These Consolidated Financial Statements are Originally Issued in Indonesian Language.
PERUSAHAAN PERSEROAN (PERSERO)
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2000, 2001 And 2002
(Expressed in Rupiah)
Consolidated Financial Statements
With Independent Accountants’ Review Report
Three Months Ended March 31, 2006 and 2007
PT INDOSAT Tbk
AND SUBSIDIARIES
1
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
THREE MONTHS ENDED MARCH 31, 2006 AND 2007
Table of Contents
Page
Independent Accountants’ Review Report
Consolidated Balance Sheets
…………………………………………………………………………...
1 - 4
Consolidated Statements of Income
……………………………………………………………………
5 - 6
Consolidated Statements of Changes in Stockholders’ Equity
………………………………………
7 - 8
Consolidated Statements of Cash Flows
………………………………………………………………
9
Notes to Consolidated Financial Statements
………………………………………………………….
10 - 101
***************************
This report is originally issued in Indonesian language.
Independent Accountants’ Review Report
Report No. RPC-7245
Stockholders and Boards of Commissioners and Directors
PT Indosat Tbk
We have reviewed the consolidated balance sheets of PT Indosat Tbk (“the Company”) and Subsidiaries as of March 31, 2006 and 2007, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the Indonesian Institute of Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Indonesia, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any indications of material modifications that should be made to the consolidated financial statements referred to above in order for them to be in conformity with generally accepted accounting principles in Indonesia.
Purwantono, Sarwoko & Sandjaja
Drs. Hari Purwantono
Public Accountant License No. 98.1.0065
May 11, 2007
The accompanying consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Indonesia. The standards, procedures and practices to review such financial statements are those generally accepted and applied in Indonesia.
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
1
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
ASSETS
CURRENT ASSETS
Cash and cash equivalents
2d,4,30
4,136,132
2,954,612
324,042
Short-term investments - net of
allowance for decline in value
of Rp31,532 in 2006 and
Rp25,395 in 2007
2e
42,530
-
-
Accounts receivable
2f
Trade
16
Related parties
PT Telekomunikasi
Indonesia Tbk (“Telkom”)
- net of allowance for
doubtful accounts of
Rp84,855 in 2006
and Rp83,153 in 2007
5,30
117,991
79,161
8,682
Others - net of allowance
for doubtful accounts of
Rp56,695 in 2006
and Rp57,242 in 2007
30
122,555
116,404
12,766
Third parties - net of allowance
for doubtful accounts of
Rp538,910 in 2006
and Rp464,428 in 2007
6
980,943
992,340
108,833
Others - net of allowance
for doubtful accounts of
Rp32,319 in 2006 and
Rp16,759 in 2007
30g
9,528
11,607
1,273
Inventories
2g
101,653
102,333
11,223
Derivative assets
2r,32
3,568
25,332
2,778
Advances
31,637
30,025
3,293
Prepaid taxes
7,14
876,733
1,014,150
111,225
Prepaid expenses
2h,2q,29,30
247,479
255,751
28,049
Other current assets
2d,30
51,918
47,848
5,248
Total Current Assets
6,722,667
5,629,563
617,412
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
2
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
NON-CURRENT ASSETS
Due from related parties - net of
allowance for doubtful
accounts of Rp1,718 in 2006
and Rp3,483 in 2007
2f,30
31,078
23,998
2,632
Deferred tax assets - net
2t,14
46,867
50,605
5,550
Investments in associated
companies - net of allowance
for decline in value of Rp56,300
in both periods
2i,8
524
286
31
Other long-term investments - net of
allowance for decline in value of
Rp99,977 in both periods
2i,9
2,730
8,509
933
Property and equipment
2j,2k,2p,
10,16,24
Carrying value
36,253,307
43,225,124
4,740,636
Accumulated depreciation
(14,206,565
)
(17,734,406
)
(1,944,988
)
Impairment in value
(98,611
)
(98,611
)
(10,815)
Net
21,948,131
25,392,107
2,784,833
Goodwill and other
intangible assets - net
2c,2l,11
2,918,759
2,554,239
280,131
Long-term receivables
30g
121,965
104,662
11,479
Long-term prepaid pension - net
of current portion
2q,29,30
230,996
220,119
24,141
Long-term advances
12,30
353,483
679,133
74,483
Others
270,064
364,150
39,937
Total Non-current Assets
25,924,597
29,397,808
3,224,150
TOTAL ASSETS
32,647,264
35,027,371
3,841,562
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
3
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
LIABILITIES AND
STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade
Related parties
30
27,080
48,801
5,352
Third parties
181,969
290,510
31,861
Procurement payable
13,30
2,298,806
3,411,528
374,153
Taxes payable
2t,14
88,984
225,525
24,734
Accrued expenses
15,29,30
778,821
975,439
106,980
Unearned income
2o
541,212
581,933
63,822
Deposits from customers
26,525
106,563
11,687
Derivative liabilities
2r,32
159,602
164,446
18,035
Current maturities of:
Loans payable
2m,16
54,200
116,636
12,792
Bonds payable
2m,17
981,936
1,055,526
115,763
Other current liabilities
18,887
27,528
3,019
Total Current Liabilities
5,158,022
7,004,435
768,198
NON-CURRENT LIABILITIES
Due to related parties
30
20,821
17,968
1,971
Deferred tax liabilities - net
2t,14
916,272
1,260,904
138,287
Loans payable - net of current
maturities
2m,16
Related parties
30
631,550
637,086
69,871
Third parties
668,932
868,670
95,270
Bonds payable - net of current
maturities
2m,17
9,750,687
8,792,352
964,285
Other non-current liabilities
18,29,30
533,595
550,378
60,362
Total Non-current Liabilities
12,521,857
12,127,358
1,330,046
TOTAL LIABILITIES
17,679,879
19,131,793
2,098,244
MINORITY INTEREST
2b
184,935
209,158
22,939
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
4
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
STOCKHOLDERS’ EQUITY
Capital stock - Rp100 par value
per A share and B share
Authorized - 1 A share and
19,999,999,999 B shares
Issued and fully paid - 1 A share
and 5,378,666,499 B shares
in 2006, and 1 A share and
5,433,933,499 B shares in 2007
19
537,867
543,393
59,595
Premium on capital stock
19
1,284,809
1,546,587
169,619
Difference in transactions of equity
changes in associated
companies/subsidiaries
2i
403,812
403,812
44,287
Stock options
2n,20
65,257
-
-
Difference in foreign currency
translation
2b
142
973
107
Retained earnings
Appropriated
49,922
66,157
7,256
Unappropriated
12,440,641
13,125,498
1,439,515
TOTAL STOCKHOLDERS’ EQUITY
14,782,450
15,686,420
1,720,379
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
32,647,264
35,027,371
3,841,562
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
5
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
OPERATING REVENUES
2o,30
Cellular
21,34,35,36
2,171,917
2,898,980
317,940
Multimedia, Data Communication,
Internet (‘’MIDI’’)
22
455,672
493,523
54,126
Fixed Telecommunication
23,34,35
272,005
382,260
41,924
Total Operating Revenues
2,899,594
3,774,763
413,990
OPERATING EXPENSES
2o
Depreciation and amortization
2j,10,11
836,453
976,952
107,145
Compensation to telecommunications
carriers and service providers
26,30,35
85,603
405,224
44,442
Personnel
2n,2p,2q,
24,29,30
286,902
355,808
39,023
Maintenance
2j
128,848
187,024
20,512
Administration and general
25,30
154,246
171,721
18,833
Marketing
80,365
141,407
15,508
Leased circuits
30
40,216
52,693
5,779
Other costs of services
27,30
438,524
442,167
48,494
Total Operating Expenses
2,051,157
2,732,996
299,736
OPERATING INCOME
848,437
1,041,767
114,254
OTHER INCOME (EXPENSES) 2o
Gain (loss) on change in fair value of
derivatives - net
2r,32
(222,441
)
68,628
7,527
Interest income
30
66,835
35,216
3,862
Financing cost
2m,16,17,
28,30
(328,373
)
(303,479
)
(33,284
)
Amortization of goodwill
2l,11
(56,627
)
(56,627
)
(6,210)
Gain (loss) on foreign exchange - net
2s,5,6
264,467
(48,550
)
(5,325)
Others - net
(14,715
)
(24,569
)
(2,694
)
Other Expenses - Net
(290,854
)
(329,381
)
(36,124)
INCOME BEFORE INCOME TAX
557,583
712,386
78,130
INCOME TAX EXPENSE
2t,14
Current
116,442
207,939
22,805
Deferred
47,966
12,025
1,319
Income Tax Expense
164,408
219,964
24,124
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
6
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (continued)
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
INCOME BEFORE MINORITY
INTEREST IN NET INCOME
OF SUBSIDIARIES
393,175
492,422
54,006
MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES
(9,246
)
(8,538
)
(937
)
NET INCOME
383,929
483,884
53,069
BASIC EARNINGS PER SHARE 2v,19,31
71.46
89.05
0.01
DILUTED EARNINGS PER SHARE 2v,19,20,31
70.67
88.63
0.01
BASIC EARNINGS PER ADS
(50 B shares per ADS) 2v,19,31
3,572.97
4,452.43
0.49
DILUTED EARNINGS PER ADS 2v,19,20,31
3,533.51
4,431.67
0.49
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
7
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah)
Three Months Ended March 31, 2006
Difference in
Transactions
Difference
Capital Stock -
of Equity Changes
in Foreign
Retained Earnings
Issued and
Premium on
in Associated
Stock
Currency
Description
Notes
Fully Paid
Capital Stock
Companies/Subsidiaries
Options
Translation
Appropriated
Unappropriated
Total
Balance as of January 1, 2006
535,617
1,178,274
403,812
90,763
228
49,922
12,056,712
14,315,328
Issuance of capital stock resulting from the exercise of Employee Stock Option
Program (“ESOP”) Phase II
19,20
2,250
106,535
-
(25,506
)
-
-
-
83,279
Decrease in difference in foreign currency translation arising from the translation
of the financial statements of Indosat Finance Company B.V. and
Indosat International Finance Company B.V. from euro to rupiah - net of
applicable income tax benefit of Rp32 and Rp4, respectively
2b
-
-
-
-
(86
)
-
-
(86
)
Net income for the period
-
-
-
-
-
-
383,929
383,929
Balance as of March 31, 2006
537,867
1,284,809
403,812
65,257
142
49,922
12,440,641
14,782,450
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
8
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah)
Three Months Ended March 31, 2007
Difference in
Transactions
Difference
Capital Stock -
of Equity Changes
in Foreign
Retained Earnings
Issued and
Premium on
in Associated
Currency
Description
Notes
Fully Paid
Capital Stock
Companies/Subsidiaries
Translation
Appropriated
Unappropriated
Total
Balance as of January 1, 2007
543,393
1,546,587
403,812
182
66,157
12,641,614
15,201,745
Increase in difference in foreign currency translation arising from the translation
of the financial statements of Indosat Finance Company B.V. and Indosat
International Finance Company B.V. from euro, and Indosat
Singapore Pte. Ltd. from U.S. dollar to rupiah - net of applicable income
tax expense of Rp166, Rp164 and Rp9, respectively
2b
-
-
-
791
-
-
791
Net income for the period
-
-
-
-
-
483,884
483,884
Balance as of March 31, 2007
543,393
1,546,587
403,812
973
66,157
13,125,498
15,686,420
PT INDOSAT Tbk AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar)
2007
Notes
2006
2007
(Note 3)
Rp
Rp
US$
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from:
Customers
2,870,069
3,842,144
421,380
Interest income
67,601
35,032
3,842
Interest rate swap contract
32n
1,275
-
-
Cash paid for:
Employees, suppliers and others
(1,434,968
)
(1,517,132
)
(166,389
)
Taxes
(169,888
)
(156,990
)
(17,217
)
Financing cost
(232,550
)
(191,542
)
(21,007
)
Net Cash Provided by Operating Activities
1,101,539
2,011,512
220,609
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment
10
148
67
7
Acquisitions of property and equipment
10
(1,437,387
)
(1,847,292
)
(202,598
)
Proceeds from sale of short-term investment
346
-
-
Acquisition of intangible assets
11
(320,000
)
-
-
Purchase of short-term investment
(1,426
)
-
-
Net Cash Used in Investing Activities
(1,758,319
)
(1,847,225
)
(202,591
)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term loans
(11,300
)
(15,800
)
(1,733)
Increase in restricted cash and cash equivalents
(1,297
)
(1,135
)
(124)
Proceeds from exercise of ESOP Phase II
83,279
-
-
Proceeds from long-term loans
4,961
-
-
Net Cash Provided by (Used in) Financing Activities
75,643
(16,935
)
(1,857
)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
(581,137
)
147,352
16,161
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
4,717,269
2,807,260
307,881
CASH AND CASH EQUIVALENTS AT END
OF PERIOD
4
4,136,132
2,954,612
324,042
DETAILS OF CASH AND CASH EQUIVALENTS:
Cash on hand and in banks
163,728
225,066
24,684
Time deposits with original maturities
of three months or less
3,972,404
2,729,546
299,358
Cash and cash equivalents as stated
in the consolidated balance sheets
4,136,132
2,954,612
324,042
SUPPLEMENTAL CASH FLOWS INFORMATION:
Transaction not affecting cash flows:
Excess of fair value of stock options
under ESOP over the exercise
price charged to stock options
19,20
25,506
-
-
See Independent Accountants’ Review Report on review of consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
9
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL
a.
Company’s Establishment
PT Indosat Tbk (“the Company”) was established in the Republic of Indonesia on November 10, 1967 within the framework of the Indonesian Foreign Investment Law No. 1 of 1967 based on the notarial deed No. 55 of Mohamad Said Tadjoedin, S.H. The deed of establishment was published in Supplement No. 24 of State Gazette No. 26 dated March 29, 1968 of the Republic of Indonesia. In 1980, the Company was sold to the Government of the Republic of Indonesia and became a State-owned Company (Persero).
On February 7, 2003, the Company received the approval from the Capital Investment Coordinating Board (BKPM) in its letter No. 14/V/PMA/2003 for the change of its legal status from a State-owned Company (Persero) into a Foreign Capital Investment Company. Subsequently, on March 21, 2003, the Company received the approval from the Ministry of Justice and Human Rights of the Republic of Indonesia on the amendment of its Articles of Association to reflect
the change of its legal status.
The Company’s Articles of Association has been amended from time to time. The latest amendment was covered by notarial deed No. 38 dated November 9, 2006 of Aulia
Taufani, S.H. (as a substitute notary of Sutjipto, S.H.) concerning the change in the number of the Company’s issued and fully paid capital stock. The latest amendment of the Company’s Articles of Association has been reported to and accepted by the Ministry of Law and Human Rights of the Republic of Indonesia based on its letter No. W7.HT.01.04.4134 dated November 28, 2006.
According to article 3 of its Articles of Association, the Company shall engage in providing telecommunications networks and/or services as well as informatics business by conducting
the following activities:
·
Provision of telecommunications networks and/or services and informatics business
·
Planning of services, construction of infrastructure and provision of telecommunications and informatics business facilities, including supporting resources
·
Carrying out operational services (comprising the marketing and sale of telecommunications networks and/or services and informatics business provided by the Company), maintenance, research and development of telecommunications and informatics business infrastructure and/or facilities, and providing education and training (both locally and overseas)
·
Engaging in services which are relevant to the development of telecommunications networks and/or services and informatics business.
The Company started its commercial operations in 1969.
Based on Law No. 3 of 1989 on telecommunications and pursuant to Government Regulation No. 77 of 1991, the Company had been re-confirmed as an Operating Body (“Badan Penyelenggara”) that provided international telecommunications service under the authority of the Government.
In 1999, the Government issued Law No. 36 on telecommunications (“Telecommunications Law”) which took effect on September 8, 2000. Under the Telecommunications Law, telecommunications activities cover:
·
Telecommunications networks
·
Telecommunications services
·
Special telecommunications services.
10
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL (continued)
a.
Company’s Establishment (continued)
National state-owned companies, regional state-owned companies, privately owned companies and cooperatives are allowed to provide telecommunications networks and services. Individuals, government institutions and legal entities, other than telecommunications networks and service providers, are allowed to render special telecommunications services.
The Telecommunications Law prohibits activities that result in monopolistic practices and unhealthy competition, and expects to pave the way for market liberalization.
Based on the Telecommunications Law, the Company ceased as an Operating Body and has to obtain licenses from the government for the Company to engage in the provision of specific telecommunication networks and services.
On August 14, 2000, the Government of the Republic of Indonesia, through the Ministry of Communications, granted the Company an in-principle license as a nationwide Digital Communication System (“DCS”) 1800 telecommunications provider as compensation for the early termination effective August 1, 2003 of the exclusivity rights on international telecommunications services given to the Company prior to the granting of such license. On August 23, 2001, the Company obtained the operating license from the Ministry of Communications. Subsequently, based on Decree No. KP.247 dated November 6, 2001 issued by the Ministry of Communications, the operating license was transferred to the Company’s subsidiary, PT Indosat Multi Media Mobile (see “e” below).
On September 7, 2000, the Government of the Republic of Indonesia, through the Ministry of Communications, also granted the Company in-principle licenses for local and domestic long-distance telecommunications services as compensation for the termination of its exclusivity rights on international telecommunications services. On the other hand, Telkom was granted an in-principle license for international telecommunications services as compensation for the early termination of Telkom’s rights on local and domestic long-distance telecommunications services.
Based on a letter dated August 1, 2002 from the Ministry of Communications, the Company was granted an operating license for fixed local telecommunication network covering Jakarta and Surabaya. This operating license was converted to become a national license on April 17, 2003 based on Decree No. KP.130 Year 2003 of the Ministry of Communications. The values of
the above licenses granted to Telkom and the Company on the termination of their exclusive rights on local/domestic and international telecommunications services, respectively, have been determined by an independent appraiser.
Based on Announcement No. PM.2 Year 2004 dated March 30, 2004 of the Ministry of Communications regarding the Commencement of Restructuring of the Telecommunications Sector, the Company should pay to the Government the amount of Rp178,000 after tax as a result of the early termination of its exclusivity rights. In turn, the payment of any liability of the Company as a result of the early termination will be settled by the Government which is coordinated by the Ministry of State-owned Enterprises. This is in line with Article IX of a Shares Purchase Agreement dated December 15, 2002 between the Government of the Republic of Indonesia and Indonesia Communications Limited (“ICL”) (Note 19), whereby the Government agreed to undertake and covenant with ICL that it shall pay on behalf of the Company any liability, amount or claim required to be paid or suffered by the Company in relation to the surrender of above exclusivity r ights.
11
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL (continued)
a.
Company’s Establishment (continued)
On June 28, 2001, the Government of the Republic of Indonesia, through the Directorate General of Posts and Telecommunications, granted the Company an in-principle license for Voice over Internet Protocol (“VoIP”) service. On April 26, 2002, the Company was granted an operating license for VoIP with national coverage. The Company’s operating license for VoIP will be evaluated every 5 years from the date of issuance.
On March 15, 2004, the Government of the Republic of Indonesia, through the Ministry of Communications, granted the Company an operating license for nationwide closed fixed communications network (e.g. VSAT, frame relay, etc.) and GSM cellular mobile network (including its basic telephony services). Subsequently, on May 21, 2004, the Government, through the Ministry of Communications, also granted the Company an operating license for fixed network and basic telephony services which covers the provision of local, national long-distance, and international long-distance telephony services. The licenses granted are subject to certain minimum development and operating performance requirements. These aforementioned licenses replaced the various licenses and rights previously granted to the Company by the Government.
On October 18, 2004, the Government of the Republic of Indonesia, through the Ministry of Communications, granted the Company an in-principle license for third generation (3G) mobile communications technology.
Based on Decree No. 19/KEP/M.KOMINFO/02/2006 dated February 14, 2006 of the Ministry of Communications and Information Technology, the Company has been determined as one of the winners in the selection of IMT-2000 cellular network providers using 2.1 GHz radio frequency spectrum (known as “3G”) for 1 block (2 x 5 MHz) of frequency. As a winner, the Company was obliged, among others, to pay the upfront fee of Rp320,000 (Note 11) and radio frequency fee.
Based on Decree No. 102/KEP/M.KOMINFO/10/2006 dated October 11, 2006, the Government of the Republic of Indonesia, through the Ministry of Communications and Information Technology, amended the previous ministerial decree dated March 15, 2004 on the Company’s license on GSM cellular mobile network in order to include the rights and obligations of 3G services.
Based on Decree No. 181/KEP/M.KOMINFO/12/2006 dated December 12, 2006 of the Ministry of Communications and Information Technology regarding 800 MHz Frequency Channels Allocation for Local Fixed Wireless Network Services with Limited Mobility and Mobile Cellular Network, the Company has been granted two nationwide frequency channels, i.e channels 589 and 630 in the 800 MHz spectrum for Local Fixed Wireless Network Services with Limited Mobility.
The Company is domiciled at Jalan Medan Merdeka Barat No. 21, Jakarta and has 8 regional offices located in Jakarta, Bandung, Semarang, Surabaya, Medan, Palembang, Balikpapan and Makassar.
b.
Company’s Public Offerings
All of the Company’s B shares have been registered with and traded on the Jakarta Stock Exchange and Surabaya Stock Exchange since 1994. The Company’s American Depositary Shares (ADS, each representing 50 B shares) have also been traded on the New York Stock Exchange since 1994.
12
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL (continued)
c.
Employees, Directors, Commissioners and Audit Committee
Based on a resolution at each of the (i) Annual Stockholders’ General Meeting held on June 8, 2005 which is notarized under Deed No. 40 of Aulia Taufani, S.H. (as a substitute notary of Sutjipto, S.H.) on the same date and (ii) Annual Stockholders’ General Meeting held on June 29, 2006 which is notarized under Deed No. 175 of Aulia Taufani, S.H. (as a substitute notary of Sutjipto, S.H.) on the same date, the composition of the Company’s Board of Commissioners as of March 31, 2006 and 2007 is as follows:
President Commissioner
Peter Seah Lim Huat
Commissioner
Lee Theng Kiat
Commissioner
Sio Tat Hiang
Commissioner
Sum Soon Lim
Commissioner
Roes Aryawijaya
Commissioner
Setyanto P. Santosa
Commissioner
Lim Ah Doo *
Commissioner
Farida Eva Riyanti Hutapea *
Commissioner
Soeprapto S. IP *
* Independent commissioner
Based on (i) the minutes of the Company’s Board of Commissioners’ Meeting held on March 3, 2006, (ii) a resolution at the Annual Stockholders’ General Meeting held on June 29, 2006 which is notarized under Deed No. 175 of Aulia Taufani, S.H. (as a substitute notary of
Sutjipto, S.H.) on June 29, 2006 and (iii) the minutes of the Company’s Board of Commissioners’ Meeting held on November 15, 2006, the composition of the Company’s Board of Directors as of
March 31, 2006 and 2007, respectively, is as follows:
2006
2007
President Director
Hasnul Suhaimi
-* and **
Deputy President Director
Kaizad Bomi Heerjee
Kaizad Bomi Heerjee
Finance Director
Wong Heang Tuck
Wong Heang Tuck
Corporate Services Director
S. Wimbo S. Hardjito
S. Wimbo S. Hardjito
Information Technology
Director
Joseph Chan Lam Seng
-
Jabotabek and Corporate
Sales Director
Johnny Swandi Sjam
Johnny Swandi Sjam
Regional Sales Director
Wityasmoro Sih Handayanto
Wityasmoro Sih Handayanto
Marketing Director
Wahyu Wijayadi
Wahyu Wijayadi
Network Director
Raymond Tan Kim Meng
-
Network Director, also
acting as Information
Technology Director
-
Raymond Tan Kim Meng
Director
-
Joseph Chan Lam Seng
*
In the absence of a President Director, the tasks of the President Director have been carried out by the Deputy President Director.
** On June 16, 2006, the Board of Commissioners approved the resignation of Hasnul Suhaimi effective on June 8, 2006.
13
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL (continued)
c.
Employees, Directors, Commissioners and Audit Committee (continued)
The composition of the Company’s Audit Committee as of March 31, 2006 and 2007 is as follow:
Chairman
Lim Ah Doo
Member
Farida Eva Riyanti Hutapea
Member
Soeprapto S. IP
Member
Achmad Rivai
Member
Achmad Fuad Lubis
The Company and its subsidiaries (collectively referred to hereafter as “the Companies”) have approximately 8,052 and 7,574 employees, including non-permanent employees, as of
March 31, 2006 and 2007, respectively.
d.
Structure of the Company’s Subsidiaries
The Company has direct and indirect equity ownership in the following subsidiaries:
Start of
Percentage of Ownership (%)
Commercial
Name of Subsidiary
Location
Principal Activity
Operations
2006
2007
Indosat Finance Company B.V.
Amsterdam
Finance
2003
100.00
100.00
Indosat International Finance
Company B.V.
Ámsterdam
Finance
2005
100.00
100.00
Indosat Singapore Pte. Ltd.
