indosat eng dec-2008 release
TRANSCRIPT
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7/31/2019 Indosat Eng Dec-2008 Release
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PT Indosat Tbk and subsidiaries
Consolidated financial statements
with independent auditors report
years ended December 31, 2006, 2007 and 2008
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSWITH INDEPENDENT AUDITORS REPORT
YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
Table of Contents
Page
Independent Auditors Report
Consolidated Balance Sheets ... 1 - 4
Consolidated Statements of Income 5 - 6
Consolidated Statements of Changes in Stockholders Equity 7
Consolidated Statements of Cash Flows 8 - 9
Notes to Consolidated Financial Statements . 10 - 100
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This report is originally issued in Indonesian language.
Independent Auditors Report
Report No. RPC-9666
The Stockholders and Boards of Commissioners and Directors
PT Indosat Tbk
We have audited the accompanying consolidated balance sheets of PT Indosat Tbk (the Company)and subsidiaries as of December 31, 2007 and 2008, and the related consolidated statements of
income, changes in stockholders equity and cash flows for the years ended December 31, 2006,
2007 and 2008. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards established by the Indonesian
Institute of Certified Public Accountants. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of PT Indosat Tbk and subsidiaries as of December 31, 2007 and
2008, and the consolidated results of their operations and their cash flows for the years ended
December 31, 2006, 2007 and 2008 in conformity with generally accounting principles in Indonesia.
As discussed in Notes 2i and 2k to the consolidated financial statements, effective January 1, 2008,
the Company and subsidiaries applied Statement of Financial Accounting Standards (SAK) 16
(Revised 2007), Fixed Assets, and SAK 30 (Revised 2007), Leases. The Company and
subsidiaries have chosen the cost model as the accounting policy for their property and equipment
measurement.
Purwantono, Sarwoko & Sandjaja
Benyanto Suherman
Public Accountant License No. 05.1.0973
February 6, 2009
The accompanying consolidated financial statements are not intended to present the consolidated 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 audit such financial statements are those
generally accepted and applied in Indonesia.
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
1
PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2008
Notes 2007 2008 (Note 3)
Rp Rp US$
ASSETS
CURRENT ASSETSCash and cash equivalents 2c,4,25 8,053,006 5,737,866 524,006Short-term investments - net of
allowance for decline in valueof Rp25,395 in 2007 and 2008 2d 1,250 - -
Accounts receivable 2eTrade 5,15
Related parties - net of allowancefor doubtful accounts ofRp88,342 in 2007 andRp69,444 in 2008 25 133,345 76,078 6,948
Third parties - net of allowancefor doubtful accounts ofRp326,142 in 2007 andRp426,719 in 2008 897,623 1,264,628 115,491
Others - net of allowancefor doubtful accounts ofRp17,240 in 2007 andRp18,867 in 2008 20,901 16,914 1,545
Inventories 2f 161,573 241,991 22,100Derivative assets 2r,28 127,717 656,594 59,963Advances 38,017 39,151 3,575Prepaid taxes 6,13 714,322 592,880 54,144
Prepaid expenses 2g,2q,24,25 618,893 987,073 90,144Other current assets 2c,25 27,480 46,598 4,255
Total Current Assets 10,794,127 9,659,773 882,171
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
2
PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (continued)
December 31, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2008
Notes 2007 2008 (Note 3)
Rp Rp US$
NON-CURRENT ASSETSDue from related parties - net of
allowance for doubtfulaccounts of Rp2,257 in 2007and Rp2,419 in 2008 2e,25 56,455 42,496 3,881
Deferred tax assets - net 2t,13 87,118 68,445 6,251Investments in associated
companies - net of allowancefor decline in value of Rp56,300in 2007 and Rp56,586 in 2008 2h,7 286 700 64
Other long-term investments - net ofallowance for decline in value ofRp99,977 in 2007 and 2008 2h,8 2,730 2,730 249
Property and equipment 2i,2j,2p,9,15,21
Carrying value 51,164,867 63,478,411 5,797,115Accumulated depreciation (20,493,483) (24,985,727) (2,281,801)Impairment in value (98,611) (98,611) (9,006)
Net 30,572,773 38,394,073 3,506,308Goodwill and other
intangible assets - net 2l,10 2,350,467 2,064,681 188,555Long-term receivables 77,515 81,524 7,445Long-term prepaid pension - net
of current portion 2q,24,25 198,360 169,986 15,524
Long-term advances 11,25 646,997 456,093 41,652Others 2c,2g,25 518,258 752,822 68,751
Total Non-current Assets 34,510,959 42,033,550 3,838,680
TOTAL ASSETS 45,305,086 51,693,323 4,720,851
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
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PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (continued)
December 31, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2008
Notes 2007 2008 (Note 3)
Rp Rp US$
LIABILITIES ANDSTOCKHOLDERS EQUITY
CURRENT LIABILITIESAccounts payable - trade
Related parties 25 40,488 12,109 1,106Third parties 405,962 596,645 54,488
Procurement payable 12,25 6,206,649 6,446,357 588,708Taxes payable 2t,13 436,450 268,891 24,556Accrued expenses 2q,14,24,25 1,340,435 1,512,533 138,131Unearned income 2o 709,827 822,986 75,159Deposits from customers 40,947 32,121 2,933Derivative liabilities 2r,28 64,310 315,866 28,846Current maturities of:
Loans payable 2m,15 494,387 572,469 52,280Bonds payable 2m,16 1,860,000 56,442 5,155
Other current liabilities 25 59,126 38,826 3,546
Total Current Liabilities 11,658,581 10,675,245 974,908
NON-CURRENT LIABILITIESDue to related parties 25 64,850 14,699 1,342Deferred tax liabilities - net 2t,13 1,482,221 1,305,185 119,195Loans payable - net of current
maturities 2m,2r,15Related party 25 1,794,909 1,596,142 145,766Third parties 2,454,124 9,216,018 841,646
Bonds payable - net of currentmaturities 2m,16 10,088,741 10,315,616 942,066
Other non-current liabilities 2q,17,24,25 919,560 871,859 79,622
Total Non-current Liabilities 16,804,405 23,319,519 2,129,637
TOTAL LIABILITIES 28,462,986 33,994,764 3,104,545
MINORITY INTEREST 2b 297,370 288,938 26,387
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
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PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (continued)
December 31, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2008Notes 2007 2008 (Note 3)
Rp Rp US$
STOCKHOLDERS EQUITYCapital stock - Rp100 par value
per A share and B shareAuthorized - 1 A share and
19,999,999,999 B sharesIssued and fully paid - 1 A share
and 5,433,933,499 B shares 18 543,393 543,393 49,625Premium on capital stock 18 1,546,587 1,546,587 141,241Difference in transactions of equity
changes in associatedcompanies/subsidiaries 2h 403,812 404,104 36,904
Difference in foreign currencytranslation 2b 6,177 13,291 1,214
Retained earningsAppropriated 80,258 100,678 9,194Unappropriated 13,964,503 14,801,568 1,351,741
TOTAL STOCKHOLDERS EQUITY 16,544,730 17,409,621 1,589,919
TOTAL LIABILITIES ANDSTOCKHOLDERS EQUITY 45,305,086 51,693,323 4,720,851
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
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PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2008Notes 2006 2007 2008 (Note 3)
Rp Rp Rp US$
OPERATING REVENUES 2o,19,25,30,31,32
Cellular 9,227,537 12,752,496 14,178,922 1,294,879Multimedia, Data
Communication,Internet (MIDI) 1,902,589 2,168,584 2,735,495 249,817
Fixed telecommunication 1,109,281 1,567,415 1,744,716 159,335
Total Operating Revenues 12,239,407 16,488,495 18,659,133 1,704,031
OPERATING EXPENSES 2oCost of services 20,25 2,704,173 4,779,883 6,043,414 551,910Depreciation and amortization 2i,2l,9,10 3,653,266 4,195,202 4,587,891 418,986Personnel 2n,2p,2q,
