 2002, Telkomsel entered into an Opening Letter of Credit and Trust Receipt Loan Agreement with Citibank, N.A. providing for a total facility of US$40,000,000. The facility was obtained to finance Telkomsel's capital expenditures in connection with procurement contracts with three strategic partners and a strategic supplier. Amounts drawn from the facility bear interest at the bank's cost of funds plus 2.5%, and will be matured on July 12, 2003. The facility is not collateralized. As of June 30, 2003, the loan disbursement from the facility amounted US$23,500 thousand, and the outstanding balance of the loan as of June 30, 2003 amounted to US$6,652 thousand or equivalent to Rp55,077 million. 23. CURRENT MATURITY OF LONG-TERM LIABILITIES
2002 2003 --------- --------- Rp Rp Two-step loan 1,020,465 884,167 Liabilities for acqusition of subsidiaries 367,190 - Supplier's credit loan 89,868 319,426 Short term bank loan 622,150 170,627 Bridging loan 22,685 51,336 Obligation under capital lease - 599 Others - - --------- --------- 2,122,358 1,426,155 ========= =========
24. TWO-STEP LOANS Two-step loans are loans, which were obtained by the Government of the Republic of Indonesia from overseas banks and a consortium of contractors, which are then re-loaned to the Company. The loans entered into up to July 1994 were recorded and are payable in Rupiah based on the exchange rate at the date of withdrawal. Loans entered into after July 1994 are payable in their original currencies and any resulting foreign exchange gain or loss is borne by the Company. -F-51- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 24. TWO-STEP LOANS (continued) The details of the two-step loans are as follows:
Creditors Interest Rate 2002 2003 - ------------------------- ------------- --------- -------- (%) Rp Rp Overseas banks 2.95 - 17.51 8,468,709 7,574,950 Consortium of contractors 3.20 - 17.51 321,956 259,425 --------- --------- Total 8,790,665 7,834,375 Current maturities (1,020,465) (884,167) --------- --------- Long-term portion 7,770,200 6,950,208 ========= =========
Details of two-step loans obtained from overseas bank as of June 30, 2003 are as follows:
Currencies Interest Rate Amount - ---------- ------------- ------ (%) Rp US Dollar 3.85 - 8.70 3,100,572 Rupiah 12.00 - 17.51 3,316,678 Yen 2.95 1,218,473 Euro 7.18 - 8.30 198,652 --------- Total 7,834,375 =========
The acquired loans are intended for the development of telecommunication infrastructure and supporting equipments. The loans are payable in semi-annual installments and they are due on various dates until 2025. Detail of two-step loans obtained from consortium contractors as of June 30, 2003 is as follows:
Currencies Interest Rate 2002 2003 - ---------- ------------- ------- -------- (%) Rp Rp Yen 3.20 167,043 129,970 Rupiah 13.25 - 17.51 179,699 129,455 ------- ------- Long-term portion 346,742 259,425 ======= =======
The consortium of contractors consists of: Sumitomo Corporation, PT NEC Nusantara Communications and PT Humpuss Elektronika (SNH Consortium). The acquired loans were intended for the financing of second digital telephone exchange project. The loans are payable in semi-annual installments and they are due on various dates until March 15, 2015. -F-52- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 24. TWO-STEP LOANS (continued) Two-step loans which are payable in Rupiah bear either a fixed interest rate or a floating rate based upon the average interest rate on 3-month Certificates of Bank Indonesia during the six-months preceding the installment due date, plus 1%. Two-step loans which are payable on foreign currencies bear either a fixed rate interest or the floating interest rate offered by the lenders, plus 0.5%. As of June 30, 2003, the company has used all facilities of two-step loans and the withdrawal period of two-step loan has expired. The schedule of the principal payments on the Company's two-step loans as of June 30, 2003, is as follows:
Year Total ---- ----- Rp 2004 835,918 2005 794,144 2006 672,599 2007 485,979 2008 - 2025 4,161,568 --------- Total 6,950,208 =========
The Company should maintain financial ratios as follows: a. Projected net revenue to projected debt service ratio should exceed 1.5:1 and 1.2:1 for two-steps loans originating from World Bank and Asian Development Bank ("ADB"), respectively. b. Internal financing (earning before depreciation and interest expenses) should exceed 50% and 20% compared to capital expenditure for loan originally from World Bank and ADB, respectively. As of June 30, 2003 the Company complied with the abovementioned ratios. 25. SUPPLIERS' CREDIT LOANS The detail of suppliers' credit loans is as follows:
2002 2003 ------- -------- Rp Rp Tomen 313,416 222,911 Cable & Wireless plc 51,297 37,917 Vendor credit - 198,921 ------- -------- Total 364,713 459,749 Current maturities (89,868) (319,426) ------- -------- Long-term portion 274,845 140,323 ======= ========
-F-53- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 25. SUPPLIERS' CREDIT LOANS (continued) a. Tomen Dayamitra has entered into a Design, Supply, Construction and Installation Contract dated November 18, 1998 with Tomen, the ultimate holding company of TMC, which is a shareholder of Dayamitra. Under the terms of the contract, Tomen is responsible for the construction of the minimum new installations required under the KSO VI Agreement in which Dayamitra is the investor. In connection with the above agreement, Dayamitra entered into a Supplier's Credit Agreement ("SCA") with Tomen on November 18, 1998. The total commitment under the SCA was US$54,000,000 of which US$50,444,701 had been drawn down before the expiration date of the available credit on September 30, 1999. Interest accrues on the amounts drawn down at LIBOR plus 4.5% per annum, and is payable semiannually in arrears. Annual interest rates in 2002 ranged from 5.92% to 6.48%. The SCA loan is repayable in ten semi-annual installments commencing on December 15, 2000. The SCA contains a minimum fixed repayment schedule; however, additional principal repayments are required on repayment dates in the event that Dayamitra has excess cash, as defined in the SCA. The SCA loan is secured on a pro rata basis by the security rights provided under the C&W plc bridging facility loan. b. Cable and Wireless plc ("C&W plc") Dayamitra entered into a Supplier's Credit Agreement ("SCA") with C&W plc on May 19, 1999. The SCA loan is repayable in ten semi-annual installments commencing on December 15, 2000. The loan contains a minimum fixed repayment schedule; however, additional principal repayments are required on repayment dates in the event that Dayamitra has excess cash, as defined in the SCA. Interest on this loan is at the rate of LIBOR plus 4.5%. Annual interest rates in 2002 ranged from 5.92% to 6.48%. The SCA loan is secured on a pro rata basis by the security rights provided under the C&W plc bridging facility loan. In addition, any distributions to shareholders in the form of dividends or repayments of share capital require the written consent of Tomen and C&W plc. c. Vendor credit 1. Agreement of materials and services procurement between DMT and vendor for drawing cable network in KSO VI, with the contract amounted Rp 28,491 million. Payment will be made within 24 months after the signed of Certificate of Acceptance with fixed amount. As of June 30, 2003 the second Certificates of Acceptance has not been issued and the work is still in progress. 2. Agreement for telecommunication facility development (PSTN Excellent) between the Company with vendor in Divre V Surabaya. Payment will be made within 24 months after the signed of Certificate of Acceptance with fixed amount. 3. Procurement Agreement for developing international link of Network Access Point infrastructure in Napsindo. -F-54- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 25. SUPPLIERS' CREDIT LOANS (continued) The schedule of the required principal payments on the above loans as of June 30, 2003 is as follows:
Year Total - ------ ------- Rp 2004 139,666 2005 657 ------- Total 140,323 =======
26. BRIDGING LOAN
2002 2003 ------- ------- Rp Rp Total outstanding amount 101,737 75,021 Current maturities (22,685) (51,337) ------- ------- Long-term portion 79,052 23,684 ======= =======
This loan is owed by Dayamitra to C&W plc under a bridging loan facility, which was assigned from three local Indonesian banks. The loan is repayable in ten semi-annual installments commencing on December 15, 2000. Interest is payable on a monthly or quarterly basis, at the option of Dayamitra, at the rate of LIBOR plus 4% per annum. Annual interest rates in 2002 ranged from 5.42% to 5.98%. C&W plc has agreed to the repayment of the bridging loan facility in proportion to the amounts made available to Dayamitra under this bridging loan facility and the C&W plc and Tomen Supplier's Credit Loan.The security provided against the bridging loan facility consists of an assignment of KSO revenues; an assignment of bank accounts; a security interest in Dayamitra's movable assets; an assignment of the Tomen construction contract; an assignment of proceeds from early termination of the KSO license by the Company; and an assignment of insurance proceeds. Distributions to shareholders in the form of dividends or repayment of share capital require the written consent of C&W plc. The schedule of the required principal payments on this bridging loan as of June 30, 2003 is as follows:
Year Total - ----- ------- Rp 2004 23,184 2005 500 ------ Total 23,684 ======
-F-55- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 27. LIABILITY FOR ACQUISITION OF A SUBSIDIARY This amount represents the Company's non-interest bearing obligation to the selling shareholders of Dayamitra in respect to the Company's acquisition of 90.32% of Dayamitra and to the selling shareholders of Pramindo in respect to the Company's acquisition of 30% of Pramindo.
2002 2003 -------- ------- Rp Rp Dayamitra transaction PT Intidaya Sistelindomitra 193,781 - PT Mitracipta Sarananusa 133,209 - Cable and Wireless plc 125,148 - Unamortized deferred interest (84,948) - ------- ------ 367,190 - ------- ------ Pramindo transaction France Cable et Radio - - Astratel - - Indosat - - Marubeni - - IFC - USA - - NMP Singapore - - Unamortized deferred interest - - ------- ------ - - ------- ------ Total 367,190 - Current maturity - net of unamortized deferred interest (367,190) - ------- ------ Long - term portion - net of unamortized deferred interest - - ======= ======
Under the Conditional Sale and Purchase Agreement of Dayamitra, the amount due to Mitracipta will be paid to Intidaya and C&W plc proportionately based upon their ownership interest in Mitracipta. 28. GUARANTED NOTES AND BONDS
2002 2003 ------- -------- Rp Rp Guaranted Notes 1,309,500 1,242,750 Bonds - 1,000,000 --------- --------- 1,309,500 2,242,750 ========= =========
a. Guaranteed Notes In April 2002, (TSFL), Telkomsel's wholly-owned subsidiary, issued US$150 million in guaranteed notes ("Notes"). The Notes bear interest at 9.75%, payable semi-annually on April 30 and October 30 of each year, and will be due on April 30, 2007. -F-56- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 28. GUARANTED NOTES AND BONDS (continued) a. Guaranteed Notes (continued) On April 23, 2002, TSFL entered into subscription agreements with UBS AG ("UBS") whereby UBS agreed to subscribe and pay for the Notes at an issue price equal to 99.709% of the principal amount of the Notes, less any fees. TSFL has further authorized UBS to have the Notes listed on the Singapore Exchange Securities Trading Limited (the "Singapore Exchange"). Based on the "On-Loan Agreement" dated April 30, 2002, between the Telkomsel and TSFL, the proceeds from the subscription of the Notes were lent to the Telkomsel at an interest rate of 9.765% per annum, payable on the same terms as above. TSFL may, on the interest payment date falling on or about the third anniversary of the issue date redeem the Notes, in whole or in part, at 102.50% of the principal amount of such Notes, together with interest accrued to the date fixed for redemption. If only parts of the Notes are redeemed, the principal amount of the Notes outstanding after such redemption must be at least US$100 million. As of June 30, 2003, the outstanding balance of the Notes and the unamortized portion of the discount are as follows:
Foreign Currency Rupiah Equivalent ---------------- ----------------- US$ Rp (million) Principal 150,000,000 1,336,200 Discount (389,468) (93,450) ----------- --------- Net 149,610,532 1,242,750 =========== =========
b. Bonds On July 16, 2002, the Company issued bonds amounting to Rp1,000,000 million. The bonds were issued at par value and have a term of five years. The bonds bear interest at a fixed rate of 17% per annum, payable quarterly beginning October 16, 2002. The bonds are traded on the Surabaya Stock Exchange. The bonds mature on July 15, 2007. Before the date of redemption on outstanding amount of bonds, which should be paid by the Company, the Company should comply with all covenants or restrictions including maintain the consolidated financial ratio as follows: 1. Debt service coverage ratio should exceed from 1.5:1 2. Debt to equity ratio should not exceed from: a. 3:1,for the period of January 1, 2002 to December 31,2002 b. 2.5:1, for the period of January 1, 2003 to December 31, 2003 c. 2:1, for the period of January 1, 2004 to the date of bonds redemption 4. Debt to EBITDA ratio should not exceed from 3:1 As of June 30, 2003, the Company is complied with the covenants. -F-57- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 29. MINORITY INTEREST IN SUBSIDIARIES
2002 2003 --------- --------- Rp Rp Minority interest in net assets of subsidiaries Telkomsel 1,261,107 2,806,412 Pramindo - 978,662 Infomedia 32,462 42,523 DMT 17,849 28,940 Indonusa 18,843 12,974 Napsindo 7,081 PII 3,975 GSD 2 2 --------- --------- Total 1,330,263 3,880,569 ========= ========= Minority interest in net income (loss) of subsidiaries Telkomsel 280,521 680,436 Pramindo - 130,898 Infomedia 7,486 10,579 DMT 10,827 7,569 GSD 1 1 Napsindo - (3,532) PII - (435) Metra - 613 Indonusa (1,689) (726) --------- --------- Total 297,146 825,403 ========= =========
30. CAPITAL STOCK
2002 ---------------------------------------------------------- Number of Percentage Total Description Shares of Ownership Paid-up capital - ----------------------------------------------- -------------- ------------ --------------- % Rp Series A Dwiwarna share State of the Republic of Indonesia 1 - - Series B shares State of the Republic of Indonesia 5,472,235,355 54.29 2,736,118 Public (below 5% each) 4,607,764,284 45.71 2,303,882 -------------- ------ --------- Total 10,079,999,640 100.00 5,040,000 ============== ====== =========
-F-58- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 30. CAPITAL STOCK (continued)
2003 --------------------------------------------------------- Number of Percentage Total Description Shares of Ownership Paid-up capital - ----------------------------------------------- -------------- ------------ --------------- % Rp Series A Dwiwarna share State of the Republic of Indonesia 1 - - Series B shares State of the Republic of Indonesia 5,160,235,355 51.19 2,580,118 JPMCB US Resident (Norbax Inc.) c/o HSBC 879,723,798 8.73 439,862 The Bank of New York c/o Ban Mandiri 610,489,548 6.06 305,245 Public (below 5% each) 3,429,550,938 34.02 1,714,775 -------------- ------ --------- Total 10,079,999,640 100.00 5,040,000 ============== ======= =========
As of June 30, 2002 and 2003, the Company's commissioners, directors, and employees owned a total of 18,396,181 and 15,767,087 Company's shares, respectively. 31. ADDITIONAL PAID-IN CAPITAL
2002 2003 ---------- ---------- Rp Rp Proceeds from sale of 933,333,000 shares with par value of Rp 2,050 per share through initial public offering in 1995 1,446,666 1,446,666 Capitalization into 746,666,640 series B shares in 1999 (373,333) (373,333) --------- --------- Total 1,073,333 1,073,333 ========= =========