Singapore
Telecommunication
2005
100.00
100.00
PT Indosat Mega Media
Jakarta
Multimedia
2001
99.85
99.85
PT Satelindo Multi Media
Jakarta
Multimedia
1999
99.60
99.60
PT Aplikanusa Lintasarta
Jakarta
Data Communication
1989
72.36
72.36
PT Artajasa Pembayaran Elektronis
Jakarta
Telecommunication
2000
39.80
39.80
Satelindo International Finance B.V.
Amsterdam
Finance
1996
100.00
-*
Total Assets
(Before Eliminations)
Name of Subsidiary
2006
2007
Indosat Finance Company B.V.
2,808,304
2,846,286
Indosat International Finance Company B.V.
2,313,593
2,349,069
Indosat Singapore Pte. Ltd.
-
8,164
PT Indosat Mega Media
556,837
633,827
PT Satelindo Multi Media
10,690
10,690
PT Aplikanusa Lintasarta
921,307
1,005,358
PT Artajasa Pembayaran Elektronis
81,072
94,413
Satelindo International Finance B.V.
8,526
-*
* Liquidated on January 17, 2007
Indosat Finance Company B.V. (“IFB”)
IFB was incorporated in Amsterdam (the Netherlands) on October 13, 2003. IFB is a company which is involved in the activities of a financing business; borrowing/lending/raising funds, including the issue of bonds, promissory notes or other securities or evidence of indebtedness; granting guarantees; and trading in currencies, securities and items of property in general. In October 2003, IFB issued guaranteed notes which are due in 2010 (Note 17).
14
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL (continued)
d.
Structure of the Company’s Subsidiaries (continued)
Based on an IFB shareholder’s resolution dated February 20, 2006, the Company made additional capital injection of EUR2,000,000 (in full amount, equivalent to Rp23,352) to IFB on August 31, 2006.
Indosat International Finance Company B.V. (“IIFB”)
IIFB was incorporated in Amsterdam (the Netherlands) on April 27, 2005. IIFB is a company which is involved in the activities of a financing business; borrowing/lending/raising funds, including the issue of bonds, promissory notes or other securities or evidence of indebtedness; granting guarantees; and trading in currencies, securities and items of property in general. In June 2005, IIFB issued guaranteed notes which are due in 2012 (Note 17).
Based on an IIFB shareholder’s resolution dated February 20, 2006, the Company made additional capital injection of EUR2,000,000 (in full amount, equivalent to Rp23,352) to IIFB on August 31, 2006.
Indosat Singapore Pte. Ltd. (“ISP”)
ISP was incorporated in Singapore on December 21, 2005 to engage in telecommunication services.
Based on an ISP shareholder’s resolution dated April 20, 2006, the Company agreed to make capital injection in ISP totaling US$650 (equivalent to SGD1,075,750, in full amount). The Company transferred in full such amount to ISP’s bank account on April 26, 2006.
PT Indosat Mega Media (“IMM”)
IMM is engaged in providing multimedia services and creating multimedia products and programs.
PT Satelindo Multi Media (“SMM”)
SMM was established in 1999 to engage in various activities including telecommunications services. SMM has a preliminary license to operate as a multimedia service provider and
a license to operate as an internet service provider.
Based on a circular resolution of SMM’s shareholders, SMM will be subject to liquidation effective May 5, 2006. As of March 31, 2007, such liquidation has not yet been finalized.
PT Aplikanusa Lintasarta (“Lintasarta”)
Lintasarta is engaged in system data communications services, network applications services which include providing physical infrastructure and software application, and consultation services in data communications and information system for banking and other industries. The Company’s initial investment in Lintasarta was made in 1988.
On May 16, 2001, the Company acquired Telkom’s 37.21% equity interest in Lintasarta and increased the Company’s total equity interest in Lintasarta from 32.25% to 69.46%.
15
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
1.
GENERAL (continued)
d.
Structure of the Company’s Subsidiaries (continued)
PT Aplikanusa Lintasarta (“Lintasarta”) (continued)
On December 21, 2005, the Company entered into a Sale and Purchase Agreement, whereby the Company agreed to purchase 2.90% equity interest in Lintasarta from Dana Pensiun Bank Negara Indonesia (“DPBNI”) for Rp17,480. Such purchase of equity interest, which resulted in the recognition of goodwill, increased the Company’s ownership in Lintasarta from 69.46% to 72.36%.
PT Artajasa Pembayaran Elektronis (“APE”)
APE is engaged in telecommunication and information services.
On January 2, 2002, Lintasarta entered into several transfer agreements with APE whereby Lintasarta agreed to transfer certain property and equipment, rights of use of data communication equipment and application services, with a total value of Rp30,286 in exchange for APE’s shares of stock that increased Lintasarta’s equity interest in APE from 40% to 65%.
On June 21, 2005, Lintasarta sold a portion of its ownership in APE to Yayasan Kesejahteraan Karyawan Bank Indonesia (“YKKBI”) for Rp7,250, resulting in the decrease of Lintasarta’s equity interest in APE from 65% to 55%.
Satelindo International Finance B.V. (“SIB”)
SIB was incorporated in Amsterdam (the Netherlands) in 1996. SIB is a financing company that only facilitates borrowings of PT Satelit Palapa Indonesia (“Satelindo” - see Note 1e) from third parties and is not involved in any other activity. In May 2000, SIB issued Guaranteed Floating Rate Bonds. In October 2003, Satelindo repaid its borrowings from SIB by using the proceeds from the Company’s capital contributions.
In the SIB shareholder’s meeting conducted on March 28, 2006, the shareholder agreed to start SIB’s voluntary liquidation process on April 1, 2006.
Based on an online extract from the Dutch Chamber of Commerce, the registration of SIB ended on January 17, 2007. Consequently, the liquidation process of SIB has been officially recognized since that date.
e.
Merger of the Company, Satelindo, Bimagraha and IM3
Based on Merger Deed No. 57 dated November 20, 2003 (“merger date”) of Poerbaningsih Adi Warsito, S.H., the Company, Satelindo, PT Bimagraha Telekomindo (“Bimagraha”) and PT Indosat Multi Media Mobile (“IM3”) agreed to merge, with the Company as the surviving entity. All assets and liabilities owned by Satelindo, Bimagraha and IM3 were transferred to the Company on the merger date. These three companies were dissolved by operation of law without the need to undergo the regular liquidation process.
The names “Satelindo” and “IM3” in the following notes refer to these entities before they were merged with the Company, or as the entities that entered into contractual agreements that were taken over by the Company as a result of the merger.
16
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies adopted by the Company and its subsidiaries (collectively referred to as the “Companies”) conform with generally accepted accounting principles in Indonesia. The significant accounting principles applied consistently in the preparation of the consolidated financial statements for the three months ended March 31, 2006 and 2007 are as follows:
a.
Basis of Consolidated Financial Statements
The consolidated financial statements are presented using the historical cost basis of accounting, except for swap contracts which are stated at fair value and certain investments which are stated at fair value or net assets value.
The consolidated statements of cash flows classify cash receipts and payments into operating, investing and financing activities. The cash flows from operating activities are presented using
the direct method.
The reporting currency used in the consolidated financial statements is the Indonesian rupiah.
b.
Principles of Consolidation
The consolidated financial statements include the Company’s accounts and those of its subsidiaries as follows:
Equity Interest (%)
2006
2007
IFB
100.00
100.00
IIFB
100.00
100.00
ISP
100.00
100.00
IMM
99.85
99.85
SMM
99.60
99.60
Lintasarta
72.36
72.36
SIB
100.00
-*
* Liquidated on January 17, 2007
The consolidated financial statements also include the accounts of APE (Lintasarta’s 55%-owned subsidiary). The accounts of APE in 2006 and 2007 were consolidated because its financial and operating policies were controlled by Lintasarta.
The accounts of IFB, IIFB, ISP and SIB were translated into rupiah amounts at the middle rate of exchange prevailing at balance sheet date for balance sheet accounts and the average rate during the period for profit and loss accounts. The resulting differences arising from the translations of the financial statements of IFB, IIFB, ISP and SIB are presented as part of “Difference in Foreign Currency Translation” under the Stockholders’ Equity section of the consolidated balance sheets.
Minority interest in subsidiaries represents the minority stockholders’ proportionate share in
the equity of the subsidiaries which are not wholly owned. All significant inter-company transactions and balances are eliminated in consolidation.
17
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c.
Accounting for Acquired Businesses
For an acquisition accounted for under the pooling-of-interests method, the historical carrying amount of the net equity of the entity acquired is combined with that of the acquirer, as if they were a single entity for all periods presented, in accordance with Statement of Financial Accounting Standards (“SAK”) 38 (Revised 2004), “Accounting for Restructuring Transactions of Entities under Common Control”. The difference between the net consideration paid or received and book value, net of applicable income tax, is shown under Stockholders’ Equity as “Difference in Value from Restructuring Transactions of Entities under Common Control”. The balance of “Difference in Value from Restructuring Transactions of Entities under Common Control” can be realized to gain or loss from the time the common control no longer exists between the entities that entered into the transactions.
For acquisitions accounted for under the purchase method, the excess of the acquisition cost over the fair values of the identifiable net assets acquired at the date of acquisition is recognized as goodwill.
d.
Cash and Cash Equivalents
Time deposits with original maturities of three months or less at the time of placement are considered as “Cash Equivalents”.
Cash and cash equivalents which are pledged as collateral for long-term debts, letter of credit facilities and bank guarantees are not classified as part of “Cash and Cash Equivalents”. These are presented as part of either “Other Current Assets” or “Non-current Assets - Others”.
e.
Short-term Investments
Short-term investments consist of:
·
Investment in debt securities
Investment in debt securities which are classified as available-for-sale is recorded at fair value in accordance with SAK 50, “Accounting for Investments in Certain Securities”. Unrealized gain (loss), if any, at balance sheet date is credited (charged) to “Unrealized Holding Gain (Loss) on Marketable Securities”, which is a component of Stockholders’ Equity, and will be recognized as income or loss upon realization.
Investment in debt securities which are classified as trading is recorded at fair value. Any unrealized gain (loss) at balance sheet date is credited (charged) to current operations.
·
Mutual funds
Mutual funds which are classified as trading security under SAK 50 are stated at their net assets value at balance sheet date. Unrealized gains or losses from the changes in net assets value at balance sheet date are credited or charged to current operations.
·
Time deposits with original maturities of more than three months at the time of placement
The time deposits are recorded at historical value.
18
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f.
Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on management's evaluation of
the collectibility of the accounts at the end of the period.
g.
Inventories
Inventories, which mainly consist of starter packs and pulse reload vouchers, are valued at
the lower of cost or net realizable value. Cost is determined using the moving-average method.
h.
Prepaid Expenses
Prepaid expenses, mainly frequency fee, salaries, rental and insurance, are expensed as the related asset is utilized. The non-current portion of prepaid expenses is shown as part of “Non-current Assets - Others”.
i.
Investments
Investments consist of:
·
Investments in associated companies
Investments in shares of stock wherein the Companies have an equity interest of at least 20% but not exceeding 50% are accounted for under the equity method, whereby the investment cost is increased or decreased by the Companies’ share of the net earnings or losses of
the investees since the date of acquisition and decreased by dividends received. Equity in net earnings (losses) is being adjusted for the straight-line amortization over fifteen years of
the difference between the cost of such investment and the Companies’ proportionate share in the underlying fair value of the net assets at date of acquisition (goodwill).
If the Companies’ share in the equity of an investee, subsequent to transactions resulting in
a change in the equity of the investee, is different from the Companies’ share in the equity of the investee prior to such transactions, the difference is recognized by a credit or charge to “Difference in Transactions of Equity Changes in Associated Companies/Subsidiaries”, net of applicable income tax, after adjusting their equity in the investee to conform with their accounting policies.
·
Investments in shares of stock that do not have readily determinable fair value in which
the equity interest is less than 20%, and other long-term investments are carried at cost.
·
Investments in equity shares that have readily determinable fair value which are classified as available-for-sale are recorded at fair value, in accordance with SAK 50.
·
Investments in bonds which are classified as held-to-maturity securities are recorded at cost, adjusted for amortization of premium or accretion of discount to maturity.
19
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
j.
Property and Equipment
Property and equipment are stated at cost (which includes capitalization of certain borrowing cost incurred during the construction phase), less accumulated depreciation and impairment in value. Depreciation of property and equipment is computed using the straight-line method based on the estimated useful lives of the assets.
Based on its review and assessment, starting January 1, 2005, the Company changed the estimated useful lives of certain property and equipment. The change in the estimated useful lives was made to reflect the effect of the integration of telecommunications network by location within the country and also in consideration of the effect of technological advancement and upgrades done by the Company. Below are the estimated useful lives starting January 1, 2005:
Years
Buildings
15 to 20
Submarine cables
12
Earth stations
10
Inland link
15
Switching equipment
10
Telecommunications peripherals
5
Information technology equipment
3 to 5
Office equipment
5
Building and leasehold improvements
5
Vehicles
5
Cellular technical equipment
10 to 15
Satellite technical equipment
12
Transmission and cross-connection equipment
12
Fixed Wireless Access (“FWA”) technical equipment
10
Landrights are stated at cost.
The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterment which enhance the asset condition over its initial performance, are capitalized. When properties are retired or otherwise disposed of, their costs and the related accumulated depreciation are removed from the accounts, and any resulting gains or losses are recognized in the consolidated statement of income for the period.
Properties under construction and installation are stated at cost and consist mainly of cellular technical equipment, building and leasehold improvements, submarine cables, inland link, transmission and cross-connection equipment, FWA technical equipment, telecommunications peripherals, building, information technology equipment, office equipment, and satellite technical equipment.
All borrowing costs, which include interest and foreign exchange differentials that can be attributed to qualifying assets, are capitalized to the cost of properties under construction and installation. Capitalization of borrowing costs ceases when the construction or installation is completed and the constructed or installed asset is ready for its intended use.
20
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
k.
Impairment of Assets Value
In accordance with SAK 48, “Impairment of Assets Value”, the Companies review whether there is an indication of assets impairment at balance sheet date. If there is an indication of assets impairment, the Companies estimate the recoverable amount of the assets. Impairment loss is recognized as a charge to current operations.
l.
Goodwill and Other Intangible Assets
At the time the Company acquires a subsidiary which is not an entity under common control, any excess of the acquisition cost over the Company’s interest in the fair value of the subsidiary’s identifiable assets, net of liabilities, as of acquisition date is recognized as goodwill. Goodwill is amortized using the straight-line method over 15 years.
At the time of acquisition of a subsidiary, any intangible assets recognized are amortized using the straight-line method based on the estimated useful lives of the assets as follows:
Years
Customer base
- Prepaid
6
- Post-paid
5
Spectrum license
5
Brand
8
Upfront fee in connection with the license to use 2.1 GHz radio frequency bandwidth (Note 1a) is amortized using the straight-line method over the license period.
The Companies review the carrying amount of goodwill and other intangible assets whenever events or circumstances indicate that their value is impaired. Impairment loss is recognized as a charge to current operations.
m.
Bonds/Debt Issuance Cost
Expenses incurred in connection with the issuance of bonds/debt are deducted from the proceeds thereof. The difference between the net proceeds and the nominal value of the bonds/debt is recognized as premium or discount that should be amortized over the term of the bonds/debt.
n.
Stock-based Compensation
In accordance with SAK 53, “Accounting for Stock-based Compensation”, compensation expenses are accrued during the vesting period based on the fair values of all stock options as of the grant date.
21
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
o.
Revenue and Expense Recognition
Cellular
Cellular revenues arising from airtime and roaming calls are recognized based on the duration of successful calls made through the Company’s cellular network.
For post-paid subscribers, monthly service fees are recognized as the service is provided.
For prepaid subscribers, the activation component of starter package sales is recognized upon delivery to dealers or direct sale to end-customers. Sales of initial/reload vouchers are recorded as unearned revenue and recognized as revenue upon usage of the airtime or upon expiration of the airtime.
Cellular revenues are presented on a net basis, after compensation to value added service providers.
MIDI
Frame Net, World Link and Direct Link
Revenues arising from installation service are recognized upon the completion of the installation of equipment used for network connection purposes in the customers’ premises. Revenues from monthly service fees are recognized as the services are provided.
Internet
Revenues arising from installation service are recognized at the time the installations are placed in service. Revenues from monthly service fees are recognized as the services are provided. Revenues from usage charges are recognized monthly based on the duration of internet usage or based on the fixed amount of charges depending on the arrangement with the customers.
Satellite Lease
Revenues are recognized on the straight-line basis over the lease term.
Revenues from other MIDI services are recognized when the services are rendered.
Fixed Telecommunication
International Calls
Revenues from outgoing international call traffic are recognized on the basis of the actual recorded traffic for the period and are reported on a net basis, after allocations to overseas international carriers.
22
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
o.
Revenue and Expense Recognition (continued)
Fixed Telecommunication (continued)
Fixed Wireless
Fixed wireless revenues arising from usage charges are recognized based on the duration of successful calls made through the Company’s fixed network.
For post-paid subscribers, activation fees are recognized upon activation of new subscribers in the Company’s fixed network while monthly service fees are recognized as the service is provided.
For prepaid customers, the activation component of starter package sales is recognized upon delivery to dealers or direct sale to end-customers. Sale of initial/reload vouchers is recorded as unearned revenue and recognized as revenue upon usage of the airtime or upon expiration of the airtime.
Fixed Line
Revenues from fixed line installations are recognized at the time the installations are placed in service. Revenues from usage charges are recognized based on the duration of successful calls made through the Company’s fixed network.
Interconnection Revenue
Revenues from network interconnection with other domestic and international telecommunications carriers are recognized monthly on the basis of the actual recorded traffic for the month.
Operating revenues for interconnection services under interconnection agreements based on revenue-sharing arrangement (Note 35) are reported on a net basis, after interconnection expenses/charges. Operating revenues for interconnections that are not made under contractual sharing agreements, i.e., based on tariff as stipulated by the Government (Note 34), are reported on a gross basis, before interconnection expenses/charges (Note 26). These interconnection expenses/charges are accounted for as operating expenses in the period these are incurred.
In 2007, the Companies entered into several Memoranda of Understanding to amend the existing revenue-sharing arrangements and to reflect the new cost-based interconnection scheme based on Regulation No. 08/PER/M.KOMINFO/02/2006 of the Ministry of Communications and Information Technology (Note 35).
Expenses
Expenses are recognized when incurred.
p.
Personnel Costs
Personnel costs which are directly related to the development, construction and installation of property and equipment are capitalized as part of the cost of such assets.
23
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
q.
Pension Plan and Employee Benefits
Pension costs under the Companies’ defined benefit pension plans are determined by periodic actuarial calculation using the projected-unit-credit method and applying the assumptions on discount rate, expected return on plan assets and annual rate of increase in compensation. Actuarial gains or losses are recognized as income or expense when the net cumulative unrecognized actuarial gains or losses for each individual plan at the end of the previous reporting year exceed 10% of the defined benefit obligation at that date. These gains or losses are recognized on a straight-line basis over the expected average remaining working lives of the employees. Prior service cost is recognized over the estimated average remaining service periods of the employees.
The Companies follow SAK 24 (Revised 2004), “Employee Benefits”, which regulates the accounting and disclosure for employee benefits, both short-term (e.g. paid annual leave, paid sick leave) and long-term (e.g. long-service leave, post-employment medical benefits).
r.
Derivatives
The Company enters into and engages in currency swap and foreign exchange contracts/transactions for the purpose of managing its foreign exchange rate exposures emanating from the Company’s bonds payable in foreign currencies.
The Company applies SAK 55, “Accounting for Derivative Instruments and Hedging Activities”. SAK 55 sets forth the accounting and reporting standards for derivative transactions and hedging activities, which require that every derivative instrument (including embedded derivatives) be recognized as either asset or liability based on the fair value of each contract. Fair value is a computation of present value by using data and assumption which are commonly used. Based on the specific requirements for hedge accounting under SAK 55, the Company’s instruments do not qualify and are not designated as hedge activities for accounting purposes. Accordingly, changes in the fair value of such derivative instruments are recorded directly as a charge or credit to current operations.
s.
Foreign Currency Transactions and Balances
Transactions involving foreign currencies are recorded at the rates of exchange prevailing at
the time the transactions are made. At balance sheet date, monetary assets and liabilities denominated in foreign currencies are adjusted to reflect the average buying and selling rates prevailing at such date as published by Bank Indonesia and the resulting gains or losses are credited or charged to current operations, except for foreign exchange differentials that can be attributed to qualifying assets which are capitalized to assets under construction and installation.
For March 31, 2006 and 2007, the foreign exchange rates used (in full amounts) were Rp9,075 and Rp9,118 to US$1, respectively, computed by taking the average of the last buying and selling rates of bank notes published by Bank Indonesia (Central Bank).
t.
Income Tax
Current tax expense is provided based on the estimated taxable income for the period. Deferred tax assets and liabilities are recognized for temporary differences between the financial and the tax bases of assets and liabilities at each reporting date. Future tax benefits, such as the carryover of unused tax losses, are also recognized to the extent that such benefits are more likely than not to be realized. The tax effects for the period are allocated to current operations, except for the tax effects from transactions which are directly charged or credited to stockholders’ equity.
24
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
t.
Income Tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Amendment to tax obligations is recorded when an assessment is received or, if appealed, when the result of the appeal is determined.
For each of the consolidated entities, the tax effects of temporary differences and tax loss
carryover, which individually are either assets or liabilities, are shown at the applicable net amounts.
u.
Segment Reporting
The Companies follow Revised SAK 5, “Segment Reporting”, in the presentation of segment reporting in their financial statements. Revised SAK 5 provides more detailed guidance for identifying reportable business segments and geographical segments. The financial information which is used by management for evaluating the segment performance is presented in Note 38.
v.
Basic Earnings per Share/ADS and Diluted Earnings per Share/ADS
In accordance with SAK 56, “Earnings Per Share”, basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the period after considering the effect of exercise of ESOP Phase II (Note 31).
Diluted earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the period, after considering the dilutive effect caused by the stock options relating to the ESOP and convertible bonds issued by a subsidiary (Note 17).
Basic/diluted earnings per ADS is computed by multiplying basic/diluted earnings per share by 50, which is equal to the number of shares per ADS.
w.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 differ from those estimates.
3.
TRANSLATIONS OF RUPIAH INTO UNITED STATES DOLLAR
The consolidated financial statements are stated in rupiah. The translations of the rupiah into United States dollar (US$) are included solely for the convenience of the readers, using the average buying and selling rates published by Bank Indonesia on March 31, 2007 of Rp9,118
to US$1 (in full amounts). 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 U.S. dollar at this or any other rate of exchange.
25
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
4.
CASH AND CASH EQUIVALENTS
This account consists of the following:
2006
2007
Cash on hand
Rupiah
738
1,468
U.S. dollar (US$13 in 2006 and US$20 in 2007)
121
188
859
1,656
Cash in banks
Related parties (Note 30)
Rupiah
PT Bank Mandiri (Persero) Tbk (“Mandiri”)
29,910
16,370
Bank Pembangunan Daerah DKI Jakarta
4,653
4,069
PT Bank Negara Indonesia (Persero) Tbk (“BNI”)
3,793
3,239
PT Bank Pembangunan Daerah Sumatera Selatan
890
2,096
PT Bank Mandiri Syari’ah (“Mandiri Syari’ah”)
-
1,548
PT Bank Internasional Indonesia Tbk (“BII”)
-
1,543
PT Bank Danamon Indonesia Tbk (“Danamon”)
1,638
1,139
Bank Pembangunan Daerah Yogyakarta
(“BPD Yogyakarta”)
1,236
609
Others (each below Rp500)
1,456
2,443
U.S. dollar
Mandiri (US$551 in 2006 and US$487 in 2007)
5,000
4,440
Others (US$12 in 2006 and US$34 in 2007)
105
311
Third parties
Rupiah
PT Bank Central Asia Tbk (“BCA”)
5,075
23,230
Citibank N.A., Jakarta Branch
4,472
14,344
Deutsche Bank AG, Jakarta Branch
8,878
11,382
The Hongkong and Shanghai Banking Corp. Ltd.,
Jakarta Branch
17,057
8,382
PT Bank Artha Graha Internasional Tbk
505
2,203
American Express Bank Ltd.
-
1,817
PT Bank Niaga Tbk (“Niaga”)
5,608
1,096
PT Bank Permata Tbk
1,110
1,059
PT ANZ Panin Bank
223
568
PT Bank Umum Koperasi Indonesia (“Bukopin”)
3,833
21
Others (each below Rp500)
674
803
26
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
4.