21,24,25 1,350,468 1,594,786 1,638,993 149,680Marketing 468,920 692,896 918,124 83,847
Administration and general 22,25 663,921 706,124 737,432 67,345
Total Operating Expenses 8,840,748 11,968,891 13,925,854 1,271,768
OPERATING INCOME 3,398,659 4,519,604 4,733,279 432,263
OTHER INCOME (EXPENSES) 2oInterest income 25 212,823 232,411 460,089 42,017Gain (loss) on change in fair value
of derivatives - net 2r,28 (438,774 ) 68,023 136,603 12,475Financing cost 2m,15,16,
23,25 (1,248,899 ) (1,428,604) (1,858,294) (169,707)Gain (loss) on foreign
exchange - net 2r,2s,5 304,401 (155,315) (885,729) (80,888 )Amortization of goodwill 2l,10 (226,507 ) (226,507) (227,317) (20,760 )Others - net 13 21,202 (79,996) (33,516) (3,061 )
Other Expenses - Net (1,375,754 ) (1,589,988) (2,408,164) (219,924)
EQUITY IN NET LOSSOF ASSOCIATED COMPANY 2h,7 (238 ) - - -
INCOME BEFORE INCOME TAX 2,022,667 2,929,616 2,325,115 212,339
INCOME TAX BENEFIT(EXPENSE) 2t,13Current (199,629 ) (660,675) (579,723) (52,943)Deferred (376,478 ) (198,842) 159,893 14,602
Income Tax Expense - Net (576,107 ) (859,517) (419,830) (38,341 )
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
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PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME (continued)
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar, except share data)
2008Notes 2006 2007 2008 (Note 3)
Rp Rp Rp US$
INCOME BEFORE MINORITYINTEREST IN NET INCOME OFSUBSIDIARIES 1,446,560 2,070,099 1,905,285 173,998
MINORITY INTEREST IN NETINCOME OF SUBSIDIARIES 2b (36,467 ) (28,056) (26,763) (2,443 )
NET INCOME 1,410,093 2,042,043 1,878,522 171,555
BASIC EARNINGS PER SHARE 2v,18,26 260.90 375.79 345.70 0.03
DILUTED EARNINGS PER 2v,18,26SHARE 258.82 375.79 345.70 0.03
BASIC EARNINGS PER ADS(50 B shares per ADS) 2v,18,26 13,045.17 18,789.73 17,285.10 1.58
DILUTED EARNINGS PER ADS 2v,18,26 12,940.98 18,789.73 17,285.10 1.58
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
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PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah)
Difference inTransactions Difference
Capital Stock - of Equity Changes in Foreign Retained EarningsIssued and Premium on in Associated Stock Currency
Description Notes Fully Paid Capital Stock Companies/Subsidiaries Options Translation Appropriated Unappropriated Net
Balance as of January 1, 2006 535,617 1,178,274 403,812 90,763 228 49,922 12,056,712 14,315,328
Employee Stock Option Program (ESOP):Issuance of capital stock resulting from the exercise of ESOP Phase II 2n,18 7,776 368,313 - (90,763) - - - 285,326
Decrease in difference in foreign currency translation arising from the translationof the financial statements of Indosat Finance Company B.V. and I ndosatInternational Finance Company B.V. from euro, and Indosat Singapore Pte. Ltd.and Satelindo International Finance B.V. from U.S. dollar to rupiah - net of applicableincome tax benefit (expense) of (Rp136), (Rp135), Rp17 and Rp272, respectively 2b - - - - (46) - - (46)
Resolution during the Annual Stockholders General Meeting on June 29, 2006Declaration of cash dividend 27 - - - - - - (808,956) (808,956)Appropriation for reserve fund 27 - - - - - 16,235 (16,235) -
Net income for the year - - - - - - 1, 410,093 1,410,093
Balance as of December 31, 2006 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 t he financialstatements of Indosat Finance Company B.V. and Indosat International FinanceCompany B.V. from euro, and Indosat Singapore Pte. Ltd. from U.S. dollar to rupiah -net of applicable income tax expense of Rp1,272, Rp1,250 and Rp48, respectively 2b - - - - 5,995 - - 5,995
Resolution during the Annual Stockholders General Meeting on June 5, 2007Declaration of cash dividend 27 - - - - - - (705,053) (705,053)Appropriation for reserve fund 27 - - - - - 14,101 (14,101) -
Net income for the year - - - - - - 2,042,043 2,042,043
Balance as of December 31, 2007 543,393 1,546,587 403,812 - 6,177 80,258 13,964,503 16,544,730
Increase in difference in foreign currency translation arising from the translation of t he financialstatements of Indosat Finance Company B.V. and Indosat International FinanceCompany B.V. from euro, and Indosat Singapore Pte. Ltd. from U.S. dollar to rupiah -net of applicable income tax expense of Rp1,056, Rp1,021 and Rp592, respectively 2b - - - - 6,228 - - 6,228
Increase in difference in transactions of equity changes in associated companies/subsidiariesand difference in foreign currency translation resulting from reduction in tax rates 2h,13 - - 292 - 886 - - 1,178
Resolution during the Annual Stockholders General Meeting on June 5, 2008Declaration of cash dividend 27 - - - - - - (1,021,037) (1,021,037)Appropriation for reserve fund 27 - - - - - 20,420 (20,420) -
Net income for the year - - - - - - 1,878,522 1,878,522
Balance as of December 31, 2008 543,393 1,546,587 404,104 - 13,291 100,678 14,801,568 17,409,621
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
8
PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended December 31, 2006, 2007 and 2008
(Expressed in millions of rupiah and thousands of U.S. dollar)
2008Notes 2006 2007 2008 (Note 3)
Rp Rp Rp US$
CASH FLOWS FROM OPERATINGACTIVITIESCash received from:
Customers 12,177,148 16,678,536 18,336,914 1,674,604Interest income 217,152 225,635 460,020 42,011Refund of taxes 6 86,981 195,441 271,321 24,778Settlement from derivative
contract 28a - - 58,375 5,331Termination of swap
contracts 28q,28w,28x - 3,702 - -Interest rate swap contracts
received 28x-28aa 5,250 1,386 - -Cash paid to/for:
Employees, suppliers and others (5,081,152) (6,975,765) (9,700,867) (885,925)Financing cost (1,237,161) (1,367,791) (1,776,934) (162,277)Taxes (391,881) (370,179) (897,161 ) (81,933)Swap cost from cross currency
swap contracts 28a,28c-28p (103,216) (117,036) (235,971 ) (21,548)Interest rate swap contracts
paid 28x-28aa - - (2,432 ) (222)Termination of swap
contracts 28q,28w,28x (3,498) - - -
Net Cash Provided by OperatingActivities 5,669,623 8,273,929 6,513,265 594,819
CASH FLOWS FROM INVESTINGACTIVITIESDividend income received 8 - 40,105 26,348 2,406Proceeds from sale of short-term
investment 47,587 - 1,250 114Proceeds from sale of property
and equipment 9 1,249 478 1,131 104Acquisitions of property and
equipment 9 (6,054,014) (6,933,646) (10,307,932 ) (941,364)Acquisition of intangible assets 10 (320,000) (10,532) (6,952) (635)Purchase of investment in associated
company 7 - - (700) (64)Proceeds from capital contribution of
minority interest - 47,685 - -Additional advances for purchase of
property and equipment - (433,226) - -Purchase of short-term investments - (1,250) - -Purchase of other long-term
investment 1d (5,779) - - -
Net Cash Used in Investing Activities (6,330,957) (7,290,386) (10,286,855 ) (939,439 )
CASH FLOWS FROM FINANCINGACTIVITIESProceeds from long-term loans 15 357,366 4,450,924 5,126,570 468,180Proceeds from bonds payable 16 31,150 3,000,000 1,650,000 150,685Settlement from derivative contract 28b - - 109,099 9,963
Decrease (increase) in restrictedcash and cash equivalents (1,685) (5,400) 4,200 384
Repayment of bonds payable 16 (956,644) (1,050,000) (3,828,827 ) (349,665 )Cash dividend paid 26 (808,956) (705,053 ) (1,021,037) (93,245 )Repayment of long-term loans 15 (84,394) (1,377,742) (506,220 ) (46,230 )Swap cost from cross currency
swap contracts 28b (61,885) (61,572 ) (64,009 ) (5,846)Cash dividend paid by subsidiaries
to minority interest (11,537) (14,207) (11,326 ) (1,034 )Proceeds from exercise of ESOP
Phase I and Phase II 287,910 - - -
Net Cash Provided by (Used in)Financing Activities (1,248,675) 4,236,950 1,458,450 133,192
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These consolidated financial statements are originally issued in Indonesian language.
The accompanying notes form an integral part of these consolidated financial statements.