-F-59- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 32. TELEPHONE REVENUES
2001 2002 2003 --------- --------- --------- Rp Rp Rp Fixed lines Local and domestic long-distance usage 2,438,598 2,572,645 3,027,548 Monthly subscription charges 530,603 756,572 888,352 Installation charges 48,036 62,445 97,745 Phone cards 12,256 11,030 15,138 Others 33,192 44,074 88,148 --------- --------- --------- Total 3,062,685 3,446,766 4,116,931 --------- --------- --------- Cellular Air time charges 1,583,726 1,998,679 3,457,325 Monthly subscription charges 292,499 491,854 285,135 Connection fee charges 119,556 244,891 80,411 Features 61,406 99,279 1,561 --------- --------- --------- Total 2,057,187 2,834,703 3,824,432 --------- --------- --------- Total Telephone Revenues 5,119,872 6,281,469 7,941,363 ========= ========= =========
33. INTERCONNECTION REVENUES
2001 2002 2003 --------- --------- --------- Rp Rp Rp Cellulars 627,603 782,085 1,664,407 International 138,287 114,220 172,553 Other 18,772 67,216 194,663 --------- --------- --------- Total 784,662 963,521 2,031,623 ========= ========= =========
34. REVENUE UNDER JOINT OPERATION SCHEMES
2001 2002 2003 --------- --------- --------- Rp Rp Rp Minimum Telkom Revenues 737,100 772,876 536,493 Share in Distributable KSO Revenues 333,642 446,858 318,041 Amortization of unearned initial investor payments under Joint Operation Schemes 7,675 7,675 5,337 --------- --------- --------- Total 1,078,417 1,227,409 859,871 ========= ========= =========
Distributable KSO Revenues represent the entire KSO revenues, less MTR and operational expenses of the KSO Units. These revenues are shared between the Company and the KSO Investors based upon agreed percentages. The agreed percentages for revenue distribution between the Company and KSO Investors was 35%:65% for KSO VII and 30%:70% for KSO III and KSO IV. -F-60- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 35. DATA AND INTERNET REVENUES
2001 2002 2003 --------- --------- --------- Rp Rp Rp SMS 114,854 381,363 912,727 Internet 95,475 176,168 138,991 Voice over Internet Protocol 24,319 41,031 140,760 Communication Data 16,203 47,665 117,891 -------- --------- ---------- TOTAL 250,851 646,227 1,310,369 ======== ========= ==========
36. NETWORK REVENUE
2001 2002 2003 --------- --------- --------- Rp Rp Rp Satellite transponder lease 115,219 124,297 135,400 Leased lines 130,127 46,011 80,604 --------- --------- --------- TOTAL 245,346 170,308 216,004 ========= ========= =========
37. REVENUE SHARING ARRANGEMENT REVENUES
2001 2002 2003 --------- --------- --------- Rp Rp Rp Revenue-Sharing Arrangement Revenue-Net 91,653 104,737 81,691 Amortization of Unearned Revenue 43,374 30,770 42,352 ------- --------- --------- TOTAL 135,027 135,507 124,043 ======= ========= =========
38. OPERATING EXPENSES - PERSONNEL
2001 2002 2003 --------- --------- --------- Rp Rp Rp Salaries and related benefit 472,247 558,336 607,809 Vacation pay, incentives and other benefit 137,270 196,476 477,233 Severance - 157,620 Net periodic postretirement benefit cost 93,876 99,418 24,960 Employee income tax 47,873 74,246 233,832 Net periodic pension cost 42,312 6,106 106,416 Housing 42,616 44,823 64,674 Medical 28,928 32,433 1,587 Uniform Expenses 12,376 12,099 24,646 Employees' benefits & insurance 12,144 17,670 25,568 Others 1,600 2,228 7,032 --------- --------- --------- Total 891,242 1,043,835 1,731,377 ========= ========= =========
-F-61- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 39. OPERATING EXPENSES - OPERATION, MAINTENANCE AND TELECOMMUNICATIONS SERVICES
2001 2002 2003 --------- --------- --------- Rp Rp Rp Operation and maintenance 422,040 524,477 693,333 Distributors' and telephone kiosks' commissions 254,401 - - Radio frequency usage charges 3,524 107,509 191,344 Electricity, gas and water 60,562 90,709 138,456 Cost of phone cards 41,792 129,320 79,302 Concession fees 58,138 38,930 122,501 Insurance 28,890 60,958 84,080 Leased lines 37,045 54,627 46,484 Travel 7,592 6,304 13,364 Rent of infrastructure 9,588 70,208 123,802 Others 10,455 10,369 26,419 --------- --------- --------- Total 934,027 1,093,411 1,519,085 ========= ========= =========
Based on Director Decree No KD.01/HK.220/OPSAR - 33/2002 dated January 16, 2002, special tariff for phone kiosks was between 70%-80% of general tariff, had applied effectively since January 1, 2002 and would have been collected in Febuary 2002. Telephone kiosk's commissions are no longer applied, and accordingly there were no kiosk's commissions in 2002. -F-62- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 40. OPERATING EXPENSES - GENERAL AND ADMINISTRATIVE
2001 2002 2003 --------- --------- --------- Rp Rp Rp Provision for doubtful accounts and inventory obsolescence 158,228 157,348 127,845 Professional fees 225,294 129,433 32,401 Collection expenses 81,466 99,342 132,452 Training, education and recruitment 41,174 53,053 51,961 Travel 30,207 46,551 62,272 Security and screening 18,396 30,123 47,272 Printing and stationery 14,922 19,783 22,377 Social contribution 3,014 15,186 5,503 Meetings 9,476 11,953 18,223 General expense 25,606 20,118.00 18,497 Research and development 3,469 4,435 4,034 Others 1,125 9,296 5,102 --------- --------- -------- Total 612,377 596,621 527,939 ========= ========= ========
The provision for doubtful accounts included the provision for the MTR and share in distributable KSO revenues receivable from the KSO III amounted Rp114.65 million in 2002. In 2003, no additional provision for doubtful accounts made for MTR and share in distributable KSO revenues receivable from the KSO III by considering the progress of completion of buy-out KSO III Unit (acquisition of 100% AWI) (see Note 48 and 55). 41. INCOME TAX Tax expense of the Company and its subsidiaries consists of the following:
2001 2002 2003 --------- --------- --------- Rp Rp Rp Current tax 976,026 1,495,427 1,751,855 Deferred tax expense/(benefit) 50,110 48,641 29,423 ---------- ---------- --------- Total 1,026,136 1,544,068 1,781,278 ========== ========== =========
-F-63- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 41. INCOME TAX (continued) a. Current Tax A reconciliation between income before tax from the consolidated statements of income and taxable income is as follows:
2001 2002 2003 --------- --------- ------------ Rp Rp Rp Pretax income 2,938,630 5,200,432 6,392,084 Minority interest (533,285) (883,224) (1,812,190) Preacquisition loss of subsidiaries - 1,136 --------- --------- ------------ 2,405,345 4,317,208 4,581,030 --------- --------- ------------ Temporary differences: Provision for doubtful accounts 88,812 96,367 76,998 Depreciation of property, plant and equipment 145,302 124,175 139,899 Realization of compensation for early retirement (140,000) (376,110) Provision for inventory obsolescence 35,490 3,592 5,370 Timing difference of KSO Units 3,589 4,476 20,992 Amortization of landrights 980 (1,354) (976) Equity in net income of associated companies (599,407) 7,745 790,381 Net periodic pension costs 26,091 (64,571) (196,333) Gain on sale of property, plant and equipment (7,331) (10,650) (7,164) Amortization of deferred stock issuance costs (2,990) (2,243) (1,682) Amortization of intangible asset (2,506) - Inventory written off 212 --------- --------- ------------ Total (311,970) 17,537 451,587 --------- --------- ------------ Nondeductible expenses (nontaxable income): Net periodic postretirement benefit cost 93,158 9,405 101,739 Amortization of intangible assets & deferred interest 82,165 206,051 Depreciation of property, plant and equipment under Revenue-Sharing Arrangements 42,787 42,612 41,527 Reversal of unrealized share in Telkomsel's net income - - Repairs and maintenance on leased land/buildings 15,526 5,277 6,246 Employees' benefits 16,886 18,930 42,202 Nondeductible expenses of KSO Units 13,881 4,423 5,757 Share in net income of subsidiaries - 1,094,235) (2,194,282) Interest income (365,814) (166,092) (146,807) Income from land/building rental (32,613) (12,279) (8,995) Amortization of unearned income on Revenue-Sharing Arrangements (43,374) (56,343) (42,183) Tax penalty - - Gain on sale of Telkomsel's shares (188,396) - Loss on sale of Lintas Artha's shares 367,961 - Others (42,498) 42,289 63,648 --------- --------- ------------ Total (122,496) 1,123,848) (1,925,097) --------- --------- ------------ Total taxable income of the Company 1,970,879 3,210,897 3,107,520 ========= ========= ============
-F-64- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 41. INCOME TAX (continued) a. Current Tax (continued) The details of current taxes payable are as follows:
2001 2002 2003 --------- --------- --------- Rp Rp Rp Current tax expense of the Company 849,954 963,252 932,238 -------- --------- ------- Tax payable on cross ownership transactions Sale of Satelindo - - - Sale of Lintasarta - - - -------- --------- ------- Total - - - -------- --------- ------- Total 849,954 963,252 932,238 -------- --------- ------- Less prepaid taxes Income tax Article 22 - 2 8,305 Article 23 15,938 24,212 61,633 Article 24 79 Article 25 310,435 415,829 517,416 Fiscal 3 507 185 -------- --------- ------- Total 326,376 440,550 587,618 -------- --------- ------- Current tax payable of the Company 523,578 522,702 344,620 Tax repayable (article 29) in 2001 448,023 83,152 Subsidiaries (426,912) - 75,448 -------- --------- ------- Total 96,666 970,725 503,220 ======== ========= =======
Current tax expense in the consolidated statements of income is as follows:
2001 2002 2003 --------- --------- --------- Rp Rp Rp Company 591,247 963,252 932,238 Subsidiaries 384,779 532,175 819,617 ------- --------- --------- Total 976,026 1,495,427 1,751,855 ======= ========= =========
The taxable income and current tax payable of the Company for 2001 and 2002 are in accordance with the corporate tax returns filed with the Tax Service Office. In 2002, the Company received an Underpayment Tax Assessment Letter (SKPKB) from the Tax Service Office for its corporate income tax for fiscal years 2000 and 2001 amounting to Rp34,489 million and 19,568 million, respectively. The additional tax due was settled in December 2002 and the difference between the recorded amount of tax liabilities/prepayments and the amount assessed by the Tax Service Office was charged to current operations. -F-65- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 41. INCOME TAX (continued) b. Deferred Tax The details of the Company and subsidiaries' deferred tax assets and liabilities are as follows:
January 1, Movements June 30, 2003 for the year 2003 --------- ------------- -------- Rp Rp Rp The Company Deferred tax assets: Allowance for doubtful accounts 271,357 (2,887) 268,470 Allowance for inventory obsolescence 11,695 (1,326) 10,369 Unrealized of early retirement benefit 214,465 (112,833) 101,632 Decline in value of investments - - - Deferred stock issuance costs 4,037 (505) 3,532 Landrights 28,987 2,390 31,377 ---------- -------- ---------- Total deferred tax assets 530,541 (115,161) 415,380 ---------- -------- ---------- Deferred tax liabilities: Depreciation of property, plant and equipment (1,450,784) 234,713 (1,216,071) Long-term investments 32,650 18,082 50,732 Net periodic pension costs - - - ---------- -------- ---------- Total deferred tax liabilities (1,418,134) 252,795 (1,165,339) ---------- -------- ---------- Net deferred tax liabilities - Company (887,593) 137,634 (749,959) ---------- -------- ---------- Subsidiaries Deferred tax assets: Loss carryovers 16,254 (16,254) - Allowance for doubtful accounts and inventory obsolescence 54,673 33,371 88,044 Provision for early retirement benefit 2,292 472 2,764 Interest on obligations under capital lease (308) (193) (501) ---------- -------- ---------- Total deferred tax assets 72,911 17,396 90,307 ---------- -------- ---------- Deferred tax liabilities: Depreciation of property, plant and equipment (675,803) (171,107) (846,910) Amortization of prepaid expenses (21,618) (13,525) (35,143) Amortization of unearned initial investor payments (2,833) 529 (2,304) Rental expense - - - Net periodic pension costs (2,194) (1,373) (3,567) Unamortized Intangible Assets (4,079) 108 (3,971) Capital leases - ---------- -------- ---------- Total deferred tax liabilities (706,527) (185,368) (891,895) ---------- -------- ---------- Net deferred tax liabilities - subsidiaries (633,616) (167,972) (801,588) ---------- -------- ---------- Total (1,521,209) (30,338) (1,551,547) ========== ======== ==========
-F-66- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 41. INCOME TAX (continued) b. Deferred Tax (continued) Reconciliation between the total tax expense and the amounts computed by applying the effective tax rates to income before tax is as follows:
2001 2002 2003 --------- ------- --------- Rp Rp Rp Income before tax per consolidated statements of income 2,938,630 5,200,432 6,392,084 Minority interest in subsidiaries' income before tax (533,285) (883,224) (1,812,190) Preacquisition loss of subsidiaries - - 1,136 --------- --------- ---------- Income before tax of the Company 2,405,345 4,317,208 4,581,030 ========= ========= ========== Tax expense at effective tax rates: 10% x Rp 50 million in 2001 and 2002 and 2003 5 5 5 15% x Rp 50 million in 2001 and 2002 and 2003 8 8 8 30% x Rp 2,405,245 million in 2001, Rp 4,317,108 million in 2002 and Rp 4,580,930 million in 2003 721,573 1,295,132 1,374,279 --------- --------- ---------- Total 721,586 1,295,145 1,374,292 --------- --------- ---------- Tax effect of nontaxable income (nondeductible expenses): Net periodic postretirement benefit cost 27,947 2,822 30,522 Amortization of intangible assets - 24,650 61,815 Depreciation of property, plant and equipment under Revenue-Sharing Arrangements 12,836 12,784 12,458 Amortization of deferred interest - Repairs and maintenance on leased land/buildings 4,658 1,583 1,874 Employees' benefits 5,066 5,679 12,661 Nondeductible expenses of KSO Units 4,164 1,327 1,727 Share in net income of subsidiaries - (328,271) (658,285) Interest income (109,744) (49,828) (44,042) Income from land/building rental (9,784) (3,684) (2,699) Amortization of unearned income under Revenue-Sharing Arrangements (13,012) (16,903) (12,655) Tax penalty Reversal of unrealized Telkomsel's net income - Gain on sale of Telkomsel's share (56,519) Loss on sale of Lintas Arta 110,388 Others (12,750) 12,686 19,096 --------- --------- ---------- Total (36,750) (337,155) (577,528) --------- --------- ---------- Tax expense of the Company 684,836 957,990 796,764 Tax expense of the Subsidiaries 341,300 586,078 984,515 --------- --------- ---------- Total Tax Expense 1,026,136 1,544,068 1,781,278 ========= ========= ==========