CASH AND CASH EQUIVALENTS (continued)
2006
2007
Cash in banks (continued)
Third parties (continued)
U.S. dollar
Fortis Bank, The Netherlands (US$5,486)
-
50,018
Deutsche Bank AG, Jakarta Branch (US$3,657 in 2006
and US$4,655 in 2007)
33,186
42,446
Citibank N.A., Jakarta Branch (US$2,034 in 2006 and
US$2,440 in 2007)
18,460
22,243
Citibank N.A., Singapore Branch (US$650 in 2006 and
US$373 in 2007)
5,897
3,400
Bukopin (US$283 in 2006 and US$284 in 2007)
2,569
2,591
Niaga (US$630)
5,719
-
Others (US$101)
922
-
162,869
223,410
Time deposits
Related parties (Note 30)
Rupiah
Mandiri
1,363,235
281,835
BRI
-
155,000
BNI
24,715
153,715
PT Bank DBS Indonesia (“DBS”)
-
125,000
Danamon
97,900
104,400
BTN
54,500
40,000
PT Bank Pembangunan Daerah Sulawesi Utara
1,000
1,000
Mandiri Syari’ah
-
1,000
BPD Yogyakarta
-
1,000
U.S. dollar
BNI (US$33,000 in 2006 and US$20,000 in 2007)
299,475
182,360
Danamon (US$15,000 in 2006 and 2007)
136,125
136,770
Mandiri Syari’ah (US$20,000 in 2006 and US$10,000 in 2007)
181,500
91,180
DBS (US$10,000)
-
91,180
BTN (US$10,000 in 2006 and US$5,000 in 2007)
90,750
45,590
Mandiri (US$2,450 in 2006 and US$1,705 in 2007)
22,232
15,547
BRI (US$35,000)
317,625
-
27
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
4.
CASH AND CASH EQUIVALENTS (continued)
2006
2007
Time deposits (continued)
Third parties
Rupiah
Niaga
68,500
136,000
Deutsche Bank AG, Jakarta Branch
223,164
127,177
Standard Chartered Bank, Jakarta Branch
-
75,000
Bukopin
11,500
63,500
PT Bank Mega Tbk
10,052
9,052
BCA
101,500
4,850
Others
5
6
U.S. dollar
Citibank N.A., Jakarta Branch (US$25,000)
-
227,950
Deutsche Bank AG, Jakarta Branch (US$53,236 in 2006
and US$21,432 in 2007)
483,119
195,416
Bukopin (US$32,000 in 2006 and US$18,000 in 2007)
290,400
164,124
Niaga (US$21,500 in 2006 and US$18,000 in 2007)
195,107
164,124
PT Bank Muamalat Indonesia Tbk (US$15,000)
-
136,770
3,972,404
2,729,546
Total
4,136,132
2,954,612
Time deposits denominated in rupiah earned interest at annual rates ranging from 5.00% to 13.00% in 2006 and from 3.00% to 11.25% in 2007, while those denominated in U.S. dollar earned interest at annual rates ranging from 0.65% to 4.25% in 2006 and from 1.50% to 5.15% in 2007.
The interest rates on time deposits in related parties are comparable to those offered by third parties.
5.
ACCOUNTS RECEIVABLE - TRADE - TELKOM
This account represents receivables for uncollected international calls, telex and telegram charges to subscribers which were billed by Telkom, and receivables from cellular interconnection revenue net of interconnection charges payable to Telkom for these services and for leased circuits, and other charges (Note 30).
The aging schedule of the accounts receivable is as follows:
2006
2007
Number of
Percentage
Percentage
Months Outstanding
Amount
(%)
Amount
(%)
0 - 3 months
126,889
62.56
81,565
50.25
4 - 6 months
88
0.04
3,041
1.87
Over 6 months
75,869
37.40
77,708
47.88
Total
202,846
100.00
162,314
100.00
28
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
5.
ACCOUNTS RECEIVABLE - TRADE - TELKOM (continued)
The changes in the allowance for doubtful accounts provided on the trade accounts receivable from Telkom are as follows:
2006
2007
Balance at beginning of period
89,485
81,803
Provision (reversal)
(4,556
)
1,331
Net effect of foreign exchange adjustment
(74
)
19
Balance at end of period
84,855
83,153
The net effect of foreign exchange adjustment was due to the strengthening or weakening of the rupiah vis-à-vis the U.S. dollar in relation to U.S. dollar accounts previously provided with allowance and was credited or charged to “Gain (Loss) on Foreign Exchange - Net”.
Management believes the established allowance is sufficient to cover probable losses from uncollectible accounts receivable.
6.
ACCOUNTS RECEIVABLE - TRADE - THIRD PARTIES
This account consists of the following:
2006
2007
Overseas international carriers
DiGi Telecommunications Sdn Bhd, Malaysia (US$15,823 in 2006
and US$17,527 in 2007)
143,594
159,809
Telekom Malaysia Berhad, Malaysia (US$6,821 in 2006 and
US$7,111 in 2007)
61,901
64,839
Saudi Telecom Company, Saudi Arabia (US$9,326 in 2006 and
US$6,244 in 2007)
84,633
56,930
Maxis International Sdn Bhd, Malaysia (US$6,377 in 2006 and
US$4,527 in 2007)
57,871
41,282
Celcom Malaysia Berhad, Malaysia (US$733 in 2006 and
US$3,412 in 2007)
6,652
31,108
Cableview Services Sdn Bhd (“Mega TV”), Malaysia (US$3,289 in
2006 and 2007)
29,848
29,992
UAE-Etisalat, United Arab Emirates (US$4,708 in 2006 and
US$2,737 in 2007)
42,723
24,959
Mega Media Broadcasting Network Co. Ltd., Taiwan (US$2,203 in
2006 and 2007)
19,993
20,088
Korea International Telecommunication, Korea (US$734 in 2006
and US$1,001 in 2007)
6,661
9,123
29
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
6.
ACCOUNTS RECEIVABLE - TRADE - THIRD PARTIES (continued)
2006
2007
Overseas international carriers (continued)
Reach Hongkong, Hong Kong (US$478 in 2006 and US$701 in 2007)
4,338
6,396
DDI Corporation, Japan (US$2,433 in 2006 and US$530 in 2007)
22,080
4,837
Jabatan Telekom Brunei, Brunei Darussalam (US$763 in 2006 and
US$251 in 2007)
6,924
2,292
TT Dotcom Sdn Bhd, Malaysia (US$723 in 2006 and US$155 in 2007)
6,561
1,411
MCI Worldcom, U.S.A (US$551)
5,001
-
Others (each below Rp20,000, including US$26,627 in 2006 and
US$32,214 in 2007)
242,765
293,813
741,545
746,879
Local companies
PT Ratelindo
8,995
7,778
PT Satkomindo Mediyasa (US$863 in 2006 and US$629 in 2007)
7,835
5,741
PT Cakrawala Andalas Televisi (US$811 in 2006 and US$265 in 2007)
6,816
1,939
Others (each below Rp6,000, including US$11,396 in 2006 and
US$15,193 in 2007)
237,458
289,020
261,104
304,478
Post-paid subscribers from:
Cellular
459,646
365,401
Fixed wireless
35,994
18,402
Fixed lines
21,564
21,608
517,204
405,411
Total
1,519,853
1,456,768
Less allowance for doubtful accounts
538,910
464,428
Net
980,943
992,340
The aging schedule of the accounts receivable is as follows:
2006
2007
Number of
Percentage
Percentage
Months Outstanding
Amount
(%)
Amount
(%)
0 - 6 months
787,373
51.80
742,885
51.00
7 - 12 months
239,716
15.77
233,991
16.06
13 - 24 months
255,717
16.83
255,750
17.56
Over 24 months
237,047
15.60
224,142
15.38
Total
1,519,853
100.00
1,456,768
100.00
As of March 31, 2007, approximately 2.60% of accounts receivable - trade are pledged as collateral for long-term bank loans obtained by Lintasarta (Note 16).
30
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
6.
ACCOUNTS RECEIVABLE - TRADE - THIRD PARTIES (continued)
The changes in the allowance for doubtful accounts provided on the accounts receivable - trade from third parties are as follows:
2006
2007
Balance at beginning of period
528,314
423,730
Provision
39,460
38,650
Net effect of foreign exchange adjustment
(10,723
)
2,048
Write-off
(18,141
)
-
Balance at end of period
538,910
464,428
The net effect of foreign exchange adjustment was due to the strengthening or weakening of the rupiah vis-à-vis the U.S. dollar in relation to U.S. dollar accounts previously provided with allowance and was credited or charged to “Gain (Loss) on Foreign Exchange - Net”.
There are no significant concentrations of credit risk, except for the trade accounts receivable from Telkom (Note 5).
Management believes the established allowance is sufficient to cover probable losses from uncollectible accounts receivable.
7.
PREPAID TAXES
This account consists of the following:
2006
2007
657,896
850,572
Value Added Tax (“VAT”)
176,172
120,804
Others
42,665
42,774
Total
876,733
1,014,150
Claims for tax refund in 2006 and 2007 mainly consist of the Company’s claims for tax refund from the excess prepayments of the Company’s income tax articles 22, 23 and 25 over the Company’s current income tax expense.
On December 4, 2006, the Company received assessment letter on tax overpayment (“SKPLB”) from the Directorate General of Taxation (“DGT”) for the Company’s 2004 corporate income tax amounting to Rp199,552. As of March 31, 2007, the Company has not yet received such amount (Note 40b).
On March 27, 2007, the Company received SKPLBs from the DGT advising the Company of its overpayment of 2005 corporate income tax and VAT amounting to Rp135,766 and Rp39,052, respectively, which amounts are lower than those recognized by the Company in its financial statements. As of March 31, 2007, the Company is in the process of preparing an objection letter to the Tax Office regarding the above SKPLB for the 2005 corporate income tax.
31
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
8.
INVESTMENTS IN ASSOCIATED COMPANIES
This account consists of the following investments which are accounted for under the equity method:
Company’s
Portion of
Accumulated
Equity in
Undistributed
Net Income (Loss)
Equity
of Associated
Carrying
Interest (%)
Cost
Companies
Value
2006
Investments in:
PT Multi Media Asia Indonesia
26.67
56,512
(212
)56,300
PT Swadharma Marga Inforindo
20.00
100
424
524
Total
56,612
212
56,824
Less allowance for decline in value
56,300
-
56,300
Net
312
212
524
2007
Investments in:
PT Multi Media Asia Indonesia
26.67
56,512
(212
)56,300
PT Swadharma Marga Inforindo
20.00
100
186
286
Total
56,612
(26
)56,586
Less allowance for decline in value
56,300
-
56,300
Net
312
(26
)286
The Companies have provided allowance for decline in value amounting to Rp56,300 as of March 31, 2006 and 2007, which the Companies believe is adequate to cover probable losses on the above investments.
PT Multi Media Asia Indonesia (“M2A”)
M2A, established in 1997, is engaged in providing satellite-based telecommunications services. Based on a subscription agreement in 1997 among the Company, PT Pasifik Satelit Nusantara (“PSN”) and M2A (“the Parties”), the Parties agreed that the Company would participate as a stockholder of M2A, which was previously wholly owned by PSN, by acquiring 485,000,000 new shares of M2A with an aggregate nominal value of US$20,000, representing 26.67% equity interest in M2A. The Parties also agreed that the Company’s investment in M2A would not be less than 20% of the fully paid capital if M2A issued its new shares to Telkom and allocated not more than 5% of the fully paid capital to the Government of the Republic of Indonesia.
32
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
9.
OTHER LONG-TERM INVESTMENTS
This account consists of the following:
2006
2007
Investments in shares of stock accounted for under the cost
method - net
2,631
8,410
Equity securities which are available-for-sale
99
99
Total
2,730
8,509
a.
Investments in shares of stock which are accounted for under the cost method
2006
Equity
Cost/
Interest (%)
Carrying Value
PT Broadband Multimedia Tbk
5.00
50,000
ICO Global Communications (Holdings) Limited
0.0087
49,977
Others
16.67 - 17.60
2,631
Total
102,608
Less allowance for decline in value
99,977
Net
2,631
2007
Equity
Cost/
Interest (%)
Carrying Value
PT Broadband Multimedia Tbk
2.29
50,000
ICO Global Communications (Holdings) Limited
0.0087
49,977
PT Starone Mitra Telekomunikasi
14.60
5,779
Others
12.80 - 16.67
2,631
Total
108,387
Less allowance for decline in value
99,977
Net
8,410
33
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
9.
OTHER LONG-TERM INVESTMENTS (continued)
b.
Equity securities which are available-for-sale
As of March 31, 2006 and 2007, this account consists of:
BNI
89
Telkom
10
Total
99
The Companies provided an allowance for decline in value of their investments in shares of stock accounted for under the cost method amounting to Rp99,977 as of March 31, 2006 and 2007, which the Companies believe is adequate to cover probable losses on the investments.
PT Broadband Multimedia Tbk (“BM”)
On April 20, 2004, the Company entered into a shares sale and purchase agreement to purchase from a third party such third party’s 5% equity interest in BM for Rp50,000. BM is engaged in cable television and internet network provider services.
On February 5, 2007, the Company's ownership in BM was diluted to 2.29% since the Company did not exercise the pre-emptive rights in relation to a Rights Issue conducted by BM.
ICO Global Communications (Holdings) Limited (“I-CO”)
In 1995, the Company subscribed to the shares of I-CO, a subsidiary of The International Mobile Satellite Organization that is domiciled in the Bahamas. I-CO provides satellite constellation and related mobile services from, and based on, the satellites.
PT Starone Mitra Telekomunikasi (“SMT”)
SMT was established on June 15, 2006 in Semarang, Central Java, by the Company,
PT Sarana Pembangunan Jawa Tengah, PT Dawamiba Engineering and PT Trikomsel Multimedia to engage in construction and operation of fixed wireless access network using Code Division Multiple Access (CDMA) 2000-1x technology in Central Java and its surroundings.
Based on an amendment dated August 23, 2006 to SMT’s Articles of Association, the Company agreed to contribute Rp51,302 to the capital of SMT that consists of Rp5,779 cash and Rp45,523 in-kind contribution. The Company’s capital contribution as of March 31, 2007 represents its initial cash contribution of Rp5,779.
34
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
10.
PROPERTY AND EQUIPMENT
The details of property and equipment are as follows:
2006
Balance
Transactions during the Period
Balance
at Beginning
at End
of Period
Additions
Deductions
Reclassifications
of Period
Carrying Value
Landrights
328,654
-
-
2,965
331,619
Buildings
428,172
5,545
-
11,362
445,079
Submarine cables
862,848
-
-
390
863,238
Earth stations
116,519
-
-
-
116,519
Inland link
610,177
-
-
105,177
715,354
Switching equipment
343,102
-
-
2,977
346,079
Telecommunications
peripherals
1,832,196
58,762
9,978
11,641
1,892,621
Information technology
equipment
1,019,338
1,679
1,436
70,818
1,090,399
Office equipment
1,386,558
11,145
801
17,606
1,414,508
Building and leasehold
improvements
1,129,242
470
-
101,453
1,231,165
Vehicles
15,946
662
195
-
16,413
Cellular technical
equipment
21,139,466
-
-
944,390
22,083,856
Satellite technical
equipment
1,272,846
-
-
2,848
1,275,694
Transmission and cross-
connection equipment
472,655
-
-
1,861
474,516
FWA technical equipment
434,744
-
-
1,173
435,917
Properties under
construction and
installation
3,680,665
1,114,326
-
(1,274,661
)
3,520,330
Total
35,073,128
1,192,589
12,410
-
36,253,307
Accumulated Depreciation
Buildings
197,312
6,150
-
-
203,462
Submarine cables
418,321
26,921
-
-
445,242
Earth stations
111,081
2,120
-
-
113,201
Inland link
95,666
11,330
-
-
106,996
Switching equipment
223,459
8,606
-
-
232,065
Telecommunications
peripherals
1,119,017
61,150
9,978
-
1,170,189
Information technology
equipment
735,830
49,122
1,436
-
783,516
Office equipment
711,564
40,629
801
-
751,392
Building and leasehold
improvements
466,716
52,336
-
-
519,052
Vehicles
10,844
511
195
-
11,160
Cellular technical
equipment
8,214,472
494,737
-
-
8,709,209
Satellite technical
equipment
840,041
36,263
-
-
876,304
Transmission and cross-
connection equipment
193,246
4,786
-
-
198,032
FWA technical equipment
72,167
14,578
-
-
86,745
Total
13,409,736
809,239
12,410
-
14,206,565
Less impairment in value
98,611
-
-
-
98,611
Net Book Value
21,564,781
21,948,131
35
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
10.
PROPERTY AND EQUIPMENT (continued)
2007
Balance
Transactions during the Period
Balance
at Beginning
at End
of Period
Additions
Deductions
Reclassifications
of Period
Carrying Value
Landrights
400,597
-
-
11,405
412,002
Buildings
456,091
181
-
2,163
458,435
Submarine cables
885,344
-
-
-
885,344
Earth stations
125,347
-
-
-
125,347
Inland link
857,946
-
-
31,044
888,990
Switching equipment
375,231
-
-
488
375,719
Telecommunications
peripherals
2,130,835
42,838
1,570
22,099
2,194,202
Information technology
equipment
1,276,839
1,105
2,043
77,009
1,352,910
Office equipment
1,551,683
17,021
108
32,326
1,600,922
Building and leasehold
improvements
1,432,521
23
556
18,750
1,450,738
Vehicles
17,498
694
-
-
18,192
Cellular technical
equipment
25,797,738
-
50,452
934,659
26,681,945
Satellite technical
equipment
1,290,575
-
-
5,324
1,295,899
Transmission and cross-
connection equipment
479,020
-
-
1,896
480,916
FWA technical equipment
539,633
-
-
13,020
552,653
Properties under
construction and
installation
4,291,429
1,309,664
-
(1,150,183
)
4,450,910
Total
41,908,327
1,371,526
54,729
-
43,225,124
Accumulated Depreciation
Buildings
222,353
6,335
-
-
228,688
Submarine cables
525,191
21,454
-
-
546,645
Earth stations
118,237
1,161
-
-
119,398
Inland link
148,869
14,775
-
-
163,644
Switching equipment
258,697
8,868
-
-
267,565
Telecommunications
peripherals
1,364,343
65,166
1,570
-
1,427,939
Information technology
equipment
945,827
44,497
2,043
-
988,281
Office equipment
836,538
48,576
108
-
885,006
Building and leasehold
improvements
697,636
62,733
556
-
759,813
Vehicles
9,987
671
-
-
10,658
Cellular technical
equipment
10,382,388
590,258
50,452
-
10,922,194
Satellite technical
equipment
985,512
36,693
-
-
1,022,205
Transmission and cross-
connection equipment
212,424
4,695
-
-
217,119
FWA technical equipment
138,684
36,567
-
-
175,251
Total
16,846,686
942,449
54,729
-
17,734,406
Less impairment in value
98,611
-
-
-
98,611
Net Book Value
24,963,030
25,392,107
36
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
10.
PROPERTY AND EQUIPMENT (continued)
Submarine cables represent the Company’s proportionate investment in submarine cable circuits jointly constructed, operated, maintained and owned with other countries, based on the respective contracts and/or the construction and maintenance agreements.
During the three months ended March 31, 2006 and 2007, sales of certain property and equipment were made as follows:
2006
2007
Proceeds from sale
148
67
Net book value
-
-
Gain
148
67
Depreciation expense charged to the statements of income amounted to Rp809,239 and Rp942,449 in 2006 and 2007, respectively.
Management believes that there is no further impairment in assets value or recovery of the impairment reserve as contemplated in SAK 48.
As of March 31, 2007, approximately 0.40% of property and equipment are pledged as collateral to credit facilities obtained by Lintasarta (Note 16).
As of March 31, 2007, the Companies insured their respective property and equipment (except submarine cables and landrights) for US$135,778 and Rp30,068,714, including insurance on the Company‘s satellite amounting to US$14,000. Management believes that the sum insured is sufficient to cover possible losses arising from fire, explosion, lightning, aircraft damage and other natural disasters.
Starting January 1, 2005, the Company changed the estimated useful lives of certain of its property and equipment (Note 2j). The effects of the change are to increase income before income tax as follows:
Period
Amount
Three months ended March 31, 2007
53,091
Nine months ending December 31, 2007
144,266
Year ending December 31, 2008
153,148
Year ending December 31, 2009
135,174
Year ending December 31, 2010
81,620
37
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
10.
PROPERTY AND EQUIPMENT (continued)
The details of the Companies’ properties under construction and installation as of March 31, 2006 and 2007 are as follows:
Percentage of
Estimated Date
Completion
Cost
of Completion
2006
Cellular technical equipment
79 - 96
3,104,209
April - August 2006
FWA technical equipment
93 - 97
112,512
April - June 2006
Submarine cables
20
97,663
June 2006
Building and leasehold improvements
76 - 80
80,027
April - June 2006
Inland link
57 - 92
52,623
April - November 2006
Telecommunications peripherals
95 - 99
16,046
April - May 2006
Satellite technical equipment
99
14,279
April 2006
Transmission and cross-connection equipment
79 - 90
14,039
April - May 2006
Information technology equipment
45 - 83
13,310
April - June 2006
Switching equipment
87 - 89
1,598
April - May 2006
Building
99
25
April 2006
Others
55 - 99
13,999
April - August 2006
Total
3,520,330
2007
Cellular technical equipment
88 - 99
2,827,727
April - December 2007
Building and leasehold improvements
75 -99
525,410
April - December 2007
Submarine cables
94
365,832
April 2007
Inland link
90 - 97
315,181
April - June 2007
Transmission and cross-connection equipment
95 - 97
270,374
May - December 2007
FWA technical equipment
97
89,541
April - December 2007
Telecommunications peripherals
85 - 97
21,866
April 2007
Building
31 - 97
11,931
April 2007
Information technology equipment
25 - 99
8,936
April - December 2007
Office equipment
90 - 99
6,213
April 2007
Satellite technical equipment
63
1,135
April 2007
Others
73 - 99
6,764
April 2007
Total
4,450,910
Borrowing costs (interest expense) capitalized to properties under construction and installation for the three months ended March 31, 2006 and 2007 amounted to Rp25,639 and Rp7,009, respectively.
11.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill arose from the acquisition of equity interest in Bimagraha and Satelindo in 2001 and 2002, respectively, and from the acquisition of additional equity interest in Lintasarta in 2005 (Note 1d).
The details of the other intangible assets arising from the acquisition of Satelindo in 2002 are as follows:
Amount
Customer base
- Post-paid
154,220
- Prepaid
73,128
Spectrum license
222,922
Brand
147,178
Total
597,448
38
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
11.
GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
Starting January 2003, the Company changed its goodwill amortization period from 5 years to 15 years. The effect of the change is to decrease income before income tax as follows:
Period
Amount
Three months ended March 31, 2007
21,151
Nine months ending December 31, 2007
63,452
The details of goodwill and other intangible assets are as follows:
2006
2007
Balance at beginning of period
2,682,600
2,645,369
Addition (Note 1a)
320,000
-
Amortization of goodwill
(56,627
)
(56,627)
Amortization of other intangible assets
(27,214
)
(34,503
)
Balance at end of period
2,918,759
2,554,239
The addition to goodwill and other intangible assets in 2006 represented the payment of the upfront fee to the Ministry of Communications and Information Technology in connection with the selection of the Company as one of the IMT - 2000 cellular network providers using 2.1 GHz radio frequency bandwidth in Indonesia.
12.
LONG-TERM ADVANCES
This account represents advances to suppliers and contractors for the procurement or construction of property and equipment which will be reclassified to the related property and equipment accounts upon the receipt of the property and equipment purchased or after the construction or installation of the property and equipment has reached a certain percentage of completion.
13.
PROCUREMENT PAYABLE
This account consists of the following:
2006
2007
Ericsson AB, Sweden (US$36,766 in 2006 and US$82,945
in 2007)
333,650
756,289
PT Ericsson Indonesia (including US$2,750 in 2006 and
US$28,880 in 2007)
78,344
484,463
PT Siemens Indonesia (including US$5,533 in 2006 and
US$12,054 in 2007)
146,638
317,947
PT Alcatel Indonesia (including US$14,843 in 2006 and
US$3,696 in 2007)
209,970
196,621
39
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
13.
PROCUREMENT PAYABLE (continued)
2006
2007
PT Nokia Network (including US$2,490 in 2006 and
US$11,304 in 2007)
26,927
178,445
Huawei Tech Investment Co. Ltd., Hong Kong (including
US$5,759 in 2006 and US$12,441 in 2007)
52,266
113,438
Siemens Aktiengesellschaft, Germany (US$19,881 in 2006 and
US$11,395 in 2007)
180,420
103,900
Alcatel CIT, France (US$10,983 in 2006 and US$10,667 in 2007)
99,998
97,261
PT Karya Mitra Nugraha
8,188
92,647
PT Huawei Tech Investment (including
US$1,464 in 2006
and US$682 in 2007)
13,292
74,302
PT ZTE Indonesia (including US$2,817 in 2006 and
US$5,307 in 2007)
27,312
54,021
Nokia Corporation, Finland (US$15,593 in 2006 and
US$5,838 in 2007)
141,504
53,228
PT Merbau Prima Sakti
-
38,087
Siemens Mobile Communications S.p.A, Italy (US$9,367 in 2006
and US$3,969 in 2007)
85,003
36,191
Nokia Siemens Networks GmbH & Co. KG, Germany (US$3,707)
-
33,801
PT Silkar National Ltd.