9
PT INDOSAT Tbk AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar)
2008
Notes 2006 2007 2008 (Note 3)
Rp Rp Rp US$
NET INCREASE (DECREASE) INCASH AND CASH EQUIVALENTS (1,910,009) 5,220,493 (2,315,140 ) (211,428)
CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 4,717,269 2,807,260 8,053,006 735,434
BEGINNING BALANCE OF CASHAND CASH EQUIVALENTS OFACQUIRED SUBSIDIARY 1d - 25,253 - -
CASH AND CASH EQUIVALENTSAT END OF YEAR 4 2,807,260 8,053,006 5,737,866 524,006
DETAILS OF CASH AND CASH
EQUIVALENTS:Time deposits with original
maturities of three monthsor less 2,566,854 7,802,448 5,469,039 499,456
Cash on hand and in banks 240,406 250,558 268,827 24,550
Cash and cash equivalents asstated in the consolidatedbalance sheets 2,807,260 8,053,006 5,737,866 524,006
SUPPLEMENTAL CASH FLOWINFORMATION:Transactions not affecting cash flows:
Acquisitions of property andequipment credited to:Long-term loans payable - - 1,516,354 138,480Procurement payable 753,734 2,515,646 274,248 25,045
Long-term advances 113,580 - 190,906 17,434Other non-current liabilities - 266,573 45,511 4,156
Premium on capital stock 88,179 - - -Stock options (90,763) - - -
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
10
1. GENERAL
a. Companys 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 thenotarial deed No. 55 of Mohamad Said Tadjoedin, S.H. The deed of establishment was publishedin Supplement No. 24 of State Gazette No. 26 dated March 29, 1968 of the Republic of Indonesia.In 1980, the Company was sold by American Cable and Radio Corporation, an InternationalTelephone & Telegraph subsidiary, to the Government of the Republic of Indonesia and became aState-owned Company (Persero).
On February 7, 2003, the Company received the approval from the Capital InvestmentCoordinating Board (BKPM) in its letter No. 14/V/PMA/2003 for the change of its legal status from a
State-owned Company (Persero) to a Foreign Capital Investment Company. Subsequently, onMarch 21, 2003, the Company received the approval from the Ministry of Justice and HumanRights of the Republic of Indonesia on the amendment of its Articles of Association to reflectthe change of its legal status.
The Companys Articles of Association has been amended from time to time. The latestamendment was covered by notarial deed No. 109 dated July 14, 2008 of Sutjipto, S.H. in order tocomply with the Indonesian Corporate Law No. 40 of 2007, to strengthen the implementation ofgood corporate governance in the Company and to accommodate all the Companys business. Thelatest amendment of the Companys Articles of Association has been reported to and approved bythe Ministry of Law and Human Rights of the Republic of Indonesia based on its letterNo. AHU-48398.AH.01.02 dated August 6, 2008.
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 thefollowing 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 infrastructureand/or facilities, and providing education and training (both locally and overseas)
Engaging in services which are relevant to the development of telecommunications networksand/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 RegulationNo. 77 of 1991, the Company had been re-confirmed as an Operating Body (BadanPenyelenggara) that provided international telecommunications service under the authority of theGovernment of the Republic of Indonesia.
In 1999, the Government issued Law No. 36 on Telecommunications (Telecommunications Law)which took effect on September 8, 2000. Under the Telecommunications Law, telecommunicationsactivities cover:
Telecommunications networks Telecommunications services Special telecommunications services.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
11
1. GENERAL (continued)
a. Companys Establishment (continued)
National state-owned companies, regional state-owned companies, privately-owned companiesand cooperatives are allowed to provide telecommunications networks and services. Individuals,government institutions and legal entities, other than telecommunications networks and serviceproviders, are allowed to render special telecommunications services.
The Telecommunications Law prohibits activities that result in monopolistic practices and unhealthycompetition, and expects to pave the way for market liberalization.
Based on the Telecommunications Law, the Company ceased as an Operating Body and has toobtain licenses from the government for the Company to engage in the provision of specific
telecommunications networks and services.
On August 14, 2000, the Government of the Republic of Indonesia, through the Ministry ofCommunications (MOC), granted the Company an in-principle license as a nationwide DigitalCommunication System (DCS) 1800 telecommunications provider as compensation for the earlytermination effective August 1, 2003 of the exclusivity rights on international telecommunicationsservices given to the Company prior to the granting of such license. On August 23, 2001, theCompany obtained the operating license from the MOC. Subsequently, based on DecreeNo. KP.247 dated November 6, 2001 issued by the MOC, the operating license was transferred tothe Companys subsidiary, PT Indosat Multi Media Mobile (see e below).
On September 7, 2000, the Government of the Republic of Indonesia, through the MOC, alsogranted the Company in-principle licenses for local and domestic long-distance
telecommunications services as compensation for the termination of its exclusivity rights oninternational telecommunications services. On the other hand, PT Telekomunikasi Indonesia Tbk(Telkom) was granted an in-principle license for international telecommunications services ascompensation for the early termination of Telkoms rights on local and domestic long-distancetelecommunications services.
Based on a letter dated August 1, 2002 from the MOC, the Company was granted an operatinglicense for fixed local telecommunications network covering Jakarta and Surabaya. This operatinglicense was converted to become a national license on April 17, 2003 based on Decree No. KP.130Year 2003 of the MOC. The values of the above licenses granted to Telkom and the Company onthe termination of their exclusive rights on local/domestic and international telecommunicationsservices, respectively, have been determined by an independent appraiser.
Based on Announcement No. PM.2 Year 2004 dated March 30, 2004 of the MOC regarding theCommencement of Restructuring of the Telecommunications Sector, the Company should pay tothe Government of the Republic of Indonesia the amount of Rp178,000 after tax as a result of theearly termination of its exclusivity rights. In turn, the payment of any liability of the Company as aresult of the early termination will be settled by the Government of the Republic of Indonesia whichis coordinated by the Ministry of State-owned Enterprises. This is in line with Article IX of a SharesPurchase Agreement dated December 15, 2002 between the Government of the Republic ofIndonesia and Indonesia Communications Limited (ICL), whereby the Government of theRepublic of Indonesia agreed to undertake and covenant with ICL that it shall pay on behalf of theCompany any liability, amount or claim required to be paid or suffered by the Company in relationto the surrender of the above exclusivity rights.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
12
1. GENERAL (continued)
a. Companys Establishment (continued)
The following are operating licenses obtained by the Company:
License No. Date Issued Issuing BodyPeriod ofLicense Description
KP.68/Thn 2004 March 15,2004
MOC Evaluatedevery 5years
Operating license for nationwideGSM cellular mobile network(including its basic telephonyservices), which was amendedby License No. 102/KEP/M.KOMINFO/10/2006
KP.69/Thn 2004 March 15,2004
MOC Evaluatedevery 5years
Operating license for nationwideclosed fixed communicationsnetwork (e.g., VSAT, framerelay, etc.)
KP.203/Thn 2004 May 21, 2004 MOC Evaluatedevery 5years
Operating license for fixednetwork and basic telephonyservices which covers theprovision of local, national long-distance, and international long-distance telephony services
19/KEP/M.KOMINFO/02/2006and
29/KEP/M.KOMINFO/03/2006
February 14,2006 andMarch 27,
2006
Ministry ofCommunications andInformation andTechnology(MOCIT)
10 years Determination of the winner andoperating license for IMT-2000cellular network provider using2.1 GHz radio frequencyspectrum (a third generation[3G] mobile communicationstechnology) for 1 block (2 x 5Mhz) of frequency (*)
102/KEP/M.KOMINFO/10/2006 October 11,2006
MOCIT Evaluatedevery year
Amendment of operatingLicense No. KP. 68/Thn 2004dated March 15, 2004 to include
the rights and obligations of 3Gservices
181/KEP/M.KOMINFO/12/2006 December 12,2006
MOCIT - Allocation of two nationwidefrequency channels, i.e.,channels 589 and 630 in the 800MHz spectrum for Local FixedWireless Network Services withLimited Mobility
162/KEP/M.KOMINFO/05/2007 May 2, 2007 MOCIT - Temporary use of channel 548for Local Fixed WirelessNetwork Services with LimitedMobility until December 2007with obligation to pay radiofrequency fee for one year (**)
01/DIRJEN/2008 January 7,2008
Directorate Generalof Post andTelecommunications(DGPT)
Evaluatedevery 5years
Operating license as internetservice provider
51/DIRJEN/2008 January 9,2008
DGPT Evaluatedevery 5years
Operating license for internetinterconnection services(Network Access Point/NAP),which replaces the previouslicense given to Satelindo
52/DIRJEN/2008 January 9,2008
DGPT Evaluatedevery 5years
Operating license for telephonyinternet services which replacesthe previous LicenseNo. 823/DIRJEN/2002 for Voiceover Internet Protocol Servicewith national coverage thatexpired in 2007
(*) As one of the winners in the selection of IMT-2000 cellular providers, the Company was obliged, among others, to pay upfront fee of Rp320,000 (Note 2l)and radio frequency fee.