-F-67- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 42. BASIC EARNINGS PER SHARE Net income per share is computed by dividing net income by the average number of shares outstanding during the year, totaling 10,079,999,640 shares in 2001, 2002 and 2003. The Company does not have potentially dilutive ordinary shares. 43. CASH DIVIDENDS AND GENERAL RESERVE - Pursuant to the Annual General Meeting of Stockholders as stated in notarial deed No. 17 dated May 10, 2001 of Notary A. Partomuan Pohan, S.H., LL.M., the stockholders approved cash dividends for 2000 amounting to Rp888,654 million or Rp88.16 per share, and appropriated Rp126,950 million for general reserves. - Pursuant to the Annual General Meeting of Stockholders as stated in notarial deed No. 16 dated June 21, 2002 of Notary A. Partomuan Pohan, S.H., LL.M., the stockholders approved cash dividends for 2001 amounting to Rp2,125,055 million or Rp210.82 per share, and appropriated Rp425,011 million for general reserves. - Pursuant to the Annual General Meeting of Stockholders as stated in notarial deed No. 173/V/2003 dated May 9, 2003 of Notary A. Partomuan Pohan, S.H., LL.M., the stockholders approved cash dividends for 2002 amounting to Rp3,338,109 million or Rp331.16 per share, social contribution fund Rp 20,863 million and appropriated Rp813,664 million for general reserves. 44. PENSION PLAN a. The Company The Company provides a defined benefit pension plan for its employees under which pension benefits to be paid are based on the employee's latest basic salary and number of years of service. The plan is managed by Dana Pensiun Telkom, whose deed of establishment was approved by the Minister of Finance of the Republic of Indonesia in his decision letter No. S.199/MK.11/1984 dated April 23, 1984. The Pension Fund's main sources of funds are the contributions from the employees and the Company. The employees' contribution is 8.4% of basic salary. The Company contributes any remaining amount required to fund the plan. To increase the pension benefits, the Company has increased the basic salaries of active employees by 50% effective August 1, 2000. The Company doubled pension benefits for employees above 56 years of age, deceased employees or employees with physical defects. The increase applies to employees still in active service on July 1, 2002. The Company also increased pension benefit of employees who retired prior to August 1, 2000 by 50% effective January 1, 2003 Pursuant to the Annual General Meeting of Stockholders and the Board of Commissioners meeting, the stockholders and Board of Commissioners approved a 15% increase in the pension benefit for pensioners and an increase in the basic salary of active employees effective January 1, 1999. The Company's contributions to the pension fund amounted to Rp15,108 million, Rp151,590 million and Rp214,330 million for the years ended 2001, 2002 and 2003, respectively. The pension contribution of KSO Units during 2003 amounted to Rp28,830 million. -F-68- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 44. PENSION PLAN (continued) a. The Company (continued) The composition of the net periodic pension cost charged to income for the Company's plan (excluding those of KSO Units) is as follows:
2001 2002 2003 -------- -------- -------- Rp Rp Rp Return on plan assets (133,162) (164,510) (237,776) Interest cost 138,538 143,676 268,898 Amortization and deferral - net 36,222 34,900 (88,232) Increase in amortization of prior service cost 20,716 9,258 44,394 Service cost (benefits earned during the year) (21,114) (18,331) 30,714 -------- -------- -------- Net periodic pension cost 41,200 4,993 17,998 ======== ======== ========
The pension cost attributable to the KSO Units amounted to Rp14,706 million, Rp15,964 million and Rp28,830 million of June 30, 2001, 2002 and 2003, respectively. The funded status of the plan as of June 30, 2001, 2002 and 2003 are as follows:
2001 2002 2003 ---------- ---------- ---------- Rp Rp Rp Projected benefit obligation (2,209,592) (2,289,134) (4,725,838) Plan assets at fair value 2,091,721 2,571,714 3,716,574 ---------- ---------- ---------- Projected benefit obligation (in excess of ) less than plan assets (117,871) 282,580 (1,009,264) Unamortized net amount resulting from changes in plan experience and actuarial assumptions (363,314) (632,536) (615,296) Unamortized prior service cost 284,838 224,383 1,723,412 Unrecognized net obligation at the date of initial application of PSAK No. 24 258,979 338,568 134,284 ---------- ---------- ---------- Prepaid (accrued) pension cost 62,632 212,995 233,136 ========== ========== ==========
Plan assets consist mainly of Rupiah time deposits. The unrecognized net obligation at the date of initial application of PSAK No. 24 is amortized over the remaining average future working lives of active employees. This was 17.2 years, starting from January 1, 1992. The actuarial valuations for the pension plan as of June 30, 2001, 2002 and 2003 were prepared by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide, using the projected-unit-credit method with the following assumptions: -F-69- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 44. PENSION PLAN (continued) a. The Company (continued)
2001 2002 2003 ---- ---- ---- % % % Discount rate 13 13 13 Expected long-term rate of return on Pension Fund assets 13 13 13 Salary growth rate 6 6 6 Defined benefits growth rate - - -
b. Telkomsel Telkomsel provides a defined benefit pension plan to its employees under which pension benefits to be paid are based on the employee's latest basic salary and number of years of service. The plan is managed by PT Asuransi Jiwasraya, a state-owned life insurance company. The employees contribute 5% of their basic salaries to the plan and Telkomsel contributes any remaining amount required to fund the plan. Telkomsel's contributions to the pension fund amounted to Rp 446 million and Rp3,575 million for the years ended 200 and 2002 respectively, whilst in 2003 was nil. The composition of the net periodic pension cost is as follows:
2001 2002 2003 ---- ---- ---- Rp Rp Rp Service cost 1,124 2,094 2,375 Net amortization and deferral (472) (1,035) (1,248) ----- ----- ----- Net periodic pension cost 652 1,059 1,127 ===== ===== =====
PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide, prepared the actuarial valuations for 2001, 2002 and 2003, using the "Projected-Unit-Credit" method with the following assumptions: Discount rate 12% Salary growth rate 10% Expected long term return on assets 12%
-F-70- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 44. PENSION PLAN (continued) b. Telkomsel (continued) The funding status of the plan as of June 30, 2001, 2002 and 2003 is as follows:
2003 ------ Rp Vested benefits 3,226 ====== Accumulated benefit obligation 8,072 ====== Projected benefit obligation 20,927 Plan assets at fair value 27,919 ------ Excess of plan assets over projected benefit obligation 6,992 Unrecognized past service cost 3,135 Unrecognized experience adjustment (2,813) ------ Prepaid pension cost 7,314 ======
The unrecognized net obligation at the date of initial application of PSAK No. 24 is being amortized over the estimated average remaining service period of active employees of 18.87 years as of June 1, 1999. c. Infomedia Infomedia provides a defined benefit pension plan to its employees. The Company's contributions to the pension fund amounted to Rp85 million, and Rp93 million for the years ended 2002, and 2003, respectively. Pension benefit cost is calculated based on the actuarial valuations from PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide dated September 5, 2002 using the "Projected-Unit-Credit" method with the following assumptions: Discount rate 10% Salary growth rate 5% Mortality rate Mortality rate in Indonesia Retirement age 55 years
Plan assets of pension fund were maintained by Dana Pensiun Infomedia Nusantara. As of June 30, 2003, the funded status of the plan was as follows: Fair Value of plan assets 3,271 Projected benefit obligations (2,364) ------ Projected benefit obligation less than plan assets 907 ======
-F-71- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 44. PENSION PLAN (continued) d. Pramindo Before acquisition, Pramindo participated in a defined benefit multi-employers pension scheme ("the scheme") that covers substantially all Indonesian employees of Pramindo. The scheme provides for benefits to be paid to eligible employees at retirement based primarily upon the number of years with Pramindo and average remuneration during the last three years before retirement. The scheme is funded through contributions made by the related employees (3.2% of basic salary) and Pramindo to Dana Pensiun Astra ("the Fund"). The establishment of the fund was approved by the Ministry of Finance No. KEP-038/KM.17/1996 of February 6, 1996 and published in Supplement No. 19 to State Gazette No. 26 of March 5, 1996. Contributions charged to operating expenses as of June 30, 2003 amounted to Rp99 million. After the closing date of acquisition, all Pramindo's employees were terminated and replaced by the Company's employees seconded to Pramindo before August 15,2002. All the Company's seconded employees are participants in the Company's Pension Fund Program. Pramindo did not apply the accounting policy regarding provision for settlement of employee termination and severance payment, gratuity, and indemnity in accordance with the Ministry of Manpower Decree No. Kep-150/Men/2000 dated June 20, 2000, due to Pramindo's employees were registered in the Company's Pension Fund Program. Management believes that the effect of not applying this accounting policy is not significant. 45. POSTRETIREMENT BENEFITS The Company provides a postretirement health care plan for all of its pensioners who have worked for over 20 years and to their eligible dependents. The requirement of working for over 20 years does not apply to employees who retired prior to June 3, 1995. However, the employees hired by the Company starting from November 1, 1995 will no longer be entitled to this plan. The plan is managed by Yayasan Kesehatan Pegawai Telkom ("YKPT"). The Company accounts for the cost of the benefits over the working lives of its employees based on actuarial computations similar to those provided by Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"), of U.S. GAAP. The transition obligation at the date of initial application was Rp524,250 million and is being amortized over 20 years beginning on January 1, 1995. The Company's contributions to YKPT amounted to Rp21,553 million, nil and Rp52,490 million of June 30, 2001, 2002 and 2003, respectively. The composition of the net periodic postretirement benefit cost (excluding those of KSO Units) is as follows:
2001 2002 2003 ------- ------- ------- Rp Rp Rp Return on plan assets (24,544) (27,784) (27,323) Service cost 17,390 18,971 9,405 Interest cost 89,666 96,867 96,867 Amortization of unrecognized transition obligation 13,107 13,107 13,107 Amortization of prior service cost (2,461) (2,461) 6,658 ------- ------- ------- Net periodic postretirement benefit cost 93,158 98,700 98,714 ======= ======= =======
-F-72- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 45. POSTRETIREMENT BENEFITS (continued) Cost of postretirement benefits attributable to the KSO Units amounted to Rp4,412 million, Rp9,566 million and Rp9,566 million of June 30, 2001, 2002 and 2003, respectively. The actuarial valuations for the postretirement benefit plan as of June 2001, 2002 and 2003 were prepared by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide, using the projected-unit-credit" method and the following assumptions:
2001 2002 2003 ---- ---- ---- % % % Discount rate 13 13 13 Expected long-term rate of return of YKPT assets 13 13 13 Cost trend rate 10 10 10
The funded status of the plan as of June 30, 2001, 2002 and 2003 is as follows:
2001 2002 2003 --------- --------- --------- Rp Rp Rp Accumulated postretirement benefit obligation Retirees 713,646 728,264 810,443 Other fully eligible plan participants 116,807 179,534 194,835 Other active plan participants 551,411 607,262 659,016 --------- --------- --------- Total 1,381,864 1,515,060 1,664,294 Plan assets at fair value (317,694) (345,148) (371,395) --------- --------- --------- Unfunded postretirement benefit obligation 1,064,170 1,169,913 1,292,899 Unrecognized prior service cost 45,718 43,258 38,336 Unrecognized transition obligation (388,525) (340,759) (314,546) Unrecognized net loss (278,155) (261,621) (336,511) --------- --------- --------- Accrued postretirement benefit cost 443,208 610,791 680,178 ========= ========= =========
A 1% increase in the cost trend rate would increase service cost and interest cost, and accumulated postretirement benefit obligation as of June 30, 2001, 2002 and 2003 as follows:
2001 2002 2003 --------- --------- --------- Rp Rp Rp Service cost and interest cost 165,937 202,444 172,552 Accumulated postretirement benefit obligation 1,068,086 1,303,064 2,156,892
YKPT did not prepare an actuary calculation of post-retirement benefit for the period ended 30 June 2003. -F-73- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES In the normal course of business, the Company and its subsidiaries entered into transactions with related parties. The following transactions with related parties have been conducted under terms and conditions, which the Company believes are the same as if these were conducted with third parties: a. Government of the Republic of Indonesia i. The Company obtained "two-step loans" from the Government of the Republic of Indonesia, the Company's majority shareholder. ii. The Company and its subsidiary pay concession fees for telecommunications services provided and radio frequency usage charges to the Ministry of Communications (formerly, Ministry of Tourism, Post and Telecommunications) of the Republic of Indonesia. Concession fees amounted to Rp51,201 million, Rp38,930million and Rp122,501 million of June 30, 2001, 2002 and 2003, respectively. Concession fees reflected 1.3%, 0.9% and 2% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. Radio frequency usage charges amounted to Rp3,342 million, Rp107,509 million and Rp191,344 million of June 30, 2001, 2002 and 2003, respectively. Radio frequency usage charges reflected 0.1%, 2.4%, and 3.2% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. b. Commissioners and Directors Remuneration i. The Company and its subsidiaries provide honorarium and facilities to support the operational duties of the Board of Commissioners. Total of such benefits amounted to Rp1,925 million, Rp5,418 million, and Rp6,880 million of June 30, 2001, 2002 and 2003, respectively, which reflected 0.1%, 0.1%, and 0.1% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. ii. The Company and its subsidiaries provide salaries and facilities to support the operational duties of the Board of Directors. Total of such benefits amounted to Rp5,337 million, Rp17,964 million, and Rp22,104 million of June 30, 2001, 2002 and 2003, respectively, which reflected 0.1%, 0.4%, and 0.4% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. c. Indosat The Company has an agreement with Indosat, a majority state-owned international telecommunications services company, for the provision of international telecommunication services to the public. The principal matters covered by the agreement are as follows: i. The Company provides a local network for customers to make or receive international calls. Indosat provides the international network for the customers, except for certain border towns, as determined by the Director General of Post and Telecommunications of the Republic of Indonesia. The international telecommunications services include telephone, telex, telegram, package switched data network, television, teleprinter, Alternate Voice/Data Telecommunications (AVD), hotline and teleconferencing. ii. The Company and Indosat are responsible for their respective telecommunications facilities. iii. Customer billing and collection, except for leased lines and public phones located at the international gateways, are handled by the Company. iv. The Company receives compensation for the services provided in the first item above, based on the interconnection tariff determined by the Minister of Tourism, Post and Telecommunications of the Republic of Indonesia. -F-74- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES (continued) c. Indosat (continued) The Company has also entered into an interconnection agreement between the Company's PSTN network and Indosat's STBS network in connection with the implementation of Indosat Multimedia Mobile services and the settlement of the related interconnection rights and obligation. Pursuant to the Ministry of Communication Decree regarding the transfer of license of Indosat's mobile cellular network operation from Indosat to PT Indosat Multimedia Mobile ("IM3"), the Company agreed to transfer all interconnection rights and obligations to IM3 based on Interconnection Cooperation Agreement, as regulated in the Amendment of Agreement in the side letter No. 656 dated March 18, 2002. The Company's compensation relating to leased lines/channel services, such as IBS, AVD and printers is calculated at 15% of Indosat's revenues from such services. Indosat also leases circuits from the Company to link Jakarta and Medan. The Company has been handling customer billing and collection for Indosat. Indosat is gradually taking over the activities and performing its own direct