-
32,626
Kopindosat
44,604
30,690
PT Industri Telekomunikasi Indonesia (Persero) (including
US$1,336 in 2006 and US$633 in 2007)
24,608
30,378
PT Dawamiba Engineering
31,126
26,305
PT Kopnatel Jaya (including US$10 in 2007)
31,018
21,525
Alcatel Italia S.p.A, Italy (US$2,204 in 2006 and US$2,095 in 2007)
20,002
19,103
PT Senopati Sellularindo
26,413
14,688
ZTE Corporation, China (including US$4,364 in 2006
and US$854 in 2007)
53,161
7,785
PT Varindo Buana Abadi (including US$3,303 in 2006
and US$528 in 2007)
34,427
7,231
PT Bukit Jaya Abadi
20,364
6,009
PT Bahyutama Kerta Mukti
20,386
1,711
Others (each below Rp20,000, including US$32,996 in 2006
and US$18,710 in 2007)
589,185
582,836
Total
2,298,806
3,411,528
40
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE
This account consists of the following:
2006
2007
Estimated corporate income tax payable,
less tax prepayments of Rp104,767 in 2006
and Rp60,823 in 2007
11,675
147,116
Income tax:
Article 21
8,904
11,537
Article 22
2,951
4,390
Article 23
28,949
36,386
Article 25
21,484
10,616
Article 26
6,194
7,634
VAT
1,007
3,228
Others
7,820
4,618
Total
88,984
225,525
The reconciliation between income before income tax and estimated taxable income of the Company for the three months ended March 31, 2006 and 2007 is as follows:
2006
2007
Income before income tax per consolidated statements of income
557,583
712,386
Subsidiaries’ income before income tax and effect of
inter-company consolidation eliminations
(33,114
)
(28,314
)
Income before income tax of the Company
524,469
684,072
Positive adjustments
Provision for doubtful accounts
15,950
38,013
Accrual of employee benefits
40,668
28,610
Amortization of goodwill and other intangible assets
1,140
9,816
Donation
1,887
6,590
Amortization of debt and bonds issuance cost (Notes 16 and 17)
782
2,895
Provision for termination, gratuity and compensation benefits
of employees
5,775
2,708
Representation and entertainment
1,748
1,012
Net periodic pension cost
-
437
Others
38,748
4,601
41
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE (continued)
2006
2007
Negative adjustments
Depreciation - net
(142,234
)
(103,053
)
Equity in net income of investees
(47,430
)
(36,927
)
Interest income already subjected to final tax
(60,630
)
(28,926)
Gain from sale of property and equipment
(52
)
(32)
Capitalization of interest expense and personnel expenses
to property and equipment (Notes 10 and 24)
(34,939
)
-
Realization of stock option resulting from the exercise of
ESOP Phase II
(25,506
)
-
Write-off of accounts receivable
(16,585
)
-
Net periodic pension cost
(5,029
)
-
Estimated taxable income of the Company
298,762
609,816
The computation of the income tax expense for the three months ended March 31, 2006 and 2007 is as follows:
2006
2007
Estimated taxable income of the Company
298,762
609,816
Income tax expense - current (at statutory tax rates)
Company
89,611
182,927
Subsidiaries
26,831
25,012
Total income tax expense - current
116,442
207,939
Income tax expense (benefit) - deferred
Company - effect of temporary differences at enacted
maximum tax rate (30%)
Depreciation - net
42,670
30,916
Equity in net income of investees
14,229
11,078
Gain on sale of property and equipment
15
9
Provision for doubtful accounts
(4,785
)
(11,404
)
Accrual of employee benefits
(12,200
)
(8,583
)
Amortization of goodwill and other intangible assets
(342
)
(2,945)
Amortization of debt and bonds issuance cost
(Notes 16 and 17)
(235
)
(868)
Provision for termination, gratuity
and compensation benefits of employees
(1,733
)
(812
)
Net periodic pension cost
1,509
(131
)
42
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE (continued)
2006
2007
Capitalization of interest expense and personnel expenses
to property and equipment (Notes 10 and 24)
10,482
-
Compensation expense for ESOP
7,652
-
Write-off of accounts receivable
4,976
-
Others
(11,309
)
-
50,929
17,260
Subsidiaries
Effect of temporary differences at enacted
maximum tax rate (30%)
Depreciation - net
(2,432
)
(2,660
)
Provision for doubtful accounts - net
716
(807
)
Others
(1,247
)
(1,768
)
(2,963
)
(5,235
)
Net income tax expense - deferred
47,966
12,025
Net income tax expense
164,408
219,964
The computation of the estimated income tax payable and claim for tax refund for the three months ended March 31, 2006 and 2007 is as follows:
2006
2007
Income tax expense - current
Company
89,611
182,927
Subsidiaries
26,831
25,012
Total income tax expense - current
116,442
207,939
Less prepayments of income tax of the Company
Article 22
-
18,536
Article 23
41,582
4,162
Article 25
58,156
20,388
Total prepayments of income tax of the Company
99,738
43,086
Less prepayments of income tax of subsidiaries
Article 22
394
264
Article 23
8,076
7,348
Article 25
6,686
10,125
Total prepayments of income tax of subsidiaries
15,156
17,737
Total prepayments of income tax
114,894
60,823
43
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE (continued)
2006
2007
Estimated income tax payable
Company
-
139,841
Subsidiaries
11,675
7,275
Total estimated income tax payable
11,675
147,116
Claims for tax refund (presented as part of
“Prepaid Taxes”)
Company
10,127
-
The reconciliation between the income tax expense calculated by applying the applicable tax rate of 30% to the combined income before income tax of the Company and Subsidiaries, and the income tax expense as shown in the consolidated statements of income for the three months ended March 31, 2006 and 2007 is as follows:
2006
2007
Income before income tax per consolidated statements of income
557,583
712,386
Income tax expense at the applicable tax rate of 30%
167,275
213,716
Company’s equity in Subsidiaries’ income before income tax
and reversal of
inter-company consolidation eliminations
14,111
11,286
Tax effect on permanent differences
Donation
574
1,983
Representation and entertainment
539
377
Employee benefits
401
267
Interest income already subjected to final tax
(20,296
)
(10,564
)
Assessments for income taxes and related penalties
732
-
Others
1,188
2,969
Adjustment due to tax audit and others
(116
)
(70)
Income tax expense - net per consolidated
statements of income
164,408
219,964
The tax effects of significant temporary differences between financial and tax reporting which are outstanding as of March 31, 2006 and 2007 are as follows:
2006
2007
Company
Deferred tax assets
Allowance for doubtful accounts
204,419
182,599
Accrual of employee benefits - net
109,661
138,016
Allowance for decline in value of investments in associated
companies and
other long-term investments
46,883
46,883
44
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE (continued)
2006
2007
Pension cost
27,089
24,618
Allowance for short-term investment
7,618
7,618
Compensation expense for ESOP
19,577
-
Others
11,309
-
Total
426,556
399,734
Deferred tax liabilities
Property and equipment
1,158,085
1,436,997
Investments in subsidiaries/associated companies - net of
amortization of goodwill and other intangible assets
174,480
213,974
Deferred bonds and loans issuance costs and discount
6,679
4,863
Difference in transactions of equity changes in associated
companies/subsidiaries
1,752
1,752
Others
850
1,206
Total
1,341,846
1,658,792
Deferred tax liabilities - net
915,290
1,259,058
Subsidiaries (APE and SMM in 2006; IM2, APE and SMM in 2007)
Deferred tax assets
Allowance for doubtful accounts
512
1,336
Tax loss carryover
4,351
1,283
Others
288
702
5,151
3,321
Valuation allowance
(4,708
)
(1,640)
Net
443
1,681
Deferred tax liabilities
Property and equipment
195
2,916
Others
1,230
611
Total
1,425
3,527
Deferred tax liabilities - net
982
1,846
Deferred tax liabilities - net
916,272
1,260,904
Subsidiaries (Lintasarta and IMM in 2006; Lintasarta in 2007)
Deferred tax assets
Property and equipment
27,471
39,159
Allowance for doubtful accounts
10,011
3,584
Others
9,806
8,560
Total
47,288
51,303
Deferred tax liabilities
Others
421
698
Deferred tax assets - net
46,867
50,605
45
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE (continued)
The breakdown by entity of the foregoing deferred tax assets and liabilities outstanding as of March 31, 2006 and 2007 is as follows:
2006
2007
Deferred Tax
Deferred Tax
Deferred TaxDeferred Tax
Assets
Liabilities
Assets
Liabilities
Company
-
915,290
-
1,259,058
Subsidiaries
Lintasarta
39,546
-
50,605
-
APE
-
982
-
968
IMM
7,321
-
-
878
Total
46,867
916,272
50,605
1,260,904
The significant temporary differences on which deferred tax assets have been computed are not deductible for income tax purposes until the doubtful accounts are written off, the accrued employee benefits are paid, the allowance for decline in value of investments in associated companies and other long-term investments is realized upon sale of the investments, and the tax loss carryover is utilized. The deferred tax liabilities relate to the differences in the book and tax bases of property and equipment, goodwill and other intangible assets, and investments in associated companies/ subsidiaries.
A valuation allowance has been established for certain deferred tax assets. This valuation allowance reduces tax assets to an amount which is more likely than not to be realized.
Under the current tax laws of Indonesia, the Company and Subsidiaries submit their respective tax returns on the basis of self-assessment. The tax authorities may assess or amend taxes within ten years after the fiscal year when the tax became payable. Any loss on income tax basis can be carried forward and used to offset against future taxable income for a maximum period of five years.
In 2005, as a result of the corporate income tax audit for fiscal year 2003, the Company’s tax loss carryover as of December 31, 2003 amounting to Rp934,637 was adjusted by the Tax Office to become Rp501,179. On October 31, 2005, the Company submitted an objection letter to the Tax Office regarding the above tax correction. On October 13, 2006, the Company received Decision Letter No. KEP-1716/WPJ.07/BD.05/2006 from the Tax Office declining the Company’s appeal on the tax correction. On January 10, 2007, the Company submitted an appeal letter to the Tax Court concerning the Company’s objection to the tax correction.
As of March 31, 2007, no provision for probable loss on such loss carryover adjustment was made in the consolidated financial statements as the Company believes that the Company has computed its corporate income tax in accordance with the tax regulations.
On December 4, 2006, the Company received SKPKB/STP from the DGT for the Company’s VAT for the periods January - March 2004 and August - October 2004 totalling Rp8,238 (including penalties and interest) and income tax articles 23 and 26 amounting to Rp8 and Rp60,493 (including penalties and interest) for fiscal year 2004, respectively (Note 40b). The Company accepted the SKPKB of income tax article 23. On February 28, 2007, the Company submitted an objection letter to the Tax Office regarding the tax correction on income tax article 26.
46
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14.
TAXES PAYABLE (continued)
On March 27, 2007, the Company received SKPKBs from the DGT for the Company’s income tax articles 23 and 26 amounting to Rp28,479 and Rp82,126 (including penalties and interest), respectively, for fiscal year 2005. As of March 31, 2007, the Company is in the process of preparing objection letters to the Tax Office regarding these SKPKBs.
The Company provides for deferred tax liabilities and deferred tax assets relating to the book-versus-tax-basis differences in its investment in domestic subsidiaries as the Company believes that for certain subsidiaries the investment will be recovered through the sale of the shares which is a taxable transaction and for certain subsidiaries the differences will be deductible from ordinary income as a result of a merger.
The tax losses carryover of SMM as of March 31, 2007 can be carried forward through 2010 based on the following schedule:
Year of Expiration
Amount
2008
356
2009
2,035
2010
1,885
Total
4,276
15.
ACCRUED EXPENSES
This account consists of the following:
2006
2007
Interest
268,499
233,761
Network repairs and maintenance
117,987
161,254
Employee benefits
122,445
136,408
Marketing
34,589
91,462
Radio frequency fee
3,446
63,924
Consultancy fees
21,697
50,064
Concession fee
35,608
36,241
Universal Service Obligation (“USO”)
22,443
29,351
Rental
11,993
15,865
Others
140,114
157,109
Total
778,821
975,439
47
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
16.
LOANS PAYABLE
This account consists of the following:
2006
2007
Related parties
Syndicated loan facility 2
BNI - net of unamortized debt issuance cost of Rp5,472
in 2006 and Rp959 in 2007
512,173
516,686
Mandiri - net of unamortized debt issuance cost of Rp1,215
in 2006 and Rp192 in 2007
119,377
120,400
Third parties - net of unamortized debt issuance cost of Rp6,451
in 2006 and Rp3,578 in 2007
723,132
985,306
Total loans payable
1,354,682
1,622,392
Less current maturities
Third parties
54,200
116,636
Long-term portion
1,300,482
1,505,756
The details of the loans from related parties are as follows:
Syndicated Loan Facility 2
On October 2, 2003, the Company entered into a syndicated loan agreement covering Rp3,165,000 with the following syndicated banks:
Bank
Amount
BCA
975,000
Mandiri *
900,000
BNI
*
900,000
Danamon *
240,000
Bukopin
150,000
Total
3,165,000
* related parties
The facility is divided into 3 tranches:
Tranche
Bank
Amount
A
Danamon
240,000
Bukopin 150,000
B
Mandiri
900,000
C
BCA
975,000
BNI
900,000
Total
3,165,000
48
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
16.
LOANS PAYABLE (continued)
Syndicated Loan Facility 2 (continued)
On December 8, 2003, the Company drew Rp200,000 and Rp1,800,000 from its facility under Tranches B and C, respectively. Based on the loan agreement, the Company should use the proceeds of the loans to repay IM3’s debts and Satelindo’s debts based on the Master Restructuring Agreement, and/or for capital expenditure financing, and/or for other corporate general needs if IM3’s debts are repaid using other facility.
The interest rate was fixed at 9.30% per annum for the three months ended March 31, 2006 and 2007.
On December 7, 2004, the Company paid the first semi-annual installments amounting to Rp73,125, Rp61,875 and Rp22,220 to BCA, BNI and Mandiri, respectively.
On March 31, 2005, the Company made early payments of the loans amounting to Rp290,112, Rp245,480 and Rp57,188 to BCA, BNI and Mandiri, respectively. On the same date, the Company also entered into agreements amending the loan agreement with BCA, BNI and Mandiri. The amendments covered, among others, the following:
·
The remaining balance of the loan will mature on April 1, 2008. However, the amendment provides early repayment option for the Company, commencing from April 1, 2007 up to the maturity date. Any repayment made before April 1, 2007 will require the Company to pay penalty amounting to 1% of such repaid amount.
·
The loan bears interest as follows:
-
April 1, 2005 - March 31, 2007 : fixed interest at the rate of 9.3% per annum
-
April 1, 2007 - March 31, 2008 : 10.5% per annum or a reference rate plus margin rate of 2.5%, whichever rate is higher.
As of March 31, 2006 and 2007, the outstanding balances of the loans are as follows:
Bank
2006
2007
BCA
611,763
611,763
BNI*
517,645
517,645
Mandiri*
120,592
120,592
Balance
1,250,000
1,250,000
Unamortized debt issuance cost
(13,138
)
(2,276
)
Net
1,236,862
1,247,724
* related parties
The amortization of debt issuance cost charged to operations amounted to Rp2,548 in 2006 and Rp2,820 in 2007.
49
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
16.
LOANS PAYABLE (continued)
The loans from third parties consist of the following:
2006
2007
Syndicated Loan Facility 2 (refer to previous section on loans
from related parties)
BCA - net of unamortized debt issuance cost of Rp6,451
in 2006 and Rp1,125 in 2007
605,312
610,638
Finnish Export Credit Ltd. - net of unamortized debt
issuance cost of Rp2,453
-
309,383
Investment Credit Facility 4 from Niaga
43,281
35,946
Investment Credit Facility 3 from Niaga
68,539
29,339
Import Sight Letter of Credit (“L/C”) Facility and Investment
Credit Facility 2 from Niaga
6,000
-
Total
723,132
985,306
Less current maturities
54,200
116,636
Long-term portion
668,932
868,670
a.
Finnish Export Credit Ltd. (“FEC”)
On May 12, 2006, the Company obtained a new credit facility from FEC amounting to US$38,000 with ABN-AMRO Bank N.V., Jakarta Branch as the "arranger" and ABN-AMRO Bank N.V., Stockholm Branch as the "facility agent” to be used for the purchase of telecommunications equipment. The loan bears interest at the fixed annual rate of 4.15% and will mature on May 12, 2011. Principal and interest are payable semi-annually.
As of March 31, 2007, the outstanding balance of the loan amounted to US$34,200 (equivalent to Rp311,836).
Based on the loan agreement, the Company is required to comply with certain covenants, such as maintaining certain financial ratios.
The amortization of debt issuance cost charged to operations amounted to Rp135 in 2007.
b.
Investment Credit Facility 4 from Niaga
On August 29, 2005, Lintasarta obtained a credit facility from Niaga amounting to Rp45,000 for the purchase of telecommunication equipment. The loan from the facility bears interest at the prevailing annual rate of 3-month Certificates of Bank Indonesia plus 3% per annum. The first quarterly repayment of the principal had a grace period of 14 months from the date of the loan agreement. The quarterly repayment of the principal started on November 29, 2006, at Rp4,500 each quarter up to February 28, 2009.
The loan is collateralized by all equipment (Note 10) purchased from the proceeds of the credit facility and receivables from frame relay (Note 6).
The loan also has the same restrictive covenants as the Investment Credit Facilities 2 and 3 from Niaga.
50
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
16.
LOANS PAYABLE (continued)
c.
Investment Credit Facility 3 from Niaga
On June 29, 2004, Lintasarta obtained a loan from a credit facility from Niaga for the purchase of telecommunication equipment, computer and other supporting facilities amounting to Rp98,000 wherein Rp13,018 or the equivalent of US$1,574 was used to finance Import Sight L/C facility - see point “d” below. The loan bears interest at 3-month time deposits rate guaranteed by Bank Indonesia plus 3.5% per annum. The first quarterly repayment of principal had a grace period up to June 29, 2005. The quarterly repayment of the principal started on September 29, 2005, at Rp9,800 each quarter up to December 29, 2007.
The loan is collateralized by all equipment (Note 10) purchased from the proceeds of the credit facility, receivables from frame relay (Note 6) and trade receivables from one of Lintasarta’s customers.
Based on addendum No. 215/AMD/CBG/JKT/05 dated August 29, 2005 of the credit agreement, the loan covenant that restricted Lintasarta from declaring dividend of more than 50% of the current year’s net income has been replaced with the requirement for Lintasarta to maintain a Debt Service Coverage Ratio of not less than 1.2 : 1.
The loan also has the same restrictive covenants as the Investment Credit Facilities 2 and 4 from Niaga.
d.
Import Sight L/C Facility and Investment Credit Facility 2 from Niaga
On August 14, 2003, Lintasarta obtained facilities from Niaga as follows:
·
Import Sight L/C facility for the purchase of telecommunication equipment, computer and other supporting facilities amounting to US$10,000 wherein Rp15,000 of the facility would be financed through investment credit facility 2 and the remainder would be financed by Lintasarta itself. The expiry date of the facility was extended from August 14, 2004 to December 31, 2004. As of December 31, 2004, Lintasarta had already used this facility to the extent of US$5,101. The facility used was financed by investment credit facility 2 amounting to US$1,827 or equivalent to Rp15,000 (see below) and the remaining balance of US$3,274 was financed by Lintasarta itself amounting to US$1,700 and by investment credit facility 3 amounting to US$1,574 (see point “c” above). This Import Sight L/C facility expired on December 31, 2004.
·
Investment credit facility 2 amounting to Rp15,000 to finance the above facility. The loan from this facility bears interest at 3-month time deposit rate guaranteed by Bank Indonesia plus 2.75% (subsequently changed to 3% on October 1, 2003) per annum. Lintasarta had a grace period until August 14, 2004 to start paying the interest on the loan. The repayment of the principal started on November 14, 2004, with installments amounting to Rp1,500 payable quarterly up to February 14, 2007.
The loan is collateralized by all equipment (Note 10) purchased from the proceeds of the credit facilities and receivables from frame relay (Note 6).
Lintasarta is required to obtain prior written approval from Niaga if:
-
The combined ownership of the Company and YKKBI in Lintasarta became less than 51% during the facility period.
-
Lintasarta obtained new debts (Note 17).
-
Lintasarta invested in other than Lintasarta’s current business.
51
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
16.
LOANS PAYABLE (continued)
d.
Import Sight L/C Facility and Investment Credit Facility 2 from Niaga (continued)
Lintasarta was also required to maintain certain financial ratios and its dividends distribution should not be more than 50% of the current year’s net income. However, based on addendum
No. 214/AMD/CBG/JKT/05 dated August 29, 2005 of the credit agreement, this requirement restricting Lintasarta from declaring dividend of more than 50% of the current year’s net income has been replaced with the requirement for Lintasarta to maintain a Debt Service Coverage Ratio of not less than 1.2 : 1.
The scheduled principal payments from 2008 to 2011 of all the loans payable as of March 31, 2007 are as follows:
Twelve months ending March 31,
2008
2009
2010
2011
2012
Total
In rupiah
Syndicated Loan
Facility*
BCA
-
611,763
-
-
-611,763
BNI
-
517,645
-
-
-517,645
Mandiri
-
120,592
-
-
-120,592
Niaga
47,339
17,946
-
-
-
65,285
In U.S. dollar
FEC (US$34,200)
69,297
69,297
69,297
69,297
34,648
311,836
Total
116,636
1,337,243
69,297
69,297
34,6481,627,121
Less unamortized debt issuance cost
4,729
Net
1,622,392
* please refer to previous discussion on early repayment option
17.
BONDS PAYABLE
As of March 31, 2006 and 2007, this account consists of:
2006
2007
Guaranteed Notes Due 2010 (US$300,000) - net of unamortized
notes issuance cost of Rp20,265 in 2006
and Rp16,453 in 2007
2,702,235
2,718,947
Third Indosat Bonds in Year 2003 with Fixed Rate - net of
unamortized bonds issuance cost of Rp19,037 in 2006
and Rp13,370 in 2007
2,480,963
2,486,630
Guaranteed Notes Due 2012 (US$250,000) - net of unamortized
notes discount of Rp14,843 in 2006 and Rp12,893 in 2007; and
unamortized notes issuance cost of Rp31,138 in 2006 and
Rp27,046 in 2007
2,222,769
2,239,561
Second Indosat Bonds in Year 2002 with Fixed and Floating Rates
1,075,000
1,075,000
Fourth Indosat Bonds in Year 2005 with Fixed Rate - net of
unamortized bonds issuance cost of Rp7,978 in 2006 and
Rp6,813 in 2007
807,022
808,187
Indosat Syari’ah Ijarah Bonds in Year 2005 - net of unamortized
bonds issuance cost of Rp2,828 in 2006 and Rp2,415 in 2007
282,172
282,585
52
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
2006
2007
Indosat Syari’ah Mudharabah Bonds in Year 2002
175,000
175,000
Limited Bonds II issued by Lintasarta*
-
31,150
Limited Bonds I issued by Lintasarta**
30,436
25,292
Convertible Bonds issued by Lintasarta***
5,526
5,526
First Indosat Bonds in Year 2001 with Fixed and Floating Rates
951,500
-
Total bonds payable
10,732,623
9,847,878
Less current maturities
981,936
1,055,526
Long-term portion
9,750,687
8,792,352
*
after elimination of Limited Bonds II amounting to Rp35,000 issued to the Company
**
after elimination of Limited Bonds I amounting to Rp9,564 issued to the Company
***
after elimination of Convertible Bonds amounting to Rp14,473 issued to the Company
Guaranteed Notes Due 2010
In October 2003, the Company, through IFB, issued Guaranteed Notes Due 2010 with fixed rate.
The notes have a total face value of US$300,000. The notes bear interest at the fixed rate of 7.75% per annum payable in semi-annual installments on May 5 and November 5 of each year, commencing May 5, 2004. The notes will mature on November 5, 2010.
The notes are redeemable at the option of IFB, in whole or in part at any time on or after
November 5, 2008. The notes are redeemable at prices equal to 103.8750%, 101.9375% and 100.0000% of the principal amount during the 12-month period commencing on November 5 of 2008, 2009 and 2010, respectively. In addition, prior to November 5, 2006, IFB may redeem up to a maximum of 35% of the original aggregate principal amount, with the proceeds of one or more public equity offerings of the Company, at a price equal to 107.75% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any. The notes are also redeemable at the option of IFB, in whole but not in part, at any time, at a price equal to 103.5625% of the principal amount thereof, plus any accrued and unpaid interest and additionals amount to the date of redemption, in the event of certain changes affecting withholding taxes in Indonesia and the Netherlands that would require IFB or the Company to pay an additional amount in respect of any note in excess of certain amounts. Upon a change in control of IFB ( including sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of IFB’s assets), the holder of the notes has the right to require IFB to repurchase all or any part of such holder’s notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any, to the purchase date.
The Company received the proceeds of the notes on November 5, 2003.
The net proceeds, after deducting the underwriting fee and offering expenses, were used primarily to repay a portion of Indosat’s (including Satelindo’s and IM3’s) outstanding indebtedness amounting to Rp1,500,000 and US$447,500.
Based on the notes indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
The notes are unconditionally and irrevocably guaranteed by the Company.