(**) The Company cancelled its plan to use channel 548 due to technical issues during the migration process. The Company informed the DGPT about this
matter through its letter No. 1114/I00-ICO/REL/07 dated December 27, 2007.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
13
1. GENERAL (continued)
a. Companys Establishment (continued)
On January 9, 2008, based on letter No. 10/14/DASP from Bank Indonesia (Central Bank), theCompany obtained approval forIndosat m-walletprepaid cards as a new means of payment. TheCompany was also appointed as a special principal and technical acquirer for such prepaid cards.
On March 17, 2008, MOCIT issued Ministerial Decree No. 02/PER/M.KOMINFO/2008 on theGuidelines of Construction and Utilization of Sharing Telecommunication Towers. Based on thisDecree, the construction of telecommunication towers requires permits from the relevantgovernmental institution and the local government determines the placement of the towers and thelocation in which the towers can be constructed. Furthermore, a telecommunication provider ortower provider which owns telecommunication towers is obligated to allow other telecommunicationoperators to utilize its telecommunication towers without any discrimination. The Decree alsomandated that each of the tower contractor, provider and owner be 100% locally-ownedcompanies.
The Company is domiciled at Jalan Medan Merdeka Barat No. 21, Jakarta and has 8 regionaloffices located in Jakarta, Bandung, Semarang, Surabaya, Medan, Palembang, Balikpapan andMakassar.
b. Companys Public Offerings
All of the Companys B shares have been registered with and traded on the Indonesia StockExchange (new entity after the merger of Jakarta Stock Exchange and Surabaya Stock Exchangein November 2007) since 1994. The Companys American Depositary Shares (ADS, eachrepresenting 50 B shares) have also been traded on the New York Stock Exchange since 1994.
As of December 31, 2008, the Companies outstanding bonds issued to the public are as follows:
Bond Effective Date Registered with and Traded on1. Second Indosat Bonds series B in Year 2002
with Fixed RateNovember 6, 2002 Indonesia Stock Exchange
2. Third Indosat Bonds series B in Year 2003with Fixed Rates
October 15, 2003 Indonesia Stock Exchange
3. Guaranteed Notes Due 2010 November 5, 2003 Luxembourg Stock Exchange and SingaporeExchange Securities Trading Limited
4. Fourth Indosat Bonds in Year 2005 with FixedRate
June 21, 2005 Indonesia Stock Exchange
5. Indosat Syariah Ijarah Bonds in Year 2005 June 21, 2005 Indonesia Stock Exchange6. Guaranteed Notes Due 2012 June 22, 2005 Singapore Exchange Securities Trading
Limited7. Fifth Indosat Bonds in Year 2007 with Fixed
RatesMay 29, 2007 Indonesia Stock Exchange
8. Indosat Sukuk Ijarah II in Year 2007 May 29, 2007 Indonesia Stock Exchange9. Sixth Indosat Bonds in Year 2008 with Fixed
RatesApril 9, 2008 Indonesia Stock Exchange
10. Indosat Sukuk Ijarah III in Year 2008 April 9, 2008 Indonesia Stock Exchange
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
14
1. GENERAL (continued)
c. Employees, Directors, Commissioners and Audit Committee
Based on resolutions of the Annual Stockholders General Meetings held on June 29, 2006,June 5, 2007 and June 5, 2008 which are notarized under Deeds No. 175, No. 11 and 29,respectively, of Aulia Taufani, S.H. (as a substitute notary of Sutjipto, S.H.) on the same dates, anda resolution of the Extraordinary Stockholders Meeting held on August 25, 2008 which is notarizedunder Deed No. 343 of Aulia Taufani, S.H. (as a substitute notary of Sutjipto, S.H.) on the samedate, the composition of the Companys Board of Commissioners and Board of Directors as ofDecember 31, 2006, 2007 and 2008, respectively, is as follows:
2006 2007 2008
President Commissioner Peter Seah Lim Huat Peter Seah Lim Huat H.E. Sheikh AbdullahBin Mohammed BinSaud Al Thani
Commissioner Sio Tat Hiang Sio Tat Hiang Dr. Nasser Mohd. A.Marafih
Commissioner Sum Soon Lim Sum Soon Lim Rachmat GobelCommissioner - Sheikh Mohammed Sheikh Mohammed
Bin Suhaim Bin SuhaimHamad Al-Thani Hamad Al-Thani
Commissioner Lee Theng Kiat Lee Theng Kiat JarmanCommissioner Roes Aryawijaya Roes Aryawijaya Rionald SilabanCommissioner Setyanto P. Santosa Setyanto P. Santosa Setyanto P. Santosa*Commissioner Lim Ah Doo* Lim Ah Doo* Michael Francis
Latimer*Commissioner Farida Eva Riyanti Setio Anggoro Dewo* Thia Peng Heok
Hutapea* George*Commissioner Soeprapto S. IP* Soeprapto S. IP* Soeprapto S. IP*
* Independent commissioner
2006 2007 and 2008
President Director - **/*** Johnny Swandi SjamDeputy President Director Kaizad Bomi Heerjee Kaizad Bomi HeerjeeFinance Director Wong Heang Tuck Wong Heang TuckCorporate Services Director S. Wimbo S. Hardjito Wahyu WijayadiInformation Technology
Director Joseph Chan Lam Seng Roy Kannan
Jabotabek and CorporateSales Director Johnny Swandi Sjam Fadzri Sentosa
Regional Sales Director Wityasmoro Sih Handayanto Syakieb A. SungkarMarketing Director Wahyu Wijayadi Guntur S. SiboroNetwork Director Raymond Tan Kim Meng Raymond Tan Kim Meng
** On June 16, 2006, the Board of Commissioners approved the resignation of Hasnul Suhaimi as President Director effective June 8, 2006.*** In the absence of a President Director, the tasks of the President Director had been carried out by the Deputy President Director.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
15
1. GENERAL (continued)
c. Employees, Directors, Commissioners and Audit Committee (continued)
The composition of the Companys Audit Committee as of December 31, 2006, 2007 and 2008 isas follows:
2006 2007 2008
Chairman Lim Ah Doo Lim Ah Doo Thia Peng Heok GeorgeMember Farida Eva Riyanti Setio Anggoro Dewo Michael Francis Latimer
HutapeaMember Soeprapto S. IP Soeprapto S. IP Soeprapto S. IPMember Achmad Rivai Achmad Rivai Unggul Saut Marupa
TampubolonMember Achmad Fuad Lubis Achmad Fuad Lubis Rusdy Daryono
The Company and subsidiaries (collectively referred to hereafter as the Companies) haveapproximately 7,786, 7,645 and 7,700 employees, including non-permanent employees, as ofDecember 31, 2006, 2007 and 2008, respectively.
d. Structure of the Companys Subsidiaries
As of December 31, 2006, 2007 and 2008, the Company has direct and indirect ownership in thefollowing subsidiaries:
Start of Percentage of Ownership (%)Commercial
Name of Subsidiary Location Principal Activity Operations 2006 2007 2008
Indosat Finance Company B.V.(IFB) (1) Amsterdam Finance 2003 100.00 100.00 100.00
Indosat International FinanceCompany B.V. (IIFB) (2) Amsterdam Finance 2005 100.00 100.00 100.00
Indosat Singapore Pte. Ltd. (ISP) Singapore Telecommunication 2005 100.00 100.00 100.00PT Indosat Mega Media (IMM) Jakarta Multimedia 2001 99.85 99.85 99.85PT Satelindo Multi Media (SMM) (3) Jakarta Multimedia 1999 99.60 99.60 99.60PT Aplikanusa Lintasarta
(Lintasarta) (4) Jakarta Data Communicat ion 1989 72.36 72.36 72.36PT Starone Mitra Telekomunikasi
(SMT) Semarang Telecommunication 2006 14.60 55.36 72.54PT Artajasa Pembayaran Elektronis
(APE) Jakarta Telecommunication 2000 39.80 39.80 39.80Satelindo International
Finance B.V. (SIB) (5) Amsterdam Finance 1996 100.00 - -
Total Assets(Before Eliminations)
Name of Subsidiary 2006 2007 2008
IFB(1)
2,762,776 2,882,340 2,637,074IIFB (2) 2,283,380 2,382,722 1,235,816ISP 7,300 10,249 21,167IMM 605,538 753,797 741,086SMM (3) 10,690 10,690 10,690Lintasarta (4) 985,605 1,075,467 1,338,710SMT 36,460 176,444 147,864
APE 94,311 104,487 133,241SIB (5) 7,555 - -
(1) Based on an IFB shareholders resolution dated November 6, 2008, IFB decided to a make refund of capital injection amounting toEUR99,996 (in full amount). As of December 31, 2008, the Company has not yet received such refund.