billing and collection. The Company receives compensation from Indosat computed at 1% of the collections made by the Company beginning January 1, 1995, plus the billing process expenses, which are fixed at a certain amount per record. Telkomsel, a subsidiary, also entered into an agreement with Indosat for the provision of international telecommunications services to GSM mobile cellular customers. The principal matters covered by the agreement are as follows: i. Telkomsel's GSM mobile cellular telecommunications network is connected with Indosat's international gateway exchanges to make outgoing or receive incoming international calls through Indosat's international gateway exchanges. ii. Telkomsel receives as compensation for the interconnection, a specific percentage of Indosat's revenues from the related services made through Indosat's international gateway exchanges. iii. Billings for international calls made by customers of GSM mobile cellular telecommunications are handled by Telkomsel. Telkomsel is obliged to pay Indosat's share of revenue although billings to customers have not been collected. iv. The agreement dated March 29, 1996, was initially valid for one year, but extendable for one-year periods as agreed by both parties. The latest extension expires on February 28, 2003 Telkomsel is still under negotiation. In the interim, interconnection revenue is charged based upon the previous agreement. The Company and its subsidiary earned net interconnection revenues from Indosat Rp115,768 million, Rp111,962 million and Rp576,078 million of June 30, 2001, 2002 and 2003, respectively, reflecting 1.5%, 1.2%, and 4.6% of total operating revenues of June 30, 2001, 2002, 2003, respectively. Telkomsel also has an agreement for the usage of Indosat's telecommunications facilities. The agreement, which was made in 1997, is valid for eleven years, and subject to change based on an annual review and agreement by both parties. The charges for the usage of the facilities amounted to Rp8,235 million, Rp9,479 million and Rp5,883 million of June 30, 2001, 2002, 2003, respectively, reflecting 0.2%, 0.2%, and 0.1% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. -F-75- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES (continued) c. Indosat (continued) Other agreement between Telkomsel and Indosat are as follows : i. Development and maintenance for Jakarta-Surabaya cable system agreement ("J - S Cable System"). Telkomsel, Lintasarta, Satelindo and Indosat ("the parties") entered into Development and Maintenance for Cable System Agreement. The parties form a management committee consisting of a chief and a representative of respective part, to direct the development of cable system was completed in 1998. Based on the agreement, Telkomsel shares 19.325% of total development cost. Telkomsel shares the total cost of operation and maintenance based on the agreed formula. ii. Indefeasible Right of Use Agreement On September 21, 2000, Telkomsel entered into agreement with Indosat with respect to the use of SEA - ME - WE 3 and tail link in Jakarta and Medan. Based on the agreement, Telkomsel awarded granted an irrevocable right to use the certain capacity of the network commencing from September 21, 2000 to 2015 by prepaying a compensation amounting to US$2,727,273. Beside the afore mentioned prepayment, Telkomsel is also charged annual operation and maintenance cost amounting to US$136,364. iii. Indosat, on behalf of IM3, on 1 November 2001 entered into interconection agreement with Telkomsel which agreeing the followings : - Telkomsel's GSM celluler mobile network cancelled to IM 3's network, that enable Telkomsel's customer to make or receive a call from or to IM 3's customers. - Supply and installation of interconnection tools needed is Telkomsel's responsible. - The agreement is effective since the signing date and extandable as long as agreed by both parties. Based on the amandment upon the above agreement, on December 14, 2001, Telkomsel's customers is able to send and receive short message services from IM3's customers. The Company and its subsidiary incurred net interconnection costs from IM3 of Rp24,909 million of June 30, 2003 and earned net interconnection revenue from IM3 of Rp34,363 million in 2003. d. Satelindo The Company has an agreement with Satelindo, an Indosat subsidiary, whereby both parties agreed, among other matters, on the following: i. Interconnection of the Company's PSTN with Satelindo's international gateway exchange, enabling the Company's customers to make outgoing or receive incoming international calls through Satelindo's international gateway exchange. ii. Billings for the international telecommunications services used by domestic customers through Satelindo's international gateway exchange will be handled by the Company. The Company also has an agreement with Satelindo for the interconnection of Satelindo's GSM mobile cellular telecommunications network with the Company's PSTN, enabling the Company's customers to make outgoing calls to or receive incoming calls from Satelindo's customers. Interconnection revenues earned from Satelindo were Rp134,193 million, Rp204,790 million and Rp181,884 million of June 30, 2001, 2002 and 2003, respectively, which reflecting 1.8%, 2.2%, and 1.5% of total operating income of June 30, 2001, 2002 and 2003, respectively. -F-76- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES (continued) d. Satelindo (continued) The Company leases international circuits from Satelindo. Payment made in relation to the lease expense amounted to Rp2,237 million, Rp14,739 million and Rp16,447 million in 2001, 2002 and 2003, respectively, which reflecting 0.3%, 0.3%, and 0.1% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. Based on an agreement entered into among the Company, PT Bimagraha Telekomindo and Indosat in 1993, at the time of Satelindo's establishment, the Company agreed to transfer to Satelindo, its so-called B2P, B2R and B4 Palapa satellites and other assets relating to the Company's satellite control station located in Jakarta. These transfers are to be covered in a separate agreement between Satelindo and the Company. The separate agreement regarding the transfers of these satellites and other assets has not been made. However, the useful life of the B2P and B2R Palapa satellite had expired. In November 2000, the Company entered into an agreement with a third party, in which the Company agreed to sell the expired B2R Satellite, or to lease the satellite to such third party if the sale is not consummated. In 1994, the Company transferred to Satelindo the right to use a parcel of Company-owned land located in Jakarta, which had been previously leased to Telekomindo, an associated company. Based on the transfer agreement, Satelindo is given the right to use the land for 30 years and can apply for the right to build properties thereon. The ownership of the land is retained by the Company. Satelindo agreed to pay Rp43,023 million to the Company for the thirty-year right. Satelindo paid Rp17,214 million in 1995 and the remaining Rp25,809 million has not been paid because the Utilization Right ("Hak Pengelolaan Lahan") on the land could not be delivered as provided in the transfer agreement. In 2000, the Company and Satelindo agreed on an alternative solution by accounting for the above payment as lease expense up to 2006. In 2001, Satelindo paid the remaining amount as lease expense up to 2024. e. The Company provides telecommunication services to Government agencies. f. The Company has entered into agreements with Government agencies and associated companies, Lintasarta, CSM and Patrakomindo, for utilization of the Company's Palapa B4 and Telkom 1 satellite transponders or frequency channels. Revenues earned from these transactions amounted to Rp6,648 million, Rp34,003 million and Rp29,113 million of June 30, 2001, 2002 and 2003, respectively, which reflecting 0.1%, 0.4%, and 0.2% of total operating revenues of June 30, 2001, 2002 and 2003, respectively. g. The Company provides leased lines to associated companies and Indosat's subsidiaries - CSM, Lintasarta, Satelindo, Komselindo, Excelcomindo Pratama, Mobisel, Metrosel and PSN. The leased lines can be used by the associated companies permanently or temporarily for telephone, telegraph, data, telex, facsimile or other telecommunications services. Revenue earned from these transactions amounted to Rp141,243 million, Rp71,901 million and Rp8,802 million of June 30, 2001, 2002 and 2003, respectively, reflecting 1.9%, 0.8%, and 0.1% of total operating revenues of June 30, 2001, 2002 and 2003. h. The Company provides a data communication network system for Lintasarta - an Indosat subsidiary and operates a telemetry tracking and command station for PSN - an associated company. Revenues earned by the Company from these transactions amounted to Rp11,724 of June 30, 2001, whilst of June 30, 2002 and 2003 was nil, reflecting 0.2%, 0%, and 0% of total operating revenues of June 30, 2001, 2002 and 2003. -F-77- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES (continued) i. The Company purchases property and equipment including construction and installation services from a number of related parties. These related parties include PT Industri Telekomunikasi Indonesia ("PT Inti"), Lembaga Elektronika Nasional, PT Adhi Karya, PT Pembangunan Perumahan, PT Nindya Karya, PT Boma Bisma Indra, PT Wijaya Karya, PT Waskita Karya which are all state-owned companies, PT Gratika which is an associated company of Dana Pensiun Telkom, Telekomindo and PT Bangtelindo which are associated companies and Koperasi Pegawai Telekomunikasi, a related party cooperative. Purchases made from these related parties amounted to Rp62,881 million, Rp84,800 million and Rp60,008 million of June 30, 2001, 2002 and 2003, respectively, reflecting 1.6%, 1.9%, and 1% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. j. Inti is also a major contractor and supplier providing equipment, including construction and installation services for Telkomsel. Total purchases from PT Inti of June 30, 2003 amounted to Rp21,275 million. k. The Company and its subsidiary carry insurance (on their property, plant and equipment against property losses and on employees' social security) obtained from PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and PT Persero Asuransi Jiwasraya, which are state-owned insurance companies. Insurance premiums amounted to Rp35,358 million, Rp70,840 million and Rp91,950 million of June 30, 2001, 2002 and 2003, respectively, reflecting 0.9%, 1.6%, and 1.5% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. l. The Company and its subsidiaries maintain current accounts and time deposits in several state-owned banks. In addition, some of those banks are appointed as collecting agents for the Company. m. The Company has revenue-sharing arrangements with Telekomindo, an associated company. Revenues earned under these arrangements amounted to Rp2,828 million, Rp9,761 million and Rp812 million of June 30, 2001, 2002 and 2003, respectively, reflecting 0.4%, 0.1%, and 0.01% of total operating revenues of June 30, 2001, 2002 and 2003, respectively. n. The Company leases buildings, purchases materials and construction services, and utilizes maintenance and cleaning services from Dana Pensiun Telkom and PT Sandhy Putra Makmur, a subsidiary of Yayasan Sandikara Putra Telkom - a foundation managed by Dharma Wanita Telkom. Total charges from these transactions amounted to Rp12,017 million, Rp26,674 million and Rp2,244 million of June 30, 2001, 2002 and 2003, respectively, reflecting 0.3%, 0.6%, and 0.1% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. o. The Company purchased encoded phone cards from Perusahaan Umum Percetakan Uang Republik Indonesia, a state-owned company. Expenses arising from this transaction amounted to Rp41,687 million, Rp129,320 million and Rp79,302 million of June 30, 2001, 2002 and 2003, respectively, reflecting 1.1%, 2.9%, and 1.3% of total operating expenses of June 30, 2001, 2002 and 2003, respectively. p. In 1991, the Company granted loans to Koperasi Telekomunikasi ("Koptel") amounting to Rp1,000 million to support Koptel's activities in providing housing loans to the Company's employees. The balance of the loans amounted to Rp100 million as of June 30, 2002 and Rp100 million as of June 30, 2003. q. The Company and its subsidiary earned interconnection revenues from Komselindo, Excelcomindo Pratama, Metrosel, Mobisel, Ratelindo, BBT, PSN and Patrakomindo, which are associated companies, totaling Rp218,456 million, Rp184,624 million and Rp402,959 million of June 30, 2001, 2002 and 2003, respectively, reflecting 2.9%, 2.0%, and 3.2% of total operating revenues of June 30, 2001, 2002 and 2003, respectively. -F-78- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES (continued) r. In addition to revenues earned under the KSO Agreement (see Note 48), the Company also earned income from building rental, repairs and maintenance services, and training services provided to the KSO Units, amounting to Rp21,423 million, Rp43,753 million and Rp18,113 million of June 30, 2001, 2002 and 2003, respectively, reflecting 0.3%, 0.5%, and 0.1% of total operating revenues of June 30, 2001, 2002 and 2003. s. The Company provides a defined benefit pension plan and a postretirement health care plan for its pensioners through Dana Pensiun Telkom and YKPT (see Note 45 and 46). The Company has also seconded a number of its employees to related parties to assist them in operating their business. In addition, the Company provided certain of its related parties with the right to use its buildings free of charge. Presented below are balances of accounts with related parties: a. Cash and cash equivalents (see Note 6) b. Temporary investments (see Note 7). c. Trade accounts receivable (see Note 8).
2002 2003 ------- ------ Rp Rp d. Other accounts receivable KSO Units 112,795 88,724 State-owned banks (interest) 16,257 428 Government agencies - 2,430 Others 12,098 6,808 ------- ------ Total 141,150 98,390 ======= ====== e. Advances and other noncurrent assets Badan Pertanahan Nasional 30,233 - PT Indonusa 5,000 - PT Multisaka Mitra - - Other - - ------- ------ Total 35,233 - ======= ======
-F-79- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 46. TRANSACTIONS WITH RELATED PARTIES (continued)
2002 2003 ------- ------- Rp Rp f. Trade accounts payable Government agencies 116,341 193,532 KSO Units 269,775 0 Indosat 226,023 Excelcomindo 141,591 82,090 Satelindo 137,795 114,722 Koperasi Pegawai Telkom 4,173 10,173 PT Quantum 10,404 5,135 Employees - 8,979 Perusahaan Listrik Negara - 126 PSN 2,482 12,765 STB Garuda 212 3,678 Inti - 21,506 PT Sandhy Putra Makmur - 618 PT Batam Bintan - 1,314 Others 866 2,605 ------- ------- Total 909,662 457,243 ======= ======= g. Other accounts payable Taspen 139 Employees 1,306 30,337 Others - ------- ------- Total 1,445 30,337 ======= =======
2002 2003 --------- --------- Rp Rp h. Accrued expenses Yayasan Kesehatan Pegawai Telkom 610,791 709,090 PT Asuransi Jasa Indonesia 11,904 17,168 Employees 105,491 726,792 Government Agencies 281,364 135,726 --------- --------- Total 1,009,550 1,588,776 ========= ========= i. Deposits Government agencies 123,461 70,975 KSO Unit III 364,269 830,431 --------- --------- 487,730 901,406 ========= =========
j. Long-term debt, two-step loans (note 23) -F-80- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 47. SEGMENT INFORMATION The Company and its subsidiaries have two reportable segments: fixed line and cellular. The fixed line segment provides local and domestic long distance telephone services and other telecommunications services (including among others, leased lines, telex, transponder, satellite, and Very Small Aperture Terminal-VSAT) as well as ancillary services. The cellular segment provides basic telecommunication services, particularly mobile cellular telecommunication services. In relation with Telkomsel acquisition as described in Note 4, The management has presented segment information based on fixed line and cellular.