53
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Guaranteed Notes Due 2010 (continued)
The amortization of notes issuance cost charged to operations amounted to Rp906 in 2006 and Rp979 in 2007.
On January 11, 2006, IFB released a consent solicitation statement (the “solicitation”) relating to its outstanding Guaranteed Notes Due 2010. The primary purpose of the solicitation was to modify certain covenants under the indenture of Guaranteed Notes Due 2010 to conform with the terms in the indenture of Guaranteed Notes Due 2012. The amendment to the indenture included, among others, the change in the limit of the permitted debt that could be incurred by IFB and Lintasarta, and IFB’s ability to incur new debt.
On January 24, 2006, IFB received consents from holders of the Guaranteed Notes Due 2010 representing an aggregate principal amount of US$239,526 or 79.842% of the outstanding notes.
Based on the latest rating report, the notes currently have BB (released in December 2005) and Ba1 (released in March 2006) ratings from Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”), respectively.
Third Indosat Bonds in Year 2003 with Fixed Rate
On October 15, 2003, the Company issued at face value its Third Indosat Bonds in Year 2003 with Fixed Rate (“Third Indosat Bond”), with BRI as the trustee. The bonds have a total face value of Rp2,500,000 in Rp50 denomination. The bonds consist of two series:
·
Series A bonds amounting to Rp1,860,000 which bear interest at the fixed rate of 12.5% per annum for 5 years starting October 22, 2003
·
Series B bonds amounting to Rp640,000 which bear interest at the fixed rate of 12.875% per annum for 7 years starting October 22, 2003.
The bonds will mature if the Company exercises the following options:
·
Early Settlement Option
:
the Company has the right to make early payment for all the Series A bonds on the 4th anniversary of the bonds at 100% of the bonds’ nominal value. The Company has also the right to make early payment for all the Series B bonds on the 4th and 6th anniversaries of the bonds at 100% of the bonds’ nominal value.
·
Buy-back Option
:
after the 1stanniversary of the bonds, the Company has the right to buy back part or all of the bonds at market price temporarily or as an early settlement.
PT Kustodian Sentral Efek Indonesia (“KSEI”), acting as payment agent, pays interest on the bonds, as follows:
Series A
:
Starting January 22, 2004 and every quarter thereafter up to October 22, 2008
Series B
:
Starting January 22, 2004 and every quarter thereafter up to October 22, 2010.
The proceeds of the bonds were used as capital injection to Satelindo which, in turn, used the proceeds to repay its debts and Guaranteed Floating Rate Bonds (Note 1d - SIB).
The bonds are neither collateralized nor guaranteed by other parties.
54
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Third Indosat Bonds in Year 2003 with Fixed Rate (continued)
Based on the bonds indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
The amortization of bonds issuance cost charged to operations amounted to Rp1,308 in 2006 and Rp1,485 in 2007.
Based on the latest rating report released in May 2007, the bonds currently haveidAA+ (stable outlook) rating from PT Pemeringkat Efek Indonesia (“Pefindo”).
Guaranteed Notes Due 2012
On June 22, 2005, the Company, through IIFB, issued Guaranteed Notes Due 2012 with fixed rate. The notes have a total face value of US$250,000 and were issued at 99.323% of their principal amount. The notes bear interest at the fixed rate of 7.125% per annum payable in semi-annual installments due on June 22 and December 22 of each year, commencing December 22, 2005. The notes will mature on June 22, 2012.
The notes will be redeemable at the option of IIFB, in whole or in part at any time on or after June 22, 2010 at prices equal to 103.5625%, 101.7813% and 100.0000% of the principal amount during the
12-month period commencing June 22, 2010, 2011 and 2012, respectively, plus accrued and unpaid interest and additional amounts, if any. In addition, prior to June 22, 2008, IIFB may redeem up to a maximum of 35% of the original aggregate principal amount, with the proceeds of one or more public equity offerings of the Company, at a price equal to 107.125% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any. The notes are also redeemable at the option of IIFB, in whole but not in part, at any time, at a price equal to 103.5625% of the principal amount thereof, plus any accrued and unpaid interest and additional amounts to the date of redemption, in the event of certain changes affecting withholding taxes in Indonesia and the Netherlands that would require IIFB or the Company to pay an additional amount in respect of any note in excess of certain amounts. Upon a change in control of IIFB (including sale, transfer, assignment, lease, conveyance or other disposition o f all or substantially all of IIFB’s assets), the holder of the notes has the right to require IIFB to repurchase all or any part of such holder’s notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any, to the purchase date.
The Company received the proceeds of the notes on June 23, 2005.
The net proceeds, after deducting the underwriting fee and offering expenses, were used for general corporate purposes, including capital expenditures.
Based on the bonds indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
The notes are unconditionally and irrevocably guaranteed by the Company.
The amortization of notes discount and issuance cost charged to operations amounted to Rp1,453 in 2006 and Rp1,564 in 2007.
Based on the latest rating report, the notes currently have BB (released in December 2005) and Ba1 (released in March 2006) ratings from S&P and Moody’s, respectively.
55
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Second Indosat Bonds in Year 2002 with Fixed and Floating Rates
On November 6, 2002, the Company issued its Second Indosat Bonds in Year 2002 with Fixed and Floating Rates (“Second Indosat Bond”), with BRI as the trustee. The bonds have a total face value of Rp1,075,000 in Rp50 denomination. The bonds consist of three series:
·
Series A bonds amounting to Rp775,000 which bear interest at the fixed rate of 15.75% per annum starting February 6, 2003. The Series A bonds will mature on November 6, 2007.
·
Series B bonds amounting to Rp200,000 which bear interest at the fixed rate of 16% per annum for 30 years starting February 6, 2003. The bonds mature if the Company or the bondholder exercises the following options:
-
Buy Option
:
the Company has the right to make early payment for all the Series B bonds on the 5th, 10th, 15th, 20th and 25th anniversaries of the bonds at 101% of the bonds’ nominal value.
-
Sell Option
:
the bondholder has the right to ask for early settlement from the Company at 100% of the bonds’ nominal value: 1) at any time, if the rating of the bonds decreases toidAA- or lower (Special Sell Option) or 2) on the 15th, 20th and 25th anniversaries of the bonds (Regular Sell Option).
·
Series C bonds amounting to Rp100,000 which bear interest at the fixed rate of 15.625% per annum for the first year starting February 6, 2003 and floating rates for the succeeding years until November 6, 2007. The floating rates are determined using the last interest rate for three-month period of Certificates of Bank Indonesia, plus 1.625% margin. The floating rates should have a maximum limit of 18.5% and a minimum limit of 15% per annum.
KSEI, acting as payment agent, shall pay interest on the bonds, as follows:
Series A and C
:
Starting February 6, 2003 and every quarter thereafter up to November 6, 2007
Series B
:
Starting February 6, 2003 and every quarter thereafter up to November 6, 2032
-
Buy Option
:
February 6, 2003 and every quarter thereafter up to November 6, 2007, 2012, 2017, 2022 and 2027
-
Sell Option
:
February 6, 2003 and every quarter thereafter up to November 6, 2017, 2022 and 2027.
The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Company’s assets, except for the assets that have been specifically used as security to its other creditors, are used aspari-passu security for all of the Company’s other liabilities including the bonds.
The proceeds of the bonds were used to repay the working capital loan from Mandiri and time loan facility from BCA.
Based on the bonds indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
Based on the latest rating report released in May 2007, the bonds haveidAA+ (stable outlook) rating from Pefindo.
56
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Fourth Indosat Bonds in Year 2005 with Fixed Rate
On June 21, 2005, the Company issued its Fourth Indosat Bonds in Year 2005 with Fixed Rate (“Fourth Indosat Bond”), with BRI as the trustee. The bonds have a total face value of Rp815,000 in Rp50 denomination. The bonds bear interest at the fixed rate of 12% per annum, payable on
a quarterly basis. The bonds will mature on June 21, 2011.
The bonds will mature before maturity date if the Company exercises the following options:
·
Early Settlement Option
:
the Company has the right to make early payment for all the bonds on the 4th anniversary of the bonds at 100% of the bonds’ nominal value.
·
Buy-back Option
:
after the 1stanniversary of the bonds, the Company has the right to buy back part or all of the bonds at market price.
The proceeds of the bonds are used for capital expenditure to expand the Company’s cellular network.
The bonds are not collateralized by any specific Company assets nor guaranteed by other parties and rankpari passu with other unsecured debts.
Based on the bonds indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
The amortization of bonds issuance cost charged to operations amounted to Rp269 in 2006 and Rp304 in 2007.
Based on the latest rating report released in May 2007, the bonds haveidAA+ (stable outlook) rating from Pefindo.
Indosat Syari’ah Ijarah Bonds in Year 2005 (“Syari’ah Ijarah Bonds”)
On June 21, 2005, the Company issued its Syari’ah Ijarah Bonds, with BRI as the trustee. The bonds have a total face value of Rp285,000 in Rp50 denomination. The bonds will mature on June 21, 2011.
Each bondholder is entitled to a fixed Ijarah return (“Cicilan Imbalan Ijarah”) amounting to Rp8,550, payable on a quarterly basis starting September 21, 2005 up to June 21, 2011.
The bonds will mature before maturity date if the Company exercises the following options:
·
Early Settlement Option
:
the Company has the right to make early payment for all the bonds on the 4th anniversary of the bonds at 100% of the bonds’ nominal value.
·
Buy-back Option
:
after the 1stanniversary of the bonds, the Company has the right to buy back part or all of the bonds at market price.
The proceeds of the bonds were used for capital expenditure to expand the Company’s cellular network.
The bonds are not collateralized by any specific Company assets nor guaranteed by other parties.
Based on the bonds indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
57
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Indosat Syari’ah Ijarah Bonds in Year 2005 (“Syari’ah Ijarah Bonds”) (continued)
The amortization of bonds issuance cost charged to operations amounted to Rp96 in 2006 and Rp108 in 2007.
Based on the latest rating report released in May 2007, the bonds haveidAA(sy)+ (stable outlook) rating from Pefindo.
Indosat Syari’ah Mudharabah Bonds in Year 2002 (“Syari’ah Bonds”)
On November 6, 2002, the Company issued its Syari’ah Bonds, with BRI as the trustee. The bonds have a total face value of Rp175,000 in Rp50 denomination and will mature on November 6, 2007.
Each bondholder is entitled to a revenue-sharing income [Pendapatan Bagi Hasil (“PBH”)], which is determined on the basis of the bondholder’s portion (Nisbah) of the Shared Revenue (Pendapatan Yang Dibagihasilkan). Shared revenue refers to the operating revenue of Satelindo and IMM earned from their satellite and internet services, respectively. The bondholders’ portions (expressed in percentages) of the satellite and internet services revenue are as follows:
Percentage (%)
Year
Satellite
Internet
1
6.91
10.75
2
6.91
9.02
3
6.91
7.69
4
6.91
6.56
5
6.91
5.50
Based on an agreement reached between the Company and the bondholders in the Syari’ah Bondholders’ General Meeting held on October 1, 2003, the shared revenue which previously referred to the operating revenue of Satelindo earned from its satellite services was changed to the operating revenue of the Company earned from the same services. The bondholders’ portions (expressed in percentages) of the Company’s satellite revenue also changed as follows:
Year
Percentage (%)
1
6.91
2
9.34
3
9.34
4
9.34
5
9.34
KSEI, acting as payment agent, pays quarterly the revenue-sharing income on the bonds starting February 6, 2003 until November 6, 2007.
The bonds are not collateralized by any specific Company assets nor guaranteed by other parties. All of the Company’s assets, except for the assets that have been specifically used as a security to its other creditors, are used aspari-passu security for all of the Company’s other liabilities including the bonds.
58
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Indosat Syari’ah Mudharabah Bonds in Year 2002 (“Syari’ah Bonds”) (continued)
The proceeds of the bonds replaced the Company’s internal funds used for the development of its cellular business through the acquisition of Satelindo.
Based on the bonds indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
Based on the latest rating report released in May 2007, the bonds haveidAA(sy)+ (stable outlook) rating from Pefindo.
Limited Bonds II issued by Lintasarta
On June 14, 2006, Lintasarta entered into an agreement with its stockholders for the former to issue limited bonds II amounting to Rp66,150. The limited bonds represent unsecured bonds which will mature on June 14, 2009 and bear interest at the floating rates determined using the average 3-month rupiah time deposit rates with Mandiri, BNI, BRI and BTN, plus a fixed premium of 3%. The maximum limit of the floating rate is 19% and the minimum limit is 11% per annum. The interest is payable on a quarterly basis starting September 14, 2006.
On July 17, 2006, Lintasarta obtained approval from Niaga on the issuance of the limited bonds II (Note 16).
The proceeds of the limited bonds II were used for capital expenditure to expand Lintasarta’s telecommunication peripherals.
Limited Bonds I issued by Lintasarta
In June 2003, Lintasarta entered into an agreement with its stockholders for the former to issue limited bonds I amounting to Rp40,000. The limited bonds represented unsecured bonds which matured on June 2, 2006 and bore interest at the fixed rate of 16% per annum for the first year and floating rates for the succeeding years. The floating rates were determined using the average 3-month rupiah time deposit rates with Mandiri, BNI, BRI and BTN, plus a fixed premium of 3%. The maximum limit of the floating rate is 19% and the minimum limit is 11% per annum. Lintasarta paid interest on the bonds quarterly starting September 2, 2003.
On the maturity date, Lintasarta paid a certain portion of limited bonds I amounting to Rp5,144 and subsequently extended the maturity date of the remaining balance of Rp34,856 until June 2, 2009. The extension of maturity date was made based on the first amendment dated June 14, 2006 of the Limited Bonds Agreement. These bonds bear interest at floating rates determined using the average 3-month rupiah time deposit rates with Mandiri, BNI, BRI and BTN, plus a fixed premium of 3%. The maximum limit of the floating rate is 19% and the minimum limit is 11% per annum. The interest is payable on a quarterly basis.
On July 17, 2006, Lintasarta obtained approval from Niaga on the changes in maturity date and nominal value of the limited bonds I (Note 16).
59
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
Convertible Bonds issued by Lintasarta
At Lintasarta’s Stockholders’ Annual General Meeting held in March 2002, the stockholders approved, among others, the declaration of cash dividend amounting to Rp25,300 of which Rp4,149 (net of tax) was paid in June 2002. The remaining dividend was distributed in the form of unsecured convertible bonds, which bear interest at the annual fixed rate of 19% and payable on a quarterly basis. The bonds will be converted into Lintasarta’s common stock at par value of Rp1,000,000 per share on the bonds’ maturity date on June 3, 2007.
On May 23, 2003, Lintasarta obtained approval from Niaga on the issuance of the convertible bonds (Note 16).
Based on the first amendment dated July 12, 2004 of the Convertible Bonds Agreement, the fixed interest rate of the convertible bonds issued by Lintasarta has been changed to become a floating rate. The floating rate is determined using the average rate for 6-month rupiah time deposits with Mandiri, BNI, BRI and BTN, plus a fixed premium of 3%. The maximum limit of the floating rate is 19% and the minimum limit is 11% per annum. The first amendment is effective starting July 1, 2004.
First Indosat Bonds in Year 2001 with Fixed and Floating Rates
On April 12, 2001, the Company issued its First Indosat Bonds in Year 2001 with Fixed and Floating Rates (“First Indosat Bond”), with BRI as the trustee. The bonds, which consisted of two series, had a total face value of Rp1,000,000 in Rp50 denomination and matured on April 12, 2006.
The Series A bonds amounting to Rp827,200 bore interest at the fixed rate of 18.5% per annum for 5 years starting April 12, 2001. The Series B bonds amounting to Rp172,800 bore interest at the fixed rate of 18.5% per annum for the first year starting April 12, 2001 and floating rates for the succeeding years. The floating rates were determined using the average for 5 working days of the average 3-month rupiah time deposits with Mandiri, BCA, BNI and Danamon, plus a fixed premium of 2.25%.
The floating rates should have a maximum limit of 21% and a minimum limit of 16% per annum. KSEI, acting as payment agent, paid quarterly interest on the bonds starting July 12, 2001 until April 12, 2006.
The bonds were neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Company’s assets, except for the assets that had been specifically used as security to its other creditors, were used aspari-passu security for all of the Company’s other liabilities including the bonds.
The proceeds of the bonds had been used for developing cellular business through a subsidiary (IM3), the Company’s domestic network, and internet and multimedia infrastructure; improving the service and quality of international direct dialing and related services; and increasing submarine cable capacity.
Based on the bonds indenture, the Company was required to comply with certain conditions, such as maintaining certain financial ratios.
Based on the latest rating report released in April 2005, the bonds hadidAA+ (stable outlook) rating from Pefindo.
On September 12 and 13, 2005, the Company repurchased a portion of the Series A bonds with total principal amount of Rp48,500 at a price which was equal to 101.175% of the principal amount repurchased, plus the accrued and unpaid interest (totalling Rp50,562).
60
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17.
BONDS PAYABLE (continued)
First Indosat Bonds in Year 2001 with Fixed and Floating Rates (continued)
On April 12, 2006, the Company repaid in full the First Indosat Bonds in Year 2001 amounting to Rp951,500 for the principal amount and Rp42,927 for the last quarterly interest.
The scheduled principal payments of all the bonds payable outstanding as of March 31, 2007 are as follows:
Twelve months ending March 31,
2012 and
2008
2009
2010
2011
thereafterTotal
In U.S. dollar
Guaranteed Notes *
Due 2010
(US$300,000)
-
-
-
2,735,400
-
2,735,400
Due 2012
(US$250,000)
-
-
-
-
2,279,500
2,279,500
Sub-total
-
-
-
2,735,400
2,279,500
5,014,900
In rupiah
Third Indosat Bonds *
-
1,860,000
-
640,000
-2,500,000
Second Indosat Bonds *
875,000
-
-
-
200,000
1,075,000
Fourth Indosat Bonds *
-
-
-
-
815,000
815,000
Syari’ah Ijarah Bonds *
-
-
-
-
285,000
285,000
Syari’ah Bonds
175,000
-
-
-
-
175,000
Limited Bonds II
of Lintasarta
-
-
31,150
-
-
31,150
Limited Bonds I
of Lintasarta
-
-
25,292
-
-
25,292
Sub-total
1,050,000
1,860,000
56,442
640,000
1,300,000
4,906,442
Convertible bonds of Lintasarta which will be converted into Lintasarta’s shares of common stock
5,526
Total
9,926,868
Less:
-
unamortized notes issuance cost
(43,499)
-
unamortized bonds issuance cost
(22,598)
-
unamortized notes discount
(12,893)
Net
9,847,878
* Please refer to previous discussion on options for each bond/note.
18.
OTHER NON-CURRENT LIABILITIES
This account consists mainly of non-current portions of post-retirement benefits, benefits under Labor Law No. 13/2003 (Note 29), other employee benefits and deposits from customers.
61
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
19.
CAPITAL STOCK
The Company’s capital stock ownership as of March 31, 2006 and 2007 is as follows:
Number of
Percentage
Shares Issued
of Ownership
Stockholders
and Fully Paid
Amount
(%)
2006
A Share
Government of the Republic
of Indonesia
1
-
-
B Shares
Indonesia Communications
Limited, Mauritius
2,171,250,000
217,125
40.37
Government of the Republic
of Indonesia
776,624,999
77,662
14.44
Commissioner:
Roes Aryawijaya
135,000
14
0.00
Directors:
Wahyu Wijayadi
252,500
25
0.01
Hasnul Suhaimi
240,000
24
0.01
Wityasmoro Sih Handayanto
200,000
20
0.00
Joseph Chan Lam Seng
90,000
9
0.00
Johnny Swandi Sjam
30,000
3
0.00
Raymond Tan Kim Meng
22,500
2
0.00
S. Wimbo S. Hardjito
2,500
-
-
Others (each holding below 5%)
2,429,819,000
242,983
45.17
Total
5,378,666,500
537,867
100.00
2007
A Share
Government of the Republic
of Indonesia
1
-
-
B Shares
Indonesia Communications
Limited, Mauritius
2,171,250,000
217,125
39.96
Government of the Republic
of Indonesia
776,624,999
77,662
14.29
Indonesia Communications Pte.
Ltd., Singapore
46,340,000
4,634
0.85
Commissioners:
Lee Theng Kiat
135,000
14
0.00
Roes Aryawijaya
135,000
14
0.00
Setyanto P. Santosa
135,000
14
0.00
Directors:
Wityasmoro Sih Handayanto
287,500
28
0.01
Wahyu Wijayadi
252,500
25
0.01
Raymond Tan Kim Meng
222,500
22
0.01
Joseph Chan Lam Seng
150,000
15
0.00
Wong Heang Tuck
150,000
15
0.00
Johnny Swandi Sjam
30,000
3
0.00
S. Wimbo S. Hardjito
2,500
-
-
Others (each holding below 5%)
2,438,218,500
243,822
44.87
Total
5,433,933,500
543,393
100.00
62
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
19.
CAPITAL STOCK (continued)
The “A” share is a special share held by the Government of the Republic of Indonesia and has special voting rights. The material rights and restrictions which are applicable to the “B” shares are also applicable to the “A” share, except that the Government may not transfer the “A” share, and it has a veto right with respect to (i) amendment to the objective and purposes of the Company; (ii) increase of capital without pre-emptive rights; (iii) merger, consolidation and acquisition; (iv) amendment to the provisions regarding the rights of “A” share as stipulated in the Articles of Association; and (v) dissolution and liquidation of the Company. The “A” share also has the right to appoint one director and one commissioner of the Company.
Based on a letter dated March 2, 2004 from ICL to the Company regarding a notification of pledge of shares with respect to shares of the Company, ICL informed the Company that ICL pledged substantially all of its “B” Shares as collateral for a loan facility obtained by STT Communications Limited, the sole shareholder of ICL, from third parties.
On May 5, 2006, Indonesia Communications Pte. Ltd., Singapore (“ICLS”), a wholly-owned subsidiary of STT Communications Limited (“STTC”), informed BAPEPAM that ICLS acquired 46,340,000 “B” shares of the Company from the market.
On January 17, 2007, ICL, the Company’s majority shareholder, notified the Company regarding the plan of Qatar Telecom (“Qtel”) to make 25% equity investment in Asia Mobile Holdings Pte. Ltd. (“AMH”). Upon the closing of the transaction on March 1, 2007, STTC effectively controls 75% of the equity of AMH, which directly owns ICL and ICLS.
On February 27, 2007, the Company received a notification letter from Standard Chartered Bank, security agent, releasing the pledge of ICL's investment in the Company's equity shares in relation to the loan facility obtained by STTC.
As of March 31, 2007, ICL and ICLS owned an aggregate of 2,217,590,000 “B” shares, representing 40.81% ownership interest in the Company.
In connection with the exercise of ESOP Phase I and Phase II from August 1, 2004 and August 1, 2005, respectively, 256,433,500 “B” shares have been issued as of July 31, 2006 (Note 20) at a total premium of Rp873,512.
20.
STOCK OPTIONS
At the Company’s Annual Stockholders’ General Meeting held on June 26, 2003, the stockholders resolved to, among others, issue 258,875,000 Company “B” shares in reserve which were equal to 5% of the Company’s issued and fully paid capital with nominal value of Rp100 per share by implementing BAPEPAM Regulation No. IX.D.4, “Capital Increases Without Pre-emptive Rights”, which would be allocated to the employees through an Employee Stock Option Program (“ESOP”). The exercise price for ESOP Phase I was 90% of the average closing price [i.e. Rp1,567.4 (in full amount)] of the Company’s shares within 25 consecutive exchange days in the regular market prior to the announcement for the above-mentioned Annual Stockholders’ General Meeting.
63
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
20.
STOCK OPTIONS (continued)
The ESOP had been distributed in two phases:
a.
Phase I: 50% of the ESOP shares or 129,437,500 stock options (as restated) had been distributed to the Company’s and its subsidiaries’ permanent employees and Boards of Directors and Commissioners from August 1, 2003 with one year vesting period. The exercise period for the options was one year commencing August 1, 2004.
b.
Phase II: 50% of the ESOP shares or 129,437,500 stock options had been distributed to the Company’s and its subsidiaries’ permanent employees and Boards of Directors and Commissioners from August 1, 2004 with one year vesting period. The exercise period for the options was one year commencing August 1, 2005.
At the Company’s Annual Stockholders’ General Meeting held on June 22, 2004, the stockholders resolved, among others, that the exercise price for ESOP Phase II was 90% of the average closing price [i.e. Rp3,702.6 (in full amount)] of the Company’s shares within 25 consecutive exchange days in the regular market prior to the announcement for the 2004 Annual Stockholders’ General Meeting. It was also resolved that the undistributed ESOP shares from ESOP Phase I would be reallocated for distribution in ESOP Phase II.
In 2004, the Company made an adjustment to decrease the compensation expense of ESOP Phase I as a result of options being forfeited amounting to Rp3,609.
The total fair values of stock options distributed under ESOP Phase I and Phase II were Rp55,932 and Rp155,681, respectively.