(2) Based on an IIFB shareholders resolution dated November 6, 2008, IIFB decided to a make refund of capital injection amounting toEUR1,124,064 (in full amount). As of December 31, 2008, the Company has not yet received such refund.
(3) Based on a shareholders circular resolution of SMM, SMM would be subject to liquidation effective May 5, 2006. As of December 31, 2008,such liquidation has not yet been finalized.
(4) Refer to Note 16 on conversion of Lintasartas Convertible Bonds in June 2007.(5)
Liquidated in January 2007.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
16
1. GENERAL (continued)
d. Structure of the Companys Subsidiaries (continued)
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 Multimediato engage in construction and operation of fixed wireless access network using Code DivisionMultiple Access (CDMA) 2000-1x technology for Central Java and its surrounding areas.
Based on an amendment dated August 23, 2006 to SMTs Articles of Association, in August 2006the Company contributed Rp5,779 cash as part of the capital of SMT. SMT started its businessoperations in January 2007.
Furthermore, based on the latest amendment dated April 24, 2007 to SMTs Articles of Association,
in May 2007, the Company made additional cash capital injection amounting to Rp49,728 andin-kind contribution of Rp45,523 in the form of telecommunications equipment. Based on suchArticles of Association, the Company has 51.00% ownership in SMT. However, one of thestockholders decided not to make its capital injection as required. As a result, the Companysownership increased to 55.36%. This increase was approved by SMTs stockholders based on theminutes of a stockholders meeting held on July 30, 2007.
On November 27, 2008, the Company entered into a Sale and Purchase Agreement withPT Sarana Pembangunan Jawa Tengah (SPJT) to purchase the 17.18% ownership of SPJT inSMT for Rp33,680. Such purchase, which resulted in the recognition of goodwill amounting toRp9,724 (Note 10), increased the Companys ownership in SMT from 55.36% to 72.54%. OnDecember 3, 2008, the Company fully paid SPJT for the purchase.
e. Merger of the Company, Satelindo, Bimagraha and IM3
Based on Merger Deed No. 57 dated November 20, 2003 (merger date) of Poerbaningsih AdiWarsito, S.H., the Company, PT Satelit Palapa Indonesia (Satelindo), PT BimagrahaTelekomindo (Bimagraha) and PT Indosat Multi Media Mobile (IM3) agreed to merge, with theCompany as the surviving entity. All assets and liabilities owned by Satelindo, Bimagraha and IM3were transferred to the Company on the merger date. These three companies were dissolved byoperation 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 weremerged with the Company, or as the entities that entered into contractual agreements that weretaken over by the Company as a result of the merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies adopted by the Companies conform with generally acceptedaccounting principles in Indonesia. The significant accounting policies applied consistently in thepreparation of the consolidated financial statements for the years ended December 31, 2006, 2007 and2008 are as follows:
a. Basis of Consolidated Financial Statements
The consolidated financial statements are presented using the historical cost basis of accounting,except for inventories which are stated at the lower of cost or net realizable value, derivativeinstruments which are stated at fair value and certain investments which are stated at fair value ornet assets value.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
17
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
a. Basis of Consolidated Financial Statements (continued)
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 usingthe 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 Companys accounts and those of itssubsidiaries (Note 1d).
Effective May 16, 2007, the net assets of SMT were consolidated as a result of the Companyseffective ownership of 55.36% (Note 1d), while prior to May 16, 2007, the investment in SMT wasaccounted for using the cost method.
The consolidated financial statements also include the accounts of APE (Lintasartas 55%-ownedsubsidiary). The accounts of APE in 2006, 2007 and 2008 were consolidated because its financialand operating policies were controlled by Lintasarta.
The accounts of IFB, IIFB, ISP and SIB (in 2006) were translated into rupiah amounts at the middlerate of exchange prevailing at balance sheet date for balance sheet accounts and the average rateduring the year for profit and loss accounts. The resulting differences arising from the translationsof the financial statements of IFB, IIFB, ISP and SIB (in 2006) are presented as part of Difference
in Foreign Currency Translation under the Stockholders Equity section of the consolidatedbalance sheets.
Minority interest in subsidiaries represents the minority stockholders proportionate share inthe equity (including net income) of the subsidiaries which are not wholly owned. All significantinter-company transactions and balances are eliminated in consolidation.
c. Cash and Cash Equivalents
Time deposits with original maturities of three months or less at the time of placement areconsidered as Cash Equivalents.
Cash in banks and time deposits which are pledged as collateral for long-term debts, Letter of
Credit facilities, bank guarantees and time deposits with original maturities of more than threemonths are not classified as part of Cash and Cash Equivalents. These are presented as part ofeither Other Current Assets or Non-current Assets - Others.
d. Short-term Investments
Mutual fund
Mutual fund, which is classified as trading security under Statement of Financial AccountingStandards (SAK) 50, Accounting for Investments in Certain Securities, is stated at its netassets value at balance sheet date. Unrealized gain or loss from the change in net assetsvalue at balance sheet date is credited (charged) to current operations.
Time deposits with original maturities of more than three months at the time of placement arerecorded at historical value.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
18
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e. Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on management's evaluation ofthe collectibility of the accounts at the end of the year.
f. Inventories
Inventories, which mainly consist of SIM cards, starter packs, pulse reload vouchers, broadbandmodems and cellular handsets, are valued at the lower of cost or net realizable value. Cost isdetermined using the moving-average method.
g. Prepaid Expenses
Prepaid expenses, which mainly consist of frequency fee, upfront premium for cross currency swap(Note 28p), rentals and salaries, are expensed as the related asset is utilized. The non-currentportion of prepaid expenses is shown as part of Non-current Assets - Others.
h. 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 investmentcost 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 netearnings (losses) is being adjusted for the straight-line amortization over fifteen years ofthe difference between the cost of such investment and the Companies proportionate share inthe 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 ina change in the equity of the investee, is different from the Companies share in the equity ofthe investee prior to such transactions, the difference is recognized by a credit or charge toDifference in Transactions of Equity Changes in Associated Companies/Subsidiaries, net ofapplicable income tax, after adjusting their equity in the investee to conform with theiraccounting 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 in which the equity
interest is less than 20% and which are classified as available-for-sale, are recorded at fairvalue, in accordance with SAK 50.
i. Property and Equipment
Property and equipment are stated at cost (which includes capitalization of certain borrowing costincurred 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 theestimated useful lives of the assets.
In accordance with SAK 16 (Revised 2007), the companies have chosen the cost model for the
measurement of their property and equipment. The Company regrouped certain property andequipment starting January 1, 2008 based on its periodic review and assessment of the economicuseful lives of the assets. The remaining useful lives under the new groupings were adjustedaccordingly. Below are the estimated useful lives (in years) prior to and starting January 1, 2008.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
19
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i. Property and Equipment (continued)
Prior to StartingJanuary 1, 2008 January 1, 2008
Buildings 15 to 20 20Submarine cables (*) 12 -Earth stations (*) 10 -Inland link (*) 15 -Switching equipment (**) 10 -Telecommunications peripherals (***) 5 -Information technology equipment 3 to 5 3 to 5
Office equipment 5 3 to 5Building and leasehold improvements 5 3 to 15Vehicles 5 5Cellular technical equipment 10 to 15 10Satellite technical equipment (*) 12 -Transmission and cross-connection equipment 12 10 to 15Fixed Wireless Access (FWA) technical equipment 10 10Operation and maintenance center and
measurement unit - 3 to 5Fixed access network equipment - 10
(*) This classification has been regrouped into transmission and cross-connection equipment. There is no change in estimated usefullives.
(**) This account has been renamed as fixed access network equipment and some items in this group were reclassified into cellular
technical equipment, and operation and maintenance center and measurement unit. The remaining useful lives were adjustedaccordingly.