Total Total Fixed Before After Line Cellular Other Elimination Elimination Elimination --------- --------- --------- ----------- ----------- ------------ Rp Rp Rp Rp Rp Rp 2001 Revenue from external customers 4,935,454 2,057,187 509,518 7,502,159 - 7,502,159 Intersegment revenue 256,970 - 3,625 260,595 260,595 - Interest income 365,815 25,743 2,459 394,017 - 394,017 Interest expense 526,927 - 49,439 649,210 - 649,210 Depreciation and amortization expense 1,089,242 220,184 53,194 1,362,620 - 1,362,620 Equity in net income (loss) of associated companies 881,358 - - 881,358 875,707 5,651 Segment result before tax 2,706,303 1,263,326 (155,302) 3,814,327 875,707 2,938,620 Segment assets 28,794,421 5,388,220 1,532,052 35,714,693 2,753,713 32,960,980 Long-term investments - net 3,271,931 - 108 3,272,039 3,072,956 199,083 2002 Revenue from external customers 5,632,935 3,216,066 577,170 9,426,171 - 9,426,171 Intersegment revenue 276,914 - 12,674 289,588 289,588 - Interest income 165,990 57,560 8,184 231,734 - 231,734 Interest expense 716,037 72,844 18,362 807,243 - 807,243 Depreciation and amortization expense 1,085,468 423,987 63,648 1,573,103 - 1,573,103 Equity in net income (loss) of associated companies 1,086,630 - - 1,086,630 1,092,089 (5,459) Segment result before tax 4,317,208 1,789,896 185,417 6,292,521 1,092,089 5,200,432 Segment assets 29,547,327 9,562,895 1,461,030 40,571,252 5,059,499 35,511,753 Long-term investments - net 4,741,860 - 108 4,741,968 4,647,761 94,207
-F-81- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 47. SEGMENT INFORMATION (continued)
Total Total Fixed Before After Line Cellular Other Elimination Elimination Elimination ---------- ---------- ------- ----------- ----------- ----------- Rp Rp Rp Rp Rp Rp 2003 Revenue from external customers 7,678,843 4,804,430 5,386 12,488,659 - 12,488,659 Intersegment revenue 618,892 572,104 - 1,190,996 1,190,996 - Interest income 152,778 32,397 5,044 190,219 - 190,219 Interest expense 549,077 71,496 8 620,581 - 620,581 Depreciation and amortization expense 1,512,579 717,557 5,951 2,236,087 - 2,236,087 Equity in net income(loss) of associated companies 1,403,902 - - 1,403,902 1,399,542 4,360 Segment result before tax 4,951,982 2,799,927 39,717 7,791,626 1,399,542 6,392,084 Segment assets 35,816,597 13,546,557 371,216 49,734,370 8,089,678 41,644,692 Long-term investments - net 6,183,209 - 108 6,183,317 6,010,540 172,777
48. JOINT OPERATION SCHEME ("KSO") In 1995, the Company and five investors (PT Pramindo Ikat Nusantara, PT AriaWest International, PT MGTI, PT Dayamitra Telekomunikasi, and PT Bukaka Singtel International) entered into agreements for Joint Operation Schemes ("KSO") and KSO construction agreements for the provision of telecommunication facilities and services for the Sixth Five-Year Development Plan ("Repelita VI") of the Republic of Indonesia. The five investors have conducted the development and have taken over the operation of the basic fixed telecommunications facilities and services in five of the Company's seven regional divisions. The agreements contain, among others, the following provisions: i. The Company's existing assets in the five regional divisions, together with the assets to be built under the KSO construction agreements, will be managed, operated and maintained by each KSO Unit, in the name of the Company and for and on behalf of the Company and the KSO Investors, commencing from January 1, 1996 to December 31, 2010 ("KSO period"). ii. In the aggregate, a minimum of two million lines are to be planned, designed, engineered, financed and constructed by the KSO Investors during a 3-year period beginning from January 1, 1996, except for Regional Division VI - Kalimantan which started on April 1, 1996. iii. The Company will receive two principal types of payments from each KSO Unit during the term of the KSO, namely Minimum Telkom Revenues ("MTR") and share in distributable KSO revenues, and a one-time initial investor payment from each of the KSO Investors. The initial investor payments totaling US$105 million or equivalent to Rp230,239 million were made by the KSO Investors to the Company as a compensation for their rights to participate in developing and operating telecommunications facilities in the KSO regional divisions. -F-82- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 48. JOINT OPERATION SCHEME ("KSO") (continued) MTR represents an annual amount guaranteed by the KSO Investors and is required to be supported by bank guarantees. The MTR is payable on a monthly basis in fixed amounts which may increase every year during the KSO period. A further monthly adjustment for the MTR is possible depending upon KSO Investor's performance under its commitment to install additional lines. Distributable KSO revenues are the entire KSO revenues, less the MTR and the operational expenses of the KSO Units, as provided in the KSO agreements. These revenues are shared between the Company and the KSO Investors based on agreed upon percentages. The Company receives 35% of the distributable KSO revenues from Regional Division VII, and 30% from the other KSO Regional Divisions. At the end of the KSO period, all rights, title and interests of the KSO Investor in existing installations and all work in progress, inventories, equipment, materials, plans and data relating to any approved additional new installation projects then uncompleted or in respect of which Interconnection Tests have not then been successfully completed, shall be sold and transferred to the Company without requiring any further action by any party, upon payment by the Company to the KSO Investor of one hundred Rupiah, plus: i. the net present value, if any, of the KSO Investor's projected share in distributable KSO revenues, from the additional new installations forming part of the KSO system on the termination date, over the balance of the applicable payback periods. ii. an amount to be agreed upon between the Company and the KSO Investor as fair compensation in respect of any uncompleted or untested additional new installations transferred. The depreciation of the Rupiah against the U.S. Dollar, which started in the second half of 1997, has impacted the financial condition of the KSO Investors. In response to economic conditions, on June 5, 1998, all KSO Investors and the Company have signed a Memorandum of Understanding ("MoU") to amend certain provisions of the KSO agreements. Among the amendments are as follows: i. The percentage of sharing of the distributable KSO revenues for 1998 and 1999 was 10% and 90% for the Company and the KSO Investors, respectively. ii. The minimum number of access line units to be installed by the KSO Investors up to March 31, 1999 was 1,268,000 lines. iii. The incremental rate of the MTR would not exceed 1% in 1998 and 1.5% in 1999 for the KSO agreements with the Investors that have MTR incremental factors. iv. "Operating Capital Expenditures" in each of the KSO Units will be shared between the Company and the respective KSO Investors in proportion to the previous year's share in the annual net income of the KSO Units, starting from 1999. v. The cancellation of the requirement to maintain a bank guarantee in respect of MTR. In 1998 and 1999, the Company adopted the provisions of the MoU. Beginning November 1999, the Company and the KSO Investors had begun to renegotiate the terms of the KSO agreements in conjunction with the changing environment and the expiration of certain terms in the MOU. Among others, it was agreed to return to most of the provisions of the original KSO agreements beginning January 1, 2000. The Company is seeking a fair resolution to the KSO problems. The Company believes that the long-term solution for all five KSO's requires Government intervention and must be considered in the context of restructuring the entire Indonesian telecommunication sector. -F-83- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 48. JOINT OPERATION SCHEME ("KSO") (continued) KSO I The Company and the shareholders of Pramindo has reached an agreement in which the Company will acquire the KSO I assets. On April 19, 2002, the Company entered into the Conditional Sale and Purchase Agreement with PT Astratel Nusantara, France Cabel et Radio, Indosat, Marubeni Corporation, International Finance Corporation and NMP Singapore Pte Limited ("Selling Shareholder") regarding the acquisition of 100% Pramindo's shares. Pursuant to the CSPA, the Company in the same time will buy out all Pramindo's ordinary subscribed and fully paid in capital from the respective shareholder in pro rata basis as follows: i. 30% in August 15, 2002 (pursuant to the amendment), other than IFC's shares, which will be transferred on the date of pledged shares, which has been fully unconditional released based on IFC Investment Agreement and Common Term Agreement. ii. 15% at the interim closing which will be carried on whichever is coming first of the first drawdown date and September 30, 2003. iii 55% at the subsequent closing which will be carried on whichever is coming first of the (a) drawdown date, (b) December 31, 2004, and 30 days after Pramindo buy out all promissory notes. The total purchase price of Pramindo's shares was amounting to US$384,363,026 included interest from promissory notes and US$9,263,953 should be paid on the date of shares pledged and US$375,099,073 shall be paid off through the issuance of promissory notes series I and II. Pursuant to the agreement, the Company will provide loan to Pramindo in amount of US$86,176,000 for the loan settlement to shareholders (IFC). All of the promissory notes will be paid on an installment basis. The last payment will be on December 15, 2004. KSO III On May 8, 2002, the Company entered into the Conditional Sales and Purchase Agreement with PT Aria Infotek, Media International B.V. and Asian Infrastructure Fund ("selling shareholders") regarding the acquisition of 100% AriaWest's shares. Based on the CSPA, the Company shall purchase 2,704,444 subscribed and paid in capital of AriaWest with par value of Rp114,000. The selling price is US$184,500,000 and US$44,500,000 of the amount should be paid first, the settlement value of US$20,000,000 as shall be paid on closing date, and US$120,000,000 will be paid off through the issuance of promissory notes. The CSPA was intended to clear off all disputes with AriaWest. Up to June 30, 2003, the transaction has not been closed due to the precondition of contract that still open related to the creditors' approval for restructuring AWI's debt. International Chamber of Commerce ("ICC") gives time extension to the Company and selling shareholders to settle the dispute out of ICC arbitrate process. Up to June 30, 2003, the Company has paid in advance to shareholders amounting to US$21,750,000 which is recorded as "Advance Payment for Investment in Shares of Stocks", and the Company has received deposit from KSO Unit III, amounted to US$91,750,000 which recorded as "Advance from Customers and Suppliers". On July 31, 2003 the Company and AWI's shareholders do the closing transaction for buy-out KSO III (see Note 55). -F-84- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 48. JOINT OPERATION SCHEME ("KSO") (continued) KSO IV The sale of KSO IV to Indosat has been terminated due to some condition precedents that have not been fulfilled. The Company planned to buy out MGTI, the KSO IV investor in Central Java and Yogyakarta. Currently, the Company is in process of negotiation. KSO VI The Company has acquired 90.32% of issued and paid up capital of Dayamitra, the KSO VI Investor. KSO VII The Company and PT Bukaka Singtel International intend to continue the KSO schemes in accordance with original agreements with some modifications. 49. REVENUE-SHARING AGREEMENTS WITH SEVERAL INVESTORS The Company has entered into separate agreements with several investors under Revenue-Sharing Arrangements ("RSA") to develop fixed lines, analog mobile cellular lines, public card-phone booths (including their maintenance), and related supporting telecommunications facilities. Under the RSA, the investors finance the costs incurred in developing telecommunications facilities. Upon completion of the construction, the Company manages and operates the facilities. The investors legally retain the rights to the property, plant and equipment constructed by them during the revenue-sharing periods. At the end of each revenue-sharing period, the investors transfer the ownership of the facilities to the Company. The Company bears the cost of repairs and maintenance of the facilities during the revenue-sharing period. The revenue-sharing period is determined on the basis of the internal rates of return agreed by both parties. The internal rates of return range from 24% to 30%, and the revenue-sharing periods vary from one year and seven months to fifteen years from the start of commercial operations. The revenue-sharing period can be either fixed regardless of full investment returns to the investors, or extended to ensure full investment returns to the investors. The revenue-sharing periods end on various dates through 2009. The revenues earned from the customers in the form of line installation charges are fully for the account of the investors. The revenues from outgoing telephone pulse and monthly subscription charges are shared between the investors and the Company 60:40 or 70:30 (in favor of the investors) depending on the agreements. Certain additional arrangements are made for revenues earned from analog mobile cellular, whereby revenues from international outgoing pulses are fully owned by the Company. Revenues earned from pay phone cards during the revenue-sharing period are shared 60:40 (in favor of the investors) based on the recorded usage of pulses. On January 16, 2001, the Revenue Sharing Agreement change into Joint Operation scheme with revenue distribution based on card sold. Ratio of revenue distribution among investors is 42.5:57.5. On August 1, 2002, RSA period with Telesera was expired. The legal title on property, plant and equipments under RSA is not transferred to the Company due RSA did not achieve investment's rate of return in accordance with RSA Agreement. The Company accelerated the depreciation of those assets amounted to the book value of Rp3,300 million. The investors' share of revenues amounted to Rp271,053 million, Rp388,488 million and Rp300,855 million of June 30, 2001, 2002 and 2003, respectively. -F-85- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 50. TELECOMMUNICATIONS SERVICES TARIFFS Under law No.36 1999 and Government Regulation No. 52 year 2000, Tariffs for the use of telecommunications network and telecommunication services are determined by providers based on the tariffs category, structure and with respect to fixed line telecommunication services price cap formula set by the Government. Fixed line telephone Tariffs Fixed line telephone tariffs are imposed for network access and usage. Access charges consist of a one-time installation charge and a monthly subscription charge. Usage charges are measured in pulses and classified as either local or domestic long-distance. The tariffs depend on call distance, call duration, the time of day, the day of the week and holidays. Tariff for fixed line telephone are regulated under Minister of Communication Decree No. KM.12 year 2002 dated January 29, 2002 concerning the addendum of the decree of Minister of Tourism, Post and Telecommunication ("MTPT") No. 79 year 1995, concerning The Method for Basic Tariff Adjustment on Domestic Fixed Line Telecommunication Services. Furthermore, The Minister of Communication issued Letter No. PK 304/1/3 PHB-2002 dated January 29, 2002 concerning the price cap in basic tariff increase of fixed line telephone services. According to the letter, tariff for fixed line domestic calls would increase by 45.49% over three years. The average increase in 2002 is 15%. This increase was effective on February 1, 2002. To follow up the previous Letter, the Ministry of Communication issued Letter No. PR.304/2/4/PHB-2002 dated December 17, 2002 regarding tariff adjustment for domestic fixed line services effective on January 1, 2003. By considering that the Independent Regulatory Body, as the precondition for the tariff adjustment, has not been established, The Minister of Communication has finally postponed the implementation of tariff adjustment by issuing Ministerial Letter No. PR. 304/1/1/PHB/-2003 dated January 16, 2003. Mobile Cellular Telephone Tariffs Tariff for cellular providers are set on the basis of the MTPT decree No. KM. 27/PR.301/MPPT-98 dated February 23, 1998. Under the regulation, the cellular tariffs consist of activation fees, monthly charges and usage charges. The maximum tariff for the activation fee is Rp200,000 per new subscriber number. The maximum tariff for the monthly charges is Rp65,000. Usage charges consist of the following : a. Airtime The basic airtime tariff charged to the originating cellular subscriber is Rp325/minute. The details are as follows: 1. Cellular to cellular : 2 times airtime rate 2. Cellular to PSTN : 1 time airtime rate 3. PSTN to cellular : 1 time airtime rate 4. 4. Card Phone to cellular : 1 time airtime rate plus 41% surcharges b. Usage Tariff 1. Usage tariff charged for a cellular subscriber who makes a call to another subscriber using the PSTN network is similar to the usage tariffs for PSTN subscribers. For the use of local PSTN network, the tariff is computed at 50% of the prevailing local PSTN tariff. 2. The long-distance usage tariff between two different service areas is similar to the prevailing tariff for a domestic long-distance call ("SLJJ") for a PSTN subscriber. -F-86- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 50. TELECOMMUNICATIONS SERVICES TARIFFS (continued) Mobile Cellular Telephone Tariffs (continued) a. Usage Tariff (continued) Based on the Decree No. KM. 79 year 1998 of the Ministry of Communications, the maximum tariff for prepaid customers may not exceed 140% of the peak time tariffs for post paid subscribers. Interconnection Tariffs Interconnection tariffs regulate the sharing of interconnection calls between the Company and other cellular operators. The current interconnection tariff is governed under MTPT Decree No. KM.46/PR.301/MPPT-98 ("KM. 46 year 1998") dated February 27, 1998 which came into effect on April 1, 1998 and was further revised by the Minister of Communication's Decree No. KM.37 year 1999 dated June 11, 1999 ("KM. 37 year 1999"). a. International interconnection with PSTN and cellular telecommunications network Based on KM.37 year 1999, effective December 1, 1998, the international interconnection tariff is calculated by applying the following charges to successful incoming and outgoing calls to the Company's network:
Tariff ------ Access charge Rp 850 per call Usage charge Rp 550 per paid minute Universal Service Obligation (USO) Rp 750 per call
Indosat is exempted from paying the USO until December 31, 2004, while the USO charges payable by Satelindo are paid directly to the MTPTor Minister of Communications (see Note 47). b. Mobile and fixed cellular interconnection with the PSTN Based on KM. 46 year 1998, cellular interconnection tariffs with PSTN are as follows: 1. Local Calls For local calls from a mobile cellular network to PSTN, the cellular operator pays the Company 50% of the prevailing tariff for local calls. For local calls from PSTN to a cellular network, the Company charges its subscribers the applicable local call tariff plus an air time charge, and pays the cellular operator the air time charge. 2. Domestic Long-distance Calls KM.46 year 1998 provides tariffs, which vary among long-distance carriers depending upon the routes and the long distance network used. Pursuant to this decree, for long-distance calls which originate from the PSTN, the Company is entitled to retain a portion of the prevailing long-distance tariff, which portion ranges from 40% of the tariff, in cases where the entire long-distance portion is carried by one cellular operator and delivered to another, and up to 85% of the tariff, in cases where the entire long-distance portion is carried by the PSTN. -F-87- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 50. TELECOMMUNICATIONS SERVICES TARIFFS (continued) Interconnection Tariffs (continued) b. Mobile and fixed cellular interconnection with the PSTN (continued) For long-distance calls which originate from a cellular operator, the Company is entitled to retain a portion of the prevailing long-distance tariff, which portion ranges from 25% of the tariff, in cases where the entire long-distance portion is carried by a cellular operator and the call is delivered to a cellular subscriber, and up to 85% of the tariff, in cases where the entire long-distance portion is carried by the PSTN and the call is delivered to a PSTN subscriber. Interconnection tariffs with mobile satellite networks ("STBSAT") are established based on a Joint Operation Agreements between the Company and STBSAT providers pursuant to Minister of Communication Decree No. KM. 30 year 2000 concerning Global Mobile Personal Telecommunication Service Tariffs by Garuda Satellite dated March 29, 2000. Flat interconnection tariffs per minute apply for those Companies. Interconnection tariffs with mobile cellular networks, including USO, are determined based on the duration of the call. Access and usage charges for international telecommunications traffic interconnection with telecommunications networks of more than one domestic carrier are to be shared proportionately with each carrier involved, which proportion is determined by the MTPT. Interconnection tariffs between a fixed wireless network and PSTN, and amongst PSTN, are regulated under MTPT letter No. KU.506/1/1/MPPT-97 dated January 2, 1997 and letter No. KU.506/4/6/MPPT-97 dated July 21, 1997. Currently, Ratelindo is the only operator of a fixed wireless network and apart from the Company; BBT is the only operator of PTSN. For fixed wireless interconnection with the PSTN and BBT with the PSTN, the "sender-keeps-all" basis for local calls is applied and for domestic long-distance calls that originate from Ratelindo's network and transit to PSTN, the Company receives 35% of Ratelindo's revenue for such calls. For domestic long-distance calls that originate from PSTN, the Company retains 65% as its revenue for such calls. For long distance calls from and to BBT, the Company retains 75% of the revenue while BBT receives the remaining 25%. c. Mobile cellular interconnection with other mobile cellular providers Based on KM.46 year 1998, the mobile cellular interconnection tariffs with other mobile cellular providers are as follows: 1. Local Calls For local calls from one cellular telecommunications network to another, the originating cellular operator pays the airtime to the destination cellular operator. If the call is carried by the PSTN, the cellular operator pays the PSTN operator 50% of the prevailing tariff for local calls. 2. Domestic Long-distance Calls For long-distance calls which originate from a cellular telecommunications network, the cellular operator is entitled to retain a portion of the prevailing long-distance tariff, which portion ranges from 15% of the tariff in cases where the entire long-distance portion is not carried by the cellular operator, up to 60% of the tariff in cases where the entire long-distance portion is carried by the cellular operator and the call is delivered to another cellular operator, or up to 75% if the call is delivered to the same cellular operator. In connection with the issuance of Law No. 36 year 1999 and Government Regulation No. 52 year 2000, the Minister of Communications, on May 31, 2001, issued Decree No. KM. 20 year 2001, concerning Operations of Telecommunications Network and KM 21 year 2001 concerning Operations of Telecommunications Services, which came to effective from at the date of the decree. Subsequently, the Minister of Communication issued Decree No. KM.84 year 2002 concerning Telecommunication Traffic Clearing Process. -F-88- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 50. TELECOMMUNICATIONS SERVICES TARIFFS (continued) Public Phone Kiosk ("Wartel") Tariff The Company is entitled to retain 70% of the telephone tariff based on Director Decree No. 01/H220/OPSAR-33/2002 dated January 16, 2002, which came into effect on February 1, 2002. This governs the transition of the business arrangement between Telkom and Wartel providers, from a commission-based revenue sharing into agreed usage charges (pulses). On August 7, 2002, the Minister of Communication issued Decree No. KM. 46 year 2002 regarding the operation of phone kiosks. The decree provides that the Company is entitled to retain a maximum of 70% of the phone kiosk basic tariff from domestic calls and up to 92% of telephone kiosk basic tariffs from International Calls. 51. COMMITMENTS a. Letters of Support In first-half of year 2002, the Company pledged its deposits of Rp500,000 million as collateral for the credit facility from Bank Mandiri. The time deposits has matured on February 18, 2003. The Company also pledged its time deposits of US$4,600,000 as collateral for the loan facility granted to Napsindo from Bank Mandiri. The time deposits will be matured on August 28, 2003 and October 23, 2003. b. EKN - Backed Facility On December 2, 2002, pursuant to the partnership agreement with PT Ericsson Indonesia, Telkomsel obtained an EKN-Backed Facility (" Facility") with Citibank International plc (as "Arranger" and "Agent") covering a total facility of US$70,483,426.49, which was devided into several tranches. The interest rate on the facility is the aggregate of the applicable margin, CIRR (Commercial Interest Reference Rate) and mandatory cost, if any. Interest will be paid semi-annually starting on the date the facility is drawn. As of June 30, 2003 no disbursement has been made however the value of physical completion progress is equivalent to US$35 million. c. Capital Expenditures As of June 30, 2003, the amount of capital expenditures committed under contractual arrangements, principally relating to procurement and installation of switching equipment, transmission equipment and cable network, are as follows:
Amounts in Foreign Currencies Equivalent Currencies (in thousands) in Rupiah - ---------------- ------------------ ---------- Rupiah - 2,247,191 U.S.Dollar 309,509 2,561,187 EURO Europe 67,674 640,391 Singapore Dollar 3,881 18,236 Japanese Yen 25,597 1,766 --------- Total 5,468,771 =========
-F-89- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 51. COMMITMENTS (continued) d. Agreement on Derivative Transaction As of June 30, 2003, Telkomsel has four forward agreements to hedge its future liabilities in foreign currency. The agreements are as follow: i. Agreement with Deutsche Bank for hedging the liabilities amounted to US$80 million within period April 2003 up to December 2003, with settlement of US$10 million each month at Rp 8,997.5 per US$1. ii. Agreement with Standard Chartered Bank to hedge EUR24 million liabilities, within period May 2003 up to October 2003, with settlement of EUR4 million each month at Rp 9,788 per EUR1. iii. Agreement with Deutsche Bank to hedge US$12 million liabilities at the rate of Rp 8,380 per US$1. The validity period of this transaction is from May 2003 until November 2003, with US$2 million settlement each month. iv. Agreement with Standard Chartered Bank to hedge the liabilities during May 2003 until November 2003 for the amount of EUR18 million. Settlement for each month is EUR 3 million at Rp 9,877 per EUR1. e. Procurement of TELKOM-2 Satellite On October 24, 2002, the Company and Orbital Science Corporation ("Contractor") agreed on procurement of satellite TELKOM-2. The Company obliged to pay US$73,000,000 including refundable provision in amount of US$4,338,292 to any transponder that has reduced communication capabilities below 3dB as agreed and which cannot be corrected by switching to a redundant transponders. Payment to Contractor is made within thirty days after the date of the original invoice received by the Company. All Indonesian taxes, duties, assessment of fees, including tariff and VAT resulting from performance of this contract that are required by present of future laws or regulation in Indonesia shall be paid by the Company, except for any temporary imported goods that will not owned by the Company and any taxes and or duties of Contractor's expatriates working in Indonesia shall be borne by Contractor. The Contractor shall be responsible for taxes, duties, assessment or fees, including tariffs and value added taxes resulting from performance of this contract that are required by present of future laws or regulation in the USA including any interest or penalties related to such U.S. taxes and U.S. duties. The Contractor shall submit warranty bond to the Company for Augmented Master Control Station ("AMCS") in the amount of 10% of AMCS fixed firm price in the form of unconditional bank guarantee/ Letter of Credit from U.S. affiliated bank in Indonesia, as selected by Contractor, and shall be submit to the Company at least five business days before starting Warranty Period. -F-90- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 51. COMMITMENTS (continued) e. Procurement of TELKOM-2 Satellite (continued) This Warranty shall be extended until the earlier of: i 365 days commencing from the time satellite is placed in storage; ii 365 days commencing from final acceptance of the Satellite or from the time of launch failure. Contractor shall use reasonable efforts to obtain Contractor's Government approvals and licenses necessary for export of the Satellite. If after six months from the time Contractor submits its application for a U.S. Government licenses and authorization, the Company may, in writing, notify the Contractor of its intention to terminate this Contract. The Contract price shall include in transit insurance for the satellite, AMCS and the other deliverable items that are transported from Contractor facility to the launch site or the Company's operation site; and also include insurance for the satellite during manufacturing, shipping and up to the launch Site until such time as risk of loss passes to the Company under this Contract. Contractor shall provide the Company with certificate of insurance for such coverage f. Launching of TELKOM-2 Satellite On November 8, 2002, the Company and ARIANESPACE S.A. agreed upon the launching of Satellite TELKOM-2 of the Company. Total amount to be paid by the Company for that services is amounted to US$62,880,000 with the payment schedule as follows:
Percentage of the portion of the Payment Date Launching Services price - ------------- ----------------- -------------------------------- US$ First Payment January 13, 2004 27,500,000 Second Payment March 1, 2004 9,000,000 Third Payment April 1, 2004 20,000,000 Fourth Payment September 1, 2004 6,380,000
Total amount mentioned above shall be increased by 7% of the total if the Company exercises the Re-flight Option, and if any increase or decrease of the satellite mass from the agreed mass, then the increase or decrease above 25kg shall be subject to additional cost amounted to US$25,000 per kg. The Launch Period of Satellite TELKOM-2 is from period November 1, 2004 until January 31, 2005. The Launch Slot will be determined by mutual agreement of the parties no later than eighth months prior to the first day of the Launch Period. The Launch Day shall be determined, no later than three months to the first day of the Launch Slot. ARIANESPACE S.A shall take out an insurance policy at no cost to the Company. The Insurance policy shall be in the amount of Euros 60,980,000. -F-91- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 51. COMMITMENTS (continued) g. PSTN Excellence Regional Junction DIVRE II Project On February 8, 2002, the Company entered into agreement with Consortium Olex-Lucent-Brimbun ("Consortium") upon procurement of SDH Transmission System, Optical Fiber, NMS and other services. The Company must pay for the work and procurement made by Consortium amounted to US$28,807,460 and Rp102,828,788,753, net of tax, respectively. The Agreement was come into effect within eighteen month from the contract date. The consortium shall submit performance guarantee issued by Indonesian State Owned Bank or other International reputable Bank amounting to 5 % of contract value, net of tax, to the Company at least 3 days after the contract date. The Consortium must cover all risks of delivery, storage and development of goods and services up to the issuance of provisional acceptance certificate for and on behalf of Consortium as a beneficiary to the insurance company appointed by the Company. The insurance shall be paid by Consortium and if any accident happened, the replacement money received shall be used to continue the project and or to replace the damaged equipment. h. Network Facility for Multimedia Services and Pay TV Program During the year 2002, Indonusa has undersigned several agreements on procurement of network facility of multimedia services and TV program by subscription with several program provider and property management, both for extending the terminated agreement and for making new agreement. Those agreements set the rights and obligations of both parties in procurement of TV program by subscription including its network, determination of monthly subscription fee, and revenue sharing. i. USO and Public Payphone Under KSO agreement, PIN must allocate at least 20% of total yearly investment plan to develop telecommunication facility in remote area and fro public interest in its KSO Unit area, which have not been covered by such facility as of the effective date of KSO Agreement. PIN must meet those targets for at least 50% of all villages and 100% district in KSO Unit area at the end of Repelita VI, up to the limit of 20% of total investment. PIN must submit annual report in detail to Directorate General of Post and Telecommunication (DGPT) regarding the total investment including special investment and the achievement progress of USO project within 60 days after the end of each year. If Pramindo has not fully allocated its 20% of total investment to fulfill its obligation as targeted, DGPT will enforce PIN to complete other USO project under a certain schedule with the costs not up to the unallocated amount. PIN must also provide at least 3% of access line units constructed for public payphone (including Wartel). Such capacity will be used for providing public payphone, either by KSO unit or by other party, with permission from Minister of Communication. However, based on the MoU and Side Letter, USO obligation is considered accomplished if either of the following conditions are met: - 5% of total investment has been allocated for USO obligation; or - 50% of all remote villages have been covered by telecommunication facility -F-92- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 51. COMMITMENTS (continued) j. Call Center Development and Operation Services On July 24, 2000, Infomedia undersigned the agreement on call center development and operation services with PT Bank Niaga Tbk. ("Bank Niaga"). Infomedia provides call center services, which shall receive, patch and respond the request, claim and complaint of customers regarding the products and provide information about Bank Niaga's products. Infomedia receives fee amounted to Rp400 million per month for incoming calls up to 180.000 calls per month and outgoing calls up to 7500 calls per month with composition of 60% for Jakarta calls and 40% calls for non Jakarta calls. k. Call Center Service Agreement In 2002, Infomedia entered into call center service agreement with other parties ("the parties"). Based on the agreement, Infomedia provides call center personnel with assignment to respect and respond complaints from customers, informing about