The fair values of stock options under ESOP Phase I and Phase II were computed by adopting the Black-Scholes option pricing model and applying the following assumptions:
Phase I
Phase II
Risk-free interest rate
10.00%
8.90%
Expected dividend yield
4.36%
3.50%
Expected volatility
36.50%
37.00%
Expected option period
2 years
2 years
Based on a decree dated January 28, 2005 of the Board of Directors, the 7,847,000 forfeited shares under ESOP Phase I were added to the total shares to be distributed in ESOP Phase II resulting in the number of shares allocated in ESOP Phase II to become 137,284,500 shares. The vesting period for the additional shares granted in ESOP Phase II was the same as that for the original ESOP Phase II, which was up to July 31, 2005.
The numbers of forfeited shares at the end of the vesting period of ESOP Phase I and ESOP Phase II were 162,500 (equivalent to Rp75) and 2,279,000 (equivalent to Rp2,584) shares, respectively.
At the end of each exercise period, the numbers of stock options under ESOP Phase I and Phase II exercised by the employees were 121,428,000 and 135,005,500 shares, respectively (Note 19).
64
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
21.
OPERATING REVENUES - CELLULAR
This account consists of:
2006
2007
Usage charges
1,156,077
1,449,264
Features
723,077
980,424
Interconnection income
218,057
433,726
Connection fee
57,379
24,531
Monthly subscription charges
3,688
3,202
Others
13,639
7,833
Total
2,171,917
2,898,980
The above interconnection income includes interconnection income from related parties amounting to Rp149,864 and Rp310,947 in 2006 and 2007, respectively (Note 30).
22.
OPERATING REVENUES - MIDI
This account consists of:
2006
2007
Related parties
World link and direct link
23,095
24,010
Frame net
18,294
20,973
IP VPN
10,416
16,207
Application services
9,834
11,361
Leased line
4,324
8,064
Internet
17,289
6,959
Satellite lease
2,962
2,913
Others
6,691
2,338
Sub-total
92,905
92,825
Third parties
Internet
86,483
113,743
Frame net
79,444
65,043
World link and direct link
45,462
62,393
IP VPN
38,998
61,994
Leased line
28,673
32,370
Digital data network
37,353
29,478
Satellite lease
31,947
19,409
Application services
6,287
8,529
TV link
3,327
2,842
Others
4,793
4,897
Sub-total
362,767
400,698
Total
455,672
493,523
65
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
23.
OPERATING REVENUES - FIXED TELECOMMUNICATION
The “Operating Revenues - Fixed Telecommunication” account represents the Company’s share of revenue from the following:
2006
2007
International Calls
Outgoing calls
97,079
229,703
Incoming calls
112,834
84,371
Fixed Wireless
35,451
43,864
Fixed Line
25,700
23,817
Others
941
505
Total
272,005
382,260
Net settlements from other foreign telecommunication carriers of international telephone services amounted to Rp165,293 and Rp197,070 in 2006 and 2007, respectively.
Operating revenues from related parties amounted to Rp34,429 and Rp95,642 in 2006 and 2007, respectively. These amounts represent 12.66% and 25.02% of total operating revenues - fixed telecommunication in 2006 and 2007, respectively (Note 30).
24.
OPERATING EXPENSES - PERSONNEL
This account consists of:
2006
2007
Salaries
70,673
84,322
Incentives and other employee benefits
66,427
65,261
Bonuses
39,535
45,823
Employee income tax
29,318
44,815
Early retirement*
-
31,104
Outsourcing
37,000
30,708
Postretirement healthcare benefit
19,752
25,609
Pension (Note 29)
5,495
10,444
Medical expense
11,497
9,449
Separation, appreciation and compensation expense
under Labor Law No. 13/2003 (Note 29)
6,420
5,790
Others
785
2,483
Total
286,902
355,808
*
On June 27, 2006, the Company’s Directors issued Decree No. 051/DIREKSI/2006, “Additional Benefits for Voluntarily Resigned Employees”. Under this decree, employees qualified for early retirement and who voluntarily resigned after the approval from the Board of Directors were given benefits of additional remuneration, traveling and training packages. During the three months ended March 31, 2007, there were additional 55 employees who took the option.
The personnel expenses capitalized to properties under construction and installation in 2006 and 2007 amounted to Rp9,300 and Rp10,439, respectively.
66
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
25.
OPERATING EXPENSES - ADMINISTRATION AND GENERAL
This account consists of:
2006
2007
Provision for doubtful accounts
34,966
37,155
Rent
31,856
26,486
Travel
13,766
20,273
Professional fees
12,854
16,459
Utilities
11,004
13,042
Catering
8,824
8,036
Insurance
10,089
7,787
Training, education and research
5,103
7,355
Communications
4,579
6,061
Office supplies and stationery
4,030
3,818
Public relations
1,895
2,911
Others
15,280
22,338
Total
154,246
171,721
26.
OPERATING EXPENSES - COMPENSATION TO TELECOMMUNICATIONS CARRIERS AND SERVICE PROVIDERS
This account consists of compensation to the following:
2006
2007
Telkom
82,663
238,747
Other telecommunications carriers and
service providers
2,940
166,477
Total
85,603
405,224
The compensation expenses consist of interconnection and other expenses of the Company.
Interconnection relates to the expenses for the interconnection between the Company’s telecommunications networks and those owned by Telkom or other telecommunications carriers
(Note 2o).
Other expenses charged by Telkom relate to the billings for the use of circuit, infrastructure rental and billing processing services provided by Telkom (Note30). Other expenses charged by other telecommunications carriers mainly consist of billings for the use of their circuits.
67
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
26.
OPERATING EXPENSES - COMPENSATION TO TELECOMMUNICATIONS CARRIERS AND SERVICE PROVIDERS (continued)
The Company, Satelindo and IM3 have interconnection arrangements with domestic and overseas operators (Notes 30 and 36). The operating revenues from interconnection services are presented on a gross basis, except for those which are under contractual sharing arrangements (Note 2o). In 2007, the Company entered into several Memoranda of Understanding to amend the existing
revenue-sharing arrangements and to reflect the new cost-based interconnection scheme based on Regulation No. 08/PER/M.KOMINFO/02/2006 of the Ministry of Communications and Information Technology (Note 35).
The effects of these new arrangements on the Company’s 2007 consolidated financial statements are to increase the operating revenues and operating expenses by Rp320,330 each.
27.
OPERATING EXPENSES - OTHER COSTS OF SERVICES
This account consists of:
2006
2007
Radio frequency fee
82,239
132,372
Cost of SIM cards and pulse reload vouchers
177,350
93,830
Utilities
43,702
56,265
Rent
32,527
40,093
Concession fee
28,801
33,019
USO (Note 35)
21,884
24,920
Billing and collection
10,421
15,394
License fees
6,076
13,096
Delivery and transportation
10,949
12,320
Installation
5,896
5,086
Wartel (“Phone Kiosk”) commission
8,262
4,902
Insurance
621
928
Communications
4,904
504 Others
4,892
9,438
Total
438,524
442,167
28.
OTHER EXPENSES - FINANCING COST
This account consists of:
2006
2007
Interest on loans
321,120
293,877
Amortization of debt/bonds issuance
cost and discount (Notes 16 and 17)
6,580
7,395
Bank charges
673
2,207
Total
328,373
303,479
68
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
29.
PENSION PLAN
The Company, Satelindo and Lintasarta have defined benefit and defined contribution pension plans covering substantially all of their qualified permanent employees.
Defined Benefit Pension Plan
The Company, Satelindo and Lintasarta provide defined benefit pension plans to their respective employees under which pension benefits to be paid upon retirement are based on the employees’ most recent basic salary and number of years of service. PT Asuransi Jiwasraya (“Jiwasraya”), a state-owned life insurance company, manages the plans. Pension contributions are determined by periodic actuarial calculations performed by Jiwasraya.
Based on an amendment dated December 22, 2000 of the Company’s pension plan, which was further amended on March 29, 2001, the benefits and premium payment pattern were changed.
Before the amendment, the premium was regularly paid annually until the plan would be fully funded and the benefits consisted of retirement benefit (regular monthly or lump-sum pension) and death insurance. In conjunction with the amendment, the plan would be fully funded after making installment payments up to January 2002 of the required amount to fully fund the plan determined as of September 1, 2000. The amendment also includes an additional benefit in the form of thirteenth-month retirement benefit, which is payable annually 14 days before Idul Fitri (“Moslem Holiday”).
The amendment covers employees registered as participants of the pension plan as of
September 1, 2000 and includes an increase in basic salary pension by 9% compounded annually starting from September 1, 2001. The amendment also stipulates that there will be no increase in the premium even in cases of mass employee terminations or changes in marital status.
The total premium installments based on the amendment amounted to Rp355,000, which was paid on due dates.
In 2002, the Company made additional payments to Jiwasraya amounting to Rp20,433 for additional pension benefits which will be received by the directors when they retire.
On June 25, 2003, Satelindo entered into an agreement with Jiwasraya to amend the benefit and premium payment pattern of the former’s pension plan. The amendment covers employees registered as participants of the pension plan as of December 25, 2002 up to June 25, 2003. Other new conditions include the following:
·
An increase in pension basic salary at 6% compounded annually starting from December 25, 2002
·
Thirteenth-month retirement benefit, which is payable annually 14 days before Idul Fitri
·
An increase in periodic payment of retirement benefit at 6% compounded annually starting one year after receiving periodic retirement benefit for the first time
·
If the average annual interest rate of time deposits of government banks exceeds 15%, the participants’ retirement benefit will be increased by a certain percentage in accordance with the formula agreed by both parties.
On April 15, 2005, Lintasarta entered into an agreement with Jiwasraya to replace their existing agreement. Based on the new agreement, the benefits and premium payment pattern were changed. This agreement is effective starting January 1, 2005. The total premium installments based on the agreement amount to Rp61,623 which is payable in 10 annual installments starting 2005 until 2015.
69
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
29.
PENSION PLAN (continued)
Defined Benefit Pension Plan (continued)
The new agreement covers employees registered as participants of the pension plan as of April 1, 2003. The conditions under the new agreement include the following:
·
An increase in basic salary pension by 3% (previously was estimated at 8%) compounded annually starting April 1, 2003
·
An increase in periodic payment of retirement benefit at 5% compounded annually starting one year after receiving periodic retirement benefit for the first time
·
If the average annual interest rate of time deposits of government banks exceeds 15%, the participants’ retirement benefit will be increased by a certain percentage in accordance with the formula agreed by both parties.
On May 2, 2005, Lintasarta entered into an agreement with Jiwasraya to amend the above agreement. The amendment covers employees registered as participants of the pension plan as of April 1, 2003 up to November 30, 2004 with additional total premium installments amounting to Rp1,653 which is payable in 10 annual installments starting 2005 until 2015.
There were no contributions made by the Company, Satelindo and Lintasarta to Jiwasraya for the three months ended March 31, 2006 and 2007.
The net periodic pension cost for the pension plans for the three months ended March 31, 2006 and 2007 was calculated based on the actuarial valuations as of December 31, 2005 and 2006, respectively. The actuarial valuations were prepared by an independent actuary, using the projected-unit-credit method and applying the following assumptions:
2006
2007
Annual discount rate
13.0%
10.5%
Expected annual rate of return on plan assets
10.0%
10.0%
Annual rate of increase in compensation
3.0 - 9.0%
3.0 - 9.0%
Mortality rate
CSO 1980
CSO 1980
a.
The composition of the net periodic pension cost for the three months ended March 31, 2006 and 2007 is as follows:
2006
2007
Service cost
7,445
10,286
Interest cost
15,910
16,530
Return on plan assets
(17,860
)
(17,766)
Net amortization
-
1,394
Net periodic pension cost (Note 24)
5,495
10,444
70
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
29.
PENSION PLAN (continued)
Defined Benefit Pension Plan (continued)
b. The funded status of the plans as of March 31, 2006 and 2007 is as follows:
2006
2007
Projected benefit obligation
(521,756
)
(671,439
)
Plan assets at fair value
736,119
745,421
Excess of plan assets over projected benefit obligation
214,363
73,982
Unrecognized actuarial loss
38,614
149,427
Total prepaid pension cost
252,977
223,409
c.
Movements in the prepaid pension cost during the three months ended March 31, 2006 and 2007 are as follows:
2006
2007
Beginning balance
Company
255,899
225,296
Lintasarta
2,573
8,278
Net periodic pension cost
Company
(5,226
)
(9,410
)
Lintasarta
(269
)
(1,034
)
Benefit payment
Company
-
279
Ending balance
Company
250,673
216,165
Lintasarta
2,304
7,244
d.
Prepaid pension cost consists of:
2006
2007
Prepaid pension:
Current portion (presented as part of “Prepaid Expenses”)
Company
20,899
3,172
Lintasarta
1,082
118
21,981
3,290
71
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
29.
PENSION PLAN (continued)
Defined Benefit Pension Plan (continued)
d.
Prepaid pension cost consists of (continued):
2006
2007
Long-term portion
Company
229,774
212,993
Lintasarta
1,222
7,126
230,996
220,119
252,977
223,409
Plan assets as of March 31, 2006 and 2007 principally consisted of time deposits, debt securities, long-term investment in shares of stock and property.
Defined Contribution Pension Plan
In May 2001 and January 2003, the Company and Satelindo assisted their employees in establishing their respective employees’ defined contribution pension plans, in addition to the defined benefit pension plan as mentioned above. Starting June 2004, the Company also assisted ex-IM3’s employees in establishing their defined contribution pension plan. Under the defined contribution pension plan, the employees contribute 10% - 20% of their basic salaries, while the Company does not contribute to the plans. Total contributions of the employees for the three months ended March 31, 2006 and 2007 amounted to Rp4,226 and Rp4,032, respectively. The plan assets are being administered and managed by seven financial institutions appointed by the Company and Satelindo, based on the choice of the employees.
Labor Law No. 13/2003
The Companies also accrue benefits under Labor Law No. 13/2003 (“Labor Law”) dated March 25, 2003. The Companies’ employees will receive the benefits under this law or defined benefit pension plan, whichever amounts are higher.
The net periodic Labor Law cost for the three months ended March 31, 2006 and 2007 was calculated based on the actuarial valuations as of December 31, 2005 and 2006, respectively. The actuarial valuations were prepared by an independent actuary, using the projected-unit-credit method and applying the following assumptions:
2006
2007
Annual discount rate
13.0%
10.5%
Annual rate of increase in compensation
11.0 - 12.0%
10.0%
72
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
29.
PENSION PLAN (continued)
Labor Law No. 13/2003 (continued)
a.
The composition of the periodic Labor Law cost for the three months ended March 31, 2006 and 2007 is as follows:
2006
2007
Service cost
3,315
3,339
Interest cost
2,768
2,293
Net amortization
337
158
Periodic Labor Law cost (Note 24)
6,420
5,790
b.
The composition of the accrued Labor Law cost as of March 31, 2006 and 2007 is as follows:
2006
2007
Projected benefit obligation
(92,035
)
(91,575
)
Unrecognized actuarial loss
29,836
18,631
Accrued Labor Law cost
(62,199
)
(72,944
)
c.
Movements in the accrued Labor Law cost during the three months ended March 31, 2006 and 2007 are as follows:
2006
2007
Beginning balance
Company
51,586
62,972
Lintasarta
3,887
5,450
IMM
482
978
Periodic Labor Law cost
Company
5,951
4,954
Lintasarta
348
655
IMM
121
181
Benefit payment
Company
(176
)
(2,246
)
Ending balance
Company
57,361
65,680
Lintasarta
4,235
6,105
IMM
603
1,159
As of March 31, 2007, Labor Law cost included in accrued expenses amounted to Rp1,689 (Note 15) for the current portion and in non-current liabilities amounted to Rp71,255 for the long-term portion (Note 18).
73
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES
The details of the accounts and the significant transactions entered into with related parties (affiliates, unless otherwise indicated) are as follows:
Amount
Percentage to Total Assets/Liabilities (%)
2006
2007
2006
2007
Cash and cash equivalents
State-owned banks (Note 4)
2,637,738
1,463,384
8.08
4.18
Accounts receivable - trade
Telkom
202,846
162,314
0.62
0.46
StarHub Pte. Ltd. (“StarHub”), Singapore
35,136
45,623
0.11
0.13
PT Televisi Republik Indonesia
(Persero) (“TVRI”)
39,856
44,740
0.12
0.13
State-owned banks
30,031
24,465
0.090.07
Singapore Telecommunications Ltd
(“SingTel”), Singapore
31,822
10,715
0.10
0.03
PT Pos Indonesia (Persero)
9,011
9,047
0.03
0.03
PSN
3,124
5,139
0.01
0.01
PT Citra Sari Makmur (“CSM”)
3,816
4,371
0.010.01
Lembaga Kantor Berita Negara
(“LKBN”) Antara
5,258
1,821
0.02
0.01
Telkomsel
3,020
1,471
0.01
0.00
PT Napsindo Primatel International
1,362
1,369
0.00
0.00
Others
16,814
24,885
0.05
0.07
Total
382,096
335,960
1.17
0.95
Less allowance for doubtful accounts
141,550
140,395
0.43
0.40
Net
240,546
195,565
0.74
0.55
Prepaid expenses
Ministry of Communications and
Information Technology
76,005
91,724
0.23
0.26
Jiwasraya
21,981
3,290
0.07
0.01
Kopindosat
9,415
2,391
0.03
0.01
Others
4,144
1,818
0.01
0.01
Total
111,545
99,223
0.34
0.29
Other current assets
State-owned banks
33,333
12,136
0.10
0.03
Others
1,687
7
0.01
0.00
Total
35,020
12,143
0.11
0.03
Due from related parties
Key management personnel
18,472
11,393
0.06
0.03
Telkomsel
5,668
8,233
0.02
0.02
Kopindosat
6,197
5,958
0.020.02
BNI
1,061
1,235
0.00
0.00
Others
1,398
662
0.00
0.00
Total
32,796
27,481
0.10
0.07
Less allowance for doubtful accounts
1,718
3,483
0.01
0.01
Net
31,078
23,998
0.09
0.06
Long-term prepaid pension
Jiwasraya
230,996
220,119
0.71
0.63
74
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amount
Percentage to Total Assets/Liabilities (%)
2006
2007
2006
2007
Long-term advances
Kopindosat
4,328
11,706
0.01
0.03
PT Industri Telekomunikasi
Indonesia (Persero)
-
9,586
-
0.03
Others
1,341
106
0.00
0.00
Total
5,669
21,398
0.01
0.06
Non-current assets - others
State-owned banks
26,676
32,100
0.08
0.09
Telkom
25,736
21,331
0.08
0.06
Kopindosat
-
7,140
-
0.02
Others
4,387
3,048
0.01
0.01
Total
56,799
63,619
0.17
0.18
Accounts payable - trade
Telkomsel
23,233
43,848
0.13
0.23
Telkom
2,513
637
0.01
0.00
Others
1,334
4,316
0.01
0.02
Total
27,080
48,801
0.15
0.25
Procurement payable
Kopindosat
44,604
30,690
0.25
0.16
PT Industri Telekomunikasi
Indonesia (Persero)
24,608
30,378
0.140.16
PT NexWave
-
7,215
-
0.04
PT SCS Astra Graphia Technologies
-
655
-
0.00
Total
69,212
68,938
0.39
0.36
Accrued expenses
Ministry of Communications and
Information Technology
61,497
129,516
0.34
0.67
Government of the Republic of
Indonesia
-
20,633
-
0.11
Key management personnel
26,395
9,269
0.15
0.05
Telkom
5,762
7,114
0.03
0.04
Kopindosat
7,893
5,786
0.04
0.03
Others
4,396
4,933
0.02
0.03
Total
105,943
177,251
0.58
0.93
Due to related parties
Indonesia Comnet Plus (“Comnet”)
8,016
7,885
0.04
0.04
TVRI
2,262
4,962
0.01
0.03
State-owned banks
1,875
1,875
0.01
0.01
Kopindosat
1,518
1,514
0.01
0.01
PT Pos Indonesia (Persero)
4,100
48
0.02
0.00
Others
3,050
1,684
0.02
0.01
Total
20,821
17,968
0.11
0.10
Loans payable
State-owned banks
631,550
637,086
3.54
3.29
75
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amount
Percentage to Total Assets/Liabilities (%)
2006
2007
2006
2007
Other non-current liabilities
Telkomsel
14,357
12,693
0.08
0.07
StarHub
1,091
3,727
0.01
0.02
Others
-
956
-
0.00
Total
15,448
17,376
0.09
0.09
Percentage to Respective Income
or Expenses
Amount
(%)
2006
2007
2006
2007
Operating revenues
Telkom
177,749
286,800
6.13
7.60
Telkomsel
593
144,564
0.02
3.83
State-owned banks
35,867
38,437
1.24
1.02
Ministry of Communications
and Information
Technology
-
2,545
-
0.07
CSM
2,465
2,070
0.09
0.05
StarHub
11,461
1,728
0.40
0.05
PSN
1,230
1,663
0.04
0.04
PT Angkasa Pura (Persero)
1,139
1,410
0.04
0.04
LKBN Antara
6,339
1,127
0.22
0.03
SingTel
24,149
861
0.83
0.02
Others
16,206
18,209
0.55
0.48
Total
277,198
499,414
9.56
13.23
Operating expenses
Compensation to telecommunication
carriers and service providers
Telkom
82,663
238,747
4.03
8.74
Telkomsel
-
104,930
-
3.84
PSN
163
638
0.01
0.02
Total
82,826
344,315
4.04
12.60
Personnel
Kopindosat
19,355
29,933
0.94
1.10
Key management personnel
33,697
23,847
1.64
0.87
Jiwasraya
5,495
10,444
0.27
0.38
Total
58,547
64,224
2.85
2.35
Maintenance
Kopindosat
4,039
617
0.20
0.02
Others
-
2,536
-
0.09
Total
4,039
3,153
0.20
0.11
76
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
Percentage to Respective Income
or Expenses
Amount
(%)
2006
2007
2006
2007
Administration and general
Kopindosat
3,025
10,838
0.15
0.40
PLN
-
8,213
-
0.30
UGBDN
99
1,558
0.00
0.06
Others
4,080
3,363
0.20
0.12
Total
7,204
23,972
0.35
0.88
Leased circuits
Comnet
4,536
7,382
0.22
0.27
SingTel
6,289
4,587
0.31
0.17
StarHub
1,875
2,365
0.09
0.09
Total
12,700
14,334
0.62
0.53
Other costs of services
Ministry of Communication
and Information Technology
132,924
190,311
6.48
6.96
Others
1,058
743
0.05
0.03
Total
133,982
191,054
6.53
6.99
Other income (expenses)
Interest income (expense) - net
State-owned banks
24,991
(1,446
)
(8.59
)
0.44
Others
-
1,558
-
(0.47
)
Net
24,991
112
(8.59
)
(0.03
)
The following are the significant agreements/transactions with related parties:
a.
State-owned banks
The Companies place a substantial amount of their cash and cash equivalents in various
state-owned banks. Interest rates on these placements are comparable to those offered by third-party banks.
The Company also obtained loans from BNI and Mandiri (Note 16).
b.
Telkom
(1)
a.
Fixed telecommunication services
On September 23, 2005, the Company and Telkom signed an agreement regarding the interconnection of local, long-distance and international fixed networks.
77
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
b.
Telkom (continued)
(1)
a.
Fixed telecommunication services (continued)
The principal matters covered by the agreement are as follows:
·
Interconnection between the Company’s and Telkom’s local, long-distance and international fixed networks enables the Company’s fixed telecommunication service subscribers to make or receive calls to or from Telkom’s subscribers or international gateways.
·
The Company’s and Telkom’s international services are accessible and continuously open to each other’s fixed networks.
·
The Company and Telkom are responsible for their respective telecommunications facilities.
·
The compensation arrangement for the services provided is based on interconnection tariffs determined by both parties.
·
Each party handles subscriber billing and collection for the other party’s international calls service used by the other party’s subscribers. Each party has to pay the other party 1% of the collections made by the other party, plus the billing process expenses which are fixed at Rp82 (in full amount) per record of outgoing call as compensation for billing processing.
On December 28, 2006, the Company entered into Memorandum of Understanding
with Telkom applying the new interconnection rates under cost-based regime that are effective starting January 1, 2007.
Receivables from Telkom are settled according to payments received by Telkom from the respective customers. These receivables are non-interest bearing.
Under a cooperation agreement with Telkom, the compensation of Telkom relating to leased circuit/channel services, such as world link and bit link, is calculated at 15% of the Company’s collected revenues from such services.
The Company and Satelindo also lease circuits from Telkom to link Jakarta, Medan and Surabaya.
b.
Cellular Services
On December 1, 2005, the Company and Telkom signed an agreement regarding the interconnection between the Company’s cellular telecommunication network with Telkom’s fixed telecommunication network. Under this agreement, the interconnection between the Company’s cellular telecommunication network and Telkom’s fixed telecommunication network enables the Company’s cellular subscribers to make or receive calls to or from Telkom’s fixed telecommunication subscribers.
On December 28, 2006, the Company entered into Memorandum of Understanding
with Telkom applying the new interconnection rates under cost-based regime that are effective starting January 1, 2007.