(***) This account has been renamed as operation and maintenance center and measurement unit. Some items in this group werereclassified into information technology equipment, office equipment, building and leasehold improvements, cellular technicalequipment, transmission and cross-connection equipment, and fixed access network equipment. The remaining useful lives wereadjusted accordingly.
Landrights are stated at cost.
The cost of maintenance and repairs is charged to income as incurred; significant renewals andbetterments which enhance an assets condition on its initial performance, are capitalized. Whenproperties are retired or otherwise disposed of, their costs and the related accumulateddepreciation are removed from the accounts, and any resulting gains or losses are recognized inthe consolidated statement of income for the year.
Properties under construction and installation are stated at cost.All borrowing costs, which includeinterest, amortization of ancillary costs (Notes 15e and 15h) and foreign exchange differentials thatcan be attributed to qualifying assets, are capitalized to the cost of properties under constructionand installation. Capitalization of borrowing costs ceases when the construction or installation iscompleted and the constructed or installed asset is ready for its intended use.
The assets residual values, useful lives and methods of depreciation are reviewed, and adjustedprospectively, if appropriate, at each financial year end.
j. Impairment of Assets Value
In accordance with SAK 48, Impairment of Assets Value, the Companies review whether there isan 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 isrecognized as a charge to current operations.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
20
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
k. Leases
Effective January 1, 2008, the Companies have applied SAK 30 (Revised 2007), Leases, whichsupersedes SAK 30 (1990) Accounting for Leases. Under this revised SAK, a lease that transferssubstantially all the risks and rewards incidental to ownership is classified as finance lease. At thecommencement of the lease term, a lessee shall recognize finance lease as asset and liability in itsbalance sheet at an amount equal to the fair value of the leased property or, if lower, the presentvalue of the minimum lease payments. Minimum lease payments are apportioned between thefinance charges and the reduction of the outstanding liability. The finance charges are allocated toeach period during the lease term. Leased asset held by the lessee under a finance lease isdepreciated consistently using the same method used with that for depreciable assets that aredirectly owned or is fully depreciated over the shorter of the lease term and its useful life, if there is
no reasonable certainty that the lessee will obtain ownership by the end of the lease term.
Leases which do not transfer substantially all the risks and rewards incidental to ownership areclassified as operating leases. Operating lease payments are recognized as an expense on astraight-line basis over the lease term.
The adoption of this revised SAK did not have significant effect to the Companies financialstatements.
l. Goodwill and Other Intangible Assets
At the time the Company acquires a subsidiary which is not an entity under common control, anyexcess of the acquisition cost over the Companys interest in the fair value of the subsidiarys
identifiable assets, net of liabilities, as of acquisition date is recognized as goodwill.
Acquisitions of minority interest in a subsidiary by the Company are accounted for using the parententity extension method. Under this method, the assets and liabilities of the subsidiary are notrestated to reflect their fair values at the date of the acquisition. The difference between thepurchase price and the minority interests share of the assets and liabilities reflected within theconsolidated balance sheet at the date of the acquisition is considered 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 thestraight-line method based on the estimated useful lives of the assets as follows:
Years
Customer base- Prepaid 6- Post-paid 5
Spectrum license 5Brand 8
Upfront fee in connection with the license to use 2.1 GHz radio frequency spectrum (Note 1a) isamortized using the straight-line method over 10 years.
Software that is not an integral part of the related hardware is amortized using the straight-linemethod over 5 years.
The Company reviews the carrying amount of goodwill and other intangible assets wheneverevents or circumstances indicate that their value is impaired. Impairment loss is recognized as acharge to current operations.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
21
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m. Debt and Bonds Issuance Costs
Expenses incurred in connection with the issuance of debt and bonds are deducted from theproceeds thereof. The difference between the net proceeds and the nominal value of the debt orbonds is recognized as premium or discount that should be amortized over the term of the debt orbonds.
n. Stock-based Compensation
In accordance with SAK 53, Accounting for Stock-based Compensation, compensation expensesare accrued during the vesting period based on the fair values of all stock options as of the grantdate.
o. Revenue and Expense Recognition
Cellular
Cellular revenues arising from airtime and roaming calls are recognized based on the duration ofsuccessful calls made through the Companys 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 uponactivation by end-customers. Sales of initial/reload vouchers are recorded as unearned revenueand recognized as revenue upon usage of the airtime or upon expiration of the airtime.
Sales of wireless broadband modems and cellular handsets are recognized upon delivery to the
customers. Revenues from wireless broadband data communications are recognized based on theduration of usage or fixed monthly charges depending on the arrangement with the customers.
Cellular revenues are presented on a net basis, after compensation to value added serviceproviders.
MIDI
Internet
Revenues arising from installation service are recognized at the time the installations are placed inservice. 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 orbased on the fixed amount of charges depending on the arrangement with the customers.
Frame Net, World Link and Direct Link
Revenues arising from installation service are recognized upon the completion of the installation ofequipment used for network connection purposes in the customers premises. Revenues frommonthly service fees are recognized as the services are provided.
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.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
22
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
o. Revenue and Expense Recognition (continued)
Fixed Telecommunication
International Calls
Revenues from outgoing international call traffic are recognized on the basis of the actual recordedtraffic for the year and are reported on a net basis, after allocations to overseas internationalcarriers.
Fixed Wireless
Fixed wireless revenues arising from usage charges are recognized based on the duration ofsuccessful calls made through the Companys fixed network.
For post-paid subscribers, activation fees are recognized upon activation of new subscribers in theCompanys fixed network while monthly service fees are recognized as the service is provided.
For prepaid subscribers, the activation component of starter package sales is recognized uponactivation by end-customers. Sale of initial/reload vouchers is recorded as unearned income andrecognized as income 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 inservice. Revenues from usage charges are recognized based on the duration of successful calls
made through the Companys fixed network.
Interconnection Revenue
Revenues from network interconnection with other domestic and international telecommunicationscarriers are recognized monthly on the basis of the actual recorded traffic for the month.
Operating revenues for interconnection services under interconnection agreements based onrevenue-sharing arrangement (Note 31) are reported on a net basis, after interconnectionexpenses/charges. Operating revenues for interconnections that are not made under contractualsharing agreements, i.e., based on tariff as stipulated by the Government (Note 30), are reportedon a gross basis, before interconnection expenses/charges (Note 20). These interconnectionexpenses/charges are accounted for as operating expenses in the year these are incurred.
In 2007, the Companies entered into several memoranda of understanding to amend the existingrevenue-sharing arrangements and to reflect the new cost-based interconnection scheme basedon Regulation No. 08/PER/M.KOMINFO/02/2006 of the MOCIT (Note 31). Under the new scheme,operating revenues for interconnection services are reported on a gross basis starting 2007. Theinterconnection expenses/charges (Note 20) are accounted for as operating expenses in the yearthese are incurred.
Expenses
Expenses are recognized when incurred.
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PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
23
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
p. Personnel Costs
Personnel costs which are directly related to the development, construction and installation ofproperty and equipment are capitalized as part of the cost of such assets.
q. Pension Plan and Employee Benefits
Pension costs under the Companies defined benefit pension plans are determined by periodicactuarial calculation using the projected-unit-credit method and applying the assumptions ondiscount 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 cumulativeunrecognized actuarial gains or losses for each individual plan at the end of the previous reporting
year exceed 10% of the present value of the defined benefit obligation or fair value of plan assets,whichever is greater, at that date. These gains or losses in excess of the 10% corridor arerecognized on a straight-line basis over the expected average remaining working lives of theemployees. Past service cost is recognized over the estimated average remaining service periodsof the employees.
The Companies follow SAK 24 (Revised 2004), Employee Benefits, which regulates theaccounting and disclosure for employee benefits, both short-term (e.g., paid annual leave, paid sickleave) and long-term (e.g., long-service leave, post-employment medical benefits).
r. Derivatives
The Company enters into and engages in cross currency swap, interest rate swap and currency
forward contracts/transactions for the purpose of managing its foreign exchange and interest rateexposures emanating from the Companys loans and bonds payable in foreign currencies.
The Company applies SAK 55 (Revised 1999), Accounting for Derivative Instruments and HedgingActivities. SAK 55 (Revised 1999) sets forth the accounting and reporting standards for derivativetransactions and hedging activities, which require that every derivative instrument (includingembedded derivatives) be recognized as either asset or liability based on the fair value of eachcontract. Fair value is a computation of present value by using data and assumptions which arecommonly used. Based on the specific requirements for hedge accounting under SAK 55 (Revised1999), the Companys instruments do not qualify and are not designated as hedge activities foraccounting purposes. The changes in the fair value of such derivative instruments are recordeddirectly as a charge or credit to current operations.