the parties' products and technical assistant. In return of this, Infomedia earns monthly fees. l. Software License and Support Agreement On October 13, 1997 Dayamitra undersigned the Software License and Support Agreement with Cable and Wireless Plc. Pursuant to the agreement, Cable and Wireless Plc will provide license Software, adjustment, training, implementation, maintenance and support to Customer Care Billing System project, also having rights for the Intellectual Property Rights. Costs as a result on those agreements charged to KSO Unit VI. m. CDMA Procurement Agreement with Samsung Consortium On October 9, 2002, the Company made Initial Purchase Order Contract CDMA 2000-IX with Samsung Consortium for BSS procurement in Divisi Regional II, and on December 23, 2002, the Company signed Master Procurement Partnership Agreement of CDMA package-2 for requiring either the nation wide package of NSS procurement for Telkom's Regional Division, excluding KSO III or the regional package of BSS procurement for KSO IV, KSO VI, KSO VII and Divisi Regional V. This procurement is part of T-21 Program. n. Loan Agreement Junction Regional Division V Project On June 21, 2002, the Company entered into a loan agreement with Consortium Bank amounting to Rp400,000 million, and then amended to Rp150,000 million for financing the Regional Division V Junction Project. Bank Bukopin acting as facility agent, which the first year interest rate, calculated from the signing date, is 19.5% and then average 3 month deposit rate plus 4% for the remaining year. Disbursement period is 19 months since the signing loan agreement with the repayment period 14 times quarterly starting from April 2004. The loan facility was secured by the project equipment. As of June 30, 2003, the loan has not been disbursed. o. Cooperation Agreement with Labor Union (SEKAR TELKOM) On June 3, 2002, the Company entered into a Cooperation Agreement with the Company's labor union - namely Serikat Karyawan Telkom (SEKAR TELKOM), an organization in the Company for all Non KSO and KSO unit employees. The agreement is in connection with good working relationship between the Company and the employees. In the agreement, there is additional component in employees income regarding the distribution of bonus and leave allowance. -F-93- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 52. CONTINGENCIES a. Claims from AriaWest On May 15, 2001, AriaWest (KSO Partner in Region III, West Java and Banten) commenced an arbitration proceeding under the Rules of the International Chamber of Commerce against the Company for breach of the KSO Agreement between the Company and AriaWest. Each of the Company and AriaWest has submitted various claims for resolution in the arbitration proceedings. AriaWest has alleged that the Company materially breached the KSO Agreement by, among other things, (i) terminating certain exclusive rights granted to AriaWest; (ii) failing to transfer control of the KSO's finances, employees and management to AriaWest and interfering with AriaWest's efforts to exercise management control over the KSO; (iii) failing to pay amounts identified in a "forensic audit" conducted by PriceWaterhouse Coopers on behalf of AriaWest as being unaccounted for, lost or otherwise unreasonably disbursed; (iv) causing the Government to reduce telecommunications tariffs in 1999 and to impose a zero tariff increase in 2000; (v) wrongfully terminating the KSO Agreement and wrongfully taking control of the KSO; (vi) failing to negotiate the terms of certain construction projects proposed by AriaWest and certain amendments to the KSO Agreements requested by AriaWest; and (vii) failing to cause the KSO to pay AriaWest certain disputed sums as reimbursement for cash outlays by AriaWest or other funds claimed by AriaWest. AriaWest alleges damages in excess of US$1.3 billion, but has not specified the amount of damages associated with most of its claims. The Company has denied AriaWest's allegations and claims that AriaWest has materially breached the KSO Agreement by, among other things, (i) causing the KSO not to pay "Minimum Telkom Revenue" or "MTR"; (ii) wrongfully rejecting the Company's termination of the KSO Agreement; (iii) failing to pay the Company "Distributable Telkom Revenue" or "DTR"; (iv) mismanaging the KSO Unit; (v) failing to construct Minimum New Installation; and (vi) failing to reimburse Operating Capital Expenditures. The Company is still in the process of quantifying its damages; however, among the Company's damages are claims for more than Rp412 billion in MTR and more than Rp98 billion in DTR due to the Company as of July 9, 2001 (the date the Company delivered its notice of termination of the KSO Agreement). On May 8, 2002, the Company entered into the Conditional Sales and Purchase Agreement with PT Aria Infotek, Media International B.V. and Asian Infrastructure Fund ("selling shareholders") regarding the acquisition of 100% AriaWest's shares. The CSPA was intended to clear off all disputes with AriaWest. Up to June 30, 2003, the agreement has not closed due to the disagreement of AriaWest's debts restructuring. On July 31, 2003 the CSPA was closed (see Note 55). -F-94- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 53. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES The balances of monetary assets and liabilities denominated in foreign currencies are as follows:
2002 2003 ----------------------------- ---------------------------- Foreign Foreign Currencies Equivalent Currencies Equivalent (in thousands) in Rupiah (in thousands) in Rupiah -------------- ---------- -------------- ---------- Assets Cash and cash equivalents Related parties U.S Dollar 12,028 104,460 184,423 1,525,419 Yen - - 266 18 Euro - - 18,606 175,957 Deutsche Mark 2,582 10,113 Third parties U.S Dollar 362 3,142 Euro - - Temporary investments Related parties U.S Dollar 6,948 60,347 2,000 16,540 Third parties U.S Dollar - - Trade accounts receivable Related parties U.S Dollar 450 3,908 7,630 63,097 Third parties U.S Dollar 8,136 70,662 1,571 12,989 Other accounts receivable U.S Dollar 44 383 66,491 549,885 French France - - 4,466 4,966 Netherlands Guilder - - 756 2,503 Prepaid Expenses U.S Dollar 1,597 13,204 Other current asset U.S Dollar 8,212 71,320 7,381 61,043 Advances and other non-current assets U.S Dollar - - 20,878 172,664 Advance Payment for Investment in Shares of Stock U.S Dollar 29,143 241,473 Escrow account U.S Dollar 15,990 138,876 34,519 285,473 --------- --------- Total Assets 463,211 3,125,231 ========= =========
-F-95- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 53. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)
2002 2003 ------------------------------ ------------------------------- Foreign Foreign Currencies Equivalent Currencies Equivalent (in thousands) in Rupiah (in thousands) in Rupiah -------------- ---------- -------------- ---------- Liabilities Trade accounts payable Related parties U.S Dollar 2,548 22,235 14,044 116,260 Great Britain Poundsterling 61 93 160 2,181 Australian Dollar 20 111 Euro - - 662 6,269 Third parties U.S Dollar 2,888 25,194 24,599 203,683 Euro - - 344,303 3,260 Singapore Dollar - - 26 120 Great Britain Poundsterling - - 64 878 Yen 1 2 265,976 18,363 Other accounts payable Third Parties U.S Dollar - - 32 267 Accrued expenses Related parties U.S Dollar 157,331 1,372,710 37,720 312,516 Euro 7,774 67,826 32,384 306,645 Yen 4,270 508,466 13,101 904 French Franc 3,857 29 Netherlands Guilder 1,372 3,429 482 1,598 Great Britain Poundsterling - - 37 511 French Franc - - 710 792 Third Parties U.S Dollar - - Advances from customers and suppliers U.S Dollar - - 45,882 379,408 Euro 12,549 1,118,826 Japanese Yen 25,040 1,729 Great Britain Poundsterling 0.4 36 --------- --------- Subtotal 1,999,984 2,474,357
-F-96- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 53. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)
2002 2003 ---------------------------------- -------------------------------- Foreign Foreign Currencies Equivalent Currencies Equivalent (in thousands) in Rupiah (in thousands) in Rupiah -------------- ---------- -------------- ---------- Liabilities Current portion of long-term liabilities Related parties U.S Dollar 173,026 1,509,655 51,538 426,731 French Franc 18,824 22,109 Japanese Yen 374,364 27,411 431,856 30,230 Netherlands Guilder 3,044 10,642 Euro 4,451 42,150 Third Parties U.S.Dollar - - 38,076 315,268 Euro 7,560 75,425 Long-term liabilities Related parties U.S Dollar 534,163 4,660,575 322,928 2,673,841 French Franc 100,731 118,308 17,210,861 1,188,243 Japanese Yen 18,258,593 1,338,370 Netherlands Guilder 12,176 42,569 Euro 16,528 156,502 Third Parties U.S Dollar - - 164,591 1,363,565 Total Liabilities 9,729,623 8,746,312 ---------- ---------- Net Liabilities (9,266,412) (5,621,081) ========== ==========
54. ECONOMIC CONDITION Since the middle of 1997, many Asia Pacific countries, including Indonesia, have been experiencing adverse economic condition mainly resulting from currency depreciation in the region, the principal consequences of which have been an extreme lack of liquidity and high interest and foreign exchange rates. The crisis has also involved declining prices in shares of stock, tightening of available credit, and stoppage or postponement of certain construction projects. The adverse economic condition still continues to this date as evidenced by the weak exchange rate, sluggish economic growth, and pressures on inflation. High volatile of exchange and interest rates have increased the cost of funds, as well as the amount of debt to be serviced by the Company, its subsidiaries, and the associated companies. Management has adopted measures in maintaining liquidity by, among others, evaluating priorities and rescheduling construction projects, initiating cost-cutting and managing funds to service current maturities of foreign currency denominated liabilities. In its investment activities, management has adopted a more stringent criterion and pursued project developments using a "turnkey" system, hence not all risk is borne by the Company. Management has also strived to resolve the KSO issues and managed investments in associated companies effectively and selectively by utilizing the services of international legal and financial consultants. Recovery of the economy to a sound and stable condition is dependent on the fiscal, monetary and other measures being taken by the Government, actions which are beyond the Company and its subsidiaries' control, to achieve economic recovery. It is not possible to determine the future effect these economic conditions may have on the Company and its subsidiaries' liquidity and earnings, including the effect flowing through from their investors, customers and suppliers. -F-97- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 55. SUBSEQUENT EVENTS a. On July 31, 2003, the Company consummated the acquisition of AWI under CSPA dated May 8, 2002 (as amended) and has settled its ICC arbitration with AWI. Following the transaction, the Company owned 100% of AWI and has full control of KSO III. In accordance to the AWI closing: i. The Company paid of US$58.67 million in cash (US$20 million of which was paid when the CSPA was signed on May 8, 2002) and US$109.1 million in promissory notes. The promissory notes, which are interest-free, are payable in ten equal semi-annual installments. ii. At the same time, AriaWest's debt has been restructured to the satisfaction of the Company, as required in the CSPA. Debt of US$99.07 million (including accrued interest) has been repaid on the closing date, and the Company has assumed from AriaWest debt of US$196.97 million under a new four-year Company's loan facility. Related to the above-mentioned transaction, the balance of Advance Payment to the selling shareholder amounted US$21.75 million, and the balance of receipt deposit from KSO III amounted US$91.75, that recognized until June 30, 2003 will be adjusted in the next quarter. b. The Company is in process of completion audit of the Financial Statement for Year 2002 for the purpose to fulfill US SEC requirement in relation with the filing of Annual Report for Year 2002 (Form 20-F). Accounting firm (KAP) Drs. Hadi Sutanto & Rekan, an affiliate of Pricewaterhouse Coopers was appointed to conduct the audit. 56. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND ITS SUBSIDIARIES AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements have been prepared in accordance with Indonesian GAAP, which differs in certain respects from U.S. GAAP. The significant differences are reflected in the approximations provided in Note 60 and arise due to the items discussed in the following paragraphs: a. Termination Benefits Under Indonesian GAAP, termination benefits are recognized as liabilities when certain criteria are met (e.g. the enterprise is demonstratively committed to provide termination benefits as a result of an offer made in order to encourage voluntary redundancy). Under U.S. GAAP, the timing of recognition depends upon the nature of the Company's obligation to provide such benefits. For special termination benefits offered for only a short period of time, the Company's obligation is recognized upon the employees' acceptance of the offer. For contractual termination benefits, including those that are part of a substantive plan to provide termination benefits, the employer accrues the benefits when it is probable that employees will be entitled to the benefits and the amount can be reasonably estimated. b. Foreign Exchange Differences on Property under Construction Under Indonesian GAAP, the foreign exchange difference resulting from loans used to finance property under construction is capitalized. Capitalization of foreign exchange differences cease when the construction is substantially completed and the constructed property is ready for its intended use. Under U.S. GAAP, foreign exchange differences are charged to current operations. -F-98- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 57. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND ITS SUBSIDIARIES AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) c. Interest Capitalized on Property under Construction Under Indonesian GAAP, one of the criteria for capitalizing interest cost into a qualifying asset (i.e. property under construction) is that the interest should be attributable to the qualifying asset. Under U.S. GAAP, the borrowing need not be directly linked to the construction of a qualifying asset. Interest cost is capitalized on qualifying assets (i.e. property under construction) based upon the Company's overall effective interest rate and the average balance of qualifying assets for the period. d. Revenue-Sharing Arrangements Under Indonesian GAAP, property, plant and equipment built by an investor under revenue-sharing arrangements are recognized as property, plant and equipment under revenue-sharing arrangements in the books of the party to whom ownership in such properties shall be transferred at the end of the revenue-sharing period, with a corresponding initial credit to unearned income. The property, plant and equipment are depreciated over their useful lives, while the unearned income is amortized over the revenue-sharing period. The Company records its share of the revenues earned on a net basis. Under U.S. GAAP, the accounting for revenue-sharing arrangements depends on whether or not the investor will receive a guaranteed minimum return. When there is no guaranteed investment return to the investors, the accounting treatment is similar to that under Indonesian GAAP. The property is depreciated, unearned income is amortized and the Company records its contractual share of the earnings for the period. When there is a guaranteed minimum return to the investors, the transaction is accounted for as the acquisition of property by the Company under a capital lease. In lieu of unearned income, the Company records a capital lease obligation equal to the fair value of the property. The capital lease obligation is increased by the guaranteed return and decreased by the investors share of earnings. The revenue is recorded gross. e. Revaluation of Property, Plant and Equipment While Indonesian GAAP does not generally allow companies to recognize increases in the value of property, plant and equipment that occur subsequent to acquisition, an exception is provided for revaluations made in accordance with Government regulations. The Company revalued its property, plant and equipment that were used in operations as of January 1, 1979 and January 1, 1987. Under U.S. GAAP, property, plant and equipment may not be stated at more than their historical acquisition cost. The effect of the previous revaluations have fully reversed in 2002. f. Deferred Tax on Excess of Financial Reporting Basis Over Tax Basis of Subsidiaries Under Inonesian GAAP, deferred tax liabilities are not recognized for the excess of the parent's carrying amount of its equity investment in a domestic subsidiary over its tax basis if the parent company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Under U.S. GAAP, the excess of the parent's carrying amount of its equity investment in a domestic subsidiary over its tax basis is a temporary difference. However, if the tax law provides a means by which the investment can be recovered tax-free and the parent ultimately plans to utilize such means to recover its investment, the temporary difference is non-taxable and no deferred taxes are recorded. Generally, no benefit is recorded for the excess of a parent's tax basis in its subsidiary over its carrying amount for financial reporting purposes. -F-99- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 57. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND ITS SUBSIDIARIES AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) g. Pension The Company and a subsidiary, for purposes of Indonesian GAAP, use a method of accounting for pensions that is substantially consistent with the requirements of U.S. GAAP. As stated in its pension plan regulations, the Company does not provide regular pension increases. However, in 1994 and 1998 (effective January 1, 1999), the Company provided for increases in pension benefits for pensioners, which were considered prior service costs. Based on PSAK No. 24, the prior service costs attributable to the increases in pension benefits for pensioners in 1994 and 1999, were directly charged to expense in those years. Under SFAS 87, such prior service costs should be deferred and amortized systematically over the estimated average future working periods of active employees (14.4 years in 1999 and 15.9 years in 1994). The subsidiary is amortizing past service cost using the double-declining method for Indonesian GAAP, while under U.S. GAAP, past service cost is amortized using the straight-line method. h. Share in Net Income of Associated Companies The Company records its equity in net income of associated companies based on the associates' financial statements that have been prepared under Indonesian GAAP. For U.S. GAAP reporting purposes, the Company conforms the associates earnings to U.S. GAAP prior to recording their share of earnings or loss. The primary difference has historically related to land rights held by associates. i. Land rights In Indonesia, the title of land rests with the State under the Basic Agrarian Law No. 5 of 1960. Land use is accomplished through land rights whereby the holder of the right enjoys the full use of the land for a stated period of time, subject to extensions. The land rights generally are freely tradable and may be pledged as security under borrowing agreements. Under Indonesian GAAP, land ownership is not depreciated unless it can be foreseen that the possibility for the holder to obtain extension or renewal of rights is remote. Under U.S. GAAP, the cost of acquired land rights is amortized over the period the holder is expected to retain the land rights. j. Stock Issuance Costs Under Indonesian GAAP, stock issuance costs are deferred and amortized over a certain period of time. The Company amortized deferred stock issuance costs over five years using the straight-line method. Effective 2000, the Capital Market Supervisory Agency (Bapepam) requires that stock issuance costs be recorded as part of additional paid-in capital. Under U.S. GAAP, stock issuance costs are offset against the proceeds from the stock issuance. k. Employee Bonuses In 2000, a subsidiary (Telkomsel) has charged to retained earnings employee bonuses of Rp26,714 million. Under U.S. GAAP, personnel and related costs, including bonuses are charged to income. -F-100- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 57. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND ITS SUBSIDIARIES AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) l. Equipment to be Installed Under Indonesian GAAP, equipment is depreciated beginning when the asset is ready for its intended use. Temporarily idle equipment or equipment that is awaiting installation is not depreciated. Under U.S. GAAP equipment is depreciated when it is ready for its intended use. Equipment that is part of a network is depreciated when the network of the applicable component of the network is ready for its intended use. Temporarily idle equipment continues to be depreciated. When the equipment is expected to be idle for protracted periods, the equipment is written down to its estimated realizable value. If the equipment is held for sale, depreciation ceases. However, if the equipment is held for future use, depreciation continues. m. Revenue Recognition Under Indonesian GAAP, revenue from cellular service connection fees are recognized as income when the connection takes place (for postpaid service) or at the time of delivery of starter packs to distributors, dealers or customers (for prepaid service). Installation fees for wire line services are recognized at the time of installation. Under U.S. GAAP, revenue from front-end fees are deferred and recognized over the longer of the expected term of the customer relationship or the contractual term. Costs incurred related to the installation or connection activities are deferred, but only to the extent of deferred revenues. n. Goodwill Under Indonesian GAAP, goodwill is amortized over the period expected to be benefited by the acquisition. Under U.S. GAAP, goodwill is not amortized but rather subjected to a test for impairment. o. Capital Leases The criteria for a capital lease under Indonesian GAAP differ from U.S. GAAP. Under Indonesian GAAP, a lease is capitalized if the lessee has a fixed price purchase option, the lease provides for a return of the cost of the asset with profit thereon to the lessor, and the lease term exceeds two years. Under U.S. GAAP, a lease is capitalized if there is an automatic transfer if ownership, a bargain purchase option, the lease terms is for 75% of the economic life of the asset or the lease payments are at least 90% of the fair value of the asset on a present value basis. 57. RECONCILIATION OF NET INCOME AND EQUITY DETERMINED UNDER INDONESIAN AND U.S. GAAP A summary of the significant adjustments to net income for the years ended June 30, 2001, 2002 and 2003 and to equity as of June 30, 2002 and 2003 which would be required if U.S. GAAP had been applied, instead of Indonesian GAAP, in the consolidated financial statements are set forth below: -F-101- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 57. RECONCILIATION OF NET INCOME AND EQUITY DETERMINED UNDER INDONESIAN AND U.S. GAAP (continued)
2001 2002 2003 ---------- ---------- ---------- Rp Rp Rp Net income according to the consolidated statements of income prepared under Indonesian GAAP 1,720,508 3,359,218 3,784,267 ---------- ---------- ---------- U.S. GAAP adjustments - increase (decrease) due to: Pension (10,072) (9,785) (95,273) Capitalization of foreign exchange differences, net of related depreciation (27,668) 88,055 35,401 Interest capitalized on property under construction 21,971 13,653 Revenue-sharing arrangements 8,832 20,114 - Revaluation of property, plant and equipment 2,048 2,048 - Equity in net income (loss) of associated companies (7,288) 94 (87) Income tax effect on U.S. GAAP adjustments 11,066 (11,598) 18,665 Deferral of fees Amortization of landrights (178) (938) (1,238) Deferred tax on share in net income of subsidiaries (99,626) (287,221) Early retirement benefits Deferred interconnection revenue (20,959) Employee bonuses Others 9,577 ---------- ---------- ---------- Net adjustments (122,886) (177,260) (40,261) ---------- ---------- ---------- Approximate net income in accordance with U.S. GAAP 1,597,622 3,181,958 3,744,006 ========== ========== ========== Net income per share - in full Rupiah amount 158.49 315.67 371.43 Net income per ADS (20 Series B shares per ADS) - in full Rupiah amount 3,169.89 6,313.41 7,428.58
-F-102- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 57. RECONCILIATION OF NET INCOME AND EQUITY DETERMINED UNDER INDONESIAN AND U.S. GAAP (continued)
2002 2003 ----------- ----------- Rp Rp Equity according to the consolidated balance sheets prepared under Indonesian GAAP 10,439,471 16,319,441 ----------- ----------- U.S. GAAP adjustments - increase (decrease) due to: Pension 110,106 156,785 Capitalization of foreign exchange differences - net of related depreciation (762,819) (707,845) Interest capitalized on property under construction-net 37,275 73,372 Revenue-sharing arrangements (359,129) (379,243) Revaluation of property, plant and equipment: Increment (664,974) (664,974) Accumulated depreciation 663,093 664,974 Equity in net loss of associated companies (17,806) (17,804) Deferred interconnection expense (87,363) Amortization of landrights (2,544) (4,645) Deferred tax on share in net income of subsidiaries (287,221) - Early retirement benefits 714,884 Deferred tax liabilities on U.S. GAAP adjustments 312,726 39,997 Others (7,544) 17,599 ----------- ----------- Net adjustments (978,837) (194,263) ----------- ----------- Approximate equity in accordance with U.S. GAAP 9,460,634 16,125,178 =========== ===========
With regard to the consolidated balance sheets and consolidated statements of income, the following significant captions determined under U.S. GAAP would have been:
2002 2003 ---------- ---------- Rp Rp Consolidated balance sheets Current assets 9,301,014 8,985,191 Noncurrent assets 25,416,124 32,014,975 ---------- ---------- Total assets 34,717,138 41,000,166 Current liabilities 11,763,271 9,074,682 Noncurrent liabilities 12,190,507 11,903,600 ---------- ---------- Total liabilities 23,953,778 20,978,282 Minority interest in net assets of subsidiaries 1,302,726 3,896,706 Consolidated statements of income Operating income 5,070,121 6,338,579
-F-103- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 58. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP AND THE U.S. SEC The following information is presented on the basis of U.S. GAAP: a. Income Tax The reconciliation between the expected income tax provision in accordance with U.S. GAAP and the actual provision for income tax recorded in accordance with U.S. GAAP is as follows:
2001 2002 2003 ---------- ---------- ---------- Rp Rp Approximate income before tax in accordance with U.S. GAAP 2,907,011 5,330,878 6,333,061 ========= ========= ========= Expected income tax in accordance with U.S. GAAP at statutory tax rates 872,086 1,599,246 1,899,901 --------- --------- --------- Effect of permanent differences at the enacted maximum tax rate (30%): Net periodic postretirement benefits cost 27,947 2,821 31,277 Amortization of deferred interest 48,678 Employee benefits 5,066 5,679 16,669 Permanent differences of the KSO Units 4,164 1,327 5,758 Revenue-sharing arrangements (2,826) (386) -- Amortization of landrights 1,394 Interest income which was already subjected to final tax (109,744) (49,828) (48,444) Revaluation of property, plant and equipment *) (614) (614) Portion of subsidiaries' net income (328,271) (658,285) Deferred stock issuance costs *) Employee bonus Others (21,846) 29,479 26,819 --------- --------- --------- Total (97,853) (339,793) (576,134) --------- --------- --------- Deferred tax recognized on equity in net income of subsidiaries 341,300 586,179 439,706 --------- --------- --------- Provision for income tax in accordance with U.S. GAAP 1,115,533 1,845,632 1,763,473 ========= ========= =========
*) The tax effects of the stock issuance costs and revaluation of property, plant and equipment are offset against stockholders' equity for U.S. GAAP purposes. Benefits enjoyed by pensioners fall under the category of benefits in kind which are non-deductible expenses under Indonesian tax laws. -F-104- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 58. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP AND THE U.S. SEC (continued) b. Fair Value of Financial Instruments The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and cash equivalents and temporary investments The carrying amount approximates fair value because of the short-term nature of the instruments. Long-term liabilities - net of current maturities The fair value of two-step loans are estimated on the basis of the discounted value of future cash flows expected to be paid, considering rates of interest at which the Company could borrow as of the respective balance sheet dates. As of June 30, 2002 and 2003, the carrying amount of long-term liabilities each companies are Rp12,645,628 and Rp6,691,684. For purposes of estimating the fair value of two-step loans, the Company has used the average Rupiah borrowing rates of 17.5%, the average U.S. Dollar borrowing rate of 4.7% on June 30, 2003 for the debt in other currencies, respectively. The fair value of suppliers' credit loans, bridging loan and long-term bank loan is estimated on the basis of discounted value of future cash flows expected to be paid is LIBOR 3 - 12 months and JIBOR 12 months on June 30, 2003 for loans in Rupiah and U.S. Dollar currencies respectively. Under the current environment, an estimate of the interest rates as of a point in time, given the significance of the Company's debt and the general unavailability of funds, is difficult. -F-105- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 58. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP AND THE U.S. SEC (continued) b. Fair Value of Financial Instruments (continued) The estimated fair values of the Company and its subsidiaries' financial instruments are as follows:
Carrying Fair Amount Value --------- --------- Rp Rp 2002: Cash and cash equivalents 4,526,668 4,526,668 Temporary investments 612,347 612,347 Long-term liabilities - net of current maturities Two-step loans 7,770,200 6,272,533 Suppliers' credit loans 274,845 243,627 Bridging loan 79,052 66,646 2003: Cash and cash equivalents 3,955,169 3,955,169 Temporary investments 26,540 26,540 Long-term liabilities: Two-step loans 7,834,375 8,917,860 Suppliers' credit loans 459,749 459,749 Bridging loan 75,020 75,020 Bond 1,000,000 1,328,159 Guaranteed notes payable 1,242,750 1,534,778 Bank loan 550,615 320,314 Obligation under capital lease 599 599 Other 9,150 9,150
The methods and assumptions followed to disclose the fair value are inherently judgmental and involve various limitations, including the following: i. Fair values presented do not take into consideration the effect of future currency fluctuations. ii. Estimated fair values are not necessarily indicative of the amounts that the Company and its subsidiary would record upon disposal/termination of the financial instruments. c. Research and Development Research and development expenditures, as determined under U.S. GAAP, amounted to approximately Rp3,469 million, Rp4,435 million and Rp4,034 million of June 30, 2001, 2002 and 2003, respectively. -F-106- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 58. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP AND THE U.S. SEC (continued) d. Valuation and Qualifying Accounts The following summarizes the activities in the valuation and qualifying accounts:
Additions Balance at ------------------------------ Beginning Charged to Cost Unrealized Balance at of Year and Expenses Loss Deductions End of Year --------- --------------- ---------- ---------- ---------- Rp Rp Rp Rp Rp 2002 (as restated - see Note 52): Unrealized loss on decline in market value of marketable securities 207 - - 207 - Allowance for doubtful accounts Trade accounts receivable Related parties 325,930 88,596 - 20 414,546 Third parties 252,855 65,190 - (3,029) 315,016 Allowance for inventory obsolescence 48,997 2,187 - - 51,184 2003: Unrealized loss on decline in market value of marketable securities 207 - - 207 - Allowance for doubtful accounts Trade accounts receivable Related parties 325,930 250,444 - - 576,374 Third parties 252,855 144,956 - (3,029) 394,782 Allowance for inventory obsolescence 48,997 36,750 - 31,952 53,795
e. Risks and Uncertainties The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be different from these estimates. f. Derivative Financial Transactions Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 138, Accounting for Certain Instruments and Certain Hedging Activities, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company and its subsidiaries had no derivative contracts or contracts that require accounting under SFAS 133 and SFAS 138. -F-107- PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued JUNE 30, 2002 AND 2003, AND FOR SIX MONTHS ENDED JUNE 30, 2001, 2002 AND 2003 (Figures in tables are presented in millions of Rupiah, unless otherwise stated) 58. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP AND THE U.S. SEC (continued) g. Comprehensive Income Comprehensive income - net of tax, as determined under U.S. GAAP of June 30, 2001, 2002 and 2003 amounted to Rp1,712,656 million, Rp3,379,898 million and Rp 6,232,457 million, respectively. Adjustments to net income to arrive at comprehensive income include the increase in investments as a result of foreign currency translation of associated companies and unrealized losses on decline in value of securities. h. Recent Accounting Pronouncements i. SFAS No.145, "Revision of FSAB Statements No.4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections" Among other technical corrections, SFAS No.145 eliminates the absolute requirement to classify gains or losses from the early extinguishment of debt as extraordinary. SFAS No.145 will be effective in fiscal 2003 and should have no impact on the Company's U.S. GAAP reconciliation. ii. SFAS No.146 "Accounting for Costs Associated with Exit or Disposal Activities" This statement now requires that a liability be recognized when the liability is incurred. Previously, a liability for exit costs was recognized at the date of an entity's commitment to an exit plan. SFAS No.146, which is effective in fiscal 2003, could have an impact on the U.S. GAAP reconciliation depending upon the level of exit activities. iii. SFAS No. 148, "Shares-based Compensation and Disclosure" SFAS No. 148 provides alternative method of expenses transition to fair value method and required disclosure of stock option. iv. FASB Interpretation No. 46 ("FIN 46"), "Variable Interest Entities Consolidation" FIN 46 provides guidance for entities consolidation without consideration to number of ownership. FIN No. 46 will be valid in year 2003, however since the Company did not own ownership in variable interest entity, therefore this will not affecting U.S. GAAP reconciliation. 59. REPLACEMENT OF FINANCIAL TRANSACTION DATA PROCESSING SYSTEM Effective January 1, 2002, the Company implemented System Application and Product ("SAP"), a software package for each financial transaction data processing system, replacing Computer Associate General Ledger ("CAGL"). The conversion to SAP has not affected the consistency of presentation between years. ******* -F-108- -----END PRIVACY-ENHANCED MESSAGE-----