78
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
b.
Telkom (continued)
(2)
In 1994, Satelindo entered into a Land Transfer Agreement with Telkom for the transfer of Telkom’s rights to use 134,925 square meters of land located at Daan Mogot, West Jakarta, where Satelindo’s earth control station is currently situated. The Land Transfer Agreement enables Satelindo to use the land for a period of 30 years from the date of the agreement, for a price equivalent to US$40,000 less Rp43,220, and could be extended based on mutual agreement. This agreement was subsequently superseded by Land Rental Agreement dated December 6, 2001, generally under the same terms as those of the Land Transfer Agreement.
(3)
In 1999, Lintasarta entered into an agreement with Telkom, whereby Telkom agreed to lease transponder to Lintasarta. This agreement has been amended several times, the latest amendment of which is based on the sixth amendment agreement dated September 29, 2006. Transponder lease expense charged to operations amounted to Rp1,350 in 2006 and Rp3,521 in 2007 which is presented as part of “Operating Expenses - Compensation to Telecommunications Carriers and Service Providers”.
The following is a summary of the significant transactions between the Companies and Telkom:
Percentage to Respective Income
or Expenses
Amount
(%)
2006
2007
2006
2007
Net operating revenues
177,749
286,800
4.56
7.60
Operating expenses
82,663
238,747
4.03
8.74
c.
PSN
In 1997, Satelindo entered into an operation agreement with PSN, an investee of Telkom, in respect of the Palapa-C satellites. In accordance with the agreement, Satelindo agreed to operate and control the Palapa-C satellites through Satelindo’s Master Control Station (“MCS”) located at Daan Mogot, West Jakarta. Under the agreement, PSN shall pay an annual operation fee of US$323 to Satelindo. The operation fee is payable in quarterly installments.
The agreement was amended in 1999 relating to the de-orbit of one of the satellites.
d.
Telkomsel
The Company, Satelindo and IM3 have interconnection transactions with Telkomsel, a subsidiary of Telkom, under contractual sharing agreements which provide the following:
·
The Company’s and Satelindo’s international gateway exchanges are interconnected with Telkomsel’s GSM mobile cellular telecommunications network to make outgoing or receive incoming international calls through the Company’s and Satelindo’s international gateway exchanges.
·
The Company and Satelindo receive as compensation for the interconnection, a portion of Telkomsel’s revenues from the related services that are made through the Company’s and Satelindo’s international gateway exchanges.
79
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
d.
Telkomsel (continued)
·
Satelindo and IM3 also have agreements with Telkomsel for the interconnection of Satelindo’s and IM3’s GSM mobile cellular telecommunications network with Telkomsel’s network, enabling Telkomsel’s customers to make calls to or receive calls from Satelindo’s and IM3’s customers.
·
The agreements are renewable annually.
On December 8, 2006, the Company entered into Memorandum of Understanding with Telkomsel applying the new interconnection rates under cost-based regime to comply with Regulation
No. 08/PER/M.KOMINFO/02/2006 of the Ministry of Communications and Information Technology.
Net interconnection revenues (charges) from Telkomsel for the three months ended March 31, 2006 and 2007 are as follows:
2006
2007
Interconnection revenues
170,347
111,339
Interconnection charges
(177,482
)
(104,930
)
Net revenues (charges)
(7,135
)
6,409
e.
Jiwasraya
Jiwasraya is a state-owned life insurance company that provides services to the Companies in managing the Companies’ pension plans.
f.
Kopindosat
Kopindosat is a cooperative established by the Company’s employees to engage in various activities from which it earns revenues, such as providing housing and car loans and other consumer loans principally to the Company’s employees, as well as car, house and equipment rental and other services principally to the Company.
Kopindosat and certain of its subsidiaries are under the supervision of the Company’s management. The Company also seconded several of its employees on a temporary basis to support Kopindosat and its subsidiaries in conducting their businesses and to provide managerial training for the Company’s employees. In addition, the Company provides Kopindosat and certain of its subsidiaries some office spaces in its buildings for use in their businesses.
As of March 31, 2006 and 2007, Kopindosat has investments in the following entities:
Equity Interest (%)
2006
2007
PT Persada Alih Daya
-
99.00
PT Puri Perkasa Farmindo
88.00
99.00
Lintasarta
0.66
0.66
IMM
0.15
0.15
80
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
f.
Kopindosat (continued)
Kopindosat distributes annually to the Company’s employees a portion of its profit earned during the preceding fiscal year. The Company initially makes the distribution (charged to a receivable account) to the employees which is subsequently reimbursed by Kopindosat. The timing of such reimbursement, which has historically occurred within the year of distribution, is subject to negotiations between the Company and Kopindosat. The receivable is non-interest bearing.
g.
Key Management Personnel
The amounts due from key management personnel represent portions of housing and transportation allowances which were given in advance by the Companies to their employees and transformation incentive (incentive given to employees to encourage them to adapt to
the transformation of the business of the Company from fixed line international provider to cellular operator) which are amortized over the average remaining service period of the employees.
The prepaid/unamortized portions of housing and transportation advances and transformation incentives which were given to key management personnel in 2006 and 2007 amounted to Rp18,472 and Rp11,393, respectively, and are presented as part of “Due from Related Parties”. Those given to non-key management personnel amounting to Rp1,791 and Rp2,377 as of
March 31, 2006 and 2007, respectively, are presented as part of “Accounts Receivable - Others” for the current portion, and Rp121,965 and Rp104,662 as of March 31, 2006 and 2007, respectively, as “Long-term Receivables” for the non-current portion.
The management believes that the allowance provided on accounts receivable - trade and others from related parties is adequate to cover possible loss from uncollectible accounts.
The relationship and nature of account balances/transactions with other related parties are as follows:
Nature of Account
No.
Related Parties
Relationship
Balances/Transactions
1.
StarHub
Affiliate
Operating revenues -
international calls
2.
TVRI
Affiliate
Operating revenues - MIDI
3.
SingTel
Affiliate
Operating revenues -
international calls
4.
PT Pos Indonesia (Persero)
Affiliate
Operating revenues - MIDI
5.
CSM
Affiliate
Operating revenues - MIDI
6.
LKBN Antara
Affiliate
Operating revenues - MIDI
7.
PT Napsindo Primatel
International
Affiliate
Operating revenues - MIDI
8.
Ministry of Communications
Government agency
Operating revenues - MIDI,
and Information Technology
concession fee, frequency fee
and USO
81
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30.
ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
Nature of Account
No.
Related Parties
Relationship
Balances/Transactions
9.
PT Industri Telekomunikasi
Indonesia (Persero)
Affiliate
Procurement payable
10.
PT NexWave
Affiliate
Procurement payable
11.
PT SCS Astra Graphia
Technologies
Affiliate
Procurement payable
12.
Comnet
Affiliate
Other cost of services - rent of
transmission channel
13.
PT Angkasa Pura (Persero)
Affiliate
Operating revenues - MIDI
14.
PLN
Affiliate
Utilities expense
15.
UGBDN
Affiliate
Rent expense
31.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
2006
2007
Numerator for basic earnings per share - net income
383,929
483,884
Dilutive effect of convertible bonds (Note 17)
(2,922
)
(2,256
)
Numerator for diluted earnings per share
381,007
481,628
Denominator - number of shares
Denominator for basic earnings per share:
Weighted-average number of shares outstanding
during the period (including effect of exercise
of ESOP Phase II)
5,372,684,141
5,433,933,500
Dilutive effect of ESOP Phase II (Note 20)
18,655,622
-
Denominator for diluted earnings per share
5,391,339,763
5,433,933,500
Basic earnings per share
71.46
89.05
Diluted earnings per share
70.67
88.63
Basic earnings per ADS (50 B shares per ADS)
3,572.97
4,452.43
Diluted earnings per ADS
3,533.51
4,431.67
82
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
32.
DERIVATIVES
During 2006 and 2007, the Company entered into several swap contracts. Listed below is information related to the contracts and their fair values as of March 31, 2006 and 2007:
Fair Value (Rp)
Notional
2006
2007
Amount
(US$)
Receivable
Payable
ReceivablePayable
Cross Currency Swap:
a.
Standard Chartered Bank, Jakarta
Branch (“StandChart”)
25,000
-
11,113
-11,938
b.
Goldman Sachs International (“GSI”)
100,000
-
43,544
-19,013
c.
GSI
25,000
-
25,902
-31,813
d.
GSI
75,000
-
1,935
17,404
-
e.
Merrill Lynch Capital Market Bank
Limited (“MLCMB”)
25,000
-
10,243
-8,565
f.
MLCMB
25,000
-
36,257
-
37,874
g.
StandChart
25,000
-
15,042
-24,973
h.
MLCMB
25,000
-
11,760
-14,313
i.
StandChart
25,000
3,568
-
-
8,677
j.
StandChart
25,000
-
-
1,571
-
k.
The Hongkong and Shanghai Banking
Corporation Limited, Jakarta
Branch (“HSBC”)
25,000
-
-
-7,280
l.
Goldman Sachs Capital Market (“GSCM“)
10,000
-
-
4,854
-
m.
StandChart
2,000
-
-
90
-
Sub-total
3,568
155,796
23,919
164,446
Interest Rate Swap:
n.
GSCM
(*)
25,000
-
3,806
--
o.
GSCM
25,000
-
-
1,413
-
Sub-total
-
3,806
1,413
-
Total
3,568
159,602
25,332
164,446
(*) terminated in October 2006
The net change in fair value of the swap contracts totalling (Rp222,441) and Rp68,628 in 2006 and 2007, respectively, is presented as “Gain (Loss) on Change in Fair Value of Derivatives - Net” under Other Income (Expenses) in the consolidated statements of income. “Derivative assets” presented under current assets amounted to Rp3,568 and Rp25,332 as of March 31, 2006 and 2007, respectively, and “Derivative liabilities” presented under current liabilities amounted to Rp159,602 and Rp164,446 as of March 31, 2006 and 2007, respectively.
83
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
32.
DERIVATIVES (continued)
The following are the details of the swap contracts:
Cross Currency Swap Contracts
a.
On April 23, 2004, the Company entered into a cross currency swap contract with StandChart which is effective starting April 13, 2004. Based on the contract, the Company will swap at the termination date on November 5, 2008, a total of Rp214,625 for US$25,000. The contract provides for the Company to make semi-annual payments, every May 5 and November 5, up to the termination date, at 6-month U.S. dollar LIBOR plus 2.60% per annum.
b.
On May 13, 2005, the Company entered into a cross currency swap contract with GSI. Based on the contract which is effective starting May 5, 2005, the Company will swap at termination date on November 5, 2010, a total of Rp832,250 for US$100,000. Based on the contract, the Company will make semi-annual payments every May 5 and November 5 up to termination date, at (i) fixed rate of 6.96% for US$50,000 and at (ii) 6-month U.S. dollar LIBOR plus 2.62% per annum for US$50,000 and will receive (i) semi-annual payments in the amount of 6-month U.S. dollar LIBOR per annum multiplied by US$11,750 during the period May 13, 2005 through May 13, 2008 and
(ii) the amount of US$11,750 on May 13, 2008.
c.
On May 13, 2005, the Company entered into a cross currency swap contract with GSI which is effective starting May 5, 2005. Based on the contract, the Company will swap at termination date on November 5, 2010, a total of Rp245,000 for US$25,000. The contract provides for the Company to make semi-annual payments every May 5 and November 5 up to termination date, at the fixed rate of 4.30% of US$25,000 per annum.
d.
On August 22, 2005, the Company entered into a cross currency swap contract with GSI which is effective starting June 22, 2005. Based on the contract, the Company will swap at termination date on June 22, 2012, a certain rupiah amount equivalent to US$75,000 multiplied by certain predetermined exchange rate for US$75,000. The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to termination date at the fixed rate of 3.28% of US$75,000 per annum.
e.
On September 20, 2005, the Company entered into a cross currency swap contract with MLCMB which is effective starting September 22, 2005. Based on the contract, the Company will receive, at termination date on June 22, 2012, the following:
·
If the rupiah/US$ spot rate at termination date is less than Rp9,500 to US$1 (in full amounts), the Company will receive zero amount from MLCMB.
·
If the rupiah/US$ spot rate at termination date is greater than Rp9,500 but is less than or equal to Rp14,000 to US$1 (in full amounts), the Company will receive a certain U.S. dollar amount which is equal to US$25,000 multiplied by (1 - Rp9,500/rupiah/US$ spot rate) (in full amount).
·
If the rupiah/US$ spot rate at termination date is greater than Rp14,000 to US$1 (in full amounts), the Company will receive a certain US$ amount which is equal to US$25,000 multiplied by (Rp14,000 - Rp9,500)/rupiah/US$ spot rate (in full amounts).
The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to termination date at the fixed rate of 2.99% of US$25,000 per annum.
84
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
32.
DERIVATIVES (continued)
Cross Currency Swap Contracts (continued)
b.
On November 16, 2005, the Company entered into a cross currency swap contract with MLCMB which is effective starting November 18, 2005. Based on the contract, the Company will swap at the termination date on June 22, 2012, a total of Rp245,000 for US$25,000. The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to termination date at the fixed rate of 5.50% of US$25,000 per annum.
c.
On January 11, 2006, the Company entered into a cross currency swap contract with StandChart which is effective starting January 13, 2006. Based on the contract, the Company will swap at termination date on June 22, 2012, a total of Rp236,250 for US$25,000. The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to and including termination date at the fixed rate of 4.78% of US$25,000 per annum.
h.
On March 1, 2006, the Company entered into a cross currency swap contract with MLCMB which is effective starting March 3, 2006. Based on the contract, the Company will swap at the termination date on June 22, 2012, a total of Rp229,975 for US$25,000. The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to termination date at the fixed rate of 4.15% of US$25,000 per annum.
i.
On March 15, 2006, the Company entered into a cross currency swap contract with StandChart which is effective starting March 17, 2006. Based on the contract, the Company will swap at termination date on June 22, 2012, a total of Rp228,550 for US$25,000. The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to and including termination date at the fixed rate of 3.75% of US$25,000 per annum.
j.
On May 12, 2006, the Company entered into a cross currency swap contract with StandChart. Based on the contract, the Company will swap at termination date on June 22, 2012, a total of Rp217,500 for US$25,000. The contract provides for the Company to make semi-annual payments every June 22 and December 22 up to and including termination date at the fixed rate of 3.45% of US$25,000 per annum.
k.
On August 8, 2006, the Company entered into a cross currency swap contract with HSBC. Based on the contract, the Company will swap at termination date on November 5, 2010, a total of Rp225,000 for US$25,000. The contract provides for the Company to make semi-annual payments every May 5 and November 5 up to and including termination date at the fixed rate of 4.00% of US$25,000 per annum.
l.
On January 2, 2007, the Company and GSCM entered into a currency forward contract with notional amount of US$10,000 and USD/IDR fixing rate of Rp8,955 to US$1 (in full amounts). Based on the contract:
·
If the USD/IDR fixing rate is lower than Rp9,600 to US$1 (in full amounts), the Company will buy US$10,000 at USD/IDR fixing rate on the respective settlement dates.
·
If the USD/IDR fixing rate is at or higher than Rp9,600 to US$1 (in full amounts), there will be no cash flow on the respective settlement dates.
The contract provides that the settlement dates are on May 4, 2007, June 6, 2007 and July 5, 2007.
85
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
32.
DERIVATIVES (continued)
Cross Currency Swap Contracts (continued)
m.
On February 15, 2007, the Company and StandChart entered into a currency forward contract with notional amount of US$2,000 and USD/IDR fixing rate of Rp8,950 to US$1 (in full amounts). Based on the contract:
·
If the USD/IDR fixing rate is lower than Rp9,215 to US$1 (in full amounts), the Company will buy US$2,000 at USD/IDR fixing rate on the respective settlement dates.
·
If the USD/IDR fixing rate is at or higher than Rp9,215 to US$1 (in full amounts), there will be no cash flow on the respective settlement dates.
The contract provides that the settlement dates will be every month starting March 20, 2007 to February 20, 2008.
All cross-currency swap contracts with GSI (Notes 32b, 32c and 32d) are structured to include credit-linkage with the Company as the reference entity and with the Company’s (i) bankruptcy, (ii) failure to pay on certain debt obligations or (iii) restructuring of certain debt obligations as the relevant Credit Events. Upon the occurrence of any of these Credit Events, the Company’s obligations and those of GSI under these swap contracts will terminate without any further payments or settlements being made by or owed to either party, including a payment by either party of any marked-to-market value of the swap contracts.
Interest Rate Swap Contracts
n.
On March 15, 2006, the Company entered into an interest swap contract with GSCM with
a notional amount of US$25,000. Based on the contract which was effective starting
December 22, 2005, the Company agreed to pay at the fixed rate of 4.90% of US$25,000 per annum, in quarterly intervals, every March 22, June 22, September 22 and December 22 up to the termination date on June 22, 2012, in exchange for 7.125% per annum times certain index located in the pre-determined quarter range up to 2012. The swap income arising from this transaction amounting to Rp1,275 in 2006 is presented as part of “Gain (Loss) on Change in Fair Value of Derivatives - Net” under Other Income (Expenses).
On October 16, 2006, the Company early terminated its interest rate swap contract with GSCM. Based on the termination confirmation, the Company was required to make termination payment in the amount of US$380 (equivalent to Rp3,498), which was made on October 20, 2006.
o.
On July 18, 2006, the Company entered into an interest swap contract with GSCM with a notional amount of US$25,000. Based on the contract which is effective starting December 22, 2006, the Company agreed to pay at the fixed rate of 5.90% of US$25,000 per annum, in semi-annual intervals, every June 22 and December 22 up to the termination date on June 22, 2012, in exchange for 7.125% per annum times certain index located in the pre-determined semi-annual range up to 2012.
The contract provides early termination option for GSCM starting on June 22, 2007 and semi-annually thereafter with five (5) New York business days’ prior notice.
33.
COMMITMENTS AND CONTINGENCIES
a.
As of March 31, 2007, commitments on capital expenditures which are contractual agreements not yet realized relate to the procurement and installation of property and equipment amounting to US$273,249 and Rp2,191,566 (Note 40g).
86
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
33.
COMMITMENTS AND CONTINGENCIES (continued)
The significant commitments on capital expenditures are as follows:
·
On February 1, 2007, the Company has issued several POs totalling US$1,550 and Rp306,106 to PT Alcatel Indonesia for Site Infrastructure Project. The issued POs that have not been served amounted to US$1,240 and Rp246,244 as of March 31, 2007.
·
On September 29, 2006, the Company entered into WCDMA/HSDPA Radio Access Network Development Project Agreement with PT Ericsson Indonesia and Ericsson AB. The total contract prices under this agreement amounted to US$55,220 and Rp216,039. As of March 31, 2007, the Company has issued several POs totalling US$29,119 and Rp113,327. The issued POs that have not been served amounted to US$13,019 and Rp66,619 as of March 31, 2007.
·
On September 25, 2006, the Company entered into Single Intelligent Network Agreement with PT Ericsson Indonesia and Ericsson AB. The total contract prices under this agreement amounted to US$67,091 and Rp92,364. As of March 31, 2007, the Company has issued several POs totalling US$29,668 and Rp74,372. The issued POs that have not been served amounted to US$22,818 and Rp68,216 as of March 31, 2007.
·
On July 28, 2005, the Company entered into Supply and Installation of PDH and SDH Microwave Radio Equipment for West Java, Central Java, Bali and Nusa Tenggara Islands Agreements with PT Alcatel Indonesia, Alcatel CIT, and Alcatel Italy. The latest amendment to these agreements was made on February 1, 2007. The total contract prices, as amended, under these agreements amounted to US$38,871 and Rp198,030. As of March 31, 2007, the Company has issued several POs for the full amount of the contract prices. The issued POs that have not been served amounted to US$11,906 and Rp91,347 as of March 31, 2007.
·
On July 22, 2005, the Company entered into Supply and Installation of PDH Microwave Roll-out Agreement with PT Ericsson Indonesia and Ericsson AB. The issued POs that have not been served amounted to US$27,336 and Rp122,167 as of March 31, 2007.
·
On July 1, 2005, the Company entered into 2005 - 2008 BSS Expansion Agreements with
PT Nokia Networks and Nokia Corporation. The latest amendment to these agreements was made on February 16, 2007. The total contract prices, as amended, under these agreements amounted to US$175,767 and Rp257,379. As of March 31, 2007, the Company has issued several POs for the full amount of the contract prices. The issued POs that have not been served amounted to US$17,619 and Rp39,434 as of March 31, 2007.
·
On June 22, 2005, the Company entered into Supply and Installation of PDH Microwave Radio for Sumatra Area Agreement with PT Siemens Indonesia and Siemens Mobile Communications S.p.A. The issued POs that have not been served amounted to US$14,500 and Rp158,018 as of March 31, 2007.
·
On March 15, 2005, the Company entered into Supply and Installation of BSS, MSC and IN Expansion Agreements with PT Ericsson Indonesia and Ericsson AB. The latest amendment to these agreements was made on December 5, 2006. The total contract prices, as amended, under these agreements amounted to US$61,807 and Rp155,370. As of March 31, 2007, the Company has issued several POs for the full amount of the contract prices. The issued POs that have not been served amounted to US$2,987and Rp33,952 as of March 31, 2007.
87
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
33.
COMMITMENTS AND CONTINGENCIES (continued)
b.
On July 20, 2005, the Company obtained facilities from HSBC to fund the Company’s short-term working capital needs. The facilities consist of the following:
·
Overdraft facility amounting to US$2,000 (including overdraft facility denominated in rupiah amounting to Rp16,000). Interest will be charged on daily balances at 3.75% per annum and 6% per annum below the HSBC Best Lending Rate for the loan portions denominated in rupiah and U.S. dollar, respectively. Interest is payable on a monthly basis by debiting the Company’s current account.
·
Revolving loan facility amounting to US$5,000 (including revolving loan denominated in rupiah amounting to Rp40,000). The loan matures at the maximum period of six months and can be drawn in tranches with minimum amounts of US$500. Interest will be charged on daily balances at 3% per annum and 6.3% per annum below the HSBC Term Lending Rate for the loan portions denominated in rupiah and U.S. dollar, respectively. Interest is payable on a monthly basis by debiting the Company’s current account.
Based on the loan/overdraft facility agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
The Company also obtained treasury facilities from HSBC as follows:
·
Currency swap limit (weighted) amounting to US$7,000 to facilitate the Company’s requirement for hedging genuine foreign currency and international rate exposure through currency swap and/or interest rate swap, with a maximum maturity of 5 years.
·
Exposure risk limit (weighted) amounting to US$3,000 to facilitate the Company’s requirement for hedging genuine foreign currency exposures through spot and forward transactions with maximum maturity of 3 months.
The facilities expired on February 28, 2006 and were extended for 12 months.
As of March 31, 2007, the Company has not used these facilities and the process of further extending such facilities is still ongoing.
a.
On August 25, 2005, the Company obtained facilities from Deutsche Bank AG, Jakarta Branch to finance the Company’s general working capital. The facilities consist of the following:
·
Loan facility amounting to Rp25,000, which can be drawn as advances with
a minimum amount of Rp100 for each advance. Each advance matures at the maximum period of six months and bears interest as follows:
-
The interest on each advance with maturity of three months or less shall be payable at 1.7% per annum over Certificates of Bank Indonesia rates.
-
The interest on each advance with maturities of over three months but less than six months is payable at 2.5% per annum over three-month Certificates of Bank Indonesia rates.
Based on the loan facility agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
·
Bank guarantee facility amounting to US$2,000. The loan from the facility matures at the maximum period of one year. The Company is required to pledge its cash deposit/cash margin/current account in Deutsche Bank AG, Jakarta Branch for the issuance of bank guarantee.
88
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
33.
COMMITMENTS AND CONTINGENCIES (continued)
The facilities expired on November 30, 2005 and were extended for 12 months. The facilities shall be automatically extended for further 12-month periods upon expiration, unless early notification of non-extension is made in writing.
As of March 31, 2007, the facilities have not been terminated and the Company has not used these facilities.
a.
On January 23, 2007, the Company obtained a credit facility of US$10,000 or its IDR equivalent from StandChart to fund the Company’s short-term working capital needs. The credit facility is a revolving loan that will be available until December 31, 2007. After the full amount of the facility is drawn, this credit facility continues to become available for a period of one up to six months that can be further rolled over. The revolving loan bears interest at SIBOR plus 1.25% per annum, and at the prevailing annual rate of one-month Certificate of Bank Indonesia plus 1.70% for the portions of the revolving loan denominated in U.S. dollar and rupiah, respectively.
Based on the credit facility agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios.
As of March 31, 2007, the Company has not used this facility.
e.
In 1994 and 1998, the Company was appointed as a Financial Administrator (“FA”) and Central Billing Party (“CBP”), respectively, by a consortium which was established to build and sell/lease Asia Pacific Cable Network (“APCN”) submarine cable in countries in the Asia-Pacific Region. As an FA, the Company collected and distributed funds from the sale of APCN’s IRU and Defined Underwritten Capacity (“DUC”) and Occasional Commercial Use (“OCU”) service, while as a CBP, the Company managed funds from the members of the consortium for upgrading the APCN cable.