Derivative assets and liabilities are presented under current assets and liabilities, respectively.Embedded derivative is presented with the host contract on the balance sheet which represents anappropriate presentation of overall future cash flows for the instrument taken as a whole.
The net changes in fair value of derivative instruments, swap cost or income, termination cost orincome, and settlement of derivative instruments are charged or credited to Gain (Loss) onChange in Fair Value of Derivatives - Net, which is presented under Other Income (Expenses) inthe consolidated statements of income.
s. Foreign Currency Transactions and Balances
Transactions involving foreign currencies are recorded at the rates of exchange prevailing atthe time the transactions are made. At balance sheet date, monetary assets and liabilitiesdenominated in foreign currencies are adjusted to reflect the prevailing exchange rates at suchdate and the resulting gains or losses are credited or charged to current operations, except for
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PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
24
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
s. Foreign Currency Transactions and Balances (continued)
foreign exchange differentials that can be attributed to qualifying assets which are capitalized toassets under construction and installation.
For December 31, 2006, 2007 and 2008, the foreign exchange rates used (in full amounts) wereRp9,020, Rp9,393 and Rp10,950, respectively, computed by taking the average of the buying andselling rates of bank notes last published by Bank Indonesia for the year.
t. Income Tax
Current tax expense is provided based on the estimated taxable income for the year. Deferred taxassets and liabilities are recognized for temporary differences between the financial and the taxbases of assets and liabilities at each reporting date. Future tax benefits, such as the carryover ofunused tax losses, are also recognized to the extent that such benefits are more likely than not tobe realized. The tax effects for the year are allocated to current operations, except for the taxeffects from transactions which are directly charged or credited to stockholders equity.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply inthe year when the asset is realized or the liability is settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted at the balance sheet date. Changes in the carryingamount of deferred tax assets and liabilities due to a change in tax rates are charged to currentyear operations, except to the extent that they relate to items previously charged or credited tostockholders equity.
Amendment to tax obligations is recorded when an assessment is received or, if appealed, whenthe result of the appeal is determined.
For each of the consolidated entities, the tax effects of temporary differences and tax losscarryover, which individually are either assets or liabilities, are shown at the applicable netamounts.
u. Segment Reporting
The Companies follow SAK 5 (Revised 2000), Segment Reporting, in the presentation ofsegment reporting in their financial statements. SAK 5 (Revised 2000) provides more detailedguidance for identifying reportable business segments and geographical segments. The financialinformation which is used by management for evaluating the segment performance is presented inNote 34.
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 computedby dividing net income by the weighted-average number of shares outstanding during the yearincluding the effect of exercise of the ESOP, if any (Note 26).
Diluted earnings per share is computed by dividing net income by the weighted-average number ofshares outstanding during the year, after considering the dilutive effect caused by the stock optionsrelating to the ESOP and convertible bonds issued by a subsidiary (Note 16).
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.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
25
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
w. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principlesrequires the management to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements 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
U.S. dollar (US$) are included solely for the convenience of the readers, using the average buying andselling rate published by Bank Indonesia (Central Bank) on December 31, 2008 of Rp10,950 to US$1(in full amounts). The convenience translations should not be construed as representations that therupiah amounts have been, could have been, or could in the future be, converted into U.S. dollar atthis or any other rate of exchange.
4. CASH AND CASH EQUIVALENTS
This account consists of the following:2007 2008
Cash on handRupiah 1,563 1,518U.S. dollar (US$10) - 108
1,563 1,626
Cash in banksRelated parties (Note 25)
RupiahPT Bank Mandiri (Persero) Tbk (Mandiri) 15,910 15,048PT Bank Pembangunan Daerah DKI Jakarta 5,873 4,158PT Bank Negara Indonesia (Persero) Tbk (BNI) 2,431 2,398PT Bank Syariah Mandiri (Mandiri Syariah) 612 1,786PT Bank Pembangunan Daerah Yogyakarta (BPD - DIY) 626 1,175PT Bank Rakyat Indonesia (Persero) Tbk (BRI) 1,612 563PT Bank Danamon Indonesia Tbk (Danamon)* 2,278 -
Others (each below Rp1,000) 2,602 2,785
U.S. dollarMandiri (US$638 in 2007 and US$247 in 2008) 5,996 2,710Others (US$37 in 2007 and US$81 in 2008) 351 886
Third partiesRupiah
PT CIMB Niaga Tbk (formerly PT Bank Niaga Tbk)(CIMB Niaga) 5,264 10,264
Deutsche Bank AG, Jakarta Branch (DB) 9,111 9,774The Hongkong and Shanghai Banking Corporation
Limited (HSBC) 2,370 9,572PT Bank Central Asia Tbk (BCA) 41,472 7,840Citibank N.A., Jakarta Branch 11,199 1,188Others (each below Rp5,000) 8,459 11,943
* no longer a related party since June 6, 2008 (Note 18)
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
26
4. CASH AND CASH EQUIVALENTS (continued)
2007 2008
Cash in banks (continued)Third parties (continued)
U.S. dollarCitibank N.A., Jakarta Branch (US$3,788 in 2007 and
US$7,956 in 2008) 35,580 87,122Fortis Bank, The Netherlands (US$6,528 in 2007 and
US$6,538 in 2008) 61,316 71,589Citibank Singapore (US$411 in 2007 and
US$1,287 in 2008) 3,858 14,091DB (US$2,902 in 2007 and US$1,105 in 2008) 27,261 12,100Others (US$512 in 2007 and US$19 in 2008) 4,814 209
248,995 267,201
Time depositsRelated parties (Note 25)
RupiahMandiri 1,953,535 666,890Mandiri Syariah 454,000 201,000BRI 685,000 106,000BNI 56,746 75,390PT Bank Tabungan Negara (Persero) (BTN) 265,000 69,400PT Bank Pembangunan Daerah Jawa Tengah 20,000 1,500BPD-DIY 1,000 1,000Danamon* 411,800 -PT Bank DBS Indonesia (DBS)* 150,000 -PT Bank Pembangunan Daerah Sulawesi Utara 1,000 -Others 104 -
U.S. dollarMandiri (US$12,724 in 2007 and US$139,079 in 2008) 119,517 1,522,916BNI (US$30,000 in 2007 and US$110,000 in 2008) 281,790 1,204,500BRI (US$60,000) - 657,000DBS* (US$40,000) 375,720 -Danamon* (US$10,000) 93,930 -BTN (US$5,000) 46,965 -
Third partiesRupiahDBS* - 150,000CIMB Niaga 386,000 103,500Danamon* - 79,300PT Bank Muamalat Indonesia Tbk (Muamalat) 225,000 61,000DB 788,685 30,198Bukopin 371,500 22,200Bank Tabungan Pensiunan Nasional - 16,000BCA 216,450 5,288Bank Permata Syariah - 5,000PT Bank Syariah Mega Indonesia - 4,000Mega 2,801 -
Others 2,061 5,981
* no longer a related party since June 6, 2008 (Note 18)
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
27
4. CASH AND CASH EQUIVALENTS (continued)
2007 2008
Time deposits (continued)Third parties (continued)
U.S. dollarBank UOB Indonesia (US$25,000) - 273,750Muamalat (US$35,000 in 2007 and US$10,000 in 2008) 328,755 109,500DB (US$23,061 in 2007 and US$5,623 in 2008) 216,609 61,576CIMB Niaga (US$27,100 in 2007 and US$3,050 in 2008) 254,550 33,397Bukopin (US$10,000) 93,930 -Danamon* (US$252) - 2,753
7,802,448 5,469,039
Total 8,053,006 5,737,866
* no longer a related party since June 6, 2008 (Note 18)
Time deposits denominated in rupiah earned interest at annual rates ranging from 3.250% to 13.200%in 2006, from 2.250% to 11.400% in 2007 and from 1.250% to 14.000% in 2008, while thosedenominated in U.S. dollar earned interest at annual rates ranging from 1.000% to 5.150% in 2006,from 1.500% to 5.380% in 2007 and from 0.002% to 6.000% in 2008.
The interest rates on time deposits in related parties are comparable to those offered by third parties.
5. ACCOUNTS RECEIVABLE - TRADE
This account consists of the following:2007 2008
Related parties (Note 25)Telkom (including US$268 in 2007 and US$271 in 2008) 38,208 32,801Others (including US$15,850 in 2007 and US$5,032 in 2008) 183,479 112,721
Total 221,687 145,522
Less allowance for doubtful accounts 88,342 69,444
Net 133,345 76,078
Third partiesOverseas international carriers (US$61,322 in 2007
and US$81,810 in 2008) 575,998 895,820Local companies (including US$21,211 in 2007 and US$24,987
in 2008) 365,802 506,191Post-paid subscribers from:
Cellular 244,949 249,124Fixed lines 22,742 28,565Fixed wireless 14,274 11,647
Total 1,223,765 1,691,347
Less allowance for doubtful accounts 326,142 426,719
Net 897,623 1,264,628
Total 1,030,968 1,340,706
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
28
5. ACCOUNTS RECEIVABLE TRADE (continued)
The aging schedule of the accounts receivable - trade is as follows:
2007 2008
Number of Percentage PercentageMonths Outstanding Amount (%) Amount (%)
Related parties0 - 6 months 108,159 48.79 82,495 56.697 - 12 months 43,094 19.44 10,199 7.0113 - 24 months 10,998 4.96 3,382 2.32Over 24 months 59,436 26.81 49,446 33.98
Total 221,687 100.00 145,522 100.00
Third parties0 - 6 months 697,857 57.02 984,794 58.237 - 12 months 201,021 16.43 191,825 11.3413 - 24 months 153,054 12.51 266,779 15.77Over 24 months 171,833 14.04 247,949 14.66
Total 1,223,765 100.00 1,691,347 100.00
The changes in the allowance for doubtful accounts provided on the accounts receivable - trade are asfollows:
2007 2008
Related partiesBalance at beginning of year 141,263 88,342Provision (reversal) 2,978 (23,514)Net effect of foreign exchange adjustment 2,373 6,660Write-off (58,272) (2,044)
Balance at end of year 88,342 69,444
Third partiesBalance at beginning of year 423,730 326,142Provision 112,052 97,795Net effect of foreign exchange adjustment 7,772 35,872Write-off (217,412) (33,090)
Balance at end of year 326,142 426,719
The net effect of foreign exchange adjustment was due to the strengthening or weakening of the rupiahvis--vis the U.S. dollar in relation to U.S. dollar accounts previously provided with allowance and wascredited or charged to Gain (Loss) on Foreign Exchange - Net.
There are no significant concentrations of credit risk, except for the trade accounts receivable fromTelkom.
Management believes the established allowance is sufficient to cover probable losses fromuncollectible accounts receivable.
As of December 31, 2008, approximately 0.69% of accounts receivable - trade are pledged as
collateral to long-term bank loans obtained by Lintasarta (Note 15).
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
29
6. PREPAID TAXES
This account consists of the following:
2007 2008
Claims for tax refund 610,852 329,241Value Added Tax (VAT) 98,901 261,127Others 4,569 2,512
Total 714,322 592,880
Claims for tax refund as of December 31, 2007 and 2008 mainly consist of the Companys corporateincome tax for fiscal years 2004, 2005 and 2006.
On September 5, 2006, the Company received assessment letters on tax overpayment (SKPLB) fromthe Directorate General of Taxation (DGT) for the Companys 2004 VAT for the periods April - July2004 and November - December 2004 totalling Rp86,981, which was collected in November 2006.
On December 4, 2006, the Company received SKPLB from the DGT for the Companys 2004 corporateincome tax amounting to Rp199,552. On April 12, 2007, the Company received the refund of the taxoverpayment amounting to Rp130,813 after offsetting the assessment letters on tax underpayment(SKPKBs) for the Companys VAT for the periods January - March 2004 and August - October 2004,and income tax articles 23 and 26 for the fiscal year 2004, including penalties and interest (Note 13).
On March 27, 2007, the Company received SKPLBs from the DGT advising the Company of its
approval to refund the overpayment of 2005 corporate income tax and VAT amounting to Rp135,766and Rp39,052, respectively, which amounts are lower than those recognized by the Company in itsfinancial statements. The Company accepted partially the corrections on the 2005 corporate incometax and all of the corrections on the VAT, totalling Rp5,375 and charged them to current operations in2007. On May 16, 2007, the Company received the refund amounting to Rp63,843 after offsetting theSKPKBs for the Companys income tax articles 23 and 26 for fiscal year 2005, including penalties andinterest (Note 13) and the tax collection letters (STPs) for other income taxes. On June 22, 2007, theCompany filed an objection letter to the Tax Office regarding the remaining tax corrections on the 2005corporate income tax (Note 13).
On March 17, 2008, the Company received the tax refund from the Tax Office amounting to Rp25,440as the Companys objection on income tax article 23 for fiscal year 2005 was accepted by the TaxOffice (Note 13).
On May 27, 2008, the Company received the Decision Letter No. KEP-230/WPJ.19/BD.05/2008 fromthe DGT which partially accepted the Companys objection on the remaining tax corrections on 2005corporate income amounting to Rp2,725. On July 17, 2008, the Company received the tax refundamounting to Rp1,785 after offsetting the additional tax underpayment for income tax article 26 forfiscal year 2005 (Note 13). On August 21, 2008 the Company submitted an appeal letter to the TaxCourt concerning the Companys remaining tax objection on the 2005 corporate income tax. As ofDecember 31, 2008, the Company has not yet received any decision from the Tax Court on suchappeal.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
30
6. PREPAID TAXES (continued)
On June 20, 2008, the Company received SKPLBs from the DGT advising the Company of its approvalto refund the overpayment of 2006 corporate income tax and VAT amounting to Rp232,439 andRp11,657, respectively, which amounts are lower than those recognized by the Company in its financialstatements. The Company accepted partially the corrections on the 2006 corporate income tax and allof the corrections on the VAT, totalling Rp9,168, and charged them to current operations in 2008. OnJuly 21, 2008, the Company received the refund of the 2006 tax overpayment for corporate income taxand VAT amounting to Rp232,439 and Rp11,657, respectively. On September 15, 2008, the Companysubmitted an objection letter to the DGT for the remaining tax corrections on the Companys 2006corporate income tax. As of December 31, 2008, the Company has not yet received any decision fromthe DGT on such objection.
7. INVESTMENTS IN ASSOCIATED COMPANIES
As of December 31, 2007 and 2008, this account consists of the following investments which areaccounted for under the equity method:
CompanysPortion of
AccumulatedEquity in
UndistributedNet Income(Loss) of
Associated CarryingLocation Principal Activity Ownership (%) Cost Companies Value
2007
PT Multi Media Asia Indonesia Indonesia Satellite-basedtelecommunication 26.67 56,512 (212) 56,300PT Swadharma Marga Inforindo Indonesia Telecommunication
and information services 20.00 100 186 286
Total 56,612 (26) 56,586
Less allowance for decline in value 56,300
Net 286
2008
PT Multi Media Asia Indonesia Indonesia Satellite-basedtelecommunication 26.67 56,512 (212) 56,300
PT Lintas Media Danawa * Indonesia Information andcommunication services 35.00 700 - 700
PT Swadharma Marga Inforindo Indonesia Telecommunicationand information services 20.00 100 186 286
Total 57,312 (26) 57,286
Less allowance for decline in value 56,586
Net 700
* PT Lintas Media Danawa (LMD) is an associated company of Lintasarta. LMD was established on July 28, 2008 to engage in information andcommunication services, such as data center services, e-learning and distant learning for public education services, and content services basedon Internet Protocol (e.g., IPTV, internet game and internet payment gateway).
The Company believes that the allowance for decline in value amounting to Rp56,300 and 56,586 as ofDecember 31, 2007 and 2008, respectively, is adequate to cover probable losses on the aboveinvestments.
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2006, 2007 and 2008(Expressed in millions of rupiah and thousands of U.S. dollar,
except share and tariff data)
31
8. OTHER LONG-TERM INVESTMENTS
As of December 31, 2007 and 2008, this account consists of the following:
Investments in shares of stock accounted for underthe cost method - net 2,631
Equity securities which are available-for-sale* 99
Total 2,730
* consist of BNI and Telkom amounting to Rp89 and Rp10, respectively
Investments in shares of stock which are accounted for under the cost method:
Location Principal ActivityOwnership
(%)Cost/Carrying
Value
PT First Media Tbk (formerlyPT Broadband MultimediaTbk or BM)*
Indonesia Cable television and internet network serviceprovider
2.29 50,000
ICO Global Communication(Holdings) Limited