The funds received from the sale of IRU and DUC, OCU services and funds received for upgrading the APCN cable did not belong to the Company and, therefore, were not recorded in the Company’s books. However, the Company managed these funds in separate accounts. On April 25, 2005, the Company was discharged as the CBP.
As of March 31, 2007, the balance of the funds (including interest earned) which are under the Company’s custody amounted to US$12,204. Besides receiving their share of the funds from the sale of IRU, the members of the consortium also received their share of the interest earned by the above funds.
f.
Based on letters No. S-5341/LK/2002 and No. S-5327/LK/2002, both dated December 4, 2002, of the Ministry of Finance (“MOF”) of the Republic of Indonesia, the Company was fined 2% interest per month as penalty (for a maximum period of 24 months) for the late payment of
the Government’s dividends. The Company paid the dividends in accordance with the payment schedule approved in its Stockholders’ Annual General Meeting.
The penalties amounted to Rp20,633 and Rp38,096 for the dividends from the Company’s net income in 1999 and 2000, respectively. However, on December 1, 2003, the MOF through its letter No. S-6287/LK/2003 increased the penalty for the dividend from the Company’s net income in 2000 from Rp38,096 to Rp42,902.
After several letters issued by the Company and responded to by the Ministry of State-owned Enterprises and the MOF, it was confirmed that the Company’s total penalties amounted to Rp63,535 for the dividends from the Company’s net income in 1999 and 2000.
89
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
33.
COMMITMENTS AND CONTINGENCIES (continued)
Based on a Circular Resolution dated September 18, 2006 of the Company’s Board of Directors, after carefully considering the input made by the Government of Indonesia at the Company’s Stockholders’ Annual General Meeting held on June 29, 2006, the Board of Directors agreed to amicably settle such dividend penalties in such amount and terms of payment acceptable to the MOF.
In 2006, the Company accrued the penalty in the amount of Rp20,633 representing its estimate of the penalty it will pay to the Government and pertaining to the dividend from the Company’s 1999 net income. Up to March 31, 2007, no resolution has been agreed between the Company and the MOF.
g.
The Company has committed to pay annual radio frequency fee over the 3G license period, provided the Company holds the 3G license (Note 1a). The amount of annual payment is based on the scheme of payment set out in Regulation No. 7/PER/M.KOMINFO/2/2006 dated February 8, 2006 of the Ministry of Communications and Information Technology.
34.
TARIFF SYSTEM
a.
International telecommunications services
The service rates (“tariffs”) for overseas exchange carriers are set based on the international telecommunications regulations established by the International Telecommunications Union (“ITU”). These regulations require the international telecommunications administrations to establish and revise, under mutual agreement, accounting rates to be applied among them, taking into account the cost of providing specific telecommunications services and relevant recommendations from the Consultative Committee on International Telegraph and Telephone (“CCITT”). The rates are divided into terminal shares payable to the administrations of terminal countries and, where appropriate, into transit shares payable to the administrations of transit countries.
The ITU also regulates that the monetary unit to be used, in the absence of special arrangements, shall be the Special Drawing Right (“SDR”) or the Gold Franc which is equivalent to 1/3.061SDR. Each administration shall, subject to applicable national law, establish the charges to be collected from its customers.
The tariffs billed to domestic subscribers for international calls originating in Indonesia, also known as collection rates, are established in a decision letter of the Ministry of Communications, which rates are generally higher than the accounting rates. During the period 1996 to 1998,
the Ministry of Communications made tariff changes effective January 1, 1997, March 15, 1998 and November 15, 1998.
Based on decision letter No. 09/PER/M.KOMINFO/02/06 dated February 28, 2006 from the Ministry of Communications and Information Technology, the collection rates are set by tariff formula known as price cap formula which already considers customer price index starting January 1, 2007.
b.
Cellular services
Tariffs for cellular providers are set on the basis of Regulation No. KM.27/PR.301/MPPT-98 dated February 23, 1998 of the Ministry of Tourism, Posts and Telecommunications (subsequently renamed “Ministry of Communications” and most recently as “Ministry of Communications and Information Technology”). Under this regulation, the cellular tariffs consist of the following:
·
Connection fee
·
Monthly charges
·
Usage charges.
90
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
34.
TARIFF SYSTEM (continued)
b.
Cellular services (continued)
The maximum tariff for connection fee is Rp200,000 per new connection number. The maximum tariff for monthly charges is Rp65,000. Usage charges consist of the following:
1.
Airtime
The maximum airtime tariff charged to the originating cellular subscriber is Rp325 per minute. The details of the tariff system are as follows:
a.
Cellular to cellular
: 2 times airtime rate
b.
Cellular to PSTN
: 1 time airtime rate
c.
PSTN to cellular
: 1 time airtime rate
d.
Card phone to cellular
: 1 time airtime rate plus 41% surcharge
2.
Usage
a.
Usage tariff charged to a cellular subscriber who makes a call to another subscriber using PSTN network is similar to the usage tariff of PSTN, which is applied on a time differentiation basis. For the use of local PSTN network, the tariff is computed at 50% of the prevailing local PSTN tariff.
b.
Long-distance usage tariff between two different service areas without using PSTN network is similar to the prevailing tariff on domestic long-distance call (“SLJJ”) for
a PSTN subscriber.
The maximum tariff for active roaming is Rp1,000 per call and is charged to in-roaming cellular subscriber who makes a call.
Tariffs for prepaid customers are also regulated by the Ministry of Communications in its Decree No. KM.79 Year 1998 dated December 14, 1998, and are typically higher than tariffs for post-paid subscribers. Cellular operators are allowed to set their own tariffs. However, the maximum usage tariffs for prepaid customers may not exceed 140% of peak time tariffs for post-paid subscribers.
Regulation No. KM.27/PR.301/MPPT-98 dated February 23, 1998 and Decree No. KM.79 Year 1998 of the Ministry of Tourism, Posts and Telecommunications (subsequently renamed “Ministry of Communications” and most recently as “Ministry of Communications and Information Technology”) were subsequently superseded by Regulation No. 12/PER/M.KOMINFO/02/2006 dated February 28, 2006 of the Ministry of Communications and Information Technology regarding basic telephony tariff for cellular mobile network service.
91
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
34.
TARIFF SYSTEM (continued)
b.
Cellular services (continued)
Under the new regulation, the cellular tariffs consist of the following:
·
Connection fee
·
Monthly charges
·
Usage charges
·
Additional facilities fee
The cellular providers should implement the new tariffs referred to as “floor price”. For usage charges, the floor price should be the originating fee plus termination fee (total interconnection fee), while for connection fee and monthly charges, the floor price depends on the cost structure of each cellular provider.
The implementation of the new tariffs for a dominant operator has to be approved by the Government. A dominant operator is an operator that has a revenue of more than 25% of total industry revenue for a certain segment.
As of March 31, 2007, the Company is gradually adopting the new cellular tariff system.
c.
Fixed telecommunication services
In February 2006, the Ministry of Communications and Information Technology released Regulation No. 09/PER/M.KOMINFO/02/2006 regarding basic telephony tariff for fixed network service.
As of March 31, 2007, the Company is gradually adopting the new fixed telecommunication tariff system.
35.
INTERCONNECTION TARIFFS
Interconnection tariffs among domestic telecommunications operators are regulated by the Ministry of Communications through its decree No. KM.108/PR.301/MPPT-94 dated December 28, 1994. The decree was updated several times with the latest update being decree No. KM.37 Year 1999 dated June 11, 1999. This decree, along with decree No. KM.46/PR.301/MPPT-98 dated February 27, 1998, prescribed interconnection tariff structures between mobile cellular telecommunications network and PSTN, mobile cellular telecommunications network and international telecommunications network, mobile cellular telecommunications network and other domestic mobile cellular telecommunications network, international telecommunications network and PSTN, and between two domestic PSTNs.
92
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
35.
INTERCONNECTION TARIFFS (continued)
Based on the decree of the Ministry of Communications, the interconnection tariff arrangements are as follows:
1.
Structure of Interconnection Tariff
a.
Between international and domestic PSTN
Based on decision letter No.KM.37 Year 1999 dated June 11, 1999 of the Ministry of Communications, the interconnection tariffs are as follows:
Tariff
Basis
Access charge
Rp850 per call
Number of successful outgoing
and incoming calls
Usage charge
Rp550 per paid minute
Duration of successful outgoing
and incoming calls
Based on a letter from the Ministry of Communications, the access and usage charges to be paid by an international telecommunications carrier to a domestic carrier for the next
ten years up to 2004 are not to exceed 25% of the international telecommunications carrier’s international telecommunications revenue.
b.
Between domestic PSTN and another domestic PSTN
Interconnection charges for domestic telecommunication traffic (local and long-distance) between a domestic PSTN and another domestic PSTN are based on agreements made by those domestic PSTN telecommunication carriers.
c.
Between cellular telecommunications network and domestic PSTN
Based on the Ministry of Tourism, Posts and Telecommunications Decree
No. KM.46/PR.301/MPPT-98 (“Decree No. 46”) dated February 27, 1998 which became effective starting April 1, 1998, the interconnection tariffs are as follows:
(1)
Local Calls
For local calls from a cellular telecommunications network to a PSTN subscriber,
the cellular operator pays the PSTN operator 50% of the prevailing tariff for local calls.
For local calls from the PSTN to a cellular subscriber, the cellular operator receives
the airtime charged by the PSTN operator to its subscribers.
93
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
35.
INTERCONNECTION TARIFFS (continued)
1.
Structure of Interconnection Tariff (continued)
c.
Between cellular telecommunications network and domestic PSTN (continued)
(2)
SLJJ
For SLJJ which originates from the PSTN to a cellular subscriber, the cellular operator receives a portion of the prevailing SLJJ tariff, which portion ranges from 15% of
the prevailing SLJJ tariff plus the airtime charges in cases where the entire long-distance portion is not carried by the cellular operator, to 60% of the tariff plus the airtime charges in cases where the entire long-distance portion is carried by the cellular operator.
For SLJJ which originates from a cellular telecommunications network to a PSTN subscriber, the cellular operator is entitled to retain a portion of the prevailing SLJJ tariff, which portion ranges from 15% of the tariff in cases where the entire long-distance portion is not carried by the cellular operator, to 60% of the tariff in cases where the entire long-distance portion is carried by the cellular operator.
d.
Between cellular telecommunications network and another cellular telecommunications network
Based on Decree No. 46, the interconnection tariffs are as follows:
(1)
Local Calls
For local calls from a cellular telecommunications network to another, the “origin” cellular operator pays the airtime to the “destination” cellular operator. If the call is carried by
a PSTN, the cellular operator pays the PSTN operator 50% of the prevailing tariff for local calls.
(2)
SLJJ
For SLJJ which originates from a cellular telecommunications network, the cellular operator is entitled to retain a portion of the prevailing SLJJ tariff, which portion ranges from 15% of the tariff in cases where the entire long-distance portion is not carried by
the cellular operator, to 85% 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, and to 100% if the call is delivered to the same cellular operator.
e.
Between international PSTN and cellular telecommunications network
Starting from 1998, the interconnection tariff for international cellular call traffic to/from overseas from/to domestic cellular subscribers, regardless of whether the traffic is made through domestic PSTN or not, is based on the same tariff applied to traffic made through domestic PSTN as mentioned in “a” above. However, up to March 31, 2007, as agreed mutually with the cellular telecommunications operators, the Company (including Satelindo until it was merged - Note 1e) still applied the original contractual sharing agreements regarding the interconnection tariffs (Note36).
94
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
35.
INTERCONNECTION TARIFFS (continued)
1.
Structure of Interconnection Tariff (continued)
f.
Between international gateway exchanges
Interconnection charges for international telecommunications traffic between international gateway exchanges are based on agreements between international telecommunications carriers and international telecommunications joint ventures.
2.
Universal Service Obligation (“USO”)
On September 30, 2005, the Ministry of Communications issued Regulation
No. 15/PER/M.KOMINFO/9/2005, which set forth the basic policy underlying the USO program and requiring telecommunication operators in Indonesia to contribute 0.75% of annual gross revenue (with the consideration for bad debt and interconnection charges) for USO development.
3.
RevenueSharing
Revenue from access and usage charges from international telecommunications traffic with telecommunications networks owned by more than one domestic telecommunications carrier which is not regulated by this decree, is to be proportionally shared with each carrier, which proportion is to be bilaterally arranged between the carriers.
KM.37 Year 1999 and Decree No. 46 were subsequently superseded by Decree No. 32 Year 2004 of the Ministry of Communications which provides cost-based interconnection to replace the current revenue-sharing arrangement. Under the new decree, the operator of the network on which calls terminate will determine the interconnection charge to be received by it based on a formula to be mandated by the government, which will be intended to have the effect of requiring that operators charge for calls based on the cost of carrying such calls.
The effective date of this decree, which was originally set to start on January 1, 2005, was subsequently postponed until January 1, 2007 based on Regulation No. 08/PER/M. KOMINFO/02/2006 dated February 8, 2006 of the Ministry of Communications and Information Technology.
The implementation of interconnection billing between operators starts from the time they sign their interconnection agreements.All interconnection agreements will be based on Reference Interconnection Offer (“RIO”). All operators have to publish their RIO and a dominant operator is required to obtain an approval of its RIO from the Government. The Directorate General of Posts and Telecommunications issued Decree No. 278/DIRJEN/2006 on August 4, 2006, which approved the RIO of the Company and two other dominant telecommunications operators (Telkom and Telkomsel).
The decree has been implemented since January 1, 2007 as agreed by all operators and approved by the Government.
95
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
36.
INTERCONNECTION AGREEMENTS WITH OTHER CELLULAR TELECOMMUNICATIONS OPERATORS
The Company, Satelindo and IM3 have interconnection agreements with each of PTExcelcomindo Pratama or “Excelcom” and Komselindo (for the interconnection agreement with Telkomsel,
see Note 30). The principal matters covered by the agreements are as follows:
·
The Company’s and Satelindo’s international gateway exchanges are interconnected with mobile cellular telecommunications operators’ networks to make outgoing or receive incoming international calls through the Company’s and Satelindo’s international gateway exchanges.
·
The Company and Satelindo receive, as compensation for the interconnection, a portion of
the cellular telecommunications operators’ revenues from the related services that are made through the Company’s and Satelindo’s international gateway exchanges.
·
Satelindo and IM3 also have an agreement with the above operators for the interconnection of Satelindo’s and IM3’s GSM mobile cellular telecommunications network with the above operators’ network, enabling the above operators’ customers to make calls/send short message services (“SMS”) to or receive calls/SMS from Satelindo’s and IM3’s customers.
·
The agreements are renewable annually.
As of March 31, 2007, the latest agreement with Komselindo was signed on July 6, 2004, while the latest agreement with Excelcom was signed on July 1, 2004. The Company (including Satelindo and IM3 until they were merged - Note 1e) and the above operators still continue their business under the agreements by applying the original compensation formula, except for interconnection fee. On December 27 and 28, 2006, the Company entered into Memorandum of Understanding with Komselindo and Excelcom, respectively, applying the new interconnection rates under cost-based regime.
Net interconnection revenues (charges) from (to) the operators are as follows:
2006
2007
Excelcom
(12,526
)
(1,185)
Komselindo
292
1,530
Net
revenues (charges)
(12,234
)
345
96
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
37.
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
The Companies’ monetary assets and liabilities denominated in various foreign currencies as of March 31, 2007 (converted to equivalent U.S. dollar if currency is other than U.S. dollar) are as follows:
Amount in
Equivalent
U.S. Dollar
Rupiah *
Assets:
Cash and cash equivalents
172,916
1,576,648
Accounts receivable
Trade
112,690
1,027,509
Others
415
3,784
Derivative assets
2,778
25,330
Other current assets
323
2,945
Due from related parties
722
6,582
Non-current assets - others
1,289
11,753
Total assets
291,133
2,654,551
Liabilities:
Accounts payable - trade
32,107
292,751
Procurement payable
215,715
1,966,889
Accrued expenses
22,154
202,000
Deposits from customers
1,314
11,981
Derivative liabilities
18,035
164,446
Other current liabilities
41
372
Loans payable (including current maturities)
34,200
311,836
Bonds payable
550,000
5,014,900
Other non-current liabilities
7,558
68,914
Total liabilities
881,124
8,034,089
Net liabilities position
589,991
5,379,538
*
translated using the average of the buying and selling rates prevailing at balance sheet date as published by Bank Indonesia
38.
SEGMENT INFORMATION
The Companies manage and evaluate their operations in three major reportable segments: cellular, fixed telecommunication and MIDI. The operating segments are managed separately because each offers different services/products and serves different markets. The Companies operate in one geographical area only, so no geographical information on segments is presented.
Segment results and assets include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Expenditures for segment assets represent the total costs incurred during the period to acquire segment assets that are expected to be used for more than one year.
97
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
38.
SEGMENT INFORMATION (continued)
Consolidated information by industry segment follows:
Major Segments
Fixed
Segment
Cellular
Telecommunication
MIDI
Total
2006
Operating revenues
Revenues from external customers
2,171,917
272,005
455,6722,899,594
Inter-segment revenues
(33,822
)
33,822
65,09065,090
Total operating revenues
2,138,095
305,827
520,7622,964,684
Inter-segment revenues elimination
(65,090
)
Operating revenues - net
2,899,594
Income
Operating income
574,034
151,538
122,865
848,437
Gain on foreign exchange - net
264,467
Interest income
66,835
Financing cost
(328,373
)
Loss on change in fair value of derivatives - net
(222,441
)
Income tax expense
(164,408
)
Amortization of goodwill
(56,627
)
Others - net
(14,715
)
Income before Minority Interest in Net Income
of Subsidiaries
393,175
Other Information
Segment assets
28,431,755
1,128,760
3,469,07533,029,590
Unallocated assets
5,716,070
Inter-segment assets elimination
(6,098,396
)
Assets - net
32,647,264
Segment liabilities
19,026,439
905,917
991,09920,923,455
Unallocated liabilities
2,034,176
Inter-segment liabilities elimination
(5,092,817
)
Liabilities - net
17,864,814
Capital expenditure
1,017,717
48,028
126,8441,192,589
Depreciation and amortization
675,986
43,661
116,806836,453
98
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
38.
SEGMENT INFORMATION (continued)
Major Segments
Fixed
Segment
Cellular
Telecommunication
MIDI
Total
2007
Operating revenues
Revenues from external customers
2,898,980
382,260
493,523
3,774,763
Inter-segment revenues
(23,132
)
23,132
70,05570,055
Total operating revenues
2,875,848
405,392
563,578
3,844,818
Inter-segment revenues elimination
(70,055)
Operating revenues - net
3,774,763
Income
Operating income
783,286
150,174
108,307
1,041,767
Gain on change in fair value of derivatives - net
68,628
Interest income
35,216
Financing cost
(303,479
)
Income tax expense - net
(219,964)
Amortization of goodwill
(56,627)
Loss on foreign exchange - net
(48,550
)
Others - net
(24,569)
Income before Minority Interest in Net Income
of Subsidiaries
492,422
Other Information
Segment assets
31,412,925
1,504,858
3,868,577
36,786,360
Unallocated assets
4,582,754
Inter-segment assets elimination
(6,341,743
)
Assets - net
35,027,371
Segment liabilities
19,842,203
797,949
922,260
21,562,412
Unallocated liabilities
2,916,036
Inter-segment liabilities elimination
(5,137,497
)
Liabilities - net
19,340,951
Capital expenditure
1,190,459
67,821
113,246
1,371,526
Depreciation and amortization
794,833
60,012
122,107
976,952
99
These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
39.
ECONOMIC CONDITIONS
The operations of the Companies have been affected and may continue to be affected for
the foreseeable future by the economic conditions in Indonesia that may contribute to volatility in currency values and negatively impact economic growth. Economic improvements and sustained recovery are dependent upon several factors, such as fiscal and monetary actions being undertaken by the Government and others, actions that are beyond the control of the Companies.
40.
SUBSEQUENT EVENTS
a.
On April 9, 2007, the Company made the first registration to BAPEPAM for its Fifth Bonds Year 2007 and Sukuk Ijarah Bonds 2007 amounting to Rp1,700,000 and Rp300,000, respectively. The proceeds of these bonds are expected to be received by the end of May 2007.
b.
On April 12, 2007, the Company received the payment amounting to Rp130,813 from the Tax Office for the Company’s 2004 claim for tax refund after offsetting the SKPKBs for the Company’s VAT for the periods January - March 2004 and August - October 2004 and income tax articles 23 and 26 for fiscal year 2004 (Note 7 and 14).
c.
On April 24, 2007, the Company and JP Morgan entered into a currency forward contract with notional amount of US$3,000 or US$6,000 depending on the fixing rate per settlement. Based on the contract:
·
If the USD/IDR spot rate is not traded at or higher than the ceiling rate of Rp9,250 to US$1 (in full amounts), the Company will buy USD principal at the exchange rate of Rp8,960 to US$1 (in full amounts) on the respective settlement dates, whereas:
- If the strike rate is less than the spot rate, the Company will buy US$3,000.
- If the strike rate is at or higher than the spot rate, the Company will buy US$6,000.
·
If the USD/IDR spot rate is traded at or higher than the ceiling rate of Rp9,250 to US$1 (in full amounts), there will be no cash flow on the respective settlement dates.
a.
On May 1, 2007, the Company and StandChart entered into a currency forward contract with notional amount of US$1,500 or US$3,000 depending on the fixing rate per settlement. Based on the contract:
·
If the USD/IDR spot rate is at or higher than Rp9,225 to US$1 (in full amounts), there will be no obligation between the Company and StandChart on respective settlement dates.
·
If the USD/IDR spot rate is higher than Rp8,985 and lower than Rp9,225 to US$1 (in full amounts), the Company has the right to buy US$1,500 at Rp8,985 (in full amount) on respective settlement dates.
·
If the USD/IDR spot rate is at or lower than Rp8,985 to US$1 (in full amounts), the Company is obliged to buy US$3,000 at Rp8,985 (in full amount) on respective settlement dates.
a.
On May 3, 2007, the Company and JP Morgan entered into a currency forward contract with a notional amount of US$3,000 or US$6,000 depending on the fixing rate per settlement. Based on the contract:
·
If the current difference between the USD/IDR fixing rate on a monthly fixing date and Rp8,960 to US$1 (in full amounts), accumulated with the differences that resulted from the previous monthly fixing dates over the period from June 25, 2007 to December 24, 2007, is at or less than Rp600 (in full amount), then cash flow on the monthly fixing date will be determined as follows:
-
If the monthly fixing rate is higher than Rp8,960 to US$1 (in full amounts), the Company will buy US$3,000 at Rp8,960 (in full amount)
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2006 and 2007 (Unaudited)
(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
40.
SUBSEQUENT EVENTS (continued)
-
If the monthly fixing rate is at or lower than Rp8,960 and higher than Rp8,925 to US$1 (in full amounts), the Company will buy US$6,000 at Rp8,960 (in full amount)
-
If the monthly fixing rate is at or lower than Rp8,925 to US$1 (in full amounts), the Company will buy US$6,000 at Rp9,057 (in full amount).
·
On the first monthly fixing date where the current difference between the USD/IDR fixing rate and Rp8,960 to US$1 (in full amounts), accumulated with the differences that resulted from the previous monthly fixing dates over the period from June 25, 2007 to December 24, 2007, is higher than Rp600 (in full amount), there is no cash flow on that monthly fixing date. In addition, there will be no cash flow for all the subsequent monthly fixing dates.
a.
On May 10, 2007, the Company and Goldman Sachs Capital Market (“GSCM”) entered into a currency forward contract with notional amount of US$10,000 and IDR/USD fixing rate of Rp8,790 to US$1 (in full amounts). Based on the contract:
·
If the IDR/USD fixing rate is lower than Rp9,400 to US$1 (in full amounts), the Company will buy US$10,000 at Rp8,790 (in full amount) on the respective settlement dates.
·
If the IDR/USD fixing rate is at or higher than Rp9,400 to US$1 (in full amounts), there will be no cash flow on the respective settlement dates.
a.
As of May 11, 2007, the average buying and selling rate of bank notes published by Bank Indonesia is Rp8,826 to US$1 (in full amounts), while as of March 31, 2007, the average buying and selling rate was Rp9,118 to US$1 (in full amounts). Using the exchange rate as of May 11, 2007, the Companies earned foreign exchange gain amounting to approximately Rp172,277 on the foreign currency liabilities, net of foreign currency assets, as of March 31, 2007 (Note 37).
The translation of the foreign currency liabilities, net of foreign currency assets, should not be construed as a representation that these foreign currency liabilities and assets have been, could have been, or could in the future be converted into rupiah at the rate as of May 11, 2007 or at any other rate of exchange.
The commitments for the capital expenditures denominated in foreign currencies as of March 31, 2007 as disclosed in Note 33a are approximately Rp2,411,696, if translated at the rate as of
May 11, 2007.
41.
COMPLETION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The management of the Company is responsible for the preparation of the accompanying consolidated financial statements that were completed on May 11, 2007.
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